Chapter 2, Sect. 2 Page 41 Globalization

Focus Questions What is globalization? What are the causes of globalization? What are the benefits and costs of globalization?

What is Globalization? (The world is becoming smaller.) Many economists define globalization as a phenomenon (occurrence/trend) by which individuals and businesses in any part of the world are much more affected by events elsewhere in the world than they used to be. (The world is becoming smaller.) Slide 1

What is Globalization? Globalization can also be defined as: The growing integration of the national economies of the world. (Some believe that this may lead to a single worldwide economy.) Slide 2

What is Globalization? Globalization emphasizes that economic agents in any given part of the world are affected by events elsewhere in the world. See example: pg.41 (Movement toward a worldwide free enterprise causes us to be more closely connected, through trade, across the globe.) Slide 3

What is Globalization? Globalization is closely aligned with a movement toward Free Enterprise (also called capitalism). Slide 4

What will Globalization mean for countries that have a socialist economy? Countries that have never communicated have become major trading partners. Why? Globalization. The world is currently moving from hundreds of national economies toward one large world economy (toward free enterprise or capitalism). What about the socialist economies that are less globalized? Look at the Life Expectancy Chart (page 46 or next slide) and the correlation between “Less Globalized” and “More Globalized” countries.

Longer Life: Japan Canada United States Lower Life: China Russian Federation Remember, we are examining the amount of globalization, not the amount of freedom. There is a strong relationship between life expectancy and globalization.

Evidence of the Movement Toward Globalization Decline in U.S. tariff rates - leads to more exports/imports Increase in foreign exchange trading – means international trade is taking place. Increase in foreign direct investment – economic agents around the world are affecting events elsewhere in the world. Increase in U.S. personal foreign investment – Americans holding stock in foreign companies affect events around the world. Increase in membership in the World Trade Organization (WTO) - promotes international free trade – indicates more trade taking place. Easier worldwide communication – primarily the Internet, means fewer trade barriers due to gathering information and communication. The end of the Cold War – end of political barriers separating former Soviet Union eliminating or reducing trade barriers. Advanced technology – have reduced transportation and communication costs. Policy changes – shifting toward reducing trade barriers and opening the doors to trade. China, India, and Russia have opened their trade doors to others countries.

Movement Toward Globalization – Pg. 43 How did we come to live in a global economy? A. Early History 1. First Era – mid-1800s to late 1920s (freer world, freer movement, no passports) 2. Globalization ended by two world wars and the Great Depression. 3. Cold War divided the world into to different camps (free vs. unfree; capitalism vs. communism) Slide 5

Movement Toward Globalization – Pg. 43 How did we come to live in a global economy? B. Recent Causes 1. End of Cold War (thawing of economic relations as this one giant barrier standing in the way of trade ended) 2. Technological innovations lowered transportation or communication costs. (lower costs mean fewer barriers to trade.) 3. Governments of many countries have been opening their doors to other countries. (Selling to more people.) Two Examples page 45. Slide 6

TRANSPARENCY 2-3: Globalization Globalization is the growing integration (mixing) of the national economies of the world. Innovation and advances in technology such as the steamship, the telephone, and the Internet have led to increased trade between people in different countries. Also “policy changes.” What do you find most surprising on this list? See the next slide, too.

TRANSPARENCY 2-4: Globalization: Export Growth One measure of globalization is the dollar amount of exports for a country.

Costs and Benefits of Globalization – Pg. 46 1. Expanding trade extends the benefits of trading to more people. Closer connections made between countries through trade. 2. Trade improves the standard of living of people (prosperity increases). In addition, developing countries have seen the benefit of reduced hunger and child labor, along with increased life expectancy. Slide 7

Costs and Benefits of Globalization – Pg. 46-47 1. Critics often state that globalization has caused increased income inequality in the world. (Greater discrepancy between wealthy nations and poorer ones.) Supporters of globalization argue that there is no evidence that globalization has caused the increase in income equality –– it just happens! Slide 8

Costs and Benefits of Globalization – Pg. 46-47 2. Critics of globalization argue that globalization can result in Americans losing jobs due to offshoring, the practice of hiring people in other countries to do jobs once held by American workers. Supporters of globalization point out that foreign countries offshore jobs to United States too. “For a better understanding of Offshoring”--Read “A Student Asks” pg. 49 Also read two paragraphs above “A Student Asks” Slide 9

Costs and Benefits of Globalization – Pg. 46-47 3. Critics of globalization argue that large, Western corporations will take over and decide what will be done in the world instead of governments. Supporters of globalization point out that a government can force people to do certain things that a corporation cannot do. Slide 10

The Continuing Globalization Debate Pg.50 Globalization doesn’t affect everyone in the same way, and often, how it affects you determines how you feel about it. See example: Page 50. The costs of globalization are more visible than its benefits. People who lose their jobs because of freer international trade know exactly what to blame for their predicament. See last paragraph, page 50. Slide 11

Globalization and the Financial Crisis, Pg. 51. Some argue that the recent financial crisis in the United States and other countries has placed a damper on globalization forces and it will eventually fade away. Adam Smith believed that the inclination to trade sets us apart from other species. The desire to trade will probably not diminish. (Probably because we want to trade with other people.) Slide 12

Wrap Up

Quick Review-True/False Globalization is closely aligned with a movement toward more free enterprise, freer markets, more freedom of movement for people and goods. True The early era of globalization began during the two world wars. False (Mid-1800-Late 1920s – WW I &II stopped globalization for a while) Innovations have helped to lower trade barriers. True (lowered costs) The practice of hiring people in other countries is often call offshoring. It is often easier to see globalization’s benefits than to see its costs. False (Cost are more visible, often because they are more concentrated, such as loss of jobs – we probably never see a low price and say “Wow, I benefited from globalization!)

Video “Free Trade” (19 minutes)