Abstract
Globalization, a phenomenon characterized by the increased integration of nations through trade, politics, and culture, has emerged as an important feature of the modern world. This phenomenon has been hailed by economists as the most important driver for global economic prosperity. The paper sets out to demonstrate that globalization is not in the social interest of low-wage workers in developing nations and factory workers in the developed countries. To illustrate this point, the paper discusses some of the negative social impacts that globalization has caused both in the developing and developed countries. These impacts include the loss of jobs, decline in earnings, and increased income inequality within countries. The paper concludes by calling for actions to be taken to mitigate the negative social impacts of globalization and therefore make this phenomenon beneficial to all members of the society.
Introduction
A defining characteristic of the 21st century is globalization, which is the expansion, deepening, and acceleration of human interrelations. This phenomenon is working towards creating a global community where all countries are integrated through trade, politics and culture. Lee and Vivarelli (2006) note that the globalization forces have been aided by the tremendous decreases in transportation costs and the expansion of ICT services over the past two decades.
Globalization has been hailed as a powerful force for economic growth and prosperity in many nations. By promoting the flow of products, capital, people and ideas, this phenomenon has resulted in economic development all over the world. Advocates of globalization argue that it has significantly benefited both developing and developed countries.
The developing countries have benefited from additional capital and employment opportunities while the developed countries have benefited from increased access to the powerful productive forces available in the developing world. However, critics of globalization assert that it has led to many problems that include the exploitation of workers in the developing world and the increase in unemployment in the developed world. This paper will set out to demonstrate that while many governments view globalization as a beneficial phenomenon, it is not in the social interest of low wage workers in developing countries and the displaced factory workers in the developed world.
Social Impact of Globalization
Globalization has a social dimension that is both positive and negative. It has affected the society by making low cost products and services available to consumers. The phenomenon has been beneficial to the consumers who buy low-cost commodities and the multinational firms that produce in low-cost regions and sell in high-price regions. However, the impact of globalization on the workers in both the developing countries and the developed countries has been negative.
Impact in Developing Countries
Low wage workers in developing countries such as Malaysia have been adversely affected by globalization. This phenomenon opens up a country to intensive competition from imports. The products made by the low-wage laborers are likely to be uncompetitive compared to the imported goods. This causes companies to shift towards the profitable skill-intensive products leading to significant job losses by the low-skilled workers. Baldwin and Winters (2007) acknowledge that trade liberalization can cause previously protected domestic firms to be displaced due to unregulated external competition. Low-wage workers have therefore lost jobs due to globalization.
Globalization results in the decrease in the real wage levels of the low-wage workers in the society. The financial liberalization promoted by globalization leads to decreased net income for this class of workers. Due to the opening up of the economy, the government might be unable to impose some of the trade restrictions meant to protect its population from the negative effects of international trade. Globalization causes income to be redistributed in favor of the skilled middle-income and high-income segment of the population. The low-wage workers are left to suffer from a reduction in their purchasing power. Without government intervention through measures such as tariffs reductions and subsidies on basic commodities, the low-wage workers find it hard to achieve a decent living from their salary.
Another negative impact of globalization is that it has reduced the job opportunities for low-wage earners in developing nations. While globalization is praised for increasing jobs in the developing nations by setting up production plants there, this phenomenon contributes to unemployment. In addition to the foreign direction investment and capital flows to the developing countries, globalization also promotes technology transfers.
Gunter and Hoeven (2009) admit that globalization is driven by new technologies, which are exported from one country to another. The observed increase in international trade is therefore accompanied by the technological advances of the countries involved. Lee and Vivarelli (2006) document that technology transfers have grown as MNCs and local companies seek to improve their productivity. Technology has an impact on employment in the developing world. As companies adopt technological measures to increase productivity, they no longer require the many low-skilled workers they previously employed. As such, while globalization brings in new jobs, it also promotes job loss as companies import technologies to save on labor.
The multinational companies operating in developing nations have been accused of blatantly exploiting the low-wage workers by giving them poor wages and making them labor in substandard working conditions. As noted, the major motivation for MNCs to shift their operations to the developing nations is the availability of cheap surplus labor. Baldwin and Winters (2007) reveal that many multinational firms are keen to increase their profit margins from their overseas operations. To achieve this goal, they exploit the unskilled labor force by paying them the lowest possible wages. Wage considerations have made many manufacturing companies move from Mexico to Asia. At the same time, countries like Indonesia are under pressure to reduce labor wages or risk losing garment and show-manufacturing orders to China where the wages are even lower.
Finally, low wage workers suffer from the increased income inequality within their country. MNCs shift operations from developed countries to developing countries in order to take advantage of the huge labor force. On one hand, globalization appears to improve the economic status of the low wage workers by providing them with jobs in the manufacturing sector. This view is supported by the fact that the manufacturing sector in many developing nations has experienced rapid growth due to globalization (Niladri, 2013).
While most of the jobs are low skill-intensive in the Western world, they are often skill-intensive in the developing countries where the productions are transferred to. Huwart and Loic (2013) explain that outsourcing of production from a developed to a developing nation means that companies that employed relatively unskilled labor in the developed country now employ skilled labor. This leads to a rise in the relative wages of the skilled workers in the developing countries while the wages of the unskilled workers remain stagnant. As a result, there is increased income inequality in the developing county.
In developed Nations
Globalization has contributed to the dramatic decline in the wages of the less-skilled workers in the developed world. Due to internationalization of trade, advanced economies such as the US have shifted from the less skilled towards the more skilled labor. The service and technology sectors have grown rapidly over the past 3 decades while the manufacturing sector has been on a decline. The demand for less-skilled workers in the developed world has therefore decreased leading to lower incomes compared to the wages paid to the skilled workers. Globalization has contributed to this wage and income inequality in the developed world by decreasing the demand for less skilled workers in the labor market.
These jobs, which are mostly in the manufacturing sector, have been outsourced to the low cost regions. In addition to this, globalization has contributed to wage decline by reducing corporate union activism since the link between workers is weakened when some of the business functions are outsourced. The wages of workers in the developed countries therefore rise more slowly in spite of profits for the company increasing rapidly.
Globalization has been blamed on the increased unemployment in the developed countries, especially in the manufacturing sector. As a result of globalization, many multinational companies (MNCs) have sifted their production operations to developing nations where cheap labor is available. Gunter and Hoeven (2009) observe that the multinational companies are driven by profit maximization. For this reason, they base the decision on where to produce on factors such as the availability of cheap labor, adequate technology, and a favorable business environment. The factory workers in the developed country are left without work as the MNCs take their operations overseas (Niladri, 2013). Without new employment opportunities being created in the manufacturing sector, these workers are forced to seek jobs in other areas or remain unemployed.
At the same time, workers in developed countries such as the US face intense job insecurity. Due to trade liberalization, companies are under pressure to increase their productivity and international competitiveness or face displacement. To deal with this pressure, many companies have taken to outsourcing and laying off workers in order to reduce their labor costs. The manufacturing industry has been hardest hit by this phenomenon especially in the US.
However, Huwart and Loic (2013) note that globalization has create job insecurity not only in the manufacturing sector, but also in the service industry. Many Western countries have relocated some of their service activities to developing countries. According to Huwart and Loic (2013, 20% of wage earners in industrialized nations are engaged in occupations that can at any time be outsourced.
Due to globalization, there is intense international competition, which contributes to the destruction of some companies in Western nations. Due to globalization, countries have been forced to open up their markets to international trade.
Huwart and Loic (2013) note that this has led to the flooding of developed countries’ markets with cheap products from emerging economies such as China. While this has benefited the consumers who wish to but low-cost goods and services produced in other countries, it has had a detrimental effect on factory workers in the developed countries. Huwart and Loic (2013) report that many western companies have been forced to downsize or close down due to competition from emerging economies. Most of these companies deal with mass electronics, textiles, household objects and toys. The similarity in these products is that they do not require specialized skills and technology to produce and they can therefore be easily produced in developing nations. The developed countries’ workers in these sectors have therefore been rendered jobless due to globalization.
Discussion
Globalization has become of the most important events of modern times. Most economists agree that trade liberalization through globalization promotes economic growth. With this consideration, countries all over the world have implemented policies that promote international trade and attract foreign direct investments. Many studies show that the countries that have embraced globalization have demonstrated greater economic growth than those that have rejected it (Niladri, 2013). However, this phenomenon has had some undesirable social impacts on the lives of workers. This paper has shown that while globalization is beneficial to consumers and multinational companies, its effects can be detrimental to low-wage workers in developing countries and manufacturing workers in the developed world.
Conclusion
Globalization is a highly contentious issue in modern society with people arguing about its overall impact on the society. This paper set out to show the negative impact that globalization has on low-wage workers in developing countries and factory workers in the developed world. It began by acknowledging that globalization is a major driver for economic growth and prosperity in the world. However, the paper has shown that this phenomenon has led to job losses, reduction in real wages, exploitation by MNCs, and increased income inequality within developing countries. In the developed countries, it has led to the decline in wages for less-skilled workers, increased unemployment, and destroyed some industries. From this assessment, it is clear that globalization has had a negative social impact on workers all over the world. Steps should therefore be taken to mitigate these impacts and ensure that globalization becomes a positive force in the world.
References
Baldwin, R.E., & Winters, A. (2007). Challenges to Globalization: Analyzing the Economics. Chicago: University of Chicago Press. Web.
Gunter, B., & Hoeven, R. (2009). The social dimension of globalization: a review of the literature. London: International Labour Organization. Web.
Huwart, J., & Loic, V. (2013). Does globalisation promote employment? Berlin: OECD Publishing. Web.
Lee, E., & Vivarelli, M. (2006). The Social Impact of Globalization in the Developing Countries. Frankfurt: Institute for the Study of Labor. Web.
Niladri, D. (2013). Impact of Globalization on Sustainable Development in the Indian Economy. Journal of International Economics, 4(2), 99-114. Web.