Globalization and the world economy

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Globalization and the World Economy
Globalization is considered as an emerging trend in the new world order. The term globalization can be defined as the ever increasing communication and interaction between people of different origins across the globe. As we saw in the class readings, globalization is inseparable from the happenings in the world economy. Thanks to globalization, markets are no longer segmented based on continental or domestic boundaries. Goods, services, labor, and capital, can now move freely from one country to another due to globalization. However, globalization is not a very new concept in the world considering that there was a movement of labor even in the pre-industrialization period. What differs is how people of different ages have reacted to the concept of globalization. Many have embraced the idea of globalization while citing the very many benefits it has brought but there are also a few who discredit the importance of globalization. In this regard, this paper analyses the impact of globalization on the world economy in both the pre-industrialization and post-industrialization periods.
According to Shangquan, the quick growth of globalization in the post-industrialization period is due to the fast growth of the field of science and technologies which have enabled cross-border specialization and division of labor (1). Consequently, development of technologies and science has immensely lowered the cost of doing business globally.

The scholar says the cost of transporting goods from one continent to another is currently half of what it used to be about 100 years ago (2). The prices of goods and services have also reduced by a huge margin within a short period. The capacity of the technological inventions to reduce costs and the time taken to move goods from one point to another has made it easier to manage the global economy. As an example Shangquan says that Ford’s Lyman automobile parts are produced in different parts of the world, but the car design is done in Germany (2). Thanks to technology other companies in the world are increasingly adopting similar models. Shangquan goes ahead to say that globalization of business has led to the rise of the auxiliary service industry further making the world a small village with regards to economic activities (4). Today, multinational corporations offering a range of services and goods are a common phenomenon around the world. Since the success of any business depends on the availability of capital, the financial sector has also become globalized. In fact, the globalization of the financial sector is one of the key pillars of the world economy in the post-industrial period. In the last 50 years, a number of capital crossing borders has grown tremendously. Capital, in this regard, refers to bank loans, stock shares, securities and physical assets. It is believed that the value of cross-border capital movement in the last 40 years has grown by over 500 percent.
According to Muhammad, et al., there is a huge difference in the way labor is regarded in the post-industrialization era and how it was regarded in the pre-industrial era (4). Under the latter, the skills of workers are progressively being divided among laborers or being shifted to management. Due to advancement in technology, people are increasingly being replaced by machines such as computers and robots. Division has, in turn, led labor to be highly skilled. Muhammad, et al., also believes that globalization benefits the capitalists more than the workers (6). This is evident in developing countries, whereby despite the foreign direct investments by multinationals the gap between the rich and poor countries continues to increase. The profits earned by these companies are usually channeled back to the country of origin, mostly developed economies. Recent reports also show that less than 20 developing countries have actually benefited from globalization. The discrepancy between the GDP of developed and developing countries is now at an all-time high due to globalization. It is believed that developing countries account for less than 1 percent of the global trade transactions. Much of the capital movement is also among Asian nations, US, and European countries. Most countries are also vulnerable to economic recessions of major economies such as the US due to globalization. Muhammad, et al., says this among other issues is the downside of globalization on the world economy (7).
As earlier mentioned, globalization is not utterly a new concept as some form of globalization was witnessed in the pre-industrial era. From as early as the 1850s the global economy was in place and was largely under the control of Great Britain. However, during this period globalization was largely beneficial to the elite class as opposed to the general population. The capital was in the hands of a few capitalist nations such as Great Britain. Also, in the pre-industrial era, the growth of globalization was quite slow. However, that is not to say that there were no technological innovations during this period. As we saw in the class readings, the period was marked with some technological advancements especially in the transport sector. The steamship was invented during this era. The Panama and Suez canals were also completed during the same time, opening markets between North America and Europe thus enhancing trade across the world. The invention of the steamship also meant that railroads had to be built and as a result workers migrated from China to the US to help in construction works (Schularick & Thomas 1).
Communication was also enhanced in the pre-industrial era thanks to the transatlantic cable and the telegraph cables connecting Latin America to Asia and Britain. Such advancements provided a channel of communication for merchants in US and Europe to communicate easily and quickly, further enhancing global trade. The capital was equally starting to get internationalized from as early as 1870. Gold was the standard currency, and all traders had to convert their respective currencies to gold using a standard rate. The United Kingdom, the then global financial powerhouse also lent money to other countries and colonies in Africa. The Bank of England already existed and served as a trendsetter regarding global capital and exchange of currencies.
In conclusion, globalization has had an immense impact on the world in both the pre-industrial and the post-industrial eras. However, the effects of globalization are more visible in the latter period. More and more companies are engaged in global trade due to improvement in science and technology. Multinational companies are increasingly outsourcing labor and capital. Labour is also said to be more skilled than in the past. Unfortunately, globalization has not had a big economic impact on developing countries as one would expect. Globalization is believed to have started in the pre-industrial era. Innovations such as the steamship and laying of the telegraph cables served as the foundation of the present day globalization.
Works cited
Shangquan, Gao. “Economic globalization: trends, risks and risk prevention.” Economic & Social Affairs, CDP Backround Paper 1 (2000).
Muhammad, Akram Ch, et al. “Globalization and its impacts on the world economic development.” International Journal of Business and Social Science 2.23 (2011).
Schularick, Moritz, and Thomas M. Steger. “Financial integration, investment, and economic growth: evidence from two eras of financial globalization.” The Review of Economics and Statistics 92.4 (2010): 756-768.