GlobalizationGlobalization

ChapterChapter 13

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This chapter:

Explains globalization in more depth. Discusses its impact on culture, the growth of

trade agreements, the importance of the international financial system, global varieties of capitalism, and the erosion of nation-state sovereignty.

McDonald’s Corporation Opening Case

More than half of McDonald’s restaurants are outside of the U.S., accounting for 64% of company revenues.

As a prominent global brand McDonald’s symbolizes perceived evils of globalization.

In developing nations, the arrival of a McDonald’s is regarded as a sign of modernization.

McDonald’s does transfer cultural values and practices. However, most of McDonald’s international restaurants are franchises, run as local businesses. The entrepreneurs who run these businesses adapt them to local custom.

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The story of McDonald’s illustrates the complexity of globalization.

What is Globalization? Globalization occurs when networks of

economic, political, social, military, scientific, or environmental interdependence grow to span worldwide differences.

Economic globalization refers to the development of an increasingly integrated commercial system based on free markets in which nations are open to foreign trade and investment.

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Major Forces in Expanding Globalization

Ideas Capital Labor MNCs Governments Technology Multilateral organizations NGOs

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Pros of Globalization Has lifted millions of people out of poverty. Consumer benefits of more variety, lower costs,

and higher quality of products. Improved working conditions for millions of

workers. Human rights have improved. Per capita income has grown for millions of

people. Spurred the spread of capitalism. Stimulated more nations to adopt democratic

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Cons of Globalization Workers in developed countries are displaced as

companies employ more workers paid lower wages in developing countries.

Millions in the developing countries still remain in poverty.

The gap between per capita incomes of developed and developing countries has widened.

Environmental degradation is growing. Cultures are becoming contaminated. Developing countries’ sovereignty is undermined. Globalization has produced world financial instability.

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Increasing Foreign Competition

The pace and intensity of economic competition have increased with globalization.

More and more foreign producers have successfully challenged American corporations both at home and abroad.

U.S. corporations respond to global competitive threats in many ways.

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Expanding Regional Trading Agreements

Rapid increase in the number of trade agreements has been a major force in globalization.

Trade agreements have helped to increase global competition and have accelerated world trade.

The largest of these in terms of population are: European Union (EU) North American Free Trade Agreement (NAFTA) The Asia-Pacific Economic Cooperation (APEC)

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The European Union On January 1, 1993, the EU became a unified

regional market. On January 1, 1999, the EU adopted the euro. On May 1, 2004, a major milestone was reach

when 10 additional nations were added. Another milestone was reached when leaders

of the 25 European nations signed the 50-article EU constitution.

Many individuals in the newly joined nations face serious problems in complying with EU statutes.

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The North American Free Trade Agreement

Created a free trade block consisting of the United States, Canada, and Mexico.

Labor unions in the U.S. opposed NAFTA from its beginning.

Workers on both sides of the border have seen individual losses and gains.

Expanding trade has opened new opportunities.

Important problems have arisen in the operation of NAFTA.

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Other Trade Agreements

Mercado Comun del Sur (Mercosur) Asia-Pacific Economic Cooperation

(APEC) Association of South East Asian Nations

(ASEAN) Proposed: Free Trade Area of the

Americas (FTAA)

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Nongovernmental Organizations

Nongovernmental organizations: Are influential in the formulation of government

policy, business policy and strategy, and operations.

Are nonprofit associations. Can be permanent groups or temporary

associations. Well-established NGOs:

American Red Cross Amnesty International Carnegie Endowment for International Peace

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How Many NGOs Are There?

According to the United Nations, the first international NGO was formed by the Anti-Slavery Society in 1839.

By 1874 there were 32. The current estimate is more than 1.2

million in the U.S. of all types.

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How NGOs Influence Government and Business

Lobbying government officials Publicizing their positions on issues Confronting company officials Participating in high-profile protests Maintaining Web sites Working closely with both governments

and businesses, supplying research and other support

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Globalization and International Financial Stability

Factors that contribute to financial crises: Huge inflows of money into poor countries Lagging expansion of financial transactions in the

banking systems of many countries Insufficient bank regulation and weak supervision

The International Monetary Fund was created to: Promote international monetary cooperation

among its members Promote financial stability Extend credits and loans to members who are

experiencing problems meeting financial obligations

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Spreading Capitalism

The global spread of capitalism is one of the most significant trends in recent history.

This development resulted from: The defeat of authoritarian governments in

World War II The imposition by the victorious powers of

democratic free market principles and institutions

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Deviations from the American Capitalistic Model

Japanese alliance capitalism South Korean chaebols Southeast Asian crony capitalism Chinese government controlled

economy with established free market zones, reduced influence on banking, and no more control of military leaders over state enterprises

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Critics of Global Capitalism Global capitalism is repeating some of the

shortcomings of capitalism experienced 100 years ago in the United States: Exploitation of workers Uncontrolled investments Degradation of the environment

The income gap between the rich and poor has widened.

Most of the critics of capitalism do not wish to abolish it but only to reform it.

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Institutions and Ideas of Capitalism

Trustworthy financial system with general transparency Bankruptcy courts Antitrust laws A minimum social security net Limited government regulation An efficient tax system Accept private property and a legal system to protect it Understand and accept the profit motive in private

enterprise An assumption of private enterprise responsibilities to

workers and communities

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Globalization Erodes Nation-State Sovereignty

The competitiveness imperative amounts to an infringement on state authority.

Agreements that governments make with international institutions that supplant decisions heretofore made by governments.

At a different level, governments in both industrialized and developing countries are held hostage to the power of large MNCs.

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Erosion of Cultures The rapid and explosive spread of American

culture throughout the world is one significant trend within globalization.

Throughout the world there is resentment about the transmission of certain Western cultural values.

Majorities of people in Europe like American music, television, and films and technology but dislike the spread of American ideas.

Economic forces of globalization have encouraged massive migrations of peoples.

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Concluding Observations Globalization has created enormous wealth for

people all over the world. It has led to exploitation, dislocation, and

suffering for some who have yet to experience its benefits.

It has changed business-government-society relationships in profound and fundamental ways.

The forces of globalization are beneficial to the peoples of the world and promise even greater benefits in the future.

Important reforms are necessary.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.13-23