In today’s global society, it has become difficult to find someone that has not been impacted in any way by Globalization. Some societies will be more or less affected but we cannot deny the idea that Globalization impacts everyone, which resulted in a large number of economists and philosophers writing their own opinion and theories on the subject. Based on this idea, I came up with the following question: What drives a company to globalise and what are the implications? I will tackle the question in this essay by first defining what globalization is, explain why companies become global and what are the implications of globalization on different social classes. My arguments will be backed up with evidence from the following authors: Adam Smith, Branko Milanovic and Harry Braverman. It is difficult to come up with an exact definition of Globalization; however, we could define it as the idea of trying to make the world communities become one by integrating world economies. (Bbc.co.uk, 2017) This ongoing process that contributes in making the world look “smaller” by merging economies, societies and cultures to improve global communication and trade has not only economical impacts but also social and cultural.
The main factor for a business to globalize is based on the philosophy of Capitalism, which is the idea to maximise profit and at the same time reduce cost as much as possible. Businesses that globalize have access to the global market, which is way larger than the national one. Operating in a larger market leads to economies of scale for businesses and moving production overseas can considerably reduce production costs due to access to cheaper labor than in the domestic country (Bbc.co.uk, 2017).
In the book “An Inquiry into the Nature and Causes of the Wealth of Nations”, Adam smith stated that income and wealth is increased through the specialization of labour as the more someone specializes in what they do the better they become at doing it and so results in being more productive. Increased productivity means that the production of a product can be made at a larger scale, which may result in greater sales and increase profit in the future (Smith 1776). Globalisation enables this as a country that is specialized on the production of a particular product can do the production of the product for a lower cost and in a more efficient way. An example of this is Apple that controls and manages from California, USA the production of their products made by Foxconn technology group in China. As a business starts to globalize, it gradually operates at a greater scale as they reach a way larger market. More over, this idea of having production plants in foreign countries is a chance for developing or “poorer” counties to sell their low cost labour to the global market. This results in the creation of job for people in these countries, raising at the same time standards of livings and improving the overall economy of the country (Collins, 2015). More over, as big multinational move production into foreign countries, they bring new technologies and knowledge to these countries that can be used in the future for their own benefit. For example, as the economy of the country is improved, the government can afford to spend more on education and health care, two major factors that if well managed and successful, will contribute to the well being of the country in the future. (Collins, 2015)
Advancement in technology and transport are the reasons why globalization made communication and trade easier, which is one of the factor that drives so many managers and companies are becoming global. Technology developments enable global communications possible in a very easy and cheap way while transportation development makes it easy now for people and products to travel from one place to another in a cheaper and shorter amount of time. These major developments are factors of globalization that resulted in a more integrated and standardized world economy and society, which related back, to Smith’s “Division of Labour”. Globalization is simply the international concept of the division of labour as it is the idea is to take a complicated task and make it simpler which facilitated enormously the trading ways through different countries.
Smith’s pin factory (“Nature and Causes of the Wealth of Nations” chapter 1) is a great example of how the “Division of Labour” is helping boost productivity. If every worker in an industry were to perform all the steps for the production of a pin, it would be difficult for one man to produce 20 pins a day. Smith describes the production process as 18 different operations. According to him, if you applied “Division of Labour”, a factory of only 10 workers would be able to produce approximately 48,000 pins a day. More over, it is very important to acknowledge the fact that the invention of machines that can do small tasks have contributed enormously as they enable each worker to be more productive. Smith states in “The Nature and Causes of the Wealth of Nations”, machines result in a reduction of workers as they “enable one man to do the work of many” (Smith 1776, p.17).
As pointed out by Branko Milanovic in the paper “The Two Faces of Globalization: Against Globalization as We Know It”, saying that “Globalization is a benign force based on voluntary exchanges and free circulation of people, capital, goods, and ideas” (Milanovic 2003, p.668) is not wrong. However, it is not completely correct. This statement is the “mainstream view” of globalization and it represents only one side of the argument when assessing the impacts of globalization. As highlighted in the title of the paper by Milanovic, globalization has two faces: the benign one and also the malignant one “based on coercion and brute force” (Milanovic 2003, p.668).
Both faces of the argument, the benign and the malignant are true. Our opinion will shift towards one side depending on “where we live, whether we are rich or poor or where we stand ideologically”. The reality is that globalization has impacted different people in various ways. For some, globalization has brought progress and wealth while for some violent conquests and slavery.
People today tend too much to forget that globalization does not only involve positive growth. Like everything, globalization comes with negative implications. On page 669 of “The Two Faces of Globalization”, Milanovic points out that in an article on 19 th century globalization from 2001 written by well-known economic historians, Jeff Williamson and Peter Lindert the words imperialism, colonialism, or slavery are never mentioned. This is an interesting statement to point out as it is during the 19th century that colonialism and slavery was at its highest. However, in his work, the author Milanovic, clearly states the “globalization was colonialism” (Milanovic 2003, p.669) as it is during this era that most non-European countries were integrated with the rest of the world even though all the resources from the colonies were taken by the “Metropoles” for their own benefit and that people were slaved and exploited through the use of coercion (Milanovic 2003).
In the part “Income Divergence during the 19th Century”, Milanovic clearly emphasises the idea that economists from rich countries mainly “deal with the benign face of globalization because their key methodological construct is a self-interested individual” (Milanovic 2003, p.668). In the work “Labor and Monopoly Capital”, the author Harry Braverman clearly states that based on the idea that capitalism is a system build around the objective of increasing capital, “capitalist must employ human labour to create value in commodities” to make profit. This results in a clash of interest between the workers who work in the interest of the capitalists and the people who manage the workers. Adding to this is Braveman’s theory on the “detailed division of labour”. Capitalists have more control over the labour process as work is divided into specific sections. More over, the idea of specializing and only working on a specific task over and over again, results in having less skilled workers. This means that workers have fewer skills that make them “stand out” from others in the market resulting in “capitalist” being able to employ workers for lower wages (Braverman, 1974).
There is no denial that Globalization changed our word over the years and has had both positive and negative impacts on the various social classes. It helped many different societies and economies to evolve and grow such as developing countries and multinational corporations. However, as seen throughout the essay, globalization also comes with major negative implications and benefits in reality only some specific social groups. The perception a shareholder in a multinational corporation has on globalization will obviously contrast the one from a worker that is exploited in a developing country. Even though we could argue that globalization may have benefited everyone, not everyone has benefited equally. Indeed, the claim that globalization has made the rich richer while making the non-rich poorer can be proven to be true, which raises the question, do every society develop equally or do some societies develop by under-developing others?