Globalization: We Must Find the Balance Between Benefits and Costs

Globalization as generally understood involves the increasing interaction of the world's peoples through their national economic systems. Of necessity, these economic systems are reasonably compatible and, in at least some important respects, market oriented.

During the past half-century, barriers to trade and to financial flows have generally come down, resulting in a significant broadening of world markets. Expanding markets, in turn, have enhanced competition and nurtured what Joseph Schumpeter called "creative destruction," the continuous scrapping of old technologies to make way for the new. Standards of living rise because the depreciation and other cash flows of industries employing older, increasingly obsolescent, technologies are marshaled, along with new savings, to finance the production of capital assets that almost always embody cutting-edge technologies. This is the process by which wealth is created incremental step by incremental step. It presupposes a continuous churning of an economy in which the new displaces the old.

The process is particularly evident among those nations that have opened their borders to increased competition. Through its effect on economic growth, globalization has been a powerful force acting to raise standards of living. More open economies have recorded the best growth performance; in contrast, countries with inward-oriented policies have done less well. Importantly, as real incomes have risen on average, the incidence of poverty has declined.

Nevertheless technological advance and globalization distress those who once thrived in industries that were at the forefront of technology but which have since become increasingly noncompetitive.

In each step of incremental...

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... Globalization is deeply controversial, however. Proponents of globalization argue that it allows poor countries and their citizens to develop economically and raise their standards of living, while opponents of globalization claim that the creation of an unfettered international free market has benefited multinational corporations in the Western world at the expense of local enterprises, local cultures, and common people. Resistance to globalization has therefore taken shape both at a popular and at a governmental level as people and governments try to manage the flow of capital, labor, goods, and ideas that constitute the current wave of globalization.

To find the right balance between benefits and costs associated with globalization, citizens of all nations need to understand how globalization works and the policy choices facing them and their societies.