Globalization and Interdependent Economies

Economic globalization refers to the increased interdependence of national economies across the world through a rapid increase in cross-border movement of goods, services, technology, and capital. This process has been furthered by trade liberalization (i.e. free trade) -- the movement of goods and services without national, political or economic barriers. Its positive effects on American Society include increased production efficiencies and greater product diversity, while negative ones include intensified job competition and poor product quality.

Globalization lets the U.S. benefit from comparative advantage as it shifts resources to more competitive and productive industries. Resource allocation is optimized to its most profitable industries while underperforming ones are outsourced -- foreign firms are contracted to do some or all functions to cut costs and benefit from favorable conditions (e.g. cheaper labor, better productivity, etc.). Products are marketed internationally (exports were valued at $1.28 trillion for 2010) at considerably lower costs to generate large profits. These lead to more tax collection for the government, thereby providing added budgets for health, infrastructure, and other public service programs that increase living standards.

Americans benefit because more products cater to the needs and purchasing power of different socio-economic classes. Products once considered luxuries such as cars, cell phones, and televisions are more affordable, and their acquisition increases quality of life -- cars reduce travel time, cell phones ease communication, and televisions provide entertainment. From 1950 to 2008, total car fleet increased from 49 to 250 million, while cell phone users grew to 255 million. Free trade fuels global goods and services competition which in turn spurs product, process, service, and technological innovation (e.g. telecommunications and transport technology allow international business operations). The U.S. Human Development Index (HDI) increased from 0.904 to 0.910, meaning longer life, longer schooling, and higher GDP.

Despite its benefits, globalization has led to domestic job losses and increased income inequality. Foreign subsidiaries of U.S. multinationals grew by 729,000 in two years, to 11.9 million in 2008 while domestic employment decreased by 500,000 jobs, to 21.1 million. Production workers are replaced by more cost and time efficient machines; service workers are laid off for cheaper labor in Less Economically Developed Countries. While the mostly labor-intensive and lower skilled work is performed more efficiently by countries that have an abundance of less-educated workers, these countries in return buy more of higher-value U.S. made goods which require higher skills.

Further, outsourcing may reduce product quality, harming customers and damaging company reputation. In 2007, Mattel recalled thousands of Fisher Price "Sesame Street" figures because their manufacturer -- the Chinese Lida company -- coated them with too much lead paint. Lead causes diarrhea, vomiting and headaches; in very large quantities, it can kill. Baxter International sold tainted heparin in 2008 which was linked to 81 deaths - these blood thinners manufactured in China contained toxic ingredients from hog intestines.

Overall, the advantages of increased global economic integration outweigh its disadvantages. While some "free trade" is still regulated -- the U.S. has placed trade protectionism to aid strategic sectors such as agriculture (e.g. tariffs, quotas, subsidies) -- the abundance of cheap and diverse products are too much to ignore. Export profits have greatly improved American standard of living (as measured by HDI). For job losses and income inequality, educational opportunities can be offered to train unskilled workers. Still, outsourced products need to pass stringent safety standards set by government agencies (e.g. FDA). There is no question globalization has influenced economic and political interdependency, culture, and environmental protection as well.