The Positive and Negative Impacts of Globalization; Financial and Other Implications

By in Economics, Investing, Uncategorized

Financial, Economic, and Societal Consequences of Globalization

The global economy continues to be in the forefront of the media. In a McKinnon and Thurm Wall Street Journal article, “U.S. Firms Move Abroad to Cut Taxes“, several U.S. companies are profiled as they move their headquarters abroad to save on taxes. This particular cost cutting strategy impacts consumers as lower taxes for a corporation leads to greater profits which can be used to stabilize consumer prices.

Globalization has massive impacts on our economy and society at large, both good and bad.


Impacts of Globalization

invest globally for diversification

Economies of Scale-This well known economics concept refers to the idea that with greater production capacity, cost per unit of a good is reduced. Consider lower cost international production and how the benefits enable consumers to buy a wide variety of goods at lower prices.

On the flip side of this concept, many larger global companies with low priced goods and services are squeezing out smaller “mom and pop” retail shops.

Inexpensive clothing-I spend less on clothes than I did decades ago. I remember shopping with a friend in college and paying $30 for a sweater. Today, I can get a similar sweater, imported from abroad for $20 to $30 dollars. That’s zero price increase in decades.

I’d be irresponsible if I didn’t mention the fact that some of these low cost garments come on the backs of exploited workers. This international issue is tough to curtail given the great international demand for the low cost goods.

Although some workers are exploited, low global wages doesn’t necessarily imply exploitation as the cost of living in many international economies is very low.

Affordable electronics-Increased international competition helps consumers in other areas as well. Buying electronics is relatively inexpensive, when compared with the past. When computers first came out, they cost thousands of dollars. I remember my first USB drive cost $70 for a fraction of the storage I can get for $10 today. Even basic calculators used to cost almost one hundred bucks.

We are very lucky that globalization and competition has driven down the price of electronics. And, if you’re not too concerned with owning the latest and greatest new gadget, last years models are usually marked down to cost or below.

Accessible International Investing– Today one can easily invest across the globe. In our family portfolio we own developed and developing market international index funds. And for additional diversification we have an international real estate investment trust (REIT). International bonds can be had with the click of the mouse with an global bond fund. And if you’re interested in buying individual international stocks, many even trade on the U.S. stock exchanges in the form of ADRs (American Depository Receipts).

In fact, just log on to your discount brokerage account and purchase international currencies, stocks, and bonds with the press of a button. These types of opportunities grow both your financial opportunities as well as risks.

For added investing diversification, international investing is as easy as investing in one’s home country.

Knowledge is spread quickly and efficiently- If there is a cure for cancer in Europe or Africa, it will be disseminated world wide, much more quickly than in the past. Of course this type of information transmission has a down-side as well. How to build a bomb, or spread a dangerous virus can also be communicated internationally to the detriment of society.

Legal collaboration- The Positive Effects of Globalism, mentioned international communication as a way to break up global terror groups and bring criminals hoping to flee for safe haven, to justice. The law eventually caught up with Joran Van Der Sloot, the Dutch national accused of murdering Natalee Holloway. In the past, this murderer might have hidden in a safe haven getaway much more easily.

As with any evolution, there are positive and negative impacts. Look for financial advantages of globalization and prosper. I personally invest a portion of our family’s assets in international investments.

How does a global society affect you?

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