Financial and Societal Consequences of Globalization
The global economy continues to be in the forefront of the media. In a recent 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
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 no price increase in decades. But there’s a darker side to this lower priced clothing. Frequently, the workers abroad who make the lower priced clothing are poorly paid and work under sub-optimal conditions.
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. And if you want a year old computer, you can get it for almost nothing.
Accessible international investing– Today one can invest internationally with the push of a computer mouse button. In fact, just log on to your discount brokerage account and purchase international currencies, stocks, and bonds in a few minutes. These types of opportunities grow both your financial opportunities as well as risks. Investors are advised to diversify in order to smooth out the ups and downs of their investment portfolios.
Globalization increases correlation between investment returns-In other words, one of the benefits of investment diversification is that when one asset class such as U.S. stocks goes down, then another asset class such as international stocks, should not move in the same direction and/or by the same percent. For example, if stocks go down, then you want another investment class to go up in value to balance out the loss. With the increases in globalization international stocks become more correlated with those in the U.S. and give less ‘diversification’ benefit to an investment portfolio.
With the easy access to international investing markets, investors have the chance to buy international real estate with an international real estate investment trust (REIT) or drill down into a China sector fund. A consequence of this change is that international and U.S. investments are becoming more correlated. That means that their returns move more in tandem today than in the past. Thus there may be a smaller benefit to greater diversification.Include international investments in your portfolio to benefit from growing international economies. Click here to get a successful approach to make more money with investing.
Outsourcing reduces costs for business owners-The positive and negative impacts of globalization hit both U.S. and international workers. One of my workers lives in Africa, another in Eastern Europe, and I’m not certain from which country the third comes from. These employees are skilled, speak English and are affordably priced. On the negative side, they are competing with U.S. workers, who live in a country with a higher cost of living and thereby need to be paid higher wages. Labor can be performed much more economically abroad which decreases certain job opportunities for local workers.
Read about: How to Invest Internationally
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 Impacts 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.
Globalization hurts wages-The U.S. manufacturing industry has been badly impacted by international competition. Since companies can pay global workers $1.00 per hour in their factories, the U.S. manufacturers can’t compete with the ultra low international wages. Thus, former highly compensated factory jobs disappeared.
As with any evolution, there are positive and negative impacts. We can learn a lot from other cultures, share information and scientific discoveries. Globalization also forces each country to offer the best products possible due to the increased worldwide competition. Look for financial advantages of globalization and prosper. I personally invest a large portion of our assets in international investments.
How does a global society affect you?
A version of this article was previously published, comments remain.