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2005

Globalization of the : what does it mean?

Ross Gittell University of New Hampshire

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Recommended Citation Gittell, Ross, " of the economy: what does it mean?" (2005). The University Dialogue. 3. https://scholars.unh.edu/discovery_ud/3

This Article is brought to you for free and open access by the Discovery Program at University of New Hampshire Scholars' Repository. It has been accepted for inclusion in The University Dialogue by an authorized administrator of University of New Hampshire Scholars' Repository. For more , please contact [email protected]. 48 WHERE IN THE IS UNH? Globalization of the Economy: What does it mean?

ROSS GITTELL

JAMES R CARTER PROFESSOR, WHITTEMORE SCHOOL OF BUSINESS AND

Globalization is a powerful force that will have signifi- sumer expenditures. And all of today’s US college stu- cant influence on all of us throughout our lives. It has dents will also compete for jobs and economic opportu- many aspects including economic, political, social, nities with foreign workers in foreign countries. health and environmental. The focus here is on the con- The world-wide economy increasingly operates with- cept of globalization as related to the . out national . barriers are falling with The term applied to the economy was popularized in the trade agreements such as the 1980s; however, the concept is an old one that has con- Agreement (NAFTA) and the formation of the European trasting interpretations. As a result of the different Union (EU). Social and political reforms have opened interpretations, there are polarized reactions to global- once closed to , such as ization, with some viewing it as a positive force for , and the formerly communist nations in advancing the world economy while others view it as a Eastern . and ad- threat and negative force. vances lower the cost of doing business globally and There are three main purposes to this paper. First, it make economic connections worldwide faster and describes globalization as applied to the world economy. easier. The world’s economy and businesses are increas- Second, it considers both the potential benefits and the ingly inter-connected. Each day about 40,000 multina- potential costs stemming from globalization. And lastly, tional do business around the globe and it considers the future implications for individuals and $1.5 trillion international financial transactions occur. the world economy of globalization. The view taken is The world’s involves the continuous that there are both positive and negative economic as- flow of , products, services, capital investments, pects of globalization and that the future consequences workers and people across the planet. The most com- of globalization depend on the actions of individuals monly used overall measure of the globalization of the and institutions around the world. While globalization world’s economy is trade. World-wide trade represents can cause economic dislocation, inequities and conflicts, one-quarter of the world’s economy and has been in- it can also contribute to benefits such as the expansion creasing at accelerated rates. Over the last quarter cen- of economic opportunities for individuals and nations tury worldwide trade increased over 500 percent (see and lower for consumers. Table 1). What is globalization? Almost every economic deci- Many name brand , such as sion, even of students in a college town in New Hamp- Procter & Gamble (P&G), derive more than one-half of shire, has consequences globally. Approximately one- their revenues from international sales outside the US. half of the clothing worn, cars driven, and computers Forty percent of imports into the US are from the sub- and electronic products used by students in the United sidiaries of US companies in other countries. As ex- States (US) are products of foreign companies and pro- amples, Timberland, a US with its worldwide duced by workers in foreign nations. Whether or not, headquarters in New Hampshire, does not manufacture or more relevantly how fast, this proportion increases to any of its products domestically and washing three-quarters and higher will affect the employment produced by Whirlpool in Europe are sold to consumers and economic prospects of all students and all workers in the US. in the US. Wal-Mart, the world’s largest company, with $245 bil- All of today’s US college students will benefit lion in sales in 2002, accounts for more overall economic throughout their lifetime as consumers from the variety activity than the nations of Ireland and combined. of products and services available globally and from the While considered a US company, 17 percent of the Wal- among international businesses for con- Mart’s sales are outside the US and estimates are that 80 A UNIVERSITY DIALOGUE ON GLOBALIZATION 2005–2006 49

percent of the company’s over 6,000 suppliers are located In the more than 20 years since China began its pro- in China. cess of internal economic reform, the volume of US - Wal-Mart and the company’s relationship with China Chinese trade in and services has grown signifi- is a leading example of globalization at , with all its cantly (Wayne, 2005). This accelerated after China attendant advantages and disadvantages. By purchasing joined the (WTO) in 2001. merchandise from factories in China with low From 2001 to 2004, US exports to China doubled, in- and rolling back prices on everything from a pair of creasing eight times faster than US exports to the rest of jeans to television sets, Wal-Mart is helping keep con- the world, and China rose from the US’s 9th largest ex- sumer prices in the US low. But it’s also helping to export port in 2001 to the 5TH largest export market in tens of thousands of US manufacturing jobs to other 2004. During that same time, China’s exports to the countries. With Wal-Mart and other multinational com- United States (and to the rest of the world) also in- panies increasing purchases from China, that has creased substantially. In 2004, US imports from China the fastest growing economy in the world. The Chinese totaled $197 billion, nearly double the total for 2001. economy’s share of the world’s economy has grown 60 The US’s largest bilateral trade deficit is with China, percent over the last two decades and trade in Chinese $162 billion in 2004, and growing, up from $83 billion goods has increased at twice the worldwide rate. in 2001. The United States still has the world’s largest The aggregate U.S. trade deficit, which includes trade economy, accounting for about one-third of the global in with all nations, was $618 billion economy. Globalization is of critical importance to the in 2004. This was a 24 percent increase over 2003. The US economy. Imports into and exports from the US trade deficit as a percent of the US Gross Domestic combined account for over one-fifth of the overall Product (GDP) increased to an unprecedented 5.8 economy and that percentage has been increasing at a percent in 2004. Growth in the deficit reflects surging significant rate. The US in 2004 accounted for about imports and a continued, rapid decline in the interna- one-tenth of global exports and one-sixth of all global tional competitiveness of US manufacturing industries imports (see Table 2). The top exports from the US in (EPI, 2005). total dollar are airplanes, cars, computers and in- Another key aspect of globalization is foreign direct strumentation. The other leading global exporting and investment (FDI). In its classic definition, FDI is defined importing nations in order of dollar value of total ex- as a company from one country making a physical in- ports and imports are , China, , , vestment in a factory in another country. In recent years the (UK), the and the definition has been broadened to include the acqui- . sition of “a lasting ” in a company

Table 1: Global Exports and Imports—Percentages of 2002 Worldwide Totals and Percentage Growth, 1977–2002

2002 EXPORT GROWTH IMPORT GROWTH

EXPORTS % IMPORTS % AREA WORLD WORLD 1977–02 1992–02 1998–02 1997–02 1992–02 1998–02

WORLD 534.5% 68.6% 17.3% 500.4% 68.9% 17.9% UNITED STATES 12.8% 18.3% 538.5% 59.2% 5.2% 688.7% 116.4% 28.8% CHINA 4.6% 4.2% 4336.5% 287.8% 76.0% 4463.5% 349.2% 94.2%

AFRICA 2.2% 2.2% 143.6% 33.6% 16.8% 133.4% 32.7% 0.4% 27.9% 25.0% 674.4% 89.5% 30.5% 647.0% 80.8% 29.4% EUROPE 45.7% 43.5% 510.9% 56.8% 12.9% 441.0% 49.4% 11.8%

N. AMERICA 16.6% 21.8% 536.1% 65.9% 8.0% 640.0% 107.5% 25.7% S. AMERICA 2.4% 2.0% 415.9% 70.4% 13.4% 229.2% 44.1% -25.2% 50 WHERE IN THE WORLD IS UNH?

or enterprise outside the investing firm’s home country. projects at 1,066, creating more than 39,000 jobs. The FDI can take a variety of forms, such as a direct acquisi- figure represented an over 30 percent increase in just tion of a foreign firm, construction of a facility, or one year. The strong positioning in FDI in the UK (and investment in a joint venture or strategic alliance with a also Ireland, see below) is attributed to the nation’s em- local firm. Today over 20 percent of United States corpo- phasis on research and technology, a skilled workforce, rate takes place outside of the US. FDI in the access to the common EU market, leadership in US over the last quarter century increased from 2.3 deregulating markets, openness to foreign investment, percent of GDP to just below 5 percent. and commitment to free trade. A combination of cheap The US is the world’s leading foreign investment labor, robust domestic growth an