Disadvantages of Globalization

Globalization, of course, has both disadvantages and advantages. For many average workers in developed countries, the disadvantages seem to loom very large. There can be no doubt that migration of manufacturing to low wage countries and the direct outsourcing of service jobs is a factor in stagnating and even declining wages in the West.

While most economists believe that the advantages gained from globalization outweigh the disadvantages, they base this largely on a historical analysis of trade in the past. One question that has to be asked is whether advancing technology is changing the rules so that the impacts from globalization in the future may turn out to be an entirely new ballgame.

Advancing Technology may Amplify the Disadvantages of Globalization

The disadvantages of globalization may, in fact, be exacerbated by advancing technology. An obvious example of this is service offshoring, where what would have previously been a local job can be performed remotely by an offshore worker. There is really has no historical precedent for this because offshoring the job incurs no transportation costs and no delay in rendering the service. As a result, it's very possible that economists are underestimating the impact of outsourcing on the job market.

Another disadvantage of today's globalization is that it creates enormous trade imbalances that may well prove unsustainable. The reality is that we have globalized labor and capital, but we have not globalized consumption. Most of the workers in low wage countries who benefit from globalization do not earn enough to purchase the products they are producing. As a result, consumers in the U.S. and other developed countries are expected to continue driving the factories in China and other low wage counties, even as the jobs they rely on for income vaporize. This may well prove unsustainable, and the dramatically falling exports now being seen by businesses in China may be just the leading edge of the coming crisis.

However, it is probably safe to say that, in the coming decades, accelerating technology is likely to have a bigger impact on the job market and on the welfare of average workers than globalization--even though globalization will continue to be very significant.