The good, the bad, and the ugly side of globalization

 

Globalization, the increasing integration and interdependence of domestic and overseas markets, has three sides: the good side, the bad side, and the ugly side.

The good side of globalization is all about the efficiencies and opportunities open markets create. Business can communicate efficiently and effectively with their partners, suppliers, and customers and manage better their supplies, inventories, and distribution network. Local producers can sell their products in distant markets with the same ease and speed as in their home country. Sony Corporation (NYSE:SNE), for instance, can sell its TV and game consoles with the same ease in New York as in Tokyo. Likewise, Intel (NASDAQ:INTC), Apple (NASDAQ:AAPL), and Cisco (NASDAQ:CSCO) can sell their high tech gear with the same ease in Tokyo as in New York.

The good side of globalization is also about easy credit and rising leverage, as money flows easily across local and national boundaries, and creditors fail to distinguish between good and bad borrowers, boosting aggregate demand; setting the world economy into a virtuous cycle of income and employment growth; and easy credit and leverage fuel financial bubbles that feed into a euphoria that perpetuates the virtuous cycle.

The bad side of globalization is all about the new risks and uncertainties brought about by the high degree of integration of domestic and local markets, intensification of competition, high degree of imitation, price and profit swings, and business and product destruction. Corporations that previously have been enjoying the benefits of globalization, now face unstable and unpredictable demand and business opportunities and their products quickly become commodities, leaving them little or no pricing power and under constant pressure by new competitors that undermine profitability.

The bad side of globalization is also about tight credit, deleverage, and declining money flows across local and national boundaries, as creditors tighten credit to both good and bad borrowers, depressing aggregate demand; setting the world economy into a vicious cycle of income and employment declines; and euphoria is succeeded by pessimism and a burst of asset bubbles, perpetuating the downward spiral of the world economy.

The ugly side of globalization is when nations and local communities try to escape the vicious cycle of income and employment declines through simultaneous currency devaluations; and by raising trade barriers that in essence put an end to globalization and a beginning to trade wars, as was the case in the 1930s.

In the last quarter of the century and for the most part of the first decade of this century, the world has seen the good side of globalization. In the last four years, the world has seen the bad side of globalization. We do hope and pray that the world won’t see the ugly side of it.