The term globalization refers to the worldwide changes brought about by many types of flows that reach well beyond economics. For example, a person’s attitudes and values may be modified because of being in contact with people and ideas from foreign cultures. This contact can be face to face, as a result of increased rates of migration, or virtual, via information technology, the reach of which is expanding along with the global economy. Globalization is the most complex and far-reaching of the thematic concepts described in this book.

Throughout the world, globalization is transforming patterns of economic development as local self-sufficiency is giving way to global interdependence and international trade. While for a time there was anticipation that globalization would lead to more prosperity for all, the economic recession that began in 2007 cast a spotlight on the unpredictable effects of global interdependence. In that year, economic disruptions in the United States and Europe resulted in powerful ripple effects that reached around the world. Foreclosures in the U.S. housing market meant that European banks that had invested in U.S. mortgages faltered and some failed. The governments of some indebted countries, such as Greece and Ireland, could not make loan payments, deepening the economic disruptions in Europe. Consumers in the United States and Europe shopped and vacationed less, and as a result, many workers across the world lost their jobs or saw their incomes decline.

The global economy is the worldwide system in which goods, services, and labor are exchanged. Most of us participate in the global economy every day. For example, books like this can be made from trees cut down in Southeast Asia or Siberia and shipped to a paper mill in Oregon. Many books are now printed in Asia because labor costs are lower there. Globalization is not new. At least 2500 years ago, silk and other goods were traded along the Central Asian Silk Road that connected Greece and then Rome in the Mediterranean with distant China, an expanse of more than 4000 miles (6437 km).

European colonization was an early expansion of globalization. Starting in about 1500 c.e., European countries began extracting resources from distant parts of the world that they had conquered. The colonizers organized systems to process those resources into higher-value goods to be traded wherever there was a market. Sugarcane, for example, was grown on Caribbean and Brazilian plantations with slave labor from Africa (Figure 1.19) and made locally into crude sugar, molasses, and rum. It was then shipped to Europe and North America, where it was further refined and sold at considerable profit. The global economy grew as each region produced goods for export, rather than just for local consumption. At the same time, regions also became increasingly dependent on imported food, clothing, machinery, energy, and knowledge.

The new wealth derived from the colonies and the ready access to global resources led to Europe’s Industrial Revolution. No longer was one woman producing the cotton or wool for clothes or fabric by spinning thread, weaving the thread into cloth, and sewing a garment. Instead, these separate tasks were spread out among many workers, often in distant places, with some people specializing in producing the fiber and others in spinning, weaving, or sewing. These innovations in efficiency were followed by labor-saving improvements such as mechanized reaping, spinning, weaving, and sewing.

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This larger-scale mechanized production accelerated globalization, as it created a demand for raw materials and a need for markets in which to sell finished goods. European colonizers managed to integrate the production and consumption of their colonial possessions in the Americas, Africa, and Asia. For example, in the British Caribbean colonies, hundreds of thousands of enslaved Africans wore rough garments made of cheap cloth woven in England from cotton grown in British India. The sugar that slaves produced on British-owned plantations with iron equipment from British foundries was transported to European markets in ships made in the British Isles of trees and resources from the North American colonies and other parts of the world.

Until the early twentieth century, much of the activity of the global economy took place within the colonial empires of a few European nations (Britain, France, the Netherlands, Germany, Belgium, Spain, and Portugal). By the 1960s, global economic and political changes brought an end to these empires, and now almost all colonial territories are independent countries. Nevertheless, the global economy persists in the form of banks and multinational corporations—such as Shell, Chevron, IBM, Walmart, Coca-Cola, Bechtel, Apple, British Petroleum, Toyota, Google, and Cisco—that operate across international borders. These corporations extract resources (including intellectual properties) from many places, make products in factories located where they can take advantage of cheap labor and transportation facilities, and market their products wherever they can make the most profit. Their global influence, wealth, and importance to local economies enable the multinational companies to influence the economic and political affairs of the countries in which they operate.

The term free trade refers to the unrestricted international exchange of goods, services, and capital. Free trade is an ideal that has not been achieved and probably never will be. Currently, all governments impose some restrictions on trade to protect their own national economies from foreign competition, although such restrictions are far fewer than in the 1980s. Restrictions take two main forms: tariffs and import quotas. Tariffs are taxes imposed on imported goods that increase the cost of those goods to the consumer, thus giving price advantages to competing, locally made goods. Import quotas set limits on the amount of a given good that may be imported over a set period of time, curtailing supply and keeping prices high, again to protect local producers.

These and other forms of trade protection are subjects of contention. Proponents of free trade argue that the removal of all tariffs and quotas encourages efficiency, lowers prices, and gives consumers more choices. Companies can sell to larger markets and take advantage of mass-production systems that lower costs further. As a result, businesses can grow faster, thereby providing people with jobs and opportunities to raise their standard of living. These pro–free trade arguments have been quite successful, and in recent decades, restrictions on trade imposed by individual countries have been greatly reduced. Several regional trade blocs have been formed; these are associations of neighboring countries that agree to lower trade barriers for one another. The main ones are the North American Free Trade Agreement (NAFTA), the European Union (EU), the Southern Common Market in South America (Mercosur), and the Association of Southeast Asian Nations (ASEAN).

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One of the main global institutions that supports the ideal of free trade is the World Trade Organization (WTO), whose stated mission is to lower trade barriers and to establish ground rules for international trade. Related institutions, the World Bank and the International Monetary Fund (IMF), both make loans to countries that need money to pay for economic development or to avoid financial crises. Before approving a loan, the World Bank or the IMF may require a borrowing country to reduce and eventually remove tariffs and import quotas. These requirements are part of larger “belt-tightening” measures that the IMF imposes on countries seeking loans, such as the requirement to close or privatize government enterprises and to reduce government services including education and health-care programs that benefit the poor.

Those opposed to free trade argue that it leads to a less regulated global economy that can be chaotic, resulting in rapid cycles of growth and decline that increase the disparity between rich and poor worldwide. Labor unions point out that as corporations relocate factories and services to poorer countries where wages are lower, jobs are lost in richer countries, creating poverty. In the poorer countries, multinational corporations often work with governments to prevent workers from organizing labor unions that could bargain for living wages, minimum wages high enough to support a healthy life. Environmentalists note that in newly industrializing countries, which often lack effective environmental protection laws, multinational corporations tend to use highly polluting and unsafe production methods to lower costs. Many fear that a “race to the bottom” in wages, working conditions, government services, and environmental quality is underway as countries compete for profits and potential investors. Multinational corporations that have recently agreed to address worker abuses include Nike, Walmart, and Apple.

Fair trade, proposed as an alternative to free trade, is intended to provide a fair price to producers and to uphold environmental and safety standards in the workplace. Economic relationships surrounding trade are rearranged in order to provide better prices for producers from developing countries. For example, “fair trade” coffee and chocolate are now sold widely in North America and Europe. Prices are somewhat higher for consumers, but the extreme profits of middlemen are eliminated. As a result, growers of coffee and cocoa beans who produce for fair trade companies can receive living wages and work under better conditions.

In evaluating free trade, globalization, and fair trade, consider how many of the things you own or consume were produced in the global economy—your computer, clothes, furniture, appliances, car, and foods. These products are cheaper for you to buy, and your standard of living is higher as a result of lower production costs as well as competition among many global producers. However, you or someone you know may have lost a job because a company moved to another location where labor and resources are cheaper. Underpaid workers (even children) working under harsh conditions that possibly generate high levels of pollution may have made those cheap products. If workers can’t earn living wages, often some family members end up migrating, perhaps without the proper papers, to earn a better wage. Given all these factors, consider the advantages and drawbacks of both free trade and fair trade.