Globalization and its Impact on Welfare States


One of the key processes of today’s world economy is progressing globalization. At the moment, globalization is a qualitatively new stage of internationalization development in economic life. Nevertheless, the process has a lot of advantages, there are contrary thoughts about its influence on the people`s welfare. Some experts perceive globalization as a serious threat to the world`s economic system, while others see it as the way for further progress of the economy. Undoubtedly, the consequences of globalization can be both, positive and negative. However, there is no alternative to the process, because it has been loaded and can`t be stopped. That is why, the society should carefully evaluate the pros and cons of the process and adjust to them.

The process of globalization has a long history. Its roots can be traced back to the time when the establishment of colonial empires laid the first foundations of international economic relations in this millennium. However, modern international economic relations are fundamentally different from those that have been formed since the epoch of Great geographical discoveries and the establishment of colonial empires (Andrews 1994, p. #). During the colonial era, relations were built mainly between metropolises and colonies, in fact, they were based on an exchange of finished goods and products manufactured in the metropolis, the raw materials and other colonial goods. Fundamentals of the same modern systems was primarily built on the commodity and economic relations between developed countries. These relationships were highly complex. Their main aim was to exchange final goods and advance the technologies. This was due to historically different sectoral specialization of certain developed countries and regions. For example, the U.S. was interested in Japanese electronics industry; Japan was interested in the U.S. energy equipment. In fact, these chains were much more extensive and complex. Today’s modern economic relations among developed countries can be described as interdisciplinary. The process of globalization also saved the relationships that existed between the mother country and colonies, which were intrasectoral (Baylis and Smith 1997, p. #). Thus, for example, the developed countries are using their former colonies as a source of raw materials and labor, often exporting its high-tech production there.

Another important feature of globalization is the internationalization of the manufacturing processes. It should be said that recently the transnational corporations (TNCs) have appeared. The current international trade largely implements the processes of cooperation and exchange of goods, taking place within the same TNC, for example, between branches or subsidiaries located in different parts of the world, or with other TNCs (Bradley, Stephen, Hausmann and Nolan 1993, p. #).

The Wall Street Journal gives the following example of globalization. It says that out of $ 10,250, earned by the company “General Motors” from the sale of its car “Pontiac”, it earned only $ 4,000. The rest was spread out to South Korea - $ 3000, Japan - $ 1850, Germany - $ 700, Singapore and Taiwan - $ 400, England - $ 259 and Ireland - $50 (UNDP, 1996). Illustrated above, and developing for several years tend is called “the internationalization of production” which, in turn, is an expression of a larger process in the global economy, which is called globalization (Emmerij and Louis 1992, p. #).

It should be mentioned, that another important feature of economic globalization is the rapid development of financial markets. The new role of financial markets (foreign exchange, equity and credit) over the past few years has drastically changed the architecture of the global economy. Until the few past decades, the main purpose of financial markets was the maintenance of the real economy. In recent years, global financial markets began to show self-sufficiency (Baylis and Smith 1997, p. #). As a result, today the market`s growth can be viewed, which resulted in a wide range of speculation caused by the liberalization of economic relations. In short, the process of getting money out of the money has never been easier, by eliminating from it. Manufacturing replaced speculation with various derivative financial instruments such as futures and options, as well as playing on the difference in rates of world currencies.

Thus, globalization has become one of the most important trends in the global economy. It should be noted that the role of globalization in human life is not limited to the changes in the structure of the economy; its manifestations can be experienced also in the social and cultural sphere (Kim, Chai, Stu Westin and Dholakia 1989, p. #). Globalization is a general term for an increasingly complex set of cross-border interactions between individuals, enterprises, institutions and markets, which manifests itself in increasing flows of goods, technologies and financial resources, steady growth and increasing influence of international institutions, civil society, the global activities of transnational corporations, a substantial scaling up of cross-border communication and information exchange, primarily through the Internet, cross-border transfer of diseases and environmental impacts and, increasingly, the internationalization of certain types of criminal activity (Baylis and Smith 1997, p. #). That is why, it can have both, positive and negative influence on the welfare state.

Advantages of globalization

The positive impact of globalization cannot be overestimated. Due to this process, the possibilities of humanity are immeasurably multiplied, the conditions for harmonization are created, and all the aspects of life are evaluated fully. Globalization of the economy poses a serious basis for the solution of universal problems of mankind.

Thus, the benefits of globalization are the following:

  1. Globalization contributes to the deepening of specialization and the international division of labor. In terms of more efficient allocation of funds and resources, this ultimately helps to raise the average standard of living and enhances the life prospects of the population (at a lower cost to him).
  2. An important advantage of the globalization process is the economies of scale, which could potentially lead to reduced costs and lower prices, and, thus, to sustainable economic growth (Baylis and Smith 1997, p. #).
  3. The benefits of globalization are also associated with the gains from free trade to their mutual benefit for all parties.
  4. Globalization, increasing competition, stimulates the further development of new technologies and their distribution among countries. In terms of growth rates, it far exceeds the direct investments, the world trade growth, which is an important factor in the Transfer of Industrial Technology, education, transnational companies, which have a direct impact on national economies. The benefits of globalization are determined by the economic benefits that result from the usage of advanced scientific, technological and skill level of leading in their respective areas of foreign countries in other countries. In these cases, the introduction of new solutions is in the short term and at relatively lower cost (Emmerij and Louis 1992, p. #).
  5. Globalization exacerbates international competition. Often argued that globalization leads to perfect competition. In fact, it probably should be mentioned about the new competitive areas and tighter competition in traditional markets, which are beyond the power of an individual state or corporation. After all the internal rivals join the actions of unlimited strong external competition. Globalization processes in the global economy are beneficial, especially for the consumers, as competition gives them a possibility of choice and lower prices (Baylis and Smith 1997, p. #).
  6. Globalization can lead to increased productivity, as a result of the rationalization of production at the global level and distribution of advanced technology and competitive pressures in favor of continuous innovation on a global scale.
  7. Globalization allows countries to mobilize greater financial resources, as investors can use broader financial tools for the increased number of markets.
  8. Globalization creates a sound basis for the solution of universal problems of mankind, firstly, environmental, due to the joint of the efforts in the international community, the consolidation of resources, and coordination of actions in different areas (Kofman and Youngs 1996, p. #).

Creating Multinational companies is one of the major benefits of globalization. Thus, multinational companies contribute to the development of production and exports of the countries in which their activity takes place (Baylis and Smith 1997, p. #). For example, at the end of the twentieth century, foreign companies have employed 45% of the workforce in Singapore, provided 63% of manufacturing output and 90% of export of its products. In Zimbabwe, TNC provided 71% of industrial production, and in Argentina - 35% of manufacturing industry. In general, the share of transnational corporations accounted for: 50% of production (excluding transition economies); 60% of foreign trade; 90% of direct foreign investment; 80% of technological developments (UNDP, 1996).

Thus, if to summarize, the end result of globalization, as many experts expect, is creating a universal welfare in the world.

Adverse effects and potential dangers of globalization

As it was already noted, the processes of globalization in the world`s economy are perceived and valued differently. However, in many ways, these are due not only to individual scientists, specialists and expert`s views, but also to the people from different countries. Globalization processes often are welcomed in developed countries and raise serious concerns in the developing world. This is due to the fact that the benefits of globalization are unevenly distributed. So one of the major issues of the most heated debates is: who stands to benefit from globalization?

Contemporary globalization processes are deployed, especially among industrialized countries, and only secondarily cover the developing countries. Globalization strengthens the position of the first group of countries, giving them additional benefits. At the same time, the deployment process of globalization in the modern international division of labor threatens to freeze the current situation of less developed countries, the so-called global periphery, which becomes more an object than the subject (Kofman and Youngs 1996, p. #).

Consequently, the degree of positive impact of globalization processes on the economy of individual countries depends on the place they occupy in the global economy; in fact, most of the benefits are received by the rich countries (Emmerij and Louis 1992, p. #).

Inequitable distribution of the benefits of globalization creates a threat and conflict at regional, national and international levels. It is not convergence or equalization of income, but rather its polarization (Garrett, Geoffrey and Mitchell 1996, p. #). Globalization leads to the deepening of the inhomogeneity of the emergence of a new model of the world - the world 20:80, one-fifth of society. 80% of all control resource, the so-called “golden billion”, covers one fifth of the world's population (including the United States and Western Europe - 70% of the world's resources). Prosperous countries, 20% dispose of 84.7% of world GDP, their citizens have 84.2% of world trade and 85.5% of savings in domestic accounts. Since 1960, the gap between the richest and poorest countries has more than doubled, which statistically confirms the failure of any promises of fairness in the provision of assistance to developing countries (UNDP, 1996). Developed countries, using openness and globalization in their own interests, seek to consolidate the status quo. The big concern is the U.S. desire to strengthen the unipolar world. Not surprisingly, in the Arab world, for example, globalization is associated with the “Americanization” of the world`s system. The inherent interdependence in the world development in the early and mid twentieth century is followed by a one-sided dependence of the “Third World” from the “First World” (Emmerij and Louis 1992, p. #).

The heterogeneity of the world manifested in the following data: only 358 billionaires possess the same wealth as 2.5 billion people, taken together, which is nearly the half the world`s population. In addition, only 14.5% people living in the western world can benefit from globalization, while China, India, Southeast Asia and Latin America are not influenced by it. What is more, due to globalization, the so-called “black holes” were created in Africa, Central and South Asia, and the former Soviet Union countries (Garrett, Geoffrey and Mitchell 1996, p. #).

Taking to consideration the uneven distribution of the benefits of globalization, certainly negative consequences of globalization processes is that the country will greatly depend on its place in the global economy. In this regard, can be distinguished three groups of threats, dangers and potential problems at the present stage of the internationalization of economic activity, depending on what country they can spread. Firstly, the risks of globalization, existing in all countries, should be identified.  Thus, the economically less powerful countries would become more developed industrialized countries. Finally elaborate the most significant negative impacts of globalization processes should be elaborated (Tilly and Charles 1997, p. #).

Globalization can lead to the possible manifestation of the destructive influence of the centrifugal forces associated with this process, which can lead to rupture of the traditional linkages within the country, the degradation of non-competitive industries, an increase of social problems, aggressive penetration of a given society, destruction of values and behaviors. Thus, the negative impacts of the globalization can be summarized into the following (Kofman and Youngs 1996, p. #):

-         uneven distribution of the benefits from globalization in the context of individual sectors of national economy;

-         the possible de-industrialization of national economies;

-         ability to transfer the control of the economy of individual countries of sovereign governments, including the more powerful states, TNCs, or international organizations;

-         possible destabilization of the financial sphere, the potential regional or global instability because of the interdependence of national economies in the world. Local economic fluctuations or crises in one country may have regional or even global implications.

The most painful consequences of globalization may feel the least developed countries, belonging to the so-called global periphery. The bulk of them, taking part in the internationalization as a raw material suppliers and manufacturers of labor-intensive products (and some of them - suppliers of parts and components for today's sophisticated technology), are fully depend on the advanced nations (Simon and Fred 1993, p. #).

In addition globalization can create the following problems (Tilly and Charles 1997, p. #):

• increase in technological gap with developed countries;

• increase in socio-economic stratification, marginalization (i.e., the destruction of the state of society, which is a process of disintegration of social groups, break the traditional ties between people, the loss of individuals belonging to the objective of a community, a sense of belonging to a certain profession or ethnic group);

• impoverishment of the general population;

• increase in dependence of less developed countries on the stability and normal functioning of the world economic system;

• limit the ability of TNCs to conduct nationally oriented economic policies;

• increase in external debt, especially the international financial institutions, which prevents further progress.

The most frequently discussed social and political problems, potentially taking place in developed countries due to globalization, are: increase in unemployment as a result of introduction of new technologies, which lead to unemployment in the industry, increase of social tensions; and changes in the structure of production and movement of the mass production of labor-intensive goods in developing countries that heavily impact the traditional industries of these countries, causing the closure of many industries (Kim et al 1989, p. #).

One of the threats of globalization is deindustrialization of the economy, as the process is associated with a reduction of employment in manufacturing industries in both, Europe and the USA. Deindustrialization is the cause of depressed regions, enhances the social stratification of society. Indeed, the share of manufacturing industries in the economy of the industrialized countries dropped sharply, nevertheless, it should be noted, that this reduction is covered by the rapid growth of the share of services, including the financial sector. Deindustrialization is a normal process, generated by technological progress and economic development, and is not a consequence of globalization, although it runs parallel with it (Emmerij and Louis 1992, p. #).

Serious negative consequences of globalization may be the transfer of control over the economy of individual countries, including the most powerful states, multinational, or global corporations, and international organizations. For this reason, some analytics see in globalization an attempt to undermine national sovereignty. Modern corporate capital, actually, controls the political life of today's developed countries (Simon and Fred 1993, p. #).

The increasing global integration of capital markets threatens the economic policies of individual countries. Foreign capital in the form of direct or portfolio investment poses a threat to the national economy in connection with the ability to disappear from the country as quickly as appear. Globalization reduces the ability of governments to maneuver (Henderson and Jeffrey 1989, p. #).

One of the biggest threats to global processes, according to many experts, is the rise of unemployment. The example of such predictions can be seen in the controversial book “The Trap of Globalization: an attack on prosperity and democracy”, written by Martin and Schumann. According to the authors it is predicted that for the development of the global economy in this century will be needed just 20% of the world`s population. More labor is required. Fifth of all job-seekers will suffice for the production of essential goods and the provision of costly services, which the international community can afford. This 20% of the population will actively participate in society, earn and consume, and inherit a lot of money. Those 80% left will have huge problems (Bradley, Stephen, Hausmann and Nolan 1993, p. #).

The next threat is associated with the labor mobility. Mass migration becomes a major source of aggravation of the socio-economic situation in the world. According to the UN, in 1995 the number of people, who lived outside their home countries, was 125 million. Destabilizing factors are the new forms of employment (individualization of employment conditions, temporary contracts) and the globalization of the labor market. The influx of the cheap labor has intensified the competition in the labor market of developed countries. It has led to an aggravation of interethnic relations and the rise of nationalism in these countries (Tilly and Charles 1997, p. #). The negative consequences of free movement of labor have long time been recognized as a potential hazard, and today, it is very relevant in many countries. Therefore, almost all states have some form of control over the free movement of labor. However, it should be noted that the most prepared and high valued workforce is more mobile and able to effectively find its market niche. With the help of globalization, all countries try to attract talented professionals and skilled workers, giving them visas and admitting to its market. The emergence of cross-country spillover of labor will lead to global productivity, due to the achieved allocation of labor resources (Andrews and David 1994, p. #).

Another challenge of globalization is the potential global instability due to the interdependence of national economies in the world. As a result of local economic fluctuations or crises, the country may have regional or even global implications. Such possibility is not only theoretical, but can be implied in reality. This confirms the Asian financial crisis that began in the summer of 1997 in Thailand, and then reached the other countries in South-East Asia (Tilly and Charles 1997, p. #).

To summarize, the process of globalization has become more active in the past two decades. It is fraught with many ambiguities and contradictions, and becomes the subject of intense debate in academic and business circles.


The main challenge facing the power structures of today`s society is to ensure that globalization becomes a positive force for all peoples in the world. This is due to the fact that, even when globalization offers great opportunities, its benefits are very unevenly distributed to the people around the world. It must be realized that developing countries and countries with economies in transition face particular difficulties in taking action in relation to this central challenge.

Thus, the process of globalization has as advantages, as disadvantages. The main benefits of the process are: rapid technological growth; increasing the quantity and quality of consumption goods; creating new jobs; free access to information; improvement and increasing the standard of living; improvement of understanding between different cultures. The possible negative aspects are: instability of the economies of many countries; a widening gap in socio-economic development among countries; stratification of society; the growing influence of transnational corporations; increased scope of migration; aggravation of global problems; introduction of mass culture, the loss of identity of nations.

In general, the inter-state system is emerged from the structures lags that are imposed by the globalization of the economy. It does not allow to use efficiently the positive results of the process and to resist negative socio-economic consequences. Thus, the need to establish effective mechanisms to fight poverty, reduce the gap in living standards between countries and regions of the world, the optimization of demographic processes and the preservation of the environment, prevention of environmental and technological disasters and overcoming their consequences are crucial.

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