Globalization is seen by analysts as the golden Utopian point in society where all countries come together with lightning fast speed and reach out to gain benefits from one country to the next. Unfortunately, analysts are blind to see some of their inaccurate plans; they fail to hit the mark on real-life scenarios. Most importantly, the world’s resources are not abundant. They have a limited life-span before these resources become used up by humans. Again, we have a limited supply of resources and little ability to control the pollution which kills these resources at an even more rapid rate.
My point is, we are setting ourselves up for failure based on our “call-to-action” plan we have already have in place to survive in this world with our support for Globalization.
These speculations are all wrong! Analysts see things from a micro level instead of the big picture—such as a growing business or a high paid executive, these results are infrequent with real-life scenarios. The reality check is that businesses are becoming increasing more “cutthroat” competitively against each other, while at the same time the employee of the company has greater chances more than ever to become laid off from the high level of competition in the workforce.
Here’s my list of why Globalization isn’t the answer we are looking for to reach our desired prosperity, and why it’s an issue of high concern for hard working citizens. Don’t get me wrong, for developing countries it’s great! In high-tech, fast-paced societies like the ones we live in, there is a HUGE problem.
1. I stated that Globalization burns up limited resources at an alarming rate. On December 11, 2001, China finally joined the World Trade Organization (WTO). The U.S. had such a strong business interest in China because of their rapid growth of manufactured goods and services at such a low cost. The U.S. capitalized on China’s imports which doubled from $51.5 billion in 1996, to $102 billion in 2002. Doubled the amount of imports in a little more than 5 years. China is also the biggest importer of coal in the world.
The coal consumption started to slowly rise in 2002 and in 2013 peaked. Now in 2014-15 we are seeing a 1%-2% decline. Don’t let these numbers fool you, China is well known for hitting all their growth targets within a particular sector without any concern of the environment surrounding their country. In 2013, 90% of China’s cities air quality failed to reach industry standards set by China. The coal consumption of China may have a small decline, but still consumes more coal than any other country in the world at an enormous 3.87 billion metric tons.
2. Just like coal, Globalization will have a rise in CO2 emissions as well. Imagine that the global economy consumes more coal quickly than speculated, and increases oil & gas production at the same time. This then will make CO2 emissions automatically increase. CO2 emissions have performed to increase more than speculation has trended (see figure 1).
Figure 1: IEA fossil fuel CO2 emissions estimates vs. IPCC SRES emissions scenarios.
3. Countries government regulators can’t predict the impact of their actions from 1 country to the next by Globalization. Decisions which a country official would think scale back emissions from 1 country could incidentally effect trade, increase the volume of output for coal manufacturers, and CO2 emissions to rise overall. This is a big reason why there is such sharp decline in oil prices.
Figure 2: 1973 Oil Price Volatility
4. The oil prices are greatly affected by Globalization. In this case, there were several sharp rises and drops in oil prices. In (see figure 2 above) the first graph we can see the sharp rise in 1973. The first price drop was from 1973-83, when the supply for oil greatly exceeded demand. Then from (see figure 3 below) 1983-2003, the price per barrel of oil hovered in the range of $20-$30/bbl (Except for 2 months it went over).
Figure 3: Oil Prices from 1973-2003. Source: U.S. Energy Information Administration
Around post-1983, it seemed accurate enough to point out that oil prices would to the threshold between $30-$40/bbl. Through the economics of inflation, it wouldn’t make sense that oil would go below $20/bbl before 1970 due to other goods rising from inflation as well.
Now in the past 10 years from today we have seen the price of oil rise sharply to now stabilizing above $60/bbl. Which wouldn’t be odd if demand was already consistent with supply to drive prices up, but in our case now, there is not enough growth in supply.
The demand we have for oil is slowly rising.
If we look at the biggest producers of oil we obviously give the nod to The Middle East due to their sweet, light crude oil, and 900 billion barrels of reserves. North America has had the largest growth percentage in production since 2005, but still trail vastly behind the Saudis.
Now there is a new problem with the global oil demand. We now have China buying more fueled cars than Europeans than ever before in 2012. Also, with North America’s supply very full with not as strong of a demand before the oil price drop, The Middle East gets to have control of the market by its demand in the Eastern hemisphere.
The problem with the oil that the U.S. is facing at the moment is the oil that has been conventionally produced out of the wellhead have already been nearly depleted. These workover rigs are still producing, but in order to get more oil out of the ground the unconventional drilling method needs to be used. This costs a lot more money to get the oil out of the ground and the oil price has to be watched closely to make sure that the ROI is going to be worth the extraction of oil out of the ground. Marginal returns are not worth the cost of production if the supply is already high and the demand is sub-par at best. So the margin of returns must be watched accurately for the desired results from the oil & gas companies to proceed with gathering oil.
5. Tons of oil trading will go to countries that need these fossil fuels for consumption from the 1st world countries that already have a supply. In this Globalization scenario, highly advanced countries will sell there oil to developing countries in need. For countries who have to import a large amount of oil at a high price (U.S.), these countries have to face the wrath of reducing their country’s budget, recession, and not using as much of the fossil fuels until the price lowers to reasonable standards for each country (see figure 4). This is because for everyday essential goods such as transportation and food, necessity goods and luxuries will be reduced by the consumer’s budget.
Figure 4: Oil Consumption by Country
Of course advanced countries can afford the risk of higher priced oil than the countries that are still becoming more economically efficient. Also, one key note to point out is how many workers actually hold jobs in these poorer countries. Job loss is always associated with oil consumption, because there are lots of workers in these countries that can’t afford the fossil fueled goods due to their low pay rate. More jobs lost = less oil consumed.
6. In advanced countries where you have the higher regulations on the environment, higher job pay for workers, more expensive building infrastructure, more expensive energy fuels, and a multitude of benefits for these workers; it makes it challenging to compete with a country who has cheaper workers & infrastructure cost. Outsourcing has also created its fair share of headaches for the U.S. When it costs much less to hire a worker in a struggling country than here in the U.S., it creates more job losses in the advanced country due to paying a worker less from an impoverished country to perform the same job.
7. Business investors always look at GDP growth when looking to invest in a new area within the world. If you look at countries like Canada, U.S., and Europe for instance, there is a lot of debt with low growth stages of revenue streams. GDP growth is an indicator of showing investors where they can get a desired ROI on their investment by looking at the amount of revenue streams in a span of time. For example, Brazil and India are both experiencing a large amount of GDP growth. An investor would evaluate where there would be a potential market niche to create a demand with a healthy return from the initial investment. The chances would be higher of succeeding in achieving the investor’s ROI in these countries due to the high GDP exhibited.
Sadly enough, when looking at the investment of domestic assets such as a house, place of business for Americans, schools, highways roads, anything else government owned, there has a been a depreciation of these assets. It would have been thought of 30 years ago that buying a house or owning a place of business would increase one’s net worth over time, but in this case, it is actually declining in value (see figure 5 below).
Figure 5: Net Domestic Investment in the U.S.
8. The back-up currency that is used for the world economy is the U.S. dollar which already has a large deficit in trades for goods and services. Because of the rise in Globalization and oil price, the value of the dollar has steeply declined as a result due to trade deficit. The U.S. trade deficit from imports is at a near staggering $2.9 trillion dollars of today (see figure 6 below).
Figure 6: U.S. government spending & income when oil prices are high
Because the U.S. has the dollar as the world’s reserve currency, it is a topic that is very complex, and very hard to decipher from a written blog post. All you need to know is that the U.S. can be in deficit year by year by year, while the other world’s countries can just maintain a positive cash flow that they end up buying a percentage of U.S. debt. The other countries then receive cash for the United States frivolous spending.
Basically this policy of using the U.S. dollar as a back-up currency doesn’t apply to society’s advanced communication with other countries. Globalization was definitely not a key element when using this strategy implemented with the back-up currency to reap a benefit for the U.S. This wasn’t thought out this way with the thinking the world would become an advanced communicative place. This leads to an advantage with other countries while the U.S. keeps adding more debt year after year with no approach of pay the deficit back.
9. People, not corporations, are the ones effected most by taxes from Globalization. Corporations can uproot their place of business and move to another area where taxes are lower than where they were. Citizens have less mobilization to jump ship to another location than businesses. In today’s world, with the job deficit, people in local areas compete against each other to local employers in which the potential employee with the best tax break is favored heavily over others.
Corporations have certain taxes that they pay more than others. This is associated with taxes at Federal, state, & local levels. As you can see, the individual tax rate (see figure 7 below) is joined by social security, medical, & personal income tax which falls on the employee, has sharply risen through the roof. Also, the corporate taxes have greatly reduced over time and we can easily see that the revenue is coming in from the workers taxes.
Figure 7: Tax Proportions on Corporate & Employee Levels
High oil prices will cause low pay for workers because of this commodity being such a necessity for our livelihood in our advanced nation that the government cuts spending and increases taxes to keep up with buying oil imports at a higher price. Not fair for workers to be taxed when the U.S. is very oil independent due to the shale formations taking off in 2008, and then still buying high priced oil imports from The Middle East Now since oil prices are going back up past $60/bbl, I concluded a valuable oil & gas prediction here.
10. There’s a stigma with Globalization that has every country is sprawling to drop the value of its currency to gain an export advantage so they can profit more money. Every country is so fiercely competitive with each other now that everyone is predatory pricing the market as the lowest bidder to get the most amount of revenue stream come to their country. So what will these countries do to become the lowest bidder? Give workers low paying jobs, use cheap & hazardous fuels that destroy the environment, or creating more money throughQuantitative Easing. This will cause prices of goods & services to rise which will cause the currency of the country establishing this method to have their own currency decline in hopes of being lower than the competing countries.
Basically, when all you do is print money out of thin air this leads to a lot of problems with the global economy. Stocks & bonds are going to be at a greatly inflated price, imports become extremely high in price, the surplus of printed currency is out of proportion with the goods/services provided by that particular country, and it creates economy crashing market bubbles. Remember the housing market bubble? This is when stocks & bonds had high prices at interest rates because they were all created by quantitative easing. The circulation won’t stop. There is going to be increased taxes because of high interest rates and guess who’s paying for it? Your government, your employer, and more importantly YOU.
11. Through Globalization, we are in need of other countries goods/services. Think of it like this, you’re specialty is coffee beans and bananas. Your country is abundant in those 2 resources. However, the cost of labor, the time to harvest, and your country’s price to export exceeds the demand to sell these goods. You have another country come in with these goods at a 50% lower price, then there is no need to put in the work to use coffee beans and bananas as a resource. That’s why advanced countries can focus on its citizens becoming professionals at investment banks, or high-end hospitals which aren’t so heavily influenced by oil imports which make most of the world’s goods.
12. The first idea that usually pops in one’s head when they think about Globalization is that it is a chain-link group of connections of many different countries coming together in a rapidly fast, communicative network. However, when 1 country goes bankrupt or has a financial meltdown, other countries along with that bankrupt country will experience a domino effect of financial strain from that 1 country’s misfortune.
It makes sense that Globalization with countries who are of equal proportions with currency, goods/services, and population can benefit one another through exchanging simplistic manufactured goods to benefit from trades. However, when we reach a high level of complex societies of the world we live in today, it’s accurate to conclude that a large amount of indulgence in consumption of goods/services gives little to no benefit in value, and that the extra free trade will add little amount of return; if the value is not above a desirable ROI of the costs, then there’s no point engaging with the trades.
Should we pigeon hole each other in stating that since America is so good at being great at specializing in financial institutions that should be our main area of focus from a trade point of view? What about China? Because they are the world powerhouse of manufactured goods should their main area of attention be solely on making goods? These are simple questions, but at what cost will we all be effected later in the future if we don’t diversify our country’s goods/services skill-set. If we become so dependent on each other country, what will happen when we depend on several goods/services that we can’t obtain from them due to that country’s misfortune?
The U.S. has placed itself in a dangerous position with its embracement of Globalization. The only countries that won’t be effected when “shit hits the fan,” are the ones that haven’t supported Globalization (Africa comes to mind, I can’t think of any others). If the world economy does experience a domino effect, it won’t be like our ancestors civilizations where they left the extracted land until resources slowly grew back in the area for harvest. From a global scale, there will be no resources left to even consume, I just hope we come up with a plan quick that can make our world prosper.