II.

Reasons for Globalization

Most experts attribute globalization to improvements in communication, transportation, and information technologies. For example, not only currencies, but also stocks, bonds, and other financial assets can be traded around the clock and around the world due to innovations in communication and information processing. A three-minute telephone call from New York City to London in 1930 cost more than $300 (in year 2000 prices), making instant communication very expensive. Today the cost is insignificant.

Advances in communication and information technologies have helped slash the cost of processing business orders by well over 90 percent. Using a computer to do banking on the Internet, for example, costs the banking industry pennies per transaction instead of dollars by traditional methods. Over the last third of the 20th century the real cost of computer processing power fell by 35 percent on average each year. Vast amounts of information can be processed, shared, and stored on a disk or a computer chip, and the cost is continually declining. People can be almost anywhere and remain in instant communication with their employers, customers, or families 24 hours a day, 7 days a week, or 24/7 as it has come to be known. When people in the United States call a helpline or make an airline reservation, they may be connected to someone in Mumbai (Bombay), India, who has been trained to speak English with an American accent. Other English speakers around the world prepare tax returns for U.S. companies, evaluate insurance claims, and attempt to collect overdue bills by telephone from thousands of kilometers and a number of time zones away.

Advances in communications instantly unite people around the globe. For example, communications satellites allow global television broadcasts to bring news of faraway events, such as wars and national disasters as well as sports and other forms of entertainment. The Internet, the cell phone, and the fax machine permit instantaneous communication. The World Wide Web and computers that store vast amounts of data allow instant access to information exceeding that of any library.

Improvements in transportation are also part of globalization. The world becomes smaller due to next-day delivery by jet airplane. Even slow, oceangoing vessels have streamlined transportation and lowered costs due to innovations such as containerized shipping.

Advances in transportation have allowed U.S. corporations to subcontract manufacturing to foreign factories. For example, in the early 2000s the Guadalajara, Mexico, factory of Flextronic International made pocket computers, Web-connected TVs, computer printers, and even high-tech blood-glucose monitors, for a variety of U.S. firms. Low transportation costs enabled Flextronic to ship these products around the world, and the North American Free Trade Agreement (NAFTA) made the Mexico location more attractive to Flextronic.

Advances in information technologies have also lowered business costs. The global corporation Cisco Systems, for example, is one of the world’s largest companies as measured by its stock market value. Yet Cisco owns only three factories to make the equipment used to help maintain the Internet. Cisco subcontracts the rest of its work to other companies around the world. Information platforms, such as the World Wide Web, enable Cisco’s subcontractors to bid for business on Cisco’s Web site where auctions take place and where suppliers and customers stay in constant contact.

The lowering of costs that has enabled U.S. companies to locate abroad has also made it easier for foreign producers to locate in the United States. Two-thirds of the automobiles sold in North America by Japan’s Toyota Motor Company are built in North America, many in Kentucky and in seven other states. Michelin, the French corporate giant, produces tires in South Carolina where the German car company BMW also manufactures cars for the North American market.

Not only do goods, money, and information move great distances quickly, but also more people are moving great distances as well. Migration, both legal and illegal, is a major feature of this era of globalization. Remittances (money sent home by workers to their home countries) have become an important source of income for many countries. In the case of El Salvador, for example, remittances are equal to 13 percent of the country’s total national income—a more significant source of income than foreign aid, investment, or tourism.