The
development of the global economy is perhaps one of the most controversial
topics in economics, while also the most inevitable. Very few economists would
argue that resisting
The
American system was designed around an understanding of the free market – where
supply
and demand determine the prices of various good and services. This
allows scarce resources to flow to their most efficient uses, since capitalist
producers will not continue to waste valuable resources on failed experiments,
if there is no economic incentive. As competition increases due to more
countries and businesses having interaction with each other – the international
consumers will have a greater quality and quantity of product. |
| Gas lines resulting from OPEC Embargo, 1973 |
There are a number of factors that
impact the degree to which developing nations are capable of competing with
more prosperous nations. First, some countries simply maintain an absolute
advantage in a particular sector of the economy. An absolute advantage is when,
“one country, for any of a number of reasons, can produce some things cheaper
or better than another” (Sowell, p. 503, Basic Economics: A Common Sense Guide to the Economy). Whether this advantage comes from
climate, technology, or even the culture of society – it can cause other
nations to become incapable of competing in that sector. Comparative advantage
is where specialization in national economies allows countries to divide their
resources to produce the most efficient amount of goods, despite possible
absolute advantages exercised by one country over another. This can allow for
massive increases in productivity – but it also has the potential for abuse by
one country toward another. In 1973, due to the comparative advantage that
Saudi Arabia and OPEC held over the oil industry, Arabs “imposed an embargo
against the United States in retaliation for the U.S. decision to re-supply the
Israeli military and to gain leverage in the post-war negotiations” (“Oil
Embargo” Office of the Historian). The globalization of the economy, then, can have both positive and
negative consequences on the growth of national wealth.
One of the
biggest problems with specialization resulting from globalization is that
countries can reduce or even eliminate entire sectors of their economy – for
example, the US now imports most factory-made goods from overseas in China or
Taiwan – countries that have specialized to focus on industrialization. This
makes for cheaper products, but costs the US blue-collar factory jobs. When
workers lack expertise outside of a particular sector, job losses in factories
can destroy their livelihood and lead to vast homelessness in certain
communities.
It must be understood, though, that
this does not mean that the entire economy suffers, as a result. If blue-collar
jobs are lost to overseas corporations – it will usually result in more
white-collar jobs domestically. Thus, an economy might experience rapid growth,
through specialization, while still seeing entire sectors lost and radical
increases in unemployment rates. At this point, however, labor unions
historically will arise to protect the rights of workers to have full
employment. If a large enough union can mobilize a grassroots campaign against
the government of a nation, it can easily prevent the export of economic
sectors, causing entire sectors to be “protected” from outsourcing. This is
known as protectionism – and it results in a country favoring domestically
produced goods and services – often going so far as to place tariffs and quotas
on foreign imports.
It is fair to note that
protectionist policies are effective at accomplishing their chief objective –
they artificially preserve the jobs they seek to protect, and insulate these
workers from potential job loss. This can benefit a country domestically, as issues
of joblessness and homelessness are not as rampant, despite changing
technology. However, protectionist policies have the unintended consequence of
harming foreign nations, by blocking or limiting the amount of goods and
services that these countries can export. Organizations like the World Trade
Organization exist to address the rules of international trade, and to ensure
that protectionist policies remain limited, to avoid unnecessary disputes
between nations. The area where protectionist policies become the most
problematic is in regard to the commanding heights of the economy – large
industries like coal, oil, and steel.
Finally, the globalization has had
a profound impact on the development of international trade agreements. As the
global market has expanded to allow more rapid trade and more international
business, many nations have sought to establish freer trade agreements with
each other, in the interest of bilateral economic growth. One key example of
this is the formation of the North American Free Trade Agreement (NAFTA)
between the United States, Mexico, and Canada. This agreement “reduced barriers
to commerce and business among the three nations (Weidenbaum, p. 193, Business and Government in the Global Marketplace). NAFTA was
viewed by Canada and Mexico as a great achievement toward more equitable trade
between themselves and the United States. When NAFTA was under debate in the
United States, many conservative politicians objected to the adoption of the
agreement due to potential harm to the economic stability of the U.S. economy,
by allowing lower skill jobs to transition toward Mexico and forcing unionize
labor to suffer. While ultimately, politicians voted in support of NAFTA, in
light of recent developments, the success of this agreement is questionable. As
Weidenbaum points out, “Overall, the changes resulting from more open trade are
turning out to be much less than forecast by either NAFTA’s supporters or
opponents” (193). Thus, even with strides being taken toward freer trade, the
globalization of the market still creates difficulties for successful trade
between developing nations and more prosperous countries. 
In conclusion, the globalization of
the market is essentially a neutral phenomenon. There are both negative and
positive consequences – but it is an inevitable result of free market
capitalism. While there are certainly potential complications, through
protectionist and punitive trade policies, as well as unbalanced trade between
nations, there are many advantages as well. It is important to understand that,
whatever fears or dreams that economists may express in regard to
globalization, it has certainly benefited economic and human rights advances in
developing nations. It is vital that politicians – and the general public –
understand the essentials of the global market – and ensure a healthy respect
and fear for the potential consequences of manipulation of the markets by national
or international government agencies.
- Evan Gillespie
Copyright April 2014
I'm gathering that it would be a negative for the world if any nation instituted large trade restrictions. Is that correct? If so, the U.S. has some sanctions on others it needs to remove.
ReplyDelete