Globalization & Protectionism

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

globalization is a wise idea, or even possible. However, there are definite advantages and disadvantages to a global economy. This blog simply weighs the positives and negatives of how globalization has impacted the United States and the international market as a whole in regards to specialization of economies, protectionism, and international trade.  

           

 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

Poverty: From a Conservative Viewpoint

As with many of my posts, this topic was inspired by a class discussion on development economics and the ensuing follow-up conversations with fellow students. I think it is a fascinating topic to discuss and analyze as well as a very important social ill that much of the world -including our own nation, continues to struggle with on a daily basis. Any follow-up discussion that you would contribute is welcomed and encouraged, in the comment section below.

Poverty. The greatest social blight of the world. We've all seen the commercials for the non-profits that seek to sponsor children living in poverty. Most of us have seen documentaries and newscasts from experts that discuss the implications of poverty on society in Africa and Southeast Asia. In lieu of the sheer mass of public awareness campaigns and NGO's that we encounter in our daily lives, it can be easy to turn a blind eye to the reality of this issue in the world. There are millions of individuals in the world living in extreme poverty with little or no hope of climbing the economic ladder and achieving a higher per capita socioeconomic status. 

If this seems a little daunting of an issue for this blog to tackle - and maybe a little too globally minded - I understand. For many of us, addressing poverty and disease in Africa and the rest of the developing world is not even an option -- our daily lives are more than enough to figure out, and the financial and time commitments necessary to help the rest world are simply impossible for us. But there is another area of poverty that is often ignored - local poverty. Poverty in our own neighborhoods, cities, and states. The city of San Francisco had approximately 6,436 individuals living in homelessness in 2013. That's huge. 

While thinking about this issue, it occurred to me - in light of the fact that conservatives often find themselves on the defensive with regard to their opposition to government policies and regulations, I thought it might be nice to discuss how a conservative (myself) views the issue of global and domestic poverty - and how Americans, and my fellow Christians, can remain compassionate and attentive to this serious social ill while maintaining our fiscal responsibility in government policymaking.

In my Political Economy class, we made a distinction between the two primary views on how one should address poverty in the world. The first category are labeled as "Planners" while the second are "Searchers." Planners seek to gather research, discuss policy and with the collaboration of various experts - create a plan to solve the issue. This approach is associated, in part, with the approach advocated by Jeffrey Sachs. Searchers, on the other hand, view the issue as too complex to address through any expert-plan. Poverty is an issue that must be addressed piecemeal through homegrown solutions. Do these arguments sound familiar? They should - this is essentially the permanent policy debate between conservatives and liberals, when it comes to social policy and economic development. In light of this, you can probably guess which side of the fence I come out on. I align with the "searchers." Primarily. 

To show my hand - I do not believe that poverty can be eradicated. Ever. I think that some form of poverty will always exist - to deny this, I believe, is to deny human nature and the entire history of civilizations in the world. However, I do believe that poverty is still a social ill that individuals should seek to fight and resist - it is certainly possible to reduce poverty - and even work towards a temporary solution by alleviating the amount of absolute and extreme poverty in the world. I believe that poverty is a serious issue and one that many of us, and especially many Christians, fail to devote serious thought or time toward addressing. If Christians, such as myself, claim to follow the teaching and work of Christ - then we should be seeking to address the physical as well as spiritual needs of those around us. Micah 6:8 declares, "He has told you, O man, what is good; and what does the LORD require of you but to do justice, and to love kindness, and to walk humbly with your God?" 

So - poverty should be fought - but how?

I believe that to address poverty and limit/eliminate it, one must first understand where the issues of poverty really come from. Is it the result of exploitation by the rest of the world? Is it the result of lack of innovation and engagement? Is it self-caused, or a byproduct of other people's and government's actions?

Answer - Yes. And No. Because global poverty is far too big of an issue to boil down to one cause - in some places, all of these might be the case. In others, none. In some, it may be a mix of a few of these, but not all. This is why I am a "Searcher" and not a Planner - just as this is why I believe in the Free Market and limited government - it is impossible to accurately predict all of the variables that will influence economics in the future or the present - but we have consistently seen that when individuals are provided with a basic framework of law and order and equality of opportunity - then competition allows some to shine, while others fail. Government policies to help those in poverty are not preferable, but at times, they might be necessary. The most desirable approach to fighting poverty, though, in my belief, is by those outside of poverty living with and engaging in community with those trapped in the social conditions of poverty. This allows those who truly need change to have policies formed based on the realities of those in need, not based on the decisions of political elites. It also allows those in poverty to have an opportunity to be equipped and empowered to pull themselves out of poverty - when they see the decisions and choices that must be made to achieve success, and observe them working, they will be more willing to accept these changes than if someone simply tells them what to do.

The most important thing to remember, however, is that talking about poverty and doing something about poverty are not the same thing. Tossing money to homeless person might be all well and good, but it does little to actually help them out of their situation. I admit, that I am often guilty of repeating this mistake, because it is much easier to give money than to give time. However, if you do have time or the resources, I would encourage us all to make time - even if only on occasion - to volunteer and assist organizations and individuals seeking to address local issues of poverty. Small steps can lead to big changes. Only by going out of our way to help equip individuals with the knowledge and skills that they need to pull themselves out of poverty, do we have any hope of solving this very real and tragic issue in society.

WJU San Francisco Outreach Team, November 2013