Is Economic Globalization a Positive Trend?

Economic Globalization

a positive trend?

In order to fully understand the complexities of economic globalization, one must first sufficiently define the term in regards to how it is viewed in today's world. Thomas L. Friedman defines globalization as a system or a paradigm, "an approximate set of rules by which to conduct life," yet he also points out that globalization itself presently serves as a replacement for the old system begun and fostered during the Cold War which came to a close when the Soviet Union collapsed in 1991 (Sjursen, 3).

However, others have countered that globalization is defined by trends related to third-world countries that economically become stable as a result of re-defining their old national standards. For example, Juan Enriquez argues that the global trade market "allows a small region to break its dependency on a larger nation state," whereby "protection is no longer necessary," with the result being free trade (Sjursen, 3).

Of course, economic globalization is a very hot topic at this time in American and world history, and is advocated by many nations and leaders for its potential, yet at the same time, it is viewed as a negative entity, due to its ability to destroy old systems and drastically change the face of old economic structures, such as those found in the United States and especially in Europe. Whether or not economic globalization is a positive trend can only be determined by exploring specific traits related to the science of economics and the economic aspects of the present world.

In a global system, economic growth is usually defined and measured in two ways. First, economic growth is related to the increase in real GNP (gross national product) which occurs over a long period of time and to the increase in real GNP per capita which also occurs over a certain length of time. Both of these definitions are quite useful for determining a nation's economic growth within a specific time frame. Per capita output, however, is clearly the best for comparisons of living standards among various nations or geographical regions.

One example has to do with India's GNP which is almost 70% larger than that of Switzerland, yet this European country has a standard of living some 60 times as great as that of India, the reason being that Switzerland's population is much more educated and well-to-do financially than the population of India which despite its huge economic growth within the last fifty years or so still has millions of its citizens living in extreme poverty.

Thus, economic growth is a very important goal for any nation, for the growth of total output in relation to population results in a higher standard of living for its citizens. Economic growth, in relation to total output, also represents greater material abundance in the form of commodities and other goods which can be traded with other nations.

As to the sources of economic growth, most economists agree that there are four basic ingredients necessary for the growth of any national economy. First, the quantity and quality of natural resources plays a major role in economic growth in the form of naturally-occurring minerals, lumber, coal and other resources needed to create and maintain goods and services for export. Second, the quantity and quality of a nation's human resources, being an educated population with the means to foster and maintain its economic growth. Third, the supply or stock of capital goods, and lastly, the existence of technology which enables a nation to produce various goods and commodities.

But the ability to grow and the actual reality of growth are very different entities, and most contend that two additional requirements greatly contribute to economic growth, namely, the demand factor and the allocative factor. With the first term, in order to realize growing productive potential, a nation or region must make full use of its supplies or resources possible via expenditures, and with the second term, in order to achieve its productive potential, a nation or region must provide not only the full use of its resources but also the full production which comes about as a result of utilizing them.

For example, in many Third-World countries which are now only beginning to take part in economic globalization, the ability to expand production is not sufficient, due to many important factors such as demographics, geographical limitations and the existence or non-existence of abundant natural resources. Yet within this paradigm, technology plays a great role, for it enables a nation to create and export its various products to other countries, thereby expanding its economic growth while giving its citizens a higher standard of living in the form of higher wages and better living conditions.

However, in some instances, economic growth can play havoc with the economies of other nations in the form of very stiff competition for certain goods and commodities which can often result in slower economic growth for some nations and greater growth in others. All in all, one nation may economically win out over another which forces its competition to lower prices, thus affecting the standard of living for its citizens.

Of course, all economic growth is heavily dependent on population. In the so-called "advanced" nations of the world, such as the United States, Canada, the countries of Western Europe, Australia and Japan, the citizens enjoy and prosper from continually rising standards of living despite an expansion in their populations. In contrast, most of the people in India live in abject poverty and do not enjoy a rising standard of living even while the population increases. Thus, it is clear that a nation can only improve its standard of living and thereby profit from economic globalization if it reduces the size of its population and labor force while increasing the productivity of its labor. If the economy in such a nation exists at the poverty level, the standard of living can be increased by reducing the size of the labor force and thus move toward an optimum population growth. But such a thing can be extremely difficult to control via governmental or state policies, a fact that has been experienced by many underdeveloped or Third-World countries in the last fifty years.

One may ask exactly how labor productivity can be increased under such conditions. Logically speaking, it appears that labor productivity can be expanded by wholly immersing underdeveloped and Third-World countries into the global economy which in essence would gradually increase their ability to produce goods and services for other nations, due to the demand for certain products that cannot be manufactured by competing nations. One prime example is China which currently is experiencing massive growth in its ability to manufacture goods for export to such countries as the United States. Technologically, China is labor-intensive when it comes to producing electronics for home use, such as televisions, audio equipment and even computers. Thus, the labor productivity of China is due to not only population growth (although presently not as high as in the 1980's) but also to education which the people of China, especially the young and urbanized Chinese, view as a mandatory adjunct to success and prosperity in a global economy.

Obviously, the forces for growth in a global economy will make vast changes necessary in order for certain nations to compete. But if these changes do not occur with reasonable speed and efficiency, the economies of many nations will fail to fully realize their capacity for growth and global expansion. On the supply side of the overall picture, if the economic growth of a nation became focused on particular industries or services, the productive capacities of these industries and services would expand rapidly while the capacities of others would slow or even diminish to the point of actually contracting instead of expanding. One important question results from this scenario, namely, where would expanding industries obtain the resources required for continual expansion? Obviously, one answer lies in increasing the labor force via immigrants that have the needed skills to perform the various tasks related to specific industries and services.

Also, additional labor could be incorporated from those industries that are declining. Either way, some kind of mechanism would be required in order to move resources into their most productive modes. One method would be to shift low-productivity to high-productivity applications. In other words, changes in technology and in the abundance of resources would make it possible for all industries and services to compete on a level playing field while helping each economy to prosper and realize its potential in a global marketplace.

In today's economic sphere, the underdeveloped nations of the world share one very important trait related to economic globalization, namely, poverty, based for the most part on low per capita incomes as compared to industrially-advanced nations such as the United States, Canada, Germany, France, Italy and Japan. Roughly speaking, the underdeveloped nations can be placed in three categories-those with per capita incomes of $5,000 or more (i.e. developed), those with a per capita income between $1,500 and $5,000 (i.e. semi-developed) and those with less than $1,500 per capita income (i.e. underdeveloped), such as found in most of Asia, Africa and South America.

The vast differences between advanced and underdeveloped nations can also be placed into three groups of nations-first, the industrially-advanced market economies, dominated by the U.S., Europe and Japan; second, the centrally-planned economies, comprised of Russia and the People's Republic of China, and lastly, the so-called Third-World countries which are semi-developed or underdeveloped. According to Jeffrey Haynes, "the current industrialized market economies with less than 18% of the world's population generates about 62% of world output" and although the U.S. makes up about 5% of the world's population, "it enjoys about 22% of world output." In contrast, Third-World nations with about half of the world population, "generated only about 15% of world output, while the Indian subcontinent with over 15% of world population, produced about 1% of the world's output" (156).

In relation to economic globalization, the income gap between those who are affluent and those who are poor appears to be widening. Although the per capita GNP's of advanced and underdeveloped nations have been expanding at about 3% annually over the last thirty years, the fact that the income base in advanced countries is initially higher causes the income gap to increase, meaning that economic globalization is often a good thing for advanced nations but a bed thing for semi-developed or underdeveloped nations.

For many Third-World countries, the various populations are made up of highly diverse ethnic groups which in recent times has created much warfare between these groups based on ethnicity and often religious differences, such as in certain African nations and some in Central Europe. A good number of these nations have large deposits of oil and other valuable natural resources, but many do not which only creates more divisiveness between Third-World nations. Also, a good number of these nations must deal with problems related to a growing population. Some have political and social stability, while others experience unrelenting political and social turmoil. National tradition and identity also play major roles in the overall economies of these nations. Yet despite these conditions, many Third-World nations have achieved economic progress which has greatly influenced their ability to be part of globalization. For example, the island nation of Taiwan, with its on-going debate with China concerning its sovereignty, is one of the leading producers and exporters of electronic equipment, due to the Taiwanese government's awareness that Taiwan can only survive and prosper in the global market by providing high-demand products for the rest of the world.

Thus, it is clear that world trade is a significant component of economic globalization. In regard to the United States, the volume of its international trade has greatly increased, and since the late 1960's and the early 1970's, the export and import of foreign goods has almost doubled, yet the U.S., in today's economic scenario, accounts for a diminishing percentage of total world trade. At the same time, world trade has increased even more substantially for other countries. Therefore, economic globalization appears to have decreased America's ability to export more of its products and commodities, due to competition from other advanced nations and the creation of many international agreements related to global trade, such as GATT and NAFTA.

According to C. Fred Bergsten, over 20% of U.S. industrial output is now exported and one out of every six U.S. manufacturing jobs produces products specifically aimed for export. Two out of every five acres of U.S. farmland produces food aimed for export to other nations. In addition, "almost one-third of the profits of American corporations are derive from their exports and foreign investments, while imports meet more than one-half of the U.S. demand for half of the most important industrial raw materials" (12).

In light of these facts, the United States seems to be greatly dependent upon other countries for many essential products, such as various kinds of fruit, coffee, tea, silk, tin, natural rubber and diamonds. Also, imported goods from other nations compete strongly in many American markets, items like Japanese cameras, DVD players, stereos, televisions and computers; Italian and French wines; bicycles from England, Germany and Italy, and Japanese motorcycles and automobiles. Not surprisingly, foreign-made automobiles currently make up about 30 or 40% of the total auto sales in the United States.

Thus, due to economic globalization, the Unites States is no longer the major producer and exporter of goods and commodities. In years past, particularly during the decades of the 1960's and 1970's, the United States usually exported more goods and materials than it imported, but because of economic globalization, the U.S. must now depend a great deal on foreign imports, something which has hugely affected the American economy via the elimination of jobs (i.e. outsourcing) and the rise in the prices of goods and services.

In contrast to the decades mentioned above, in 1984 U.S. imports of products and goods from foreign countries were in excess of those exported and the bulk of U.S. export and import trading was with other developed nations rather than with underdeveloped nations. To make matters worse, the 1980's saw the massive importing of goods from Japan in the form of electronics, automobiles and many household goods. Of course, the greatest import product in the 1980's was foreign oil, provided by those countries which make up OPEC (Oil-Producing Export Countries) like Saudi Arabia, Iraq and Mexico. But today, the reliance on foreign oil has skyrocketed, due to a larger population and more automobiles in the U.S. However, some analysts point out that the price of foreign oil, especially related to the cost of a barrel of crude oil (which presently is at its highest price in history) has more to do with the demand for oil in nations like China which is now only beginning to expand its economic impact into the world. Thus, as a result of economic globalization, the demand for oil and other necessary products has increased substantially which only drives the prices up while lowering the supply.

Changes in exports, i.e. In the difference between the value of a country's exports and that of its imports, have created numerous effects upon the level of national income, not only in the U.S. But also in various countries of Europe. Thus, one must ask exactly why nations rely so heavily on trade. As a definition, international trade "is a means by which nations can specialize, increase the productivity of their resources and thereby realize a larger total output than otherwise would occur" (Haynes, 234).

In regard to trade, two points must be discussed as to why trading is so powerful an entity when it comes to economic globalization. First, the distribution of economic resources, being those produced by man and by nature, among the countries of the world is very lopsided, meaning that some nations distribute more of their resources than others, mostly because of their long-held position in the global economy, and second, the efficient production of goods and products often requires different technologies and methods for distributing goods. A prime example is Japan which has a large and well-educated workforce; it also has an abundance of skilled labor which keeps wages down and profits high.

Therefore, Japan has the capability to efficiently produce goods at a low cost which is supported by the fact that Japan is a country where labor-intensive commodities are readily available for export to the U.S. And Europe. Take televisions, for example. In the 1950's and 1960's, televisions were mostly produced in the U.S. By such firms as Magnavox, RCA Victor and Sylvania using all American-made parts. But in the 1970's, this radically altered when Japan became the electronics giant of the world and flooded the U.S. market with its electronic products, especially televisions. Globally speaking, this created an imbalance in the television markets and forced the U.S. To import most of its televisions by the late 1980's.

In contrast, the continent of Australia has huge expanses of land as compared to its rather limited human and capital resources which makes it possible for Australia to produce land-intensive goods and commodities like wheat, sheep's wool and various kinds of meat products. Also, the country of Brazil possesses the soil, climate, rainfall and supplies of unskilled labor which makes it possible to produce low-cost goods like coffee.

Therefore, when one takes into consideration the power of economic globalization, such nations as Australia and Brazil will not be able to compete with other nations that are capital-driven and which produce products like automobiles, machinery and chemicals, all of which require a large workforce in order to produce them.

Some of those that advocate the existence of economic globalization do so because they are convinced that free trade as created by NAFTA in the early 1990's will allow the world economy to achieve a more efficient allocation of resources and a higher level of material well-being for the all the people of the world regardless where they live and work. Also, free trade, as some argue, promotes competition and helps to eliminate monopolies. With competition, foreign firms and U.S.-based firms are forced to adopt the lowest cost production techniques and forces them to be innovative and progressive regarding their products and production methods which overall contributes to economic growth. In addition, free trade gives consumers the choice of a wider range of goods and products. In essence, "the reasons to favor free trade are essentially those which endorse competition, for the vast majority of economists embrace free trade as an economically valid position" in a world governed by economic globalization (Bergsten, 14).

Despite all that has been accomplished with economic globalization, there is still much that needs to be done. For instance, the GATT (General Agreement on Tariffs and Trade) negotiations tended to focus on manufactured goods while avoiding other aspects of international trade. Those areas avoided or ignored include agriculture, various types of services and international investment. This, in the view of some economists, is nothing more than protectionism which has much to do with barriers to trade related to import quotas and voluntary export restrictions. In the U.S. "the percentage of manufactured goods imported which are subject to quotas and other non-tariff barriers increased from about 20% to more than 40% during the period 1980 to 1984" and in recent times has increased even more to well over 60% (Haynes, 256). Therefore, the U.S., in the global economic market, appears to be maintaining the brunt of the weight when it comes to protectionism.

The causes for protectionism are many, yet it is abundantly obvious that pressures for protection are a backlash to past restrictions in trade barriers. Particular industries and workers whose jobs and in some instances entire careers have been greatly affected by free trade and economic globalization have attempted for many years to create some form of protectionism for the United States. But due to the American economy being more open to importation than it was in the 1960's and 1970's, workers and certain small businesses, such as the old-fashioned "Mom and Pop" grocery store on the corner, have been highly affected by foreign competition, and in some instances, these smaller businesses have virtually disappeared from the American business sector.

When the United States formally agreed to reduce trade barriers through the inception of GATT, a good number of trade restricting measures came into existence. For instance, in 1981 an agreement was reached with Japan to set a limit on the number of Japanese automobiles imported to America, but this agreement expired in 1985. Also, a piece of legislation in the 1980's required that automobiles sold in the U.S. must have components made in the U.S. which, in effect, greatly reduced the number of Japanese automobiles for sale in this country. However, since the mid-1980's, the number of Japanese automobiles in the U.S. has increased substantially which has only managed to take jobs away from American workers.

In his superb article "Seeds of Chaos," Jeff Gersh provides the most comprehensive survey of economic globalization:

"The 1990's have been a decade of frenetic economic globalization. A torrent of goods and capital has breached national boundaries that once held back the flows of international trade. . .This headlong rush toward a global economy is underlain by an increasing concentration of wealth and power in corporations with worldwide reach" (Sjursen, 173).