Abstract
The mainstream economic theory holds that globalization is beneficial for every country, both developing and developed. However, the mainstream view relies on the comparative advantage theory, which embraces many unrealistic assumptions such as free mobility of labor and sustainable trade. These assumptions lead to adverse effects to countries that adopt globalization without a strategic plan. Importantly the U.S. is experiencing loss of jobs, an imbalance in income distribution and unfair competition due to globalization. These impacts arise when companies shift their production process to cheap labor zones and due to increased demand for skilled labor.
This paper has four parts. First, it analyzes how mainstream economic theory promotes globalization. Second, how globalization changes the distribution of job opportunities and income. Third, what the government can do to maximize positive impacts of globalization while reducing its adverse effects. Finally, I will support the perspective of economic nationalism as articulated to the 2016 presidential elections.
How mainstream economic theory supports economic globalization by propagating the theory of comparative advantage.
Comparative advantage theory is the foundation of the mainstream economics of global trade. Comparative advantage theory holds that if a country has distinct productions, it should get reciprocal benefits from trade. That’s why various governments insist that free trade has benefits for every country regardless of its economic status. According to this theory, economically advanced nations will not suffer significant loss due to cheap labor from developing countries. On the other hand, advancing countries will not suffer due to the advanced production methods of the wealthy nations. However, this logic can’t occur in real market setting since every trader is seeking to gain more.
Arguments of the comparative advantage hypothesis
Edward (73) highlights the following assumptions from the theory; ideal competition of products market, free trade, universal technology, same amounts of goods and similar taste among the nations engaging in trade. The assumptions of this theory that propagate globalization include;
Lack of externalities
The theory assumes that all costs and gains in any production procedure already are account for by the stakeholders of the particular economic venture. However, in political processes, this assumption is not correct since mainstream economics doesn’t have the capacity to handle aspects like environmental costs. The model lets people work with the assumption that the producer bears even the cost of pollution that may arise in the course of production. In a broad perspective, it assumes that countries enter into international trade agreements without considering the consequences. The problem is that unaccounted hidden cost or gains usually force some industries to exit the market.
Flexibility of capital and workforce in a specific nation
The theory assumes that production factors circulate freely in a given country and that no costs are incurred during the circulation. Also, it implies that factors such as skills can move from one production process to another. Ideally, some factors of production are slightly immobile and can’t be reshuffled. For instance, employees can’t move from one industry to another since they lack the required skills or live far from the job place. That’s why some imports lead to the closure of local industries and render workers jobless.
Trade is sustainable
According to this assumption, trade in a given country is continuous and uninterrupted by both imports and exports. However, that is not true since imports and export usually cause instability in trade. Importantly, a country should compensate imports with exports. If that doesn’t happen, the particular nation will lose to foreign countries or acquire more debts. In a case where a country is exporting non-renewable resources, there will be the realization of short-term gains as opposed to long-term benefits. However, since mainstream economic theory advocates for free trade, it will insist that this situation is “efficient.”
Trade doesn’t increase income inequality
This approach promises benefits from free trade. However, the benefits are realized on the economy and not by specific individuals. Thus, there is a possibility that individuals might lose income due to economic gains brought by free trade. Advanced countries experience income inequality due to the increased bargaining power of capital as opposed to labor. Hence, countries those get revenue from capital benefit more while those that rely on labor lose. This situation happens due to mainstream economics model that holds that free trade increases revenue to those who invest more in production and lowers income to those who don’t invest much.
Capital doesn’t cross global borders
Comparative advantage addresses how countries can utilize their resources in production. It instructs nations to let market forces drive the economy. However, that is impossible since the forces drive resources out of the given country’s economy. Ideally, free trade might shift the resources to a global market where they will be more productive. In that case, the resources will benefit the particular country where they move to and may not profit the individuals.
Short-term efficient leads to long-term development
This theory only addresses the aspects that lead to short-term gains and neglects the future. Productive factors are utilized in short-term rather than transforming them for future benefits. For instance, if one individual works as a doctor and another as a banker, they will earn a better pay. However, in the future, the two may lose their jobs merely because they didn’t upgrade their skills. This case applies to countries that concentrate on short-term gains rather than long-term gains.
Trade doesn’t initiate negative productivity development abroad
Benefits of free trade come from the differences between one country’s opportunity cost of manufacturing goods and the opportunity cost of the nation’s trading partner. However, when an advanced country engages in foreign trade with a developing state, the benefit is not mutual because only the developing country will benefit.
How expanded economic globalization changes the distribution of employment opportunities and income
Globalization of the economy has intensified the degree by which economic activities of a particular country depend on the international market. Consequently, governments can’t control job opportunities and economic activities like in the past. The continued adoption and implementation of free trade due to globalization theory will open countries economy more, leading to economic adjustments and loss of jobs.
Increased globalization has resulted in changes in distribution of income among individuals. Ideally, educated and skilled individuals have higher incomes than those will less or no skills. Williamson (42), insist that the inequality in earnings is due to the increased demand for individuals with more education and expertise. Additionally, products that don’t require or require less skill are being manufactured in labor intensive countries such as Asia and Africa. This fact also lowers the need for unskilled labor in advanced countries leading to high unemployment rates. Conversely, individuals with the required skills are few, and the demand is high due to the international economic growth. The inequality in income distribution due to globalization is affecting both develop and developing economies. The reason is that skilled labor has a high mobility in comparison to unskilled labor. Besides, there is more unskilled labor in developing nations; hence, the reserve appears to be elastic.
The increasing globalization leads to imbalance in earning distribution, but it doesn’t lead to poverty. Less developed nations that have realized fast economic growth due to globalization have low levels of poverty. For instance, China is experiencing both economic growth and increased earning imbalance. Nevertheless, not all countries that have signed free trade agreements realize economic growth. The reason for this fact is that some countries don’t have a large local market to support economic development. Additionally, other countries are politically unstable which may hinder proper participation in international trade. Other factors that impede developing countries from realizing economic growth include corruption and lack of streamlined social systems.
What the government can do to promote the benefits of globalization while diminishing the negative effects
Evidently, globalization can positively impact the economy; however, without a suitable domestic environment, it can adversely impact many individuals. Importantly, a remarkable number of countries don’t have the ability to control their domestic situations. Furthermore, the advancing technology benefits a few countries and individuals internationally. Hence, most developing nations don’t enjoy the benefits of globalization. But the advanced countries still relate to the developing countries that have stagnating economies since they want to benefit more (The Commission 139).
Role of the government
The government should focus on strategic planning with an aim of establishing and maintaining, refining and reforming a suitable trading environment for private businesses. Also, it should seek to decentralize its involvement in international trade and deregulate the market. The government should endeavor to link the processes of planning, consultations, and negotiations between individuals or private companies and the foreign market. Importantly, the government is the central pillar for connecting various stakeholders, partners, and businesses from different industries, geographical locations, and interests.
Since the government has the ability to identify and react to changes of globalization, it should develop institutions to motivate and advise its citizens on matters concerning foreign trade. By doing so, the government will also attract international forces who will help the country to develop its economy. Most importantly, the government should create and maintain an “even playing ground” for all parties that want to take part in international trade. Besides, it should initiate dialogues between countries and business partners to ensure disputes are solved efficiently. Finally, the government should develop and implement means of protecting its citizens from adverse impacts of globalization. Giddens (100) states that the government should seek to create and even strengthen the existing democratic institutions to deal with the negative impacts of globalization.
The following is a summary of how the government can compact adverse impacts of globalization. It has the role of creating a competitive economic condition, ensuring that prices are stable, implementing impartial tax structures, initiating aggressive labor and finance market, sufficient regulation and enforcement abilities, and promoting individual and state partnership. Further, it should ensure there is easy access to trading data and create the required technology.
I think that if the government implements these proposals, the country will realize positive effects from globalization and minimize adverse impacts. However, there should be a strong political will and association of various democratic institutions. If any one of these parties is reluctant, then elimination of negative results is not possible. Besides most developing countries experience rampant corruption, lack of political will and social instability that may threaten the maximization of positive impacts. Conclusively, I think maximizing the benefit of globalization is a long-term affair that is attainable if the right institutions commit to work.
Choose which of the three perspectives on globalization you support and explain why.
I choose to support the view of economic nationalism. Ideally, globalization has primarily benefitted individuals from developing nations such as China, Africa, and Mexico. Hence, the government of the United States should implement structures to guard its industries and borders so as to create and preserve more job opportunities for Americans. I will compare China’s economic development and the U.S. to support this perspective.
China is a big beneficiary of foreign trade. In 1978, China got revenue of $20.64 from international trade. However, the figure rose by 36% to $1.155 in 2004 (Chow n.p.). Evidently, China is gaining a lot from globalization, and it would be accurate to conclude that close to or more than half of the country’s GDP comes from the global market. Importantly, United States is one of the huge consumers of products produced in China. Apart from these statistics, the country has seen significant developments in its infrastructure and a decline in poverty levels.
On the contrary, the United States citizens continue to suffer from few employment opportunities. Besides, loss of jobs has hit Americans badly since the entry of China into World Trade Organization. In the period 2001-10, approximately 2.8 million Americans lost jobs or were replaced due to the poor performance of some manufacturing industries (Scott para 1). This trend attributes to rising number of companies that export their products to the U.S. such as China. Additionally, part-time jobs have also declined while others pay low.
Conclusion
The mainstream economics support globalization through the comparative advantage theory, which focuses on present benefits rather than focusing on long-term benefits. Also, this theory has numerous problems since it advocates for free trade while holding vital production factors constant. Demand for skilled labor, lack of mobility of unskilled labor, and less involvement of the government in economic activities are some of the factors causing an imbalance in the distribution of income and job opportunities. The government can compact these negative impacts of globalization by implementing democratic institution, advising individuals on effects of globalization and promoting state and private partnerships. I think adoption of the economic nationalism is a good remedy to preserve jobs for the Americans.
Works cited
Chow, Gregory C. Globalization and China’s Economic Development. N.p.: World Scientific, 2004. Web. 15 Apr. 2016. <http://www.nyu-apastudies.org/events/Gregory_Chow.pdf>
Edward E., Leamer. Testing Trade Theory. Oxford: Blackwell, 1994. Print.
Giddens, Anthony. The Third Way and Its Critics. Cambridge, UK: Polity Press, 2000. Print.
Scott, Robert E. “Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010.” Economic Policy Institute. 2011. Web. 15 Apr. 2016 < http://www.epi.org/publication/growing-trade-deficit-china-cost-2-8-million/>
The Commission on Global Governance. Our Global Neighborhood: The Report of the Commission on Global Governance. 1st ed. New York: Oxford University Press, 1995. Print.
Williamson, Oliver E. The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. New York: The Free Press, 1987. Print.
