The Most Important Thing I Have Learned in this Class that Every Globalization Advocate Should Know
The globalization of the marketplace is one of the most highly debated arguments in the field of Economics today. There are many sides to this particular argument. Economists opinions on the subject vary about as much as night and day. The arguments range form absolute free international trade to hardly any international trade at all. In this essay, I will try to detail some of the most important arguments that globalization advocates should know.
Globalization is the movement from a strictly domestic marketplace to a marketplace where international goods are allowed to flow into foreign countries. Also, domestic firms will be motivated to move their operations to foreign countries where production will be cheaper and; therefore, more productive. Basically, the argument is whether or not international trade is a good or bad thing for the world economy. In other words, will the movement of goods produced in one country to another country to be sold be of benefit to all countries involved? Advocates of globalization argue that international trade is not only good for the world economy, but is absolutely essential for the survival of it.
The first thing that advocates of globalization may argue is that advancements in technology make it ever more possible to conduct international business cheaper and quicker than ever. No longer is international trade conducted by transport on sailboats that may take weeks to reach their destination. Today business transactions are conducted over the internet. Also, shipping is done in more productive ways such as by air. These lower transaction costs make globalization a more feasible idea than in years past.
Advocates argue that globalization and international trade force firms to become more competitive. For example, Madagascar can produce textiles cheaper than American textile factories can. This will force American textile firms to become more productive or be forced out of the market. To do this, the American firms may choose to add to their capital stock. This will mechanize the production of textiles, which will drive down the cost of labor. A good case for this argument is made in the article: Socks Are Odd: Made in America. The article claims that the production of socks by American producers is able to remain competitive because of the automation of the production process. Labor makes up perhaps 20%, maybe a bit more, of costs, he estimates. That limits the savings from going abroad for lower wages. (Socks Are Odd: Made in America) Therefore, mechanization of the production process allows the American firms to be able to compete with the cheap labor costs in Madagascar. Opponents of globalization will argue that this practice is unacceptable because American textile workers will lose their jobs. However, advocates claim that the benefits of the increased competitiveness outweigh the fact that some workers will lose their jobs.
Globalization advocacy has also been bolstered by the liberalization of international trade barriers. The formation of the World Trade Organization (WTO) has helped to lower tariffs from the high double digits in the immediate postwar era to around 5% at the turn of the century. (Carbaugh, p.6) The lowering of tariffs has helped countries to be able to export their products cheaper than ever. Therefore, if American citizens are able to buy foreign products for less money than domestic products because of reduced tariffs, then Americans will be better off.
A good example of how reduced tariffs have helped the global economy is seen in the steel industry. In recent years, steel imports into the United States have increased heavily. One of the reasons for this is that the tariffs have been lowered significantly. Globalization opponents argue that this hurts the American steel industry because it cannot compete with the countries that are able to produce steel cheaper than domestic firms. Advocates counter by claiming that importing cheaper steel is good for America because citizens save money by buying the foreign steel. In the article, Who Cares If the Playing Field Is Level?, this exact argument is made. Plausibly, it (importing foreign steel) could take $100 off the price of a new car. (Who Cares If the Playing Field Is Level?) The process of globalization saves American consumers $100 in this case. Opponents argue that even though money is being saved, domestic steelworkers are losing their jobs. However, advocates of globalization again argue that the world economy is made stronger, which, in turn, makes everyone better off.
Globalization also helps to stabilize the business cycle in America. With more than a quarter of the U.S. economy depending on exports or imports, the result was a diversified economy that was more adaptable to changes in supply and demand. (Carbaugh, p.12) This statement is very telling. Opponents of globalization and international trade tend to overlook the fact that our economy also depends fairly heavily on selling goods to foreign countries. Advocates rest on this fact heavily. If the U.S. did not involve themselves in international trade, the domestic economy would suffer. Therefore, if America would not take part in the same practices that opponents of globalization complain about, our own economy would suffer.
Probably the most important, most compelling argument that advocates of globalization make is that of comparative advantage. The principle of comparative advantage emphasizes comparative (relative) cost differences (Carbaugh, p.29) between countries. According to Ricardos comparative-advantage principle, even if a nation has an absolute cost disadvantage in the production of both goods, a basis for mutually beneficial trade may still exist. (Carbaugh, p.29) Comparative advantage deals mostly with efficiency. Comparative advantage is calculated by examining the output per labor hour and the wage rate per labor hour of each country for the good involved. If the country that has the comparative advantage in a particular good moves toward specializing in the production of that good in order to export it, they will experience economic rewards from this. Also, that same country with the comparative advantage in one good should cut back production in the good that they do not have the comparative advantage in and import that good. This will save money for the importing country and make money for the exporting country. This will allow both countries to benefit from the transactions. Therefore, from this viewpoint, globalization provides a benefit for the world as a whole.
The issue of globalization is a broad argument that will not be resolved anytime soon. Advocates argue that opponents need to look at the big picture instead of just one piece of the puzzle. In other words, instead of looking at the impact on just one particular industry, they should look at the world economy as a whole. The steel industry may suffer because of cheaper imports of foreign steel. However, the world economy is better off because of the steel imports because people save money. Therefore, the marginal social benefit is higher than the marginal social cost.