Tuesday, February 26, 2008

TIME TO RECOGNIZE THE BENEFITS OF GLOBALIZATION

The reality could hardly agree with growing anti-globalist tenstions in Western Europe (link) that globalisation boosts unemployment and the loss of net economic welfare. In fact, outsourcing, increased trade, offshoring and enhenced economic integration create now jobs that hardly anyone could ignore.

For years, economists have questioned whether a growing inequality of wages is an acceptable consequence of globalization. Such normative attributes are among the central pieces of economic analysis since economists usually have quite different political judgements and values. But the inequality of wages is actually the benefit of globalization. It is nothing else but an outcome of millions of decisions that reward the smartest and most productive individuals. It should be noted that inequality emerging from varying degrees of productive behavior is actually good since individuals and businesses boost their comparative advantage and thus reduce their opportunity costs.

Barack Obama's economic agenda endorses various protectionist measures that appeal soundly into the ears of the voters but have disastrous economic consequences. No serious and productive economist would be eager to defend anti-trade and anti-market rethoric against Wal-Mart and North American Free Trade Agreement. It's absurd to claim, as Barack Obama does, that NAFTA didn't give jobs to American people. It simply changed the strategy of specialization and comparative advantage. NAFTA was not a harm levied on the U.S economy but a gain that benefited U.S, Canada and Mexico together. Hardly anyone would wish high tariffs and burdensome obstacles to trade and investment. As Benjamin Franklin said, no nation has ever been ruined by trade and contemporary economic theory is much about Franklin's early wisdom. Trade doesn't create inequalities but interdependence. It means that gains from trade are mutually exchanged and thus, nobody's welfare is made worse off after trade, but improved significantly nevertheless.

Even World Bank has recognized that there is a strong correlation between trade liberalization and economic growth (link). Trade liberalization enables individuals and enterprises to reduce the information asymmetry and transaction costs.

Surely, with globalization some jobs disappear but an unprecendent growth of jobs in innovative sectors of the economy has outperformed the costs of globalization. Contemporary development of emerging markets has shown that David Ricardo was right about comparative advantage where countries specialize in producing goods and services with the lowest opportunity costs. For example, the U.S companies design software chips, Swiss companies produce fancy watches and some Belgian companies produce unique chocolate candies because those companies have unique resources and advantages that other economies don't have.

In the election year, politicians of all colors, whether it be left or right, Democrat or Republican, endorse protectionist proposals that would protect domestic producers and set huge entry barriers to foreign companies. Maybe it's about time for Barack Obama, Hillary Clinton and John McCain to sit down and learn about microeconomic and macroeconomic fundamentals.

Here is my suggestion (link)

2 comments:

zorman said...

Makes sense. Kind of, if we forget the existance of other ways of understanding economy. And if we forget a few unhappy countries, where the free trade talk and practice led to economic ruin. I, for one, can forget that (in a way), for my knowledge is limited and I leave this level of arguing to others. But the obvious failure lies somewhat deeper. It is the total lack of empathy. And of understanding the ways of becoming an individual (a loser, a winner, someone between). Your blind faith in the myth of enterpreuners. And nonchalant denial of any such thing as the so called glass roof above the underprivileged.

And other things, that my poor articulation in english can't sufficently describe. But the point is, i hope, clear. The free market thing may work. It may work great, without any friction and all that. And it may boost economy and development. But the market isn't an end in itself, there are people bellow. And globalisation is very unfait with it's gains. Very unfair, we are talking about the age of acumulated capital, and if something gets acumulated somewhere, that usually means it's been taken somewhere. And from someone.

I ain't saying there is an absolutley better solution or at least an alternative. But among other things globalisation means the dissemenation of some universal criteria of quality living and at the same time its ways of creating enormous income gaps are diminishing the chance of universal living up to the criteria. And here comes the satan. The state interferance. Ok, maybe the state doesn't manage funds as good as privately owned buissnes. But, as the form (flatness agaist sharpness) of the various social pyramids between countries suggests, the state shurely has more empathy (even if it's fake or populistic).

Yeah, maybe you just don't care. Legitimate. But as far as I'm concerned, i can not and will not agree. The concept of globalisation and before that of colonisation has many positive sides, but unfortunatley always for the minority. And if i have to take a moral position, i'll take the one that says: this ain't fair. Naive as it may be.

(I know it's a setback to transfer the level of arguing to that of ideology. But your writing, and the logic behind it, inevitably makes me go there cause from my point of view, there is some fundamental misunderstanding and narrowness behind it.)

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