Global Business Analysis
Support Globalisation: Some argue that falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity. Increased international trade and cross- border investment will result in lower prices for goods and services. They believe that globalisation stimulates economic growth, raises the incomes of consumers and helps create jobs in all countries that participate in the global trading system. Anti- Globalisation: In December 1999, more than 40000 protesters blocked the streets of Seattle in an attempt to shutdown a WTO meeting held in the city.
The demonstrators were protesting against a wide range of issues, including job losses in industries, downward pressure on the wage rates of unskilled workers, environmental degradation and the cultural imperialism of global media and multinational enterprises. Critics of globalisation view that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economics such as the US & West Europe. The falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower.
In the service sector, many Multinationals Corporations have outsourced to nations with low labour costs (E. g. Dell, IBM have “exported jobs”) to more manufacturing activities to low wage nations and contributing to
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It is also seen as when a country embraces free trade, there is always some dislocation; lost call centre jobs in Dell (but the whole economy is better off as a result). Lost textile jobs at Harwood Industries. According to this view, it makes little sense f or the US to produce textiles at home when they can be produced at a lower cost in Honduras as China (which unlike Honduras is a major source of US textile imports). Importing textiles from China leads to lower prices for clothes in the US, which enables consumers to spend more of their money on other items.
At the same time, the increased income generated in China from textile exports increases income levels in that country, which helps China purchase more products produced in the US, such as Boeing Jets , Microsoft software etc. The same argument can be made to support the outsourcing of services to low wage countries. By outsourcing its customers service call centres to India, Dell can reduce its cost structure and thereby its prices for PCs. The United States consumer benefit from this development. As prices for Cps fall, Americans can spend more of their money on other goods and services.
Moreover, the increase in income level in India allows Indians to purchase more U. S goods and services, which helps create jobs in the US. In this manner, supports of globalisation argue that free trade benefits all countries that adhere to a free trade regime. If these critiques are correct, three things must be shown: first, the share of national income received by labour, as opposed to the share received by the owners of the capital (e. g. shareholder) should have declined in advanced nations as a result of downward pressure on wage rates.
Second, even though labour’s share of the economic pie may have declined, living standards need not deteriorate if the size of the total pie has increased sufficiently to offset the decline in labours share if economic growth and rising living standards in advanced economies make up for labour’s smaller proportion of the world (this is the position argued by supporters of globalisation. ) Third, the decline in labour’s share of national income must be due to moving production to low wage countries, as opposed to improving production and productivity.
As noted earlier, globalisation critics argue that the decline in unskilled wage rates is due to the migration of low wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers. However, supporters of globalisation see a more complex picture. They maintain that the apparent decline in real wage rates of induced shift within advanced economies away from jobs where the only qualification was a willingness to turn up for work every day and toward jobs that require significant education and skills.
They point out that advanced economies report a shortage of highly skilled workers and an excess supply of unskilled workers. Thus growing income inequality is a result of the labour market bidding up wages for skilled workers and discounting the wages for unskilled workers. In fact, recent evidence suggests that technological change has had a bigger impact than globalisation on labour’s declining share of national income. This indicates that the solution to the problem of stagnant incomes among the unskilled is to be found not in limiting free rade and globalisation but in increasing society’s investment in education to reduce the supply of unskilled workers.
Finally it is worth noting that the wage gap between developing and developed countries is closing as developing nations experience rapid economic growth. For example, it is estimated that China will approach Western level wages in about 30yrs. To the extent that this is the case, any migration of unskilled jobs to low –wage countries is a temporary phenomenal representing a structural adjustment on the way to a more tightly integrated global economy.
It is also a concern that free trade encourages firms from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labour and the environment from abuse by the unscrupulous. Critics often argue that adhering to labour and environmental regulations significantly increases the cost of manufacturing enterprises and puts them at a competitive disadvantage, the theory foe by moving their production facilities to nations that do not have such burdensome regulations as that fail to enforce the regulations they have. If this were the case, one might expect free trade to lead to an increase in pollution and result in firms from advanced nations exploiting the labour of less developed nations.
This argument was used repeatedly by those who opposed the 1999 formation of the NAFTA between Canada, Mexico and the United States. They painted a picture of US manufacturing firms moving to Mexico in droves so that they would be free to pollute the environment, employ child labour and ignore workplace safety and health issues all in the name of higher profits. Globalisation critics argue that despite the supposed benefits associated with free trade and investment, over the past hundred years as so the gap between the rich and poor nations of the world has gotten wider.
In 1870, the average income per capita in the world’s 17 richest countries was 2. 4 times that of all other countries. In 1990, the same group was 4. 5 times as rich as the rest. ( L, Pitchett, “ Divergence, Big Time,” Journal of Economic Perspective 11 No. ) * Globalisation is the spread of worldwide practices, relations, consciousness and organisation of social life. Nearly every nation and the lives of billions of people throughout the world are being transformed, often quite dramatically, by globalisation. The degree and significance of its impact can be seen almost everywhere one looks. ( Thomas, 2007) * Globalisation encompasses many things; the international flow of ideas and knowledge, the sharing of cultures, global civil society and the global environmental movement.
The great hope of globalisation is that it will raise living standards throughout the world: give poor countries access to overseas markets so that they can sell their goods, allow in foreign investment that will make new products at cheaper prices, and open borders so that people can travel abroad to be educated, work and send home earnings to help their families and fund new businesses. * “The evidence is overwhelming that it has failed to live up to this potential” (Stiglitz, 2006: 4) Economics has been driving globalisation, especially through the lowering of communication and transportation costs.
But politics has greatly shaped it. The rules of the game have been largely set by the advanced industrial countries and particularly by special interests within those countries. They have not sought to create a fair set of rules, let alone a set of rules that would promote the well- being of those in the poorest countries of the world. * The distribution of health has been uneven in the world today. The agreement signed in Morocco regarding the cure for AIDS is also very controversial.
The United States negotiators were mostly interested in having it their way; and they wanted the new agreement to support U. S drug companies. What the companies fail to realise is that the profits were against the lives of people. The U. S government too supported the agreement in favour of the drug companies by including provision that would delay the introduction of generic drugs. One of the main reasons in delaying the introduction of generic drugs is that once the generic drugs are introduced in the market, profits will tumble for these companies as in Morocco generic drugs cost a fraction of brand name drugs.
Many strategies have been introduced including restricting the use of data that proves the safety and effectiveness and preventing the generic firms from even beginning to produce the drugs until the patent expire. The argument here is that these delays can affect the human population as the drugs can be available only in selected countries with prices only affordable for wealthy families which would leave most patients unable to afford medicines that could save their lives.
The patent protection right can stop the drug from being introduced in the market until the patent expire which could be thirty years. Also the agreement on Trade –Related Aspects of Intellectual Property Rights (TRIP’s) showed that the developed nations were more interested in increasing their profit margins rather than saving the lives of people. TRIPs was specifically designed by the developed nations to ensure higher priced medicines. This reflects the victory of corporate interests over the lives of millions of people. The Clinton administration also supported the TRIP’s reducing access to affordable drugs for poor people around the world.