Globalization and Free Trade
In the actual free trade context in the globalized nation, it is referring to a freedom for businesses to trade between countries at no barrier from government intervention which includes imposing tax on the products and services, subsidies, import and export quota limitation, as well as imposing trade legislation. However, this cannot be realized in today’s world (White, 2008) due to the fact that each country needs to protect and balance between the three major aspects which is the social, economy and politic domestically in order to compete in the competitive world and at the same time contribute to peace of the world.
This is especially true for the developing countries such as Malaysia, China, India and et cetera as compared to the developed countries like United States of America and United Kingdom which are rich in nation. Throughout this essay, we will look at how free trade and globalization affects the developing countries from many angles not restricted to the education, cultural, standard of living, and threat to government.
When globalization and free trade converge, many businesses have moved their production and operation from their country to another country that able to offer cost efficiency in terms of labor cost and raw material cost, and also to take advantage of the loose trade regulation. If there is no government intervention towards the phenomenon, the domestic small businesses are not going to be able to compete with the foreign business that came into the developing countries having to say that the advancement of technology and knowledge of the foreign business players are better.
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Large multinational corporations are seen to buy over the smaller domestic businesses to achieve economies of scale where the same products and services can be marketed to the global market. Nevertheless, this process has concentrates the wealth in a fewer large corporations. As fewer large corporations dominate the business in a country, it indirectly generates a form of threat to the government. Take for example, the major businesses in Kulim, Malaysia was previously based on agriculture.
However, due to the foreign direct investment in focuses more on manufacturing businesses, most of the residents who are mostly farmers, fisherman, and mining workers moved from their core agricultural business to become workers in the manufacturing businesses whereby the higher management of the corporations were mostly foreigners. Since these large corporations were hiring a large pool of domestic workers, they have the asset to negotiate with the government for further reduction in cost incurred for the raw material.
Eventually, government has no choice but to accommodate to the request made by these foreign large corporations taking into the consideration that if the large corporation were to close their operation in the country, massive loss of job employment in the domestic resident will flood the country. Direct implication to this phenomenon is that the domestic resident does not have enough income to support their daily needs such as food and shelter.
In relation to this, local resident were forced to voice up their dissatisfaction and anger by organizing street protest which in turn will disturb the social, economy and politic balance in the country. Most of the developing countries are rich in high quality raw material in one way or another such as Middle Eastern countries is rich in petroleum, Asian countries is rich in rubber and et cetera. Under the concept of free trade, since there is no government intervention, there will be control over the export and import limit of the raw material.
The domestic business owner who governs over their raw material business will export these high quality raw materials. As there is no government intervention, these business owners took the advantage of making profits out of the opportunity that the domestic market unable to afford the pricing that the foreign market has to offer. The multinational corporations will then manufacture the raw material in another country which able to offer them greater competitive advantage in terms of lower operating cost.
The finished goods will then be imported back to the country and the domestic consumer will have to fork out more money to afford the product where the initial raw material came from them. This directly affected the increase in cost of living at the developing country to purchase the imported goods at a higher price due to the fact that the research and development, technology and knowledge were not as good as the developed countries. A significant example would be the Malaysia rubber being the highest quality rubber in the world.
One of the most famous brands n condom industry named DUREX is made from high quality rubber from Malaysia (Sheridan, 2006). After manufacturing the condom in Thailand which offers cheaper labors, they will market the product throughout the nation which includes Malaysia. Since Malaysia does not have the expertise in manufacture condom given the high quality local rubber, the local consumer has to purchase the imported condoms which is of higher price. As the demand increases for the raw material, it was exported out from the developing countries and this will eventually lead to scarcity of resource as raw material is finite.
When the supply of raw material can no longer satisfy the need of demand, the large corporation will look for other substitution material in other countries. Therefore, the developing country that relies on the income from the sale of raw material will face income crisis unless they move to another business segment. The clearer evidence can be seen in Dubai where previously the country is rich in petroleum. Realizing that the finite level of petroleum based on the demand rate of the petroleum, the country has moved to the tourism industry.
Most of the larger multinational corporations will benefit from free trade as they will be able to keep their cost low by leveraging on the availability of cheap resources from all over the nation. Environmental, health and safety has not been an issue to these corporation as there were no government intervention to ensure that these three main concern were taken care of. The corporation will base their manufacturing operation at the developing countries where the labor costs are cheap.
The operation will be optimized in order to meet the global market demand and therefore, this will contribute to environmental, health and safety issue as the wastage such as smoke, carbon monoxide and excessive oil are going to further pollute the developing countries (Debabrata, 2001). Simultaneously, the domestic workers has to work extra hours to accommodate to the prolonged operational hour and this is rather hazardous towards the safety of the workers as they are not fit to work after the productive hour which leads to accident during the work.
If government do not intervene in imposing a certain regulation in employment, it will create a more epidemic issue which is exploiting the children and women in slavery as all the corporation cares about is reaping higher profit while keeping the labour cost low and maximizing the operation of the factory. The loose regulation in the quality of import and export of products and services contributes to the increase of health issue in both the developing and developed country.
The outbreak of difference kind of virus and diseases can deteriorate the social and economy level in the whole nation if there were no control on the quality of the imported and exported goods. Some of the imported foods were not suitable to be consumed at certain countries due to the fact that the imported foods does not fit to the food culture of the society in that particular country. Nevertheless, free trade does have a positive co-relation to the economic growth of the developing countries (Halit, 2003).
As the multinational corporations base their operation in the developing countries, it directly transfers the adequate knowledge and technology to the local workers in the developing country. This has converted the majority numbers of unskilled workers to have a certain skill in order to follow through with the corporation’s operation. With the knowledge injected into the society of the developing country, it has widened the opportunity for other foreign corporation to invest their operation in the developing country as there were more cheap and skilled workers.
However, this phenomenon is only true for certain selected area which is deemed fit for the operation to be located, for example at the urban and city area whereby the transportation is connected, internet accessibility as well as the education level is higher. As the corporation operation concentrates at urban and city area, the income disparity between the urban and city area compared to the rural area has become more obvious. The technology, knowledge and income level continues to increase in the high population area such as urban and city area where the multinational corporations are based.
Since the government does not intervene under free trade concept, the rural folks were not taken care of and the poverty among the poor is stressed as the cost of living has increased due to the higher product price incurred for importing the goods. Having mentioned the above impact of free trade towards developing countries, it is clearly seen that free trade without government intervention brings more negative implication towards the society as well as the country and the positive implication only falls to the multinational corporations in reaping higher profit.
For the developing countries that has higher rate of corruption, the local resident would vote for free trade due to the fact that imposing tax on the import and export is beneficial to the business owners who are related to the government ministries which the tax should be spent to the welfare of the society. Otherwise, free trade should be properly termed as managed trade in order to protect the welfare of the society and the country and at the same time beneficial to the multinational corporations as what the World Trade Organization, North America Free Trade Agreement were meant to be.