The Heavy Price Of Globalization Essay Research

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The Heavy Price of Globalization

We all know that “Made in the USA” is basically none existent, nowadays. Our clothes come from China and other parts of the Far East. Our primary goods, such as fruit, come from many parts of Latin America. And Japanese corporations make half of our cars. Our US firms are heavily involved in foreign commerce, both by lending money abroad and owning firms in foreign countries. In the early 1990’s US profits from foreign investment was more than thirty (30) percent, while domestic profits fell. That was up from thirteen (13) percent in the 1960’s. The US export of goods and services rose from five (5) percent to ten (10) percent, between 1965 and 1990. The contributing factor for all of this activity is what we call globalization. So why does this exist and who pays for this globalization?

First lets explore why these practices exist. Why do we involve ourselves in trade? The primary reason why countries trade is the comparative advantage phenomenon. Comparative advantage is simply one country would produce a product in which it is most efficient in and trade with another country for the thing(s) that it gave up. With this everyone is supposingly happy, but is that the case?

Another inciting reason trade is occurring is because of free trade. Free trade is suppose to lower prices and ensure job security. However, it has created dislocation in specific domestic industries and unemployment. This is because free trade causes consumers to purchase cheaper foreign goods instead of domestic goods. Free international trade also stifles technological development. “When firms can profit from using low-wage foreign labor, they are less likely to develop new, more efficient technologies for production at home.” Governments do not help the cause because when it commits itself to free trade, it does not take the necessary measures needed to preserve or nurture general technological developments. The reason why most governments do not step in is because the strong hand within its economy may be corporations that benefit plentiful from free trade and irritating or making this corporations feel threatened, could cause movement of these companies to other countries. This all affects long term growth because it prevents governments from exercising its ability to provide economic stability.

One of the major contributors to free trade has been the General Agreement on Tariffs and Trade (GATT). It should be recognized that GATT no longer “exists,” which in fact it never did if by that one means, some recognized international administrative agency. It was what it says it was, i.e., an “Agreement,” not recognized under international law as an institution such as the United Nations. So what is GATT exactly.

GATT is the World Trade Organization (WTO) predecessor, which was founded in 1948. It was established on a provisional basis after the Second World War in the wake of other new multilateral institutions dedicated to international economic cooperation – notably the “Bretton Woods” institutions now known as the World Bank and the International Monetary Fund. The original 23 GATT countries, which included the US, were among over 50 which agreed a draft Charter for an International Trade Organization (ITO)- a new specialized agency of the United Nations. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements, restrictive business practices, international investment and services. This first round of negotiations under GATT resulted in 45,000 tariff concessions affecting $10 billion – or about one-fifth – of world trade.

Although, in its 47 years, the basic legal text of the GATT remained much as it was in 1948, there were additions in the form of voluntary membership, agreements and continual efforts to reduce tariffs. Much of this was achieved through a series of “trade rounds.” Trade rounds offer a package approach to trade negotiations, an approach with a number of advantages over issue-by-issue negotiations. First, the “round” allow participants to seek and secure advantages across a wide range of issues. Second, concessions which are necessary but would otherwise be difficult to defend in domestic political terms, can be made more easily in the context of a package which also contains politically and economically attractive benefits. Third, developing countries and other less powerful participants have a greater chance of influencing the multilateral system in the context of a round than if bilateral relationships between major trading nations are allowed to dominate. Finally, overall reform in political sensitive sectors of world trade can be more feasible in the context of a global package. The latest and most extensive “trade rounds”, under the auspices of GATT was the Uruguay Round. It went into effect in 1996. The reason behind the GATT finally coming to an end was one, the deterioration in the trade policy environment, globalization of the world economy, international investment, and trade in services.

Besides trade policy being affected by the high rise of globalization, the common consumer is the one that is really getting the sticky end of the stick. For one, globalization affects real wages. Not only does it cause wages fall; it strengthens the bargaining power of capital relative to labor, and displacement of workers because of “job exportation”.

To conclude, economic globalization is causing severe economic dislocation and social instability. The free market needs to have limits imposed on its operations. “Otherwise, as we now see, the unfettered free market tends to weaken or destroy the resources of life and freedom for the majority, to benefit mainly a small wealthy minority, and to leave most people with little but their own work to live by and increasing tens of millions without even that.”

The technological changes of the past few years have eliminated more jobs than they have created. The global competition “that is part and parcel of globalization leads to winner-take-all situations; those who come out on top win big, and the losers lose even bigger.” Higher profits no longer mean more job security and better wages. “Globalization tends to delink the fate of the corporation from the fate of its employees.” Unless serious corrective action is taken soon, the backlash could turn into open political revolt that could destabilize the Western democracies. We need to focus on training and education, on the constant overhauling of the telecommunications and transportation infrastructure, on entrepreneur-incentive fiscal policies, and to recalibrate social policies to increase national competitiveness. Because for countries, communities, and individual workers, globalization is about competing against every other country, community, and worker in the world for a declining pool of jobs by courting corporate favor. It is not about creating new jobs, but rather about redistributing them to those that are willing to give up the most in terms of wages, subsidies, tax breaks, working conditions, and environmental standards. More fundamentally it is about shifting wealth from communities and working people to corporations and shareholders.

However, the real issues behind economic globalization relate to power. Most so called trade agreements, such as the (GATT) and (NAFTA), are really agreements securing the rights of global corporations to operate freely wherever they chose.

It is quite disingenuous of those who sit at the pinnacles of corporate power to advise countries to make themselves more globally competitive. The recommended measures do little to expand the total pool of jobs or increase average wages and the standards that make for healthy countries. Rather they simply increase the public subsidies to those corporate managers and shareholders. The extreme inequality that is creating dangerous social and political instability throughout the world is an inherent consequence of an economic system in which people are forced to compete for favor with giant corporations accountable only to the interests of global financial markets.

Correcting the massive dysfunction that economic globalization has created will not be easy. The starting point must be a clear recognition that this dysfunction is inherent in a globalize economic system. We should also be clear that this system was put in place through intentional policy choices orchestrated by the powerful and well-organized economic interests that have benefited from it. As a solution, we can just as well put in place policies that result in a sharing of the benefits of technological change, and return both economic and political power to the local communities where people live and work.