Apr 22 2007

Globalization’s winners and losers, and losers, and losers…

Globalization for Whom? (July-August 2002)

Thanks to Katie Daily for posting the above article to the new Wikinomics page “AP Econ in the News”. Several very interesting articles were linked to this page over the weekend, but this one just jumped out at me as particularly interesting.

This piece looks at the question of whether globalization reduces poverty. Many critics of globalization (you know, those union members and see turtle costumed folks who protest at WTO and IMF meetings, and millions like them in the develop and developing worlds), claim that the record of the 1990s shows that a more integrated global economy does not necessarily mean less poverty in poor countries. The author here claims that while global poverty may not have been eliminated during this decade of global integration, this is only because some of the poorest countries have not yet become “globalizers”, rather have remained “non-globalizers”

“…countries that have the best shot at lifting themselves out of poverty are those that open themselves up to the world economy.”

The author points to several figures supporting the positive impact globalization has had on countries that have chosen to participate in the integration of global markets, such as China and India.

“By selling its products on world markets, China has been able to purchase the capital equipment and inputs needed for its modernization. And the surge in foreign investment has brought much-needed managerial and technical expertise. The regions of China that have grown fastest are those that took the greatest advantage of foreign trade and investment.”

Read: SHANGHAI folks. This article points perfectly to the phenomenal growth we’ve observed here in our own home. China’s decision in 1978 with Deng’s “Reform and Opening” to participate in, rather than isolate itself from the global marketplace has resulted in a doubling of life expectancy, a near doubling in literacy rates, rapid development of the country’s infrastructure and the emergence of China as a dominant and undeniable force in the economic and political landscape.

The author explores the idea that China’s (as well as its East Asian neighbors’) economic emergence may have been achieved by shunning free market principles and turning instead to protectionist methods such as quotas, tariffs on imports, subsidies to domestic producers, etc…

Perhaps China has unlocked a secret of successful integration in the global economy. Despite the West’s desire to liberalize and open the economies of all poor nations and their claim that this is the best means to eradicate poverty rapidly, China’s experience shows that a healthy dose of government control and protectionist policy may actually result in the greatest economic gains for the world’s poorest countries. I’m interested to know what students think about China in the world today. Does the high level of government control over the economy stifle further growth and prevent the total eradication of poverty? Or should the government continue to meddle in the market, protecting domestic industries and hope that its interference does not limit the country’s growth, thus halting continued improvements in standard of living experienced by the majority of Chinese over the last 40 years? This may be a good topic to bring up over dinner with your families this week! Share your thoughts here!

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

9 responses so far

9 Responses to “Globalization’s winners and losers, and losers, and losers…”

  1. Victoria Martinon 23 Apr 2007 at 7:23 pm

    I guess this relates a lot to the incredible projected rate of economic growth we have been seeing in the news, over 11%, and its probably because of China's opening itself to the world, international trade has allowed for greater specialization, and foreign investment has provides much expertise and income for locals, and foreign companies are also responsible for a lot of the infrastructure and investment in capital that the Chinese can make use of today. It has also allowed for the introduction of technology as part of production in China, improving productivity and economic efficiency as well! Indeed, for China to expand its market for its products to the world they have made tremendous profits, allowing them to further invest in and purchase capital equipment, which would in turn help to increase productivity, stimulating further economic growth, like the kind we see projected in the news.

  2. Hyung Jin Leeon 24 Apr 2007 at 9:32 am

    Recent was the Korea-U.S. free trade agreement, yet another example of globalization. There are still talks of how the Korean economy would fare in a FTA with the giant that is the U.S. economy. There has been speculation that the main losses would be the Korean industries of agriculture and film production, which would be overwhelmed by vast amounts of cheap, high quality goods from the U.S. On the other hand, production of electronics such as memory chips is what Korea excels at, and it would benefit from the lowered trade barriers that the FTA provides.

  3. Stella Ryuon 24 Apr 2007 at 10:54 pm

    whether globalization helps a country to reduce poverty, in my point of view, globalization is only helpful for the countries which have developed its own industry strongly enough to compete with foreign industry. Adding to Hyung Jin's example of FTA between Korea and US, FTA is still controversial in Korea. The fear of FTA for Koreans is that US's cheaper goods imported can overwhelm Korean economy. If US imported goods happens to overtake domestic goods of Korea, it will be possible to cause deeper poverty, and higher unemployment in Korea as demand for domestic goods decreases. China is not so far away from the state where Korea is. I believe that it depends on how China reacts to what they encounter in open market of world. If China adapts new technology and increase its productivity and efficiency, it will enrich itself to reduce poverty. But if China finds foreign goods to be just superior, it would deepen poverty of China. So far, it seems that China is choosing right path to accept new technology and foreign investment in world trade, definitely reducing its own poverty.

  4. Hyung Jin Leeon 26 Apr 2007 at 3:51 pm

    In fact, the above has already happened. Beef prices in Korea have fell significantly. Cheap beef sounds good to me, but probably not to those in the domestic industry.

  5. Hae Ryun Kangon 01 May 2007 at 4:33 pm

    It’s not just the beef. Mainly the Korean-American FTA has opened the markets for medicine, the Korean movie industry, agriculture, and cars. Let me give you an example of Mexico, after NAFTA. In a nutshell, after opening up the Mexican movie industry, exposing it to competition against Hollywood, Mexican movies all but disappeared.

    For firms, small, local firms will eventually lose out in the competition, making Korea a much more oligopolic economy than it already is. The amount of $ will increase, but it will be concentrated at the top…income inequality will increase tremendously. How about the privatization of railroads, electricity, water supplying firms, etc? If they are to be privatized by an American firm, prices are going up. American firms aren’t looking out for the best interest of the Korean people—it’s profit, it’s money that matters.

    The power of Korean banks will decrease tremendously. Right now banks are already avoiding big-risk investments, placing their emphasis solely on stable investments that will raise their profits…the reason is simple: the principles of shareholder capitalism. Shareholder capitalism increased after the IMF in Korea, when foreign investors became big-time shareholders of Korean banks. After the FTA, it’s “safe” to say that this trend will intensify and worsen.

    Last but not least, the quality of life will decrease. Yeah, yeah, yeah, nominal GDP will increase and the economy will grow, but ECONOMIC GROWTH DOES NOT MEAN ECONOMIC DEVELOPMENT. As income gap increases, the quality of life for individual Koreans will decrease, middle-class will decrease in size, and the environment will be more polluted by foreign firms, which will be protected under the rules of the FTA.

    So you ask me my opinion on whether government control is important in regulating the economy? In this globalizing world, I’d say government control is crucial. There are benefits of free trade and “opening up,” so to speak, but when you think of the OPPORTUNITY COST of ratifying the Korean-American FTA, I’d say the costs still outweigh the benefits.

    Except in the case of Korea, I really see no use of the government. What has it done to protect the Korean people? The FTA has already been ratified, and all Koreans can do is sit at the sidelines and watch. So much for democracy.

  6. Linda Witterson 01 May 2007 at 9:41 pm

    When it comes to government control, I think that the presence of the government has helped China experience a rather smooth transition from a command economy to a mixed economy. Without government intervention, the incredible economic growth China has been experiencing could very well get out of hand. Just look at Russia after Yeltsin's shock therapy reforms. Therefore, I think the rather careful management of the economy by the Chinese government has definitely been beneficial to the country.

  7. Jay Jinon 02 May 2007 at 1:43 am

    Protectionism jumpstarts development. History's pretty clear on that. Some countries have a lot of catchup to do. Their current levels of productivity and technology development can't withstand pure global competition. China and India chose significantly more protectionism than the WTO extols, and as a result, they're booming. It's the infant industry exception, on the national scale. It's justified and beneficial to growth, for a certain period of time. After that, protectionist countries can afford to gradually back off of the controls. Some domestic industries will be strong enough to continue when the handcap's removed. The other ones will fail, and optimal levels of specialization will be reached.

  8. Michelle Miaoon 02 May 2007 at 1:40 pm

    Those who tout globalization as the world's rosy route to widespread prosperity cite China as their prime example that economic growth comes hand-in-hand with alleviation of poverty. But exactly how compelling is this China-argument? Yes, poverty levels have decreased and everyone's living a heck of a lot longer, but China isn't your typical globalizing nation. China's government has kept a tight grip on the economy throughout the seemingly hysterical boom of the past two decades, and it is precisely China's authoritarian bureaucracy the world's beacons of democracy so love to hate that has saved the nation from resembling say Nigeria– a country where the benefits of globalization are dubious. China has projected enviable statistics across the board, but China is… China. While the GDP's of countries such as Nigeria have increased with the advent of globalization, the wealth gaps in such countries have increased, literacy rates still languishes at low levels, no middle-class hasn't managed to manifest itself, and life generally just hasn't gotten any better for the average Nigerian. So it may be just a little manipulative for the globalization camp to use "look at China," to persuade countries to jump on the globalization bandwagon.

  9. Michael Liuon 02 May 2007 at 9:41 pm

    China to some extent, while still maintaining some of its communist policies and governmental control, has opened up to globalization. This extent has been enough to improve the standard of living of Chinese citizens over the past several decades. International trade has increased specialization, allowing China to become more efficient in its production lines. Increased imports and exports increase money flow. Foreign investments and entry of foreign companies introduces more jobs for the Chinese citizens and new technology. Snowball effect occurs, and new firms enter the Chinese market as it is a site of great potential.