Globalization, if Explained in Economic Terms Term Paper

Pages: 5 (1806 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Junior  ·  Topic: Economics

Globalization, if explained in economic terms, is the ever-increasing inter-dependence of the national economies of countries all over the world on the cross-border movement of goods, services, technology, capital and labor (Warsh and Davis). The influx of foreign resources into local economies may have an adaptation effect on the native / local residents of the country. For example, the developing countries in Asia are exposed to American culture that includes not only the English language but also their culture in the form of music, cinema and lifestyle with the consequence of the developing countries becoming more inclined towards smaller families, transformation of gender roles and customization to big city life. There was an import of western advanced technologies along with. There are now, faster and cheaper (more affordable) forms of transport and communication available for consumers, which facilitates them in their everyday lives to a greater extent.

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The process of economic globalization was accelerated by the frameworks and treaties launched by the World Trade Organization (WTO), that lead to the dissolution of several trade barriers that existed between the economies of different countries, encouraging investment into other economies. With the demand for information technology and other sciences growing worldwide, the economic globalization seems to be an irreversible trend. This trend will not slow down for the nations themselves need it for their growth in the economy in the country as well as in the world economy.

However, economic globalization was an inevitable phenomenon and existed since the beginning of trade. For the previous few decades, it has been occurring at a faster pace. Several observers and economists have shared their woes regarding the economic globalization. Each with their own set of impending implications for the world economy in the years to come. Here, we will contrast the opinions of E.F.Schumacher and James Gwartney.

Term Paper on Globalization, if Explained in Economic Terms, Is Assignment

James Gwartney is a world renowned supply-side economist. Supply-side economics is a section of macroeconomics which argues that by adjusting supply-side factors, such as regulations governing an industry and tax rates, there can be an efficient achievement in economic growth. Hence, all supply-side economists, including Gwartney, are in the favor of reducing barriers to entry in the industry in order for an efficient allocation of resources by the free-hand of the prevailing market forces. Gwartney entails hat economic freedom, i.e., freedom from government intervention via tariff and other regulatory barriers put up in order to restrict certain markets, is necessary in order to achieve economic growth. And all developing nations today are in dire need of this economic growth. According the Gwartney, international trade is the key behind successful economies and economic growth. He argues that trade is a positive-sum exercise, and both parties involved in a trade-agreement/arrangement have something to gain by it. Hence, both parties benefit as a result of trade. And that the basis of economic life is to better one's condition by only performing actions for your own benefit but also for others. He insists that trade shouldn't cease at national borders (they were created for political reasons, not economic purposes).

There is a lot more to be gained by an individual via international trade, which is a variety of products which may not be available nationally. It also, enriches the soul, as trade leads to interactions with individual of other nations, belonging to different cultures and races. The main element of international trade that is beneficial for individuals involved is the specialization. Specialization in the production of a product by an economy can lead to it reaping greater benefits as that economy will have the edge of producing the product at a cheaper price than any other economy (Imbs). Thus, the product can be sold at high profit margins internationally. Similarly, it may purchase products that would cost relatively more to produce locally in the economy than through international trade with an economy specializing in the production of that product. In this manner, again, both parties have something to gain from the trade arrangement.

The view of Schumacher regarding to the global trade system is that that it is not the only method to continue the trade of supplies. He believes an alternative approach to the handling of trade amongst localities exists. This approach is based upon the Buddhist teachings which say "Cease to do evil; try to do good" (Schumacher). Considering this approach, Schumacher explains that adhering to simple principles eventually results in non-violence and thus, helps achieve a task more peacefully and in a more efficient manner, where the needs of every person are fulfilled. The fulfillment of these needs does not mean that every person in the society is able to consume goods to its highest limits. The resources we consume are not unlimited, and thus create a restrictive limit to the use of these resources.

Schumacher believes that the alternative approach to the trading system is that all members of the societies should consume the limited resources at modest levels, i.e. they should hoard up items for themselves and rather should limit their consumption themselves in a modest manner. This will ensure that enough supplies are available for everyone in the locality to achieve wider sustainability. Schumacher also believes that based on this approach, it is more viable to produce goods locally, rather than importing and building up pressure on the local economy. By producing locally and using those goods locally would create a more intricate connection between the local people and the locally produced goods. Therefore, modest consumption of the goods produced locally, and avoidance of importing goods would prove to be a more efficient economic way for the prevalent societies.

Gwartney, being a firm believer in the "invisible hand" of the market forces, believes that if economic freedom is allowed, then the markets will appropriately price the goods and services depending on their utility. The labor market prices the labor based on the level of its productivity. In other words, the utility in terms of performing the task assigned to it. Labor productivity is the output produced by the labor per unit of input. The output per units is a measure of the economic growth achieved by the labor. According to OECD, labor productivity is the GDP per hour worked (OECD). This measures as to how a given labor-force is performing in terms of producing goods and services. The output is therefore, the goods produced/service delivered by the labor. The input being the total hours worked by the persons engaged as the labor for producing the good/delivering the service. The market prices based upon the increase in productivity. The greater the productivity, the higher the price set for the labor, and thus, the greater resulting economic growth. The productivity can go higher up with adequate training of labor and the use of technology.

Schumacher has a different approach to this. The modern production processes have become more reliant on the use of technology and many processes have been automated. These have been done to increase productivity levels and ensure more efficient use of resources is done, whilst the cost to produce is reduced to the minimum levels by reducing the reliance on the labor factor in the production processes. Such an approach restricts the roles of the human labor as producers see the human labor cost as an extra surcharge on the production units. They believe that the cost of human labor tends to affect the production costs in a negative manner and thus, has to be reduced to become more efficient. Schumacher, however, is of the view that such an approach should not be considered as appropriate as the function of production has, in all times, been reliant on the human labor as the primary factor in the process. The usage of technology and automated processes should always be considered the secondary factors, so as to help man achieve the goals of his existence by providing him the chance to utilize his skills in producing the goods and by becoming more involved in the society, working together to achieve a humble mindset.

Being a modernist, Gwartney encourages the economic growth and globalization in order to increase production of goods and services in order to improve the quality of life of individuals, by increasing the production, and lowering the prices at which the goods and services are made available so that it is accessible to all income groups. One way to lower prices of goods and services produced is when the cost of production is lower. Lower cost of production can be achieved if economies of scale exist. Economies of scale are basically the cost advantage achieved by enterprises due to the size and scale of the production. In large scale productions, the cost per unit reduces, as the fixed costs are spread over a greater number of units, with the increase in operational efficiency leading to lower variable costs per unit as well (Cohan and Hu). Due to lower costs, more goods and services can be made available at cheaper prices for a wider range… [END OF PREVIEW] . . . READ MORE

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