Globalization

"Imagine there's no countries.  It isn't hard to do.  nothing to kill or die for, and no religion too.  Imagine all the people, living life in peace...  You, you may say I'm a dreamer, but I'm not the only one.  I hope some day you'll join us and the world will be as one." - Lyrics to the song Imagine by John Lennon

With renewed conflict and now a possible resolution in the Ukraine, globalization comes to the fore.  The West wants to claim another democratic nation while Russia considers it part of the Soviet Union and expects it to conform to their laws and society rules.  How this will all play out is any one's guess but one thing that we know is that this struggle will not be the last one the globe will see.  As the world seems to become a smaller place these struggles are becoming more common place and at the heart of all of the conflict is globalization.

The concept of globalization is a simple one - turn the world into one massive free market where goods and services can move seamlessly across borders.  The theory expounds that be establishing one global free market, world trade will expand bringing peace and prosperity to all but is this really the case and how is this playing out in the real world?

In order to expound the virtues of free trade the World Trade Organization was established on January 1, 1995.  The WTO also tries to monitor and control the market through criticism of nations that place barriers to free trade such as tariffs and government subsidies.  The theory is that if all barriers are removed then the market will react efficiently and each country will end up producing goods where they have a comparative advantage. 

As I have discussed in earlier blogs, as the name implies comparative advantage is not an absolute advantage but rather an advantage based on the theory that nations will tend to expand into markets with the highest value allowing other nations to prosper by producing the lower valued item forfeited by the former nation.  This ever changing advantage means that goods and services flow from one country to the next, remaining for a while but then being relinquished to another nation as the original country expands into new higher valued alternatives raising the standard of living for all.  The problem is that there are periods of slow growth and high unemployment as workers who were producing the lower valued item lose their jobs and have to retool to find move into the new opportunity.  During these times governments are often replaced by a new party that runs on the platform of job creation and change.  Often this job creation is fictitiously achieved by implementing tariffs which provide a short term respite.  The problem is that this leads to a trade war between the two countries and neither nation benefits.

The second issue is the legal platform.  What is though to be fair game in one country is considered a crime in another.  Take for example trademark infringement.  In some parts of the world it is perfectly acceptable to copy another country's products and reverse engineer them.  Japan gained traction playing this game and China is now a renowned copier.  Unless there is one global legal framework countries and the WTO are relatively powerless and the stealer is immune from serious repercussions and is able to use this protection to develop the expertise to become a challenge to the original incumbent.  Once traction is gained the formally infringing nation normally joins the non-infringers in calling for more protection and around we go again.

The last issue that I want to discuss (and believe me there are plenty more) is emigration or the legal ability to work wherever you choose.  For globalization to truly work, workers must be allowed to freely move from one country to the next with no barriers to entry.  As work ebbs and flows around the world workers need to able to fill these positions regardless of nationality.  To me this is the biggest barrier of all as countries are fearful that opening the doors to anyone will undermine the opportunities available to their citizens and that as these citizens are the taxpaying and electoral base officials normally make sure that this demographic is protected by placing barriers in the form of emigration.

Until all of these problems are fixed globalization will remain a pipe dream but large corporations will continue to exploit the benefits as it is a huge advantage to them to be able to expand into new markets.  The question one needs to ask is does globalization really benefit the people it is aimed to help and right now, with the playing field so tilted toward big business, I have to say that once again unfortunately the advantage goes to the large corporations at the expense of the new comer.  So while the struggle for Ukraine rages on I am sure that large corporations are already posturing to gain a foothold on the new market regardless of the outcome.