[Winstonm]

Some of my own inane ranting on another thread brought this question to mind - it seems globalization is here to stay, but is that a good thing or not?

To me, globalism seems consumer driven. If country A makes bicycles and country B makes better bicyles for less, the consumers in country A get the benefit of better bicyles at a comparable or lower cost. But what is the cost to the employees of bicycle makers in country A, and the bicycle-making companies themselves? For there to be a net advantage, don't the workers and companies of country A have to sustain their level of pay and profits? Does it really help if they can buy a better bicyle for $50 dollars less if their pay must be reduced 10% to compensate?

Worse yet, what happens if the bicycle maker in country A, in order to compete on price, relocates his factory to country B?

To make all this work, there must be a compensating mechanism that allows the displaced worker to add value in another area - but I am hard pressed to understand where or in what that would be.

A good example of this would be Crox, Corp, the makers of those ugly plastic shoes that are all the rave. This company began with 4 American guys who bought a small company because they liked the idea of these "deck" shoes for boating - it expanded word of mouth and took off - when it took off, to supply the demand the company purchased factories in Mexico and Indonesia to produce their shoes.
The 4 guys got rich; Mexico and Indonesia got factories; the Americans got all the ugly shoes their credit card limits would allow.

How is this a good thing?

[pbleighton]

Globalization is only a good thing if you think:
1. A growing world economy is a good thing, and,
2. It's a good thing whena person in a poor country makes $5/day in a factory instead of $3/day on the farm.

Yes, there a significant drawbacks.

Yes, it is here to stay.

Peter

[Winstonm]

Is it still a good thing when that $5 a day worker allows an American company to increase profits 40% by cutting its U.S. workforce and relocating its facilities? I like the idea of the poor getting help, but what happens to the U.S. worker?

Doesn't a lot of the supposed benefit to the U.S. rely on Reagamonics and the "trickle down theory"?

[the hog]

I agree with you Winston. So many of Australia's companies have relocated overseas because labour in SEA is so much cheaper than in Australia. It is all well and good to say that the relocation keeps the cost of the product down, but those who have lost their job due to the relocation don't see it that way.
There is another argument that any of these businesses overseas employ people in virtual sweatshop conditions. You see this happening particularly in Vietnam and Indonesia for example.

[mike777]

see "comparative advantage"

[mike777]

Also I get a bit confused on what an American or Aust company is?
How do you define it and why is that the best definition?
If I build a car in the USA with steel from Aust and design by Germans and owned by people living in 50 countries and the customer lives in Canada?

[helene_t]

Assuming that workers in export-oriented industries choose their jobs freely, it can only be to their benefit that globalization creates new oportunities. I once read an article about Ukrainian sex-workers in Thailand. Due to competition from factories, Thai pimps found it difficult to get local girls into their business. It's not for me to judge whether working in a factory is better than serving horny tourists, but apparently some girls chose that way. (Whether the Ukrainian girls chose freely is less clear so maybe this is a bad example).

I believe that globalization makes the transition from Third-World to First-World status faster. Western societies as a whole benefit, but of course there are loosers as well, such as Western workers who find themselves unable to change to a profession without foreign competition.

[luke warm]

Winstonm, on Mar 8 2007, 11:41 PM, said:

Is it still a good thing when that $5 a day worker allows an American company to increase profits 40% by cutting its U.S. workforce and relocating its facilities?  I like the idea of the poor getting help, but what happens to the U.S. worker?

two (or more) different arguments... as to the $5/day worker, you (and others) are attempting to define a "good thing" from your viewpoint and not that of the worker in question

i remember when wal mart (i believe it was) opened a distribution center in some latin american country and increased the wages of the locals by what was, to them, a stunning amount... to some in america it seemed obscene... so wal mart simply closed the center... was that a victory for those who were pissed about the pay rate? or was it a catastrophe to the worker? did those criticizing wal mart care about the worker, i mean really care? what are they doing about it now, now that the people are back to scrounging in garbage dumps for necessities?

so things aren't always cut and dried, relevance plays a role... a jump in wages from the equivalent of $20 a month to $20 a week might not seem like much to you (or me), but ask the worker involved how *he* views it... is it possible he'd say to you (and me), "mind your own business?"

as to your question re: the u.s. worker, who is to blame for that? in the end someone has to admit that wages and prices are the result of artificial forces and not market forces... we have priced ourselves out of the labor market, and laborers in other countries should not be penalized for that... we did it to ourselves (and this includes many of our regulatory laws)

[pclayton]

An American company chooses to produce its product overseas, because the labor is cheaper. Arguably, producing these little rubber shoes is menial labor, since one does not need a lot of education or skill to operate molding machines.

Another reason is the physical plant is cheaper to operate. The real estate and construction is cheaper, as is the regulatory hurdles to get the factory out of the ground. The electrical charge is typical cheaper too. These factors are offset by higher distribution costs, as well as a longer production cycle.

American consumers choose to purchase this product. By making them overseas, the Crox company can be more competitive in their pricing compared with other types of recreational shoes like flip-flops.

How is this a good thing? The question should be: How is this a bad thing?

I can think of several. In Indonesia and Mexico, the factories do not have the same regulatory requirements as a U.S. Factory. I would imagine that Crox are made by plastic extrusion, and the V.O.C. emissions can be significant. If the factory is in the U.S., the company would have to mitigate these emissions, or purchase emission credits.

These factories are also not subject to other burdens, such as insurance to cover worker's comp and product liability as well.

(Oh - I just realized I should answer this from the viewpoint of the American worker that makes these shoes. How much should the company be 'required' to pay these workers if it chooses to manufacturer these basic products here? If I get laid off from a company like this, because they relocated to somehwere else, I need to find another job. Unemployment in the U.S. is currently at 4.8%. People - there's jobs here if you get off your duff and find one. )

[jtfanclub]

pclayton, on Mar 9 2007, 08:04 AM, said:

Unemployment in the U.S. is currently at 4.8%. People - there's jobs here if you get off your duff and find one.

4% is considered 'full employment'- everybody who wants a job can find one, provided that people with advanced degrees in medicine or engineering don't mind digging ditches for minimum wage. At any given time, about 4% of the population would rather look for a decent job than work at McDonalds.

Globalization requires a major shift in the thinking of a government. If a government taxes production but lets imports in for free (like the U.S. does), while another country uses the VAT to tax consumption (like England does, and many other countries do), then of course companies will tend to move to the places that don't tax production as much.

In the long term, globalization means every country will end up about the same, with the usual fluctuation for natural resources. The U.S. will have both their production and consumption fall precipitously, while countries like India will gain enormously, until they're about equal.

[cherdano]

If you are against globalization, then you should also realize that without it, you might not be able to afford the living standard you are enjoying right now. Maybe the company you work for is only competitive on the world market because it does some of it production in other countries. Many of the goods you own might be a lot more expensive than they are right now. Finally, while the US has a big trade deficit, my memory tells me that it makes more than up for that by foreign investment coming to the US. So if you had shut down globalization, maybe the branch of the company you are working for would never have been started, for a lack of capital.

Needless to say, the globalization discussion in the US is sometimes a little surprising to me.

[Winstonm]

cherdano, on Mar 9 2007, 11:23 AM, said:

If you are against globalization, then you should also realize that without it, you might not be able to afford the living standard you are enjoying right now. Maybe the company you work for is only competitive on the world market because it does some of it production in other countries. Many of the goods you own might be a lot more expensive than they are right now. Finally, while the US has a big trade deficit, my memory tells me that it makes more than up for that by foreign investment coming to the US. So if you had shut down globalization, maybe the branch of the company you are working for would never have been started, for a lack of capital.

Needless to say, the globalization discussion in the US is sometimes a little surprising to me.

I am not pro or con globalization - I don't have enough information to make a decision. But so far what appears to be happening is more of a leveling of worker's incomes worldwide - a loss for the U.S. factory worker and a gain for the Mexican factory worker, for example.

A number of years ago an economist named Ravi Batra wrote a book entitled, "The Myth of Free Trade". This book must have been written around the mid nineties. In it, Batra stated that he had originally supported free trade but had since altered his view - he predicted that for the U.S. what would happen would be a serious decrease in high-paying factory jobs that were replaced by much lower paying service industry jobs.

This seems to have been dead on accurate - the $20 an hour manufacturing jobs are being replaced by $8 dollar an hour sales associate jobs.

So the question is who, in the more modern, industrialized coutries, is getting the benefit of lower manufacturing costs/lower prices? Is globalization one of the strongest reasons why we have seen unprecedented coroportate profits - and what new jobs are being created to replace the vacuum between $20 hour and $8 an hour?

The increased profits are not being plowed back into expanding infrastructure capabilities within the home country, so what good does it do the GDP of that country to have exceedingly profitable enterprises taking advantage of lower costs overseas?

I don't get it.

[hrothgar]

The problem with free trade debates is that the participants are typically discussing two very different issues:

The first issue is the "classic" argument about Comparative Advantage that dates back to Ricardo. Back in the day when I taught Economics 101 at Indiana University we spent a lot of time going discussing Comparative Advantage and discussing why a free trade regime is more efficient than a protectionist system.

The second issue (which rarely gets discussed) is the distortionary impact of free trade regimes on income distribution. Free trades reimes may be efficient, but the benefits from free trade regime do not fall evenly across a society. Economists tend to veer away from these discussions because debates about income distribution are normative in nature.

Personally, I am pro free trade. (I still believe in Ricardo's old arguments about comparative advantage). However, I believe that a free trade regime needs to be accompanied by income redistribution schemes so that the benefits fall more evenly across a society.

[Winstonm]

hrothgar, on Mar 9 2007, 08:26 PM, said:

The problem with free trade debates is that the participants are typically discussing two very different issues:

The first issue is the "classic" argument about Comparative Advantage that dates back to Ricardo.  Back in the day when I taught Economics 101 at Indiana University we spent a lot of time going discussing Comparative Advantage and discussing why a free trade regime is more efficient than a protectionist system.

The second issue (which rarely gets discussed) is the distortionary impact of free trade regimes on income distribution.  Free trades reimes may be efficient, but the benefits from free trade regime do not fall evenly across a society.  Economists tend to veer away from these discussions because debates about income distribution are normative in nature. 

Personally, I am pro free trade.  (I still believe in Ricardo's old arguments about comparative advantage).  However, I believe that a free trade regime needs to be accompanied by income redistribution schemes so that the benefits fall more evenly across a society.

Thanks for the clarification - it's the first time I've understood there are two very different issues. What I have seen mostly (maybe due to personal bias) is the income redistribution to the wealthy without a corresponding benefit to the home countries displaced workers - whether or not total jobs created is steady or increasing is not as critical as the quality of those jobs.

If my plant, which made shoes, and where I worked for $16 an hour, is closed and I must take a job for $8 an hour with a new company as a salesman of imported shoes, the overall net affect is that this new company may provide more total jobs to more workers, but the benefit is not to the workers who have to settle for $8 an hour but to the company who can import cheaper products and pay less in wages.

Again, this sounds like Reaganomics, but now there is even less reason to reinvest in the home country - the trickle down is trickling down and out of the country.