Pros and Cons of Economic Globalization

As Ronald Reagan said during his presidency from 1981-1989, “Government’s view of the economy can be summed up in a few short phrases.  If it moves, tax it.  If it keeps moving, regulate it.  If it stops moving, subsidize it.”  This quote form one of the most prominent supply-side politicians of the twentieth century supports the idea of capitalism, an economic system based on profit motive, consumer sovereignty, the invisible hand, quality products for reasonable prices and competition.  Capitalist nations tend to lower their trade barriers in order for corporations to expand to the largest market possible i.e. the world, while still running under certain rules.  This process is known as economic globalization.  The interdependence of nations can lead to a chain reaction effect of both positive and negative natures. Economic globalization should be promoted to a reasonable extent among nations, who should adjust accordingly.

In contemporary society, the phrase, “The world revolves around money” is evident in our everyday laves.  One needs to pay for food, rent and every other basic material need.  Therefore, the profit motive of many individuals is clear.  In order for companies to become more profitable, however; they must expand their market to the largest possible.  If one wished to sell a product in Canada, a country with roughly 30 million people, they would only have access to 30 million of the world’s approximate 6 billion people.  If you have the opportunity, you might as well try to achieve the highest profit amount as possible, and the best way to achieve that is to be a multinational corporation, with locations in many countries.  After all, the only responsibility of corporations is to generate profit for the shareholders while working under the laws of the jurisdictions in which the company resides in.  On the other hand, the reliance on other nations to import another nation’s products can lead to devastating results.  Prior to the 1990’s, for example, North Korea was receiving resources from the Eastern Bloc.  After the collapse of the Eastern Bloc, North Korea’s importation of resources was cut, and the North Korean Famine occurred.  Approximately 2 million people died, and the effects are seen biologically accumulated in children as seen in a 2006 study conducted by Amnesty International.  During the famine, the US shipped nearly 700 000 tons of food in 1999 to North Korea as a foreign aid program.  After the turn of the century, the US had withdrawn their food exportations to North Korea, only giving them 40 000 tons in 2004.  Some might say this was an eye opener for North Korea, as they raised their trade barriers, which are today known as some of the strictest, and increased local production.  This lead to the nationalist state we see today.  In fact, while many economies plunged into the global recession in 2008, North Korea actually increased their GDP by 3.7 percent, the highest increase since 2001.

The US, however; was not as lucky.  In the 1980’s, a practice known as sub-prime mortgaging was starting.  This was where banks would mortgage homes to people with sub-prime credit ratings.  When the people defaulted on their mortgages, the banks repossessed them, and put them on the market at inflated prices.  This practice really took off after the attacks on 9/11, where president Bush encourages people to keep spending as an act of patriotism.  Many people bought houses as a response to this.  In 2008, however; so many houses were on the market that the prices actually fell instead of having increased.  Thus, the banks lost money on every repossession, causing them to go into Chapter 11.  When these banks folded, people who had put money into them lost all they had saved.  This scared the people, who did not have much money to spend anymore.  Therefore, the cycle of capitalism was flawed, as the point of consumer sovereignty was not able to be followed.  There cannot be consumer sovereignty if there is no consumer buying products.  Since the US is a major exporter of goods, other nations suffered because of the “Buy American” clause, whereby US citizens were encouraged to buy local goods to stimulate the local economy.

The most economically powerful country defaulting is not the only way to hurt other countries.  In recent weeks, Greece has been experiencing economic turmoil.  One should note that it is not due to the global recession, as we are currently in the recovery period.  Because Greece has such a huge underground economy, they are extremely deep in debt.  In Greece, no taxi driver will give you a receipt, nor will a restaurant.  This ensures no way to trace the expense, therefore not paying taxes on it.  This debt is indeed hurting Greece, but it is also hurting the 26 other countries in the European Union, since the Greeks use the euro as their currency.  The value of the euro has reached it’s lowest in history, when compared to the American dollar.  But that is not all, the International Monetary Fund has said that the eurozone countries will have to pay for the debt of Greece or else the euro will perish.  Whereas nations with their own currency can inflate their way out of economic trouble, Greece is restricted by the use of a common currency.  Now the eurozone countries will have to pay one trillion dollars worth of bailout money.

Excessive interdependence of nations can lead to economic uncertainty.  Whether North Korea is dependent on resources, the world is dependent on the US or Greece is dependent on the EU, too much dependence can lead nations into a downward spiral.  As stated before, the competition of companies leads to better quality products at lower prices for the consumer, but can collapse an economy if the proper taxes are not paid.  Nations should promote economic globalization to an extent that does not make them dependent on other nations.  As Franklin D. Roosevelt said, “True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”