Globalization: Trade, Immigration, Development

University of Michigan

Globalization: Trade, Immigration, Development Political Science 300

Tyrone Schiff 11/24/2008

As Thomas Friedman put it, we are living in a world of Globalization 3.01. The world is smaller and flatter today than ever in history. Information is readily available and can be transferred instantaneously over several thousand miles. Yet, even with all of the recent progress, the system is still marred with several inequalities. In order for globalization to be a successful endeavor that benefits the whole world, there are necessary changes that must take place. There are several areas that are in need of improvement. First, the inequities in trade will be discussed and their implications will be weighed. Second, the concept of immigration will be explored. Both of these topics will be addressed in terms of their affect on development, and vice versa. Finally, these elements will be discussed in terms of their impact on US national interests. Ultimately, globalization is undoubtedly a means to a better end, however, the methods in which those ends are achieved need to be reevaluated. “At its core, globalization means that international markets are becoming more integrated.”2 The economic benefits of globalization are extensive, ranging from increased competition to access to a greater variety of products.3 However, these benefits are applied to the average person in a country, which means that with globalization there are indeed winners and losers.4 Depending on a country’s comparative advantage, industries will grow and shrink until some sort of equilibrium is established. A marvelous example of trade and development is epitomized by China.5 “There is little doubt that exports and foreign investment have played an 1

Friedman, Thomas L. 2005. "It's a flat world, after all," New York Times Magazine (Apr. 3).

2

Deardorff, Alan V., and Robert M. Stern. 2002. "What you should know about globalization and the World Trade Organization," Review of International Economics, 10 (August): 404-423. Ibid. at 2

3

Ibid. at 2

4

5

Rodrik, Dani. 2002. "Globalization for whom?" Harvard Magazine, 104 (6): 29.

November 24, 2008

Political Science 300 1

important role in China’s development. By selling its products on world markets, China has been able to purchase the capital equipment and inputs needed for its modernization.”6 China has made tremendous use of the markets that globalization has opened up. China is now in the process of using capital acquired from exports to invest in infrastructure, which will pay huge dividends for the country as it continues its development.7 At the same time, however, “China’s economic policies have violated virtually every rule by which the proselytizers of globalization would like the game to be played.”8 China remains fairly protected in terms of its trade liberalization, only recently joined the World Trade Organization, and refuses to open their financial markets to foreigners.9 However, this reveals something extremely telling about the nature of globalization. China adapted their policies based on local conditions, which meant that they did what was in their best interests, rather than following a textbook Western approach. This expresses the first critique of globalization as it relates to trade and development. It is critically important for countries to orchestrate trade during globalization via a process that is conducive to their own success. Dani Rodrik of Harvard Magazine claims that, “many of the countries that have opened themselves up to trade and capital flows with abandon have been rewarded with financial crises and disappointing performance.”10 This reveals that there is no single strategy to trading for development in a globalized world. Countries are urged to employ mechanisms that will facilitate the success of their own development.

Ibid. at 5

6

7

Barboza, David. 2008. "China announces sweeping plan to aid economy," New York Times (Nov. 10).

Ibid. at 5

8

Ibid. at 5

9

Ibid. at 5

10

November 24, 2008

Political Science 300 2

Immigration is another issue that is deeply entrenched in globalization. “Today, much comparative advantage derives from human effort rather than natural conditions.”11 The advent of education and technology has made the transfer of labor an especially important commodity in today’s interconnected world. Thomas Friedman, author of the book The World is Flat, summarizes the potential role technology will play in globalizing labor suggesting that taxes, Xrays, luggage, and software can all be processed in Bangalore, India even if the requests start across the world in the US.12 This concept has far reaching consequences for countries that are in the process of developing. Specifically, it makes use of the commodity that most developing countries possess; labor. However, “the market for labor services—has remained untouched by this liberalizing trend. Rules on cross-border labor flows are determined almost always unilaterally […] and remain highly restrictive.”13 While most laborers in developing countries are less educated than those in developed countries, “as information technology improves, more and more personal services will become impersonal services.”14 A study by Forrester Research and McKinsey anticipate large numbers of jobs transferring from the US to offshore locations in the coming years, increasing demand dramatically.15 This will help spur development in those countries that need it most. The concept of immigration and development may appear to have negative consequences at first glance. While jobs are leaving one place and going to another, the net effect is not zero, but rather positive.16 The less technical, impersonal jobs help development in 11

Blinder, Alan S. 2006. "Offshoring: The next Industrial Revolution?" Foreign Affairs, 85 (2): 113+.

Ibid. at 1

12

Ibid. at 5

13

Ibid. at 11

14

Ibid. at 11

15

Ibid. at 2

16

November 24, 2008

Political Science 300 3

developing countries, while new jobs and opportunities are created in advanced economies. Countries are urged to become unusually comfortable with an increase in immigration and the transfer of work if the benefits of globalization are to be maximized. What are the implications of a globalizing world on the US? In large part, there are several means of improvement that the US will most likely want to explore if it is planning on remaining competitive on the world stage. Recognizing that increased trade creates both winners and losers, the US needs to expand, improve, and generalize the type of Trade Adjusted Assistance (TAA) it provides.17 While there are several programs that currently exist, the job of establishing an excellent TAA program has never been taken seriously.18 If things continue to progress as they have to this point, globalization will impact more countries around the world even faster. If the US plans on reaping similar benefits from immigration as from goods, they ought to anticipate the liberalization of immigration trade and provide sufficient TAA to its citizens. There are concerns about following this type of liberalized policy based on a common misconception that an increased labor force yields lower wages and higher unemployment.19 This concern is unfounded. Instead there is a benefit of increased investment in the economy, precipitated by a need to start new businesses to hire and provide for the newcomers in the economy.20 This happens naturally in the US, and has since “the first boat docked at Ellis Island.”21

Ibid. at 11

17

Ibid. at 11

18

19

Lowenstein, Roger. 2006. "The immigration equation," New York Times Magazine (July 9).

Ibid. at 19

20

Ibid. at 19

21

November 24, 2008

Political Science 300 4

The US also needs to focus substantially more on the bottom line. According to Paul Krugman, “last year America spent 57 percent more than it earned on world markets.”22 The US is living far beyond its means at this point and is running up debts with Japan, China, and Middle Eastern oil producers.23 These trends blatantly indicate that the US current spending is out of line and unsustainable.24 The current financial predicament and the enormous national debt, now in excess of $10 trillion25, can find part of their roots in the US’s current tendency to spend uncontrollably. In order for the US to continue to maintain its stature as a leader in the world, it will want to rectify its spending habits and reevaluate its debt. Perhaps the most significant implication of globalization on the US will be a shift in perspective on how to manage a globalizing world. “There is no sugar-coating this: in a flat world, every individual is going to have to run a little faster if he or she wants to advance his or her standard of living.”26 While the world continues to get smaller, the competition continues to grow. If the US plans on succeeding in a new global world, it is going to have to recommit itself to excellence and demand discipline from all its constituents.

Word Count: 1,252

22

Krugman, Paul. 2006. "Debt and denial," New York Times (Feb. 13).

23

Ibid. at 22

24

Ibid. at 22

25

http://www.brillig.com/debt_clock/

26

Ibid. at 1

November 24, 2008

Political Science 300 5