The Shortfall in the Global Economy

by Marty Poehler

The Global Economy. This phrase brings pictures and ideas to all of our minds. Globalisation is moving production to where labor and material costs are cheap. This trend brings great benefits.

Benefits of Globalisation

Let's look at an example that shows how the global economy operates. People throughout the world needed a product, for example, the computer. Computers were developed and originally produced in the United States and Western Europe. As computers were new, innovative, and useful, their sales boomed. Booming sales brought that greatest of compliments—imitators appeared. Competitors started to produce computers and boasted they could make them either cheaper or better. Soon computer manufacturers found they could reduce costs if they moved production to countries with lower labor costs. Nearly every company who produced computers then followed suit. As computer production flowed to countries with low labor and material costs, more people could afford these lower-priced computers. People began to use them in their businesses and for pleasure, to gain knowledge and to communicate with each other. Computer ownership skyrocketed. The globalisation of the computer has transformed the lives of millions of people on every continent. This globalisation also changed the institutions people work for and the institutions that serve people: small businesses, large corporations, military organisations, and governments. The global computer revolution has unquestionably recast the world into a place that is different and new.

We could easily tell this story a dozen times more, by simply substituting for computers the name of a different product. The list would include steel, clothing, gifts, and more products than we can list in this article. Price-cutting through globalisation has undoubtedly brought great benefits to consumers. Low prices allow consumers to purchase many goods they never could have afforded in the past.

Drawbacks of Globalisation

While we clearly see the benefits of globalisation to consumers, are there any drawbacks? Yes! Global price competition brings upheavals in communities and nations. When developing countries started manufacturing computers, computer production by factories in the U.S. and Western Europe plummeted. The prices for these computers were no longer competitive. The quality and availability of pricing knowledge, made possible by the appearance of computers and the Internet, has made a market that is nearly perfect. Now buyers worldwide can find the goods they want, and at the best prices. As uncertainty about availability and price has nearly been eliminated, prospective buyers and sellers can easily locate each other and conduct business. So jobs were shed in factories of countries which were the first to manufacture computers. Often these factories closed down completely.

All of us have seen this happen. Many of us have felt the pain firsthand, as we or a close relative has lost our job. The effect has been massive. People have been thrown out of work, sometimes having had to sell their homes and leave their communities. Sometimes they even needed to receive unemployment benefits. Neighboring service industries have also been affected, with some of these industries having failed, a situation that has caused even more job losses. All these conditions have had a knock-on effect on dependants of those who've lost their jobs. Children of unemployed parents have faced hardships, such as not being able to go to college or technical schools, and in the worst cases not receiving basic health care, food, and clothing. Another knock-on effect has been that as businesses have failed, of course they've no longer paid taxes. The government's tax base has been eroded. While this has occurred, unemployment benefits have risen, because more people have been out of work. So governmental institutions have been pressured from both sides. This pressure has made it difficult for them to provide basic services such as law enforcement, sanitation, and education.

If the situation just mentioned described only a few small industries, the effect would be tragic, but at least the hardship would be confined to a few locations. But job trimming brought on by globalisation has affected not a few, but countless local industries. National and regional industries, such as steel and textiles, have also been affected.

Major industries such as these have employed tens of thousands of people. Taken together, these many cases of job losses stemming from globalisation have brought on major problems at the local, regional, and national level.

Greater Certainty About the Future

The great costs of globalisation can be better understood if we look at people's lives in earlier generations. Many of our parents and grandparents felt a great stability, as often they were confident they had a job for life. This personal feeling of stability brought stability to families and communities. Job insecurity from globalisation has shattered this sense of confidence and stability, both individually and across society. Uncertainty about the future is now the norm, as many people wonder how long they will keep their present job.

Globalisation is certainly a mixed blessing. Clearly, having more goods and services is not the only need people have for happiness and fulfilment. We also need to be confident we will not be thrown out of work in the near future. We need stability. An individual's economic stability often leads to his social stability, as he enjoys relationships with his colleagues and neighbors that last many years.

Are the negative social effects of globalisation inevitable? Or can you and I do anything to combat them? We need to search for, find, and implement new creative solutions to the negative effects of globalisation. The suggestion isn't being made that unproductive businesses be subsidised and kept alive. But often the social and financial benefits of keeping some businesses open could well be greater than the benefits of closing them. In such cases it may be possible to find a solution. This solution would probably need the co-operation of the three interested groups: owners, workers, and the government. If each group agrees to bear part of the cost, the business may be kept afloat, to the benefit of the members of all three groups.

The Need for Creative Solutions

New solutions are needed to solve new problems. We need to find these solutions at the local, regional, and national levels. But can't capitalism solve these problems by itself? Historically in the West, these problems have indeed been left alone to sort themselves out. The "unseen hand" of capitalism described by Adam Smith brought about a series of natural, almost inevitable solutions. Left to themselves, markets would continually be reacting and bringing about new equlibria of supply and demand, and dictate what was produced and sold. Balances between supply and demand were certainly reached, but often at great pain and inconvenience to people thrown out of work as the economy changed. Certainly we need leaders and thinkers today who propose new solutions that take the "sting" out of the impersonal and sometimes harsh market mechanism. Innovative solutions would lessen hardship and pain to individuals, and financial costs to society.

Some individuals and groups in society will resist the people making the type of proposals described here. The brave initiators of creative solutions to difficult problems could suffer politically. Certainly bravery is needed by our leaders and by us. Only bravery can help us find the kind, judiciously used counters to the harshness of capitalism. Without it we will all suffer, as more people worldwide feel the effects of what is a cost-effective, but harsh global economy.

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