Globalization: Effects From Neoclassical And Socialist Views

Globalisation is the process of the world becoming more interconnected and in terms of business, refers to the economic integration of global markets, with international trade and cultural exchange increasing. There are many key processes that have aided the development of globalisation including: the rise of technological innovation; the growth of transnational corporations; the vast expansion of free trade and a worldwide market. Wetherly and Otter highlight that ‘globalisation and its effects provoke intense disagreement’ and outline three main competing views to globalisation. These are the neo-classical views, who believe there should be no barriers to trade; socialist views, who believe the process of globalisation reproduces inequality and the structuralist views who understand the benefits of globalisation but depending on the global structures. This essay will look at each competing view to assess the meaning of globalisation and its effects.

Firstly, the neoclassical view of globalisation is that it is a universally good thing as it delivers benefits of free market trade across the whole world. This means there is no government intervention concerning prices for services and goods as these are subject to the market and its conditions. However, there are laws implemented by the government to regulate competition between businesses. Globalisation allows countries to trade internationally thus creating what is known as a global market. Adam Smith highlights that international trade is beneficial because it ‘provides a source of external funding that boosts the amount of money available to fuel trade internally’ as well as it enabling further expansion of markets. Smith outlines the benefit that globalisation of trade brings to the economy as well as the fact consumers and companies can access products and services worldwide. He points out using his concept of ‘absolute advantage’ that if one countries specialises in manufacturing a product then it has absolute advantage as they can also take advantage of other countries’ products. Many countries can gain, but only if trade is shared equitably. This economic rise enables such countries to grow and to benefit economic expansion by accessing new markets and using cheap labour resources to truly make use of economies of scale. This is where a business’ expansion allows them to lower expenses and increase productivity and scale of production. This scale is now global, with businesses profiting from importing and exporting and markets constantly expanding.

Another neoclassical viewpoint is that of David Ricardo, who developed Smith’s theory, arguing that profits are still gained from each country even if one has greater comparative advantage. Comparative advantage is where a business or country specialises in a particular commodity at a lower opportunity cost than competition or another country. Opportunity cost refers to what you have to lose in order to gain something else. Despite this opportunity cost decreasing, comparative advantage shows how both countries still gain. Ricardo points out that, although one country may have comparative advantage as their costs are lower, both countries profit as they’re creating enough revenue off each other due to international trade and globalisation. David Ricardo, who was a 19th century writer, used units of input in relation to the output as the measure of comparative advantage. 20th century economists, Hecksher and Ohlin refined Ricardo’s theory, explaining that the measure of comparative advantage is the cost of units of input in relation to output. The cost is such an important factor due to the fact some countries are abundant in some resources, resulting in lower costs for them which would give them a comparative advantage. They believe due to the concept of comparative advantage, that specialisation and trade is beneficial on a world scale and that globalisation has caused it.

Capitalism is a product of wealth, private property and inheritance and causes social inequality and a divide between social classes. Capitalism is an idea from the work of Marxists, who believe that the power of money allows the bourgeoisie to exploit the proletariat. Marxists believe that whoever controls the economy determines the superstructure which includes institutions like the education system and mass media as well as mass profiting businesses. The social system of capitalism is unequal and Otter highlights that ‘owners of capital are able to exploit their advantage’. Marxists express that global capitalism can lead to difficulty and problems for workers in disadvantaged areas due to their weak position and vulnerability to be exploited. This central idea is known as imperialism. Imperial rivalry across borders because of globalisation has lead on to large competition rivalry between corporations in the same nation. In order to gain a global competitive advantage, firms had to offshore and source internationally to improve productivity and lower expenses.

This can be put into the context of business at present, where we see large corporations exploiting smaller businesses as well as countries involved due to the process of globalisation. Nike is a large international retailer and a transnational corporation that sells footwear and accessories for adults and children. Nike is the undisputed leader of sports brands with annual sales of around $28 billion and in 2015 recorded a global market share of about 23% with forecasts predicting this figure will rise to 37% by 2024. However, the rise of globalisation of the Nike company has also seen a rise in ethical problems causing a fall in Nike’s ubiquitous popularity. Nike were heavily challenged and criticised when it was discovered they had been involved in abusive labour practices when they outsourced overseas due to its cost implications. Nike employs distribution channels in almost 200 countries with large Nike factories in the United States of America and pacific Asia. According to the guardian ‘Nike lists 124 plants in China contracted to make its products, 73 in Thailand, 35 in South Korea, 34 in Vietnam and others in Asia. ’ Reports show between 25-50% of factories restricted access to employees from using toilets and water facilities. Wages were below minimum and some employees worked over sixty hours within a week, proving the harsh conditions the workers in the factories in developing countries experienced.

Nike’s exploitation of developing countries’ cheap labour costs has seen the brand image disintegrate slightly, with these ethical issues denting their reputation. Not only Nike but other huge global businesses like Walmart and Apple have also been in the news for issues concerning implementation of horrific working conditions. Globalisation has led to the growth of transnational corporations exploiting their advantage of wealth and the power it gives them. Taylor, explains how there is less control of the economy, causing an increase in capitalism and consumerism. This is caused by the capitalist aim of maximising profits at the expense of less economical countries where transnational corporations base themselves. Taylor suggests that globalisation, by giving free rein to capitalism has led to greater in inequality.

Socialist marxists also express their view about how globalisation has led to the legacy of colonialism. Colonialism is the control that a government of country holds over the territory that it possesses. For example, during Queen Victoria’s reign in Britain colonised a third of the world, spreading colonies to India and North America. The concept of colonialism can also refer to a country’s expansion of ownership of land and resources as well as its economic advancement. It has left many countries with an economy that is geared to export primary commodities internationally in the world market but only benefiting those who gain the huge profits involved. To summarise, socialist Marxists are against globalisation as it creates global capitalism which sees the the wealthy exploiting those who aren’t.

On the other hand, structuralists argue that globalisation can be beneficial but under a global fair economic system. Less developed countries are a way behind of developed countries due to late industrialisation and the fight against a developed capitalist world. The global economy’s structure does not reflect equality as developing countries struggle to integrate their economy in to the world system. This can be unfair as these undeveloped countries, that are only reliant on the business of primary commodities, suffer from volatility in prices and lower commodity prices and therefore gain less, causing slow market growth. Takeovers and mergers in business can also be seen as positives of globalisation due to international trade of goods and services, but if it is in a country with a weak economic structure then powerful businesses can exert dominance and market power in hope to gain monopoly power. Competition becomes unfair, and the supply chain can be negatively affected if suppliers or manufacturers do not meet the demands of the powerful retailer or vice versa. Backwards vertical integration displays the buyer power when the large company can buy out the supplier. According to a report in the telegraph, ‘One in five small businesses have been the victim of bullying by large companies’. This structural weakness causes businesses, that produce the most valuable commodities, to assert monopoly power through price setting and supply control.

In agricultural markets buyers can frequently control the market cost by confining supply and they have power to drive harder deals as a result of their buyer power. This can be shown through Porter’s five forces model which demonstrates the influences on a market with five competitive forces. Barriers to entry signifies the difficulty for start up firms to break out into a market without a strong enough unique selling point, therefore small businesses will struggle to compete globally showing international trade isn’t always beneficial. Another competitive force ‘rivalry’ conveys the same point as huge competition stops large businesses from competing globally. This was proved with Tesco’s failed attempt at retailing overseas in the United States of America. ‘Tesco's first US store opened in Los Angeles in 2007 and it has 175 now, all near the west coast, in California, Nevada and Arizona’; it posted a loss of £186 billion. Tristan Roger the CEO of Concrete, a UK-based firm which advises retailers on international expansion, said ‘Tesco isn't a brand. It's a recognised name but not a brand in the sense of being defined by its product - it's defined by price and convenience’. Tesco failed as the US were already satisfied with the large supermarkets they have showing even Tesco’s famous established brand couldn’t break into the market internationally, failing to access China’s market either. This is why structuralists agree that globalisation can be beneficial but not when it is not economically fair due to structure or buyer power.

In conclusion, globalisation is a highly important process as it connects the whole world together and creates a global market for businesses to trade internationally. The neoclassical view and structuralist view agree about how international trade boosts each country’s economy and causes the expansion of markets but structuralists say this is not always beneficial if the country’s economic structure is weak. Socialist marxists counter both these theories, as their meta-narrative signifies how globalisation reproduces inequality across the globe.

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