Analyse the impact of globalisation and protectionist policies on global ineqaulity.
Globalisation refers to the increased integration of the economies of the world, and the increased authority of international influences on aspects of life and economic activity. It is due to the process of globalisation that, a great focus on protectionism has been raised. Protection is any trade barrier which has the effect of giving domestic producers an artificial advantage.
Features of the process of globalisation include; increased international trade flows between the global economies, greater international financial flows, and increased role of the transnationals corporations (TNC’s), increased influence of organizations such as the World Trade Organization (WTO), growth of international investment and technology, the international labour market and increases in the inequality of the income (Y) and wealth (W) between economies.
Over the course of globalisation process there has been an increased role of TNC’s on the global economy, with a significant on the impact on the standards of the Less Developed Countries (LDC’s). LDC’s are classified as economies that suffer from low living standards, and long term impediments to economic development. In striking contrast More Developed Countries (MDC’s) are highly dominate countries which have resulted with high standards of living, higher standards of Y and W – and have a much more stable economy. Transition economies however, are those going through a process of change, from socialist economies emerging into market economies, and are concentrated on Central and Eastern European nations. Newly Industrialised Countries (NIC’s) refers to economies that experience rapid economic growth in national output over an extended period, some of which have living standards similar to advanced economies. It is due to this diversity of economies that such inequality can occur on a global scale.
The government imposes many such measures to protect their economies on a global scale. These methods include; introducing quotas, subsidies and tariffs. A quota refers to restrictions imposed on the amounts of values of various goods that may be imported into the one economy. Whereas, Tariffs can be seen as taxes enforced on imported goods for the purpose of protecting the economies industries.
Tariff diagram
Diagram 1.1 demonstrates, by increasing the price of the good, the government receives revenue demonstrated by ABCD – and the domestic producers share of the market increases from Q to Q1, while foreign producers share value falls from Q3 to Q2. MDC’s are the main implementers of tariffs; these countries include Australia, The USA and the EU. It is the LDC’s of East Asia, and central Africa which fell the effects – being a decreased Y, which leads to a decrease in EG, therefore leads to a decrease in ED as there is an ability to increase which therefore results in a lower standard of living.
Subsidies Diagram
Subsidies on the other hand, as shown in Diagram 1.2 shows a shift in the domestic industries supply curve from S1 to S2, which therefore results in a lower market price, allowing business to sell a higher quantity of their product on both a domestic and global market. The impact of subsidies results in a distortion of the allocation of resources, other competition by MDC’s results in lower export Y from a lower world price – which was predicted to have costed $4 billion loss in GDP due to protectionism on Australia. Subsidies increase supply as cost of production is at a lower level, which decreases the global price – such as the Export Enhancement Policy (EEP) and the Common Agricultural Policy (CAP) – used by the USA It is because of this, there is a distorted view on the global scale.
The effects of protectionism however, are felt in the long run – rather than the short term, as it involves the misallocation of resources and income distribution. It is due to the implementation of tariffs that distortion to inflation increases, passing the cost onto consumers – resulting in a higher wage demand, manufacturing industries face higher production costs and pay higher prices for capital which then cannot compete on the world market. Employment and production growth becomes inefficient in industries, supplying to the domestic markets more so over than global, which leads to an unbalanced view on the global trade scheme. The implementation on tariffs more specifically on wheat in Australia and South Africa forces a rise on rice in Japan, where Southeast Asian nations begin to suffer lower XY which therefore results in lower EG, and an inability to increase ED, which therefore results in lower SOL.
The process of protectionism is harmful to the balance of world trade due to subsidies, as efficient industries are to compete with those who have high levels of production, for example the US and the Eu heavily subsidised their agricultural sector, reducing Australia’s net farm export income by depressing world commodity prices and denying market access to Australian farming exports, which reduces the EG and leads to an inability to increase ED, which leads to an inequality on a global scale.
It is with the adoption of the preferential trade agreement, countries have increased trade barriers with other economies, leading to a disadvantage to other economies as it results in low incomes, a loss of demand for their exports, where was in contrast others gain further access to foreign demand markets, while restricting competition from non-member countries, which therefore on a whole, leads to increased global inequality.
It has become apparent that the only economic viable argument in the short term for protectionism is the prevention of dumping. ‘Dumping’ is seen as the process where excess amounts of supply are sold at unrealistically low prices, on another nations demand – in order to reduce the surplus of supply. It is seen however, without the process of protectionism such as subsidies there would be no ‘dumping’ occurring, hence there would be no need for prevention.
Not only does inequality occur on a global scale, but also that of a domestic scale. While natural resources alone contain limited to no value, they are vital in the course of production which leads to higher value added manufactured goods and services. Economies that have an abundant and reliable source of cheap resources clearly have better economic oppournity for higher ED than those which do not. However, natural resources can also obstruct a country’s ED – if they lead to a narrow export base, and over reliance on a small number of industries to drive the EG of one country.
Labour is becoming the most important input into the production process for many sectors of the economy and thus is an important factor on the development levels. High Y countries tend to have highly educated and skilled labour resources, whereas lower Y nations are characterised by high population, low education levels, and low health standard which therefore reduces the quality of labour supply. It is because of this reduction inefficient allocation of labour, that a inequality on the global scale becomes apparent.
The global inequality is so evident in today’s society, having one-third of global wealth owned by that of 5% of the population. It is due to the global factors of trade imbalance, and the domestic factors of natural resources and inefficient labour supply that contributes to a high scale global inequality.
