Running head: international business Written assignment International Business The conventional mainstream economists supported the globalization process that was to eventually follow the free trade agreements that were made between nations of the world. Ricardo’s philosophy of equilibrium brought about by free trade focuses on market behavior with respect to inventions made and about wage rate fluctuations. This philosophy emphasized the need for free trade between the developed and developing nations in order to reap comparative advantages of other nations, which would result in overall betterment of all nations in terms of per capita income, employment opportunities, economics, market capitalization, and productivity, although not relative to each other (Samuelson, 2004).
For instance, Ricarodo-Millian viewpoint indicated, not only did the United States make productivity gains by free trade with Eastern nations even the Eastern nations were able to improve their per capita income, though only up to a fraction of the United States’ per capita income. Moreover, free trading nations could harness the potential of each other’s strengths in exchange for weaknesses. This concept emerged from the way United States traded for certain products, like agricultural produce and manufacturing, with Eastern nations that had huge potential for production of these items, it also exported electronic and technical goods to the Eastern nations that were relatively less evolved in terms of those goods.
Classical economics about free trade proposes that such trading actually nullifies all potential imbalances that would eventually follow increased trading between nations. As per Ricardian principles, unemployment is temporary. However, this temporary phase cannot be defined as the US labor force has been experiencing job losses for more than 3 decades, which started when the US started free trade with neighboring nations through the NAFTA during 1994 by outsourcing manufacturing jobs to Mexico (Iyer, 2005).
This resulted in loss of more than 750,000 jobs in the US. Considering that the same scenario continued with other NAFTA members such as the Philippines, Canada, and some European countries. This resulted in an increased number of exports from these countries into the US, thereby addressing all their economic deficit issues. Following job losses in the manufacturing units of the US, even the service industry began outsourcing jobs to Eastern developing countries like India.
This increased job losses for most of the IT and IT enabled service personnel in the US. These shifts in economics and labor markets from economics perspective resulted in bringing about balance between different nations in terms of growth, GDP and per capita income. Samuelson (2004) asserts that free trade has only lowered the labor-market by clearing real wages because the market moved to places with high supply of labor at lower wages.
However, Giddens (2011) points out that the global electronic economy provides such opportunities to individuals at one corner of the world to actually shake up what once seemed as rock-solid economies. Globalization has pushed many economies downwards by pressurizing local autonomy, as incase of the US and European companies. Some economists believed that job losses would not render people of the rich countries to be idle, but would push them harder towards new inventions, which would benefit their economy. Although inventions have happened in the US, these inventions were insufficient to provide jobs for all jobless people; this further increased economic inequalities in rich nations, like the US, too.
Free trade policies have undoubtedly improved living standards of most of the people in developing nations, which has thus resulted in an increase in consumption, costs, and demand for manufactured products, natural resources and agricultural produces. Most of the developing nations have liberalized regulations on foreign direct investment, which has given greater push for retailers to expand into newer markets. These retailers from the capitalist countries were able to capture the local markets in foreign nations causing serious competition to the local retailers and vendors in foreign countries, thereby affecting their business.
This pattern has somewhere been the cause for increasing economic inequality among the rural and urban masses in poor countries. Most of the urban middle class population is employed by industries outsourced from the West and is earning decent wages, much higher than what an average middle class person earned 10 years ago. Increase in wages in the poor nations has provided them with access to better technology, communication and information systems.
Therefore, innovation, advancement, and technology are no longer limited to the rich, but easily available for the citizens in poor nations; this will push advancement in poor nations much faster and bring them in close competition with the rich nations that had once relied upon the competitive advantage gained from education, technology and internet. This advancement does not limit job creation and competitiveness to the rich countries, but significant impact is being felt even in countries that were once considered as poor. In short, Samuelson (2004) asserts that the Ricardo-Millian economic principle on free trade equilibria proves zero net capital movements.
However, technological, innovative, and competitive entrepreneurship, all caused because of free trade and globalization have reduced competition between the developed and developing nations with the latter gaining greater edge not only because of their improving economic status but also because of their abilities to be equally competent and have accessibility to critical resources. In lieu of the increasing income inequalities and joblessness in the US, standards of trading need to be changed in a manner that would support creation of equal numbers of jobs that are being lost to other countries.
It is not possible to restrict present trade patterns due to comparative advantage of other countries in terms of their natural resources, which have high demand in the rich countries. One way to accomplish creation of jobs is to provide more emphasis on research and development activities in all sectors, but not limited to science and technology. References Giddens, A. (2011). Runaway World: How Globalization is Reshaping Our Lives.
London: Profile Books Ltd. Iyer, L. (2005). To Trade or Not to Trade: NAFTA and the Prospects for Free Trade in the Americas. Harvard Business School Case 705-034. Samuelson, P. (2004). Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization. Journal of Economic Perspectives, 18(3), 135-146