Everywhere you look in this day and age you will see the results of a global economy. From the car you drive, to the television you watch, from the coffee you drink, to the instrument you play, we are fully engrossed in the fruits of a world economy.
Over the years in America, however, there has been a public outcry against the looming threat of increased globalization. Many called for closed economies to protect American jobs from outsourcing or protectionism of certain sectors from foreign investors. Others have stated that overseas factories exploit lower-income nations by enslaving their populations in sweatshops to churn out goods for American consumption. These people paint the picture of the American businessman getting rich while dancing on the backs of the poor. I feel, in the interest of fairness, that it is important to address these concerns through the lens of how global economics works and address the root causes for the problems faced by the upper-income and lower-income nations alike.
Let us address the first concern of globalization eroding away the American workforce. The notion is based in fear-mongering because free trade with other nations has shown to make the American citizen richer on the whole. Abraham Lincoln had famously remarked that buying a coat in America keeps the coat and the money here in America but buying one from England brings the coat here but sends the money to England, effectively removing it from our economy. What this misguided argument failed to address is that when any product is purchased with our currency, that currency eventually makes its way back to our country when foreign consumers purchase American products. It is simple mathematics.
So when governments push for tariffs on foreign goods--for example taxing a foreign car as an incentive to buy a domestic car instead--they are essentially taxing American consumers and limiting their choices. Taxation certainly does not make the American consumer richer. Even if those consumers decide to buy domestic cars only, the Detroit autoworker is the only one who truly benefits from the transaction. The rest of the country actually becomes collectively poorer.
The same applies to the protection of jobs. Union operatives will wax poetic about the benefit of buying domestic products helps keep Americans employed but fails to address the inefficiency in protecting industries in the first place. If people stopped wanting to buy American automobiles, it is a horrible waste of resources to continue producing the product. It would be tantamount to the government protecting the horse-and-buggy industry over the automobile industry just in the interest of keeping cartwrights employed. In a free market, when one sector of industry produces something undesirable, the resources of labor and capital are shifted to something that is desirable. And everyone is better off for it. Additionally, the outsourcing of jobs to foreign countries where labor is cheaper makes the cost of production a fraction of what it was in the United States, thus dropping the prices of the items in question, making those products available to more people, regardless of their individual income. It also increases the dividends and investment returns to shareholders in those corporations, of which 50% of the American population is involved with on some level or another.
On the other side of the globalization coin, what about the exploitation of poorer nations at the hands of greedy capitalist interests? Well, let us break down what goes on in an overseas factory. In lower-income nations, government bodies tend to have less stringent policies regarding entrepreneurship or property rights. Without an incentive to get people to innovate and produce, that nation's people are sitting on resources they cannot really use. Instead of letting their resources rot on the vine or languish in the mine, the citizens instead trade these resources to foreign bodies who can make use of it. Since prices are generally determined by the supply of the resources versus the demand for it, these items are generally acquired cheaply. Even so, according to the principle of voluntary exchange, both parties in the transaction are better off for it.
And what of sweatshop labor? The common outcry against outsourcing is that foreign workers are put to work in unsafe environments for long hours and paltry wages. What many fail to ponder are the alternatives. While child labor or uncompensated overtime are fundamentally deplorable, they are still better options than what the citizenry had available in the first place: starvation or selling themselves into sexual slavery in an underground economy. Because of lower-income nation's despot-driven policies of government-sanctioned larceny and loose property rights, the people have few choices available to them to produce. In fact, studies have shown that countries with foreign investment have citizens that, on the whole, enjoy a higher standard of living than those without, with some of their children going to college for the first time in their family's history. Refusing to engage in trade with these poorer countries just contributes to them staying poor. While the conditions are far from what westernized nations feel are acceptable, one cannot overlook the fact that industrialization in our own country started out much the same way and put us on the path of prosperity. As people become more empowered, social change inevitably results, and convergence becomes all the more possible.
In summary, a free global economy is far more capable of improving the lives of everyone involved than the oppressive hand of government protectionism and closed economic policies. So long as the principle of voluntary exchange is practiced between trading parties, everyone in the global economy walks away better off than when they started. And every little bit brings up the standard of living for everyone involved.
