Glenn Downer
Across the Atlantic

Globalization Is Friend, Not Foe

By, 06/25/2007

The recent metaphor and rock-hurling exhibitions in Germany during the G8 Summit highlight a surge in anti-globalization campaigning. Globalization is becoming an increasingly popular scapegoat for everything from poverty to numerous social ills to Paris Hilton's recall to jail. Personally, I don't buy the last one. Come to think of it, blaming the other two on globalization isn't very sensible either. Here are some commonly recited anti-globalization slogans:

"The World is Not for Sale!"

"Abolish Capitalism!"

"Stop Capitalism. Stop Globalization. End Poverty."

"G8's attempt to fight hunger: Italy Brought a Food Expert."

While the slogans that adorned the thousands of colorful protest signs were often clever and sometimes even humorous, the economic arguments against globalization and capitalism offered by the placards and their owners were, at best, misguided.

The protest organizers spoke passionately about the G8 and its evil plan to continue the institutionalized mistreatment of the rest of the world. They blamed the G8 for widening global economic disparity, often citing statistics that the rich countries continue to get richer and the poorest are getting poorer as a result. While there are still too many hungry, impoverished, and suppressed people on the planet, the protesters' anger was misdirected, and worse yet, it was firmly lodged in game theory.

For those unfamiliar with the fundamental concept of game theory, it is generally based on the notion of zero sum economics—meaning that there is a finite amount of wealth in the world and as a result, a gain by one country creates a loss in another country or group of countries. However, game theory is a widely misapplied concept to the global economy because as economies expand, new wealth is created. Therefore, if new wealth is constantly being created, the rich countries do not actually have to get richer at the expense of the poorer nations.

If global wealth is not a zero sum game, rich countries have no incentive to suppress poorer countries economically. In fact, helping create new and fertile markets in which to sell chewing gum, lattes, and iPods is clearly in the best interest of the rich countries, considering the tremendous level of competition and product and service saturation existing within the developed world.

The anti-globalists and anti-capitalists also believe G8 countries are getting richer through the exploitation of poorer countries' workers and if the exploitation stopped, it would foster more economic equality between poor and rich nations. To illustrate why globalization isn't working, the protesters explained outsourcing steals jobs from developed countries, which hurts their own economies, and exploits the overseas workers by not paying them comparable wages. What the anti-globalists fail to see is both the developed and developing economies like the Philippines and India are gaining tremendously from the free movement of labor. Here's an example of how it works:

Outsourcing benefits the developing countries by creating better paying jobs that did not previously exist, which creates more disposable income for more people (something the protesters should applaud; not deride). As anti-globalists note, workers, such as those employed in technical support call centers, are not compensated as well as their counterparts in the developed world. But they may not have had a job otherwise. Isn't it better for developing countries to employ thousands of people by offering low- to medium-paying jobs than it is to employ hundreds of people with higher-paying jobs? The increased employment ultimately sets off a self-perpetuating cycle by generating more demand for goods and services and a market for domestic entrepreneurs to sell their own products, which creates the need for more jobs. This scenario is being played out in cities throughout the developing world, perhaps none more notably than Bangalore, India. More than 100 multinational companies have moved to Bangalore since 1984, when Texas Instruments first arrived to use India for offshore development. The city is beginning to see significant growth in firms that handle other business processes for American, European and Japanese companies. As a result, Bangalore now boasts significantly higher per capita income than in India overall.

In addition to obvious benefits to the outsourcing nation, such as cheaper goods and services and potentially increased corporate profitability, other benefits are often overlooked. By exporting jobs that can be done more efficiently, the outsourcing countries gradually contribute to the creation of new markets that can afford to purchase the companies' products. The increased demand then creates additional jobs (and potentially higher paying jobs) in the country that initially sacrificed its jobs. The protesters' belief that too many jobs are being lost is unfounded. The US is the most active outsourcing nation in the world and yet American unemployment stands near all-time lows at just 4.5%. A "lost" job in the G8 country can actually create many more jobs throughout the world, including in the "losing" country.

Certainly there are global problems needing champions, and the passion and commitment of the demonstrators in Germany was admirable. It's just a pity it was misdirected. The true enemies are protectionist measures and socialist business controls that do nothing more than obstruct the symbiotic globalization process. As cities like Bangalore have proven, reducing government control of businesses and removing trade restrictions are not impediments to economic growth. Capitalism, competition and globalization are not the enemies of poor or rich countries and in fact may be their best hope of gaining wealth.

This slogan may not fit neatly on an Angela Merkel effigy for next year's G8 protest in Japan, but "More openness is the path to improving global economic conditions—not less."

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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