Danika’s Thoughts on Globalization

At the beginning of this course I had the idea that globalization was all about large retail stores, poor Chinese workers, and Americans losing their jobs at GM. I think that I had the notion that if consumers didn’t buy so many products from stores like Wal-Mart, globalization would be put on hold and our economy could go back to manufacturing the highest quality products. I now know that these things are parts of globalization, but there is another side to every story and that globalization is much broader than this. I also know that globalization is something that must be adapted to because global interconnectedness will only continue to increase. Globalization isn’t a policy; it is a new way of life and a day-to-day, hour-to-hour reality that has been brought about by new policies and new technology. Almost any topic about modern day economics, politics, business, culture and technology encompasses aspects of globalization. I learned about how globalization will be affecting the lives of our generation and future generations. As opposed to focusing on a career for lives, we have to be adaptable and skilled in different areas.

I think that we obviously have a completely different perspective of globalization living in this country than I would have if I lived in a poorer nation. One thing that I am really interested in doing is traveling to one of these nations in the future to see what lives are of citizens there are like and how they’ve changed since globalization has taken off. Globalization will always be an interesting topic to study because it is continuously causing changes throughout the world.

Maquiladoras are factories that are owned by foreign businesses that are attracted to Mexico because there is plenty of cheap labor, and there is a lack of enforcement of workers’ rights laws. Goods are assembled in these plants and exported to the United States. The number of maquiladora factories has exploded after the signing of the North American Free Trade Agreement. There are now over 3,000 maquiladora factories in Mexico, and over a million maquiladora factory workers. Workers labor for 60 hours a week and 10 hours a day, earning about 50 cents per hour. The following is the story of a maquiladora worker named Maria Ibarra.

Maria is about 40 years old and works in a maquiladora factory which manufacturers computer parts. She lives in a home made from castoff materials from the factory; the walls are made of unfolded corrugated boxes. She and her two sons share the tiny house with another family. Maria makes $5 a day and works for six days a week. “I’ve worked in the factory where I am now for three years. Three years is a long time, and what I have to show for this is very little.” Maria couldn’t feed both her sons and herself on her wages alone, so her sons too have started working in the factories. She feels very bad about this, as she explained, “When they were babies, I thought they were going to study and become something in life. But the economy failed. I was forced to send them to work so we could survive.” Maria and her oldest son together earn about $2,500 per year.

There is little chance for change in these factories; anyone who rebels or suggests reform will be left with no work at all, “We always fear we’ll be discovered and fired. Everything has to be done undercover. The company doesn’t like people like us—they call us crybabies.” There is little future for the Maquiladora workers; they are forced to be grateful for their meager jobs and wages. Maria said, “It’s difficult to think about my future. Once you get to be a certain age, they don’t want you anymore. I’ve thought about going across the border, but I’m scared to do it.” This is a very sad life for the maquiladora workers. This is an issue that isn’t frequently discussed in the U.S.; I think it is a reality American’s don’t really want to face. American consumers could still benefit from cheaper goods even if the maquiladora workers were paid living wages; it is horrible to think about the conditions that millions live in just so others can save money when buying some products.

Just over the border, in the U.S., workers will earn in an hour what is earned by the maquiladora workers in a day for the same work in Mexico. It is easy to see why many try to make the dangerous crossing to America. If the U.S. is worried about illegal immigration, they should mandate that their companies in Mexico pay wages closer to those that Mexicans could receive in this country. This seems to be an obvious solution, it would immensely improve the living conditions of Mexicans and make jobs in the U.S. seem less appealing.

The picture at the top is of a young female worker assembling electronics parts in a maquiladora factory. The picture below is of Maria Ibarra, the maquiladora worker who was quoted in this post.

Source: Bacon, David. “The Life of a Maquiladora Worker.” 26 July, 1996.
http://www.pacificnews.org/jinn/stories/2.15/960726-maquilas.html
Picture 1: www.pacificnews.org
Picture 2: www.lpa.igc.org

One important but frequently overlooked aspect of globalization is the impact on the environment. Many production companies move factories overseas because poorer nations don’t enforce as strict environmental laws as industrialized nations.

Pollution has severely degraded water and soil in Mexico because the government doesn’t require that companies clean up sites when production facilities move. For example, in 1997 a car battery plant, called Metales y Deravidos, was abandoned in Tijuana, Mexico. The company left behind dangerous heavy metals, such as 15,000 tons of lead! Lead and other metal deposits have been measured at 40,000 times above safe levels near this area, which is near a community of Mexican workers. Toxic levels of pollutants cause severe health disorders. It is incredibly expensive and extremely difficult to return the environment to a clean state after such damage has been done. Governments of poor countries that can’t even provide food and jobs for all their people can’t afford to undo this damage.

China’s booming economy and population has lead to very poor air quality. Coal accounts for the largest share of electricity generation in China, and this causes sulfur dioxide to be released into the air. Acid rain falls on 30% of China’s total land area. Seven of the ten most polluted cities in the world are found in China. An haze known as photochemical smog frequently engulfs these cities. Even in rural areas agriculture is being severely harmed by ozone pollution. If this problem continues it will significantly reduce crop yields, making it difficult to feed the rapidly expanding population.

Air and water pollution laws have little impact on the world if not all nations agree to the same conditions. If countries such as the U.S. and China don’t agree to cut their share of pollutants, the health of the global environment won’t improve as much. One important step the U.S. and China should take is to sign the Kyoto Protocol and agree to cut carbon dioxide emissions. Nations, firms and governments must be careful not to get so caught up in production and consumption that the environment is harmed beyond repair.

This photo shows severe smog engulfing the city of Beijing.

Fair trade promotes standards for international labor and laws to preserve the environment. Fair trade improves security of workers and economic self-sufficiency of nations. Fair trade organizations enforce laws on health, safety and wages of workers. Unregulated competition in today’s global economy leads to firms competing to produce the cheapest goods, because the most cheaply priced goods attract customers. Free trade allows companies to have more power than governments, which causes workers to be denied rights. Fair trade allows countries to specialize by having comparative advantages when trading goods. Fair trade would level the global playing field than free trade does; workers with higher wages would help the development of a middle class in poorer nations. Fair trade would also improve the situation of the U.S. because our advantages in producing certain goods would allow us increase exports and decrease our trade deficit.

Fair trade sales today account for 400 million dollars per year out of a total of 3.6 trillion dollars, which is only .01% of all global sales! This is because products produced by fair trade cost more. A consumer comparing the prices of a good isn’t likely to think about whether the worker that made the product was able to eat dinner that night, or whether the worker’s home was made of scrap metal and cardboard. The consumer will simply look to have a few more dollars in their wallet after their purchase. The real problem is that the consumer shouldn’t have to make this choice. It is the job of the government to encourage the development of the economies and middle classes in developing nations. If our government were to implement international trade standards to protect workers, consumers would only have the option of supporting humanity in the rest of the world and the productivity of our economy.

The theory of efficiency wages finds it can be profitable for a firm to pay higher wages because it entices workers to be more productive. Higher wages may reduce worker turnover because workers may be more satisfied with their jobs. Productivity is increased because worker effort increases and a more quality product is built. The firm may also be able to hire more skilled or higher quality workers because the job is more appealing. The downside to efficiency wages is that they create a surplus of labor, so the unemployment rate increases.

The main goal of firms is to make a profit, and to do so good workers are need. In this case why aren’t efficiency wages heard of more frequently? In the United States, even rather low-level jobs pay above minimum wage because it makes the company more enticing to workers. Still, a job with a low wage doesn’t lead to a high standard of living if one is supporting themselves off that job alone.

Companies that send factories to other nations do so in part to escape having to pay efficiency wages. For example, Mexico doesn’t have as many opportunities for jobs, so for many workers any job is a good one, even if they don’t have good conditions or pay. These companies don’t have to worry about enticing more skilled workers because they are looking to keep costs down, and Mexico has who have a large labor supply. These companies also don’t have to worry about quality products because consumers are looking to keep money in their pockets, as opposed to looking at how long the product is going to last.

Although the theory of efficiency wages sounds like it improves the situation of firms and workers, certain conditions need to be in place, such as a large supply of firms that need employees. This way there is competition for companies to get workers. Consumers also need to demand a quality product, because then companies need to pay higher wages so that they have happy, productive workers. I personally support efficiency wages being more widespread, but this seems unlikely, as many firms today compete with other firms by having the lowest prices as opposed to the best product.

Chinese Economy:
Size of labor force = 791 million
Real growth rate = 10.2%
GDP per capita = $6,800
GDP composition by sector:
Agriculture = 13%
Industry = 47%
Services = 40%
Net Exports = exports 1.2 billion dollars more than is imported

American Economy:
Size of labor force = 149 million
Real growth rate = 3.2%
GDP per capita = $41,600
GDP composition by sector:
Agriculture = 1%
Industry = 20%
Services = 79%
Net Exports = exports $800 billion less than is imported.

These statistics show many contrasting numbers. First of all, the Chinese labor force is over five times larger than the American labor force, but the Chinese population is also 4 times larger. The fact that the U.S. has a lower growth rate than China does isn’t necessarily a bad thing; the U.S. is already a productive and industrialized nation. China is probably experiencing the catch-up effect, where an increase in investment and productivity produces rapid growth because their economy wasn’t as strong to start.

One statistic that I found surprising was that almost 80% of America’s GDP comes from services, and only 20% comes from industry. The fact that we don’t have many goods being produced by industry is probably a reason as to why we have many imports. China is producing more goods in factories and are exporting them to countries with lower productivity in their industries, and thus they are experiencing rapidly growing economy. I don’t see it as a positive sign that such a large portion of America’s GDP comes from the service industry, I think the economy and the people would be better of transitioning to a different type of job, possibly one that involves design or production of new technology.

Studying for my upcoming economics test prompted me to write about productivity. Productivity is the amount of output per hour of labor. Gross domestic product is the value of final goods and services produced. GDP and productivity have a positive relationship, generally the greater the productivity growth, the greater the per capita GDP is. Industrialized countries usually have a fairly high productivity level and therefore have a high per capita GDP and standard of living. Developing nations have a lower productivity level because they don’t have a large supply of equipment, tools, educated and experienced workers, and technology. Since their workers aren’t especially productive, these nations do not have a lot of goods to sell or trade for, and their citizens have a fairly low standard of living. U.S. citizens have a per capita GDP of about $40,000 per year, which is the third highest in the world. Many African nations have a per capita GDP of much less than $1,000 per year.

The governments of developing nations can do several things to help the people of their country to boost productivity. Govenments should promote property rights and political stability. Political stability encourages foreign investors to buy capital, and thus provide resources that will help the developing nation to increase their capital stock. Governments should try to trade with other countries, because an even an unproductive country can have a comparative advantage in trading a certain good. Encouraging education will result in more skilled workers who may have new ideas about production. Although this may seem far fetched in the U.S., in less developed nations should make an effort to have healthier workers. South Korea experienced extreme economic growth between the 1960’s and the 1990’s. During this time period it was discovered that the population consumed 44% more calories!

If developing nations make some of these changes, it could help bring their economies out of a viscious cycle and level the global playing field even more. Currently, nations such as China and India are experiencing the catch-up effect. Small amounts of capital investment substantially increased productivity and have helped the nation’s economic situation.

The figure at the top is a map of per capita GDP. The nations with the highest per capita GDP are colored blue, those with the lowest per capita GDP are colored orange and red. Nations with middle level GDP’s, such as Brazil, China, and Russia are colored yellow or green. source: http://www.answers.com/topic/list-of-countries-by-gdp-ppp-per-capita

What are the characteristics of certain businesses that make them less likely to be outsourced and have foreign competition?

Some of these businesses, such as the Viking Range Corporation, and Bobcat, produce a very high quality product and have a sought after brand. Viking is unique in that all of it’s products are made to order. They can be built for distributors or especially for a customer. Bobcat is at an advantage over any foreign competitors because all of it’s products are produced close to home and can be shipped to a customer with in a few days. Bobcat has been rooted in the U.S. for many years and is the most popular brand of skid steer loaders. They have so many good workers in the area of Gwinner, North Dakota, they wouldn’t benefit from moving overseas. The chief executive of Viking said, “For us, a high end appliance has to be made in America. Would you want a Porsche to be made in China? Or a Rolex made in Korea?” Certain businesses are untouchables because skilled and highly trained laborers are needed to make a quality product.

I also found it interesting that these successful businesses were all rooted in one town, which was generally very devoted to the company. For example, Gwinner, North Dakota is a sparsely populated town where Bobcat is essential to it’s identity. Warsaw, Indiana has become the world headquarters for the production of artificial joints and their necessary surgical tools. Shenyang, China doesn’t have a population of workers skilled in one particular area. Many U.S. citiczens are in need of artificial joints as the baby boomer population is starting to age, and since business is so good here, the replacement joint industry hasn’t thought of moving overseas to cut costs. As opposed to communicating with doctors across the country or across the world, the factories in Warsaw and other specialized towns have everything that they need a short distance away, which helps productivity levels.

The Schantz Organ company is a unlike many other companies because of the nature of the work. It has a small amount of very skilled laborers. The company can’t have a high turnover rate because of the painstaking and careful craftmanship that must be done. Building an organ isn’t done in an assembly line process, the workers are responsible for a large section of production. This business is unlikely to be outsourced because each organ is produced extremely carefully through hours of skilled hand labor, which wouldn’t be found outside the U.S.

These successful American companies have a lot in common. They require very skilled and specialized workers, they have everything they need at their fingertips, and they are an exclusive American brand.

There is a very important election coming up, as the Republicans want to remain the majority in Congress. An increasing number of districts that appeared likely to be won by Republicans now seem to be tossups. This is concerning news for the Republican party because the Democrats want to pick up 15 seats in the house to become the majority. There was a recent poll in The Washington Post which asked voters what they think are the most imporant issues are in the upcoming election. The responses showed that the most imporant issue is the War in Iraq, and the second most important issue is the economy. Also recently in the news has been that the budget deficit for 2006 came in well below expected. This is good news for the Republicans, as the $250 billion dollar deficit for this year was almost $200 billion dollars lower than expected! This is also good news for voters thinking about the economy when choosing a candidate.

I recently read a short article in U.S. News and World Report that I found very interesting. The article was entitled “So Where, Exactly, Did These Numbers Come From?” The article talked about what sounds like a very wild idea, the idea that the White House could be manipulating the economy to make the Republican party look better. Merrill Lynch economist David Rosenberg said, “Good thing we’re not conspiracy theorists: oil prices down 25% from their highs, a huge upward revision to payrolls, and now we see that the fiscal deficit came in well below expected…far below the $423 billion target set by the White House. Can it be that there is an election less than a month away?” The article continued by saying that the White House could have just been looking for a nice surprise by setting the target deficit high when the numbers came in was lower than expected.

I’m not saying that I agree with this idea of manipulation, because I don’t know enough about the government to make a judgement. I just thought that this was an interesting article that had a very different point of view. This article makes the reader think about how our economy is really doing. It will also be interesting to see the outcome of the election and what happens to the economy and oil prices shortly thereafter.

Source: U.S. News and World Report. “White House Week.” Cary, Peter. 23 October, 2006.

In an effort to learn more about the effects of globalization on workers in developing nations, I found a book entitled, The Children of NAFTA: Labor Wars on the U.S./Mexico Border by David Bacon. This book is about struggles of workers due to the North American Free Trade Agreement. This is a primary source because the author lived in Mexico to witness what was going on in the factories and in the lives of the workers. The book is a first hand account of what the author saw. I would say that the book is scholarly but also has popular elements because the book is fairly reader friendly. This source is scholarly because the author is obviously incredibly knowledgeable about the subject, he isn’t just reporting on the topic for an article.

This source is also fact based, and based on these facts that the author observed he will state his opinion and perspective on the subject. For example, the author says, “…the most important changes brought about by globalization have taken place at the bottom of the economy, not at the top.” Bacon came to this realization by experiencing the lives of factory workers. They have no job stability, as companies frequently move production thousands of miles away. Bacon has another interesting perception about globalization from his experiences, “The ‘Global Economy’ isn’t just a phrase describing a macroeconomic abstraction but in fact is a day-to-day, hour-to-hour reality experiencd by millions of people.”

Bacon, David. The Children of NAFTA: Labor Wars on the U.S./Mexico Border. Berkeley, Calif., University of California Press, 2004