We are approaching the concluding of this particular study but, I would be remiss if I concluded without saying something on Globalization. Unlike the last essay, Globalization is very much a significant link in the study of Political Economy but it is also a beautiful example of how exploiters exploit, and add insult to injury by appearing to be altruists.
Globalization was a beautiful dream which sprung from the basic concept of equality of all mankind, not just intra-state but also inter-state; and ensuring it is the state’s responsibility. But, we are all aware that the equality of mankind is as unequal inter-state, as it is intra-state and will [probably] continue to be so.
Conceptually, Globalization sought to find ways of making mankind equal, globally. Equal opportunities; equal access to whatever is available all over the globe etc. A more beautiful thought there never was. Whoever thought of this “had either a haloed head; or horns instead?” Like Sir Thomas More’s “Utopia”, it will never be but, it is a beautiful wondrous thing to aspire to.
But, how would this wondrous thought be brought to fruition? The devil, they say, is always in the detail. Here too was the same. How could all mankind have access to everything equally and afford it, wherever in the globe, it might be? Obviously, the first step must be for the rich, individuals and states, to invest in poorer countries and bring better employment to poorer people and states. Enterprise. Improvements in civic and social facilities, and better governance, towards equalizing mankind would follow therefrom.
As the demand for US [or other richer country] produced goods fell, so would demand for their own goods and services, resulting in deflation of prices among the richer states and inflation in the poorer
Every enterprise requires two kinds of things to get going; goods and services. Goods are the material necessary to produce the desired finished product(s). Services, on the other hand, whether intellectual [by service providers] or physical [by labor, skilled or unskilled] are provided by people. Obviously again, both, goods and services, are cheaper in poorer states.
If all trade barriers and tariffs were lifted the world over, over time, perhaps equality could begin to be envision-able. But would it? Let’s try to comprehend this proposition with the help of an example; that of a pair of Nike shoes. Say, a pair is produced in the US, including all goods and services used, cost of electricity, and wear and tear etc. at a cost of $ 80.00 and then, priced for sale at $ 99.99.
Now, if Nike decided to set up a plant in Pakistan, where the price of everything, goods, services, facilities etc. are a tithe of their cost in US, and the cost of production [even when the investor pays a little more than market price for everything] of one pair is estimated at, say, $ 12.00, instead of [a tithe] $ 8.00. The investing company deserves some incentive for its investment in Pakistan. Therefore, let’s give them a profit of $ 25.00 instead of the $ 20.00 when produced in US. The market price of the Pakistan produced Nike would, therefore be, $ 37.00. What next?
If matters proceeded under the concept of globalization, Pakistan-made Nikes would flood the markets, just as other products produced by hundreds of other enterprises opened in the many dozens of poorer countries would and [resultantly] throttle the demand for the [more expensive] goods produced in richer countries.
As the demand for US [or other richer country] produced goods fell, so would demand for their own goods and services, resulting in deflation of prices among the richer states and inflation in the poorer. But, the poorer would find their inflation affordable. The service providers of richer states would not find their deflation affordable and civil strife would follow.
However, if everyone were to persevereand if, as envisioned by globalization, goods and services, including labor, could move freely across borders; then, starting slowly but increasing incrementally, the Market Perfection Theory would begin to work. Supply of goods and services would increase wherever demand was more. So too would the prices and rates of goods and services adjust all over the globe to close to parity.
Theoretically, all this could happen. Then why won’t it? Because if it did, the rich would not be richer and the wealthier states too would be poorer. Neither the states that could make this happen, nor the individuals who could, will.
They will be more than willing to follow a modified version of globalization and, set up plants in countries like Pakistan, pay for labor services, goods, and facilities at a rate higher than the prevailing rate of the host country, produce their shoes at a cost of $ 12.00 instead of $ 80.00 but, the Pakistan-produced shoes would go back to the US, be stamped “made in US” and re-exported world over at a sale price of $ 99.99.
Obviously, making the investor and his/her country richer. But what does it do for the poor, poorer host country? We will briefly examine that next week.
The writer is a retired brigadier. He is also former vice president and founder of the Islamabad Policy Research Institute (IPRI)