Globalization And National Infrastructure: An Argument For Limited Protectionism

University of

Globalization and National Infrastructure:

An Argument for Limited Protectionism

MGMT 650

Fall 2006

Abstract

Globalization has changed the way that everyone conducts business. Throughout history, man has constantly increasing its scope from a local agrarian economy, to cottage industries, to domestic industry, to the newly globalized international framework of commerce that exists today. This progression is quite logical, as it ever increases the efficiency at which products are produced and services are rendered. However, when put in context, the theoretical maximization of efficiency may have dire consequences on independent nations. The over specialization of nations' industries, in the effort of globalization and efficiency, also has the effect of reducing internal commercial infrastructure. This paper examines economic protectionism, and highlights two situations in which its use is fully warranted.

Introduction

Globalization is currently the most influential aspect of business today. Look around and inspect some common items around you: televisions, automobiles, refrigerators, vacuum cleaners, even the clothes on your back. Chances are that every single item you see has been impacted by globalization. Whether the item has foreign parts or is produced entirely outside of your country, it has been directly impacted upon by globalization.

Globalization, on the whole, is a good thing. Globalization greatly empowers consumers, enables unprecedented market knowledge, and has pioneered breakthroughs in logistics. However, globalization can act as a detriment as well, to both underdeveloped and developed nations alike. Although free trade is an amiable goal, the realities of unrestricted trade must be evaluated and planned for. This paper will evaluate those realities through the economics of globalization in respect to protectionism and it will also examine specific cases for protectionism.

Economics of Globalization

Examination of globalization, especially in reference to protectionism, begins with a basic understanding of economics. (This paper will assume that the basic supply and demand functions are understood). Using these basic supply and demand functions, consider an example on a national level. For the "Widget" product, country A has a specific supply X and demand Y, which results in price P. However, country B produces widgets as well. Country B, though, has more natural resources specific to widget production than country A. Country B's supply increases, and according to the laws of supply and demand, price declines (Price P').

Country B's lower price P' makes that product more attractive. Consequently, country B's widget, in using a more locally available and more easily extracted resource, is more market efficient as well. In general market theory, country B trades its widget with country A, who in turn then reduces production of its widget which frees up its labor force for other endeavors, such as widget service companies.

The preceding example gives a very basic understanding of free trade and market efficiency equilibrium. In reality, situations are never such simplified black and white scenarios. Also, one must consider that although these economic principles are being spoken of in terms of nations, each nation is composed of many thousands of privately owned organizations (In capitalistic societies--the same could be said for state owned endeavors in semi-communalistic/socialistic settings). These respective individual enterprises do not act as one collective unit. Their actions are monitored, regulated, and sometimes controlled by governments and NGO's, as well as market prices and trends (2003, 2004).

Protectionism Basics

Consider the previous situation with countries A and B. Country B is producing the lion's share of widgets, of which it is trading to country A. However, country A then decides that for some reason, it would like to limit the number of widgets it receives from an external source. This decision could happen for many reasons, such as: the desire to maintain nationalized production, retention of national technology, desire to maintain certain national industry levels, international embargoes, and many others. Regardless of the reason, country A institutes the economic policy of protectionism. The American Heritage Dictionary defines protectionism as "the advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services (2004)."

The dictionary definition clearly states the basis of protectionism. Also, as previously discussed, government regulation is the normal way that nations go about implementing protectionism. Traditional protectionism, as embodied by Alexander Hamilton and Theodore Roosevelt, originated to shift some tax burden from the general populous to foreign imports (2006).

Protectionism, as used today, is implemented to a lesser degree than it was traditionally. Consequently, its aims are different, as well. Modern implementations of protectionism are put into place to increase competition of nationally produced products, to preserve trade balances, and to preserve certain national industries. The current use of protectionism is not only used in an economic sense, either. Some countries engage in cultural protectionism. A prime example of cultural protectionism is Canada's broadcasting standards. According to the Canadian Radio-television and Telecommunications Commission (CRTC) Canadian content requirements (Cancon), Canadian radio stations must play 35% original Canadian material, while television broadcasts must play between 50% and 60% of original Canadian content, depending on the time of day (2006).

Although the appropriateness of protectionism for general use is widely debated, there are some situations that strongly point to its usefulness.

Dumping

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