Population Trends

Globalization and Globalization and Economic RestructuringEconomic Restructuring

Population Trends

What is Globalization ?What is Globalization ?

•The increased freedom and The increased freedom and capacity of individuals and firms to:capacity of individuals and firms to:

• undertake economic transactions undertake economic transactions with residents of other countrieswith residents of other countries

• operate on a global scaleoperate on a global scale

Population Trends

Comparative AdvantageComparative AdvantageFree mobility of goods across Free mobility of goods across borders allows countries to special-borders allows countries to special-ize in production in which they have ize in production in which they have an advantage, increasing overall an advantage, increasing overall welfare. But with the international-welfare. But with the international-ization of capital, it may choose not ization of capital, it may choose not to invest in a country.to invest in a country.

Population Trends

Domestic RegulationsDomestic Regulations

Regulations imposed on the Regulations imposed on the domestic production of goods lead domestic production of goods lead to unfair disadvantages when to unfair disadvantages when imported goods produced under less imported goods produced under less regulated circumstances are allowed regulated circumstances are allowed free entry.free entry.

Population Trends

ExternalitiesExternalitiesFor various reasons market prices For various reasons market prices often do not accurately reflect the often do not accurately reflect the true costs of goods, there is no true costs of goods, there is no reason simply to assume that a reason simply to assume that a policy of free trade will necessarily policy of free trade will necessarily generate the most socially efficient generate the most socially efficient outcome.outcome.

Population Trends

Driving ForcesDriving Forces

•A reduction in official obstacles/ A reduction in official obstacles/ barriers for conducting business with barriers for conducting business with foreignersforeigners

•Fast reduction and convergence of Fast reduction and convergence of transaction costs associated with transaction costs associated with doing businessdoing business

Population Trends

Examples of price decline inExamples of price decline intransport and communicationtransport and communication

•Between the early 1980's and 1996 real sea Between the early 1980's and 1996 real sea freight costs fell 70%.freight costs fell 70%.

•Real air freight costs have fallen 3-4% a year Real air freight costs have fallen 3-4% a year over a long period.over a long period.

•Real costs of international phone calls fell 4% Real costs of international phone calls fell 4% a year in the developing countries in the 1990's a year in the developing countries in the 1990's and 2% a year in the industrial countries.and 2% a year in the industrial countries.

Population Trends

0

50

100

150

200

250

300

350

1930 1940 1950 1960 1970 1980 1990

Cost of a 3-Minute Telephone Call, Cost of a 3-Minute Telephone Call, New York to LondonNew York to London

(Constant 1990, U.S. $)(Constant 1990, U.S. $)

$0.30$0.30

Population Trends

Average Air Transport RevenueAverage Air Transport Revenue per Passenger Mileper Passenger Mile

(in 1990 US dollars)(in 1990 US dollars)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1930 1940 1950 1960 1970 1980 1990

Population Trends

Average Tariffs Average Tariffs in Industrial Countriesin Industrial Countries

40%

15%

4.5%

0

10

20

30

40

50

1940's 1960's 2000's

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Examples of Innovation Driving Examples of Innovation Driving Improved Quality/ Lower CostImproved Quality/ Lower Cost

ContainerizationContainerization easier trackingeasier trackingless pilferage/lossesless pilferage/lossesfaster port servicesfaster port services

Electronic data Electronic data interchangeinterchange

easier trackingeasier trackingfaster delivery faster delivery (better scheduling)(better scheduling)just-in-time inventory just-in-time inventory managementmanagement

Fiber opticsFiber optics Lower costsLower costs

Population TrendsTrade to GDP Ratios Rose

Dramatically over the Last Decade(Export plus import as a percentage of GDP)

20

25

30

35

40

45

50

55

1970 1975 1980 1985 1990 1995 2000 2005

ForecastForecast

High-income OECDHigh-income OECD

Developing countriesDeveloping countries

Population Trends

Trade and EmploymentTrade and Employment• New imports entering the market directly displace New imports entering the market directly displace

American producers.American producers.

• Job losses occur when corporations move Job losses occur when corporations move production overseas.production overseas.

• In the face of labor organizing, firms are more In the face of labor organizing, firms are more likely to threaten to close and relocate.likely to threaten to close and relocate.

• Labor market volatility has increased in recent Labor market volatility has increased in recent decadesdecades

Population Trends

Adjustment costs and inequalityAdjustment costs and inequality

• Workers in protected sectors of the Workers in protected sectors of the economy may lose their jobs as trade economy may lose their jobs as trade liberalization proceedsliberalization proceeds

• Wage inequality may increase as a result of Wage inequality may increase as a result of diffusion of more capital/science-based diffusion of more capital/science-based production that favor skilled over unskilled production that favor skilled over unskilled laborlabor

Population Trends

The Home EconomyThe Home Economy• The world today is one in which the input of capital can The world today is one in which the input of capital can

be and is moved across borders.be and is moved across borders.

• ““Trade" does not consist simply of different countries' Trade" does not consist simply of different countries' capitalists competing in product markets on the basis of capitalists competing in product markets on the basis of comparative advantage. comparative advantage.

• Rather, investments are regularly made across borders as Rather, investments are regularly made across borders as capitalists seek not only comparative but absolute capitalists seek not only comparative but absolute advantage.advantage.

• When they do so, as Ricardo understood, they weaken the When they do so, as Ricardo understood, they weaken the home economy.home economy.

Population Trends

Developing EconomiesDeveloping Economies• The supply of labor in many developing The supply of labor in many developing

countries is so enormous that a simple countries is so enormous that a simple increase in demand for labor, while increase in demand for labor, while beneficial, will not lead to a "tight labor beneficial, will not lead to a "tight labor market." market."

• Globalization and free trade can worsen this Globalization and free trade can worsen this situation, as small entrepreneurs and situation, as small entrepreneurs and millions of small farmers are displaced.millions of small farmers are displaced.

Population Trends

Capital MobilityCapital Mobility• In a world of mobile capital, the old In a world of mobile capital, the old

Ricardian story of "comparative advantage" Ricardian story of "comparative advantage" among nations with rooted capital among nations with rooted capital competing in product markets is no longer competing in product markets is no longer adequate; we live in a world where adequate; we live in a world where increasingly mobile capital seeks out increasingly mobile capital seeks out absolute advantages. absolute advantages.

Population Trends

Social and Environmental WelfareSocial and Environmental Welfare

• Social welfare or even long-term economic Social welfare or even long-term economic efficiency are not necessarily enhanced by efficiency are not necessarily enhanced by permitting standards of production, permitting standards of production, including labor and environmental laws, to including labor and environmental laws, to be eroded by unrestricted trade among be eroded by unrestricted trade among countries with different social standards. countries with different social standards.

Population Trends

State and Local ControlState and Local Control

• The emergent global trade regime threatens The emergent global trade regime threatens to undercut policies in the United States, to undercut policies in the United States, particularly at the state and local levels, that particularly at the state and local levels, that are aimed at strengthening community and are aimed at strengthening community and helping local producers and local workers. helping local producers and local workers.

Population Trends

Developing EconomiesDeveloping Economies• The current institutional arrangements of The current institutional arrangements of

the global economy often allow or even the global economy often allow or even foster economic instability. foster economic instability.

• It is by no means clear that globalization is It is by no means clear that globalization is on balance nearly as advantageous to on balance nearly as advantageous to developing nations as its advocates claim, developing nations as its advocates claim, especially when its destabilizing aspects are especially when its destabilizing aspects are accounted for. accounted for.

Population Trends

Democracy and CommunityDemocracy and Community• From the standpoint of democracy and From the standpoint of democracy and

community, there are important values community, there are important values other than gains in aggregate "economic other than gains in aggregate "economic welfare" or "consumers' well-being" that welfare" or "consumers' well-being" that must be taken into account in formulating must be taken into account in formulating international economic policy.international economic policy.

Population Trends

Globalization and LocalizationGlobalization and Localization

• more economic activity in the more economic activity in the United States economy is now United States economy is now inherently local,inherently local,

• at the same time that more at the same time that more economic activity is tied to trade economic activity is tied to trade and global economic activities.and global economic activities.

Population TrendsDeclining Manufacturing – Declining Manufacturing –

Emerging ServicesEmerging Services• During the 1980s, the proportion of economic During the 1980s, the proportion of economic

activity serving local markets increased in the activity serving local markets increased in the metro areas with population greater than 1 million.metro areas with population greater than 1 million.

• Increase due to “deindustrialization” and expansion Increase due to “deindustrialization” and expansion of local consumer services, public and health of local consumer services, public and health sectors.sectors.

• Urban economies continued to become more local Urban economies continued to become more local in the 1990s.in the 1990s.

Population Trends

Globalization and LocalizationGlobalization and Localization• The stakes in the free trade debate may have been The stakes in the free trade debate may have been

exaggerated by free trade advocates.exaggerated by free trade advocates.

• The negative economic effects of globalization The negative economic effects of globalization upon American workers and communities may upon American workers and communities may also have been overstated by some activist critics.also have been overstated by some activist critics.

• Only 12.2 percent-less than one-eighth-of the Only 12.2 percent-less than one-eighth-of the goods and services produced in the United States goods and services produced in the United States in 1999 were sold abroad.in 1999 were sold abroad.

Population Trends

Community Economic StabilityCommunity Economic Stability• Community economic stability is obviously vital to the nurturance of Community economic stability is obviously vital to the nurturance of

"civil society" and what has come to be known as "social capital." "civil society" and what has come to be known as "social capital."

• The strength of a society's social networks have been identified as an The strength of a society's social networks have been identified as an important determinant of overall institutional performance.important determinant of overall institutional performance.

• Communities that experience economic displacement and long-term Communities that experience economic displacement and long-term population decline will inevitably lose a substantial portion of their population decline will inevitably lose a substantial portion of their social-capital enhancing long-term residents.?social-capital enhancing long-term residents.?

• After an economic dislocation, it is the better-educated, higher-After an economic dislocation, it is the better-educated, higher-income residents who are most likely to be able to leave-the very income residents who are most likely to be able to leave-the very people who are most likely to be involved in a community's civic life.people who are most likely to be involved in a community's civic life.

Population Trends

Efficiency and StabilityEfficiency and Stability

• Rather than provide subsidies or Rather than provide subsidies or assistance to places experiencing assistance to places experiencing economic instability, it is more economic instability, it is more efficient to let firms decide where to efficient to let firms decide where to locate jobs then encourage job-seekers locate jobs then encourage job-seekers to migrate.to migrate.

Population Trends

Efficiency and StabilityEfficiency and Stability

• Efficiency argument fails to account for Efficiency argument fails to account for the costs of “throw-away cities.”the costs of “throw-away cities.”

• Sunk private and public investments in Sunk private and public investments in infrastructure, housing, utilities etc.infrastructure, housing, utilities etc.

• Disutility of losing something, a job, a Disutility of losing something, a job, a home, may be greater than utility of home, may be greater than utility of gaining a replacement.gaining a replacement.

Population Trends

Efficiency and StabilityEfficiency and Stability• Optimal firm location is no longer rigidly Optimal firm location is no longer rigidly

determined by traditional technical considerations determined by traditional technical considerations such as the need to locate heavy industry near such as the need to locate heavy industry near transportation networks. transportation networks.

• With manufacturing on the decline and the With manufacturing on the decline and the tremendous improvement in modern tremendous improvement in modern communications, most of the activities of the communications, most of the activities of the contemporary American economy can be contemporary American economy can be efficiently located in any number of places.efficiently located in any number of places.

Population Trends

Technically-Determined Firm LocationTechnically-Determined Firm Location• Purely technical determinants of firm location-Purely technical determinants of firm location-

that is, factors rooted in physical geography, the that is, factors rooted in physical geography, the distribution of natural resources, or the logistical distribution of natural resources, or the logistical need for centralized coordination-are shrinking need for centralized coordination-are shrinking in importance and will continue to shrink as in importance and will continue to shrink as manufacturing occupies a decreasing share of manufacturing occupies a decreasing share of the national economy and as communication and the national economy and as communication and transportation technologies continue to advance.transportation technologies continue to advance.

Population Trends

Socially-Determined Firm LocationSocially-Determined Firm Location• Factors that remain important in driving firm location in the Factors that remain important in driving firm location in the

postindustrial economy are primarily socially determined: postindustrial economy are primarily socially determined: – llabor costs, abor costs,

– tax rates, tax rates,

– subsidies available to firms, subsidies available to firms,

– access to universities and technical assistance, access to universities and technical assistance,

– access to good public infrastructure (roads, airports, etc.), access to good public infrastructure (roads, airports, etc.),

– regulatory policies, regulatory policies,

– quality of education, quality of education,

– quality of workforce, quality of workforce,

– and, perhaps most important, presence of a large-scale development anchorand, perhaps most important, presence of a large-scale development anchor