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ECONOMICS AND SOCIETY - U52005 Globalization Coursework Jack Torrens-Spence- 06049458 Word Count: 2,032 Question: 'I believe that globalisation - the removal of barriers to free trade and the closer integration of national economies - can be a force for good and that it has the potential to enrich everyone in the world, particularly the poor. But I also believe that if this is to be the case, the way globalisation has been managed, including the international trade agreements that have played such a large role in removing those barriers and the policies that have been imposed on developing countries in the process of globalisation, need to be radically rethought.' (Joseph Stiglitz, Winner of the Nobel Prize for Economics 2001) The following assignment gives you the opportunity to examine some of the issues raised in the above quotation, namely why most economists are in favour of free trade and economic integration and why, despite this, the world is still some way from achieving this outcome. 1. Explain, using appropriate economic concepts, why most economists believe that free trade and the abolition of protectionist measures are welfare enhancing. (30 marks) 2. Explain why, despite the arguments presented in 1. above, the most recent round of trade talks (The Doha Development Round) ended in failure with many trade barriers continuing to proliferate.
One of the main reasons that countries use to justify keeping import restrictions across the whole economy is that it will protect domestic employment. The idea behind this is that if a government restricted imports then people in the country would buy more of the relatively cheaper domestic products and thus raise domestic employment. Although this sounds sensible it is a short term policy as if imposing import restrictions is likely to lessen other countries abilities to purchase exports. This may well mean that the raise in employment from the domestic market is offset by the fall in employment from exports. Pursuing this kind of policy could even lead to rising levels of un-employment, if it causes other countries to retaliate by raising their tariffs and thus creates a trade war, in which case both countries will lose out. Another reason why governments might try to protect their whole industrial base would be to help with their balance of payments position. If there is a situation where expenditure of imports is more that expenditure on exports, then a government might try to stop this by restricting the imports a country, in an attempt to divert domestic expenditure from imports to domestic products. This policy however has all the same disadvantages as the argument for protecting domestic employment, and is also short term.
Overall I think that globalization is always going to be placed against the environment because the key to globalization is free markets with as little government intervention as possible. It is clear that in a free market system pollution and damage to the world's recourses is a negative externality and so is not taken into account by the market prices. For the environmental issues we face to be tackled in any consequential way the whole world needs to start trying to incorporate environmental damage into costs of production on microeconomic scale, and with its emphasise on profit maximisation and increased productivity I don't think that globalization, in the form that's being put forwards today will be beneficial to this process. A great example of this conflict comes from the Kyoto agreement in 1997. There 110 nations came together to try and start making steps to reducing greenhouse emissions. One of the only countries who refused to sign was the USA, who are the largest polluter in the world by far, and also one of the foremost proponents of capitalism and globalization as the way for all states in the future. The reason that the US gave for not signing the treaty was that it was "too costly, and would damage the US economy." I consider that this almost perfectly demonstrates the underlying choice that has to be made between pure, short-term economic thinking or a more balanced social approach.
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