The Challenge of Globalization
And What We Can Do
Canada’s international trade agreements have made us a more competitive and prosperous nation. But only an ideologue could ignore the hard fact that globalization is not working — or not working as well as it could.
Globalization has not been a force of good in a number of African countries, and even where it is working, outcomes could have been much better. It did not work, for instance, for the Chinese workers who committed suicide rather than build iPhones; and it did not work for the 1,129 workers who perished in the Rana Plaza collapse.
It is no longer working as well for rich countries, either. We are now seeing a boomerang effect, where the developed countries that pushed for globalization are becoming its victims. An outpouring of new academic research — including my own — suggests that globalization is leaving the middle class behind. That doesn’t mean we should abandon globalization. It is inarguably an important driver of rising living standards worldwide; but we have to get better at managing its downsides.
"In some places, globalization is still about extracting what you can from the host country and getting out."
- Dan Trefler, professor of Business Economics at the Rotman School
Within every successful society there is a yin-yang of opposing forces: lined up on one side are the economic elites who have come to dominate mature industries and who use their economic clout to further their narrow self-interests; and on the other are young entrepreneurs whose disruptive ideas are raising productivity in new and exciting ways, creating high-paying jobs, and transforming the competitive landscape. In the richest countries, the latter — ‘entrepreneurial dynamism’ — usually wins the day. But in the poorest countries — including much of Africa — the established elites are so powerful that entrepreneurship and innovation are suffocated.
Most countries lie in limbo between these two extremes. In countries like Mexico, home to Carlos Slim (who surpassed Bill Gates last July as the world’s richest man), the economy is stuck in reverse as a result of huge inefficiencies in monopolized sectors such as telecom and energy.
The e world is bifurcating along knowledge lines, and this is the reason why globalization works in some places and fails in others. In some places, globalization is still about extracting what you can from the host country and getting out. Companies do this by recruiting the incumbent elite and offering it a share of the profits. But as indicated, this only serves to strengthen an economy’s most regressive forces.
In other countries — China, for example — companies are producing goods that require entrepreneurship and a modicum of innovation, and where that happens, globalization advances the interests of progressive forces in the country. These interests are better served by investor protection, the rule of law, and diminished power of the state. In these cases, balance is shifted towards success, and globalization works.
Dan Trefler is the Douglas and Ruth Grant Canada Research Chair in Competitiveness and Prosperity and Professor of Business Economics at the Rotman School.
Read the full article in Rotman Management magazine.
Major in Global Management