Anti-Globalisation Sentiment and Whether Globalisation Can Address Scarcity

Question

Anti-globalisation sentiments have been developing in recent years. President Donald Trump ended US involvement in the Trans-Pacific Partnership, citing protection of US jobs and businesses as the reason. UK voted out of European Union, where the vote for ‘Brexit’ was strongest in regions devastated by wage undercuts and the offshoring of manufacturing jobs.

(a) Explain the reasons behind the growing anti-globalisation sentiment. [10]

(b) Discuss the extent to which globalisation can address the fundamental economic problem of scarcity. [15]

Answer

Part (a) [10]

Globalisation is the rising interconnectedness of economies through greater flows of trade, capital and labour. Anti-globalisation sentiment grows where particular groups bear its costs; this part explains two such reasons — loss of comparative advantage and worsening income inequality.

Loss of comparative advantage. Comparative advantage is the ability to produce a good at a lower opportunity cost than another country. As emerging economies acquire comparative advantage in industries an advanced economy once dominated, that economy loses price competitiveness in both domestic and foreign markets. Its firms see demand fall, cut output, and hire fewer workers, raising demand-deficient unemployment. Globalisation sharpens this by letting foreign firms with the comparative advantage sell freely into the domestic market — so workers in the declining industries turn against globalisation.

Worsening income inequality. Globalisation raises labour flows, increasing the inflow of foreign workers from lower-cost countries who are willing to work for less than domestic workers. Domestic firms substitute towards cheaper foreign labour, depressing wages and raising unemployment among low-skilled domestic workers. Meanwhile high-skilled workers are in strong international demand and can command higher pay abroad. As low-income workers lose jobs and wages while high-income workers gain, income inequality widens — and the low-income losers develop anti-globalisation sentiment.

Part (b) [15]

Scarcity is the central economic problem: limited resources cannot satisfy unlimited human wants. The stand of this essay is that globalisation can reduce the effects of scarcity by letting countries consume beyond their own production frontier, but can never eliminate scarcity, because wants expand as resources do.

Globalisation allows consumption beyond the frontier. Globalisation raises trade flows through economic integration and free-trade agreements. When countries specialise according to comparative advantage — each producing what it forgoes least to produce and trading for the rest — all can consume a greater quantity and quality of goods than they could in autarky.

Referring to the diagram, in autarky the country is confined to its frontier (point B) and cannot reach its wants at U. With globalisation it can consume at A, outside the frontier and nearer to U — so scarcity is addressed to an extent, though not solved.

In-body evaluation. This rests on the absence of unfair trade practices. If countries impose tariffs or engage in dumping, globalisation can benefit one country at others’ expense, moving those economies further from addressing scarcity.

Globalisation cannot eliminate scarcity. As globalisation raises the quantity and quality of goods available, consumers revise their wants upward. A consumer who once wanted only domestically made cars comes to want Asian cars, then European cars: the fundamental problem is that wants are unlimited and expand as available resources expand. So even as globalisation shifts the attainable consumption point out to A, wants advance from U to a still-more-distant U′ — the gap never closes.

In-body evaluation. In the long run, technological progress may raise resources and goods faster than physiological wants grow, so the scarcity of absolute needs (nutrition, shelter, clothing) may ease, even if relative wants persist.

Judgement. Globalisation can address scarcity to an extent but cannot eliminate it in any country; the extent depends on the country’s features. It helps most in small, resource-poor economies such as Singapore, whose narrow production frontier leaves a large gap between domestic output and domestic wants — trade then sharply widens the consumption set. It helps large, resource-rich economies less, since they often hold absolute advantages across many goods and so depend less on trade to expand consumption. On balance, globalisation eases scarcity — substantially for small open economies — but, because wants are unlimited, it can never completely solve it.