Friday, September 21, 2007

Simplifying globalization: wealth redistribution and comparative advantage

IMO, for the majority of heated debate on globalization, there are 2 sides of globalization that rarely mentioned together. Globalization as method of wealth redistribution, and globalization as method to capitalizing comparative advantage.

In theory, if you're relatively poor because your work result is undervalued relative to world average valuation, you can benefit a lot from globalization. Once the whole world has access to your work, it will be valued higher. You will be richer. The bad side is that if you're relatively rich because your work result is overvalued compared to world average valuation, globalization will lower the valuation of your work. You will be poorer.

Is this mean that people from rich country is always at disadvantaged when joining globalization? Not really. Rich countries can benefit from globalization because of the second aspect of globalization, which is comparative advantage.

With comparative advantage, people can concentrate on doing what they do best thus driving down cost and increasing profit margin. People from relatively richer country can benefit from this by having access to superior product/service or cheaper product/service. The relatively poor can too.


Globalization is also a game of give and take. A country give up protection to certain aspects of it's economy, and take up the opportunity of certain aspects of economy in other country.

Unfortunately, many countries choose to selectively open themselves to globalization. They only open aspects of economy where they will be hurt the least, and force other country to open up it's aspect of economy where they will gain the best result.

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