Globalization and International Development: Critical Issues of the 21st Century

Ch 7 - The Challenges and Opportunities of Twenty-First-Century Global Markets

105 7 The Challenges and Opportunities of Twenty-FirstCentury Global Markets Hadi Salehi Esfahani University of Illinois at Urbana-Champaign Are we preparing our younger generations for the challenges and opportunities of the twenty-first-century global markets? As markets become increasingly global, tough competition for every skill is emerging from around the world. But fascinating opportunities are also being formed to serve people in different corners of the globe in new ways. Are we, as a society and as individuals, developing the right skills and procedures to deal with the upcoming challenges and to take advantage of the new global opportunities? Or are we about to see our jobs outsourced and our lives face greater uncertainty? These are critical questions that all of us living in the early twentyfirst century have to grapple with, one way or another. Global trends have come to matter in significant ways in our career choices and business decisions, as well as government policies that we advocate. To think through these issues and to make informed choices as professionals and citizens, we need to have a basic understanding of the main forces behind global market dynamics. The literature on globalization offers many perspectives that highlight such forces from different angles. This chapter brings together a host of those perspectives and makes new observations regarding the current and future globalization trends. To start the discussion, it is useful to briefly review the key trends and lessons from the past. 106 Esfahani PAsT GLOBALIzATION TRENDs The most notable forces behind globalization are improvements in transportation and information technologies that have brought different parts of the world into closer contact with each other. This has enabled companies in each country to see the world market within their reach and to think globally when choosing what processes to keep inside the firm, where to locate, and which processes to outsource domestically or internationally. Such considerations are not just for large corporations such as Caterpillar or Archer Daniels Midland. Small firms and individuals also need to be aware of their positions in global markets. Many industries, such as auto parts, have long been involved in that process. More recently, many products and services that previously enjoyed natural protection in each locality, such as retail sales, have come to face a much wider competition. Technology, however, is not the entire story behind globalization. Government policies and institutional developments have also played major roles. Even decades ago, when transportation and communications costs were high, they were often minor compared to the myriad of barriers erected by governments to protect domestic industry or to generate rents and collect revenue. Those barriers have markedly declined since World War II. Government action has also mattered in terms of streamlining domestic regulation, law and order, and control of corruption and extortion (or security of property rights in general). Globalization would not have been possible without expanding public support for liberal trade and without increasing government ability to invest in public goods and to bring order, efficiency, and security to domestic markets. What accounts for the change in public attitudes and the improvement in government capabilities? Concerning attitudes toward trade policy, the important factors have been improvements in the operation of labor and capital markets and the expansion of social insurance mechanisms such as unemployment insurance and social security. These factors have mattered because they have reduced the costs of external shocks on domestic producers. Under liberal trade, innovations and entries and exits in global markets often force local producers to respond and compete or go out of business. In either case, access to effi- The Challenges and Opportunities of 21st-Century Global Markets 107 cient sources of credit and insurance can reduce the costs imposed on local firms and workers and enable them to withstand external shocks, adjusting to them or moving to new localities and lines of business where they can compete more effectively. The enhanced efficiency of capital and labor markets and the expansion of social insurance over the past several decades have eased such adjustments and account for the increased palatability of liberal trade policies, especially in more advanced countries. Lack of similar developments in many poor regions of the world has either prevented governments from opening up trade or has rendered local industries vulnerable to external shocks, impeding investment and causing hardship for large parts of the population. For similar reasons, the pre-WWII free trade under colonial rule...