Globalization improves productivity

The argument

The productivity case for globalization runs through two distinct channels, and this argument treats the second as the more powerful of the pair. The first is the transfer of knowledge. When firms, investment and personnel move across borders, foreign expertise and know-how move with them, and that expertise raises what domestic workers and firms are able to produce. The effect has been quantified: the International Monetary Fund estimates that globalization has been directly responsible for an increase of 0.7% annually in emerging market economies — a compounding gain rather than a one-off adjustment. The second channel is competition, and it works on domestic firms rather than on the stock of available knowledge. When companies with more advanced technology and higher productivity enter a market, the firms already operating there cannot continue as before, because customers now have an alternative. They are forced to develop strategies to match the productivity of the new entrants, which means adopting better methods, better equipment or better organisation — improvements that were always technically available but that nothing previously compelled them to make. Exposure to foreign competition converts an option into a necessity. What makes these gains significant rather than merely welcome is what productivity growth does over time. It is the strongest driver of long-term economic growth, because it raises what an economy can produce from the same inputs rather than requiring more inputs to be found. Improvements of this kind therefore accumulate, and an economy that is raising its productivity faster is not simply larger than it would have been but on a steeper path. Because globalization improves productivity through both the transfer of expertise and the pressure of competition, this argument concludes, globalization is good.

Context

Globalization enhances the spread of knowledge across international borders. This foreign knowledge has allowed economies to adopt foreign industry best practices and increase productivity.

Premises

Counter-arguments

With increasing global competition, domestic productivity only increases for those who already have access to significant capital. Small local businesses are unable to compete and are driven out of the market.

Rejecting the premises

[Rejecting P1] A single aggregate estimate says nothing about how the gain was distributed, the source is named loosely, and productivity credited to openness is hard to separate from the domestic investment, education and infrastructure of the same period. [Rejecting P2] Competition eliminates firms as well as improving them: measured productivity can rise simply because less efficient producers close, which registers as a statistical gain while local businesses and their employees carry the loss. [Rejecting P3] Even granting that productivity growth drives long-term growth, growth is not the same as good — the question asks after advantages and disadvantages, and the premise weighs neither distribution, displacement, nor the environmental costs the opposing position raises.