Globalisation: The Irony In Economics

Monday, April 24, 2006

Suddenly, it is not easy being rich in Asia
Rising prices in first-world cities are a sign of strength, but could also prove to be an Achilles' heel

ANYONE doubting Japan's revival should check with a real-estate agent in the country. It is there you will find evidence the nation is shaking off eight years of deflation. Average commercial land prices in Tokyo, Osaka and Nagoya rose 1 per cent last year, the first gain in 15 years and one of the clearest signs yet that deflation is ending. Nationwide, land prices saw their smallest fall since 1991.

That, as just about any Japan investor will proclaim, is stellar news for the world's No 2 economy. Now for a contrarian question: Will rising prices brighten or dampen Japan's outlook?

Full article here.
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Because this article, in itself, is somewhat already an analysis of the effects of globalization, I will not regurgitate this article's views, but attempt to provide another point of view on it, while still remaining true and relevant to the topic.

As mentioned in the article, globalization does present a setback to developed countries, especially in Asia, like those of Singapore, Hong Kong, and so on. This is due to the lower costs involved in investment in less developed countries, like China and India, than in more developed countries, like Singapore and Hong Kong. The disparity between these two economies in different stages of development, is creating a paradox. As quoted from the article, "Rising prices used to be a sign of progress. Now they may be an Achilles' heel for some of Asia's most developed economies."

The main reasons for this phenomenon are already stated in the article, but for the sake of posterity, I will go through them again. These reasons range from globalization, the somewhat homogeneous nature of economies in Asia leading to price-led economic competition, to the many different stages of economic development Asian countries individually possess. But somehow, one or the other, it all boils down to globalization.

Globalization, in itself, is an irony. In the case of Asia, globalization has helped Singapore and Hong Kong to be economically ahead of their time, to be "gateways of Asia", the first few countries to receive the first taste of Western economies. Given this, they naturally economically advanced a fair bit quicker than their other neighbours like China did, thus assuming a head-start.

However, as little as around ten years ago, globalization has turned its back to these now-developed economies. Up and coming, are what you would call these economies. Though rather developed, these economies are still somewhat in their infancy, and have plenty of investment potential, what with the low cost of land and development, and the considerably cheaper labour than those of more developed economies. Furthermore, these economies, which are characteristic of China's and India's, have a huge market, signaling the probable breakthrough of foreign goods and services into the local market, if investments were made in such developing economies. Thus, as can be seen, it is hardly any wonder why such economies attract so many investments now.

Therefore, at least from this article, we can already see that, globalization, in the economic arena; can be both a good, and a bad thing. Depending on the circumstances, like wars (Japan), globalization would work either for or against certain countries.

It is then mentioned in the article, that for the economies that are already developed, they should start specializing in niche, high-quality services, and empowering entrepreneurs, encouraging innovation, and thereby exploring more ways to fight for a piece of the global dollar. However, what if all countries eventually reach the state of a fully developed economy? Are they all supposed to focus on such services and empowerment of entrepreneurs? Surely, when this is done, wages would be extremely high, hyperinflation a real possibility, and there would be hardly any food left for anyone, for all the countries would have abandoned the fields, and left for the brilliant prospects of a developed economy. Perhaps then, the ones with the less developed economies, still focusing on mass production and agriculture, would be the ones considered the economic superpowers. Again, an irony in globalization.

Overall, we can see that the definitions of an economic superpower, whether those that specialize, or those that mass-produce, are based on the whims of globalization. Globalization, at least in the economic context, is what keeps change constant. I will be exploring this in greater detail, depth, and scope, in my later posts.

- Marc, the Economics 'Expert'

Want to know more about globalization in general? Go here.
Posted by cram at 1:02 am
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