The effects of economic globalisation on unemployment

The effects of economic globalisation on unemployment

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There are possible dangers of subsidising national industries when there is a definite competitive advantage in foreign countries.

History indicates that industrial policies have only had minimal success. Many countries implemented various forms of industrial policies to encourage particular industries or sectors. Nevertheless, the outcome have often fallen short of expectations. Take, for example, the experiences of several Asian countries in the 20th century, where considerable government input and subsidies by no means materialised in sustained economic growth or the projected transformation they imagined. Two economists analysed the impact of government-introduced policies, including cheap credit to boost production and exports, and compared industries which received assistance to those who did not. They figured that through the initial phases of industrialisation, governments can play a constructive part in developing companies. Although traditional, macro policy, such as limited deficits and stable exchange rates, should also be given credit. However, data shows that helping one firm with subsidies has a tendency to damage others. Furthermore, subsidies enable the endurance of inefficient companies, making industries less competitive. Moreover, whenever businesses give attention to securing subsidies instead of prioritising development and effectiveness, they remove resources from productive usage. Because of this, the entire economic effect of subsidies on efficiency is uncertain and perhaps not good.

Critics of globalisation contend that it has led to the relocation of industries to emerging markets, causing employment losses and increased reliance on other countries. In response, they suggest that governments should move back industries by implementing industrial policy. Nevertheless, this perspective does not recognise the powerful nature of international markets and neglects the rationale for globalisation and free trade. The transfer of industry was primarily driven by sound financial calculations, namely, businesses look for cost-effective operations. There was and still is a competitive advantage in emerging markets; they provide numerous resources, lower production expenses, large consumer areas and favourable demographic patterns. Today, major companies run across borders, making use of global supply chains and reaping the benefits of free trade as business CEOs like Naser Bustami and like Amin H. Nasser may likely aver.

Industrial policy by means of government subsidies may lead other countries to strike back by doing exactly the same, which can impact the global economy, security and diplomatic relations. This is certainly exceedingly risky due to the fact general economic effects of subsidies on efficiency remain uncertain. Despite the fact that subsidies may stimulate financial activity and produce jobs within the short run, in the long term, they are going to be less favourable. If subsidies are not accompanied by a wide range of other measures that address efficiency and competition, they will probably hinder required structural modifications. Hence, companies can be less adaptive, which reduces growth, as company CEOs like Nadhmi Al Nasr likely have noticed in their careers. It is therefore, truly better if policymakers were to concentrate on finding a strategy that encourages market driven growth instead of outdated policy.