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Explaining Economic Geography
Globalisation of trade

Global Production

The Globalisation of trade refers to the era where trade operates on global scales as opposed to national scales. Some may argue that this has always happened from the times when spices were brought from Asia and Tobacco from the Carribbean. But the Globalisation of trade specifically applies to the operation of businesses (multinationals) across the world, on a worldwide scale and using and competing in global markets.
 
The globalisation of trade was a process that has helped along by certain factors. The greatest factor, in my view, is the ideological change that has happened across the world, Post World War Two.
 
From a system where countries operate with a self-sufficient perspective, we have seen a change to a system where nations operate according to market perspectives. Demand is essentially fixed by the markets and not by the nation state. So what has caused this change and why has companies grown to be able to operate on a global scale?
 
Post World War Two, there was an obvious need for global restructuring. Western Europe was capitulated by military conflict, America was economically strained through the latter stages of the conflict and Africa, South America and Asia remained underdeveloped and impoverished. The league of Nations and the World Bank were set up to restore moral order and to aid the restructuring of the western world through the construction of free markets. Globalisation had begun. In order to qualify for these organisations certain requirements had to be met. These requirements stipulated that essentially nations had to open up their borders to the free merket to qualify for existence.
 
The strongest capitalist nation, in terms of wealth at that time, was the United States. They had the tools for their companies to flourish in the new economic climate. The American companies had the financial clout to start playing Goliath with the smaller national and local based companies abroad. They won and have been growing in size every since.
 
Trade has also become more global as a result of regime change. The collapse of communist countries in the last 50 years have allowed new markets - and new spaces - to be conquered by western markets. We have seen Russia, China, Indonesia, Eastern Europe, South America and some African countries convert to capitalism allowing multinationals to occupy places they hadn't before. However, this conversion has been under scrutiny for some time and issues have been raised concerning the morality of the US in aiding pro-capitalist revolutionary movements. Millions have been killed in wars during regime change from communism to capitalism and so the US has built up anti-capitalist opposition all over the world.

So by allowing spaces to be occupied by capitalist forces, the globalisation of trade had begun. But the process is by no means a consequence of just this factor, after all how can we account for the way multinationals locate their different operations in different world regions?
 
The second major catalyst to globalisation is transport evolution. From the turn of the 20th century when boats, canals and the humble horse and cart were the vehicles of business we have seen a massive change. Its airfreight, road haulage and mass ocean transportation that have essentially allowed trade to be conducted and operated anywhere. It has given trade the opportunity to do anything, anywhere and allowed them to operate within the unwritten rules of profit maximisation.
 
Decisions are thus based on economic efficiency and profit and this has led to the fragmentation of operations evident in multinational business. Whilst the large scale manufacturing will occur in areas of cheap skilled labour (notably South Asia at present), research and development (R&D) will occur in areas of advance skilled education (Oxford, Cambridge). If we take a car as a general example of globalisation, the processes of manufacturing, marketing, R&D and global management can involve up to seven different countries.
 
Domestic trade within countries used to be protected through import tariffs aimed at charging foreign companies for the privalage of operating within that border.  However, following pressure from multinationals during the Uruguay round of the GATT agreement the restrictions have been largely eroded.
 
A multinational can therefore locate within a country, exploit the labour market and domestic trade rules and within time move to another country if it offers a cheaper alternative. The former host country will be left in turmoil but this is a simple illustration off the unethical side to globalisation.
 
The globalisation of trade has perhaps had its biggest effect on farmers across the world. Before the advent of multinational territoriality, in many ELDCs the price of farm produce was determined domestically. However, things have now changed as a result of the liberalisation into the free market. Prices can now be determined by what happens in another continent - for the good or for the bad.
 
Using Burkina Faso and Coffee industry as an example, the nation gained from its coffee harvest when produce in Brazil (who account for 25% of the world market) was low as a consequence of frost in 1994. However, in 1999 prices were really low when Brazil launched its economy. Burkina Faso farmers had a product that didnt make money and the situation is made worse when realising that these farmers changed their self-sufficient methods to one of profit. They couldn't even manage to feed their families, as all the crops were coffee compared to a when they farmed a mixture of pastoral and arable crops which they consumed themselves.
 
Therefore, the globalisation of trade has seen a transition from locally based industry that supports local and domestic market to a feeder-type industry. This feeder production takes place in ELDCs but will inevitably benefit the developed world as the as the production goes on to be sold within the global economy. So although trade may be a global process, the benefits and externalities are unevenly spread.
 
The major barrier to equal global trade are subsidies of developing countries. These subsidies artificially allow trade in industries such as agriculture to compete with products from ELDCs - evenb though these products are made and cost cheaper. ELDCs cannot cope with these undercutting of prices and therefore they seek to produce goods even cheaper which leads to the polarisation of poverty.
 
The unfairness of the system is epitomised by the fact that developing countries are adjusting to the liberalisation of the world economy after more than 30 years of exposure to the world market. When this is compared to the immediate demands oplaced upon ELDC's to open up their borders to world trade it seens highly unfair.

Global Powers