# data[].attributes.attachment_link.readable_text
How do global brands thrive in an era of isolationism and protectionism? For Nike, the answer is lobbying, automation and reshoring.

Nike is synonymous with globalization. Over the past two decades, Nike has been one of the pioneers in outsourcing production to the developing world. Today, Nike's contracted factories employ 1.02 million workers in 42 countries to produce all its products, with 29% of product made in China and 44% in Vietnam [1] [2]. While this global supply chain has undoubtedly been a competitive advantage for this international brand, the Trump Administration's "America First" approach of economic nationalism and the reemergence of protectionist policies globally represent a significant challenge to Nike's worldwide manufacturing strategy [3].
Strategy to Date
Today, Nike faces an average 11% tariff on shoes imported into the US, with the looming threat of an increase to 45% for goods coming from China [4] [5]. While such policies are designed to protect domestic industries, they can have perverse outcomes: import costs passed on to the consumer, drive up prices and leadto cost-push inflation. Lower consumption as wage growth trails price increases, would be a huge hit to Nike, where 48% of its revenue generated in 2016 was in North America [6]. As such, how should Nike respond in an era of protectionism and isolationism?

Lobbying: In the short term, the company has ramped up lobbying efforts in support of free trade and open boards. As an example, Nike has been a vocal proponent of the Trans Pacific Partnership. The US brand threw its weight behind the program, promising to create 10,000 jobs in advanced manufacturing domestically should TPP become law [7]. For Nike, TPP would have reduced tariffs on trainers made in countries like Vietnam [8]. However, with the US' withdrawal from the deal, competitors in countries like Australia are reaping the rewards of trade deals negotiated, which the US might otherwise have won via TPP [9].

Automation: Nike's medium-term solution to protectionist pressures is to reduce reliance on cheap foreign labor in its production process through automation. In partnership with Flex, a high-tech manufacturing company, Nike has introduced greater efficiencies into the otherwise labor-intensive process of making shoes, with an estimated 20% of production set to be automated by 2023 [10].

Exhibit A: Nike and Adidas are expected to be industry leaders in manufacturing automation and innovation [10].

Reshoring: Increase in automation have bolstered the case for reshoring the manufacturing process where high domestic labor costs were previously a barrier to reentry. The benefits of addressing the issue of protectionism through this approach is twofold:
Is it enough?

Tariff Reduction: local manufacturing implies zero tariffs. Nike already has a precedence for employing this strategy. Independent factories in Argentina, India, Brazil and Mexico were established in response to high import tariffs in these geographies [11] [12].

Supply chain reinvention: Historically, it can take up to 18 months to develop a new shoe - a sizable dilemma in the era of "fast fashion". Footwear companies have had to predict trends ahead of time which often results in a mismatch between on-hand inventory and consumer demand. Faster delivery and shorter production cycles through onshore productions present an opportunity to cut costs and increase sales to meet consumer trends [13].

Lobbying 2.0: While Trump aims to minimize US involvement in multinational trade agreements, Nike should continue to push for trade agreements even on a bilateral basis, particularly with the Asia Pacific bloc. Although automation allows cost savings and efficiency gains, manufacturing remains largely entrenched in Asia. As Kasper Rorsted, CEO of Adidas notes, complete reshoring is an "illusion" and "[by moving to the US] you are moving into a market where you have no competence...that goes for the entire industry, I'm not speaking just for Adidas." [14] Moreover, as North America is expected to drive only ~16% of total company growth through to 2022, expanding its global footprint is key to Nike's growth trajectory [15].

Vertical Supply Chain: For automation and reshoring to succeed, Nike also needs to consider and innovate on other parts of its supply chain. Today, China's competitive advantage owes in part to its vertical supply chain, and specifically its extensive material base. For Nike's onshore strategy to be competitive, R&D in materials manufacturing should also be a priority.
Looking Ahead
High skilled labor: Over the past two decades, the eclipse of domestic manufacturing brought on by offshoring, has starved the economy of high skilled labor in advance manufacturing. As Rose and Reeves write, "the US suffered a net loss of nearly 19,000 manufacturing firms between 2001 and 2015" [16]. To address this gap, Nike should invest in education, training programs and skill development to develop the talent pool needed to support reshoring and automation efforts, necessitated by protectionism.

As we look ahead, two key questions emerge:

1. Will protectionism achieve its intended outcome and bring back jobs at scale?

2. Is reshoring here to stay? Will renewable energies and lower transportation costs coupled with automation and innovation advances in the developing world, reinvigorate the case for offshoring?

References
(Word count: 798)

[1] Bissell-Linsk, J. (2017). Nike's focus on robotics threatens Asia's low-cost workforce. Financial Times. [online] Available at: https://www.ft.com/content/585866fc-a841-11e7-ab55-27219df83c97 [Accessed 8 Nov. 2017].

[2] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.11.

[3] Mann, T., Paletta, D. and Tangel, A. (2017). Donald Trump Warns of Penalties If U.S. Firms Take Jobs Abroad. The Wall Street Journal. [online] Available at: https://www.wsj.com/articles/trump-takes-credit-for-saving-indiana-jobs-1480628609 [Accessed 10 Nov. 2017].

[4] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.12.

[5] Haberman, M. (2016). Donald Trump Says He Favors Big Tariffs on Chinese Exports. New York Times. [online] Available at: https://www.nytimes.com/politics/first-draft/2016/01/07/donald-trump-says-he-favors-big-tariffs-on-chinese-exports/?_r=0 [Accessed 9 Nov. 2017].

[6] Statista. (2017). Nike's revenue worldwide from 2009 to 2017, by region (in million U.S. dollars). [online] Available at: https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/241692/nikes-sales-by-region-since-2007/ [Accessed 9 Nov. 2017].

[7] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[8] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[9] Donnan, S. (2017). Globalisation marches on without Trump. Financial Times. [online] Available at: https://www.ft.com/content/d81ca8cc-bfdd-11e7-b8a3-38a6e068f464 [Accessed 11 Nov. 2017].

[10] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.7.

[11] Bain, M. (2016). Your sneakers are a case study in why Trump's America-first trade policy is nonsense. [online] Quartz. Available at: https://qz.com/859628/your-nike-sneakers-are-a-case-study-in-why-trumps-protectionist-america-first-trade-policy-is-nonsense/ [Accessed 13 Nov. 2017].

[12] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.33.

[13] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.6.

[14] Hancock, T. (2017). Adidas boss says large-scale reshoring is 'an illusion'. Financial Times. [online] Available at: https://www.ft.com/content/39b353a6-263c-11e7-8691-d5f7e0cd0a16 [Accessed 12 Nov. 2017].

[15] Sole, J., Ryan, E. and Kessler, M. (2017). Analyst day out in the spotlight, way out of the quagmire. Morgan Stanley, pp.12.

[16] Rose, J. and Reeves, M. (2017). Rethinking Your Supply Chain in an Era of Protectionism. [online] Harvard Business Review. Available at: https://hbr.org/2017/03/rethinking-your-supply-chain-in-an-era-of-protectionism [Accessed 11 Nov. 2017].

# data[].attributes.attachment_link.title
Globalization vs. Isolationism: Finding Nike's New Competitive Advantage? - Technology and Operations Management

# data[].attributes.attachment_link.description
How do global brands thrive in an era of isolationism and protectionism? For Nike, the answer is lobbying, automation and reshoring. Nike is synonymous with globalization. Over the past two decades, Nike has been one of the pioneers in outsourcing production to the developing world.

# data[].attributes.attachment_link.readable_text
If you look at the tag on your shirt, chances are you would see that it was made in a country other than the one in which you sit right now. What's more, before it reached your wardrobe, this shirt could have very well been made with Chinese cotton sewed by Thai hands, shipped across the Pacific on a French freighter crewed by Spaniards to a Los Angeles harbor. This international exchange is just one example of globalization, a process that has everything to do with geography.

Definition and Examples of Globalization

Globalization is the process of increased interconnectedness among countries most notably in the areas of economics, politics, and culture. McDonald's in Japan, French films being played in Minneapolis, and the United Nations are all representations of globalization.

Improved Technology in Transportation and Telecommunications

What makes globalization possible is the ever-increasing capacity for and efficiency of how people and things move and communicate. In years past, people across the globe did not have the ability to communicate and could not interact without difficulty. Nowadays, a phone, instant message, fax, or video conference call can easily be used to connect people throughout the world. Additionally, anyone with the funds can book a plane flight and show up halfway across the world in a matter of hours. In short, the "friction of distance" is lessened, and the world begins to metaphorically shrink.

Movement of People and Capital

A general increase in awareness, opportunity, and transportation technology has allowed people to move about the world in search of a new home, a new job, or to flee a place of danger. Most migration takes place within or between developing countries, possibly because of lower standards of living and lower wages push individuals to places with a greater chance for economic success.

Additionally, capital (money) is being moved globally with the ease of electronic transference and a rise in perceived investment opportunities. Developing countries are a popular place for investors to place their capital because of the enormous room for growth.

Diffusion of Knowledge

The word 'diffusion' simply means to spread out, and that is exactly what any new found knowledge does. When a new invention or way of doing something pops up, it does not stay secret for long. A good example of this is the appearance of automotive farming machines in Southeast Asia, an area long home to manual agricultural labor.

Non-Governmental Organizations (NGOs) and Multinational Corporations

As global awareness of certain issues has risen, so too has the number of organizations that aim to deal with them. So-called non-governmental organizations bring together people unaffiliated with the government and can be nationally or globally focused. Many international NGOs deal with issues that do not pay attention to borders (such as global climate change, energy use, or child labor regulations). Examples of NGOs include Amnesty International or Doctors Without Borders.

As countries are connected to the rest of the world (through increased communication and transportation) they immediately form what a business would call a market. What this means is that a particular population represents more people to buy a particular product or service. As more and more markets are opening up, business people from around the globe are coming together to form multinational corporations in order to access these new markets. Another reason that businesses are going global is that some jobs can be done by foreign workers at a much cheaper cost than domestic workers. This is referred to as outsourcing.

At its core globalization is an easing of borders, making them less important as countries become dependent on each other to thrive. Some scholars claim that governments are becoming less influential in the face of an increasingly economic world. Others contest this, insisting that governments are becoming more important because of the need for regulation and order in such a complex world system.

Is Globalization a Good Thing?

There is a heated debate about the true effects of globalization and if it really is such a good thing. Good or bad, though, there isn't much argument as to whether or not it is happening. Let's look at the positives and negatives of globalization, and you can decide for yourself whether or not it is the best thing for our world.

Positive Aspects of Globalization

As more money is poured into developing countries, there is a greater chance for the people in those countries to economically succeed and increase their standard of living.

Global competition encourages creativity and innovation and keeps prices for commodities/services in check.

Developing countries are able to reap the benefits of current technology without undergoing many of the growing pains associated with the development of these technologies.

Governments are able to better work together towards common goals now that there is an advantage in cooperation, an improved ability to interact and coordinate, and a global awareness of issues.

There is greater access to foreign culture in the form of movies, music, food, clothing, and more. In short, the world has more choices.

Negative Aspects of Globalization

Outsourcing, while it provides jobs to a population in one country, takes away those jobs from another country, leaving many without opportunities.

Although different cultures from around the world are able to interact, they begin to meld, and the contours and individuality of each begin to fade.

There may be a greater chance of disease spreading worldwide, as well as invasive species that could prove devastating in non-native ecosystems.

There is little international regulation, an unfortunate fact that could have dire consequences for the safety of people and the environment.

Large Western-driven organizations such as the International Monetary Fund and the World Bank make it easy for a developing country to obtain a loan. However, a Western focus is often applied to a non-Western situation, resulting in failed progress.

# data[].attributes.attachment_link.title
What Are the Positives and Negatives of Globalization?

# data[].attributes.attachment_link.description
If you look at the tag on your shirt, chances are you would see that it was made in a country other than the one in which you sit right now. What's more, before it reached your wardrobe, this shirt could have very well been made with Chinese cotton sewed by Thai hands, shipped across the Pacific on a French freighter crewed by Spaniards to a Los Angeles harbor.

# data[].attributes.attachment_link.readable_text
If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally-minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company's growth and future are indomitable.

Why Gaming Expansion Is Necessary

It seems that video games went from a publicly perceived "nerd" activity to a global sensation overnight . Part of the reason for this is globalization. If you take a look at the distribution of video games worldwide on a timeline , they've grown in popularity due to the expansion of their reach.

Back in the day, many of our favorite video games were created with a specific market in mind, typically one local to that of the game's developers. If the product was a hit, the publisher often scrambled to replicate that success around the world, creating new versions for different regions as quickly as possible. As time went on, producers planned for localized versions of games, but often left those tasks for the end of the production cycle, causing release delays to foreign markets. Today we're seeing more day-and-date global releases of many popular titles, so much so that the concept of globalization in the game industry may seem quaint.

Current Challenges to Global Expansion

Thinking globally a necessity considering the interconnectedness the world. However, this can be challenging due to the conditions of less wealthy countries around the world. A gaming community does require the resources, after all.

In an infographic put together by Rutgers University , the authors present a list of challenges to globalization, and they very much apply to the gaming industry. They include political stability, access to credit, core infrastructure, and the ability to enforce contracts easily (an essential component as the industry shifts toward a "games as a service" business model ).

In short, if a country isn't economically stable or politically stable, it's hard for them to advance with the modern world. Rather than devoting resources to implementing technological advancements, they must deal with cultural warfare, which can often make getting access to even basic goods and services a difficult if not impossible task..

The Future of Globalized Gaming

A lot of it comes down to recent technological advancements, like the ones we see in the cloud. The global cloud gaming market is projected to grow 27 percent in the next decade , reaching almost $7 billion market value. This could easily be because game development now appeals to the millennial generation in a way that it previously did not. For instance, it is now important that the messages marketed with a game appeals to the target audience , and this has welcomed newcomers to the world of video games.

Gaming is only going to continue to get bigger. While it still faces some stigmatization in media, globalization has changed the industry forever. We thankfully live in a world where everyone is invited to be a gamer, and if the gaming industry can brave the obstacles thrown at them while expanding globally, then the future is bright.

Featured Image Credit.

# data[].attributes.attachment_link.title
Globalization and the Gaming Industry - HeadStuff

# data[].attributes.attachment_link.description
If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally-minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company's growth and future are indomitable.

# data[].attributes.attachment_link.readable_text
Global, the Winter 2014 issue of ArchitectureBoston magazine, out now, is an examination of the challenges and opportunities facing architects working abroad, from the Middle East to Africa to Asia. The topics explored in this issue include how to value resource-constrained approaches, honor local vernacular, and learn from the urbanization precedents set in other parts of the world. In this article, Jay Wickersham FAIA examines how in a globalized market, architecture firms can take steps to ensure that their designs act in the best interests of the foreign communities they affect.
The signs of architecture's globalization are all around us. Foreign students flock to Boston to study architecture, prominent buildings are designed by foreign architects, American firms build practices around international projects. Globalization has allowed architects to work outside their own regions and cultures, at a scale and with a freedom of design they might never enjoy at home. But beneath the excitement and glamour of international practice, I sense an unease. Are we creating vital and original new architectures, or are we homogenizing cities and landscapes and obliterating regional differences? Are architects helping to strengthen and develop the economies of host communities, or are they acting as unwitting tools of inequality and repression?

# data[].attributes.attachment_link.description
Global, the Winter 2014 issue of ArchitectureBoston magazine, out now, is an examination of the challenges and opportunities facing architects working abroad, from the Middle East to Africa to Asia. The topics explored in this issue include how to value resource-constrained approaches, honor local vernacular, and learn from the urbanization precedents set in other parts of the world.

# data[].attributes.attachment_link.readable_text
How do global brands thrive in an era of isolationism and protectionism? For Nike, the answer is lobbying, automation and reshoring.

Nike is synonymous with globalization. Over the past two decades, Nike has been one of the pioneers in outsourcing production to the developing world. Today, Nike's contracted factories employ 1.02 million workers in 42 countries to produce all its products, with 29% of product made in China and 44% in Vietnam [1] [2]. While this global supply chain has undoubtedly been a competitive advantage for this international brand, the Trump Administration's "America First" approach of economic nationalism and the reemergence of protectionist policies globally represent a significant challenge to Nike's worldwide manufacturing strategy [3].
Strategy to Date
Today, Nike faces an average 11% tariff on shoes imported into the US, with the looming threat of an increase to 45% for goods coming from China [4] [5]. While such policies are designed to protect domestic industries, they can have perverse outcomes: import costs passed on to the consumer, drive up prices and leadto cost-push inflation. Lower consumption as wage growth trails price increases, would be a huge hit to Nike, where 48% of its revenue generated in 2016 was in North America [6]. As such, how should Nike respond in an era of protectionism and isolationism?

Lobbying: In the short term, the company has ramped up lobbying efforts in support of free trade and open boards. As an example, Nike has been a vocal proponent of the Trans Pacific Partnership. The US brand threw its weight behind the program, promising to create 10,000 jobs in advanced manufacturing domestically should TPP become law [7]. For Nike, TPP would have reduced tariffs on trainers made in countries like Vietnam [8]. However, with the US' withdrawal from the deal, competitors in countries like Australia are reaping the rewards of trade deals negotiated, which the US might otherwise have won via TPP [9].

Automation: Nike's medium-term solution to protectionist pressures is to reduce reliance on cheap foreign labor in its production process through automation. In partnership with Flex, a high-tech manufacturing company, Nike has introduced greater efficiencies into the otherwise labor-intensive process of making shoes, with an estimated 20% of production set to be automated by 2023 [10].

Exhibit A: Nike and Adidas are expected to be industry leaders in manufacturing automation and innovation [10].

Reshoring: Increase in automation have bolstered the case for reshoring the manufacturing process where high domestic labor costs were previously a barrier to reentry. The benefits of addressing the issue of protectionism through this approach is twofold:
Is it enough?

Tariff Reduction: local manufacturing implies zero tariffs. Nike already has a precedence for employing this strategy. Independent factories in Argentina, India, Brazil and Mexico were established in response to high import tariffs in these geographies [11] [12].

Supply chain reinvention: Historically, it can take up to 18 months to develop a new shoe - a sizable dilemma in the era of "fast fashion". Footwear companies have had to predict trends ahead of time which often results in a mismatch between on-hand inventory and consumer demand. Faster delivery and shorter production cycles through onshore productions present an opportunity to cut costs and increase sales to meet consumer trends [13].

Lobbying 2.0: While Trump aims to minimize US involvement in multinational trade agreements, Nike should continue to push for trade agreements even on a bilateral basis, particularly with the Asia Pacific bloc. Although automation allows cost savings and efficiency gains, manufacturing remains largely entrenched in Asia. As Kasper Rorsted, CEO of Adidas notes, complete reshoring is an "illusion" and "[by moving to the US] you are moving into a market where you have no competence...that goes for the entire industry, I'm not speaking just for Adidas." [14] Moreover, as North America is expected to drive only ~16% of total company growth through to 2022, expanding its global footprint is key to Nike's growth trajectory [15].

Vertical Supply Chain: For automation and reshoring to succeed, Nike also needs to consider and innovate on other parts of its supply chain. Today, China's competitive advantage owes in part to its vertical supply chain, and specifically its extensive material base. For Nike's onshore strategy to be competitive, R&D in materials manufacturing should also be a priority.
Looking Ahead
High skilled labor: Over the past two decades, the eclipse of domestic manufacturing brought on by offshoring, has starved the economy of high skilled labor in advance manufacturing. As Rose and Reeves write, "the US suffered a net loss of nearly 19,000 manufacturing firms between 2001 and 2015" [16]. To address this gap, Nike should invest in education, training programs and skill development to develop the talent pool needed to support reshoring and automation efforts, necessitated by protectionism.

As we look ahead, two key questions emerge:

1. Will protectionism achieve its intended outcome and bring back jobs at scale?

2. Is reshoring here to stay? Will renewable energies and lower transportation costs coupled with automation and innovation advances in the developing world, reinvigorate the case for offshoring?

References
(Word count: 798)

[1] Bissell-Linsk, J. (2017). Nike's focus on robotics threatens Asia's low-cost workforce. Financial Times. [online] Available at: https://www.ft.com/content/585866fc-a841-11e7-ab55-27219df83c97 [Accessed 8 Nov. 2017].

[2] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.11.

[3] Mann, T., Paletta, D. and Tangel, A. (2017). Donald Trump Warns of Penalties If U.S. Firms Take Jobs Abroad. The Wall Street Journal. [online] Available at: https://www.wsj.com/articles/trump-takes-credit-for-saving-indiana-jobs-1480628609 [Accessed 10 Nov. 2017].

[4] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.12.

[5] Haberman, M. (2016). Donald Trump Says He Favors Big Tariffs on Chinese Exports. New York Times. [online] Available at: https://www.nytimes.com/politics/first-draft/2016/01/07/donald-trump-says-he-favors-big-tariffs-on-chinese-exports/?_r=0 [Accessed 9 Nov. 2017].

[6] Statista. (2017). Nike's revenue worldwide from 2009 to 2017, by region (in million U.S. dollars). [online] Available at: https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/241692/nikes-sales-by-region-since-2007/ [Accessed 9 Nov. 2017].

[7] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[8] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[9] Donnan, S. (2017). Globalisation marches on without Trump. Financial Times. [online] Available at: https://www.ft.com/content/d81ca8cc-bfdd-11e7-b8a3-38a6e068f464 [Accessed 11 Nov. 2017].

[10] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.7.

[11] Bain, M. (2016). Your sneakers are a case study in why Trump's America-first trade policy is nonsense. [online] Quartz. Available at: https://qz.com/859628/your-nike-sneakers-are-a-case-study-in-why-trumps-protectionist-america-first-trade-policy-is-nonsense/ [Accessed 13 Nov. 2017].

[12] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.33.

[13] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.6.

[14] Hancock, T. (2017). Adidas boss says large-scale reshoring is 'an illusion'. Financial Times. [online] Available at: https://www.ft.com/content/39b353a6-263c-11e7-8691-d5f7e0cd0a16 [Accessed 12 Nov. 2017].

[15] Sole, J., Ryan, E. and Kessler, M. (2017). Analyst day out in the spotlight, way out of the quagmire. Morgan Stanley, pp.12.

[16] Rose, J. and Reeves, M. (2017). Rethinking Your Supply Chain in an Era of Protectionism. [online] Harvard Business Review. Available at: https://hbr.org/2017/03/rethinking-your-supply-chain-in-an-era-of-protectionism [Accessed 11 Nov. 2017].

# data[].attributes.attachment_link.title
Globalization vs. Isolationism: Finding Nike's New Competitive Advantage? - Technology and Operations Management

# data[].attributes.attachment_link.description
How do global brands thrive in an era of isolationism and protectionism? For Nike, the answer is lobbying, automation and reshoring. Nike is synonymous with globalization. Over the past two decades, Nike has been one of the pioneers in outsourcing production to the developing world.

# data[].attributes.attachment_link.readable_text
Background on Coca-Cola

Coke is one of the most recognizable brands in the world. The goal of the company's international marketing team is to help expand global sales. The company sold its first Coke in 1886 at Jacobs' Pharmacy, but the company's mission hasn't changed; the goal is to sell the highest number of beverages to the most people.

Based in Atlanta, Georgia, the company focuses on making non-alcoholic beverages accessible. With hundreds of brands, some of the more popular examples are Diet Coke, Sprite, Dasani, Nestea, and Fanta. Worldwide, nearly 10,000 Coke beverages are consumed every second. The more Cokes the international marketing team sells, the more revenue the company makes.

Much of the company's 40 billion dollars in revenue growth now comes from globalization, not just growth within the borders of the United States. Globalization is the expansion and development of international markets outside of the company's home country. Let's look at how Coke has gradually globalized into the international market.

The Globalization of Coca-Cola

Coke, like many successful global companies, focuses on those regions with the greatest potential for growth. Coke started branching out internationally in the 1920s but really began its global expansion in the 1980s. This is when Coke implemented its strategic plan to gain entry into untapped, previously hostile, or undeveloped environments. Let's look at Coke's gradual geographical expansion, then we will address what strategies Coke implements when it wants to capitalize on a new market.

Coke started with widening its production, primarily bottling facilities, in friendly areas like Guam and Europe. As people became more familiar with Coke's products, the company decided to expand to Australia, Austria, Italy, Norway, and South Africa. These were the areas that had good relationships with the United States, which meant implementing trade, transportation, and communications networks went a lot smoother.

Surprisingly, even World War II brought an increase in demand for Coke products. The federal government worked out a deal with Coke to supply the troops with its products for no more than a nickel a beverage. In preparation for widening its base, Coke focused on creating relationships with global stakeholders, like the Olympics and United Nations. The Olympics, for example, took Coke's name wherever the Games went.

By the 1970s, Coke also entered into partnerships with the Special Olympics, Tour de France, NASCAR, and FIFA. As these sporting events broadened their fan base worldwide, Coke followed. Enlarging its consumer base in the 1980s and 90s demanded more planning from Coke. The company brought production operations to previously less stable areas like Russia, Germany, India, and Vietnam. This is when Coke began looking to expand into China.

The 2000s brought about Coke's involvement in social issues. This is a different type of marketing effort for the international team. The company provided relief related to the UN AIDS initiatives, September 11th terrorist attacks, and earthquake relief in Haiti. Since this time, the company has entered into additional philanthropic ventures, as well as sponsorships with the NBA and co-marketing with popular television shows like American Idol.

To market to an international audience, Coke has adapted its marketing strategy. Coke's international marketing team continues to look for ways that Coke can diversify its production, marketing, and outreach methods. Let's take a look at these strategies in more detail.

Coke's International Business Strategy

It's clear that Coke's international business strategy, the process Coke uses to sell products in foreign lands, is working. For example, in 2015, Latin America and South America sales totaled 29% of Coke's volume, while North America had 22%. The international division accounted for nearly 75% of Coke's growth. It's also important to note that Coke has consciously run its international division differently than its domestic.

Domestically, beverages are fully prepared and then distributed. Whereas for Coke's international sales, a concentrate is prepared and sold to local bottlers. A local contractor then creates the final beverage, choosing to add ingredients suitable to that particular region, and finally it is distributed. The beverage can taste different, depending on the likes and dislikes of the specific market.

# data[].attributes.attachment_link.keywords[]
business case study: globalization of coca-cola - video & lesson transcript | study.com

# data[].attributes.attachment_link.title
Business Case Study: Globalization of Coca-Cola - Video & Lesson Transcript | Study.com

# data[].attributes.attachment_link.description
Coke is one of the most recognizable brands in the world. The goal of the company's international marketing team is to help expand global sales. The company sold its first Coke in 1886 at Jacobs' Pharmacy, but the company's mission hasn't changed; the goal is to sell the highest number of beverages to the most people.

# data[].attributes.attachment_link.readable_text
In the past few years, routine meetings on the operations of the international financial institutions or on the future of free trade have filled the streets of usually peaceful cities like Seattle, Prague, and Quebec with riot police, tear gas, and protesters lashing out at globalization. The protests raise immediate and pressing logistical questions for local officials, but they also pose a more fundamental question: do the protesters represent wider popular sentiment against globalization and market policies in the world's developing countries? Are they a sign that globalization is facing a backlash in the developing world?

The protesters claim that globalization is bad for poor people in poor countries. A large body of evidence, however, suggests the opposite-though clearly globalization can result in unsettling experiences for many who live in the developing world. My recent research with Nancy Birdsall and Stefano Pettinato suggests that globalization has brought substantial benefits and opportunities for upward mobility for many low-income individuals in the emerging economies. Yet these same opportunities entail new vulnerabilities and new risks for others.

Ironically, while the protesters focus on the plight of the poor, the groups most dissatisfied with globalization in the developing countries themselves tend to be closer to the middle of the income distribution than to the bottom. Their dissatisfaction does not portend a looming and inevitable backlash against globalization, but it does suggest that policymakers in these countries should pay attention to the insecurities of the middle class as well as those of the poor.

A genuine backlash against globalization would not take the form of demonstrations on the streets of D.C. or Seattle. Rather, it would materialize in ballot boxes in countries like Poland or Peru. In Latin America, which has led the world in implementing market reforms, many countries that once seemed modelperformers are now facing economic and political uncertainty. Argentines, for example, who were recently threatened with possible spillover effects from the economic crisis in Turkey, are facing increasing questions about the sustainability of their own currency regime, which has been central to their macroeconomic stability for more than a decade. Will voters in Latin America turn against markets and integration with the world economy?

The answer is "probably not." In Latin America, despite widespread debate over making the market model more equitable and efficient, only one political candidate, Hugo Chavez, has so far been elected to office promising to reverse integration into global markets-and that was in Venezuela, where reform was still incomplete. But matters are far from settled. In elections last June in Peru, one of the countries that has gone furthest in implementing market reforms, Alejandro Toledo ran on a pro-market platform and barely defeated former president Alan Garcia, who gained notoriety in the late 1980s by rejecting market principles-Toledo's margin of victory was less than 5 percent.

Who Wins and Who Loses?

Market reforms-in particular, establishing macroeconomic and fiscal stability and liberalizing trade regimes-are a prerequisite for integrating developing nations into the global economy. In Latin America, the turn to the market has delivered large-and tangible-benefits for a region plagued with high inflation, economic instability, and daunting external debt. Countries that have embraced reform have gained control of inflation, reestablished stable (if not high) growth, and liberalized and expanded the diversity of trading regimes. Most have also privatized loss-making public enterprises and insolvent social security systems.

Although market reforms are often viewed as being harsh on the poor, in reality the effect can be quite positive. Because the poor are least able to protect themselves from high inflation, for example, its elimination is particularly beneficial for them. And in many countries, market reforms have also reoriented public spending to the poor.Before reform, social spending went disproportionately to social security systems that covered limited and relatively privileged parts of the labor force, while basic social services, such as primary health and education, were severely underfunded.

Market reforms can also remove economic distortions that block the productive potential of the poor. Removing such distortions as rationed credit (because of negative real interest rates) and rigid and overprotective labor regulations that discourage hiring have helped the poor in many developing countries, as evidence from Chile, Mexico, and Peru suggests.

The same reforms that have enabled many of the poor to move well up the income distribution ladder, however, have made people somewhat higher up that ladder newly vulnerable. Many who once enjoyed middle-class status and held secure public-sector jobs have fallen into or near poverty. Relative mobility trends in reforming countries can be surprisingly volatile. Over a 10-year period many more people in Peru will move up-and down-several income quintiles than will people in the United States.

If market reforms have had different effects on people in different parts of the income distribution, what effect have they had on inequality? As our own research, building on the work of several other scholars, has shown, inequality can increase even in countries where average incomes have risen and poverty has fallen. And, indeed, aggregate measures report a mixed effect, with inequality going down in some emerging market countries and increasing slightly in others.

One trend driving the increase in inequality has been a recent upsurge in the rewards to skilled labor. Although economists had predicted that open trade would reward unskilled labor, which is in ample supply in Latin America, the greatest rewards have gone to skilled labor, which is scarce.

As figure 1 shows, during the past decade returns to higher education in Latin America have risen far faster than returns to secondary and primary education. During the 1960s and 1970s a high school education in Latin America virtually assured a stable job, often in the public sector, as well as a middle-class-indeed, fairly privileged-standard of living. By the 1990s, however, a high school degree was much less valuable. Many public-sector jobs had disappeared, and the ones that remained were less desirable.

A related trend is top-driven inequality: vast wealth among those at the top of the income ladder relative to the rest of society, where income distribution is more equal. According to an Inter-American Development Bank study by Miguel Szekely and Marianne Hilgert, the wealthiest 10 percent of individuals in many Latin American countries earn roughly 3 times what those in the next decile earn, compared with a roughly 1.5 to 1 ratio in the United States.

One cause of top-driven inequality is the rising wage premium to educated workers. Another may be a possible increase in wealth at the top, as more open capital markets enhance opportunities for high returns. In addition, taxes on mobile capital are probably declining, while in developing countries, shallow financial sectors and underdeveloped capital markets may be limiting investment opportunities for small savers and borrowers.

The uneven benefits of globalization and market reforms no doubt explain why public opinion in the developing nations is so mixed. Those who see themselves as losers are not necessarily the poor, but rather newly vulnerable members of the middle class who perceive that gains from market reforms have gone disproportionately to the top of the income distribution.

Frustrated Achievers

Most research on subjective well-being finds that once people have reached a certain income level, their sense of well-being is determined by relative rather than absolute income. Except for the very poorest countries, these findings hold across countries, regions, and development levels. My own survey research, conducted jointly with Stefano Pettinato, generally supports these findings.

In repeated household surveys in Peru during 1991-2000, a surprisingly large share (44 percent) of respondents with the most upward income mobility reported that they were worse off. Household surveys in Russia during 1995-99 got even more negative results, with 71 percent of upwardly mobile respondents reporting that they were worse off (see figure 2).

What explains these negative perceptions? In Peru, the frustrated achievers had average income, but were more urban and older than nonfrustrated upwardly mobile respondents. In Russia, they had slightly lower than average income-and also more income volatility-than their counterparts who were more content. For the most part, they were not the poorest in the sample, but rather tended toward the middle of the distribution. In Peru, while poorer respondents were much more likely to answer that their economic condition was unchanged, those in the middle were much more likely to say that it was worse.

The implications for public support for globalization are clear. In a regionwide public opinion survey of Latin America, respondents who were more satisfied with their lives were, on average, more likely to favor the market and to be satisfied with democracy. The surveys in Russia yielded similar findings. In both Russia and Peru, the frustrated achievers were less satisfied with their jobs and more critical about their economic situation vis-à-vis others in their country. These frustrations, which may influence future economic and political behavior in the emerging economies, must be addressed.

Opportunity and Insecurity

Policymakers in emerging market countries could use three strategies to reduce insecurity and enhance upward mobility-not only among the middle class, but alsoamong the poor. The first would be to make social services more widely available. Education policies, especially, could give a broader section of society access to jobs in the high-skill economic sectors. The second strategy would be to remove distortions in markets and in government policies that block the productive potential of low-income groups. Among these distortions I include excessive inequality. And the third would be to make safety nets and other forms of unemployment insurance more broadly available.

The first and most obvious way to enhance the mobility and opportunity of both the poor and the middle class is to improve access to good quality postsecondary education, including vocational education. Such a policy shift, however, will take time to bear fruit. It will also take sustained political commitment, institutional development, and substantial resources.

Fundamental to making better education more widely available is a more comprehensive social contract for delivering essential social services in general. The world's advanced economies have vigorously debated the merits of targeted versus more universal social welfare policies (with supporters of universal policies arguing that tightly targeted policies cannot sustain the political support needed to preserve public funding). Meanwhile, many developing countries that have turned to the market have increased targeting of public social spending and reduced absolute poverty, even during times of fiscal austerity. At the same time, shifts in the rewards to different education and skill cohorts, coupled with cuts in the size and scope of public services, have led to a perception and often a reality of increased insecurity for groups in the middle of the income distribution. It is time to revisit the targeting debate. At least some targeting is usually desirable when public resources are limited. Nevertheless, it is necessary to craft a broader and more politically sustainable social contract, which includes middle-income groups as well as the poor.

Policymakers should aim to increase not only the supply of quality education, but also the demand for it. A wide body of literature, including work by economists Steven Durlauf and George Akerlof, has shown how inequality patterns can be perpetuated by persistent social norms and low expectations. In societies where the poor have no tradition of reaching higher-level education, policymakers should encourage low-income people to invest in their children's future.

The second policy strategy is to address distortions in markets and failures in government policies. Many countries in the developing world, particularly in Latin America, have greatly improved their macroeconomic frameworks and reduced such distortions. Yet removing distortions alone is not enough. Merely replacing poorly performing public monopolies with private ones, as some countries have done, is unlikely to diminish inequality or to provide new opportunities for the poor or near poor. Adequate regulatory policies, which level the economic playing field for participants of all income levels, are essential, as are supply-side policies that facilitate the participation of the poorest citizens.

The same policy package should address inequality. Economists have shown that excessive concentration of income and assets impedes economic growth. And my recent research suggests that high inequality has additional costs in that it creates frustrations in even the most upwardly mobile individuals. These frustrations, in turn, may erode political support for market-enhancing policies that deliver sustained growth and also cut poverty.

A third essential strategy is to provide adequate safety nets. The lack of reliable safety nets can itself result in market distortions, encouraging workers to minimize risk and guarantee job security through whatever mechanisms are available, even extremely inefficient ones such as overly rigid labor laws. And the insecurity resulting from inadequate safety nets in the face of economic volatility and changing rewards to labor sectors is surely one cause of the frustrations of our achievers.

Two kinds of safety nets are necessary. One is social insurance, such as unemployment insurance, which encourages workers to try to get ahead by protecting them from the risk of income loss caused by macroeconomic volatility and other economic shocks. The second type of safety net protects the poorest who fall behind because of low skills or because poor health and other circumstances keep them from participating even in the low-skilled sector of the economy. This issue has received attention, but usually in the context of fiscal adjustments. Policymakers must develop more permanent institutions that can expand and contract as needed and provide a buffer at times of cyclical fluctuations and during downturns caused by externally driven shocks. They must also do more to manage macroeconomic volatility.

Averting Backlash

Globalization and the turn to the market have clear benefits for developing countries, both in terms of aggregate growth and poverty reduction and in terms of mobility and opportunity for low-income people. Yet new opportunities have come hand-in-hand with new vulnerabilities. Not surprisingly, public opinion about globalization and market reforms is mixed. While the street protests in the industrialized countries focus on the poor, in the developing countries people in the middle strata seem as vulnerable if not more so and also more negative in assessing their progress with the turn to the market.

That those negative perceptions exist does not mean that a backlash against globalization is inevitable. At this juncture most publics seem to be aware that self-imposed isolation from the rest of the world has high costs. Yet policymakers must address the causes of these negative perceptions-precisely so that they do not become the source of a backlash.

Reducing insecurity and distributing the benefits of reform more equitably could go a long way toward building broader and more sustainable support for continuing ,arket policies. And persuading poor people in poor countries that opportunities exist will make them much likely to invest in their children's education-and therefore in their future in an integrated glorabl economy.

# data[].attributes.attachment_link.title
Winners and Losers: Perspectives on Globalization from the Emerging Market Economies

# data[].attributes.attachment_link.description
In the past few years, routine meetings on the operations of the international financial institutions or on the future of free trade have filled the streets of usually peaceful cities like Seattle, Prague, and Quebec with riot police, tear gas, and protesters lashing out at globalization.

# data[].attributes.attachment_link.readable_text
If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally-minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company's growth and future are indomitable.

Why Gaming Expansion Is Necessary

It seems that video games went from a publicly perceived "nerd" activity to a global sensation overnight . Part of the reason for this is globalization. If you take a look at the distribution of video games worldwide on a timeline , they've grown in popularity due to the expansion of their reach.

Back in the day, many of our favorite video games were created with a specific market in mind, typically one local to that of the game's developers. If the product was a hit, the publisher often scrambled to replicate that success around the world, creating new versions for different regions as quickly as possible. As time went on, producers planned for localized versions of games, but often left those tasks for the end of the production cycle, causing release delays to foreign markets. Today we're seeing more day-and-date global releases of many popular titles, so much so that the concept of globalization in the game industry may seem quaint.

Current Challenges to Global Expansion

Thinking globally a necessity considering the interconnectedness the world. However, this can be challenging due to the conditions of less wealthy countries around the world. A gaming community does require the resources, after all.

In an infographic put together by Rutgers University , the authors present a list of challenges to globalization, and they very much apply to the gaming industry. They include political stability, access to credit, core infrastructure, and the ability to enforce contracts easily (an essential component as the industry shifts toward a "games as a service" business model ).

In short, if a country isn't economically stable or politically stable, it's hard for them to advance with the modern world. Rather than devoting resources to implementing technological advancements, they must deal with cultural warfare, which can often make getting access to even basic goods and services a difficult if not impossible task..

The Future of Globalized Gaming

A lot of it comes down to recent technological advancements, like the ones we see in the cloud. The global cloud gaming market is projected to grow 27 percent in the next decade , reaching almost $7 billion market value. This could easily be because game development now appeals to the millennial generation in a way that it previously did not. For instance, it is now important that the messages marketed with a game appeals to the target audience , and this has welcomed newcomers to the world of video games.

Gaming is only going to continue to get bigger. While it still faces some stigmatization in media, globalization has changed the industry forever. We thankfully live in a world where everyone is invited to be a gamer, and if the gaming industry can brave the obstacles thrown at them while expanding globally, then the future is bright.

Featured Image Credit.

# data[].attributes.attachment_link.title
Globalization and the Gaming Industry - HeadStuff

# data[].attributes.attachment_link.description
If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally-minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company's growth and future are indomitable.

# data[].attributes.attachment_link.readable_text
Multinational companies are business entities that operate in more than one country. The typical multinational company normally function with a headquarters that in based in one country, while other facilities are based in locations in other countries. Multinational company is also referred to as a multinational enterprise (MBE) or a transnational corporation (TNC)

Find out more

There are 3 type of model for a multinational company. One of the models is the common model for multinational company is the positioning of the executive headquarters in on nation, while production facilities are located in one or more other countries. This model usually helps the company to take advantage of benefit of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Another structural model for a multinational company is to base the parent company in one nation and operate subsidiaries in other counties around the world. This model is just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few bases related to the parent.

A third approach to the setup of a multinational company involves the establishment of a headquarters in one country that oversees a diverse group that stretches too many different countries and industries. In the model, multinational company includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters

Globalization

Globalization is the system of interaction and integration among the people, companies, governments and countries of the world in order to develop the global economy. This process has effects on human well-being, on the environment, on culture, and on economic development and prosperity of societies across the world. Globalization is involved of positive and negative.

Positive impact of globalization

Globalization is very important in the world economy right now. People relied more on the market economy, had more confident in private capital and resources, so that, multinational company started playing a vital role in the development of developing countries. The globalization has been affected the developing economies to a certain extent. It makes varied opportunities for the developing countries. It also makes the multinational company easy to access to the developed market. The technology transfer promised better productivity and thus improved standard of living.

Negative impact of globalization

Globalization has also created many problems such as inequality across and within different nations; the financial market will be affected in the environment situation. Another negative impact of globalization was that a majority of third world countries lost of track. Until the 20 century, the process of globalization in the Indian economy had been protected by trade, investment and financial barriers. Due to this, the liberalization process took time to speed up. The step of globalization did not start that smoothly.

-

Introduction of Nike as multinational company

Nike Inc is an incorporated company that designs, develops and markets worldwide athletic footwear, apparel, equipment and accessories. Nike employs both traditional and non-traditional distribution channels in almost 200 countries with primary market regions in the United States, Europe, Asia Pacific, and the Americas.

Nike has some 20,000 retailers worldwide including Nike factory stores, Nike stores, Nike Towns, Cole Haan stores, and websites which sell Nike's sports and leisure product. Nike is the company which has 33% of the global market share in the athletic footwear industry.

PEST Analysis in host country

Nike is and multinational company, its focus on macro environmental factors. Macro environmental factors consist to Political, Economics, Society, and Technology.

Political

The government must create economic policies that will foster the growth of businesses. Nike has been helped by the US policies which enable it to advance its product. US government support Nike, particularly in the general macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike's growth.

Economic

In economy, the biggest threat for Nike would be economic recession. Nike's growth adversely affected during the economic recession. The US economy is experiencing a downturn right now. The sales of products are decrease. Because of the recession, Nike's feeling pressure. The Asian economic crisis also affects Nike since the products are manufactured in Asia and the labor costs and material prices are increasing

Nike's growth is not just affected by the local economy but also in the international economy. Euro and Asia recession affected the sales for Nike. The overall results in the sales generated by Nike in athletic footwear. However, it's still remained stable due to the global market makes up for the variances in sales, especially between peek seasons.

Society

Nowadays, people are more health conscious. The people are getting more on diet and health due to more and more people joining fitness clubs. Because of that, the demand for accompanying fitness products, especially exercise apparel, shoe and equipment is increase. Demands of Nike product increase due to people are looking for sport shoes, apparel and equipment.

Nike failed to foresee problems brought about by a sweatshop expose about the labor and factory conditions at production location in Asia. This caused bad publicity and declining sales as society and consumers demand more socially responsible companies.

Technology

Nike uses IT in its marketing information systems very effectively. Nike applies marketing information system to the economics of innovation, segmentation and differentiation for most of the business. Nike is the leader of the market due to use of the extremely valuable information technology, and applying it to every aspect of the product from development to distribution.

Nike is the world leader in the athletic footwear industry which able to effectively uses its environment to improve its marketing efforts. This strategy has helps Nike make a good sales in the product.

PEST Analysis in home country

Political

Nike has been accused of using child labor to manufacture their products in Pakistan. Although Pakistan has laws against child labor and slavery, but the government has taken very little action through this problem. An another view, Nike actually help the local citizen, due to providing job toward children, their parents have less burden as compare to before. According to Stephen Chapman, the best way the end the child labor is buy more the product which produce by the children. That will rise above the poverty level and also benefit the families of the children and the nation due to the increase of the demand of the product and they can produce more and earn more.

Economic

In Pakistan, citizen average income is $5 per day as Pakistan culture, normally they have burden of ten children in one family, in this low income situation, Pakistan citizen actually struggle for life. Due to this situation, Nike assists Pakistan economy due to the export from Pakistan brought income of almost 385million USD. This may help Pakistan reduce the rate of the inflation.

View our services

Society

Nike is worldwide; it has contracts with 700 factories that employ 550,000 workers in 50 countries. Nike sells different type of product for the different countries due to different countries have a different lifestyle. Nike also produces some limited product for people who like to follow the trend as their collection. And some of them will sell it with higher price due to the product is limited.

Technology

Nowadays, technology is keeping improve. Nike spends a large amount on R&D to attain innovation and will earn more revenues due to the innovative product will attract more and new consumers. E-commerce with flash is one part of the new technology which Nike using. In e-commerce with flash, consumer can understand the detail and the structure of the product more clearly and how the products look like.

Potential impact of Globalization

New development

Nike develops the new innovation in footwear, apparel, and equipment. Nowadays, people are concern in personal safety. A design of shoe will affected the balancing of people, Nike focusing on this case to develop their new product especially for sport person. Sport person normally will concern on the footwear, apparel and equipment whether are suitable for them and help them perform well when they exercise. Many people will spent more money to buy a footwear due to they want the footwear is suitable for them and not easy to get injury. For athletic person, they want to get footwear which is very soft and as light as possible to perform well during the workout. Another new development for Nike is the footwear with timer and calculates distance. The product can be estimate the time and distance when they running. This function can let them set a target and achieve it.

Nike is running the design competition called "Future Sole". This competition is only for high school and college student. Nike gives the opportunity for them to pursue their passion and get their own design. As the result of the competition has shows, Nike will make it as a real product of the company and can be finding in Nike store all around the world. Because of this, Nike can come out more design in the market due to passion of the candidate.

Nike's product are planned to give consumer perform well in exercise. In every part of the manufacturing process is designed to achieve the goal of providing the world's best athletic gear. When Nike Air was introduced, it affected the sport world for its versatility. Based on the function of impact protection, it can be shaped and tuned to meet the specific demand of the sport person (Nike, 2007,6). Nike concern the sport person needs and change were implemented to make their footwear even better.

Brand Awareness

Nike is the world's leading sport footwear company. Nike's products are all around the world. In the future, when consumer wants to buy a footwear Nike is the first choice come their mind. Consumer always remember Nike slogan "Just do it", this means that Nike's have a very strong brand loyalty.

Innovation

Although Nike is one of the largest sports and fitness companies in the world, but Nike still has to challenge its competitor with new product ideas. In the planning process, Nike needs to evaluate the consumer demands. For example, Nike decided to collaborate with Apple combines the sport and music together. According to Nike's CEO, Mark Parker, The Nike and iPod Sport Kit is a wireless system that connects to the iPod nano to give people a personal running and workout experience (Apple, 2007, p. 1). Nike is planning to make many products with iPod such as jacket, tops, shorts and armbands. Nike's CEO and Apple's CEO will continue to work together to maximize the Nike and iPod experience. This partnership will help Nike to remain as the leading sports company.

Ethic

Companies that specialize in business ethics training and corporate social responsibility instill workplace ethics among staff by creating a business ethics policy (Fieser, 2006). The child labor cases are affected Nike's so much. Because of this, Nike had to plan and organize a world-wide public relation campaign to redeem their name and reputation related to the ethical problem. Without the proper management leading and planning, Nike will suffer from the problem of child labor. Nike has made a right decision from the negative media attention. And will continue to be successful, due to its strong business ethic and philosophy.

Change in lifestyle

Nike is creating different product with different lifestyle. Traditionally, most people are using Nike with sports shoes. But it appears that, the new lifestyle is needed in the new generation. There is a rising trend of our teens participating in multiple sports. Consumer will purchases different sport shoe for different sport activity. Nike knows some consumer can't afford for that. So that, the plan to design a multi-purpose shoe that the consumer can wear for various functions. But the performance of the shoes now as good as the specific sport shoes. The developments of new shoes have the potential to change the lifestyle.

Natural disaster

In china, there are having snow disaster, this disaster lead to the problem that the world now facing the shortage of cotton in global market. In the future, there might be more disaster will be happen will lead to another problem of shortage of another raw material, when this happen this price of raw material will increase in the market and break the budgeting of Nike company and lead to another problem to Nike financial because of the high raw material price.

Strategy overcome the Potential impact

Go Green

Nowadays, People are supporting the environmental friendly product due to the global warming is getting serious. Nike also starts to design shoe which using little quantities of detrimental adhesives and more of recycle material to produce the product. Nike is practicing to produce recycling shoes, phasing out the sulfur hexafluoride and manufacturing sport accessories by using the waste. For example, Nike has been operating Re-use program to collect the old shoe and produce it as a new recycle shoe.

Nike purchase so many corrugated cardboard due to almost 50% of the Nike's packing such as shoebox and the shipping carton. Nike applied innovative design and use other different material to produce the shoebox and shipping carton for reduce the waste and the cost. Nike will try to produce the box which saving 30% of the material and aid in saving 200,000 trees annually. Nike also controls the lighting management in their retail stores for saving the energy.

Collaboration

Nike manufactures sportswear for so many years. However, the company has sought for new opportunities in fashion market. In my suggestion, Nike collaborates with G.A.P Company. G.A.P has very good reputation in producing clothes, with wider range of varieties. It is possible to come up with a new clothing line for sports with GAP in order to boost up sales worldwide, which would indirectly increase brand awareness as well as recognition by the public as the prior reason for such collaboration is the consumers. Gatorade specializes in energy drink and provides the technology that Nike can venture and produce their own brand of energy drink. In addition, collaboration can also be done with energy drink Gatorade. Nike and Gatorade are in the same sector of sport field, to satisfy the sport man needs and desire. Nike can now produce an energy drink to fulfill and boost the current market demand and satisfy customer taste.

Change on the Management styles

The changing of the management styles of Nike towards the manufacture in third world country. Nike can try to train some manager to send to the manufacturer factory in third world countries to guide the management style of the countries. Those managers can control the management style of the factory. For example, the wages pay, raw material usage, the working condition and the working environment.

The managers will control the wages paid which must be higher than the salary which only able to provide 3 meals in a day, but the salary which able to give extra for the labor to do saving and enjoy their life. For the working condition, the manufacturer factory should be having a comfortable and safe working condition to the labor which is good ventilation and the safety environment due to the control of efficient and effective of the machinery. A good working environment is needed for the labor which is the location of the manufacturer factory is safety and surrounding with not consist any uncertain elements like radioactive of the nuclear power from the factory surrounding Nike Factory, the spread of virus, disrupting environment like forest and highland.

Research for new technology

In year 2010, Nike had done a research and development in raw material to produce jersey. The research they done actually is use the recycled plastic bottle to produce jersey. So to overcome the problem of the price of raw material and the shortage of raw material in the market, Nike can try to do more effort in research and development department to find out more new material which is existing in the market no matter is renewable or unrenewable raw material. The new material need to be environmental friendly, this actually will help the growth of awareness of the global towards Nike product because due to the high education level of public, there are more and more public who care about the pollution of earth. So when they are new product which would not product pollution and having a high quality and better durability. This actually will attract the attention from the public to do purchasing on that product.

Multinational companies are business entities that operate in more than one country. The typical multinational company normally function with a headquarters that in based in one country, while other facilities are based in locations in other countries. Multinational company is also referred to as a multinational enterprise (MBE) or a transnational corporation (TNC)

There are 3 type of model for a multinational company. One of the models is the common model for multinational company is the positioning of the executive headquarters in on nation, while production facilities are located in one or more other countries. This model usually helps the company to take advantage of benefit of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Another structural model for a multinational company is to base the parent company in one nation and operate subsidiaries in other counties around the world. This model is just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few bases related to the parent.

A third approach to the setup of a multinational company involves the establishment of a headquarters in one country that oversees a diverse group that stretches too many different countries and industries. In the model, multinational company includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters

Globalization

Globalization is the system of interaction and integration among the people, companies, governments and countries of the world in order to develop the global economy. This process has effects on human well-being, on the environment, on culture, and on economic development and prosperity of societies across the world. Globalization is involved of positive and negative.

Positive impact of globalization

Globalization is very important in the world economy right now. People relied more on the market economy, had more confident in private capital and resources, so that, multinational company started playing a vital role in the development of developing countries. The globalization has been affected the developing economies to a certain extent. It makes varied opportunities for the developing countries. It also makes the multinational company easy to access to the developed market. The technology transfer promised better productivity and thus improved standard of living.

Negative impact of globalization

Globalization has also created many problems such as inequality across and within different nations; the financial market will be affected in the environment situation. Another negative impact of globalization was that a majority of third world countries lost of track. Until the 20 century, the process of globalization in the Indian economy had been protected by trade, investment and financial barriers. Due to this, the liberalization process took time to speed up. The step of globalization did not start that smoothly.

-

Introduction of Nike as multinational company

Nike Inc is an incorporated company that designs, develops and markets worldwide athletic footwear, apparel, equipment and accessories. Nike employs both traditional and non-traditional distribution channels in almost 200 countries with primary market regions in the United States, Europe, Asia Pacific, and the Americas.

Nike has some 20,000 retailers worldwide including Nike factory stores, Nike stores, Nike Towns, Cole Haan stores, and websites which sell Nike's sports and leisure product. Nike is the company which has 33% of the global market share in the athletic footwear industry.

PEST Analysis in host country

Nike is and multinational company, its focus on macro environmental factors. Macro environmental factors consist to Political, Economics, Society, and Technology.

Political

The government must create economic policies that will foster the growth of businesses. Nike has been helped by the US policies which enable it to advance its product. US government support Nike, particularly in the general macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike's growth.

Economic

In economy, the biggest threat for Nike would be economic recession. Nike's growth adversely affected during the economic recession. The US economy is experiencing a downturn right now. The sales of products are decrease. Because of the recession, Nike's feeling pressure. The Asian economic crisis also affects Nike since the products are manufactured in Asia and the labor costs and material prices are increasing

Nike's growth is not just affected by the local economy but also in the international economy. Euro and Asia recession affected the sales for Nike. The overall results in the sales generated by Nike in athletic footwear. However, it's still remained stable due to the global market makes up for the variances in sales, especially between peek seasons.

Society

Nowadays, people are more health conscious. The people are getting more on diet and health due to more and more people joining fitness clubs. Because of that, the demand for accompanying fitness products, especially exercise apparel, shoe and equipment is increase. Demands of Nike product increase due to people are looking for sport shoes, apparel and equipment.

Nike failed to foresee problems brought about by a sweatshop expose about the labor and factory conditions at production location in Asia. This caused bad publicity and declining sales as society and consumers demand more socially responsible companies.

Technology

Nike uses IT in its marketing information systems very effectively. Nike applies marketing information system to the economics of innovation, segmentation and differentiation for most of the business. Nike is the leader of the market due to use of the extremely valuable information technology, and applying it to every aspect of the product from development to distribution.

Nike is the world leader in the athletic footwear industry which able to effectively uses its environment to improve its marketing efforts. This strategy has helps Nike make a good sales in the product.

PEST Analysis in home country

Political

Nike has been accused of using child labor to manufacture their products in Pakistan. Although Pakistan has laws against child labor and slavery, but the government has taken very little action through this problem. An another view, Nike actually help the local citizen, due to providing job toward children, their parents have less burden as compare to before. According to Stephen Chapman, the best way the end the child labor is buy more the product which produce by the children. That will rise above the poverty level and also benefit the families of the children and the nation due to the increase of the demand of the product and they can produce more and earn more.

Economic

In Pakistan, citizen average income is $5 per day as Pakistan culture, normally they have burden of ten children in one family, in this low income situation, Pakistan citizen actually struggle for life. Due to this situation, Nike assists Pakistan economy due to the export from Pakistan brought income of almost 385million USD. This may help Pakistan reduce the rate of the inflation.

Society

Nike is worldwide; it has contracts with 700 factories that employ 550,000 workers in 50 countries. Nike sells different type of product for the different countries due to different countries have a different lifestyle. Nike also produces some limited product for people who like to follow the trend as their collection. And some of them will sell it with higher price due to the product is limited.

Technology

Nowadays, technology is keeping improve. Nike spends a large amount on R&D to attain innovation and will earn more revenues due to the innovative product will attract more and new consumers. E-commerce with flash is one part of the new technology which Nike using. In e-commerce with flash, consumer can understand the detail and the structure of the product more clearly and how the products look like.

Potential impact of Globalization

New development

Nike develops the new innovation in footwear, apparel, and equipment. Nowadays, people are concern in personal safety. A design of shoe will affected the balancing of people, Nike focusing on this case to develop their new product especially for sport person. Sport person normally will concern on the footwear, apparel and equipment whether are suitable for them and help them perform well when they exercise. Many people will spent more money to buy a footwear due to they want the footwear is suitable for them and not easy to get injury. For athletic person, they want to get footwear which is very soft and as light as possible to perform well during the workout. Another new development for Nike is the footwear with timer and calculates distance. The product can be estimate the time and distance when they running. This function can let them set a target and achieve it.

Nike is running the design competition called "Future Sole". This competition is only for high school and college student. Nike gives the opportunity for them to pursue their passion and get their own design. As the result of the competition has shows, Nike will make it as a real product of the company and can be finding in Nike store all around the world. Because of this, Nike can come out more design in the market due to passion of the candidate.

Nike's product are planned to give consumer perform well in exercise. In every part of the manufacturing process is designed to achieve the goal of providing the world's best athletic gear. When Nike Air was introduced, it affected the sport world for its versatility. Based on the function of impact protection, it can be shaped and tuned to meet the specific demand of the sport person (Nike, 2007,6). Nike concern the sport person needs and change were implemented to make their footwear even better.

Brand Awareness

Nike is the world's leading sport footwear company. Nike's products are all around the world. In the future, when consumer wants to buy a footwear Nike is the first choice come their mind. Consumer always remember Nike slogan "Just do it", this means that Nike's have a very strong brand loyalty.

Innovation

Although Nike is one of the largest sports and fitness companies in the world, but Nike still has to challenge its competitor with new product ideas. In the planning process, Nike needs to evaluate the consumer demands. For example, Nike decided to collaborate with Apple combines the sport and music together. According to Nike's CEO, Mark Parker, The Nike and iPod Sport Kit is a wireless system that connects to the iPod nano to give people a personal running and workout experience (Apple, 2007, p. 1). Nike is planning to make many products with iPod such as jacket, tops, shorts and armbands. Nike's CEO and Apple's CEO will continue to work together to maximize the Nike and iPod experience. This partnership will help Nike to remain as the leading sports company.

Ethic

Companies that specialize in business ethics training and corporate social responsibility instill workplace ethics among staff by creating a business ethics policy (Fieser, 2006). The child labor cases are affected Nike's so much. Because of this, Nike had to plan and organize a world-wide public relation campaign to redeem their name and reputation related to the ethical problem. Without the proper management leading and planning, Nike will suffer from the problem of child labor. Nike has made a right decision from the negative media attention. And will continue to be successful, due to its strong business ethic and philosophy.

Change in lifestyle

Nike is creating different product with different lifestyle. Traditionally, most people are using Nike with sports shoes. But it appears that, the new lifestyle is needed in the new generation. There is a rising trend of our teens participating in multiple sports. Consumer will purchases different sport shoe for different sport activity. Nike knows some consumer can't afford for that. So that, the plan to design a multi-purpose shoe that the consumer can wear for various functions. But the performance of the shoes now as good as the specific sport shoes. The developments of new shoes have the potential to change the lifestyle.

Natural disaster

In china, there are having snow disaster, this disaster lead to the problem that the world now facing the shortage of cotton in global market. In the future, there might be more disaster will be happen will lead to another problem of shortage of another raw material, when this happen this price of raw material will increase in the market and break the budgeting of Nike company and lead to another problem to Nike financial because of the high raw material price.

Strategy overcome the Potential impact

Go Green

Nowadays, People are supporting the environmental friendly product due to the global warming is getting serious. Nike also starts to design shoe which using little quantities of detrimental adhesives and more of recycle material to produce the product. Nike is practicing to produce recycling shoes, phasing out the sulfur hexafluoride and manufacturing sport accessories by using the waste. For example, Nike has been operating Re-use program to collect the old shoe and produce it as a new recycle shoe.

Nike purchase so many corrugated cardboard due to almost 50% of the Nike's packing such as shoebox and the shipping carton. Nike applied innovative design and use other different material to produce the shoebox and shipping carton for reduce the waste and the cost. Nike will try to produce the box which saving 30% of the material and aid in saving 200,000 trees annually. Nike also controls the lighting management in their retail stores for saving the energy.

Collaboration

Nike manufactures sportswear for so many years. However, the company has sought for new opportunities in fashion market. In my suggestion, Nike collaborates with G.A.P Company. G.A.P has very good reputation in producing clothes, with wider range of varieties. It is possible to come up with a new clothing line for sports with GAP in order to boost up sales worldwide, which would indirectly increase brand awareness as well as recognition by the public as the prior reason for such collaboration is the consumers. Gatorade specializes in energy drink and provides the technology that Nike can venture and produce their own brand of energy drink. In addition, collaboration can also be done with energy drink Gatorade. Nike and Gatorade are in the same sector of sport field, to satisfy the sport man needs and desire. Nike can now produce an energy drink to fulfill and boost the current market demand and satisfy customer taste.

Change on the Management styles

The changing of the management styles of Nike towards the manufacture in third world country. Nike can try to train some manager to send to the manufacturer factory in third world countries to guide the management style of the countries. Those managers can control the management style of the factory. For example, the wages pay, raw material usage, the working condition and the working environment.

The managers will control the wages paid which must be higher than the salary which only able to provide 3 meals in a day, but the salary which able to give extra for the labor to do saving and enjoy their life. For the working condition, the manufacturer factory should be having a comfortable and safe working condition to the labor which is good ventilation and the safety environment due to the control of efficient and effective of the machinery. A good working environment is needed for the labor which is the location of the manufacturer factory is safety and surrounding with not consist any uncertain elements like radioactive of the nuclear power from the factory surrounding Nike Factory, the spread of virus, disrupting environment like forest and highland.

Research for new technology

In year 2010, Nike had done a research and development in raw material to produce jersey. The research they done actually is use the recycled plastic bottle to produce jersey. So to overcome the problem of the price of raw material and the shortage of raw material in the market, Nike can try to do more effort in research and development department to find out more new material which is existing in the market no matter is renewable or unrenewable raw material. The new material need to be environmental friendly, this actually will help the growth of awareness of the global towards Nike product because due to the high education level of public, there are more and more public who care about the pollution of earth. So when they are new product which would not product pollution and having a high quality and better durability. This actually will attract the attention from the public to do purchasing on that product.

# data[].attributes.attachment_link.title
Impacts of globalization on Nikes international operations

# data[].attributes.attachment_link.description
Multinational companies are business entities that operate in more than one country. The typical multinational company normally function with a headquarters that in based in one country, while other facilities are based in locations in other countries.

# data[].attributes.attachment_link.readable_text
The Universal Declaration of Human Rights, adopted in 1948, articulates the idea that it is wrong to exclude any member of the human species from the circle of moral concern. This enlightened vision was a tremendous advance over earlier, more restricted views about who matters morally; yet it still excludes a far larger number of beings who can both enjoy life and suffer: nonhuman animals. They, or at least those capable of feeling pain, which at a minimum includes all vertebrates, are also entitled to concern. Pain is pain, irrespective of the species of the being that experiences it.

Concern for the welfare of animals is not a new idea. In the fourth century BC, the Chinese Taoist philosopher Zhuangzi said that compassion should permeate relations not only between humans but also between all sentient beings. Buddhist teachings consider caring for all sentient beings a central ethical precept. The Indian emperor Ashoka, who ruled in the third century BC, issued edicts against the unnecessary killing and mutilation of animals, including hunting for sport. He also established animal hospitals and promoted, but did not require, a vegetarian diet. In seventeenth-century Japan, Tokugawa Tsunayoshi, the so-called Dog Shogun, enacted various rules protecting animals, especially dogs. The Hebrew Bible requires that the Sabbath be a day of rest for oxen, as well as for humans, and other texts command Jews to relieve the suffering of animals, even if they belong to an enemy. The Koran, too, encourages Muslims to treat animals with kindness; the Prophet Muhammad is said to have cut off the sleeve of his shirt rather than disturb a cat who was sleeping on it.

The modern animal welfare movement started in the West. Beginning in the early nineteenth century, first in the United Kingdom and later in other European states and North America, governments passed laws to protect animals from at least some forms of cruelty, such as whippings and beatings, and from being deprived of food and water. Western states went on to extend legal protection to animals in industries, such as those used in experiments, and, later, to those raised on farms and slaughtered for human consumption. The European Union today has a number of protections for agricultural animals, including the banning of sow stalls for pregnant pigs, intensive confinement of young calves, and barren cages for egg-laying hens. Meanwhile, national governments and the global community have increasingly voiced concern for farm animals, no matter where they may be raised.

But despite these advancements in domestic policy, including various but limited animal protection laws, a regulatory framework for animal welfare has largely been absent on the international level. Although there have long been international agreements to protect certain species from hunting -- for example, the 1946 agreement that established the International Whaling Commission -- no comparable agreements exist to govern the treatment of animals raised to be eaten by humans or to produce eggs or milk.

In the past decade, however, the welfare of farm animals has become an issue of international concern. In part, the shift has been caused by the growth in international trade in animals and animal products, and in part, by Westerners' reactions to what they perceive as cruel practices both in their own countries and outside their borders. Between 1980 and 2006, total meat exports increased more than threefold, dairy exports more than doubled, and exports of eggs nearly doubled. This growing trade in animal products has heightened awareness of welfare concerns, as has the export of animals themselves. Last June, for example, an Australian television program aired undercover video showing the slaughter of domestic cattle who had been exported to Indonesia. Workers were shown knocking the animals to the ground and strapping them down -- fully conscious, in panic, eyes bulging -- to await the slaughterer's knife. Such gruesome scenes were simply unacceptable to the Australian public; shortly after the program aired, Canberra suspended the export of Australian cattle to Indonesia until the Indonesian government permitted inspections to ensure that slaughterhouse conditions would be made more humane.

A new movement is emerging. With an increasing number of animals being raised for international markets, and with a growing ability for people to watch previously unseen footage of animal handling, policymakers, businesspeople, nongovernmental organizations, and ordinary citizens are showing greater interest in how animals are treated, wherever they may be. It is no longer sufficient for governments to be concerned for the welfare of animals within their own borders: animal welfare is quickly becoming an issue of international concern.

WHERE'S THE BEEF?

Today, economic growth and development around the world are leading to a rise in the demand for animal products. According to the World Bank, increased global demand caused total meat production in the developing world to almost triple between 1980 and 2002 -- from 45 million to 134 million tons -- with the greatest escalation taking place in countries experiencing rapid economic growth, led by China. According to the UN's Food and Agriculture Organization (FAO), in developing countries since the early 1960s, milk consumption has almost doubled, meat consumption has more than tripled, and egg consumption has increased by a factor of five. (Yet even despite the increased consumption in the developing world, the average person in an industrialized country still consumes far more animal products each year: 181 pounds of meat, 459 pounds of dairy, and 29 pounds of eggs, as compared with 68 pounds of meat, 110 pounds of dairy, and 18 pounds of eggs for each person in the developing world.)

The world's farm animal population has grown to meet this rising demand. In 2009 alone, more than 60 billion land animals -- nearly nine times as many as the human population -- were slaughtered for food. (This number included approximately 52 billion chickens, 1.34 billion pigs, 656 million turkeys, 521 million sheep, 403 million goats, and 298 million cattle.) In addition, around 1.18 trillion eggs were produced for food that year.

These huge numbers raise concerns about pollution, the soaring demand for grain and soybeans to feed these animals, and the significant contribution that farm animal production has on global warming. At the same time, the conditions under which the animals live pose problems for their welfare. The vast majority of the world's animal products are supplied by intensive confinement systems, which deny animals the opportunity to live in a way suited to the normal behavior of their species. As the world's appetite for meat, eggs, and milk has grown, the intensive confinement model of animal production, initially developed in the years after World War II in Europe and North America, has continued to supplant more traditional farming practices. Today, industrial systems -- those that purchase at least 90 percent of their animal feed from other enterprises and house a single species in intensive conditions -- produce around two-thirds of the world's poultry, meat, and eggs, and more than half the pork. And these industrial methods place severe limits on animals, in terms of both space and their ability to engage in natural behavior.

Given the sheer numbers of chickens that are raised for meat and eggs each year, the poultry industry is arguably the most egregious violator of animal welfare. Egg-laying hens, for example, are typically kept in barren, wire-mesh enclosures known as battery cages. These cages are so small that even if there were just one hen in each cage, she would be unable to fully stretch and flap her wings -- and there are often at least four, if not more, hens per cage. Under such crowded conditions, the birds are unable to establish their usual social hierarchy. Subordinate hens have no way of isolating themselves from their more dominant cagemates and, as a result, are likely to have their feathers and bodies pecked by the dominant birds, resulting in injury and sometimes even death. But instead of providing the birds with more space or genetically selecting for traits to minimize feather-pecking behavior, many egg producers simply sear off portions of the birds' beaks, often with a hot blade and rarely, if ever, with anesthesia. In The State of the Animals 2001, a group of leading animal scientists called the procedure a "stop-gap measure masking basic inadequacies in environment or management."

The European Union banned the use of barren battery cages beginning in January 2012. European producers must now raise hens in cage-free environments or, at a minimum, use enriched cages that include nesting boxes and scratching posts, which allow hens to satisfy at least some of their primary behavioral instincts. Although these cages are an improvement, they still keep hens in intensive confinement without the means to behave in the ways that their instincts dictate.

The overwhelming majority of chickens reared for meat are also raised in restrictive conditions, often in large sheds that can hold more than 20,000 birds, packed so densely that each chicken has only as much space as the equivalent of a single sheet of letter-sized paper. In addition to the limitations imposed on their welfare by such confinement practices, the widespread use of selective breeding has an adverse impact on the well-being of tens of billions of animals each year. Simply put, chickens are forced to grow much fatter and much faster than is natural or healthy: in 1925, chickens reached 2.5 pounds in about 16 weeks; today, most commercially raised birds grow to 5.5 pounds in less than seven weeks. Such unnatural and rapid growth rates leave many chickens debilitated, suffering from bone deformities, gait abnormalities, ruptured tendons, and metabolic diseases -- despite their being slaughtered when they are, in effect, still juveniles. Reaching slaughter weight at approximately 42 days of age, many birds cannot walk properly and suffer from other ailments because their immature bones cannot support their abnormally heavy bodies.

Of the mammals eaten by humans, pigs are raised in the greatest number -- and may be the most intelligent of all animals commonly eaten. Commercial farming methods have relegated these animals to confinement in large sheds on bare concrete or slatted flooring without any mental stimulation or basic comforts, causing frustration, boredom, and physical distress. Female pigs, when they are about to give birth, build a nest from straw or leaves and twigs in order to create a comfortable and safe place where they can nurse their litter. But in many of today's industrial production facilities, pregnant pigs are still often caged in sow stalls so narrow that they cannot turn around or even walk more than a step forward or backward, without any straw or bedding material. Right before they give birth, they are often moved into farrowing crates, which are metal enclosures scarcely larger than their own bodies and constructed to physically separate mother from piglets. It is in these barren and restrictive crates, which leave the pigs virtually immobilized, that they give birth and nurse their young -- although only for a fraction of the time they would in the wild, as their piglets are prematurely weaned and soon taken away for "fattening." The sows are then once again impregnated. Although sow stalls for gestating pigs have already been banned throughout the European Union and are slowly being phased out in some U.S. states, they are still widely used elsewhere, and restrictive farrowing crates remain the common agricultural model.

These methods, developed over the past 60 years in order to reduce the need for skilled labor, produce a standard product irrespective of season or weather. And in the pursuit of efficiency and economies of scale, they have now spread from Western countries to many developing nations, particularly those in Asia and Latin America. The result has been an unmitigated disaster for animals: more animals in more places are confined in restrictive conditions utterly unlike their natural environments and are pushed beyond their physiological limits to produce ever-greater numbers of eggs, gallons of milk, and pounds of flesh. It is a tragic turn of events that just as these methods are being modified or even phased out in the countries where they were first invented, they are being introduced in their old, unmodified forms in other countries around the world. The exportation of industrialized animal-production models has inflicted misery on animals on an unprecedented scale -- not to mention causing higher grain prices for the poor, greater greenhouse gas emissions, and a serious threat to human health, as seen by the rise of various zoonotic diseases and the pollution of land, air, and water.

BATTLE OF THE COWSHED

The replication in developing nations of the worst forms of intensive animal farming is grim news. But there is hope: people in the industrialized world are beginning to show concern about the treatment of animals beyond the borders of their countries. At the same time, some developing countries already have animal welfare legislation, although enforcement varies greatly, and others, including China, are discussing it. Meanwhile, international regulation is making some progress, as are corporate policies in favor of better farm animal welfare. The question now is whether these gains can be consolidated into a centralized and uniformly-agreed-on set of rules.

The European Union has been a leader in passing legislation intended to improve the welfare of farm animals across national borders. To a large extent, this effort has been driven by public attitudes: in March 2007, the European Commission released a survey called "Attitudes of EU Citizens Towards Animal Welfare," which found that more than 34 percent of those polled felt that animal welfare was of the highest possible importance and gave it a score of ten out of ten points, whereas only two percent deemed animal welfare unimportant. (Overall, those surveyed gave animal welfare an average rating of 7.8 points.) And the European public is not merely content with existing regulations. Although the majority of the EU's most significant animal welfare rules (for example, bans on sow stalls, barren battery cages, and individual confinement stalls for calves raised for veal) were enacted in the late 1990s and early years of this century, a resounding majority (77 percent) of those responding to the 2007 European Commission poll wanted further improvements to protect farm animals.

There is broad public interest in animal welfare in the United States, too. For example, 64 percent of those responding to a 2008 Gallup survey favored "strict laws" governing the treatment of farm animals. A 2007 survey sponsored by the American Farm Bureau Federation found that 95 percent of those polled said that it was important to them how farm animals were cared for, with 76 percent of respondents saying that the well-being of these animals was more important than low meat prices. And when these questions have been put to an actual vote, the results have validated such sentiments: in California, for example, a 2008 referendum to ban the standard battery cage and sow and veal stalls passed with a 63 percent majority. Yet the United States lacks any federally mandated protections for animal welfare, in no small part due to effective and entrenched agricultural lobbies.

In China, where food production is not stringently regulated and animals are often raised in dire conditions, public attitudes also favor protections for animals raised for food. A 2005 poll conducted there by the International Fund for Animal Welfare found that 90 percent of respondents believed that they had a moral duty to minimize animal suffering, and 77 percent favored legislation to do so.

And there are signs that attitudes among China's commercial and political power brokers are beginning to shift. In 2007, the director of the Beijing Chaoyang Anhua Animal Product Safety Research Institute and the president of the Chinese General Chamber of Commerce signed a memorandum of understanding on humane slaughter with the World Society for the Protection of Animals. The agreement calls for efforts, including training, to ensure the humane transport, handling, stunning, and slaughter of farm animals in China. As of August 2009, more than 2,300 people from nearly 950 companies from different parts of China had received training on animal welfare. Given the size and scale of China's animal agricultural industry, these numbers may seem insignificant; what is important is that business leaders, scientists, and other stakeholders in the country have made such a commitment and are making available educational modules on the treatment of farm animals.

Also in 2007, a team of Chinese legal experts submitted a draft proposal of an animal protection law to the Standing Committee of the National People's Congress. The proposed law would be China's first piece of national legislation on animal welfare and would afford basic protections to animals on farms, in laboratories, and in the entertainment industry, as well as to pets, service animals, and wild animals. Although the law has not yet passed, its basic principles, which acknowledge the need to protect animals and regulate the treatment of them, are a sign of changing attitudes. Chang Jiwen, one of the law's drafters and a researcher with the Law Institute of the Chinese Academy of Social Sciences, told the Xinhua News Agency in 2009 that he is "convinced -- along with the enhancement of people's awareness of animal welfare -- laws and regulations in this respect will become more sophisticated and complete."

WELFARE GOES GLOBAL

Although national legislation plays a key role in improving the welfare of animals raised for food, it is not the only answer. Indeed, even in those countries with animal protection laws, monitoring and enforcement mechanisms are limited. In a growing number of cases, the consumer marketplace is driving new policies, and international organizations are helping raise consciousness and fill the gaps left by national laws.

The need to improve the welfare of farm animals has been accepted by a number of such multilateral bodies, including the World Organization for Animal Health (known by its initials in French, OIE). Created in 1924 to combat the global spread of animal diseases, the OIE, aware of the link between the treatment of animals and their well-being, has expanded its attention beyond animal health to include animal welfare. The acceptance on such an international level of the importance of animal welfare is a strong indication of the global community's interest in farm animal well-being. In 2008, more than 400 participants met in Cairo at the OIE's second Global Conference on Animal Welfare, where they put forth a resolution stating that ethics is as important as science in the development of animal welfare standards. For the OIE, a scientific authority on animal health and disease, to acknowledge the ethical significance of the mistreatment of animals indicates a momentous shift in opinion at the highest level.

Animal production practices not only influence the welfare and health of the animals themselves but also affect food security, the environment, and community sustainability. In recognition of this, the FAO has joined the global call for improved welfare, recognizing the myriad effects of how animals are raised for food. In 2008, the FAO convened a forum on animal welfare practices, which led to a report stating that as human and farm animal populations continue to rise, "the resulting escalation of animal production raises a number of ethical issues, including environmental sustainability and secure access to food, which must be considered alongside the growing concern about animal welfare." It went on to say, "Animal welfare is coming to be recognized as highly relevant to success in international development."

Soon after its 2008 meeting, the FAO launched the Gateway to Farm Animal Welfare, a Web portal that contains information on diverse aspects of animal agriculture, including animal welfare, in various countries and agricultural sectors. It serves as a single access point for scientific reports, case studies, training opportunities, expert directories, events, and more. The gateway aims to facilitate information sharing around the world, primarily for professionals and producers in less developed countries. On the portal, the FAO explains the importance of focusing on animal welfare: "In many regions, a secure supply of food for people depends on the health and productivity of animals, and these in turn depend on the care and nutrition that animals receive." But, as the FAO goes on to note, "animal welfare practices, despite their evident positive impacts, are insufficiently applied" both on traditional and on industrial farms.

The private sector is also highlighting farm animal welfare as a necessary component of sound business models. In 2006, the International Finance Corporation of the World Bank published "Creating Business Opportunity Through Improved Animal Welfare," which pointed out that consumers around the world are increasingly demanding that their food be produced humanely and safely, which in turn means that "animal welfare is also important for commercial reasons, both directly, by increasing a business's overall sustainability, and indirectly, by addressing society's expectations of how animals should be treated and how food should be produced."

Just last year, the International Organization for Standardization, or ISO, a network of the national standards institutes from 163 countries, issued its "ISO 26000" guidelines, which serve as the internationally accepted standard on social responsibility for both the public and the private sectors. The new document marks the first time that the ISO has included references to animal welfare, requiring those observing the standard to respect "the welfare of animals, when affecting their lives and existence, including by providing decent conditions for keeping, breeding, producing, transporting and using animals."

Although such initiatives represent welcome progress, more work needs to be done. Given that farm animal production affects diverse communities, human and nonhuman alike, a collaborative strategy that unites the public and private sectors is necessary. Global Animal Partnership, an international charity dedicated to farm animal welfare, founded in 2008, embodies this multistakeholder approach. (One of the co-authors of this essay is executive director of the organization.) It brings together farmers and ranchers, animal welfare advocates, animal behavioral scientists, and food retailers to agree on common principles and to speak out with a unified voice for continuous improvement in animal agriculture. Recognizing the diversity of animal production methods, the charity's flagship initiative is an assessment program that contains different sets of progressively higher welfare requirements covering nearly every aspect of on-farm production. The 5-Step Animal Welfare Rating Standards program, as opposed to binary certification schemes, encourages innovation and empowers producers to move up the so-called welfare ladder. Participating farmers and ranchers adhere to production standards and subject themselves to auditing and certification by independent third parties. In less than three years, more than 1,750 farms and ranches that together raise more than 140 million animals each year have sought this certification. The program's multitiered structure allows a wide variety of producers, from small farms to large-scale operations, to participate. Each tier in the program has its own set of comprehensive standards, covering basic provisions, such as food, water, and shelter, and enhancements that encourage foraging and other natural behaviors. These tiers lead to progressively higher welfare practices, including prohibitions against the transportation of live animals and against physical alterations, such as beak trimming or castration. The multitiered system gives producers incentives to improve their farming practices and modify their production systems in ways that lead to better animal welfare. Higher ratings serve as further information for consumers and, in many cases, allow certified producers to charge higher prices. Other stakeholders also benefit from the program: retailers are able to offer wider product selection to meet customer demands, consumers are given transparent and more accurate sources of information on how the animals were raised for the meat they purchase, and, of course, the animals raised in these systems enjoy better lives. Global Animal Partnership completed a pilot program last year with Whole Foods Market, North America's largest natural food retailer, and is now in discussions with restaurants, producers, and other grocers in a number of countries around the world.

Given the sheer magnitude of intensive confinement agriculture -- in terms of the number of individual animals involved and in terms of the impact on animal welfare, human health, and the planet's limited resources -- the sense of urgency cannot be overstated. Whether one spends his or her days in a corporate boardroom in India, a government office in Russia, a university classroom in Brazil, or a farm in Canada, all who are involved in the global food industry, as producers or consumers, have an obligation to find remedies to the problems caused by the growth in intensive confinement animal agriculture around the world. It is time for a global commitment to reduce animal suffering and to mitigate the many unintended and undesirable consequences of raising animals for food.

# data[].attributes.attachment_link.description
As demand for meat has spread around the world, so, too, have the brutal industrial scale methods used to raise and slaughter animals for food, raising a host of pressing ethical and environmental questions. Improving animal welfare is no longer an issue of private, or even national, concern -- it is now a global imperative.

# data[].attributes.attachment_link.readable_text
BARCELONA (Thomson Reuters Foundation) - The globalization of the world's economy this century has made it far more vulnerable to the impacts of extreme weather, including heat stress on workers, scientists said on Friday.

A study by the Potsdam Institute for Climate Impact Research and Columbia University showed production losses caused by high temperatures, predicted to rise further with climate change, now spread more easily from one place to another as they ripple through global supply chains.

In just a decade, the susceptibility of the world's economic network to heat stress - which causes workers to tire quickly among other physical effects - has doubled, researchers found.

This is because production has become more interlinked since the turn of the century, said co-author Anders Levermann, a top climate change expert at the Potsdam Institute.

The first decade studied, from 1991 to 2001, did not suffer increased production losses, in contrast to the decade from 2001 to 2011, he noted.

"Weather extremes are not really factored into the thinking of a lot of industries, and in particular not weather extremes far away," he told the Thomson Reuters Foundation. "But our study shows it's really one world with respect to climate impacts."

The researchers looked at the effects of small daily disruptions to production from extreme temperatures leading to heat stress among workers in construction, agriculture and other economic sectors.

They covered economic flows between 26 industry sectors and final demand in 186 countries, running computer simulations of heat-stress consequences to find out more about how production losses are propagated along supply chains.

"It is really a global phenomenon - whichever sector... is hit by weather extremes is going to have the same response, the same problem," said Levermann.

The researchers said the findings, published in the journal Science Advances, pointed to the need for societies and businesses to adapt to more intense weather extremes.

For example, they could make better use of insurance against production failures or expand their pool of suppliers, Levermann noted. But for that to happen, there must be greater awareness of climate change and its effects on the global economy, he added.

FLOOD LINK TO CLIMATE CHANGE

Work is underway, meanwhile, to strengthen evidence on the links between extreme weather events and climate change.

This week, scientists collaborating on the World Weather Attribution (WWA) program concluded that human-caused climate change played an important role in the heavy rains that pounded parts of France in late May and early June, triggering flooding and destruction.

The probability of three-day extreme rainfall in this season in France has increased by at least 40 percent because of global warming, they said.

For the Seine river basin, it is likely to happen roughly 80 percent more often than in the past, and for the Loire around 90 percent, they added.

But there were no conclusive results from a similar analysis of late-spring thunderstorms in Germany, they noted.

In parts of central and northeastern France, historic flooding of rivers led to widespread power outages and forced Parisian landmarks like the Louvre art museum to close. The deluges are reported to have killed at least 18 people in Germany, France, Romania and Belgium, the WWA team said.

"These latest lethal floods in Europe illustrate the rising impact of extreme weather events, including (on) developed and well-prepared countries," said Maarten van Aalst, director of the Red Cross Red Crescent Climate Centre.

"Sadly we saw that even advanced infrastructure and water management cannot prevent some areas and neighborhoods being overwhelmed and people sometimes dying."

# data[].attributes.attachment_link.title
Globalized economy more susceptible to weather extremes, scientists warn

# data[].attributes.attachment_link.description
BARCELONA (Thomson Reuters Foundation) - The globalization of the world's economy this century has made it far more vulnerable to the impacts of extreme weather, including heat stress on workers, scientists said on Friday.

# data[].attributes.attachment_link.readable_text
Learning Objectives

After reading this section, students should be able to ...

1. list the elements of economic globalization

2. explain the positive and negative effects of globalization

Case: United States Domestic Automaker, Ford

Nowhere are the effects of globalization seen more drastically than in the automobile industry, especially for the United States "Big 3" automakers: General Motors, Chrysler, and Ford.

Ford's history dates back to the Model T created by Henry Ford, with the goal of building a car for every family. Today, Ford is in dire competition with not only their domestic competitors, but also now foreign car manufacturers such as Toyota, Volkswagen and Hyundai.

At the current pace, the automotive market is approaching a 50/50 split between United States and overseas-based control of the US market. As a result, Ford is challenged to constantly reevaluate and revamp its market strategy. This is evident, as Ford decided that it was more cost-effective to buy existing networks than to start from scratch, by bringing Jaguar, Volvo, Mazda, Aston Martin and Land Rover under its control. However, Ford has recently decided to sell its stake in both Jaguar and Land Rover to the Indian automaker, Tata, and may divest other divisions as well.

Today, Ford faces a number of important questions. As the globalization of the auto industry continues, how should Ford market its vehicles? What target markets should Ford appeal to? How can it continue to improve production and quality and adhere to the needs of even more demanding customers? And, how should Ford position itself, as a company, in the face of formidable competition?

While the future of Ford is uncertain, one thing is clear, globalization will continue to affect the way domestic and foreign companies do business.

Globalization is difficult to define because it has many dimensions-economic, political, cultural and environmental. The focus here is on the economic dimension of globalization. Economic globalization refers to the "quickly rising share of economic activity in the world [that] seems to be taking place between people in different countries" (World Bank Briefing Paper, 2001). More specifically, economic globalization is the result of the increasing integration of economies around the world, particularly through trade and financial flows and the movement of people and knowledge across international borders (IMF Issue Brief, 2000).
Global Market Share, 2007-2008 (Edmunds.com, 2007)
As this figure suggests, the "Big Three" must adapt to changes in the market and globalization factors to remain key players in the automotive market. At one point in 2007, for the first time in history, US automaker's share of their home market fell below 50 percent.

Elements of economic globalization

The growth in cross-border economic activities takes five principal forms: (1) international trade; (2) foreign direct investment; (3) capital market flows; (4) migration (movement of labor); and (5) diffusion of technology (Stiglitz, 2003).

International trade: An increasing share of spending on goods and services is devoted to imports and an increasing share of what countries produce is sold as exports. Between 1990 and 2001, the percentage of exports and imports in total economic output (GDP) rose from 32.3 per cent to 37.9 per cent in industrialized countries, and from 33.8 per cent to 48.9 per cent in low and middle-income countries (World Briefing Paper, 2001). In the 1980s, about 20 per cent of industrialized countries' exports went to less industrialized countries; today, this share has risen to about 25 per cent, and it appears likely to exceed 33 per cent by 2010 (Qureshi, 1996).

The importance of International trade lies at the root of a country's economy. In the constant changing business market, countries are now more interdependent than ever on their partners for exporting, importing, thereby keeping the home country's economy afloat and healthy. For example, China's economy is heavily dependent on the exportation of goods to the United States, and the United States customer base who will buy these products.

Foreign Direct Investment (FDI): According to the United Nations, FDI is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor".

Direct investment in constructing production facilities, is distinguished from portfolio investment, which can take the form of short-term capital flows (e.g. loans), or long-term capital flows (e.g. bonds) (Stiglitz, 2003). Since 1980, global flows of foreign direct investment have more than doubled relative to GDP (World Briefing, Paper, 2001).

Capital market flows: In many countries, particularly in the developed world, investors have increasingly diversified their portfolios to include foreign financial assets, such as international bonds, stocks or mutual funds, and borrowers have increasingly turned to foreign sources of funds (World Briefing, Paper, 2001). Capital market flows also include remittances from migration, which typically flow from industrialized to less industrialized countries. In essence, the entrepreneur has a number of sources for funding a business.

Migration: Whether it is physicians who emigrate from India and Pakistan to Great Britain or seasonal farm workers emigrating from Mexico to the United States, labor is increasingly mobile. Migration can benefit developing economies when migrants who acquired education and know-how abroad return home to establish new enterprises. However, migration can also hurt the economy through "brain drain", the loss of skilled workers who are essential for economic growth (Stiglitz, 2003).

Diffusion of technology: Innovations in telecommunications, information technology, and computing have lowered communication costs and facilitated the cross-border flow of ideas, including technical knowledge as well as more fundamental concepts such as democracy and free markets (Stiglitz, 2003). The rapid growth and adoption of information technology, however, is not evenly distributed around the world-this gap between the information technology is often referred to as the "digital divide".

As a result, for less industrialized countries this means it is more difficult to advance their businesses without the technical system and knowledge in place such as the Internet, data tracking, and technical resources already existing in many industrialized countries.

Negative effects of globalization for developing country business

Critics of global economic integration warn that: (Watkins, 2002, Yusuf, 2001)

the growth of international trade is exacerbating income inequalities, both between and within industrialized and less industrialized nations

global commerce is increasingly dominated by transnational corporations which seek to maximize profits without regard for the development needs of individual countries or the local populations

protectionist policies in industrialized countries prevent many producers in the Third World from accessing export markets;

the volume and volatility of capital flows increases the risks of banking and currency crises, especially in countries with weak financial institutions

competition among developing countries to attract foreign investment leads to a "race to the bottom" in which countries dangerously lower environmental standards

cultural uniqueness is lost in favor of homogenization and a "universal culture" that draws heavily from American culture

Critics of economic integration often point to Latin America as an example where increased openness to international trade had a negative economic effect. Many governments in Latin America (e.g. Peru) liberalized imports far more rapidly than in other regions. In much of Latin America, import liberalization has been credited with increasing the number of people living below the USD $1 a day poverty line and has perpetuated already existing inequalities (Watkins, 2002).

Positive effects of globalization for developing country business

Conversely, globalization can create new opportunities, new ideas, and open new markets that an entrepreneur may have not had in their home country. As a result, there are a number of positives associated with globalization:

it creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world

this can lead to more access to capital flows, technology, human capital, cheaper imports and larger export markets

it allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade

For example, the experience of the East Asian economies demonstrates the positive effect of globalization on economic growth and shows that at least under some circumstances globalization decreases poverty. The spectacular growth in East Asia, which increased GDP per capita by eightfold and raised millions of people out of poverty, was based largely on globalization-export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002).

Also, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the Internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent "brain drain" because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work.

Further, some of the allegations made by critics of globalization are very much in dispute-for example, that globalization necessarily leads to growing income inequality or harm to the environment. While there are some countries in which economic integration has led to increased inequality-China, for instance-there is no worldwide trend (Dollar, 2003). With regard to the environment, international trade and foreign direct investment can provide less industrialized countries with the incentive to adopt, and the access to, new technologies that may be more ecologically sound (World Bank Briefing Paper, 2001). Transnational corporations may also help the environment by exporting higher standards and best practices to less industrialized countries.
The fortune at the bottom of the pyramid (Prahalad and Stuart)
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact support@openstax.org. The original content can be downloaded for free at Download for free at http://cnx.org/contents/d6db603c-cd31-4ca4-be19-d29734673b90@4.3.

# data[].attributes.attachment_link.title
Core Principles of International Marketing

# data[].attributes.attachment_link.description
After reading this section, students should be able to ... list the elements of economic globalization explain the positive and negative effects of globalization Nowhere are the effects of globalization seen more drastically than in the automobile industry, especially for the United States "Big 3" automakers: General Motors, Chrysler, and Ford.

# data[].attributes.attachment_link.readable_text
Child Labor

Children work for a variety of reasons ranging from economic necessity to cultural and social norms. In certain circumstances, work experience may be beneficial to children or their families, as the work and income can be a positive experience. However, child labor becomes a cause for concern when the labor becomes exploitative, hazardous, or interferes with the right of a child to an education. Additionally, the age of the child plays a significant role in the acceptability of work performed.

The International Labor Organization (ILO) has long been concerned with child labor. As far back as 1921, it adopted Convention 10 which prohibits the employment of children under 14 in any agricultural business. The ILO then adopted various conventions covering specific sectors, but recognized the need to place a blanket restriction on all forms of child labor below a certain age.

As a result, in 1973, ILO Convention 138 was adopted specifying that the minimum age for any employment "shall not be less than the age of completion of compulsory schooling and, in any case, shall not be less than 15 years"(International Labour Organization, ILO Convention 138, n.d.). Finally, in 1999, the ILO adopted Convention 182, now considered one of its five key conventions, prohibiting the worst forms of child labor for all children under the age of 18. These "worst forms" include slavery, child prostitution, and child pornography, as well as any other work that is likely to harm the health, safety, or morals of children.

Despite the ILO's efforts, approximately 218 million children are engaged in child labor around the world, of which 126 million are believed to be working under hazardous conditions (UNICEF Statistics, n.d.). Many children work in manufacturing, as domestic help, or in services; however, the vast majority of child laborers, 60 percent, work in the agricultural sector (Backgrounder: Child Labor in Agriculture, n.d.).

Cotton Picking in Egypt

Over one million children are involved in Egypt's cotton industry; its major cash crop.Their primary job is controlling pests that can ruin cotton plants by manually inspecting and treating the leaves of the cotton plants.

Generally, the work is done during the summer so it does not interfere with schooling; however, it is grueling and often runs eleven hours per day, every day of the week.Beatings by foremen, extreme heat, and exposure to dangerous pesticides are common as well (Underage and Unprotected: Child Labor in Egypt's Cotton Fields, n.d.). In fact, two of the five pesticides regularly used are classified as "highly hazardous"(Backgrounder: Child Labor in Agriculture, n.d.).

The result of these working conditions on young children has been significant.Children suffer high rates of injuries and risk being beaten for their work performance.In fact, Human Rights Watch interviewed a child in who commented on his two foremen, saying, "One of them I hate; the other one I like.The one I hate used to beat and kick me whenever I missed a leaf.The other one beats and kicks me lightly"(Backgrounder: Child Labor in Agriculture, n.d.).

The exposure to pesticides can cause acute effects such as dizziness and vomiting as well as disrupting the nervous and endocrine systems of children (Underage and Unprotected: Child Labor in Egypt's Cotton Fields, n.d.).The extreme heat of the Egyptian summer also endangers these children, as they often are provided minimal access to water and toilets.Further exacerbating an already untenable situation is the meager pay the children receive for this excruciating work which averages just US$0.81 per day.

Various organizations, such as Human Rights Watch, are working both to raise awareness of this situation and to convince the Egyptian government to meet its obligations under ILO Convention 138 that prohibits Egypt from allowing children below the age of 14 from working.

The Elimination of Child Labor in Pakistan's Soccer Ball Industry

By the mid-1990s, roughly 75 percent of the soccer balls produced in the world were made in the
Sialkot district of Pakistan.

The International Labor Organization (ILO) produced a report in 1996 detailing the working conditions in the
Sialkot Pakistan's soccer ball industry and estimated that 7,000 children between the ages of 5 and 14 were involved in the manual production of soccer balls.These children typically worked 8 to 11 hour days and many had never attended school a single day in their lives (From Stitching to School: Combating Child Labour in the Soccer Ball Industry in Pakistan, 2004).

This situation clearly violated Pakistan's ILO Convention 138 commitment to prohibit child labor below the age of 14.

As a result of the ILO's report and the publicity that came with world-wide revelation of the conditions in the industry, including introduction in the U.S. Senate by Senator Tom Harkin (Democrat - Iowa) of an amendment aimed at Pakistan that would have prohibited U.S. imports of goods made by child labor, an agreement was reached between the ILO and the Sialkot Chamber of Commerce on February 14, 1997.The goal of the agreement was the elimination of all child labor (defined as children under the age of 14 in this case) in the soccer ball industry in
Sialkot, Pakistan (From Stitching to School: Combating Child Labour in the Soccer Ball Industry in Pakistan, 2004).

The agreement created a program designed to replace work with education for the children who were stitching soccer balls.By 2004, the ILO reported that over 10,000 children had received an education as a result of the agreement and an additional 5,000 had received health care coverage (From Stitching to School: Combating Child Labour in the Soccer Ball Industry in Pakistan, 2004).

The most critical development of this agreement was the enabling of families to place their children in schools rather than the soccer ball industry.In part, this resulted from a change in social standards in the Sialkot district that no longer tolerated child labor, but it was also the result of a shift in the economics of the district that enabled the families to forgo the income formerly produced by their children.The long-term impact should be significant as these children will now have educations that can enable them to seek different or more lucrative work once they are older.

# data[].attributes.attachment_link.description
Child Labor Children work for a variety of reasons ranging from economic necessity to cultural and social norms. In certain circumstances, work experience may be beneficial to children or their families, as the work and income can be a positive experience.

# data[].attributes.attachment_link.readable_text
Globalisation is a concept that, in the lead-up and after the turn of the millennium, has become a fierce and recurring topic of debate. Over the long history of the idea, it's been called a necessary, even inevitable, process that will cure all the world's ills, if only we embrace it. Others have seen it as a purely negative process, enriching the few while the many suffer. ¹

It is, however, undeniable that globalisation has (and continues to have) a profound effect on the world, in the way companies and even governments do business: according to World Bank data, trade accounted for more than 70 per cent of global GDP in 2017, from less than 25 per cent in 1960. ² To understand these effects, and maybe glean an insight into the future of globalisation and its current impact on business, it is useful to cast our eye backward, to learn how the process started.

Historical globalisation

The term 'globalisation' itself first appeared sometime in the late 1920s...

Globalisation describes the ways in which "national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation". ³ The beginnings of globalisation are still debated, with some sources placing it as long ago as the bronze age, fully 4,000 years ago. ⁴ Others pin the date more reasonably in the period of global exploration kicked off by Christopher Columbus' discovery of America in 1592 - this marked the birth of the first global trade networks, pioneered by European powers. ⁵ This is generally considered the first wave of globalisation, in which business and trade crossed seas, and it lasted for more than a century.

By the nineteenth century, the movement of globalisation entered a new phase; the advent of technologies such as the steam engine facilitated international trade further, quickening the pace and scope at which business could be conducted. A dearth of major wars (after the end of the Napoleonic wars in 1815) ⁶ aided rapid growth during this period, ⁷ which was characterised by, among other things, vast waves of immigrants expanding across the globe - more than 20 million people left Europe for other shores between 1850 and 1913. ⁸

The term 'globalisation' itself first appeared sometime in the late 1920s; a little over a decade and a half later, during and immediately after World War II, globalisation entered a new phase. ⁹ Near the end of the war, the German army developed V-2 rockets for use against London - after the end of the war, this technology would form the basis of modern communication, as nations began exploring the potential of rockets to send satellites, and eventually men, to the stars. ¹⁰ Alongside these technological developments came a range of institutional changes that served to integrate trade even further: the founding of the United Nations, in 1945, aimed to bridge the gaps between countries, with economic development a core tenet of the organisation. ¹¹

At the same time, the creation of broad trade agreements such as the General Agreement on Tariffs and Trade (GATT), "the first worldwide multilateral free trade agreement". ¹² This agreement was specifically created to facilitate trade through the elimination of tariffs that were considered harmful to free trade. It was eventually succeeded by the creation of the World Trade Organisation. ¹³

These are the roots of the final, and the current wave of globalisation, in which computing also figures heavily: while computers have existed in some form since at least the 1940s, the creation of the first microprocessor, by Intel in 1971, marked the great leap forward towards modern computing. ¹⁴ This began a trend which saw companies able to use computing to increase their access to information, and ultimately unlock economic potential. ¹⁵ This era - as all those before it - has had, and continues to have, enormous influence, not only on the large conglomerates and corporations who do business across borders, but on the small businesses who interact with them, and even many of those who don't.

Modern globalisation

[I]n a 2017 comparison of the 100 largest economic entities in the world, only 31 spots were claimed by governments.

The period after World War II saw rapid expansion and integration of global trade, as nations went about the task of rebuilding in the wake of the war. ¹⁶ This sudden uptick in the process of globalisation was fueled by the surge of business and technological innovation, that allowed cross border trading to flourish at a pace unseen previously. Ultimately, this resulted in an increase in trade value of over 4,000 per cent between 1913 and 2014, with the greater share of that increase occurring after 1950. ¹⁷

The modern, post-war period saw an increase of another type, however: the rise of the modern multinational (or transnational) corporation. ¹⁸

Large corporations with global ambitions had been around for quite some time: the various East India Companies traded between Europe and India from as early as the 17th century, even becoming involved in the politics of the day. ¹⁹ After World War II, however, new technologies and liberalised trade allowed corporations to grow far larger than ever seen in history - in a 2017 comparison of the 100 largest economic entities in the world, only 31 spots were claimed by governments. The other 69 entities were multinational corporations.

These corporations owed much of their growth to the facilitating role of trade agreements such as GATT, which made it possible to move goods around the globe much more cheaply. ²⁰ Companies in the US, Europe and Japan were also beneficiaries of domestic trends in the middle of the century that saw banks invest heavily in industrial stocks, while encouraging mergers that concentrated capital stock. ²¹

They were able to use technological advancements in transport and communication to take advantage of the newly opened markets that were quickly opening, and the technology allowed them to operate more effectively on those shores. The rapidly advancing process of globalisation also gave the corporations access to new, and cheaper, labour markets. ²²

Alongside the rise of the multinationals, international trade split into three broad groups:

The so-called first world industrialised nations, who relied on market economics along with liberalised international trade policies

Centrally planned economies, exemplified by the Soviet Union, China, and parts of eastern Europe - international trade took on a lesser importance in these regions until the 1990s

Developing countries, many of whom had gained independence in the post World War II period, favoured a mixed system of intervention that favoured tariffs as a method of protecting and encouraging industries, leading in most cases to reduced international trade²³

Globalisation and people

This delineation of trade has coincided with an enormous explosion of the population, although this has not happened uniformly. Inevitably, developing nations boast far higher birth rates than industrialised states. Unfortunately, the uneven rate of population was matched with uneven economic growth, wherein developing economies with burgeoning populations, lagged behind industrialised nations in purely economic terms. ²⁴

This discrepancy resulted in a revival of the migrant waves of 19th century Europe. The modern incarnation of this effect, however, was of a far grander scale, and in the opposite direction - the number of migrants in 2017 alone amounted to 258 million people. This had the additional consequence of increasing workers' remittances - when migrant workers send money home, out of the country they're working in - to an estimated US$466 billion, also in 2017. ²⁵

These statistics highlight an aspect of globalisation that's arguably been largely responsible for the groundswell in opposition to the concept. While, on the whole, attitudes towards globalisation tend towards the optimistic, there is a minority who continue to consider the entire concept problematic.

In his article discussing the pros and cons of globalisation, writer Mike Collins presents common arguments against the process, including: ²⁶

Increasing wealth inequality

Jobs lost through international trade, for example, the transfer of textile manufacturing from industrialised to developing nations

The exploitative nature of large multinational corporations

These criticisms aren't without merit, as the scale of migration and changing emphasis of trade goods between countries can attest. Yet, on the whole, the effects of globalisation on business have largely resulted in a long-term economic boom, with the global economy better off than ever before, even with the lingering effects of a still fairly-recent recession. ²⁷

Globalisation: today and tomorrow

International trade is arguably the greatest driver of globalisation...

The pressures of each wave of globalisation have had an undeniable effect on each subsequent era: first, men sailed to the furthest corners of the planet, establishing a long web of transiently connected humanity. In the second era, the world was made smaller, as technology made vast distances shrink. The third era brought clarity of voice; we could talk to each other, and trade more easily across the closing gaps. Today, in the midst of the most recent era of globalisation, the net has tightened, as we have brought all previous advancements together in the current tidal surge of progress.

The culmination of historical trends - the tightening of the net - has led modern business to take a far different tack from their predecessors: over the past three decades, corporations have increasingly turned to specialisation. Where largely domestic businesses were previously able to sell anything and everything, the crowded international stage means that a specialised offering in a product that offers a comparative advantage is easier to find a home for - however niche that might be. Competitive advantage refers to the ability of a country (or company) to produce a certain product or service more efficiently than others. ²⁸

Indeed, this change has led to a new prominence for the international trade of intermediary products, the building blocks of consumer goods (such as electronic components), as well as the turn towards specialised professional service, thanks to the distribution of competitive advantage - developing nations, for instance, will generally enjoy a competitive advantage in labour, allowing them to more easily produce often simpler intermediary goods. ²⁹ It has also had an effect on competition: in a globalised world, anyone with the necessary capital can enter virtually any market. This has meant that many large companies are held in check, as even an apparent domestic monopoly may come under fire from beyond a country's borders. ³⁰

International trade remains, therefore, the greatest driver of globalisation, as nations forge alliances based on trade concerns, affecting the supply of goods to and from that market, from intermediary products manufactured in developing economies, to sophisticated consumer goods. Ultimately, this has a trickle-down effect on a host of other issues, including the societies which make up nations. ³¹

Today, globalisation stands at something of a crossroads; the rise of modern nationalism, as exemplified by US president Donald Trump, favours an anti-immigrant, protectionist stance that also clearly stands against the principles of globalisation. ³² At the same time, information technology has indeed brought us closer together than our forebears would have thought possible, globalising the trade of ideas - although, like all aspects of the process, this has been uneven in its spread and impact. ³³
The question, then, is: what future can we expect for globalisation, its impact on the economies we live in and the businesses that help drive these economies?
Three major trends were identified by the UN Secretary-General's October 2017 report on the topic: ³⁴

The changing nature of production, through outsourcing and mechanisation, which is likely to lead to greater income inequality, especially in manufacturing

Advances in disruptive technologies such as artificial intelligence and information systems have the potential to, if managed properly, bolster sustainable development

The interplay between climate change and globalisation has had, and continues to have, an enormous effect on the lifestyles of peoples across the globe

In order to tackle these challenges, business and governments will need to work in concert to reform and regulate the global economy, in order to stymie the historical tendency of globalisation towards unequal costs and benefits across regions. The interconnected nature of the globalised economy means that problems caused in developed economies, for instance, can have knock-on effects for developing nations. ³⁵

The nature of globalisation in the 21st century - fueled by post-war economic booms, sweeping global movements of liberalisation and freedom, and the rise of dominant multinational corporations - led to the ever increasing connected world and economy. Businesses have responded to each wave of globalisation by harnessing the technological developments presented to refine their strategy and increase growth. The next era will bring new innovation with artificial intelligence, which will present new opportunities to grow and the ongoing challenge of how to evolve and adapt.

# data[].attributes.attachment_link.title
The Impact of Globalisation on Economies and Business | GetSmarter Blog

# data[].attributes.attachment_link.description
Globalisation is a concept that, in the lead-up and after the turn of the millennium, has become a fierce and recurring topic of debate. Over the long history of the idea, it's been called a necessary, even inevitable, process that will cure all the world's ills, if only we embrace it.

# data[].attributes.attachment_link.readable_text
Responding to climate change poses a fundamental challenge to the ideas that shape globalization. This blog explores potential solutions to the crisis.

Images of raging fires, desolated forests and charred remains of wildlife have provoked global anxiety about the climate crisis. Climate change may not have caused the Australian fires, but it has made them worse. Global warming has produced record-breaking high temperatures in recent Australian summers, alongside dryer conditions and frequent droughts that increase susceptibility to fires.

How are Australian forest fires linked to globalization? The connection appears obscure. But the timing of these fires, punctuating the end of a troubled decade for the global economy, is highly symbolic.

The fires are a planetary smoke signal warning us to recognize that the gravest threat we face is not the stalling of globalization through slower economic growth, populist nationalism, and trade wars. It is the accelerating movement of our Earth System towards conditions that pose an existential risk to humanity. Leading Earth Scientists now warn of an impending ' Hothouse Earth ' scenario in which rapid and uncontrollable warming sets in motion transformations that severely threaten our societies, politics, economies and capacity to exist as a viable species.

These two threats are inextricably bound together - global warming and ecological degradation are a product of the rapid carbon-intensive economic growth that has underpinned globalization. With the expansion of the global economy from the 1950s a process known as the ' Great Acceleration ' led to rapid increases of socio-economic indicators, from GDP growth to urbanization, that are causally linked to rising CO2 emissions and environmental deterioration.

We now face a dismal situation. Unless we undertake immediate and radical measures to curb greenhouse gas emissions and restore the Earth's capacities to cool itself, we risk triggering 'tipping points' that lead to rapid, self-reinforcing and uncontrollable increases in global temperatures with devastating consequences for humanity.

Addressing the climate catastrophe involves fundamentally rethinking our approach to globalization. My new book Is Globalization Over? shows how understanding the longer history of globalization can help us. I argue that the present crisis in the global economy is unique because the solution that has been used to overcome previous periods of international economic instability, like the 1930s and 1970s, is no longer feasible. We cannot simply reboot the global economy to deliver more carbon-intensive economic growth and restore the legitimacy of global capitalism - because it is our pursuit of limitless growth that is driving the climate crisis.

Responding to climate change poses a fundamental challenge to the ideas that have shaped globalization. Since the eighteenth century, liberal economic ideas have guided the quest for an integrated international economy. Liberals imagine a world in which politics and economics can be separated and the global extension of markets can achieve rising prosperity based on continuous economic growth. Obeying the rational 'laws' of the market and insulating them, as far as possible, from the petty jealousies and irrationalities of politics can bring about a peaceful and prosperous global economy from which all benefit.

Economic liberalism has succeeded because of its ability to reinvent itself during periods of crisis and instability, finding new ways to keep economies growing. After the Great Depression, for example, John Maynard Keynes called for more active government intervention in the economy, using taxation and spending to achieve full employment and stable growth, avoiding prolonged economic downturns.

But the climate crisis poses two unique challenges to economic liberalism and the globalization it has shaped. Firstly, it forces us to abandon the fundamental assumption of limitless potential for (carbon-intensive) economic growth. This is a dangerous assumption from the fossil fuel age. It is incompatible with respect for the Earth's geophysical limits. Urgent action is required to de-carbonize our economies. But the evidence for long-term decoupling of economic growth from carbon emissions and resource depletion is weak. More growth tends to mean more CO2 emissions and environmental destruction.

Secondly, tackling climate change requires intervention and democratic economic planning, from the global to the local, that liberals have only accepted during times of exceptional and temporary emergency - like the mobilization for World War II. Our market-dominated societies have so far proven woefully incapable of responding to the climate emergency. Avoiding Hothouse Earth will require major intervention from international organisations, states, and local communities. The IPCC estimates that achieving the 1.5 C limit agreed at Paris will require annual energy related investment of $900 billion between 2015-2050.

Long-term planning is now necessary, with ecological goals overriding market imperatives. Scientific knowledge and projections about ecological indicators must play a bigger role in guiding production and consumption. Whether liberalism, stripped of the telos of unending growth, can mutate once more to accommodate these changes remains an open question.

The vast investment needed to decarbonize the economy will generate jobs and growth in the short-term. But the kind of economy and society that we transition to will ultimately need to be much less dependent upon economic growth. Instead, it needs to be based on reduced consumption, sharing of resources, sustainability and global solidarity.

What does this mean for globalization? It does not mean abandoning globalization and turning to self-contained national and local economies. Our economies and societies are too interconnected, depending on each other for vital goods and resources, for this to be feasible or desirable. But it does mean that we will have to change the ideas and institutions that govern globalization, displacing markets and turning to developmental goals that are democratically planned, long-term, and scientifically informed. Markets must work in the service of achieving these priorities.

We will need to transform the balance and purpose of the cross-border flows of goods, capital, people and ideas that have propelled globalization. Some of those cross-border flows, like unsustainable trade practices and fossil fuel sector capital flows, will have to stop. While others, like aid transfers from the Global North to the Global South and flows of climate related expertise and investment towards the worst affected regions, will have to grow rapidly. Globalizing solidarity, by connecting green transformations of our domestic economies, politics and societies with new planetary priorities that think of our needs as one species among many is the best way to meet the challenge of climate change.

If we do not take these measures then the intertwined futures of the planet and globalization look bleak. We risk setting in motion another dangerous and uncontrollable feedback loop - between ecological deterioration, human suffering, and the rise of toxic nationalism, authoritarianism, militarism and disintegration.

The stakes for transforming globalization could not be higher. In an age of climate crisis, whether or not we can change the global economy in a progressive and sustainable direction will shape our future as a species.

# data[].attributes.attachment_link.title
Why climate change is globalization's biggest challenge yet | SPERI

# data[].attributes.attachment_link.description
Responding to climate change poses a fundamental challenge to the ideas that shape globalization. This blog explores potential solutions to the crisis. Images of raging fires, desolated forests and charred remains of wildlife have provoked global anxiety about the climate crisis. Climate change may not have caused the Australian fires, but it has made them worse.

# data[].attributes.attachment_link.readable_text
Published By: Fredrik Erixon

Subjects: WTO and Globalization

Download PDF

Summary

Globalization has boosted output in the Western economy

1. Globalization has enabled firms to specialize - and to increase the intensity of R&D, innovation and capital in their output.

2. Globalization has made it easier for new companies to start competing with old incumbents.

3. The trade sector has increased the number of people that it employs, both through exports and imports.

Globalization has raised household income

1. Globalization helped to reduce high inflation rates in Western economies, giving consumers more "bang for the buck".

2. Globalization has increased real wages by lowering the cost of consumption.

3. Many goods that previously were affordable to only the few - e.g. a mobile phone or sewing machine - are now common in most households.

Globalization has given economies and people new opportunity

1. Globalization has spurred the spread of new technology, helping to make economies greener and more productive.

2. Globalization has helped to reduce gender wage discrimination and giving new opportunities to women.

3. Globalization has improved the quality of management in firms and the working conditions for people.

ECIPE greatly acknowledges the support from the Confederation of Swedish Enterprise for this study.

Introduction

Globalization has been a boon to businesses, consumers and the Western economy as a whole. Now, however, we are at risk of having a backlash against globalization and all the opportunities that increasing economic freedom has provided us with over the past decades. There is a new anxiety running through Western societies that challenges previous perceptions about freer trade as a win-win for every country. There is rather a proliferating suspicion that globalization may have been great for some countries, but not for others, and that it is affluent countries in the West that have drawn the shortest straw.

In the worldview of U.S. President Donald J. Trump, "other countries have taken advantage of America" and these types of opinions feed on growing doubts about globalization delivering better living standards for people in Western economies. Such arguments often start in China's remarkably fast trade growth since the late 1990s, and it concludes that, while the period from then to now obviously has raised living standards in China and other emerging economies, it has happened at the expense of blue-collar workers in developed economies. China, in other words, hollowed out the manufacturing sector in Europe and North America. For some, that is also the main source of political anger in the West: recent revolts in European and American elections have been the way for "the losers of free trade" to avenge the faults of the "pro-globalization establishment".

There are deep flaws in this view of globalization. The chief one is that established fact and known economic patterns don't support skepticism about the benefits of trade and cross-border investment. While open economies always are subject to new competition and structural changes that affects firms and jobs, the flip side of the coin is that the same economic processes create a lot of new jobs and business opportunities, and - ultimately - improve the living standards. Moreover, the new jobs that are created tend to be better rewarded and come with better working conditions. New output is often greener and thrive on new technology, leading to positive change also outside the economy.

This study will take a thorough view on how Western economies have fared in the age of globalization. It will marshal a great amount of economic evidence, and combine economic research with examples from the real world that supports the age-old consensus about free trade. Its main conclusion is that the fast increase in global trade in the three decades before the financial crisis substantially improved Western economies and the living standards of their citizens. Globalization was a great force of spreading new technologies and providing new economic opportunity to labour in both developed and developing economies. Contrary to much commentary, it helped to put a higher premium on human capital and giving firms new chances to employ the staff they need to compete successfully.

Since the crisis, however, globalization has stalled - and global trade has become a casualty of increasing protectionism around the world and the weak macro-economic performance of the West. Trade is not growing much anymore - and, for the West as well as the Rest, that should be a great cause of concern, not for jubilation.

The Economic Benefits of Globalization

There are many different ways to examine how globalization has improved businesses, living standards and the performance of the entire economy. Let us start, however, with a quick primer on trade and what economists mean when they are talking about globalization.

The period of globalization, between 1980 and 2010, is unique because global trade grew very fast. Obviously, international trade developed in the decades before 1980, and there has also been some growth after 2010, but none of these periods come close to the expansion of trade during the era of globalization. The same is true for Foreign Direct Investments (FDI): it multiplied by many times between 1980 and 2010.

Chart 1 and 2 make these developments visible. Chart 1 is an index of global exports - or how global exports have grown - between 1800 and 2014. In rough terms, trade growth was low and flat for about 150 years. The first acceleration of trade started in the 1950s, and all the trade in the world grew by about ten times between 1950 and 1980. However, the real boom came between 1980 and 2010. Remarkably, international trade grew by almost 35 times in that period. But the chart also shows, trade has not been growing much in the past years. The global financial crisis in 2008 led to a big collapse in trade. It recovered in the following two years, but then trade dropped again, and since then, trade has basically flatlined.
Chart 1: An Index of Global Trade between 1800 and 2014
Source: Federico, G. and Tena-Junguito, A., 2016, A Tale of Two Globalizations: Gains from Trade and Openness 1800-2010. Centre for Economic Policy Research Working Paper 11128

Chart 2, on the other hand, looks at the development of the global stock of FDI between 1980 and 2016.[1] The development has been even starker for FDI than for trade. In that period, the global stock of FDI grew from 0.7 to 25 trillion US dollars.
Chart 2: Global Foreign Direct Investments (stock, million US Dollar at current prices)
Source: UNCTAD

What also makes the three decades between 1980 and 2010 unique is that international trade gradually became global. In the first decades after the Second World War, trade had mostly been about exchange between developed economies or, in practical terms, between countries in Europe and North America. Some countries like Japan joined the bandwagon of international trade in the late 1970s, but the real geographical equalization of trade happened in the thirty years that defined the period of globalization.

In those decades, many more countries opened themselves up to trade through reductions of trade barriers and domestic reforms that made it possible to exchange goods and services across borders (for instance, allowing the exchange of foreign currencies) and enter into contracts with foreign firms. As a consequence, they attracted investment from companies in other parts of the world and their international trade grew very fast - indeed faster than at any time in history.

Another way to look at the growing role of trade, is to compare the size of the trade sector over time. The trade sector is defined by trade as a percentage of Gross Domestic Product (GDP). For the world as a whole, the trade sector grew from about 25 percent in 1960 to about 58 percent in 2016.[2] The role of trade for GDP thus more than doubled in that period (just like with global trade, the size of the trade sector has decreased since 2010, when it peaked at 61 percent). Some countries have a much larger trade sector than the global average. In Sweden, for example, the trade sector in 2016 was about 85 percent of GDP, and Germany had exactly the same size of its trade sector.

Box 1: Jobs in the Export Sector

A growing trade sector means that a larger part of the workforce today has export-dependent jobs. A study for the European Commission, for instance, estimates that the number of jobs dependent on export to countries outside of the EU has grown from about 18.5 million in 1995 to 31 million in 2011. That is a 67 percent growth, and it is particularly the number of high-skilled jobs that has increased.[3] Yet a larger part of the workforce in the EU works in jobs that exports to other EU countries, which is not included in the above figures. In Sweden, to take one example, the number of jobs dependent on goods exports to other EU countries was estimated in 2014 to be about 1 million - and that is more than 20 percent of the country's labour supply.[4]

Three factors explain the flatlining of international trade in recent years. First, there has been weaker growth of demand for goods - especially industrial goods (e.g. steel and machinery) - that are intensively traded while the demand for services that are locally produced (e.g. healthcare) has increased rapidly. While that development is partly a natural factor of changing demand patterns, the second factor is more noxious: protectionism. Governments across the world have used the period since the crisis to substantially increase the amount of policies that explicitly discriminate against foreign firms (see Box 2). Third, explicit protectionism follows on the heels of a somewhat longer period of increasing regulatory costs of trade (e.g. administrative costs for filing trade documents with a Customs Authority).

Chart 3 shows that there has been a clear trend break in regulatory trade barriers in the 2000s (the higher the index score, the greater the trade freedom and the lower the regulatory restrictions). Up till then, the degree of freedom to trade increased. Since then, however, regulatory restrictions on trade have increased substantially. And it does not stop there. In addition to these regulatory costs to trade come, for the services sector, different forms of non-trade regulations that have made cross-border exchange more difficult. For instance, the use of occupational standards that fracture the global services market has increased substantially. There are about 800 occupational standards in Europe's services sector alone and, in the United States, 25 percent of the workforce now operate under such a standard. [5] Many of them make it impossible to export a service to another country because occupational standards are seldom mutually recognized.
Chart 3: Economic Freedom to Trade: An Index of Regulatory Trade Barriers
Source: Fraser Institute, Economic Freedom of the World Database

Note: Index rates are for subcomponent "Regulatory Trade Barriers" in the total index, including nontariff barriers to trade and compliance costs of importing and exporting. The higher the index score, the greater the trade freedom.

Box 2: Growing Protectionism in the World Economy

Protectionism is on the rise. Both developed and developing economies have for the past ten years substantially increased the number of policies that are harmful to global trade and competition. Global Trade Alert, a trade-monitoring project, has calculated that between November 2008 and November 2017, governments have introduced 6756 harmful measures. Governments have also taken liberalizing measures, but the number of harmful measures outnumber the number of liberalizing measure two-to-one. Most of the harmful measures have been the increase of an important tariff or the introduction of a subsidy that discriminates against foreign companies and distorts competition.[6] While these figures reflect trade in goods, the situation is not much different in the services sector. Take for instance digital policy and attempts to impose measures demanding the localization of data, a serious intervention in the digital economy. Between 1990 and 2016, the number of data-localization measures globally has increased ten times.[7]

Globalization has Created New Business Opportunities

There are several explanations to the remarkable growth of trade over time, but one obvious factor behind it has been firms and their business development. In a way, the growth of exports is just another way of saying that firms have gradually sold more to foreign customers or that foreign customers have played an increasingly important role for the total sales by the corporate sector. When data is informing us that global trade between 1980 and 2010 grew 35 times, it means in practice that the corporate sector expanded their foreign sales by 35 times. Or to take the example of a single country: Swedish firms expanded their foreign sale from just north of 200 billion SEK in 1980 to more about 1500 billion SEK in 2010.[8] And to drill that down to the level of a firm: In 2010, telecom company Ericsson had export sales from Sweden of 100 billion SEK, which in nominal terms is more than twice as much as Ericsson's total sales in 1990.[9] Back then, Asia represented about 6 percent of Ericsson's total sales. In 2010, that share had gone up to 25 percent.[10]

As a thought experiment, try to imagine how a company would have evolved without globalization. There is no way to fully understand a counterfactual scenario like that, but it helps us to understand some of the differences in business opportunity between alternative scenarios. And one difference is obvious: if a company only has market access to the inhabitants in its home country (in Ericsson's case, ten million Swedes) it has to build another type of business than if it has access to the global market. What is more, market size is of particular importance for those companies that produce goods and services that are innovative and have a high intensity of R&D or capital expenditures. If their potential customer base is small, it means that every unit of sales has to recoup a larger share of the investments the firm made in developing and producing a product. The flip side of the coin, however, is that the growth of customers abroad help these firms to spread development and production expenditures over many more unit of sales.

Economists call this the scale benefit of globalization - and it is based in basic economies of scale. It has also been one of the tangible benefits for the corporate sector: globalization has enabled them to develop businesses that depend on sales of many units and to many different customers. If Ericsson's market for mobile technology would be limited to Sweden it would have been impossible to build basic GSM technology or develop the core equipment for 3G and 4G communication. The same logic applies to many other sectors that require substantial development and production costs: automobiles, chemicals, computers, electronics, pharmaceuticals, and more. It is therefore unsurprising that the expansion in global trade during the age of globalization happened to a large extent in exactly these sectors.[11]

Another difference between the actual development and the imagined scenario of a non-globalized world is that globalization created opportunities for faster specialization of production and firms. Some would perhaps see that a disadvantage, because gone are the days when an individual firm could build a corporate imperium that produced a huge variety of different products, often behind the protection of trade barriers. Look at Volvo. It is no longer a company that produces trucks, buses, cars, drugs, beverages, and frozen food. Even the automobile division is now split, with one part producing cars and the other trucks, buses and heavy vehicles. Thirty years ago, the Finnish champion Nokia was competing in many markets - television sets, household and paper products, rubber boots, and electricity - and was just about to break in the market for GSM handhelds. Now it is a specialized producer of telecommunication equipment technology.

Box 3: Building Mobile Phones with 100 billion Components Every Year

As late as the end of the 1980s, a telephone in Europe was built from the first to the last component in one factory. Compare that with the fragmented supply chain of modern production. At its height in the global handset market, Nokia was estimated to handle more than 100 billion components every year. In 2006, its plants produced around 900,000 mobile phones - and handled around 275 million components every day. Most of these components were procured from other companies - specialized in producing parts and components - and imported to the countries where Nokia had located its factories. A low estimate is that half of the number of components used to build a mobile phone has crossed a border. From one telephone to 100 billion components in less than two decades - this is the story of modern globalisation.[12]

Specialization creates business opportunities because it is easier to step into new markets when it is not necessary to be a large entity with strong control over end customers. Markets that are specialized usually have greater space for new companies and they certainly make it possible to compete on the basis of new technology and a good offer. A company that is a skilled producer of automobile engine components does not need to produce an entire car and compete with larger firms such as Volkswagen and Toyota on the end customer market. They can rather allocate all their resources to become even more competitive producers in engine components. That means, among other things, that their resources (e.g. staff and technology investments) can be and become more specialized.

It is for this reason that the age of globalization experienced a growth in global trade that, functionally, reflected the breakup of large multinationals into fragmented supply and value chains.[13] No large company has enough resources to become specialized producers in all parts and components that it needs in order to produce a good or service.[14]

If companies had to rely on just domestic markets for their sales and inputs, they would not have been able to innovate and develop products in the way they actually have over the past 30 years. It would have been too costly, and - most likely - they would have to produce in ways that, compared with today, would have made the quality of products substantially lower. It is often forgotten how many markets in the pre-globalization era were dominated by expensive products with low quality. And that did not happen by chance; it was rather the consequence of narrow opportunities for business in how they could compete and develop their offerings.

Workers have benefitted substantially from the way that globalization increased the premium for scale and specialization. There is a general pattern in the world economy that open economies are much better for workers than less open economies (see Box 4). And the improvements made in open economies partly comes from the fact that the new production they generate depends more on human capital. Workers that have more and better education, and that is better at delivering creative solutions to problems, have higher salaries and better employment conditions.

Box 4: New Trade Opportunities Benefit Labour

Improving business opportunities benefit workers in the economy. Companies that can better use the various gains from trade - for instance, scaling up and specializing the production - also create jobs that demand higher skills and that are better paid. Moreover, these benefits tend to be stronger in economies that are more open to trade and investment than others. The OECD, for instance, has found that manufacturing workers in more open economies had between 1970 and 2000 raises in pay that were between 3 and 9 times greater than those in more closer economies. In the United States, for instance, exporting firms pay wages that are close to 10 percent higher than in non-exporting firms.[15] For Chile, also a developed economy, the trade premium is even larger: a worker in a sector substantially open to trade earns 25 percent more than a worker in average. In a review of world-class research studies, the OECD found that they all concluded that trade drives up wages. While outsourcing and off-shoring of intermediate production can lead to unemployment for some, wages and aggregate employment are improved. One does not need a Nobel Prize in economics to understand why. Trade improves the way that economies use their human resources. When some parts of the production are off-shored, it means that companies can specialize and invest more in human capital. A substantial part of globalization has therefore been to get labour to be employed in their right places: the part of the workforce in advanced economies that is involved in work with high value added increases constantly. Resources, then, have both been better allocated and freed up for alternative uses. It is no surprise, therefore, that open economies outperform by far other economies in labour rights and working conditions, including working time, fatal incidents, and life expectancy.[16] New jobs created are not just better rewarded - they are safer and, often, more stimulating.

Box 5: Globalization and Gender Equality

Gender equality has improved much over the past half century. While discrimination of women remains a big problem in many countries, globalization has helped to create new economic opportunity for women, reduce gender wage inequality, and generally put a higher cost on those that discriminate in favour of men. Think of female entrepreneurs in poor regions that, for a variety of reasons, have been locked out of the formal financial sector and not been able to access credit or payment systems. Internet and mobile technology - developed in other parts of the world - now give them the opportunity to access financial services and receive payments. For many of them, global online platforms help to access new consumers that they previously could not reach. For instance, while most people know that Alibaba is the biggest e-commerce platform in the world - its revenues are bigger than the combined revenues of Amazon and eBay - few know that the secret to its success has been to connect small entrepreneurs with new customers. Behind the Alibaba brand hides B2B and B2C marketplaces for small producers (many of whom are women) that otherwise lack the resources and scale to reach customers. Similar opportunities are also created by globalization in advanced economies - and research also shows that the new competition that often follows on the heels of trade helps to reduce gender wage inequality. Discrimination is costly because it means that resources are used inefficiently and that firms are not using human capital in ways that make them more competitive. When competition increases, it often gets more expensive for discriminating firms to continue overpaying men and underpaying women, and that is why new import competition tends to drive down the gender pay gap. One study that compared wages over time in US manufacturing sectors found that gender wage discrimination was stronger in concentrated sectors (where a single firm has stronger market power to set prices) than in competitive sectors. However, when concentrated sectors experienced an increase in new trade competition, the gender pay gap was reduced.[17]

Globalization has Reduced Consumer Prices

Equally important, if not more, is that the new business opportunities created by globalization ultimately have resulted in lower consumer prices. For most people, the effective reduction in the costs of consumer products - and, as a consequence, the radical increase in living standards - are likely the most visible effects of globalization. Households in Western economies have today a completely different welfare standard than in previous decades, and much of that is thanks to the benefits generated by freer and more trade in the world.

This is not a controversial observation: even opponents of globalization admit that consumer products generally cost less and are of better quality today than at any previous point in time. The way that economists express the same view is that globalization has been a significant contributor to disinflation over the past 30 years.[18] In most Western countries, inflation rates were high in the 1970s and 1980s. Wages increased much faster during those decades than today, but most of that increase did not lead to higher living standards because inflation cancelled out the wage increase.[19] In real terms, after corrections for inflation, wages were rather flat or growing slowly for a long time. Globalization and the new competition that it ushered into Western economies substantially helped to bring down inflation and to increase the real labour income.[20] And, unsurprisingly, the income grew faster in Western countries that are more open to trade than those that are less open to trade.[21]

Chart 4 sets out the development of real hourly earnings in the manufacturing sector in four countries in Europe (France, Germany, Sweden and the United Kingdom) between 1970 and 2007, the start of the global financial crisis. Nominal earnings have been adjusted with the general consumer price index (CPI) for each country to provide an illustration of the earnings growth on top of the annual increase in prices of a given basket of usual consumer goods and services. There are differences between the sampled countries, but they have all had periods of weak real growth in wages because of inflation. Whereas the British and French worker saw its real hourly earnings more than double over the period, the Swedish worker really started to be better off only in the mid-1990s - after two decades of high inflation and macroeconomic troubles. In fact, the Swedish worker did not experience any increase of its real wage between mid-1970s and mid-1990s. In France, there was a steep growth between the late 1960s and early 1980s, but then growth flattened. Since the last 1990s the pace of real earnings growth has increased again. Germany, a hawk in matters of inflation, has experienced a fairly constant rate of growth. In the mid 1980s growth was higher than in the 1990s and in recent years. The UK has had a rapid growth since the early 1980s and is the country whose real earnings have grown fastest in this sample.
Chart 4: Index of Real Hourly Earnings in Manufacturing (1969=100, Sweden 1971)
Source: OECD, Labour and Price database.

An alternative way of describing the growth of real wages is that consumers now get "more bang for the buck". For many typical products that a household purchase, it is not just that prices have grown slower during the age of globalization but that prices have declined despite obvious improvements in quality. Take the case of the United States: in 1980, a consumer in America could purchase a 1.3 cubic foot microwave for 399.95 U.S. dollar at Sears, the retailer, but now it can get a microwave of the same size for 57.13 U.S. dollar at Walmart.[22] The standard of the product is actually much better today - and it now comes with many more functionalities. Still, the price of the product - in pure nominal terms - has gone down by 85 percent. This means that the average U.S. worker has to work fewer hours in order to afford a microwave. In 1980, it took 61 hours to get the income required in order to buy that microwave from Sears. The average worker today only has to work three hours to afford a Microwave from Walmart. The same comparison can be made for several other products that have been subject to greater trade and competition. A person with an average U.S. wage in 1984 needed to put in 456 hours in order to pay for a cell phone. A quarter century later, it was enough to work four hours to afford that item.[23]

As a consequence, products that in 1980s were luxury items - affordable to only a few - are now part of most households in the United States, and given that households with low incomes spend a greater share of their income on typical household products, the effect has been stronger for them than for households with high incomes. A study of American households shows, for example, that in the period between 1994 and 2005, inflation for low-income households was 6 percentage points lower than inflation for top-income households.[24]

Box 6: The Pro-poor Effects of Trade

A central lesson from the past centuries of increasing trade is that the distributional effects of trade are very strong when expenditure and consumption patterns are accounted for. Households and individuals that are comparatively poor tend to spend a higher share of their income on basic products like food and clothing. Consequently, when the price of products is reduced because of international trade, there is what economists call an expenditure channel effect from globalization to the real income distribution. The size of this gain depends on several factors, but openness to international trade is a key one. According to one central study, there is a "pro-poor bias" of international trade in all countries. On average, the gains from opening up to trade are 63 percent for the 10 percent of income earners with the lowest incomes and 28 percent for the 10 percent with the highest incomes. In other words, the lower the income, the bigger the gain.[25]

It was not just increasing global trade that cut the cost of a microwave in the United States (and elsewhere).[26] Other factors, like changes in technology and transportation costs, played an important role for lowering the cost of production or enabling trade. And, generally, the patterns of specialization that growing globalization helped to reinforce led to improved use of resources and new demand patterns that feedbacked into lower costs of goods. Yet growing trade and investment were key factors behind the price development, and all that begs the question: how large part of the increasing living standards that Western households have experienced in the age of globalization can reasonably be described as a consequence of the growth of trade?

Unfortunately, the economy is not a subject suited for laboratory experiments, and hence there is no good way to examine what could have happened if the conditions had been different. However, one way to respond to that question is to engage, yet again, in a thought experiment: what would have been the price of a good if it had not been exposed to international trade and competition?

The result can be found in Table 1 - and it serves as a proxy for how much globalization has lowered the price of typical household products.[27] We have calculated a hypothetical price for the listed goods - basically, the price of a product if it between 1970 and 2005 had followed the general consumer price development in a country. As can be seen in the column describing the difference in percent between the real price in 2005 and the hypothetical price, or adjusted price, there is a big difference between the two. The hypothetical price is substantially higher than the real price, and the difference is remarkably big in products like refrigerators, washing machines, and sewing machines. These are products that have been referred to as durable or capital household goods, and one reason for that is that a household often needed to borrow capital forty years ago to afford them. For most households in Western economies today, it is not necessary to borrow capital in order to buy a vacuum cleaner - yet that was the reality for the lion part of households in 1970.

A sewing machine was not a staple item in a German household in the 1960s, and it probably would not have been if the price of sewing machines had followed domestic rather than international price conditions. The price of a sewing machine in Germany would have been more than seven times higher. Price developments such as these have had a remarkable effect on consumers and their real income. Consumers today get substantially more for their money.

Consumer choice and product variation have increased, too, and that has also brought clear economic benefits.[28] Between 1972 and 2001, according to one study, the number of goods in the U.S. economy doubled - from 8000 to 16000 - and the median number of countries for which a good was imported increased from 6 to 12. The greater variety alone has been estimated to increase welfare in America by 2.6 percent.[29]

Finally, the income effect from disinflation has generally been strong in Western economies and, at times, been higher than the effect from increasing nominal wages.[30] International trade has cut import costs for both consumers and businesses that buy inputs for their own production and assembly. Greater competition from foreign firms has created additional pressures on firms to constantly search for ways to cut the costs of their products, which ultimately benefits the consumer.[31] Globalization also pushed economic efficiency in the economy, and low-efficient firms generally had to make greater space for high-efficiency firms.[32] The dynamic behind that development is the subject of the next section.
Table 1: Real and Hypothetical Prices in 1970 and 2005
Sources: Statistiska Centralbyrån; European Central Bank; Eurostat; OECD; and national statistical offices in France, Germany, and the UK.

Globalization Boosts Productivity

Economic efficiency may come across as a dry subject, but the forces behind it are everything but plain. Economist John Maynard Keynes once described the "animal spirits" of entrepreneurial competition as the proven way to raise a society's welfare potential, and that is correct. To compete successfully and deliver more value for money to customers, firms constantly have to chase inefficiencies and promote productive economic behavior. It is when economies increase their efficiency or improve the way they use resources like capital and labour that productivity goes up. And this is important because, for entire economies and Gross Domestic Product per capita to grow sustainably over the long term, there has to be productivity growth. In other words, productivity growth sets the pace for how much more affluent societies become over time.

Globalization has increased productivity in Western economies over a long period of time, but that relation has not always been obvious from a cursory look at Western productivity, at least not in recent times.[33] Productivity growth is defined by many different factors - international trade and investment are just one - and for some time there has been a gradual slowdown in the growth of productivity in Europe and North America. While some of that slowdown may be related to trade, there is much evidence suggesting that factors such as stiff labour markets and the low tradability of services are key culprits.[34] For instance, productivity growth in the trade sector remains substantially stronger than productivity growth in the non-traded sector.[35]

The contribution of globalization to productivity growth is a reflection of the way that trade and investment have created new business opportunities. Economies of scale and specialization have led to a much better way of using resources in the economy, and as a consequence of these forces of trade, the standard indicator of productivity - labour productivity - has increased.[36] The orientation of firms towards fragmented value chains has boosted productivity by cheaper imports of inputs.[37] The exact contribution of globalization to productivity growth in Western economies is impossible to determine with a high degree of precision. While a rich body of research has empirically proven that link, it varies much between countries and over time depending on factors that are both related and unrelated to trade (e.g. the degree of trade openness, the size of the trade sector and the flexibility of the labour market).[38] Likewise, it is also known that the increased product variety that globalization has enabled has prompted improvements in productivity. Between 1994 and 2004, this factor alone has been estimated to account for 15 percent of all productivity growth.[39]

However, there is one element of the relation between globalization and productivity that yet has not been covered and that is very important. And it is about how trade lead to faster diffusion of technology and innovation. Look, for instance, at how the smartphone quickly became a key product in many parts of the world and imagine what time it would have taken without globalization. When the telephone was introduced, it took 75 years for it to reach to million users. The radio needed 38 years to reach the same number of users - and, later, the television cuts that time by a half. The Internet, though, needed only 4 years to get 50 million users. While there are several causes behind the faster diffusion of new goods and services, exchange across countries is obviously a key one.

Ultimately, the ever faster spread of new technology means that businesses and consumers sooner can get access to better products and production methodologies. If consumers in a country were saddled with the technology that had been generated inside that country alone, their technological standard - not to mention the living standard - would be very different from today. For most developed economies in the world, the technology they are using has, as a rule of thumb, been developed somewhere else - and without access to it, their welfare would be substantially lower. The number of hours that the average U.S. worker would have to put in to afford a cellphone would be closer to those 456 hours that were necessary in 1984 than the four hours needed today.[40]

Box 7: Greening the Economy through Trade

International trade, some argue, pollutes the environment because of the carbon emissions that come from the transport of goods, and therefore it is much better that people buy local goods. And it is true that trade is a source of carbon emissions, not just through transport but also because trade boosts output and economic growth. Yet the alternative is hardly better. While people in Europe may for a variety of reasons prefer to buy local food, it is far from certain that it will reduce carbon emissions. Buying apples in Europe just after the autumn harvest is better than buying them overseas, if carbon emissions is the only yardstick. But the substantial part of the food we consume in Europe requires emissions in the production that outweighs the total emission from production and transport when we buy from the Southern hemisphere. The energy that is necessary to produce food in Europe is a far bigger source of carbon emissions than the transport. Buying cut flowers from Kenya rather than Holland or broccoli from South America rather than Continental Europe cuts carbon emissions.[41] Hence, trade is a method to economize with natural resources. Equally important, trade is also a way for countries, businesses and people to get access to new technology that reduces energy consumption and carbon emissions. Imagine what it would be like for a European country to reach its climate targets and the Sustainable Development Goals - without access to technology from other countries. A strategy built on closed borders would be unaffordable and countries would be saddled with technologies that are inadequate. Solar panels and wind mills would exist in just a few countries, and electric vehicles would be a luxury for the rich. Transfer of technology is powered by trade between countries and, without such flows, past and future achievements in greening the economy would not be possible.

There are several direct and indirect effects of globalization on a country's technological capacity and the intensity by which technology is applied in the economy. At the macro level, international trade and investment boost productivity growth by helping economies to get closer to the productivity frontier - those countries that are the most advanced users of technology. That process happens through a variety of means. Obviously, countries can import technologies that they cannot produce themselves, or that would take up a lot of resources to imitate. Moreover, investment by multinational enterprises tends to drive up the productivity in the sectors where they are active. While such direct effects traditionally have been considered important for trade and investment between countries with significant technological differences - e.g. North-South trade - modern economic research clearly shows its importance for economic exchange between developed economies. Intra-industry trade[42], for example, is known to lead to great technology diffusion because the importing country already has an industrial readiness for employing new technology.[43] Moreover, globalized supply and value chains generally accelerate the spread of new ideas, technology and production methodologies, partly because partners in these networks tend to cooperate to develop new technology.[44]

Trade and investment also improve the technology of sectors and economies by forcing greater competition upon incumbent firms. Economies with a high degree of openness and that attracts both foreign exporters and investors tend to have their inefficient firms being outcompeted by efficient firms. The pattern in Europe and North America is that there is greater productivity and technology variation within their own sector than it is between sectors in similar countries. In other words, the productivity of firms in, for instance, the U.S. manufacturing sector varies more than it does between the average firm in that sector and the equivalent sector in Western European countries. In the United States, the top ten percent of firms in productivity are twice as productive as the bottom ten percent of firms.[45] In Europe, the top ten percent firms are three times as productive as the bottom ten percent.[46]

Importantly, trade and investment help to diminish that gap between the more and the less productive firms. Expectedly, open economies are generally closer to the productivity frontier and have a smaller productivity gap than other countries.[47] Open economies have a greater degree of competition, which makes it harder for low-productivity firms to survive. They have a bigger presence of foreign firms and FDI plays a greater role for their economic performance, and those factors generally have a positive effect on the level of productivity. Moreover, they participate with greater intensity in production networks and have more firms that have to be at the frontier of technology and innovation. Lastly, they are under greater pressure to innovate.

Box 8: Trade Drives Technology and Innovation

It is well documented that trade increases the need for firms to be competitive and employ new technology. This effect of trade alone has a positive and strong effect on the behavior of the economy. Studying half a million firms in twelve European countries, a group of economists found that trade with only one country, China, had contributed significantly to the health of Europe's economy. Import competition from China pushed European firms to invest more in R&D and information technology, and the productivity of these firms went up substantially. Equally important, that trade also contributed positively to the reallocation of labour between inefficient and efficient firms in Europe. Between 2000 and 2007, increasing trade with China accounted for about 15 percent of all technological upgrading in these firms.[48]

Yet there are also indirect effects on technology and productivity from globalization. They can be described as "spillover" effects on the rest of the economy, and they tend to be very important. Such effects occur, for example, when domestic firms imitate foreign firms that have established in their country. Competitive multinational firms usually push domestic firms to perform better.[49] They can bring new technologies and production methodologies that other firms will imitate. The management skills in multinational firms can be transferred into the domestic economy for the simple reason that people move between jobs.[50] According to one estimate for the U.S. economy, that effect account for about 15 percent of productivity growth in firms between 1987 and 1996.[51]

Closing the gap between frontier firms and non-frontier firms is the chief economic task for most Western economies today. What is striking about productivity growth - and its slowdown - in affluent societies is that the differences in productivity between firms inside a sector in one single country are bigger than differences between sectors in different countries. And the explanation for that is to a large extent based on how much exposed a firm is to international trade: firms with low productivity are not much part of the globalization process.[52] They are less exposed to competition, have fewer managers with international experience and are slower to imitate the high-productivity firms. They are not skilled at attracting advanced human capital. Globalization is in several ways a learning process for firms - they gradually figure out how to improve their products and production - and it is these experiences that improve the quality of labour and the efficiency with which investors and companies operate.

[1] There is no data on the global stocks of FDI before 1980.

[2] Data comes from the World Bank's Data Bank.

[3] Arto et al., 2015.

[4] https://www.ekonomifakta.se/Artiklar/2014/Mars/Har-finns-13-miljoner-jobb/

[5] Vetter, 2013.

[6] Data can be retrieved from the website of Global Trade Alert - www.globaltradealert.org

[7] Data has been retrieved from the Digital Trade Estimate Database - https://ecipe.org/dte/database/

[8] Data from Statistiska Centralbyrån (SCB), the Swedish statistical office.

[9] There is no comparable data on the exports sales from Sweden by Ericsson over time. The export sales data for 2010 is from Ericsson's Annual Report in 2011. The total sales figure for 1990 is from Ericsson's annual report in 1991.

[10] Ibid.

[11] Data on the growth of global trade in different sectors is from the World Trade Organization's Statistics Database.

[12] Reinhardt, 2006

[13] Baldwin, 2016. Lanz & Mirodout, 2011.

[14] Antrás & Yeaple, 2013; Andrews et al., 2015.

[15] Bernard et al., 2007.

[16] OECD, 2012.

[17] Black & Brainerd, 2004.

[18] Hobijn & Mayer, 2009.

[19] Auer et al., 2017.

[20] Rogoff, 2003a and 2003b.

[21] Pain & Koske, 2007. OECD, 2012.

[22] Data for the microwave example comes from the U.S. Bureau of Labor Statistics.

[23] Cox & Alm, 2008.

[24] Broda & Romalis, 2009a.

[25] Fajgelbaum & Khandelwal, 2016.

[26] Cavelaars, 2003.

[27] The methodology behind this calculation is: 1) We have selected a sample of typical household products that have gone through substantial changes in where they are produced and how they are traded internationally. 2) We have collected the actual prices for these products in both 1970 and 2005 - and we do that for four countries: France, Germany, Sweden and the United Kingdom. The 1970 prices are based on Erixon & Lewander, 2005, which collected real prices for the products for Sweden. The real prices for similar goods in 2005 were collected for each country. When collecting the prices for comparable goods in 2005, we have chosen individual products of slightly higher "standard" than the goods from 1970. This has been done in order to avoid an overestimation of the price effect. For example, if we had used the 2005 price of a men suit from low-price H&M, the effect would have been even greater.3) We have used the nominal price in 1970 as the basis in a counterfactual scenario for how the price of that product would evolve up to 2005 under the assumption that it would develop in accordance with the general consumer price index. In other words, this hypothetical price of the product that is calculated would reflect domestic price conditions rather than international price conditions (through trade). The consumer price index does not only represent the domestic price development, but it is in this case a better price index than the GDP deflator or the producer price index. We have adjusted it by "cleaning" the CPI from import. Standard, annual CPI's have been cleaned by using the annual import value index from the OECD for each country, adjusted for the import penetration. 4) Then we compare the actual or real price in 2005 with the hypothetical price for 2005.

[28] Blonigen and Soderbery, 2010.

[29] Broda & Weinstein, 2006.

[30] During some periods, income inequality in Western economies has grown while consumption inequality (when living standards are corrected for prices and patterns of consumption) has not. See Broda and Romalis, 2009b, for evidence.

[31] Chen et al., 2004.

[32] Feenstra, 2006.

[33] Baldwin, 2016.

[34] Pain & Koske, 2007; Gordon, 2015; OECD, 2015.

[35] Cette et al., 2016.

[36] OECD, 2015; Yahmed and Dogherty, 2017.

[37] Grossman & Rossi-Hansberg, 2006.

[38] For a research overview, see OECD, 2015 and Mallick, 2013.

[39] Broda et al., 2006.

[40] A cell-phone is not a smartphone, and it would take the average U.S. worker more than four hours of work to afford a smartphone.

[41] Kommerskollegium, 2012.

[42] Intra-industry trade is when two countries export and import with each other in the same product category. Intra-industry trade is more prevalent in trade between countries of high economic development than in trade between countries with different levels of economic development.

[43] Hakura & Jaumotte, 1999.

[44] Baldwin, 2016; Ferrier et al., 2016.

[45] Syversen, 2004.

[46] Lopez-Garcia et al., 2015.

[47] Baldwin & Forslid, 2010.

[48] Bloom et al., 2011.

[49] OECD, 2015.

[50] Bloom & van Reenen, 2011.

[51] Keller & Yeaple, 2009.

[52] OECD, 2012 and 2015; Cette et al., 2016.

Conclusions

Globalization means different things to different people, and for some it is a catch-all word for everything in society they think have developed in the wrong direction. In essence, however, globalization is about expanding the role for trade, foreign direct investment and other forms of cross-border exchange in national economies, and for most societies that therefore means that globalization is one of the factors that determine what type of output that is produced in a country. In that context, the age of globalization between 1980 and 2010 has been hugely positive for developed economies and delivered economic and societal improvements at an unprecedented pace.

Globalization has created new opportunities for firms to develop business models and offerings that have a higher intensity of R&D, innovation and capital. Many of the goods and services that have entered the market over the past decades have exactly those features, and without globalization, firms would have been forced to continue with business models that work with a smaller volume of sales. Firms have been able to specialize more than before and, as a consequence, human capital and the share of skilled jobs in the economy have grown remarkably. Today, advanced economies have a greater share of better-paid and better-skilled jobs than ever before.

Globalization has increased real wages for people in Western economies by making products cheaper or reducing the pace of price increases. If the typical goods that every household purchases had followed domestic rather than international price developments, consumers would have been poorer and saddled with products of lower quality.

Globalization has made significant contributions to productivity growth and, as a consequence, further raised living standards. Globalization has been particularly important for enabling new technology to spread fast across markets. In the long term, it is the speed of technological improvement that sets the pace for how richer societies get.

However, trade and investment are not growing fast anymore, and there is much suggesting that the decline in trade and investment growth is one explanation to the failing dynamism of Western economies. While some appreciate the decline in the growth of globalization, those who care about the prosperity of a society should deplore it and make efforts for the world economy to return to high levels of trade growth.

References

Andrews, D., Criscuolo, C., & Gal, P., 2015, "Frontier Firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries". OECD Productivity Working Paper.

Antrás, P. & Yeaple, S., 2013, "Multinational Firms and the Structure of International Trade"- NBER Working Paper No. 18775

Arto, I., Rueda-Cantuche, J.M., Amores, A.F., Dietzenbacher, E., Sousa, N., Montinari, L. and Markandya, A., 2015, EU Exports to the World: Effects on Employment and Income. Publications Office of the European Union

Auer, R., Borio, C., & Filardo, A., 2017, "The Globalisation of Inflation: the Growing Importance of Global Value Chains". BIS Working Papers No. 602

Baldwin, R., 2016, The Great Convergence: Information Technology and the New Globalization. Harvard University Press

Baldwin, R. & Forslid, R., 2010, "Trade Liberalization with Heterogenouss Firms", Review of Development Economics, vol. 14:2, pp. 161-176

Bernard, A. B., Jensen, J., Redding, S. & Schott, P., 2007, "Firms in International Trade" Journal of Economic Perspectives, vol. 21(3), pp. 105-130

Black, S.E. & Brainerd, E., 2004, "Importing Equality? The Impact of Globalization on Gender Discrimination", Industrial and Labour Relations Review, vol. 57:4, pp. 540-559

Blonigen, B. & Soderbery, A., 2010, "Measuring the Benefits of Foreign Product Variety with an Accurate Variety Set," Journal of International Economics, vol. 82:2, pp. 168-180

Bloom, N. & van Reenen, J., 2011, "Human Resource Management and Productivity", in Handbook of Labour Economics, Elsevier

Bloom, N., Draca, M. & van Reenen, J., 2011, Trade Induced Technological Change? The Impact of Chinese Imports on Innovation, IT and Productivity. NBER Working Paper No. 16717

Broda, C. & Romalis, J., 2009a, Inequality and Prices: Does China Benefit the Poor in America? University of Chicago Working Paper

Broda, C. & Romalis, J., 2009b, The Welfare Implications of Increased Price Dispersion.

Broda, C. & Weinstein, D., 2006, "Globalization and the Gains from Variety". Quarterly Journal of Economics, vol. 121:2, pp. 541-585

Broda, C., Greenfield, J. & Weinstein, D., 2006, From Groundnuts to Globalization: A Structural Estimate of Trade and Growth. NBER Working Paper No. 12512

Cavelaars, P., 2003, "Does Competition Enhancement have Permanent Inflation Effects?" Kyklos, Vol 56:1, pp 69-94.

Cette, G., Fernald, J. G., & Mojon, B., 2016. "The Pre-Great Recession Slowdown in Productivity." Federal Reserve Bank of San Francisco Working Paper

Chen, N., Imbs, J. & Scott, A., 2004, "Competition, Globalization, and the Decline in Inflation." Centre for Economic Policy Research Discussion Paper No 4695.

Cox, M & Alm, R., 2008, "You Are What You Spend". New York Times, February 10

Fajgelbaum, P. & Khandelwal, A., 2016, "Measuring the Unequal Gains from Trade". Quarterly Journal of Economics, Vol 131

Feenstra, R., 2006, "New Evidence on the Gains from Trade". Review of World Economics, vol. 142:4, pp. 617-644

Feenstra, R. & Hanson, G., 1999, "Productivity Measurement and the Impact of Trade and Technology on Wages: Estimates for the U S, 1972-1990" Quarterly Journal of Economics, August, vol. 114, pp 907-940

Ferrier, G., Reyes, J. & Zhu, Z., 2016, "Technology Diffusion on the International Trade Network", Journal of Public Economic Theory, vol. 18:2, pp. 291-312

Gopinath, G., Helpman, E. & Rogoff, K. (editors), 2014, Handbook of International Economics, Vol. 4. Elsevier

Gordon, R., 2015, The Rise and Fall of American Growth. Princeton University Press

Greenaway, D., Falvey, R., Kreickemeier, U. & Bernhofen, D. (editors), 2013, Palgrave Handbook of International Trade. Palgrave Macmillan

Grossman, G. & Rossi-Hansberg, E., 2006, Trading Tasks: A Simple Theory of Offshoring. NBER Working Paper No. 12721

Hakura, D. & Jaumotte, F., 1999, The Role of Inter- and Intra-Industry Trade in Technology Diffusion. IMF Working Paper WP/99/58

Hobijn, B. & Mayer, K., 2009, Household Inflation Experiences in the U.S.: A Comprehensive Approach. Federal Reserve Bank of San Francisco Working Paper 2009:19

Keller, W. & Yeaple, S., 2009, "Multinational Enterprises, International Trade and Productivity Growth: Firm-level Evidence from the United States", The Review of Economics and Statistics, vol. 91:4

Kommerskollegium, 2012, Handel, transport och konsumtion: Hur påverkas klimatet? Kommerskollegium 2012:3

Lanz, R., and Miroudot, S., 2011, "Intra-firm Trade: Patterns, Determinants and Policy Implications." OECD Trade Policy Paper No. 114.

Lawrence, R., 2008, Blue-collar Blues: Is trade to Blame for Rising US Income Inequality? Washington, DC: Peterson Institute for International Economics.

Lopez-Garcia, P. et. al., 2015, Assessing European Competitiveness: the New CompNet Micro-based Database, ECB Working Paper Series, No. 1764

Mallick, J., 2013, Globalisation and Labour Productivity in OECD Regions.

OECD, 2015, The Future of Productivity. OECD

OECD, 2012, Policy Priorities for International Trade and Jobs. OECD

Pain, N. & Koske, I., 2007, The Effects of Globalisation on Labour Markets, Productivity and Inflation. OECD

Reinhardt, A., 2006, Nokia's Magnificent Mobile-phone Manufacturing Machine, Business Week, August 3, 2006. Accessed at http://www.businessweek.com/globalbiz/content/aug2006/gb20060803_618811.htm

Rogoff, K., 2003a, "Globalization and Global Disinflation". Federal Reserve of Kansas City Working Paper

Rogoff, K., 2003b, "Disinflation: An Unsung Benefit of Globalization?" Finance &Development, December 2003.

Syversen, C., 2004, "Product Substitutability and Productivity Dispersion", Review of Economics and Statistics, vol. 86:2, pp. 534-550

Vetter, S., 2013, The Single European Market 20 Years on. Deutsche Bank Research, October 31, 2013

Ben Yahmed, S. & Dougherty, S., 2017, "Domestic Regulation, Import Penetration and Firm-level Productivity Growth". Journal of International Trade & Economic Development

# data[].attributes.attachment_link.title
The Economic Benefits of Globalization for Business and Consumers

# data[].attributes.attachment_link.description
Published By: Fredrik Erixon Subjects: WTO and Globalization Download PDF Globalization has boosted output in the Western economy Globalization has enabled firms to specialize - and to increase the intensity of R&D, innovation and capital in their output. Globalization has made it easier for new companies to start competing with old incumbents.

# data[].attributes.headline
globalization "greenhouse effect" site:.edu 

# data[].attributes.subject
globalization "greenhouse effect" site:.edu 

# data[].attributes.attachment_link.readable_text
Reproduced, with permission, from: Nordhaus, W. D. 1991. Economic approaches to greenhouse warming. In Global warming: Economic policy approaches, ed. R. D. Dornbush and J. M. Poterba, 33-68. Cambridge, MA: MIT Press.William D. Nordhaus
There is growing international concern about "greenhouse warming," which is a scientific theory that predicts that increases in CO2 and other atmospheric gases may produce significant climatic changes over the next century.(1) This concern is only one of a number of areas where population and economic growth have threatened to have significant impacts upon the global environment. Other concerns include increasing evidence of widespread damage from acid rain; the appearance of the Antarctic "ozone hole," interpreted by some as the harbinger of global ozone depletion that threatens to remove the shield that protects organisms from harmful ultraviolet radiation; deforestation, especially in the tropical rain forests, which may upset global and local ecological balance; and a depletion of genetic resources that arises from urbanization and other impacts upon major ecosystems.

Global environmental problems raise a host of major policy questions. They are all scientifically complex and controversial, and no scientific consensus is likely to emerge until irreversible decisions have been made. The costs and benefits of these changes transcend national boundaries, and nations, which cannot appropriate the global costs and benefits of such changes, are unlikely to be able or willing to make efficient decisions on how to combat these global externalities. In addition, these concerns sometimes have impacts over hundreds of years and thereby strain political decision making, which often functions effectively only when the crisis is at hand.

This chapter considers some of the economic issues involved in deciding how to react to the threat of global warming. I first review the theory and evidence on the greenhouse effect. I then present evidence on the impacts of greenhouse warming, the costs of stabilizing climate, and the kinds of adaptations that might be available. In the final section, I review the policy initiatives that nations might follow in the near term.

Scientific Issues

The Greenhouse Effect and Greenhouse Gases

For almost two centuries, scientists have suspected that changing the chemical composition of the atmosphere would alter our planet's climate. In the first careful numerical calculations, S. A. Arrhenius estimated in 1896 that a doubling of the atmospheric concentrations of carbon dioxide (CO2) would increase global mean temperature by 4deg. to 6deg. c.2

What causes the greenhouse effect? The atmosphere consists of several "radiatively active" gases that absorb radiation at different points of the spectrum. The "greenhouse gases" are transparent to incoming solar radiation but absorb significant amounts of outgoing radiation. The net absorption of radiation produces a happy result, raising the earth's temperature about 33deg. C (59deg. F). The greenhouse effect helps explain the hot temperatures on Venus along with the frigid conditions of Mars.

The concern about the greenhouse effect arises because human activities are currently raising atmospheric concentrations of greenhouse gases and threatening a significant and undesirable climate change. The major greenhouse gases (GHGs) are carbon dioxide, methane, nitrous oxides, and chlorofluorocarbons (CFCs). Scientific monitoring has firmly established the buildup of the major GHGs. Table 2.1 shows the important GHGs, recent and projected concentrations, and the past and estimated future growth rates of major GHGs.

Greenhouse gases differ greatly in their quantitative impact on climate because they have different radiative properties and different lifetimes. Table 2.2 shows the important greenhouse gases, their "instantaneous" and "total" contribution to global warming,(3) and the industries in which the emissions originate. Carbon dioxide is the major contributor to global warming, with most CO2 emissions coming from the combustion of fossil fuels. Of the fossil fuels, natural gas has 60 percent as much CO2 emissions per unit energy as coal, and petroleum has 80 percent as much CO2 per unit energy as coal. The second most important source of GHG emissions is the CFCs, which are small in volume but have a warming potential almost 20,000 times as powerful as CO2 per unit of volume.

In analyzing policies, it is important to find a common unit of measurement for different gases. In this paper, I will translate all impacts and costs into a common unit, the "CO2 equivalent" of GHG emissions, measured in terms of the carbon content of CO2. By working in this metric, we can attempt to ensure cost effectiveness of policies in different sectors.

Climate Models and Forecasted Climate Change

There is no dispute about the buildup of greenhouse gases in the atmosphere. To project climate changes many years into the future, however, requires use of climate models that trace out the effect of a changing radiative balance upon major climatic variables. Because we are heading into uncharted waters, the models cannot rely upon historical experience but must extrapolate beyond current observations.

Climate models are mathematical representations of important variables such as temperature, humidity, winds, soil moisture, and sea ice. Large "general-circulation models," or GCMs, simulate changes in weather, in steps of a few minutes, over a century or more. The largest models use 500-kilometer-square grids through several layers of the atmosphere. Such models are unfortunately extremely expensive to run, and a single CO2 scenario might take the largest supercomputer nearly a year to calculate.

Three important features of the results emerge from existing studies. First, the central estimates of the equilibrium impact of a CO2-equivalent doubling have changed little since the earliest calculations. The last thorough review by the National Academy of Sciences concluded, "When it is assumed that the CO2 content of the atmosphere is doubled and statistical thermal equilibrium is achieved, all models predict a global surface warming. (IGCMs) indicate global warming [from CO2 doubling] to be in the range between about 1.5 and 4.5deg. C" (National Research Council 1983, 28).

Second, though short-run weather forecasting has improved dramatically in recent years, model estimates of the impact of CO2 doubling are not converging. A recent survey of eighteen GCM simulations from seven different modeling groups found a median equilibrium increase from CO2 doubling of 4deg. C, with a range of estimates from 1.9deg. to 5.2deg. C. While all current models find a positive impact of elevated GHG concentrations on global temperature, the range is uncomfortably wide and is not narrowing.

Third, while the climate modelers have concentrated upon the equilibrium climate change, the more important question for economic policy concerns the rate of realized or actual warming. Because of the heat capacity of the oceans, the actual warming is likely to lag behind the equilibrium by several decades. To illustrate, note that estimates are that GHG concentrations have already increased by an amount that will in equilibrium produce about one-half of a CO2 doubling (say, 0.95deg. to 2.6deg. C, according to the just-cited range). Yet the actual warming over the last century is clearly far less than the estimated equilibrium amount (being, say, 0.3deg. to 0.6deg. C). Considerable scientific work is required to narrow down the time lags of the climate behind the GHG emissions.

General-circulation models produce a vast output of interesting numerical results on predicted future climates. Table 2.3 reports an attempt to characterize the results and uncertainties about future climate change. Most experts believe that mean temperature will rise and that the warmer climate will increase precipitation and runoff. Some models foresee hotter and drier climates in midcontinental regions, such as the U.S. Midwest. Forecasting climate changes at particular locations (such as in California or Cortina) has proven intractable, and many climate modelers do not expect to be able to forecast regional climates accurately in the foreseeable future.

Consistency with the Historical Temperature Record

One of the major problems with GCMs is the challenge of validating predictions. There are several possible ways to test the models, but the proof of the pudding will ultimately occur when and if global temperatures actually begin to rise.

Historical records indicate that global mean temperature has increased by 0.3deg. to 0.6deg. C since the 1880s. Whether the observed temperature record is consistent with the predictions of climate models is a hotly debated question. Some authors have used statistical techniques to test for the presence of a "greenhouse signal" in the upward trend of temperature over the last century. The hypothesis that the climate is a trendless process can be rejected at a high level of confidence. Still, a great deal of evidence suggests that climatic variables fluctuate over periods of a century or more.

Unfortunately, we do not know enough about the background

trends and cycles to know whether the warming in recent years is normal climatic fluctuation or something new and different.(4) To date, statistical analysis of the historical record has lagged far behind construction of new and more refined GCMs. But the historical record is an important, independent source of evidence about the pace of global warming, and the signal-to-noise ratio is likely to increase over the coming years, allowing a firmer test of the temperature-CO2 sensitivity.

Impacts of Climate Change

Although a great deal of effort has gone into constructing scenarios about climate change, studies of the impact of climate change on society are in their infancy. Even though we may not be able to predict the future climate change, it may, ironically, be possible to say a great deal about the economic impact of future climate changes. This section first describes the effects of greenhouse warming upon the economy, then presents some estimates of what measures to slow greenhouse warming would cost, and finally addresses the issue of potential adaptations to greenhouse warming.

Impacts of Greenhouse Warming

It will be useful to begin with some general remarks about the relationship of climate to human societies. To begin with, it must be recognized that human societies thrive in a wide variety of climatic zones. People today live in virtually every climatic zone from the tropics to the arctic, with the zone of tolerance ranging from - 60deg. to 55deg. C. Climate variables like temperature or humidity have little effect upon the net value of economic activity in advanced countries. Indeed, owing in part to technological changes like air conditioning, migration patterns in the United States have favored warmer regions. Today, for the bulk of economic activity, variables like wages, unionization, labor-force skills, and political factors swamp climatic considerations. When a manufacturing firm decides between investing in Hong Kong and Warsaw, climate will probably not even be on the list of factors considered.

At the same time, although most analyses focus primarily upon globally averaged surface temperature, this variable is not the most important for impacts. Variables like precipitation or water levels and extremes of droughts or freezes are likely to be more important. Mean temperature is chosen because it is a useful index of climate change that tends to be associated with most other important changes.

A related point involves the size of projected climate changes in comparison to the day-to-day changes we normally experience. The variations in weather that we experience in our daily lives will swamp the likely changes over the next century. The change in temperature while this paper is being read is likely to be greater than the expected change from 1990 to 2090. Few people are likely to notice the CO2 signal amidst the noisy pandemonium of their daily lives.

Economic Effects of Climate Change: United States

I next consider detailed studies of the impact of climate change on economic activity, beginning with studies of advanced countries and then turning to developing countries.

Climate change is likely to have different effects on different sectors. In general, sectors of the economy that have a significant interaction with unmanaged ecosystems--that is, those that are heavily dependent upon naturally occurring rainfall, runoff, or temperatures--may be significantly affected by climate change. Agriculture, forestry, and coastal activities fall in this category. Most of the U.S. economy has little direct interaction with climate, and the impacts of climate change are likely to be very small in these sectors. For example, cardiovascular surgery and microprocessor fabrication are undertaken in carefully controlled environments and are unlikely to be directly affected by climate change.

Table 2.4 presents a breakdown of U.S. national income, organized by the sensitivity of the sector to greenhouse warming.(6) Approximately 3 percent of U.S. national output originates in climate-sensitive sectors and another 10 percent in sectors modestly sensitive to climatic change. About 87 percent of national output comes from sectors that are negligibly affected by climate change. These measures of output may understate the impact of climate change on well-being because they omit important nonmarket activities or noneconomic value that may be more sensitive to climatic change than measured output, an important qualification that I will return to shortly.

What are the likely effects of climate change on individual sectors? The following is a synopsis of recent studies, and the quantified impacts are summarized in table 2.5.

Agriculture

Agriculture is the most climate-sensitive of the major sectors. Studies suggest that greenhouse warming will reduce yields in many crops. On the other hand, the associated fertilization effect of higher levels of CO2 will tend to raise yields, particularly in C3 species (which included most major crops except corn). After a careful review, a recent National Academy of Sciences report stated, "Thus, we do not regard the hypothesized CO2-induced climate changes as a major direct threat to American agriculture over the next few decades" (National Research Council 1983, 45). The Environmental Protection Agency found that the value of U.S. agricultural output is likely to rise or fall by as much as $10 billion annually depending on the magnitude of the climate change (EPA 1989a).

A recent study of Kane, Reilly, and Tobey (1990) goes beyond yield estimates to estimate the general-equilibrium impacts of climate change in a world agricultural model. Their estimates range from an optimistic finding that world real income would increase over a half century or more by 0.1 percent to a pessimistic scenario in which world output decreases by 0.3 percent. In the pessimistic scenario, the major loser is China, with a 5 percent decrease in GDP. To put these figures in perspective, measured per capita income in China grew at a rate of 5.2 percent over the period 1965-1987. Say the rate of growth was only half as high over the next half century. Then the pessimistic scenario of Tobey et al. suggests that climate change would lower the average growth rate from 2.6 to 2.5 percent per annum.

Sea-Level Rise

Most studies indicate a gradual rise in average sea level over the next century. The Intergovernmental Panel on Climate Change (IPCC) estimates that sea-level rise over the next eighty years will be 44 cm, although this figure has a large range of uncertainty. By comparison, over the past eighty years the sea level has risen 8 to 12 cm.

For a sea-level rise of 50 cm, EPA projects the costs to be land loss of around 6,000 square miles, protection costs (by levees and dikes) of high-value property, and miscellaneous protection of open coasts. The total capital outlay is on the order of $100 billion (EPA 1989a), which is approximately 0.1 percent of cumulative gross private domestic investment over the period 1985-2050.

Energy

Greenhouse warming will increase the demand for space cooling and decrease the demand for space heating. The net impact of CO2 doubling is estimated to be less than $1 billion at 1981 levels of national income.

Other Marketed Goods and Services

Many other sectors are likely to be affected, although numerical estimates of the effects are not available. The forest products industry may benefit from CO2 fertilization (Binkley 1988). Water systems (such as runoff in rivers or the length of ice-free periods) may be significantly affected, but the costs are likely to be determined more by the rate of climate change than the new equilibrium climate. Construction in temperate climates will be favorably affected because of a longer period of warm weather. The impact upon recreation and water transportation is mixed depending upon the initial climate. Cold regions may gain, and hot regions may lose; investments in waterskiing will appreciate, while those in snow skiing will depreciate. (7) But for the bulk of the economy--manufacturing, mining, utilities, finance, trade, and most service industries--it is difficult to find major direct impacts of the projected climate changes over the next fifty to seventy-five years.

Nonmarketed Goods and Services

Many valuable goods and services escape the net of the national income accounts and might affect the calculations. Among the areas of importance are human health, biological diversity, amenity values of everyday life and leisure, and environmental quality. Some people will place a high moral, aesthetic, or environmental value on preventing climate change, but I know of no serious estimates of what people are willing to pay to stop greenhouse warming. One study projects important gains for the United States from modest increases in average temperature (see National Research Council 1978). I am aware of no studies that point to major nonmarket costs, but further analysis will be required to decide whether these omitted sectors will affect the overall assessment of the cost of greenhouse warming.

In sum, the economic impact upon the U.S. economy of the climatic changes induced by a doubling of CO2 concentrations is likely to be small. The point estimate today is that the impact, in terms of variables that have been quantified, is likely to be around one-fourth of 1 percent of national income. However, current studies omit many potentially important effects, so this estimate has a large margin of error.

Economic Effects of Climate Change: Outside the United States(8)

To date, studies for other countries are fragmentary, and no general conclusions are possible at this time. Existing evidence suggests that other advanced industrial countries are likely to experience modest impacts similar to those of the United States. On average, high-income countries have less than 5 percent of their GDP originating in agriculture. Detailed studies for the Netherlands, as well as a less comprehensive study for six large regions (the United States, Europe, Brazil, China, Australia, and the USSR) found that the overall impact of a CO2-equivalent doubling will be small and probably difficult to detect over a half century or more (see Coolfont Workshop 1989).

On the other hand, small countries that are heavily dependent on coastal activities or suffer major climate change may be severely affected. Studies suggest that significant parts of Bangladesh and the Maldives may be inundated. Particular concerns arise where activities cannot easily migrate in response to climate change. Such situations include natural reserves (like Bharatpur) or populations limited to small areas (like South Sea Islanders).

Developing countries are probably more vulnerable to greenhouse warming than are advanced countries, particularly those poor countries living on the ragged edge of subsistence with few resources to divert to dealing with climate change. However, most poor countries are heavily dependent upon agriculture, so the benefits of CO2 fertilization might offset the damages from climate change. Countries classified by the World Bank as "low-income economies" had 31 percent of GDP produced in the agricultural sector in 1987; these countries hold 2.8 billion people. Figure 2.1 shows the share of output in agriculture for nine major countries in 1965 and 1987, with a mechanical projection of past trends to 2050. This illustration suggests that climate vulnerability of most countries has decreased over time and will further decrease as the climate changes.

These reflections lead to a surprising conclusion: Our best guess is that CO2-induced climate change will produce a combination of gains and losses with no strong presumption of substantial net economic damages. However, these changes are likely to take place over a period of a half century or more and may get lost in the background noise of social, economic, and political change. This conclusion should not be interpreted as a brief in favor of climate change. Rather, it suggests that those who paint a bleak picture of desert Earth devoid of fruitful economic activity may be exaggerating the injuries and neglecting the benefits of climate change.

Policies to Cope with the Threat of Global Warming

In response to the threat of global warming, a wide variety of responses is available. A first option, taking steps to slow or prevent greenhouse warming, has received the greatest public attention. Most policy discussion has focused on reducing energy consumption or switching to nonfossil fuels, while some have suggested reforestation to remove CO2 from the atmosphere. One important goal of policy should be cost-effectiveness--structuring policies to get the maximal reduction in harmful climatic change for a given level of expenditure.

A second option is to offset greenhouse warming through climatic engineering. Measures in this category include changing the albedo (reflectivity) of the earth, increasing the rate of removal of greenhouse gases, or changing water flows to cool the earth.

A final option is to adapt to the warmer climate. Adaptation could take place gradually on a decentralized basis through the automatic response of people and institutions or through markets as the climate warms and the oceans rise. In addition, governments could prevent harmful climatic impacts by land-use regulations or investments in research on living in a warmer climate.

Preventive Policies

The major policy question surrounding the greenhouse effect is whether steps should be taken in the near term to prevent global warming. Whether preventive action should be taken depends on the costs of preventing GHG emissions relative to the damages that the GHGs would cause if they continue unchecked.

Knowledge of the costs of slowing climate change is rudimentary. This section will review the costs of slowing greenhouse warming through reduction of emissions and atmospheric concentrations of greenhouse gases. These examples--reducing CFC emissions, reducing CO2 emissions, and reforestation--are not the only options, but they have been studied most intensively.

In calculating the cost of preventive measures, we measure costs in terms of tons of CO2 equivalent. Measures that cost up to $5 per ton of CO2 equivalent are inexpensive; at this cost, global warming could be stopped dead in its tracks at a total cost of less than $40 billion per year (about 0.2 percent of global income). Costs near $10 to $50 per ton CO2 equivalent are expensive but manageable (costing 0.5 to 2.5 percent of global income). Measures in excess of $100 per ton of CO2 are extremely expensive.

Reducing CFC Emissions

A first strategy involves reducing emissions of chlorofluorocarbons (CFCs) into the atmosphere. This step is particularly important because CFCs are extremely powerful greenhouse gases. It is currently believed that new chemical substitutes for the two most important CFCs can be found that will significantly reduce greenhouse warming. A rough estimate is that these substitutes can reduce warming at a cost less than $5 per ton of CO2 equivalent. This policy is extremely cost-effective, bringing a significant reduction of warming at modest cost.

Reducing CO2 Emissions

Any major reduction in GHGs will require a significant reduction in CO2 emissions, of which more than 95 percent come from the energy sector and deforestation. Carbon dioxide emissions can be reduced through increases in energy efficiency, decreases in final energy services, substitution of less GHG-intensive fossil fuels for more GHG-intensive fossil fuels, substitution of nonfossil fuels for fossil fuels, and technological change that allows new techniques of production along with new products and services.

Because energy interacts with the economy in so many ways, good estimates of the costs of reducing CO2 emissions require complex models of the energy system. Such models must incorporate the behavior of both producers and consumers along with consideration of each of the possible methods for reducing emissions. I have reviewed a number of studies, (9) and I will discuss the current estimates of the long-run costs of reducing CO2 emissions. (10) Figure 2.2 shows a compilation of the estimates of the marginal cost of reducing CO2 emissions as a function of the percentage reduction from a baseline projection .

(Note that in this figure as elsewhere in this paper, the estimates of the cost of reduction are relative to a trajectory in which there is no greenhouse policy. That is, when we discuss "the cost of a y percent reduction in greenhouse gas x," this calculates the cost of a y percent reduction from a baseline path in which no taxes, regulations, or other greenhouse policies are exercised. The baseline path is not a constant emissions or concentrations path, but a path in which emissions would be growing at the rate determined by fundamental factors such as GNP growth, energy prices, and technological factors.)

The studies of the long-run costs of CO2 reduction that I have reviewed lead to two major conclusions. First, the cost of reducing CO2 emissions is low for small curbs. Reductions of up to 10 percent of CO2 emissions from the energy sector can be attained at an average cost of around $10 per ton of CO2 reduced. With current global annual emissions of around 6 billion tons of CO2, a 10 percent reduction would cost around $6 billion annually.(11)

The second conclusion is that the cost of reducing CO2 emissions grows rapidly and becomes extreme for substantial reductions. I estimate that, in the long run but with today's energy technologies, the marginal cost of a 50 percent reduction in CO2 emissions is approximately $130 per ton of CO2. In other words, inducing producers and consumers to reduce their CO2 emissions by one-half would require a carbon tax (or the regulatory equivalent thereof) of $130 per ton of CO2, which would generate annual taxes of around $400 billion. The total resource cost of a 50 percent reduction in CO2 emissions is about $180 billion annually, slightly less than 1 percent of world output at current price and output levels.(12)

The incremental costs of reducing CO2 emissions rise rapidly because no substitutes currently exist for many uses of fossil fuels. For example, a major reduction in CO2 emissions from transportation would require either that people travel less or that fewer goods be transported, both of which would be quite costly.

Forests

Several studies have proposed using trees as a method of removing carbon from the atmosphere. Among the major proposals are slowing the deforestation of tropical forests; reforesting open land, thereby increasing the amount of carbon locked into the biosphere; a "tree bounty," which subsidizes the sequestration of wood in durable products; and a "tree pickling" program, in which trees are stored indefinitely.

No detailed study of the economics of tropical forests has been undertaken here. However, deforestation may be adding 500 million to 3 billion tons of carbon per year to CO2 emissions (amounting to between 5 and 30 percent of total GHG emissions). Much deforestation is uneconomic in tropical regions even without invoking greenhouse considerations. If so, the cessation of uneconomical deforestation can significantly and inexpensively slow greenhouse warming.

I estimate that the three other reforestation options can remove carbon from the atmosphere at modest costs; however, they can contribute only marginally to reducing atmospheric concentrations.

Summary on Costs of Prevention

As shown in Figure 2.3, it appears that a significant fraction of GHG emissions--perhaps one-sixth--can be eliminated at relatively low cost. The most cost-effective policies to slow greenhouse warming include curbs on CFC production and preventing uneconomic deforestation. Putting all the low-cost options together, I estimate that around one-sixth of C02-equivalent emissions can be reduced at an average cost of $4 per ton of CO2 equivalent, for a total cost of about $6 billion annually.

After the low-cost options have been exhausted, further reductions in GHG emissions will require curbing CO2 emissions--say, through taxes or regulations on the carbon content of fuels. But curbing GHG emissions rapidly hits diminishing returns: a 50 percent reduction in GHG emissions in the long run will cost about $200 billion annually, which is about 1 percent of global output. Attempts to restrict GHG emissions severely in a short period would be even more costly.

Figure 2.4 shows the trade-off between economic growth and slowing emissions. The upper path shows the trade-off if policies are efficient (say through a uniform global carbon tax) and introduced gradually over a period of time. The middle path shows the trade-off with an efficient policy and a rapid phase-in (phasing out existing capital over a twenty-year period). The bottom curve shows the trade-off with a rapid phase-in and inefficient policies (such as sector-by-sector regulations) that double the cost of controls. These curves show the importance of a gradual phase-in and efficient design of policies.

Climatic Engineering

In approaching a task, my grandfather always advised me, "Use brains, not brawn." The preventive strategies of planting hundreds of billions of trees or reducing fossil-fuel use through trillions of dollars of investments represent the brawn philosophy. A promising new approach to the threat of greenhouse warming is to use our brains to find a way to offset greenhouse warming through climatic engineering; this is the global equivalent of turning on an air conditioner. Potential approaches are changing the albedo (reflectivity) of the earth, increasing the rate of removal of greenhouse gases, or changing the circulation of water to cool the earth.

Careful analysis of these proposals is just beginning, but a number have already been identified that appear much more cost-effective than plugging the oil wells and shutting down the coal mines. One approach would be to create a sunscreen by sending tiny particulates into the stratosphere to cool the earth. These particles could be shot up with 16-inch naval rifles, lifted by hydrogen balloons, or deposited by tuning the engines of aircraft to burn somewhat richer than normal. One estimate finds that 100,000 kilograms of carbon can be offset with 1 kilogram of particles. That's real leverage!

A further intriguing possibility raised by Martin and his associates is placing trace quantities of iron in the North Pacific and Antarctic ocean regions. Studies suggest that this procedure would increase the limiting nutrients, foster much greater photosynthesis, and increase the rate of carbon precipitation to the ocean floor. Preliminary estimates indicate that this option might well annually remove from the atmosphere a quantity equal to current CO2 emissions.(13)

Preliminary estimates suggest that the cost of the geoengineering options is in the order of $0.10 to $10 per ton carbon equivalent, which is far less than many perennial favorites like reforestation, fuel switching, or energy conservation. These proposals surely sound like panaceas. At the same time, they pose unknown risks by perturbing a complex system that is already being perturbed. They deserve careful study.

Adaptation Policies

Faced with the prospect of changing climate, societies may decide to adapt. The most important adaptations are those taken by private agents--consumers and businesses, for example. Decentralized adaptations--population migration, relocation of capital, land reclamation, and technological change--will occur more or less automatically in response to changing relative incomes, prices, and environmental conditions.

Governments also play an important role by ensuring that the legal and economic structure is conducive to adaptation, particularly by making sure that the environmental or climatic changes get reliably translated into the price and income signals that will induce private adaptation. Fulfilling this role may prove difficult because so many of the impacts of climate change are not properly priced. For example, greenhouse warming may alter runoff patterns of major rivers (see Ravelle and Waggoner 1983; Waggoner 1990). Because water is allocated in such an archaic way, there is no guarantee that it will be efficiently allocated when water availability changes. Governments can improve adaptation by introducing general allocational devices (such as water auctions) that will channel water resources to their highest-value uses. Use of land near seacoasts and in floodplains poses similar issues.

Speeds of Adjustment in Prevention and Adaptation

Adaptation and prevention are often treated as symmetrical policies. They differ in one crucial respect, however: While preventive policies must generally precede global warming, adaptation policies can occur simultaneously. This distinction is crucial here, for cause precedes effect by a half century or more. To stabilize climate, immediate action is necessary; adaptations can wait for many years. This point of contrast underscores one of the major obstacles to responding intelligently to threatening climate change--the long time scale involved in climate change.(l4)

A common mistake in thinking about this issue is to impose a slowly changing climate upon today's world and to ignore the inevitable evolution that will take place over the coming decades. If it takes eighty years or more for CO2 doubling, as suggested earlier, adaptations will be spread over a similar period. Yet social and economic structures change enormously over such a time. Recall how much the world has changed since 1910. That was the age of empires, when the Ottoman, Austrian, and czarist regimes ruled much of Eurasia. The map of Europe has been redrawn three times since 1910 and is being restructured again today. The power density of the United States was about 1.5 horsepower per capita as opposed to 130 horsepower per capita today; one-sixth of horsepower was horses, and the 21 million horses were the major polluters. Air conditioning, nuclear power, and electronics were unheard of.

This catalog makes clear how foolish it would be to prescribe adaptive steps now to smooth the transition to climate changes over the next century. The time scale of most adaptations is much shorter than the time scale of climate change. Carbon dioxide doubling will take place over the next century. By contrast, financial markets adjust in minutes, product prices in weeks, labor markets in a few years, and the economic "long run" is usually reckoned at no more than two decades. To adapt now would be akin to building the Maginot Line in 1935 to cope with military threats of the 1990s, which would be little use for the petroleum wars of today.

These considerations suggest that it would be unwise to undertake costly adaptive policies unless they satisfy one of three criteria: (1) they have such long lead times that they must be undertaken now to be effective; (2) they have a clear presumption of being economical even in the absence of climate change; or (3) the penalty for delay is extremely high. By these criteria, it is difficult to enumerate any adaptive measures other than the general maxim to promote a healthy economy, to strive to internalize most external effects to ensure an appropriate response to changing climatic signals, to broaden the scope of markets so that individuals, firms, and nations receive the appropriate signals of scarcity, and to ensure a high saving rate to provide the investments needed for changing infrastructure.

Approaches to Policies on Global Warming

Research to date suggests that the costs of climate change are likely to be small for most advanced economies over the next fifty to seventy-five years. At the same time, the prospect that the climate may change in a catastrophic fashion might justify steps to slow climate change. How should nations respond today to the threat of global warming over the next century?

In related work, I have attempted to estimate the costs and benefits of policies to slow global warming (see especially Nordhaus 1990a). In studies of policy, it is useful to define government actions as carbon taxes that penalize emissions of greenhouse gases in proportion to their global warming potential. These "taxes" are a metaphor for explicit government steps to reduce GHG emissions through energy or gasoline taxes, CFC bans or regulatory limits, prohibitions on tree cutting, taxes on carbon emissions, or energy-efficiency standards.

Using the estimates of damages outlined previously and assuming a low discount rate on future damages from climate change, I calculate that an efficient policy would impose a penalty on GHG emissions of around $5 per ton CO2 equivalent (carbon weight).(15) This level of penalty would produce a total reduction of about 12 percent of GHG emissions, including a large reduction in CFCs and a small reduction in CO2 emissions. As table 2.6 shows, such a tax amounts to $3.50 per ton tax on coal, 58 cents per barrel on oil, and 1.4 cents per gallon on gasoline. Annually, U.S. revenues from a $5 per ton carbon tax would amount to about $10 billion. Table 2.6 also shows the impact of a severe restraint--$100 per ton CO2--which would be close to the tax required to reduce CO2 emissions by one-half. The "high-tax" strategy would have a significant impact upon the U.S. and other economies.

It will be useful to compare these costs with historical events or regulatory programs. A low-cost program for slowing global warming (say one associated with the low-tax proposal in table 2.6) would impose a burden equivalent to a major U.S. regulation, such as those on drinking water, noise, or surface mining (see Litan and Nordhaus 1983, ch. 2).

The more stringent program to cut GHG emissions by half (associated with the high-tax scenario in table 2.6) would impose annual costs (or, more technically, dead-weight losses) of around 1 percent of world output. This figure can be compared to the costs of all environmental, health, and safety regulations in the United States, which were estimated to cost 1 to 3 percent of GNP (ibid.). Another parallel is with the impact of the energy price increases of the 1970s. Jorgenson and Wilcoxen (1990) estimate that the energy-price increase lowered U.S. output growth by 0.2 percent per year, or a total of about 3 percent, since 1973.

Discounting, Nonlinearities, and Learning

Cost-benefit analyses are a useful starting point for considering government policies, but they raise several issues that must be addressed before making policy recommendations. To begin with, many values cannot be incorporated in a quantitative cost-benefit analysis. For example, climate change may threaten a society's cultural heritage in ways that are not possible to evaluate in an economic framework but which are nonetheless unacceptable. While being unable to put a price tag on Venice, we might decide that it is unacceptable to take actions that threaten Venice's existence. There is not much economic science can say about this issue except to identify such trade-offs.

In addition, greenhouse warming poses particularly difficult issues because of the importance of the discount rate and the presence of nonlinearities and learning over time. On these issues, economics has a great deal to say.

The Discount Rate and Future Climate Damages

How should the costs of future climate change be discounted in making current decisions? This issue is particularly thorny because of the long lags in the carbon cycle. Carbon dioxide emissions have an extremely long atmospheric residence time, in the range of 200 to 500 years, so actions today can affect economic welfare in the distant future. How should we balance CO2-reduction costs in 1990 against benefits in lower costs of climate change in 2040 or 2090?

In part, the issue of discounting is an ethical question, reflecting the relative valuation of well-being of current and future generations. But the revealed social discount rate is embedded in numerous public and private decisions, such as government fiscal and monetary policy and the rate of public investment, so the discount rate on climate change should not be chosen arbitrarily and without regard to other decisions. A real discount rate on goods and services close to the return on capital in most countries--say 8 percent per year or more--would imply that we should invest little today to slow the projected climate changes and concentrate instead on more immediate problems.

On the other hand, a low discount rate--say 4 percent per year or less--would give considerable weight today to climate changes in the late twenty-first century. But such a low discount rate would also imply that all investment opportunities with yields above 4 percent are exhausted--an assumption that is inconsistent with knowledge about rates of return on business and human capital in most advanced countries.

We might also ask whether a major commitment to slowing climate change is a worthwhile investment for developing countries who are likely to be the regions most vulnerable to climate change. Surveys of developing countries suggest that social rates of return well in excess of 10 percent per year are abundantly available in poor countries. For example, the social rate of return to investments in education in poor countries is estimated to be around 26 percent for primary education, 16 percent for secondary education, and 13 percent for higher education (see Psacharopoulos 1985). To devote many billions of dollars of resources to slowing climate change at the expense of equivalent investments in education, energy conservation, or tangible capital in developing countries would probably hurt poor countries and give little return in high-income countries.

A low discount rate on climate change along with a high return on capital is simply inconsistent. Faced with the dilemma of a low social discount rate and a high return on capital, the efficient policy would be to invest heavily in high-return capital now and then use the fruits of those investments to slow climate change in the future.

Uncertainty

Clearly, global warming is rife with uncertainty--about future emissions paths, about the GHG-climate linkage, about the timing of climate change, about the impacts of climate upon flora and fauna, about the costs of slowing climate change, and even about the speed with which we can reduce the uncertainties. How should we proceed in the face of uncertainty?

One approach would be to take a "certainty equivalent" or "best guess" analysis, which would ignore uncertainty and the costs of decision making and charge ahead. The cost-benefit analysis performed above embodies this approach. It is appropriate as long as the risks are symmetrical and as long as the uncertainties are unlikely to be resolved in the foreseeable future. Unfortunately, neither of these conditions is likely to be satisfied for the greenhouse effect.

Virtually all observers agree that the uncertainties of climate change are asymmetrical; we are likely to be increasingly averse to climate change as the change becomes larger. To go from a 2deg. to a 4deg. warming is much more alarming than to move from a 0deg. to a 2deg. warming. The greater the warming, the further we move from our current climate and the greater the potential for unforeseen events. Moreover, it is the extreme events--droughts and hurricanes, heat waves and freezes, river flooding and lake freezing--that produce major economic losses. As probability distributions shift, the frequency of extreme events increases (or decreases) proportionately more than the change in the mean. Whether the increases in unpleasant extremes (like droughts in the corn belt) will be greater or less than the increases in pleasant extremes (like frost-free winters in the citrus belt) is, like most questions about climate change, unanswered.

In addition, climatologists generally think that the chance of unpleasant surprises rises as the magnitude and pace of climate change increases. We must go back 5 million to 15 million years to find a climate equivalent to what we are likely to produce over the next 100 years; the concentrations of GHGs in the next century will exceed levels previously observed.

Moreover, climate systems are complex systems, and some models have shown two or more locally stable equilibria (see Manabe and Stouffer 1988). There is historical evidence that climates have changed sharply (in or out of ice ages) in as little as a century, as occurred in the Younger Dryas period.

Among the kinds of responses that have been suggested and cannot be ruled out are major shifts of glaciers, leading to a rise in sea level of 20 feet or more in a few centuries; drastic changes in ocean currents, such as displacement of the North Atlantic deep currents that would lead to a major shift in climates of Atlantic coastal communities; large-scale desertification of the grain belts of the world; and the possibility that climate changes will upset the delicate balance of bugs, viruses, and humans as the tropical climates that are so hospitable to spawning and spreading new diseases move poleward. No one has demonstrated that these impacts will occur. Rather, it seems likely that unexpected and unwelcome phenomena, like the antarctic ozone hole, will occur more frequently under conditions of more rapid climatic change.

The threat of an unforeseen calamity argues for more aggressive action than a plain-vanilla cost-benefit analysis would suggest. However, the possibility of resolving uncertainties about climate change argues for postponing action until our knowledge is more secure. Most scientists believe that research can improve our understanding about the timing, extent, and impacts of climate change. Improved understanding could sharpen our calculations about appropriate policies. The best investment today may be in learning about climate change rather than in preventing it.

Putting this propostion concretely, we could easily make serious mistakes in attempting to prevent climate change. Imagine that the United States had mandated a massive nuclear-power program twenty years ago, only to find that the technology was expensive and unacceptable. Learning to cope with the threat of climate change includes not only improving our estimates of the consequences of climate change but performing R&D on inexpensive and reliable ways of slowing climate change.

A Framework for Policies to Slow Greenhouse Warming

I conclude by suggesting the direction that policy should follow in slowing greenhouse warming. In designing policies to slow global warming, we must first take into account that this is a global issue. Efficient policies will involve steps by all countries to restrict GHG emissions. In order to induce international cooperation, the United States and other rich nations may need to subsidize actions by poor nations (say to slow tropical deforestation or to phase out CFC use). While unilateral action may be better than nothing, concerted action is better still.

Given the identified costs of global warming, it would be sensible to take three modest steps to slow global warming while avoiding precipitous and ill-designed actions that may later be regretted.

1. Improve Knowledge. A first set of measures should aim to improve our understanding of greenhouse warming. Such steps would include augmented monitoring of the global environment; analyses of past climatic records, as well as intensive analysis of the environmental and economic impacts of climate change, past and future; and analyses of potential steps to slow climate change. Understanding of climate change has improved enormously over the last two decades, and further research will help to sharpen our pencils for the tough decisions to be made in the future.

2. Develop New Technologies. Countries should support research and development on new technologies that will slow climate change-- particularly on energy technologies that have low GHG emissions per unit of output. Too little is invested in these technologies because of a "double externality": Private returns are less than social returns both because the fruits of R&D are available to those who spent nothing on research and because the benefits of GHG reductions are currently worth nothing in the marketplace.

Energy technologies that replace fossil-fuel use require greater government support than they currently receive. Inherently safe nuclear power, solar energy, and especially energy conservation are particularly promising targets for government R&D support.

In addition, a number of technical fixes should be investigated to determine whether they might provide low-cost relief to future climate change. In particular, measures to sequester carbon and proposals for climate engineering should be carefully studied and field-tested to evaluate their merits. It is possible that these new approaches would be far more cost-effective than severe measures to curb fossil-fuel consumption.

3. " No-Regret" Policies. A third approach is to identify and accelerate the myriad otherwise-sensible measures that would tend to slow global warming. Many steps could contribute to slowing global warming at little or no economic cost. These steps include efforts to strengthen international agreements to restrict CFCs, moves to slow or curb uneconomic deforestation, and steps to slow the growth of uneconomic use of fossil fuels, say through higher taxes on gasoline, on hydrocarbons, or on all fossil fuels. If nations were to take such actions and climate change were to disappear, there would be few regrets about such policies.

Should we go further than these three steps? I believe not. The agenda of unsolved problems is long; resources and political will are scarce; and I believe it is premature to take costly steps to slow climate change at this time. But others might disagree and find the risks of climate change more frightening, or we might tomorrow uncover new information that would increase the likely future costs of climate change. In these cases, if we desire to press further in reducing longterm risks, I would turn to carbon taxes as a way of further reducing GHG emissions.

4. Carbon Taxes. A final measure to slow climate change would be a set of global environmental taxes levied on the C02-equivalent emissions of greenhouse gases, particularly on CO2 emissions from the combustion of fossil fuels. The analysis in this study suggests that a GHG tax in the order of $5 per ton of CO2 equivalent would be a reasonable response to the future costs of climate change.(l6)

The design of the carbon taxes goes beyond the scope of this paper, but a few remarks are in order. (l7) To be effective, carbon taxes should be imposed in all countries. Consider first the issue of fossil fuel combustion as the source of CO2. If the tax rate were harmonized among nations, then taxes on fossil fuel production would suffice as long as the production received no offsetting government subsidy. Since most carbon in fuels ends up in the atmosphere, no complicated chemical analysis is required.

For other sources of greenhouse gases, several complications arise. First, it would be necessary to convert the global warming potential of each gas into its CO2 equivalent. The translation will depend on the discount rate because different GHGs have different lifetimes. The translation is relatively straightforward for the CFCs, but the sources and chemical transformations for methane are extremely complicated. Second, some sources are not immediately emitted into the atmosphere, but gradually decay, as is the case for CFCs, which requires a complicated economic analysis of the shadow price of emissions at different periods. Third, there might be a "bounty" on sequestering activities, such as reforestation, which raises complicated problems of monitoring and keeping carbon inventories; tax specialists are generally wary of tax credits, and the possibility for abuse is significant.

Another set of issues concerns the international application of carbon taxes. The most significant question concerns whether they are production or consumption taxes, and who should receive the revenues. I believe that it is not politically practical to have much of the revenues accruing to those outside the nations that levy them. Moreover, production-based taxes are much simpler to administer, but the distribution of consumption-based taxes will be more appealing to industrial countries.

The design of consumption-based taxes is complicated by the need to calculate the carbon content of international trade flows on the basis of their C02-equivalent content. These adjustments might be significant for coal-based and petrochemical feedstocks, but to pursue carbon content far into the input-output table would mainly create employment for tax specialists and matrix inverters. With differential international standards or taxes, another set of issues concerns whether firms could employ "emissions offsets," whereby they would get credit in the high-tax regions for emissions reductions or carbon sequestration in other regions. Already, some utilities are assuaging environmental consciences bothered by the combustion of fossil fuels by planting trees in tropical regions.

Clearly, carbon taxation is a complicated issue of tax design; it would be useful to have a team of specialists design such a tax to see whether it is administrable. However, a carbon tax would be far preferable to regulatory interventions because taxes provide incentives to minimize the costs of attaining a given level of GHG reduction while regulations often do not. None of the dilemmas facing carbon taxation would be avoided by adopting emissions limitations or quotas; rather, the monetary flows and redistributions simply become murkier because the impact on prices and incomes of quantitative limitations is less visible.

While these arguments for a carbon tax are persuasive, I do not recommend it today. Negotiating a global carbon tax would be a daunting task even for a president who likes taxes and is not occupied in the Saudi desert with making the world safe for gas guzzlers. Reducing the risks of climate change is a worthwhile objective, but humanity faces many other risks and has many other worthy potential investments, such as oil conservation, factories, equipment, training, education, health, hospitals, transportation, communications, research, development, housing, environmental protection, population control, and curing drug dependency.

In conclusion, the United States and other major countries would be well served by continuing to take steps in the three areas outlined above--improving knowledge, investing in R&D in new technologies, and adopting "no-regret" policies that tilt away from greenhouse gases. Pursuing this approach, we will be prepared for whatever developments unfold in the future--for a tightening of the screws if the threat of global warming accelerates or for a relaxation of policy if science or technology were to alleviate our concerns. The struggle with the threat of greenhouse warming is likely to be a long one, and flexibility is the key to sensible policies.

Notes

1. This chapter draws on a number of earlier articles by the author, and helpful comments were provided along the way by Henry Aaron, Jesse Ausubel, Thomas Schelling, Charles Schultze, Paul Waggoner, and Gary Yohe.

2. A short history of scientific concerns about the greenhouse effect is provided in Ausubel 1983.

3. The traditional estimate of the relative importance of different greenhouse gases uses the instantaneous contribution of a gas to global warming (in deg.C). The traditional estimate has the defect that GHGs differ in their lifetimes and chemical transformations. In order to calculate the total contribution of each GHG, which is sometimes called "total warming potential," the table shows the sum of the instantaneous contributions over the indefinite future (in deg.C-years).

4. One eminent climatologist stated that he had "99 percent" confidence that the warming of the 1980s was associated with the greenhouse effect (see Hansen 1988). By contrast, four other respected scientists wrote that "no conclusion about the magnitude of the greenhouse effect in the next century can be drawn from the 0.5deg. C warming that has occurred in the last 100 years" (Marshall Institute 1989, 8).

5. The most careful studies of the impact of greenhouse warming have been conducted for the United States, and this review will therefore concentrate here. The most comprehensive is a recent study by the U.S. EPA (1989a). Although the studies reviewed here use different assumptions, we should envisage the estimated impacts as occurring late in the second half of the next century.

6. "National income" is total national output measured at factor costs. It equals GNP less indirect business taxes and depreciation.

7. A recent study of the impact of climate change in the Canadian Great Lakes region illustrates the substitution of different activities. According to the projected impact, global warming would shorten the length of the ski season by one-third, causing a $50 million loss in revenues. However, the camping season is expected to lengthen by forty days, offsetting the revenue losses .

8. I reiterate that the studies reviewed here represent "best-guess" scenarios of climate change. They omit uncertainties and possible nonlinearities, a topic that I shall examine in the last section.

9. These studies include estimates from specific technologies (such as CO2 scrubbing and substitution of methane for oil and coal); econometric or elasticity studies (often using highly aggregated models); and mathematical programming or optimization approaches (which often use activity-analysis specifications of energy technologies). For all three of these approaches, one can estimate the cost of reducing CO2 emissions as a function of the penalty or tax imposed upon those who emit CO2. See Nordhaus 1990c.

10. Note that these estimates are of the long-run cost--that is, the cost after the capital stock has fully adjusted. Attempts to reduce CO2 emissions in the short run would be much more expensive. Also, these costs do not include any adjustments for unmeasured or external environmental, health, or economic effects.

11. Indeed, some studies suggest that Cdeg.2 emissions can be reduced at "negative" costs. That is, there are opportunities to reduce GHGs whose costs are less than the benefits when these opportunities are evaluated at the appropriate social shadow prices. One set of examples concerns activities that emit greenhouse gases and have other environmental externalities. For example, use of CFCs is contributing to ozone depletion. Steps to protect the ozone layer by phasing out CFCs would have the additional benefit of slowing the buildup of greenhouse gases. Other areas are murkier from an economic point of view but might also qualify as negative-cost actions. For example, subsidies to energy prices in many countries lead to much higher levels of energy consumption than would be the case were prices to reflect realistic market prices or world prices. Market imperfections or informational deficiencies in capital markets, electric utilities, or capital-goods purchases are also alleged examples. The extent of negative-cost opportunities is controversial, but from a policy perspective the real issue may not concern the existence of negative-cost opportunities but the difficulty of finding tools to exploit them.

12. The chapter by John Whalley in this volume provides an estimate that is higher than this consensus estimate.

13. These estimates are derived from a recent unpublished study by Robert Frosch, to whom I am grateful for clarifying several issues.

14. Many of the issues in this section are developed at length in a superb essay by Schelling (1983).

15. The analysis draws upon Nordhaus 1990a. More precisely, it assumes that the discount rate on goods and services exceeds the growth rate of the economy by 1 percent per year. If the damage from a doubling of CO2 is 0.25 percent of total output, then the efficient CO2 tax is $3.2 per ton CO2 equivalent; if the damage is 1 percent of output, the efficient tax is $12.7 per ton. I have chosen $5 as an illustrative intermediate figure.

16. Some would argue that carbon taxes fall in category 3 as sensible economic policy. Consumption of fossil fuels has many negative spillovers beside the greenhouse effect, such as local pollution, traffic congestion, wear and tear on roads, accidents, and so forth. In addition to slowing global warming, carbon taxes would restrain consumption of fossil fuels, encourage R&D on nonfossil fuels, favor fuel switching to low-GHG fuels like methane, lower oil imports, reduce the trade and budget deficits, and raise the national saving rate. Indeed, in the tax kingdom, carbon taxes are the rara avis that increases rather than reduces economic efficiency.

17. The chapters in this volume by James Poterba and John Whalley go into the design of carbon taxes in greater detail.

Bibliography

Ausubel, Jesse H. 1983. Historical note. In National Research Council 1983, 488-491.

Binkley, Clark S. 1988. A case study of the effects of CO2-induced climatic warming on forest growth and the forest sector: B. Economic effects on the world's forest sector. In M. L. Parry, T. R. Carter, and N. T. Konijn, eds. The Impacts of Climatic Variations on Agriculture, 197-218. Dordrecht, Netherlands: Kluwer Academic Publishers.

Coolfont Workshop. 1989. Climate Impact Response Functions: Report of a Workshop Held at Coolfont, West Virginia, September 11-14, 1989. Washington, DC: National Climate Program Office.

EPA. 1989a. U.S. Environmental Protection Agency. The Potential Effects of Global Climate Change on the United States: Report to Congress, EPA-230-05-89050, December 1989.

EPA. 1989b. U.S. Environmental Protection Agency. Policy Options for Stabilizing Global Climate, Draft Report to Congress, February 1989.

Hansen, James. 1988. Testimony before the Senate Energy Committee, June 23, 1988.

Jorgenson, Dale W., and Wilcoxen, Peter J. 1990. The cost of controlling U.S. carbon dioxide emissions. Processed, Harvard University.

Kane, Sally, Reilly, John, and Tobey, James. 1990. An empirical study of the economic effects of climate change on U.S. agriculture. Processed, July 1990.

Litan, Robert E., and Nordhaus, William D. 1983. Reforming Federal Regulation. New Haven, CT: Yale University Press.

Manabe, S., and Stouffer, R. J. 1988. Two stable equilibria of a coupled ocean-atmosphere model. Journal of Climate 1:841-866.

Marshall Institute. 1989. Frederick Seitz, Karl Bendelsen, Robert Jastrow, and William A. Nierenberg, Scientific Perspectives on the Greenhouse Problem: Executive Summary. Washington, DC: George C. Marshall Institute.

Martin, J. H., Gordon, R. M., and Fitzwater, S. E. 1990. Iron in Antarctic waters. Nature 345:156-159.

National Research Council. 1978. International Perspectives on the Study of Climate and Society. Washington, DC: National Academy Press.

National Research Council. 1983. Changing Climate. Washington, DC: National Academy Press.

Nordhaus, William D. 1990a. To curb or not to curb: The economics of the greenhouse effect. Paper presented to the annual meetings of the American Association for the Advancement of Science, New Orleans, February.

Nordhaus, William D. 1990b. Contribution of different greenhouse gases to global warming: A new technique for measuring impact. Processed, February Nordhaus, William D. 1990c. A survey of the costs of reduction of greenhouse gases. Energy Journal, Fall.

Psacharopoulos, George. 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources 20 (Fall):583-604.

Ravelle, Roger R., and Waggoner, Paul E. 1983. Effects of a carbon dioxide-induced climatic change on water supplies in the western United States. In National Research Council 1983, 419-432.

Schelling, Thomas C. 1983. Climatic change: Implications for welfare and policy. In National Research Council 1983, 449-482.

Wagonner, Paul E., ed. 1990. Climate Change and U.S. Water Resources. New York: Wiley.

Wuebbles, Donald J., and Jae Edmonds. 1988. A Primer on Greenhouse Gases, prepared for the Department of Energy, DOE/NBB-0083, March.

# data[].attributes.attachment_link.title
Economic Approaches to Greenhouse Warming

# data[].attributes.attachment_link.description
Reproduced, with permission, from: Nordhaus, W. D. 1991. Economic approaches to greenhouse warming. In Global warming: Economic policy approaches, ed. R. D. Dornbush and J. M. Poterba, 33-68. Cambridge, MA: MIT Press.William D.

# data[].attributes.attachment_link.readable_text
20th Century Demography Ecology Fauna and Flora Geology Natural Resource World Map
Endangered Earth, 1988

This map shows the areas where the earth is in trouble due to carbon dioxide, the greenhouse effect, and other prominent threats.

Paragraphs describing population pressure, air pollution, ozone concerns, acid rain, water pollution, water diversion, toxic wastes, radiation perils, species extinction, fisheries depletion, deforestation and desertification are displayed above the map.

Inset maps: Ice Age Vegetation and the Greenhouse-Effect Vegetation Zones.

Inset timeline: "People and the Planet: a Troubled Partnership."

Produced by National Geographic Magazine, 1988.

This map is Map Number 1402 in the collection of copyrighted maps of the Geosciences and Map Library, Fine Hall (B level), Princeton University.

© 1988 National Geographic Society

# data[].attributes.attachment_link.description
20th Century Demography Ecology Fauna and Flora Geology Natural Resource World Map Endangered Earth, 1988 This map shows the areas where the earth is in trouble due to carbon dioxide, the greenhouse effect, and other prominent threats.