Concerns about Globalization

Topics: International trade, Chicago Board of Trade, World Trade Organization Pages: 2 (490 words) Published: May 22, 2007
Concerns About Globalization

Much has been written about the possible negative consequences of globalization. Some of the key concerns are summarized below. Economic Leakage
Economic leakage refers to the movement of profit margins from primary, to secondary, to tertiary markets. Primary markets are oriented mainly toward the production of raw commodities (e.g., food commodities, such as corn, wheat, soybeans; mined goods, such as raw ore and minerals). Secondary markets focus mainly upon the further processing of raw commodities (e.g., corn syrup, bread, soy-based oil products, steel, cut minerals). Tertiary markets specialize in facilitating production and trade by providing financing, access to markets, and access to information about markets (e.g., the Chicago Mercantile Exchange, the NYSE, Citibank). Typically, profit margin increases as goods move from primary to secondary to tertiary markets. Thus, a nation whose economy focuses almost exclusively upon primary commodity production will experience "economic leakage" of potential profits to nations involved in secondary and tertiary markets because it is not involved in these more lucrative ventures. Perpetual Status

A concern expressed about the WTO and other organizations that govern international trade is that nations involved in primary commodity production will find it very difficult to develop secondary or tertiary markets. Suppose, for example, that Nation A, which is involved mainly in primary commodity production, wants to build an industry that can further develop its raw commodities. Such industrial development requires much investment of capital. Thus, Nation A might want to provide over the short run government subsidies to help the new industry bear the burden of start-up costs and operating losses until it can become efficient enough to compete in world markets. Such subsidies would be considered illegal under current and proposed WTO rules. Nations not yet developed enough to...
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