Globalization Factor
Nothing is wrong with economic theory.
Everything is wrong with our implementation of it.
I. Background:
II. Economic premises:
III. Time Lags and What we should do:
IV. Warning and My proposal:
I. Background:
Although everybody is aware of a movement of globalization, it seems to me that majority of our activities are not to the point at globalization point of view.
Therefore, I would like to point out fundamental issues with respect to current economic situations influenced by globalization factor as follows:
II. Economic premises:
As everybody is aware of it, there are fundamental premises in economic theory.
As Dr. Auerbach explained to me in Macro Economic class at UCR, economic theory only works under certain conditions.
In other words, economic theory only works as long as we keep those fundamental premises.
Since most economic theory is mathematically proven, it must work like mathematical formula on the condition that we keep the following economic premises.
Put it in different words, current mal-functioning economy is being caused by our mistakes such as violating the followings:
1. Perfect Information Flow:
2. Free Movement of Labor Force:
3. Free Movement of Exchange Rate:
4. Avoid Monopoly:
１． Perfect Information Flow:
This is the most famous one in economic theory, I guess.
Although it is not possible to have perfect information flow, we will have a serious trouble when violating it substantially.
Good example of it is Lehman Shock.
Critical information for judging value of securities got intentionally and technically hidden in a way of so-called securities science or something like that,
I am sorry for forgetting the right word for it.
It took many years until we found out what was going on and thus majority of us got mislead by the disguised information.
2. Free Movement of Labor Force:
Because of globalization factor, almost everything moves globally except labor force these days.
Since many factories moved globally, labor force is supposed to move globally too, that is not happening right now.
This is one of the reasons we have high employment rate in industrialized countries.
Young people should be able to find a job freely in global market without any restrictions such as working visa, etc.
This is also one of the reasons we have an issue for population over-growth.
In developing countries more jobs have been created without any inflow of labor force from outside, this situation creates enough room for having many babies.
On the other hand, in developed countries we have high unemployment rate because labor force are staying at home while lots of factories=jobs are moving out.
3. Free Movement of Exchange Rate:
China is controlling exchange rate.
Nobody tries to control exchange rate unfavorably to him/her.
Everybody tries to control exchange rate favorably to him/her.
Since China has the second biggest economic power, it is not acceptable to fix or control exchange rate for its favor.
4 .Avoid Monopoly:
In the past ten years or so, I tend to believe that we have increased concern for monopolistic conditions in the market.
As everybody is aware of it, when monopolistic condition exists, market does not function properly since we cannot keep fair competition due mainly to inadequate governmental regulations such as inability of forcing global anti-monopolistic regulations.
- Monopolistic Power of Fund Money:
- Since fund money is so huge, it is no longer fair for individual investors to compete against fund money in the same financial market.
- This is one of the reasons that I quit investing in financial market anymore and also money inflow into financial market is shrinking, I guess.
- I rather play at casino than investing in financial market since it is not a fair competition.
- Monopolistic power of global companies.
- Since we do not have global government yet, nobody effectively controls monopolistic situation in global market.
III. Time Lags and what we should do about it:
In addition, we have some time lags or misconception as follows:
1. Concept of EC is already obsolete:
2. Concept of TPP is even dangerous:
1. Concept of EC is already obsolete:
Concept of EC is one step backward from concept of globalization and thus it is already obsolete.
Actually from globalization point of view, concept of EC is working as a blockage against globalization.
One of the reasons that EC’s economy is not doing very well is that it failed to fully benefit from economic boom of Asia especially China in the past several years by forming EC, which in a sense works as a blockage against the rest of the world.
2. Concept of TPP is even dangerous:
This reminds me of the condition before WWII before 1939, when protectionism prevailed.
TPP is dangerous in two-folds.
First, TPP works like protectionism for the rest of the world.
Second, TPP will become monopolistic power since it could represent almost 40% of economic power depending on contents of members, though.
In other words, the rest of the world will suffer at the gains of TPP members, which may lead to bankruptcy of Greece, for example, and may cause world depression.
In my opinion, Greece got one-time gains when becoming a member of EC such as appreciation of its currency as much as by three-folds due mainly to increased credibility backed up by EC.
However, in true economic sense, currency appreciation should occur based on increased competitiveness of the country, for example, which is sustainable, which is not the case for Greece.
Since competitive edge of Greece has not been increased while only living standards got raised up because of one-time wind fall gains, situation of Greece will get worse until Greece people start being aware of it and start working longer and harder.
Because of globalization factor, people of developed countries need to work harder and longer in order to compete against workers in developing countries those who work hard and long hours under less paid conditions.
IV. Warning and My Proposal:
Do not implement TPP for a while.
In other words, freeze TPP for 5 to ten years, and go directly to globalization or global government, or global society.
Although, movement of TPP is an inevitable or a reasonable step toward globalization, it should be best for us to skip this stage since it is a one step backward from globalization and will work as protectionism for the rest of the world.
I hope that my intention of trying to prevent unnecessary sufferings or financial pains is well acknowledged and implemented by the leaders of the world accordingly.
Hiroshi Morita, a citizen of global world.
December 28th, 2011.
