Buoyant Economies

Globalization of Trade

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The Story of Jack after the Beanstalk - an analogy explaining globalization

Using the golden eggs he had collected, Jack and his mother bought a dairy herd.  Initially, they sold their milk in the village and used the money they earned to buy all they needed.   

As the herd grew, it produced too much milk for his little village.  So Jack persuaded his mother to let him take the excess milk to the market in the larger town and sell it there. 

His mother was reluctant about him going to the town market again.  That was where Jack had sold their old cow for a handful of beans.  She eventually relented but stipulated that he was not to bring any of the money he earned in the town  back to the village.  She did not want to disrupt the quaint village economy with too much money. 

So Jack started taking milk to town and his business grew.  He used the money he earned to buy fruit, meat and vegetables from the town market.  Soon Jack was buying most of what he needed in the town market and he did not need to buy much from in his own village.  Jack would come back from town with so much food and other products that he would give some to his neighbours.   

While Jack and his neighbours prospered, the village people did not.  The village grocer and butcher found there businesses were declining, as did the village market gardener and dress maker. 

Jack also noticed that his sales of milk to the village market were declining.  He congratulated himself on the wisdom of expanding his business in the town market.  Jack prospered while the village economy continued to decline.  Jack encouraged others to join him in the town market trade.  But the other businesses in village understood that what Jack was doing meant the alienation of trade for them.  

Countries with floating exchange rates have a rule that they are not to bring into the economy any additional money from overseas, neither from exports nor from foreign investment.  They fear that it might cause business cycles and inflation.  So when these countries export, they must spend on imports all the money they  earn from exports.   

Consequently, when their exports increase, their imports must increase, also.   When they buy more imports, they buy less domestic products and so domestic industries that compete with those imports go out of business. Globalization of trade for exporters means alienation of trade for businesses supplying the domestic market. 

If Jack were allowed to bring home the money that he earned from his sales in the town market, he would have spent it in his village market and the village market would have prospered with him.  But he had to live with his motherís wisdom.   

Similarly, if exporters were allowed to bring in the additional money they earned from exporting to the global market, they would spend that additional money in the domestic market and industries supplying the domestic market would prosper together with exporters.   

 

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