Here lies a country of fools who traded away their future.

In Chapter 5 Peng discusses International Trading. In particular he discussed the Theories of International Trade. Two of these theories spiked my interest, the Absolute Advantage theory and the Comparative Advantage theory. Both of which are very different. The Absolute advantage theory suggests that under free trade, each nation gains by specializing in economic activities in which it is the most efficient process. While Comparative Advantage suggest that a nations gains by specializing in production of one good in which it has comparative advantage.

Two very different and interesting suggestions of what exactly is the most beneficial for to a country in regards to trading. I found an interesting article on the Freemans ideas of liberty where Dwight R. Lee discusses how comparative advantage is overall more beneficial to a nation’s wealth on a global scale. He states that “The most straightforward case for free trade is that countries have different absolute advantages in producing goods (Lee).” With this said Lee goes in to distinguish how it is imperative to have comparative advantage seeing that “A country can have an absolute advantage in the production of a good without having a comparative advantage. Comparative advantage is what determines whether it pays to produce a good or import it (Lee).” What we see here that in essence Lee distinguishes that it is imperative to have a Comparative advantage in order to be the most efficient in production and trade. If we take an example it become more clear how this is evident. While in American let’s say it is very efficient in producing coats and can produce 5 coats in 1 hours. While in China it is not as efficient in producing coats where it China can only produce 3 coats an hour. It would seem that with the absolute advantage it would be more efficient for American to make coats and not import them from China. Although if you take into account that it cost more money to produce a coat in American then it does in China then it would be more efficient for American to import coats from China which thus allows for a cheaper product and a cheaper cost. This example involves both and Absolute Advantage in which American can produce at a quicker rate than the Chinese can, although China has the comparative advantage which is that it can produce coats at a cheaper rate than in American thus driving down the cost of the good.

Even more interesting below Lees article was comments on in particular that caught my eye was the comment made by Ron O where he indicates that while Lee does bring forth some interesting point it is only a hypothetical that he compares international trade to with this car and computer example that is much like my coat example. He states that there are many other factors to account for when discussing Comparative advantage. He attaches the idea that Lee states that Comparative Advantage does not account for lower wages and unemployment. His basis for this argument is that if like in Lee’s hypothetical everyone who was in the computer industry, in American, who lost their job because of the importation of computers, would not get jobs in the car industry just because that is where the works is. Ron argues that these people who were in the computer industry would not necessarily be able to get a job working on cars. Seeing that Lee does not know what the market demand for American cars will be, Lee also does not know if these computer techs if employed by international companies would make the same wages as they did previously. Ron states that “The mistake that comparative advantage makes is that it assumes that there is some kind of ‘invisible hand’ that will create an infinite amount of demand for any product or for the world. Does it even account for the price of oil in all of this or to the limits of economic activity the world can handle? Not everyone can be middle class. As a matter of fact, look at how the middle class is disappearing throughout the world (Ron).” Ron makes a interesting point here which displays the weakness in Lee’s argument as well as in the Comparative Advantage theory. He establishes the idea that no economy can survive without borders.

            On a large part I would have to agree with Ron and his arguments against the Comparative advantage as well as Absolute advantage, seeing that there are so many aspect of the economy that are unpredictable and over looked when it comes to applying these theories to real life. As we can see over the last few decades the American economy has become very unstable seeing that we rely highly on other countries for our goods putting us and our futures in the hand of others. It is in my opinion that free trade opens countries up to many unforeseen issues that can arise and as we have seen recently that it exactly what happens. With an ever so connected world much vulnerability occurs. It leaves us the people, the working class at the mercy of something that is uncontrollable and unforeseen. A bargain I don’t feel is in our best interest.  

http://www.thefreemanonline.org/columns/comparative-advantage/

Standardization of Culture

http://www.youtube.com/watch?v=dnca-FDLN-0&feature=related

I placed a short video above because it is extremely relative to what I am going to be talking about and that is Culture. What is Culture really, we hear it all the time in school, we read about it in books, and see it on TV but what is it really? Culture is the “inherited ideas, beliefs, values, and knowledge, which constitute the shared bases of social action” (Dictionary). Now that we have defined culture we can examine why it is so essential for international businesses to respect common cultures when spreading businesses around the world. International Business has take the world by storm with companies such as McDonalds, Starbucks, Walmart, and many more. It is ever present to understand to effects of globalization and international business on culture for two reasons. One being to keep large businesses in check form overstepping there bonds ethically and culturally and two to understand the importance culture has on people and society.

Culture is inherited ideas, beliefs, and values. These ideas, beliefs, and values are past down from generation to generation. It is important to understand that these core values that distinguish people to a particular group are fundamentally important to societies. Culture is what brings people together, it allows them have a sense of belonging. It also in some cases allows outsiders to understand others better, due to the engagement of the exchange in cultural knowledge.

Now when it comes to International business we can see how this can become a difficulty because when you establish a business take for instance McDonalds in another country, where let’s say they don’t eat beef, such as Iran (A Muslim country). There is a cultural issue here seeing McDonalds sells beef products. For those who live in this country and do not eat meat they would not purchase products form McDonalds due to the cultural back lash. Seeing many native Iranians would not be purchasing any products from this store McDonalds would thus not be making money and the point of a business is to make money. On the other side of the spectrum you would have natives of this country in arms seeing that it goes against their cultural values. It is not right for McDonalds to place a restaurant that sells meet in a country such as this unless it does shift to abide by their cultural values, which in fact is exactly what McDonalds has done in Muslim countries.

International Businesses deal with issues of cultural differences on a daily basis. It is a part of expansion.  A problem that still lies here for me is that although McDonalds may have shifted to cultural values in Iranian it has still done damage on cultural traditions. If we look from the transformation of companies spreading throughout the world we can begin to distinguish a common pattern and that is the pattern standardization. Which is in itself a whole other issue but standardization does have a major impact on culture because standardization slow begins to take away from traditional norms and replace them with new ones that are more standardized. Now I am not saying that International Business is a bad thing I am merely just stating that there are major negative effects of International business when it comes to the standardization of culture and societies and this is what need to be evaluated. Evaluated in the since of whether or not international business is an overall positive to societies and cultures or negative.