The Role Of Government In Globalisation, Particularly In International Business

In the last century there has been a strong increase in the level of international business, the transaction between “parties from more than one country”.[1] Initially in the form of goods (especially primary goods) and later in services this improvement has been as a result of improved transportation, capitalism increasingly searching the world for improved profit margins and a marked improvement in intergovernmental cooperation and legislation. However, it has been governments over the centuries which have determined how much international business exists through various incentives and disincentives. For example the protectionist measures that had dominated the start of the twentieth century have become less employed as a result of newer academic insights and political events encouraging (and sometimes forcing) governments to cooperate economically for a more stable and improved economic and political future. This has finally allowed businesses to flourish as a result of less anticompetitive restraints, costs and procedures.

Historically there has always been international trade, even dating back to North Africa in 2000BC.[2] However, the rise of centralised governmental authority eroded the freedom or profitability of international traders. The peak of governments’ cross border dominance was the sixteenth century use of mercantilism, the belief that a country’s wealth increases through acquiring as much gold as possible through high import tariffs and export subsidies, which helped to strangle the real potential of international trade. This is because in order to protect domestic trade from a mercantilist neighbouring country a government would retaliate through raising its import tariffs and subsidising their exporters so that the country could improve its trade.

Academics have been able to articulate the negative impact of policies such as mercantilism and its twentieth century offsprings, the gold standard[3] and maintaining national industries or way of life.[4] Critical theories such as absolute advantage[5] and competitive advantage[6] aimed at the opportunity cost of restrictive policies, the lost resources as a result of a country attempting to be self sufficient highlighted the waste of potential from governments having an insular view of economics. However, politicians predominantly ignore the shaking heads and wagging fingers of academics, especially in times of stability and prosperity.

The major catalyst for the greater levels of international trade was the two last World Wars, especially the Second. A positive side effect of the armed conflicts was the increased technical knowledge of transport, logistics, communication and production methods, which laid the foundations for more effective trade in the future.

However, the most significant effect following the years of devastation and bloodshed was that it forced world leaders to re-examine their visions of how it was possible to increase economic wealth and guarantee economic stability. As a result politicians opened their doors to business and academics creating new, unprecedented economic and social models.

One of the most significant and obvious examples of this is the European Union. The spark for integration in Europe came with the Economic Coal and Steal Community in 1951, where France and Germany shared coal and steel resources in order to guarantee political and economic interdependence. This scope and size of the project expanded over the decades, later becoming the European Union. Europe has now become the greatest experiment into the possibilities of economic cooperation and a model for other continents such as the Pacific region, who are making tentative steps to examine the possibilities of economic integration as a result of the evident benefits through increasing international business through one trade block.

There is now one currency, the Euro that unites all in the EU but the UK, Denmark and Sweden (and the newly entered East European states who intend to join later), which integrates inter-European trade further. Free trade between EU countries combined with overriding regulations and laws further benefit this trade through guaranteeing that all goods can be traded within the EU’s borders unless there is a conflict with domestic values or if seen to be hazardous for the country. As a result of these shared economic goals the EU is virtually self sufficient, with over $1776bn[7] (over sixty percent) of trade in the EU being between member states alone.

Further integration of services is being considered by the EU which will help to integrate the trade of services internationally as well as goods. Developments such as these have gone beyond the initial post war desire for stability and economic prosperity. The open platform of the European Union has enabled academics and technocrats to help form policy more easily with politicians, almost to the point where some critics[8] consider that they are too involved. Despite stumbling blocks[9] there should come a point when companies will be able to share their comparative advantages (and benefits through increased trade) between each other.

The role of international business for guaranteeing economic and political stability was similarly understood and used by America following the Second World War. However, as America was not crippled to the extent of Europe by war the policy was to be directed in different way. The spectre of an unstable Europe becoming Communist combined with the possibility of opening up new markets for American businesses resulted in the Marshall Plan of the 1950s. The grant to countries to allow them to purchase American goods and capital to rebuild industry in war torn Europe created huge levels of interdependence. As a result, European and American companies became more used to working with each other, with a reduction in cultural barriers and increased cooperation as a result.

Like a mad dog having been let of its leech only to go crazy in the park[10] multinational companies and enterprise have been the public face of international business and globalisation. International business will and has always thrived as long as there are sufficient margins for business men and entrepreneurs just as analysts will still write criticisms of current policy even if policy makers are not listening.[11] However, the effects of two World Wars forced governments of the world to rethink their strategy. This involved the politicians listening to businessmen and experts, resulting in grand economic projects of the twentieth century such as the European Union and The Marshall Plan which increased the levels of international business.

This article was written by Jonathan McHugh in December 2005

---

[1] An Overview of International Business p8

[2] The Bible p3.14159

[3] A system of pegging currencies together, which suffered from being too static

[4] Contemporary protectionist (or neo-mercantilist policies such as CAP

[5] The theory is that a country should trade more, especially goods which the domestic country can produce more of or to a better standard. This is in order to increase total wealth because if the importing countries which also specialise will be able to increase their production and share the greater surplus.

[6] Comparative advantage is an extension Adam Smith’s theory of absolute advantage. There are benefits of countries trading despite one country having total absolute advantage, as the stronger country could still improve output by focusing on what it has a relative advantage over the other country.

[7] The Global Marketing Environment p47

[8] Academics who like to complain

[9] Ibid

[10] Such as defecating, humping some other dog owner, biting ducks necks off, chasing its tail or attacking children, any simile you can think of really…Maybe protectionism wasn’t such as bad idea….

[11] No need for articles for this essay, I just got a couple of the Commissioners drunk during opening hours at the end of weekdays, easy!