The History of Global Trading
The global trade commenced long ago with the initial trade activities involving the exchange of goods with goods, commonly known as the barter trade. The barter trade was universal in the period up to the 15th century. However, it was soon replaced by the Mercantilism trade, which dominated the world in the 16th and 17th centuries (O’brien, & Williams, 2016). The Mercantilism trade was characterized by strict government controls. Goods were not freely traded between countries. However, in the 18th century, the liberalist form of trade evolved to pave the way for free regional trade. However, in as much as the trade facilitated the free flow of goods between countries, it did not eliminate the business barriers that existed in the earlier periods. The liberal trade fully gained roots in the 19th century following the formulation of various bilateral and regional trade agreements. For example, in 1905, the World Trade Organization (WTO) was initiated to remove tariff and non-tariff barriers to trade for about 152 member countries (Matsushita, Schoenbaum, Mavroidis, & Hahn, 2015).
Factors that facilitated the increase of Global Economic Integration
One of the factors that significantly boosted international economic integration is the unequal distribution of resources (Gills, 2001). The need to have the resources shared between countries promoted trade whereby a country with plenty of a certain commodity would trade it with other nations to obtain what it lacked. This situation was upheld for the traditional barter trade system where goods were exchanged with goods. No country would produce all the goods for its citizens and hence the need for trade to seal the gap in the supply of essential products.
The other factor that promoted global economic integration was the evolution of the liberal system of commerce. The mentioned trade came into existence in the early 18th century. It led to the enactment of trade agreements between different nations. The agreements removed trade barriers, which prevailed in the previous centuries to the extent of making it possible for countries to trade their goods freely in all the member countries. Examples of trade agreements that have boosted international trade include WHO and the UN Convention on International Sales of Goods (CISG) among others (Matsushita et al., 2015).
How the History contributed to Modern Processes of Production
One of the most notable influences of international trade on modern production processes is the introduction of the concept of specialization. Specialization refers to the production of goods that a country can best produce with the locally available resources. The liberalization of trade in the 18th century heavily contributed to the mentioned phenomenon since it facilitated the free flow of goods internationally at cheap costs, hence eliminating the need for countries to produce goods, which they could not manufacture cheaply.
Besides, international trade led to the mechanization of the production processes, which were primarily achieved during the era of the industrial revolution. The modern production methods are highly mechanized because of trade between nations (Matsushita et al., 2015). Countries that specialize in the manufacture of machinery have increased their output to keep up with the demand for such machines. The result of mechanization of the production processes is marked by increased output and lower operations costs that have led to lower prices of goods and services at the international market.
The Significance of the Shift of an International to a Global Division of Labor
Initially, organizations would recruit their workforce from their respective local communities. However, in the recent past, companies have realized the need to lower their overall operations costs. Hence, they are recruiting their workforce from labor surplus countries. The division of labor in the modern context involves the recruitment of the workforce from the developing countries where such employment is cheap. Companies are either recruiting their workforce from the labor surplus countries to work in their firms or moving their enterprises to the developing countries altogether. Most multinational companies are basing their production processes in developing countries. They only ship the finished products to the developed countries for sale. The move is meant to reduce the overall labor costs and transport costs, a plan that leads to savings.
One of the implications of the contemporary global division of labor is that it has led to the availability of cheap goods in the market, owing to the lowered costs of labor. As companies continue to recruit their workforce from the labor surplus countries, the cost of production goes down, implying that the final products at the international market are lowly priced, thanks to the lowered cost of production (Ikenberry & Slaughter, 2006). In turn, the strategy has led to stiffened rivalry between companies in the global market and a reduction of the prices further. There is also a growing trend where multinational companies are investing more in the labor factor of production, as opposed to the other factors in an attempt to increase their production and/or reduce their total costs. The investment comes mostly in the form of training where organizations are recruiting less skilled workforce and training them to make them productive. The result is the transfer of skills from the developed countries to the developing nations. Expatriation of managers and employees is a common phenomenon where firms seek to maximize their outputs in newly established foreign firms.
Next, the global division of labor has contributed greatly to the diversity of the workforce that is being experienced today. A diversified workforce refers to the presence of people from different cultural, racial, and religious backgrounds, which economic experts claim to have both positive and negative impacts on the organization in question. The immigration of people from the labor surplus countries to the less populated ones is a common phenomenon in the contemporary world since people seek to acquire better-paying jobs in the backdrop of the current high unemployment rates in third-world countries. The result is the hiring of foreigners in the local industries, leading to the diversification of the workforce. Managing a diverse workforce is a hectic task, which calls for managers to be highly trained to handle human resources. In light of the mentioned statement, the companies are recruiting international managers with high experience in human resource management to avert diversity issues in the workplace.
The Role of the State in Decision-making, within a State-society Complex or Global Order
One of the significant differences between the Mercantilists and the Liberals centers on their take of global trade and global economic integration. The Mercantilists argue that free trade is a major setback to the individual state’s economic development and that it should not be encouraged. In their view, economic development is a state affair where countries should be allowed to decide their destiny by disregarding free trade (O’brien, & Williams, 2016). The view is informed by the fact that free trade increases competition in a global context to the extent of causing harm to the local industries and a country’s economy at large. However, in as much as the realists are opposed to the free trade, they argue that such trade is only important if it promotes a country’s military supremacy. On the other hand, idealists argue that international trade is essential for a country’s development and that global economic growth may only be achieved by embracing free trade. The idealists’ argument is grounded on the view that free trade allows the movement of goods from the developing countries to the developed nations and vice versa, sparking economic development. Additionally, they view trade as a promoter of peace among the trading countries.
Therefore, the role of the state in decision-making differs in both approaches with the mercantilists emphasizing the importance of the individual state in regulating their economy. According to the realists, the government is responsible for enacting legislation aimed at protecting the local industries from the competition by the large multinational companies. This goal is achieved by imposing tariff and non-tariff barriers in the form of taxes and incentives for the local firms. The realist government imposes high taxes for international firms while charging fewer taxes for the local companies. Additionally, the government may offer incentives to the local firms in the form of subsidization of the raw materials to keep the prices of their products as low as possible.
Different from the realists’ view about the government’s role, liberals give less emphasis on the government’s responsibility in decision-making. The sponsors of this school of thought argue that the political and economic factors of a country are interdependent and that the government’s role is limited to promoting free trade (Ikenberry & Slaughter, 2006). This observation contrasts the realist theory, which largely places the role of control on the government. In the liberals view, the government has no role to play in protecting the local industry and that it cannot impose tariff and non-tariff barriers to foreign companies.
Gills, B. K. (2001). Forum: Perspectives on New Political Economy Re-orienting the New (International) Political Economy. New Political Economy, 6(2), 233-244.
Ikenberry, G. J., & Slaughter, A. M. (2006). Forging a world of liberty under law. The US National Security in the 21st Century, 6(3), 17-18.
Matsushita, M., Schoenbaum, T. J., Mavroidis, P. C., & Hahn, M. (2015). The World Trade Organization: law, practice, and policy. Oxford, NY: Oxford University Press.
O’brien, R., & Williams, M. (2016). Global political economy: Evolution and dynamics. Basingstoke, UK: Palgrave Macmillan.