Globalization is the internationalization of capitalism. It basically applies the old economic concept of division of labor introduced by Adam Smith in his book "Wealth of Nations" (first edition 1776), to modern day movement of capital and the manufacturing of goods around the world.
Once again capitalism, and the inherent economic inequalities that are an integral part of it, proves its superiority to any other system we have seen over time. The differences in economic classes, like I have argued before, are necessary for societies to thrive. Built within capitalism is a safety valve that provides relieve when pressure builds inside the system.
Not long ago multinational corporations were rushing to either establish physical manufacturing presence in China or to outsource their production to the Chinese (and others) to take advantage of cheap labor. That is exactly what capitalism calls for: the pursuit of the most economical way, within an established set of rules, to produce a product or a service. With globalization this pursuit went from a country to a region to an economic bloc and finally worldwide.
The shift of manufacturing to China (China here is used as an example. Throughout the years other countries were the "Chinas" of manufacturing) brought with it an influx of badly needed capital. The result was prosperity, at least to a segment of the population, and the cementationof the idea of free market principles (at least to a certain degree). But the prosperity of China came at the expense, in part, of other neighboring economies. And this is part of the economic circle of life I tried to explain in my post, Money! The Misunderstood Concept And The Financial Pie (January 15, 2011), and the economic ladder with its ever changing upper steps.
The pressure I am talking about here is the inflation in China and the rise of wages. We are beginning to see a reverse of the influx China has seen over the last 15 years or so. Multinationals are now looking for other venues to produce their goods and services. The safety valve that will relieve the inflationary pressures for the multinationals is made available by the same system that gave rise to China at the expense of its neighboring economies, and that relieve will come from some of those neighboring countries.
Vietnam is that safety valve and will undoubtedly take some of that Chinese shine in coming years. Vietnam has a highly skilled but cheap labor. Government policies have been moving more toward free markets and away from centralization. This is the beauty of the economic circle of life made possible by free markets. It detects failures and allows for alternate solutions. Because we all are vying for a bigger share of the same pie and because all resources are limited it is only logical to expect a solution from within.
While for a period of time globalization may be, or seems to be, unfair to a particular country; its long lasting effects are positive, constructive, educational and motivational. Globalization allows for division of labor. It frees up capital in consuming nations to import more or consume more locally produced goods and services while providing exporting countries (those with lower standard of living) with a better life and an opportunity to climb the economic ladder. Countries, like China, have acquired a new set of skills that will remain with them in good and bad times. Ups and downs are part of the system, hence the economic circle of life within the limitations of the pie.
Remember while the objective of a manufacturing company is to move from Shang[High] to [Low] Chi Min City, an investor's goal is to buy [Low] and sell [High]. If you think about it, in this case, the reverse is the same and both producer and consumer benefit.
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