It’s a Small World After All…

Globalization has had a significant economic impact on the country of Spain. It has affected imports, exports, GDP, employment, per capita incomes, income distribution, and other economic factors. Over the past years, Spain’s amount of both imports and exports has increased. The GDP has grown rapidly in past years but the growth rate is now beginning to slow down. Employment has greatly decreased. Per capita incomes increased greatly, but like the GDP growth rate, their growth rate is slowly down. For the most part this impact has been a positive one. Spain has experienced a large amount of economic growth in the past years due to globalization. Its opening of its economy, technological advances, and its joining of the European Union, have all contributed to this economic growth.
International trade and financial flows are important to the economy of Spain. In 2007, Spain’s exports were estimated to account for $256.7 billion and imports were estimated to account for $380.2 billion.1 Main exports included machinery, motor vehicles, foodstuffs, pharmaceuticals, medicines, and other consumer goods.1 Main export partners were France, Germany, Portugal, Italy, the United Kingdom, and the United States.1 Main imports included machinery and equipment, fuels, chemical, semi-finished goods, foodstuffs, consumer goods, and measuring and medical control instruments.1 Main import partners were Germany France, Italy, China, the United Kingdom, and the Netherlands.1 Spain had a trade deficit of $123.5 billion. From 2004 to 2005 exports increased 2.5% and imports increased 7.9%.2 Spain has become the 16th largest exporter over the past years.3
In 2005, Foreign Direct Investment (FDI) inflows for Spain were €18,485 billion.2 FDI inflows, from 2003 until 2007, accounted for 2.8% of Spain’s GDP.4 The FDI outflows in 2005 were €31.777 billion meaning that the total net outflows was €12.692 billion.2 This means that Spain was investing more money in foreign businesses than foreign countries were investing in them. The European Union followed by the United States and then Japan were the largest investors in Spain.3 The service sector has been the main recipient of the FDI inflows, the second being the industrial sector.3 Spain is particularly appealing for investment due to its government policies, technological and infrastructure reforms, and growing economic openness.3
Spain’s decision to join the European Union greatly advanced its economy. The adoption of the Euro has kept interest rates down and has lowered the cost of financing.4 This has allowed for Spanish companies to branch out and invest abroad. Spain has vastly increased its investments abroad. Companies are expanding and buying out other foreign businesses. Spanish companies like Mango, Zara, Satander, Ferrovial who are quickly building global business empires are examples of this.4 Spanish companies are acquiring other businesses in Latin America and in Europe.4 Some are branching out to America, Eastern Europe, and Asia.4 Spain has $87 billion invested in Latin America and this contributes to 7% of its listed companies’ earnings.4
While GDP and per capita incomes have increased over the years, unemployment has increased over the past years. The agricultural and industrial sectors have experienced strong reductions in employment.2 Manufacturing jobs have quickly started drifting towards Eastern Europe where labor is much cheaper.4 Spanish companies are also expanding abroad and outsourcing which contributes to an increasing unemployment rate. Spain has one of the highest unemployment rates in Europe.
In the future, economic growth is expected to slow down. The trend has already started to occur. Spain’s economy was vastly strengthened by joining the European Union and by opening its economy but the benefits of those actions are coming to an end.
Spain is expected to experience very slow growth with increased spending, tax cuts and economic downturn, which will lead to a fiscal deficit.4 Even though economic growth is decreasing, Spain experienced vast beneficial economic growth from globalization. It has affected imports, exports, GDP, employment, per capita incomes, income distribution, and other economic factors especially due to economy, technological advances, and it’s joining of the European Union. Globalization has had a significant economic impact on the country of Spain.
1 CIA World Factbook.
2 Eurostat
3 DFAT
4 The Economist

Works Cited

“Doing Business in Spain.” 2008. Australian Government: Department of Foreign Affairs and Trade. 7 Nov. 2008. .

“Economy.” 2008. Eurostat. 10 Nov. 2008 .

“Spain.” CIA World Factbook. 2008. CIA. 8 Nov. 2008. .

The Economist. 2008. The Economist. 8 Nov. 2008. .

The term “creative destruction,” originally used by Joseph Shumpeter, can most simply be described as “the process of transformation that accompanies radical innovation”.1 This process describes the relationship in which in old businesses are replaced by new ones. New technology and processes are created and replace the old ones. Companies that are more efficient with better products overrun those with outdated systems and lower quality products. Entrepreneurs take ideas and innovate them, adapting them to what is needed and find a way to market them. Companies merge, go bankrupt, or are replaced by competition. Small companies grow and overtake the larger ones. This process of “natural selection” the economy, in which the fittest companies survive while the others are destroyed and replaced, leads to long-term economic growth. There must be winners and losers for the economy to progress. While companies come and go and the economy is in constant change, the overall economy grows and strengthens as a whole.
Schumpeter uses this term to describe the dynamic growth of the U.S. economy over the last century. There are unlimited examples of how creative destruction has taken place in the United States. According to the U.S. government, in 2005 alone, 671,800 businesses were created while 544,800 others were destroyed in the U.S. economy.2 More than 39,000 businesses filed for bankruptcy in 2005.2 The dominant types of companies have changed and so have the sectors that the large amount of the workforce works in. The products and services that are demanded by the consumers have changed and the companies with it. Creative destruction can also be seen by looking at the 10 largest companies, excluding those dealing with oil, in the United States. If you compare the top ten companies from 1959 to the top ten companies in 2005, only one company, General Electric, is on both lists.3 Five of the firms on the 2005 list did not exist in 1959 and since 1959, six of the top ten firms have downsized significantly, merged, or gone bankrupt.3 There were no financial businesses in the top ten in 1959 and in 2005 there were three.3 In 1959, most of the companies were large traditional manufacturers and in 2005, consumer-manufacturing companies dominated the list.3 Creative destruction shaped the US economy into what it is today and examples of it can be found all throughout the last century and even still today.
Twenty-first century globalization has been characterized as “creative destruction on steroids”. Creative destruction is a good model for globalization. The steroids are technology and the realization that innovation and competing is possible. The same processes apply as in the United States but with more consumers, businesses, economic options, and competition. Everything is intensified. Countries and businesses everywhere are innovating and adapting to the changes in technology, demands, and the economy. Thanks to technology, countries that were once considered as being impossible to run a business in are building infrastructure, modernizing, and trying to catch up with the rest of the world. Due to the mobility of capital and technology, innovation is possible anywhere. Businesses are being created and destroyed just the same, but on a global scale. The process of creative destruction is being amplified by the leveling of the economic playing field. Countries and businesses are realizing their ability and opportunity to innovate and compete and are taking the chance.
Due to creative destruction, the United States is thought to have been very successful in during the last century. It both created jobs and raised incomes dramatically. Creative destruction in the context of globalization will not be as successful for the United States. While it shouldn’t hurt the United States too much, it will not improve the economy like it has in the past century. This is because there is much more competition. Countries that were never a threat have suddenly begun to overcome the United States. The United States used to be the largest innovator in the world but it is quickly being surpassed by other countries. The U.S. is not growing as fast as it used to. While jobs are being outsourced and destroyed and companies are moving overseas, new jobs and businesses are still being created in the United States. Growth and production have not stopped, they are just not occurring as quickly or efficiently as they used to. In order for the U.S. to regain their place at the top, they will need to find a way to increase production and efficiency while still competing with the cheap labor prices of other countries. Creative destruction “on steroids” as a form of globalization will not be as successful for the United States as creative destruction has been over the past century for it unless it makes an effort to regain its place as an innovator of technology and production and finds a way to compete with the countries and business that are surpassing it.
1 Wikipedia
2 U.S. Department of State
3 BusinessWeek

Works Cited

“Creative Destruction.” USA Economy in Brief. U.S. Department of State. 18 Nov. 2008. < 

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When looking at the globe in terms of development, it can easily be divided into two regions, between the north and south. There is an international class divide with global north as being mainly developed and the global south being in the process of developing. The south is composed of more countries and more people. Politically, the north is more democratic while the south has more dictatorships. Economically, the south’s GNI is less than a fourth of that of the north and the north has almost three times the imports and exports of the south. Technologically, the north is much more advanced. The north also has a much better and extensive system of infrastructure. As globalization spreads, the south will continue to develop and countries there will begin to catch up to the north.

Does the U.S. system of bailing out large corporations facing bankruptcy go against the natural process of creative destruction? The term creative destruction, originally used by Joseph Shumpeter, can most simply be described as “the process of transformation that accompanies radical innovation”. This process describes the relationship in which in old businesses are replaced by new ones. New technology and processes are created and replace the old ones. Companies that are more efficient with better products overrun those with outdated systems and lower quality products. Entrepreneurs take ideas and innovate them, adapting them to what is needed and find a way to market them. Companies merge, go bankrupt, or are replaced by competition. Small companies grow and overtake the larger ones. The U.S. bailout packages goes against the “natural selection” process of creative destruction. It is natural for companies to go bankrupt and be replaced by newer, more efficient and innovative businesses. This brings about a number of questions for me: Can these companies actually be saved or does this bailout system just slow down the process of creative destruction? Would it be better for the U.S. government to do nothing and let creative destruction take place? How long can the government sustain these large corporations facing bankruptcy?

Chapter 5 in the book “In Defense of Globalization” by Jagdish Bhagwati talks about the effects of globalization on poverty. Bhagwati says that globalization in the form of free trade enhances growth and that in turn this growth reduces poverty. He talks about the effects of policy on this process. Policies like free trade agreements can help pull a country out of poverty. He also mentions the possibility of growth immiserizing and creating economic poverty within a country if proper steps are not taken and uses Bangladesh as an example to show this. He uses past examples of to show how growth leads to a reduction in poverty. Bhagwati also explains the difference between inequality and poverty. Basically poverty is when an entire country is poor as composed to the rest of the world while inequality is when the wealth within a country is unevenly distributed, leaving some people in lower positions of economic status. He says that while growth is a huge factor in the reduction of poverty, it is not the only component that affects it.

As the world becomes more globalized and integrated, some countries are at the lead of the movement. Surprisingly the top twenty countries for highest level of integration are not what you would expect. These countries can’t be generalized into any specific categories and vary in physical size, population, and political, economical, and social states.

In 2005, the globalization index was as follows:
1. Singapore
2. Ireland
3. Switzerland
4. United States
5. Netherlands
6. Canada
7. Denmark
8. Sweden
9. Austria
10. Finland
11. New Zealand
12. United Kingdom
13. Australia
14. Norway
15. Czech Republic
16. Croatia
17. Israel
18. France
19. Malaysia
20. Slovenia

I was very surprised to see that neither China nor India were on the list due to the fact that globalization is usually very closely tied with them. I was also surprised by countries like Singapore, the Czech Republic, Slovenia, Malaysia, Israel, and Croatia. I expected the list to consist of the U.S., Canada, Australia, E.U. members, and China and India. With a closer look at the criteria and the ratings of certain countries, the system began to make sense. The countries are judged in four aspects: political engagement, technological connectivity, personal contact, and economic integration. Within each category are more specific subcategories. Political engagement is broken down into international organizations, U.N. peacekeeping, treaties and government transfers. Technological connectivity is composed of the number of internet users, the number of internet host, and the number of secure servers. Personal contact is divided into the categories of telephone, travel, and remittances and personal transfers. Economic integration is broken into trade and foreign direct investment. Countries like the U.S., Canada, and Australia lose significant points in the aspects of economic integration of trade and personal contact while Singapore, Switzerland, and Ireland gain significant points in these aspects. The United States leads in the category of technological connectivity. Compared to the list from 2006, most of the countries maintained their place in the top twenty the next year but many moved in their location within that top twenty. However in 2006, Germany and Hungary gained entry into the top twenty, displacing France and Croatia. This shows how countries are still globalizing and making progress in integration. There is competition for who can be most globalized and countries are still striving to integrate politically, technologically, socially, and economically.

The Globalization Index
World Politics: Trends and Transformations by Charles W. Kegley, Jr.

When I was home this break, a headline on the cover of one of my dad’s business magazines caught my eye: “Foreign Investment Fueling NH”. Foreign investment in New Hampshire wasn’t something I had every really thought about. I mean I assumed there was some but I didn’t think it was a large aspect of our economy. Reading the article I learned a lot. New Hampshire has a large international appeal because of its lack of taxes and its willingness and eagerness to allow and support foreign companies. Foreign companies save 8 to 15 percent in taxes as compared to other New England states by operating in New Hampshire. Foreign companies are also attracted by the fact that New Hampshire also has a very well educated workforce with strong resources for education. New Hampshire also has a close proximity to Canada and now with the Canadian and American dollar at almost the same value, Canadian companies are coming across the border and opening branches in states including New Hampshire. New Hampshire isn’t the only state receiving foreign investment. Last year, the U.S. made $237 billion from foreign investment and between 2003 and 2007, foreign companies created 447,000 new jobs and announced 3,300 new projects. According to the U.S. Commerce Department, this foreign investment helps create new jobs, bring in new businesses, raise wages, bring in new research and technology, and increase U.S. exports. In the U.S., foreign companies tend to pay an average of $66,000, which is 25% higher than what the average of domestic companies. These higher wages help support the U.S. economy even more. More than 34,000 people are employed in over 130 foreign-owned firms in New Hampshire. Some of these firms are branches of larger companies while others exist due to mergers or buy outs. In 2005, New Hampshire ranked fifth, tied with Hawaii, among states for the percent of the private workforce that is employed by foreign companies. If banks are excluded from this, New Hampshire ranks second. In fact, 6.1% of New Hampshire’s private workforce is employed by foreign-owned companies. The largest foreign investors in New Hampshire are the United Kingdom, Germany, and Canada. The economy of New Hampshire relies for some part on foreign investment and that this dependency is growing as more companies choose to invest in it.

Information from “NH’s Foreign Market” by Erika Cohen in the October 2008 issue of BusinessNH Magazine.

Spain is a country located in Western Europe and is part of the Iberian Peninsula. It has borders with France, Andorra, Portugal, Morocco, and Gibraltar. It has coasts on the Atlantic Ocean and the Mediterranean Sea. Spain now has a population of 40,491,052 (July 2008 est.)1. The official language of the country is Spanish. There is no official religion, though most Spaniards are Roman Catholic. Spain is composed of 17 autonomous regions and 2 autonomous cities. While each region is under the control, rules, and taxes of the Spanish government, each region is allowed to establish additional aspects in these categories and more on their own.
Spain has undergone major political, economic, and cultural changes in the past 70 years. From 1936 to 1939, while it was under the Second Spanish Republic, Spain under went a civil war2. After the Civil War, General Francisco Franco took control of the country. Franco’s dictatorship isolated Spain from the world. In 1975, after the death of Franco and the appointment of Juan Carlos I as king, Spain moved to become a democratic country3. In 1976, the first free elections were held and in 1978 the current constitution was passed by referendum3. The Constitution established the system of government, laws, the liberties of Spaniards, the system of autonomous communities, and other aspects. Spain is now a parliamentary monarchy. There is both and king and a president. The current king is Juan Carlos I. The current president is Jose Luis Rodriguez Zapatero. The government has three branches. The executive branch is composed of the king, the president, and a cabinet of ministers. The legislative branch is composed of two houses: the Senate and the Congress. The judicial branch is composed of the Supreme Court. Spain’s economy has changed drastically since Franco’s regime.
From 1986 to 1990 Spain’s economy grew roughly 5% per year1. In 1986 Spain joined the European Community, which is now the European Union3. In 2002, Spain changed its currency over to the Euro3. Spain’s GDP (ppp) is $1.352 trillion (2007 est.) and its GDP per capita is $30,100 (2007 est.)1. Spain’s main exports are machinery, motor vehicles, foodstuffs, pharmaceuticals, medicines, and consumer goods1. The country’s main imports are machinery and equipment, fuels, chemicals, semi-finished goods, foodstuffs, consumer goods, and measure and medical control instruments1. Spain’s current issues include immigration, international territory disputes, and illicit drugs1.

1 CIA World Factbook - “Spain”. CIA World Factbook. 2008. CIA. 25 Sept. 2008.  https://www.cia.gov/library/publications….
2 Wikipedia - “History of Spain”. 2008. Wikipedia. 25 Sept. 2008. http://en.wikipedia.org/wiki/History_of_….
3 Marco - Marco, Sebastián Quesada. España: Manual de Civilización. Madrid: Edelsa Grupo Didascalia, S.A., 2006

Our class definition of globalization was that it is “a rapidly accelerating process, which enables, encourages, and advances connections between both individuals and groups worldwide allowing for the exchange and influence of cultural, technological, economic, and political ideas and their applications.” I feel that both these pictures represent this definition. When looking for a photo that represented globalization, I found that many pictures contained the same concept of American companies expanding abroad. I also noticed that some of my classmates chose similar examples featuring American chains in other countries. This made me think, can food be a representation of globalization? With numerous American restaurant abroad, and foods of almost any ethnicity in any country, this seems to be the case. The main examples of these chains seem to be McDonalds, Pizza Hut, and Coca Cola. When I was studying abroad in Spain my junior year of high school, in every large city you could find exactly those. There were also Starbucks, Burger Kings, a chain called the American Restaurant, and even a Ben and Jerry’s. And that’s just what I can remember off the top of my head. The same goes for every other country I’ve been too. You can find familiar food almost anywhere you go. In addition you can find almost any type of food anywhere you go. You can get Indian food in New Hampshire, Bulgarian food in Spain, and if you go to any large, developed or developing city, you can get any type imaginable. The connections technology has created enable this. Food is just another good that is traded on the worldwide market. People travel to new places and bring their culture with them, and with this comes food. Now there are billions of recipes on the internet that anyone can access. Going somewhere and not having access to unlimited options for food is weird for us. And this is just thinking about food in terms of types. Then you have the whole concept of where our food comes from. It used to be that what you ate was grown or raised in your backyard or at a neighboring farm. Now our food can come from anywhere in the world. One meal can be composed of items from 6 continents. Technology has enabled us to send food anywhere in the world and still have in be in perfect edible condition when it gets there. Look at the following picture.

http://www.flickr.com/photos/chijs/221657119/

Courtesy of Marc van der Chijs

This picture uses the examples of Starbucks and McDonalds, both companies that are spreading worldwide. Not only are these food chains everywhere, their products are composed from items from all over the world. The McDonalds diagram shows how McDonalds have spread over the entire globe and shows which countries contain the most of the chain. The Starbucks diagram shows that between the coffee, paper, and sugar used in their products, Starbucks relies on a large portion of world. The diagram also shows how Starbucks, like McDonalds, is spreading across the world. Food, both recipes and the actual good, are exchanged on the global market. This is made possible by the fact the globalization “enables, encourages, and advances connections between both individuals and groups worldwide”. In this scenario the cultural ideas and physical goods of food are what is being exchanged. Globalization can be represented by the fact that in today’s world you can get any type of food, composed from items from anywhere in the world and think nothing of it. I feel this picture demonstrate this concept and illustrate globalization.