GLOBAL ECONOMIC FLOWS Global Flows of Production Chapter

GLOBAL ECONOMIC FLOWS - Global Flows of Production Chapter 4 Dr. Senem SÖNMEZ SELÇUK

O A good place to get a quick snapshot of global trade, as well as net economic flows in and out of a nation-state, is a nation’s trade surpluses and deficits. Global Economic 2

O International trade of goods is a major avenue of globalization. O More than half of world trade occurs between high-income areas such as Japan, the United States, and Western Europe (as well as China). O Trade is increasing, however, between these high-income countries and developing countries in Asia, South America, and Africa. O Lowered trade barriers offer opportunities for low-income countries, although still limited. Labor-intensive merchandise, such as textiles, can be produced and exported at a low cost 3 from developing nations. Global Economic

O The rapid growth of global economic exchange during the last twenty years has restructured the global economy. O Trade theory tells us that countries open to international trade will specialize in goods that make intensive use of their abundant factors of production. Global Economic 4

O In a fully open international economy, therefore, therefore a global division of labor should emerge in which each country produces goods for which it has a comparative advantage and sheds industries in which it has a comparative disadvantage. O Such a division of labor is emerging in the global economy. Though this division is far from complete, it is possible to identify four emerging tiers. Global Economic 5

1. The advanced industrialized countries hold a comparative advantage in capital and human capital -intensive goods. Producers in the advanced industrialized countries lead the world in the production of knowledge-intensive products such as pharmaceuticals, computers and software, telecommunications equipment, commercial aircraft, and other research- and high technologyintensive products. Global Economic 6

2. The Asian Newly Industrialized Countries (NICs), (NICs) especially South Korea, Korea Taiwan, Taiwan Hong Kong, Kong and Singapore, Singapore hold a comparative advantage in mature and relatively standardized capital-intensive goods such as semiconductors and other computer components, automobiles, and steel. These countries have not yet become an important source of product or process innovation. Global Economic 7

3. The second wave of NICs, NICs including Indonesia, Malaysia, Thailand, Mexico, and Argentina, hold a comparative advantage in labor-intensive goods such as apparel, footwear, and the assembly of finished goods from components. These countries have not yet emerged as important international producers of capital-intensive goods, but are likely to make that transition relatively soon. 4. Other developing countries hold comparative advantages in land-intensive primary commodities such as fuel, minerals, 8 Global Economic and agricultural products.

GLOBAL TRADE: ECONOMIC CHAINS AND NETWORKS O Trade in goods and services is clearly central to the global economy. O Much of that trade takes place in interconnected circuits of one kind or another. O These interconnections are clear, as are the basic flow- and process-oriented themes, in the various chains and networks that exist in the global economy, specifically in global 9 trade. Global Economic

O Gary Gereffi has outlined several of the most important economic chains and networks involved in global trade: O Supply Chains is a general label for value-adding activities in the production process A supply chain begins with raw materials and follows the valueadding process through a variety of inputs and outputs and ultimately to a finished product. For example, the process might begin with some comparatively inexpensive raw material (say cotton) and at various steps along the way workers and technologies add value to the cotton (e. g. transforming it into thread, producing a T-shirt) so that in the end the finished product – the T-shirt in 10 Economic this case – has greater value than. Global the cotton with

O International Production Networks involve the networks of producers involved in the process of producing a finished product. MNCs are seen as playing a central role, as being the “flagships”, flagships” in these networks. Global Economic 11

O Global Commodity Chains bring together value- adding chains and the global organization of industries. They also accord a central place to the growing importance of the sellers of global products. This includes buyer-driven chains such as Wal-Mart which play an increasing role in determining what industries produce and how much they produce. Since such companies do not manufacture their own products, they are buyers of products that are then sold under their brand names. Also included here are “brand companies, ” or “manufacturers without factories” (the best known of these is Nike). Buyerdriven chains are distinguished from producer-driven chains (e. g. Toyota). Toyota There is a focus on the governance structure of global commodity chains (e. g. are they governed by producers or buyers? ). Also of concern is the role of lead firms (Wal-Mart, Nike) in the creation of “global production and 12 Global Economic sourcing networks”.

O Global Value Chain is emerging as the overarching label for all work in this area and for all such chains. Here is the way he describes global value chains: «Emphasis on the relative value of those economic activities that are required to bring a good or service from conception to, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal 14 after use. » Global Economic

O This conceptualization has several advantages: 1. First, it focuses on value creation and value capture across the full range of possible chain activities and end products (goods and services). 2. Second, it avoids the limiting connotations of the word commodity, which to some implies the production of undifferentiated goods with low barriers to 15 entry. Global Economic

3. Third, while it accepts a number of ideas from earlier approaches – the nature and consequences of organizational and geographic fragmentation; the role of power in the chain; and “industry (re-) organization, coordination, governance”, the ways in which firms are linked in the global economy – it goes beyond them to include the broader institutional contexts (e. g. trade policy, trade regulations, trade standards) of these chains. However, the most important advantage of the idea of global value chains is that it encompasses both production and consumption (and even post-consumption). post-consumption Global Economic 16

Global Value Chains: China and the US O To give specificity to the idea of global value chains we look at a specific example of such chains, which involves trade between China and the US (although many other countries in the world are involved in these or similar 17 chains. ) Global Economic

O The neo-liberalism that undergirds the global market is based on the belief that markets should be free, open, and have no barriers to free and open trade. O While there have been many efforts to lower or remove such barriers, the fact is that such barriers remain in many areas. O One particularly interesting and instructive example is found in Pietra Rivoli’s work on the global value chain for T-shirts. The global value chain here involves, among other things, cotton grown in and shipped from the US; T-shirts manufactured in China; the shipping to, and sale of, those new Tshirts in the US; the eventual disposal (often very quickly) of them; and finally the shipping and sale of 18 those used T-shirts in Africa. Global Economic

Is your old t-shirt hurting African economies? «Don't Send Your Used T-shirts to Africa. » O One of the best known and most-referenced articles on the subject is "Used-clothing Donations and Apparel Production in Africa" by Garth Frazer O Frazer set out to explain why African economies haven't advanced beyond basic manufacturing. He concludes that one major factor prohibiting the development of major textile industries is used-clothing donations by consumers in industrialized countries. That is, if you box up your old t-shirts and take them to Goodwill, you may actually be inadvertently undermining the development of clothing production facilities in Africa. Why? Because with a huge supply of cheap apparel that is ready for sale, there's no need to build factories to produce more. O These are not insignificant effects; Frazer finds that "Used-clothing imports are found to have a negative impact on apparel production in Africa, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981– 2000. " 1981– 2000 In other words, clothing imports result in job loss for people who could probably

What Happens to the Losing Team's Championship Shirts?

Global Production O Changes in industrial production include not only how products are manufactured, but also where products are manufactured.

O For much of the twentieth century, the most important business organizations were large manufacturing firms that controlled both the making of goods and their final sales. O Giant automobile companies such as Ford and General Motors in the USA typify this approach. O Such companies employ tens of thousands of factory workers, making everything from individual components to the final cars, which are then sold in the manufacturers’ 22 showrooms. Global Economic

O Such manufacture-dominated production processes are organized as large bureaucracies, often controlled by a single firm. O During the past 20 or 30 years, however, another form of production has become important – one that is controlled by giant retailers. Global Economic 23

O In retailer-dominated production, production firms such as the American retailer Wal-Mart – which in 2017 was the world's largest retailer – buy products from manufacturers, who in turn arrange to have their products made by independently owned factories. O In clothing manufacturing, most manufacturers actually employ no garment workers at all. Global Economic 24

O Instead, they rely on thousands of factories around the world to make their clothing, which they then sell in department stores and other retail outlets. O Clothing manufacturers do not own any of these factories and therefore are not responsible for the conditions under which the clothing is made. Global Economic 25

O Two-thirds of all clothing sold in America is made in factories outside the United States, where workers are paid a fraction of US wages. (In China, workers are lucky to make US$40 a month. ) O Bonacich and Appelbaum argue that such competition has resulted in a global «race to the bottom» , in which retailers and manufacturers will go to any place on earth where they can pay the lowest wages possible. 26 Global Economic

O One result is that much of the clothing we buy today is likely to have been made in sweatshops by young workers - often teenage girls - who get paid mere pennies for making clothing or athletic shoes that sell for tens, if not hundreds, of pounds. O If we take a global view of the experience of work, then there are large differences between the developed world and developing countries. Global Economic 27

O Whilst a series of employment laws in developed countries have protected the working hours, health, safety and rights of workers over many years, 'sweatshops' in which people (including many children) work very long hours for very little pay, pay operate in the less tightlyregulated environments of developing countries. Global Economic 28

O This global division of labour means that most of the goods they produce so cheaply are sold to the relatively rich workers in the industrialized countries. O Employment patterns are also very different across the world. Global Economic 29

O In most developed countries, the informal economy (sometimes called the 'black economy' or 'parallel economy') my' is relatively small compared to that of the formal paid employment sector, though many recent migrant workers earn their livings in it. O In many developing countries, most people's main experience of work is in the informal sector, which is often seen as the norm. Global Economic 30

INCREASING COMPETITION FOR COMMODITIES O A wide range of commodities constitute the starting point for many of the global value chains. O However, one of the most striking developments in recent years has been the increasing global competition for various commodities. O The best-known and most obvious example is oil, but much the same thing has happened in the markets for natural gas, copper, nickel, silver, gold, as well as even more mundane commodities such as rice, wheat, corn, and 31 Global Economic soybeans.

O The increasing demand for these commodities, and many others, is no longer fueled mainly by the needs of the countries we traditionally think of as highly developed (e. g. the US, the members of the EU, Japan), but now by massive development in other parts of the world, especially India and China Global Economic 32

O The latter, especially China, are industrializing at a rapid pace (the Chinese economy grew at 10% in 2007; 2007 the US economy grew at 2. 5% in that year), and those relatively new industries place large and increasing demands on all sorts of commodities, especially the oil needed to power them (China accounted for 31% of the increased demand for oil between 2003 and 2007; in addition, it accounted for 64% of the increased demand for copper; 70% for 33 aluminum, 82% for zinc). Global Economic

O Between 2008 and 2011, 2011 China's economic growth was between 9. 2 and 10. 4% each year, although it dipped slightly to 7. 8% in 2012 (by contrast, the US economy shrank in 2008 and 2009, and grew at 2. 2% in 2012). O Those relatively new industries place large and increasing demands on all sorts of commodities, especially the oil needed to power them (China accounted for 40% of the increased global demand for oil in 2012). O While China is now the second-largest consumer of oil in the world, world and is the most significant consumer of many base metals, it is important to remember that the North, especially the US, remains the major 34 Global Economic consumer of most of the world's commodities.

O However, demand for commodities goes well beyond that of specific industries needing specific commodities for their production processes. O This industrial development is linked to the emergence of a similarly expanding consumer society with consumers in countries like China and India demanding the same sorts of products that consumers in the US and the EU possess. Global Economic 35

O The result involves the need for everything from more airplanes to transport people who now want to see the world, to gas-guzzling and polluting trucks to deliver the things they want to consume, to the automobiles they now want to have both as consumables and as technologies that allow them to consume much else (e. g. tourism within China and Asia). O All of these planes, trucks and cars require gasoline, need to be produced in factories that consume huge amounts of energy, and in order to be produced all of them require a 36 wide range of commodities. Global Economic

O A global commodities specialist sums this up well: “It is absolutely a fundamental change in the global economic structure. . Global commodities ranging from oil to base metals to grains are moving higher as billions of people in China and around the world get wealthier and are consuming more as they produce products for us, and increasingly for themselves”. O As an economist put it, “The world is coming alive and the lights are coming on across Asia. . What we are dealing with is a tremendous 37 demand for resources”. Global Economic

O The developing countries, especially China, are devouring huge quantities of many commodities (of course the developed countries long have, and continue to, devour much larger quantities of these commodities): O The country accounts for about a fifth of the world’s population, yet it gobbles up more than half of the world’s pork, half of its cement, a third of its steel and over a quarter of its aluminum. It is spending 35 times as much on imports of soya beans and crude oil as it did in 1999. . China has swallowed over four-fifths of the increase in the world’s copper supply since 2000. (Economist 38 2008: March 13) Global Economic

O The result of all of this were massive increases in the price of all sorts of commodities (e. g. the price of copper tripled and that of zinc doubled in a five-year period in the early twenty-first century; the cost of both wheat and soybeans increased by 70% in 2007). O The prices of many commodities reached record highs in 2008, before dropping off quite dramatically as the Great Recession gained momentum. Interestingly, China is in the process of positioning itself for the post 39 recession years by investing in. Global commodities Economic of

The Economic Impact of the Flow of Oil O Not only does greater demand lead to higher prices, prices but it becomes harder and harder to find additional resources (e. g. new oil fields) and increasingly difficult to obtain them. O Thus, oil wells far out in the ocean are more expensive to build than those on land, and the oil itself is harder to get and, as a result, more expensive. Getting oil from sand pits is more difficult and costly than from underground oil wells. 40 Global Economic

O All of these increasing difficulties translate into higher costs and higher prices. And these changes have ripple effects throughout the economy.

O For example, the high price of oil and gasoline has led to increased efforts to create and use various biofuels, especially ethanol from corn (among other sources including sugar cane). O The result is a huge increase in demand for (the US accounted for 60% of that increase in 2007), and the price of, corn. Global Economic 42

O The increase in the price of oil, and the increasing difficulty in obtaining enough of it, is both roiling and restructuring the globe and the position of many nations, corporations, and individuals in it. O At the national level we have become accustomed to thinking of OPEC nations such as Saudi Arabia and Abu Dhabi as profiting handsomely from the oil business, but in recent years other nations have also become wealthy and more important global players as a result of the oil boom. Global Economic 43

O At the individual level great wealth and affluence is being produced at the very top. O Individual Russians are traveling the world, buying expensive art, and bidding up the price of the most desirable real estate in, for example, London. In Angola most of the wealthiest people are current and former government officials. While such people are clearly skimming a large proportion of oil income off the top, the great majority of Angolans are profiting little, if at all, from the oil boom. Global Economic 44

O The International Energy Agency has urged advanced nations to work with India and China to reduce the burgeoning use of oil. O It is the increased demand, especially from China and India, which is playing a huge role in pushing up the price of oil on the world market. O Increased use there, and elsewhere, is also tied, of course, to higher carbon dioxide emissions (projected to increase by 57% over the next quarter century) and accompanying 45 disastrous effects on the globe’s climate Global Economic

O It is estimated that in 2006– 7, those two countries accounted for 70% of the growth in the demand for energy. O Their use of energy is projected to double between 2005 and 2030. O China is expected to pass the US as the world leader in energy consumption circa 2010. For their part, representatives of China and India argue that they are being unduly singled out in this issue. O After all, the developed countries have already developed and China and India should be given an opportunity to catch up before there is any 46 Global Economic discussion of limiting their expansion.

RACE TO THE BOTTOM AND UPGRADING O A dominant idea in thinking about less developed economies from a global perspective is the so-called race to the bottom O The basic argument is that for less developed countries to compete and succeed in the global economy, they must undercut the competition in various ways such as offering lower wages, wages poorer working conditions, conditions Global Economic longer hours, and hours ever-escalating pressure

O It is often the case that one nation is willing to go further than the others in order to attract the interest of MNCs. O An ever-spiralling decline in wages, etc. , occurs in the “winning” less developed nation, at least until it is undercut by other countries eager for work and willing to offer even lower pay, poorer working conditions, and so on. In other words, the countries that get the work are those that win the race to the bottom. O These, of course, are almost always pyrrhic victories since the work is earned on the basis of creating poorly paid and horrid circumstances for the workers within the “victorious” nation. 48 Global Economic

Upgrading in the Less Developed World? O The current global economic system is based, at least in part, on a race to the bottom by less developed countries and the exploitation of them and their industries by the more developed countries. O However, we must not ignore the fact that there is evidence of a process of upgrading in less developed countries and their industries. O That is, at least some of them enter the global economic market at or near the bottom, but over 49 time begin to move up. Global Economic

O This, for example, is clear in China today, where the early success of Chinese industry was based on their victory in the race to the bottom, but the Chinese are now moving away from that and to the production of higher-value products with higher pay and better working conditions for at least some Chinese workers. Global Economic 50

O Another example is to be found in Mexico, Mexico especially its macquiladoras. O The early, first-generation macquiladoras were labor-intensive, employed limited technologies, and assembled finished products for export (e. g. apparel) using components imported from the US. O Second-generation macquiladoras are less oriented toward assembly and more toward manufacturing processes that use automated and semi-automated machines and robots in the automobile, television, and electrical 51 appliance sectors. Global Economic

O In their third generation, generation maquiladoras are oriented to research, design, and development, and rely on highly skilled labor such as specialized engineers and technicians, and they have matured from assembly sites based on cheap labor to manufacturing centers whose competitiveness derives from a combination of high productivity, good quality, and wages far below those prevailing north of the border. O Of course, this indicates that while the macquiladoras may have advanced, the lot of the workers may not have kept pace 52 with this development. Global Economic

O This point can be made more generally under the heading of industrial upgrading through which economic actors – nations, firms, and even workers – “move from low-value to relatively high-value activities in global production networks”. O This can occur in four sequential stages – assembly, assembly original equipment manufacture (OEM), (OEM) original brand name manufacturing (OBM), (OBM) and original design manufacturing (ODM) O Depending on the nation and industry in question (e. g. apparel, electronics, fresh Global Economic vegetables), one sees varying degrees of 55

O A similar point is made, albeit in far more general terms, by Rivoli in her study of the global market for T-shirts. O If one takes the long historical view, the nations, especially specific areas and the industries located there, that won the race to the bottom are now among the most successful global economies in the world. O In textiles, textiles the race to the bottom was won first by England (especially Manchester), Manchester then the US (New Hampshire and later Charlotte, Charlotte North Carolina), Carolina then Japan (Osaka), Osaka and Hong Kong Most recently it was the Chinese and their textile industry and it is clear that, having won the race to the bottom in that 56 industry, they are moving up industrially Global and Economic economically.

O However, Rivoli’s view on this is hotly debated and much disputed, especially by globaphobics, because of its clear association with neoliberalism. As a result, it seems to endorse the race for the bottom for all countries interested in development. O This not only leads them into poverty for at least a time, but it greatly advantages the wealthy North which is guaranteed a continuing source of low-priced goods and services as one country replaces another at the bottom. Winning the race to the bottom is no guarantee of adaptive upgrading, but it is a guarantee of low wages and 57 poverty for an unknown amount Global of time. Economic

Globalization and "Sweatshops"

O As millions of people pour into factories located in China, India, Bangladesh, and other developing societies to produce manufactured goods for consumers in the advanced industrialized countries, controversy has arisen around the conditions within which this work takes place. O A large and increasingly powerful NGO-led movement dedicated to ending ‘‘sweatshops’’ in the developing world argues that these working conditions represent cold exploitation of developing 59 world workers by global capital. Global Economic

O They advocate enforceable global labor standards to improve working conditions in these factories. O Are factories in the developing world sweatshops, and will global labor standards improve conditions in these facilities? O Although the term sweatshop has no single definition, most definitions are a variation of the one advanced by Sweatshop Watch: ‘‘extreme exploitation, including the absence of a living wage or benefits, poor working 60 conditions and arbitrary discipline’’ Global Economic

O The claim that factories in the developing world are sweatshops seems simple and compelling. O The wage discrepancy between developing countries and the advanced industrialized world is very large. O Table 4. 1 illustrates this wage gap for a few industries. O In all manufacturing industries, a typical worker employed by an MNC affiliate in an advanced industrialized country earns almost ten times as much as a typical worker employed by an MNC affiliate in a low-income country. This disparity is 61 also apparent within specific manufacturing Global Economic industries.

High-Income Countries Middle. Income Countries Low. Income Countries Manufacturing 45. 0 14. 1 4. 9 Petroleum 72. 8 30. 7 25. 4 Food 45. 6 13. 8 5. 9 Primary and Fabricated Metals 38. 6 18. 0 13. 8 Electronic and Electric Equipment 32. 0 8. 8 3. 6 Table 4. 1: Annual Compensation by Multinational Corporation Affiliates (Thousands of U. S. Dollars) Global Economic 62

O The case seems even more compelling when one reads the litany of abuses that observers have cataloged. O Researchers have documented numerous examples of four objectionable workplace practices during the last fifteen years. 1. First, many firms require their workers to work excessively long hours In one Indonesian factory that produces shoes for Nike, for example, workers reported working eleven hours per day, day seven days a week. Often, such overtime is not compensated at a higher 63 rate of pay. Global Economic

2. Second, workers are often forced to work in abusive environments that include exposure to toxic chemicals and other health and safety hazards, physical punishment for violation of workplace rules, and sexual harassment Workers in a Chinese toy factory, for example, reported constant chemical odors and paint dust in the air, which they suggested caused persistent headaches, dizziness, stomach aches, and nausea. Global Economic 64

3. Third, firms sometimes engage in bonded labor schemes under which a person ‘‘pledges his or her labor for a specified period of time in return for a loan’’. 4. Finally, many developing-country firms employ children According to the International Labor Organization, more than 250 million children under the age of fourteen are currently working. Global Economic 65

Bangladesh Factory Collapse (2013) – A Heartbreaking Photo From Photographer Taslima Akhter Global Economic

O Bangladesh factory collapse occurred on April 24, 2013 on the outskirts of Dhaka, Bangladesh. O More than 1100 workers were killed. O “When I saw the couple, I couldn’t believe it. I felt like I knew them — they felt very close to me, ” said Akhter. O “I looked at who they were in their last moments as they stood together and tried to save each other — to save their beloved 68 lives” Global Economic

O Akhter comments on the photo, saying: “Every time I look back to this photo, I feel uncomfortable — it haunts me. It’s as if they are saying to me, we are not a number — not only cheap labour and cheap lives. We are human beings like you. Our life is precious like yours, and our dreams are precious too. ” Global Economic 69

O The antisweatshop movement advocate the establishment of global rules that will improve working conditions and wages in these factories. O The antisweatshop movement and labor unions in the advanced industrialized countries have advocated linking developing countries’ access to global markets to their adoption and enforcement of global labor standards. O Two sets of standards have been proposed, a set of core labor standards and a set of cash 70 Global Economic standards.

O Core labor standards, standards which are elaborated in the ILO’s 1998 "Declaration on Fundamental Principles and Rights at Work", include freedom of association, association the right to collective bargaining, bargaining the abolition of forced labor, labor prevention of discrimination in employment, employment and a minimum age for employment O Cash standards focus on achieving specific workplace outcomes that affect labor costs. These include rules for maximum working hours, hours minimum wages, wages and health and 71 safety conditions in the workplace Global Economic

OUTSOURCING O Outsourcing is the transfer of activities once performed by an entity to a business (or businesses) in exchange for money. O The form of outsourcing most closely and importantly associated with globalization is offshore outsourcing which involves sending work to companies in other countries. O Offshore outsourcing: Transfer of activities to entities in other countries 72 Global Economic

O For example, a variety of Indian firms have become very important settings for the outsourcing of various kinds of work – the best known of which is that performed by call centers – from, especially, the US and Great Britain (although offshore outsourcing is a two -way street and such work is also finding its way into these developed countries). O Indian companies are even making progress in performing outsourced call-center work for Japanese firms necessitating, of course, the employment of those fluent in Japanese. Global Economic 73

O While blue-collar manufacturing work has long been outsourced off-shore, and the offshore outsourcing of low-level service work is of more recent vintage, what is eye-catching is the increasing offshore outsourcing of high-level white collar and service work such as IT (information technology), accounting, law, architecture, journalism, and medicine. Global Economic 74

O There are many advantages of offshore outsourcing to both outsourcers (e. g. 24/7 availability of workers) and outsourcees (e. g. job and wealth creation) and that is why it has grown so dramatically and is likely to continue to grow. O However, there are many costs, especially in the country doing the outsourcing and most notably in job loss and destruction It is the array of costs that has made offshore outsourcing a hot-button issue in the US and other developed nations and has led to calls for the government to act to restrict it. Global Economic 75

O In-sourcing involves the fact that offshore outsourcing necessarily involves tasks being taken in by other firms in other countries. O In the case of the US (and other developed countries), the work that is outsourced to, say, India is simultaneously in-sourced by that country. It is also the case that while they are offshore outsourcing a great deal of work, the US and Great Britain, among others, are also in-sourcing some work that had been performed in other countries. Global Economic 76

CREATIVE DESTRUCTION AND OUTSOURCING O The theory that is most often employed, especially by neo-liberals, to think about outsourcing is Joseph Schumpeter’s creative destruction O While it is acknowledged that much outsourcing is destructive (although in-sourcing, in particular, shows its constructive side), the overall view is that it is, at least in the long run, constructive 77 good for the economy and ultimately Globalthe Economic capitalist system.

O However, this is far too rosy a picture. O There are largely or purely destructive aspects of offshore outsourcing For example, in the case of the US, offshore outsourcing can be seen as being responsible for job loss, the hollowing out or complete destruction of businesses and industries, the evisceration of the military and health-care system, and the emptying of many lives that were once filled with tasks (care for children, aged parents) that they 78 once found highly meaningful. Global Economic

O The theory of creative destruction has its origins prior to the current era of globalization, and of offshore outsourcing. O It is well suited to deal with, for example, jobs lost in one part of the US (destruction) destruction but gained (created) created in another part of the country. O It is ill equipped to deal with a situation in which the jobs lost in one country (perhaps only involving destruction there) are created in another. Global Economic 79

O Schumpeter and his disciples always combine creativity and destruction because of their focus on a single country. O However, in the global age (if not always) they clearly can be, and are, separated with the likelihood that creativity occurs in one country while destruction occurs in another. O Disentangling creativity and destruction in this way would make the concept of creative destruction more applicable to the 80 global age. Global Economic