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Adam Smith And Globalization: China’s Economic Evolution

1158 words - 5 pages

Globalization is not a new concept – trade, migration, market integration and capital flows have been practiced in various forms dating back centuries. China is at the epicenter of our globalized world and their success is attributed to the tenets of Adam Smith’s Wealth of Nations. However, opponents of the globalization believe if Smith were alive today, he would be repulsed by our modern day international business strategies. The general consensus among dissenters of globalization is the misguided belief that capitalism at any level is missing the moral sentiment espoused by Smith’s philosophical viewpoints. Even though Adam Smith would acknowledge that some Chinese citizens are casualties of globalization, he would conclude the economic development of China’s poverty stricken society unequivocally raised their standard of living.
Adam Smith's Wealth of Nations, published coincidentally the same year as the Declaration of Independence, is considered by many economic scholars to be the early framework of capitalism. Capitalism is an economic system based on the exchange of goods and services in the marketplace. Supporters of capitalism are convinced that the economic integration of globalization is rooted in the Wealth of Nations. Adam Smith’s “invisible hand” metaphor explains how the entrepreneurial motivation of the individual, a strong workforce and a decentralized market are the driving forces for economic prosperity.
For over a decade, China’s economy has experienced some dynamic changes, especially with the transformation of their labor market. China’s entry into the World Trade Organization (WTO) in 2001 was a significant event because it symbolized to the global community their country was a competitive trading partner. During this period, one of China’s strongest economic advantages was the availability of its large, inexpensive labor force. According to the World Trade Organization (WTO) and U.S. Bureau of Labor & Statistics, the average wages for Chinese workers in 2001 was approximately $0.58 per hour compared to $33.00 per hour for a U.S. worker. Firms facing fierce competition worldwide could not ignore the substantial differences in labor cost that gave them a comparative advantage. Adam Smith outlined a simple theory about globalization:

Labor is one of the largest and in certain sectors the most expensive component in the production of goods. Outsourcing acknowledges the labor cost to produce a particular product is cheaper if the manufacturer were to produce the same product in-house where the cost per unit is significantly higher. Stable labor costs are important for long-term revenue projections to be relied upon by managers because they are a precursor of where a company is trending financially. It is this efficiency-in-scale that confirms the benefit of the division of labor memorialized by Adam Smith. As a result of the wage disparity between the costs of American workers versus Chinese workers, hundreds of...

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