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Adam Smith And Globalization: China’s Economic Evolution

1056 words - 5 pages

Adam Smith's Wealth of Nations, published coincidently the same year as the Declaration of Independence, is considered by many economic scholars to be the early framework of capitalism. Smith is often designated in business and politics as the pillar of the free-market system. Supporters of globalization are convinced that the positive effects originate in the Wealth of Nations. The opposition believes Adam Smith would be repulsed by our contemporary globalization strategies because it is missing the moral sentiment espoused by Smith. Even though Adam Smith would acknowledge that some people are casualties of globalization, he would conclude that corporate investments into poor economies, unequivocally raises the standard of living.

Globalization is not a new business concept and has been in practice in various forms dating back centuries. Adam Smith was the first person to conceptualize the idea and formulate his philosophy in the Wealth of Nations. Smith’s “invisible hand” metaphor explains how the motivation of the individual, a strong workforce and a decentralized market are the driving forces for economic prosperity.

China’s entry into the World Trade Organization (WTO) in 2001 was a significant event because it symbolized to the global community that their country was a competitive trading partner. One of China’s greatest advantages was the availability of its large, inexpensive labor force. According to the World Trade Organization (WTO) and 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 cannot ignore these substantial wage differences that will give them a comparative advantage in the global marketplace. Adam Smith outlined a simple theory about globalization:

“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage” (Smith 1776)

Labor is one of the largest and in certain sectors the most expensive component in the production of goods. 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. As a result, hundreds of U.S. based firms moved their manufacturing operations to China, taking advantage of cheap labor and the many cost-saving incentives offered by the government.
Critics often decry about the exploitation of Chinese workers and how many are forced to endure harsh working condition. From a historical context, the exploitation of labor has a long history so the argument is not a new revelation. A proponent of globalization will have no qualms conceding that unfortunate incidents do occur where workers are harmed. However, it can easily be countered that life in China was not prosperous prior to...

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