Category: international trade

Nine Reasons Why Globalization Can’t Be Permanent

We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.

It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.

We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:

Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:

Read about the 9 reasons here: https://wp.me/p3dRG-b4w

Also read more on how Globalization has evolved here

Hope you enjoy it as much as we did, and that it has the same effect it had – getting one to think outside the box and look at the big picture.

31 March 2018
Globalization 2.0

The implementation of globalization has not been without its major flaws. Abolishing it, however, is paramount to anti-socialist behaviour or looking inwards. This concept is against the tendencies of human nature.

If you read up on any definition of globalization, you will see that the intention was always genuine. The need to integrate and collaborate for the mutual benefit of nations.

It can, however, like any product (like knowledge), be exploited out of selfish desires and lead to exploitation.

Of course, it also doesn’t mean that globalization must apply to every sector of your economy. Some inward investment is always healthy. It should, however, not lead to extreme nationalism for a fear of loss of national identity.

Trust issues

The problem, like many others, lies in the hands of politicians who are controlled and dictated to by a handful of large corporations. These ‘corps’ have one and only self-interest – profit, power, and control.

The main concern for sovereign governments is that ‘giving up’ or sharing one’s technological, innovative, or manufacturing secrets to other countries. The premise is that this would make them ‘vulnerable’.

The real issue lies in a lack of trust – leading to the notion: “I will not let you know how I do it because you may use it against me – in trade or war”.

Despite the existence of supposedly ‘compartmentalized’ trading blocs and free trade areas like NAFTA, EU, ECOWAS, SADC, etc, the rate of globalization has sped up significantly in the past decade.

This is due to boundless advances in information technology as accurately predicted by Neoclassical Growth Theory.

Information technology has now given us valuable new tools to identify and engage in economic activity.

Tech provides access to and faster, more informed analysis of information, transfers of assets, and collaboration.

The impact on finance

A globalized world means that with the aid of technology, you can buy and sell shares of an Italian firm from a desktop in Namibia!

You would then only have to deal with the commissions and transaction fees (capital gains tax) locally pertaining to your online trades.

And think about it, on a micro-level. If globalization is entirely a bad concept then no-one should be using Amazon, eating MacDonalds, or watching Netflix in protest. Hard to imagine, isn’t it?

We must praise its positive outcomes and work hard against the negative impacts. The negative ones are also giving rise to a new era of extreme nationalism or populism.

You can only do your bit by promoting and backing policy-makers who can enforce good trade laws. This would force both local and international competitors to play by the same rules.

Penalties for financial misconduct should be a lot greater to deter exploitation. Rather, perpetrators still get the proverbial slap on the wrist.

The creative destruction of the financial system will be brought about by cryptocurrency and its underlying blockchain technology.

Depending on its uptake, and whether the authorities can legitimize its legality, we may see individuals and governments using decentralized currencies.

The Venezuelan president is investigating the concept of a national cryptocurrency dubbed ´Petro´. They would use it to alleviate dependency on (heavily interest-ridden) loans.

10 December 2017
Elasticity and Sin Tax

We can change our dependence on certain goods and services so that we don’t take too high a knock when their prices fluctuate.

Life is about making choices. As rational beings, we tend to make choices that benefit our wealth and well-being.

But some choices have to be made on our behalf — especially when it comes to the provision of commonly used goods and services.

What is elsaticity?

The prices of government-regulated products such as fuel, alcohol, and cigarettes are examples. How we react to the price change (whether an increase or decrease) is referred to in economics as elasticity.

It is a general term for a ratio of change and scientifically attempts to capture your sensitivity to price movements. It is the percentage change in the quantity demanded (or supplied) of something brought about by a percentage change in its price.

A 10% increase in the price of bread, resulting in a decrease in the quantity demanded by 8%, means your price elasticity of demand for bread is 0,8.

The ratio is expressed as a number between negative infinity and infinity, with one being the midpoint. The number has no unit — it is not expressed in centimetres, litres or as a percentage.

But that number tells us a great deal. If it is higher than one, the product is said to be elastic. This means the quantity you demand responds strongly to price changes.

Anything under one is inelastic. This means a price change doesn’t affect your demand for it much.

When a product is said to be unit elastic, it means the change in quantity demanded is equal to the change in price.

Practical examples

On the commercial side, the concept becomes more useful when formulating and studying consumer trends. It is especially beneficial to brand managers who need to set prices for their products while paying attention to sales.

Income elasticity of demand measures the responsiveness of the quantity of a good to changes to your disposable income.

Generally, the more inelastic the product, the easier it is for firms to maximize profit by increasing their price.

Taking advantage of addictions

If you’ve ever wondered why the prices of your alcohol and cigarettes — commonly referred to as “sin taxes” — always rise, it is because they are inelastic.

If you were addicted to nicotine, for instance, you would rather cut down on movie tickets to still afford a box of smokes. This makes you inelastic to the increase in cigarette prices.

Likewise, we industrialize, we become heavily reliant on oil. Our dependence on oil was reiterated in the latest Organisation of Petroleum Exporting Countries (Opec) oil outlook, which paints a gloomy picture. The West’s demand for oil is predicted to surpass the available supply in the coming years.

Globally, over the decade of 1994-2004, about five times more passenger cars appeared on our roads than commercial vehicles. In South Africa, alone, commercial vehicle sales for July were up 13% in the same period.
Concurrently, increases in lorry volumes worldwide have been observed.

The more inelastic your product is, the easier it is for you to slap your consumers with high price increases.

At the time of writing in 2007, the oil price once hovered around $73/barrel and threatened to reach a record high of $80*

Concluding remarks

By using other means of energy (oil substitutes, wind, electricity, and solar) we could reduce our reliance on oil. this would make it less inelastic.

In South Africa, for example, using trains for cargo transport would ease our dependence on petrol and diesel-powered commercial vehicles.

Carmaker Tesla recently launched its future truck and alleged fastest production car in a big to reduce our reliance on fossil fuels. Tesla is gaining steady ground to introduce its electric cars to the world and has surpassed the net worth of Ford.

18 November 2017

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