The blog provides a left-wing non-partisan perspective on socio-economic issues in Russia and throughout the world. The focus is on qualitative development of national economic systems and ensuring flexibility in economic policies to meet the challenges of the 21st century. Email: leftistobserver@gmail.com

DEPENDANCE ON FOREIGN DEMAND


Production specialization in a globalized economy makes manufacturers dependant on foreign demand. What gives transnational corporations their comparative advantages over local manufacturers on global markets is their ability to break up their production chains and move respective portions into different countries depending on costs. Thus, production within a particular country ends up focusing on specific technological processes (e.g. assembling car seats instead of manufacturing whole cars, etc.) since full-cycle production within a single country offer less competitive advantages than transnational division of labor.

Transnational corporations enter local markets with intent to hire local companies, which would carry out those specific operations. But the employment created thereby is dependent on foreign demand since local markets have too few clients interested in specialized products alone. Should the global demand shift, entire industries and even countries will have to go under.

No longer driven by domestic demand, economies take severe blows from unpredictable gales of globalization. But I realize quite perfectly that protectionism is not always a good solution –when local markets are already too narrow, relying on their consumption will be impractical. Closing all doors and windows, figuratively speaking, may be good for a season or two, but is detrimental as a long-term strategy. That is why those looking far ahead talk of the need to maintain a balance between the national and transnational economic developments simply because globalization is quite ambiguous and we cannot foresee all of its underlying trends right now.

Boris Anisimov

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