The World Is Flat America and the Flat World Chapter 5: America and Free Trade Is Ricardo Still Right?

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The World Is FlatAmerica and the Flat
WorldChapter 5America and Free TradeIs
Ricardo Still Right?

• Laurel Miller
• Dakin Munson
• Kaytee Norris

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Flattening and the Uneducated

• http//video.on.nytimes.com/?fr_story74b000d4cce1
  471f197eb2ed4e68ccc176ea97c8
• Thomas L. Friedman, Op-Ed columnist, and Joseph
  E. Stiglitz, winner of the 2001 Nobel Prize in
  Economics, discuss how globalization is changing
  the world.
• -- Short Clip from NYTimes.com

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America and Free Trade

• Will free trade benefit America as a whole when
  the world becomes so flat and so many more people
  can collaborate and compete with my kids? (pg.
  263)
• Answer Yes!

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Ricardo is Right

• David Ricardo
• English economist
• Developed free trade theory of comparative
  advantage
• Theory states if each nation specializes in
  the production of goods in which it has a
  comparative cost advantage and then trades with
  other nations for the goods in which they
  specialize, there will be an overall gain in
  trade, and overall income levels should rise in
  each trading company. (pg. 264)

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Arguments Against Free Trade

• Not only are we trading goods we are trading
  services.
• This eliminates jobs that support middle-class
  Americans
• We could be headed for a decline unless we
  protect these jobs by not allowing free trade
• Wages will undoubtedly set a lower equilibrium

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Discussion Question 1

• Do you think that free trade would benefit or
  hurt Americans in a flat world?
• Should we allow trade with those countries that
  are taking away some of our jobs?

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Outsourcing Vs. Unemployment Rates

• Standard of living since WWII has consistently
  INCREASED every decade in the U.S.
• U.S. unemployment is just over 5, even with
  Outsourcing which is about ½ of the most
  developed countries in Western Europe.
• You should be afraid of free markets only if you
  believe that you will never need new medicines,
  new work flow software, new industries, new forms
  of entertainment, new coffeehouses, and only if
  you believe that your countrys citizens will
  never be able to develop the knowledge skills to
  fill the jobs these new industries or business
  models will spin off (- Andreessen, p 270).
• It takes a leap of faith, based on economics, to
  say there will be new things to do

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Intel and Google

• Intel chips are constantly being upgraded to stay
  current with technologys needs.

• Search Engine Optimizer (SEO) is a position that
  has emerged in the flattening world, which
  evaluates algorithms about which websites appear
  first under searched items. Example Suitcase
  searched via Google. Toms Suitcases vs
  Samsonite
• which gets listed first? which gets more
  hits?

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Discussion Question 2

• If jobs are constantly being made, and the
  unemployment rate is staying constant, is
  outsourcing really bad?
• Does it take a leap of faith to think that
  outsourcing doesnt hurt the America worker?

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Comparative Advantage

• The question all economists are finding
  themselves asking is How are developed and
  developing countries going to define their
  comparative advantage in the flat world? (p.273)
• The answer is that in a flatter world a country
  can and will lose its comparative advantage much
  more quickly than a country pertaining to the
  rounder world.
• -Ex. China and India are huge competitors in
  several different fields that interfere with
  business of Western Nations
• This aspect of comparative advantage in a flat
  world will regenerate the flow of jobs for
  Americans and for those of developing countries
  such as India and China this would act as a way
  to commoditize jobs and make them more tradable
  which helps out everyone in the business world.

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India and China

• Always remember the Indians and Chinese arent
  racing us to the bottom. They are racing us to
  the top and that is a good thing for the whole
  world.
• Higher standards of living they want what
  Americans have. They create more room at the top
  of the chain because the more money they receive,
  the more money they spend, which results in
  innovation for everyone.
• Ex. As Americans send knowledge work to India,
  Indians are turning around and using their
  earnings to lift the poverty stricken people into
  the middle class which can in turn create more
  consumers of American products (p. 274).

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India and China

• Low- Cost Innovation is the new key to business
  in developing countries.
• Tata Motors in India is working on designing a
  compact car that will sell for 2200 (Indias
  cheapest car). The Company has hopes of beating
  out the main competitor Suzuki. This product
  sprung into design because of the Indians
  increasing demand of quality products at a much
  affordable price.
• HeyMath.com is an Indian Education company that
  acts as a tutoring service for Singapore and
  other neighboring countries.
• It puts Indian students to work creating lesson
  plans, Powerpoint presentations, and homework
  packets with the help from a group of experts on
  math and science curriculum. Cambridge University
  also contributes efforts into the scheme of
  things.

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Mckinsey Quarterly, Beyond Cheap Labor Lessons
for Developing Economies (p.275)

• For example, an Italy textile and apparel
  industry has moved much of its garment production
  to lower cost locations. Their solution to
  maintaining stable employment for both locations
  is to develop more resources which creates more
  task such as coordinating global production
  networks (p. 275).
• Another case of this was in a Minnesota plant
  called Donaldson Co. Their solution to making
  sure they werent destroying their comparative
  advantage was to send all the blue collar jobs
  overseas and create more jobs in the areas of
  engineering, chemists, and designers. By going to
  this system of operations has evolved their
  company greatly in an increase of nearly 2000
  jobs since outsourcing in 2003.

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Discussion Question 3

• How would you feel if your father was one of the
  blue-collar middle class workers of Donaldson
  Co., who had to be forced into unemployment
  knowing that a guy within his present workplace
  (such as an engineer or chemist) was being kept
  merely because of his title and the companys
  logic on comparative advantage?