WHY NATION TRADE
The sale of goods and service is not restricted to local, regional, or national markets, it often takes place on an international basis. Nations import goods that key lack or cannot produce as efficiently as other nations, and they export goods that they can produce more efficiently. This exchange of goods and services in the world, or global market is known as international trade. There are three main benefits to be gained from this type of exchange.
First, international trade makes scarce goods available to nations that need or desire them. When a nation lacks the resources needed to produce goods domestically, it may import them from another country. For example, Saudi Arabia imports automobiles; the United States, bananas; and japan, oil.
Second, international trade allows a nations to specialize in production of those goods for which it is particularly suited. This often results in increased output, decreased costs, and a higher national standard of living. Natural, human, and technical resources help determine which products nation will specialize in. Saudi Arabia is able to specialize in petroleum it has necessary natural resource; Japan is able to specialize in production of television because it has the human resources required to assemble the numerous components by hand; and the United State is able to specialize in the computer industry because it has the technical expertise necessary for design and production.
There are two economic principles that help explain how and when specialization is advantageous. According to the theory of absolute the advantage, a nation ought to specialize in the goods that it can produce more cheaply than its competitors or in the goods that no other nation is able to produce. According to the theory of comparative advantage, a nation ought to concentrate on the products that it can produce most efficiently and profitably. For example, a nation might produce both grain and wine cheaply, but it specialize in the one which will be more profitable.
The third benefit of international trade is its political effects. Nations that trade together develop common interest which may help them overcome political differences. Economic cooperation has been the foundation for many political alliances, such as the European Economic Community (Common Market) founded in 1957.
International trade has done much improve global conditions. It enables countries to import goods they lack or cannot produce domestically. It allows countries to specialize in certain goods with increased production and decreased prices. Finally, it open the channels of communication between nations.
MULTINATIONALS AND THE THIRD WORLD
Multinational are large international companies which produce goods in several countries. Some well-known ones are Ford, Shell, Coca-Cola, Sony, and Unilever. Their turnover is huge, being greater in some cases than the national income of countries such as Switzerland or the Netherland. Because they are so big they attract a lot of attention. Usually their business methods are carefully watched by foreign governments.
People are particularly interested in their activities in poor and developing countries. They ask the question: How have multinationals improved the economies of these countries? In reply, a manager working in a multinational will say something like this:
“Well, for a start, we provide the capital which poor countries need for their economic growth. The point I’m trying to make is that our capital, together with local savings, finances their industries. Another thing, we share our technology with local business – we introduce our scientific and technical methods to them. And they increase the productivity of their workers.
Don’t forget also that we produce a wide variety of goods. And let’s face it, we employ thousands of people all over the world. No one can accuse us of not playing goods wages. So, I think you’ll agree, we’re responsible for raising living standard.”
Critics of multinationals do not accept such arguments. They say that the big corporations are not major supplier of capital. In Latin America, for example, multinational have mostly used capital provided by local banks and investors, and have not brought in capital frome the United State and Europe. Because of this, there is a shortage of money to finance local business. Foreign firms have taken the lion’s share of the available capital.
The critics agree that multinationals introduce new technology. However, it is often unsuitable for developing countries. The imported technology is too expensive and complicated. It has been developed for industrial societies, not for poor countries. In agriculture. For instance, most countries don’t need tractors, which are expensive to buy and operate. They need better hoes and ox-ploughs.
Another disadvantage of the new technology is that it will probably reduce jobs. Generally it is labour saving. This is because it comes from the United State and Europe where wage costs are high. Poor countries can do without such technology. They have large numbers of workers looking for employment.