Globalization might eventually lead to the collapse

The force which is driving globalization is the interest of investors to increase their profits. Tough it might well be that this will increas the wealth of some it will be a more difficult task to design globalization in such a way that it increases the wealth and well beeing of the global population.

Since in highly developed countries the price for goods are rather fixed by means of demand and offer one was possible way to increase profit is to reduce production costs. Globalization offers the chance to reduce production costs by buying cheap labor in developing countries and furthermore to benefit from the lower taxes in these countries. Since companies compete for investors by means of profitability managers of companies will seek to increase their profit to the maximum possible value and are not content with beeing profitable alone. The current economic rules dictate to produce in cheap countries and there are no way to escape these rules in a system basically founded on greed.

Though now the productioncosts are decreased you still have to sell your goods and now follows the big drawback of the above mentioned mechanism. Since production moves from highly developed countries to developping countries this means that unemployment will increase and tax raising funds will decrease in the highly industrialized and developed countries. Lower gross domestic product and private income will inevitably reduce investment and demand in those countries. Since the price is a function of demand and offer the prices you will get for goods in these countries will decrease and eventually limit or even reduce the profits. In a vicious circle such a mechanism might lead to a deacrease in global economic growth.

---

technorati tags:
globalization | economic growth