Free Trade Has Been Good for Canada - Essay Example

1. Argue using examples from sources why Free Trade has been good for Canada. Free trade is not just about external economies confined to outward investments and the costs attached to it. Here, there is an international exchange happening. In terms of outward investment, for instance, it becomes a benefit when it helps to spread the strength of Canadian firms over larger markets. In this regard, even though in a sense outward investment involves some transfer of jobs from Canada to a foreign country, it retains market access, which for its part contributes to Canada’s welfare once profit is remitted back to Canada. As a consequence it stimulates the country’s wealth and demand for labour in an indirect manner. Free trade also underscores the benefit of the foreign direct investment in Canada, particularly by the United States in their bilateral trade. To cite an example, Alex Rugman (1990) points to the greater stock of US foreign direct investment in Canada than Canadian foreign direct investment in the United States. (p. 78) The impact of this fact offsets the reservations of critics regarding the outward flow of Canadian wealth to other countries. It makes sense to think that because of the larger amount of capital invested, the US firms in Canada demand more labour than those needed by the Canadian firms operating in the US, or the jobs “lost” when Canadian capital is funneled abroad. Free trade also addresses the issue in regard to tariffs and the concept of “rules of origin.” It is inevitable to have discrimination in favor of supplies from one country, risking the diversion of lower-cost supplies from another. By reducing tariff levels in multilateral system, free trade can reduce discrimination as well as strengthen cost control. (Barton, Goldstein & Josling 2006, p. 176) Duncan Cameron and Mel Watkins (1993) talked about the appreciation of Canadian dollar as one of the most important results of the free trade: The value of the Canadian dollar that accompanied the negotiation and implementation of free trade upset all projections of benefits to Canada… In effect, an increase in the exchange rate of 15 percent is equivalent to imposing a tax on all exports of 15 percent and removing a 15 percent tariff on imports. (p. xvii) Finally, it is important to highlight that free trade agreements in general lead to internal reforms and that all countries that are engaged in them may benefit from it. There is the aspect about raising standards to bolster competitiveness, for example. To illustrate: Since Canadian customers now have better access than ever before to products and services made in the United States, they have become more demanding consumers as they assimilate the American consumer expectations. While this may be painful initially, Canada stands to benefit from this phenomenon in the long run. Canadian-based businesses that learn to serve these customers well will be able to hone their competitive skills better when they serve their customers in the United States. 2) Argue using examples from sources why globalization in its current format is unfair to many of the worlds countries. Ronald E. Hester and Roy M. Harrison (2005) cited several studies that have shown that the poorest and most vulnerable sectors of society in less developed countries become relatively significantly poorer upon integration in the international free trade market and that international inequality has increased significantly since the early 1980s. (p. 85) Indeed, many people particularly the poor that constitutes most of the developing countries do not benefit from globalization as they are not linked in any meaningful way into markets, or do not produce commodities that could bear them in profit in markets. To make matters worse, the elite within these countries as well as the multinational corporations control access to a majority of productive resources. It is, hence, not surprising that even in conditions of free and fair trade, aggregate gains amongst the resource-poor will be small. Hester and Harrison wrote that there is an array of factors that constrain the ways in which people can interact within global markets even if trade were fair. One complaint from smaller countries claims unfair favoring of the United States or the more dominant and industrialized states such as those in Europe in trade policies involving commodities from gasoline to pharmaceutical products. In this argument there is a supposed predation and exploitation of poorer countries by the wealthy nations or the powerful multinational corporations. Globalization becomes an arena wherein wealthy countries capitalize on imbalance of wealth and political power in order to promote policies and practices that are in the interest of the rich and powerful. As a result, globalization has produced an increasing gap between those who are in a position to benefit from the integration of economies and those who are not as well as the emergence of injustices of all kinds – socio-economic, political and cultural. In regard to the role of multinationals in this area, we have John Madeley (2003) who argued that globalization leads to a race to the bottom as transactional corporations seek the most favourable conditions for productivity, which means lowest taxes, lowest wages, laxest environmental pollution controls, and weakest health and safety laws. (p. 44) An example of this case is the thousands of US and Canadian firms exploiting the cheap labor of third-world Mexico. While jobs were provided for Mexicans, adverse working conditions as well as social and cultural deterioration emerge as a consequence. This latter dimension is highlighted particularly as corporate globalization forces economic, social and cultural models in Mexico which is a very different society from the US and Canada. Another significant illustration of the adverse effect of globalization is the demise of the local industries amid an intensified competition from multinational businesses. By allowing these companies to set up operations in poorer or less developed countries, local industries are threatened to be wiped out because they lack the resources that the former have. The large corporations’ entry in developing countries, said Ann Marie Bissessar, creates unfair competition for infant industries and small businesses whose operations are not of the scale required to compete equally with multinationals. (p. 123) With globalization, these multinational organizations have acquired the experience and ability to re-create their more productive operations virtually anywhere in the world. Perhaps what is wrong with globalization, especially in regard to how weaker and smaller countries are disadvantaged, stems from the fact that profit is the main goal and not the needs or the welfare of people. 3) Read the case "Manulife Financial Buys John Hancock" on page 255 and 256 and answer the following questions: a) Can a company ever become too big to be effective? Could this happen to Manulife? An organization or rather when it assumes a bureaucratic structure becomes ineffective due to its sheer size. Numerous formal organizations that have developed into large bureaucracies that fell prey to inefficiency with its serious repercussions include Enron, WorldCom and Tyco. These firms quickly developed into large bureaucracies, and then subsequently collapsed due to fraudulent accounting procedures. I would like to cite Janet Derhardt and Maria Aristigueta’s (2001) argument that the size of a group, a team or an organization influences team effectiveness. Specifically, she argued that a large group often is unwieldy and ineffective. (p. 310) In the case of Manulife, there is a possibility of inefficiency as it merged with John Hancock, emerging as the 2nd largest insurer in North America. The size is a challenge that must be overcome, particularly in light of the fact that the employees came from two big corporations with possibly different corporate cultures. The diversity, in itself, that the employees bring to the company could become a hindrance when achieving goals or objectives. Also, there is the difficulty of reconciling redundant divisions, redundant roles and redundant products that would come out of the merger. Having too many personnel report to the decision maker has its pitfalls. Although Manulife is performing well these days, it must be carefully not to descend into a bad version of bureaucratic organization that is impossible to run. b) Is insurance a product that can be easily managed from a distance across borders? Could a smaller, local insurance company offer any meaningful advantages to customers? Of course, insurance as a product can be managed from a distance. Such easy answer is made possible by the advent of technology in insurance administration. Large computers and information technology systems enable insurance companies today to manage the entire organization, perform services such as profiling, billing, outcome measurement, and the like fast, as well as transact with other stakeholders such as care organizations and provider groups. Distance is not an issue, as a matter of fact, several insurance transactions can be done at the same time and that they could be initiated from almost anywhere. Smaller insurance companies are obviously more prone to bankruptcy risk than a bigger insurance organization. However, a leaner organization could prove to be more effective in terms of management. For example, a small insurance organization could provide a more personalized and prompt service to its clients than the bigger insurance firms. Here, a client would less likely experience being juggled from one department to another when demanding a claim. There is a chance that some process are expedited because of the attention that it will receive. 4) What are the economic and political arguments for regional economic integration? Given these arguments, why dont we see more integration in the world economy? The economic argument for regional economic integration is anchored on the idea that countries are allowed to specialize in production and services that they are in a better position to produce. ( pls. add ref here, p. 264) This supposedly leads to a greater world production and economic growth in comparison with an international trade characterized by restrictions. On the other hand, the political argument of integration points to the increase in political cooperation among neighboring states stemming from free trade or other forms of unions. (p. 265) The unified voice that comes out of regional integration and cooperation also has political implication in terms of influence in the world stage. Author’s name_ gave two reasons why the world has seen fewer or less effective regional integration that successfully achieve the expected benefits. First is that integration comes with a price. This is illustrated in the political, economic and social problems brought by free trade in the developing countries. Then, there is also the concern over national sovereignty. “Concerns about national sovereignty arise because close economic integration demands that countries give up some degree of control over such key policies such as monetary policy, fiscal policy (e.g., tax policy), and trade policy.” (p. 265) References Barton, J., Goldstein, J. and Josling, T. (2006). The Evolution of the Trade Regime Politics, Law, and Economics of the GATT and the WTO. Princeton University Press. Bissessar, A. (2004). Globalization and Governance. McFarland. Cameron, D. and Watkins, M.. (1993). Canada Under Free Trade. James Lorimer & Company. Derhardt, J. and Aristigueta, M. (2001). Managing Human Behaviour in Public and Nonprofit Organizations. SAGE. Hester, R. and Harrison, R. (2005). Sustainability in Agriculture. Royal Society of Chemistry. Madeley, J. (2003). A Peoples World: Alternatives to Economic Globalization. Zed Books. Rugman, A. (1990). Multinationals and Canada-United States Free Trade. University of South Carolina Press. Read More