Video Transcript: Lesson 12

Hey everyone, welcome back. Okay, Unit Four, Lesson Three. We're going to  discuss globalization and competitiveness. Over the last several decades,  globalization and competitiveness has increased. You can see that the world  has become more interconnected in the marketplace, which has driven up  competitiveness against multinational firms, national firms competing with  people more directly in other nations than maybe they would have previously. I  think one of the greatest developments that has instituted this change has been  the technological expansion, which has reduced both, you know, the cost of  moving physical things and intangible information around the world. For  example, the lettuce on a sandwich could have been flown in from Kenya. A  banker in Zurich can transfer funds to a bank in Prestoria with the click of a  mouse. So people routinely travel to foreign countries for vacation or work. So  with technology, we've been able to see the increase in efficiency, being able to  move products, move capital, move cash. These are examples of a marketplace that is going through globalization. The increasing ability of goods, capital, labor, and information to flow among countries more efficiently, effectively, smoothly.  One consequence of globalization that firms in different countries compete with  each other to a much greater degree than in the past. In the 1920s and 30s, the  automobiles produced by Ford were almost exclusively sold in the United  States, while those produced by Daimler-Benz, which is Mercedes-Benz,  Daimler moved over to Chrysler. They were both sold exclusively in Europe.  Today, Ford and Chrysler merged and became Chrysler Daimler-Benz in 1998,  which compete directly for customers in both Europe and the United States.  They also compete with Japanese manufacturers, Korean manufacturers, and  and others. Okay, it is tempting to think that in a globalized world, nations  compete in much the same way that firms compete. To think that one nation's  success must come at a nation another's expense-such a view is superficially  appealing, but mostly incorrect. Suppose, for example, that South Korea  becomes better at producing computers. What does this imply for the United  States? It does make life harder for U.S. computer manufacturers like Dell, but  at the same time, it means that there is more real income being generated in  South Korea because they're better at making computers. Right? They can sell  more computers, therefore the revenue that they bring in off their computer  sales is going relative to the size of their population is going to be greater than  the revenue that the United States companies are bringing in relative to their  population. So the revenue per labor unit or revenue per capita for South Korea  will be much greater than it is for the United States because of just the  population difference. But South Korea's manufacturers of computers are selling more units than those in the United States, so they are obviously gaining more  wealth. So, in fact, we expect growth in South Korea to be beneficial for the  United States because then they will become a more prosperous nation and be  a better trading partner for the United States as an overall whole. So we should 

welcome the success of other countries, not worry about them being  competitors so much. So, what's the difference between McDonald's and Burger King and our computer example? Okay, if lots of people switch to McDonald's  from Burger King, then McDonald's would become less profitable. It would, in  the end, become a smaller company. It would lay off workers, close restaurants,  and so on. A company that's unable to compete at all will eventually go  bankrupt. But if South Korea becomes better at making computers, the United  States doesn't go bankrupt or become a significantly smaller economy. It has the same resources, labor, capital, human capital, and technology as before. Even if Dell closes factories and lays off workers, those workers will then be available  for other firms in the economy to hire instead. So they'll just go to work for  somebody else. So even though Dell closes down its shop and it shuts down its  process, its manufacturing process, and closes all of its doors. You know, it's not going to hurt the overall United States economy, but it's going to lift up the South Korean economy. Now, those that were employed by Dell, they can go to work  for somebody else, so they won't be hurt in the long run. Nor will the United  States economy, but it will offer greater security for South Korea and offer a  better trading partner long term. In that case, do countries compete at all, and if  so, we ask then how. The Dubai government's website that we showed at the  beginning of this unit provides a clue. The website sings the praise of the  Emirate as a place for international firms to establish businesses. Dubai is trying to entice firms to set up operations there in economic language. It wants to  attract capital and skilled labor. Dubai is not alone. Many countries engage in  similar advertising to attract businesses, and it is not only countries, regions  such as the United States or even cities deliberately enact policies to influence  business location. Now they may do that through tax incentive or promises to  you know provide different types of perks for them to move in because obviously local economies, regional economies, and those governments-they want their  citizens to be taken care of and able to achieve the wealth that will be brought in by attracting new businesses to their locality, region, nation, etc. Dubai is trying  to gain more resources to put into its aggregate production function. If Dubai can attract more capital and skilled labor, then it can produce more output. If it is  successful, the extra physical and human capital will lead to Dubai becoming a  more prosperous nation, just like our South Korea example earlier. In the era of  globalization, inputs can move from country to country. Labor can move from  Poland to the United States, United Kingdom, from Mexico, etc. Capital can also move at the beginning. Capital can also move, as we saw at the beginning of  the chapter, we quoted from an article explaining that a Taiwanese manufacturer was planning to open a factory in Vietnam, drawn by low wages and preferential  tax treatment. This then is the sense in which countries compete with each  other. They compete to attract inputs, particularly capital competitiveness refers  to the ability of an economy to attract physical capital. So, the more physical 

capital that a nation can attract, which is you know labor, materials, capital as far as cash reserves, other assets in that manner. Obviously, economies want to  attract the physical capital so that their region, or their locality, or that their nation can increase their competitiveness in the global marketplace.