As the jobs of the first world make their way to the developing regions of the third world, the forces of globalization have had many unintended consequences. The loss of manufacturing jobs in the countries of the world and their movement to the lower-paying developing third world has restructured the world economy. This brief assignment will explore the globalization phenomenon with an eye to outsourcing and the dynamics of the change of the global economic community. We will utilize a case analysis and explore two countries which have embraced free trade and economic growth as a haven for outsourcing. China represents a unique blend of authoritarianism and capitalism leading to sustained and pronounced economic growth in one of the largest – and growing – economies in the world. Mexico represents a controversial source for many American jobs.
Globalization, as it exists today, rests largely on the shoulders of neoliberal economics and the global entrenchment of capitalism as the dominant economic system in the world. Neo-liberalism, the belief in laissez-faire economics, was best articulated by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States in the 1980s. Outsourcing is an integral component of the globalization phenomenon and a key aspect of the global division of labor. Thomas Friedman, in his immensely popular book The World, is Flat (2005), describes offshoring/outsourcing as an integral component of the worldwide spread of capitalism and the global division of productive labor. According to Friedman, outsourcing is primarily done in response to keep costs low and restructuring ones’ labor force in order to keep production costs at a minimum. Accordingly, while a non-skilled manufacturer in Illinois can expect to earn a minimum of $14 an hour, in a country such as India could earn less than a $1 an hour. Thus, companies who seek to maintain their competitive advantage and keep cost low, ship their production facilities overseas where costs are significantly lower. There are also important tax advantages to outsourcing jobs overseas and as we shall see in our case analysis of China below, companies can often expect certain tax benefits when utilizing productive labor in the developing world (Friedman 2005. Bendor-Samuel 2005).
China has become the source for literally thousands of jobs, particularly in the manufacturing sector, which used to employ people in the developed countries of the Western world. Despite these early years of anti-capitalism in the wake of the Chinese Revolution, China has cautiously embraced economic liberalism and a capitalist economic orientation, albeit with strong authoritarian tendencies. China today has the 4th largest economy in the world behind the United States, Japan and Germany, estimated at $2,645 billion per year.With a population of more than 1.3 billion, China remains a largely rural country with 43% of its labor force employed in agriculture with another 25% in industry and 32% in the service sector.