The Creation of Global Wealth | The Relationship Between International Trade and the Local Economy

We hear a lot about companies marketing themselves–but what about countries? When it comes to international trade, we choose to invest in a country based on the image that comes to our mind when we think of a particular culture or group of people. Is it an accurate picture that we have in our head or is it one that is based on a country’s marketing strategy?

If you’ve ever seen an ad on TV to visit a certain place (not that most of us can do that right now), you’ll notice that cities, cultures and even nations have a USP: a specialisation, so to speak. Some countries market themselves as ‘exotic’, others as straight-laced and efficient, and others as entrepreneurial. As the most well-travelled among us have learned from experience, visiting a place is entirely different to actually living there.

Globalisation is not some new phenomena of modernity. As long as there has been a globe, globalisation has existed. Since WWII, however, the international economic system has evolved into a worldwide network of interconnected players. From the entrepreneur in his garage (or bedroom), to the bilateral and multilateral agreements that take place in the international arena; citizens of the world cooperate, collaborate and compete in the market. This interdependence has led to ad hoc alliances that are both global and regional as well as short-term and long-term.

In a world characterised by interdependence, is self-sufficiency possible? I suppose it is. Self-sufficiency, however, requires one person, family, community or nation to do it all–which is simply not feasible or even possible if the goal is economic growth. I’ve found that countries that lean towards an autarchic system find themselves left out or left behind when it comes to fostering interdependent relationships. When you opt to do it all yourself, you eventually hit a limit as to what you can achieve. An abundance of resources are available out there to do it in a more efficient and effective manner.

Tariffs and economic blocs–which are a form of protectionism and elitism–provide preferential arrangements to certain nations. In the case of tariffs, it has the effect of making foreign goods less attractive to local markets. This sort of barrier has the effect of either creating or diverting trade.

So how does a country market itself to the world? Before a country can market itself, it must know what resource it is marketing. There are four main resources that a country can market:

  1. Natural Capital — essentially everything that was there that had nothing to do with you; i.e, natural resources.
  2. Physical Capital — the manmade resources that are created with natural resources and human ingenuity; i.e, machinery, buildings, public works.
  3. Human Capital — how the people of a particular country organise themselves to manage (1) and (2)
  4. Social Capital — the interdependent networks that get created between families, communities and various organisations

A country (or even a company) that does not adequately allocate and/or continuously improve all of these four areas will eventually confront the very real risk of weakening the long-term health of its economic standing. In my view of the world, a nation’s true wealth consists of both its physical resources as well as a mindset that drives a nation to be all that it can be.

Aspirations to live in a beautiful home surrounded by nice neighbours and excellent leaders remains an ideal or a pipe dream till strong economic fundamentals are in place to create a thriving ecosystem in which a community can sustain itself. Without continued investment in economic progress, the vastness of human potential simply cannot be realised.

The Singapore Skyline

There is a misconception about what ‘scale’ actually is. Economies of scale is an entirely different concept to ‘scale’ as we commonly speak of it today. Both big and small countries can achieve economies of scale. For instance, in Japan, 75 percent of manufacturing occurs in SMEs; compared to about 35 percent in the US. Yet, there are still nations whose economic development mainly depends on large-scale private enterprises. In South Korea, for instance, the top 5 chaebol conglomerates account for approximately half of the nation’s output.

There are a multitude of pathways that nations can take to develop economically. The three development strategies that are most widely touted are that of America, Europe and Japan; but there are numerous other pathways which can work equally well. The important thing is to decide on the pathway that will help policymakers reach their long-term goals.

But before we we embark on our journey, we need to identify the strengths and the weaknesses as well as the opportunities and limitations of each individual pathway.

In the case of South Korea, the nation has transformed from an agrarian economy to a dynamic industrial economy by undergoing four distinctive stages. This includes: reconstruction, export-oriented industrialisation, heavy and chemical industries promotion as well as trade liberalisation. Is this the correct formula for your national economy? Perhaps the answer is yes and perhaps the answer is no.

So take a deep breath and ask yourself–what is your country’s marketing strategy? Is it consistent with what’s happening on the ground? Or is it your nation’s marketing strategy that is actually creating the market?

3 thoughts on “The Creation of Global Wealth | The Relationship Between International Trade and the Local Economy

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s