This paper links the economist's analysis of free trade with the business strategist's analysis of the forces behind the globalization of competition. It argues that, although the drive to globalization may seem different from the seeking of superior outcomes in competitive markets, this may be only because the modern reference point for competition is inappropriate. However, reference to classical ideas of competition shows that both the advantages of globalization, and its disadvantages, had been anticipated by classical writers of the eighteenth century, most notably by Adam Smith. That argument is supported with two main lines of reasoning. The first identifies globalization as the most recent stage in a process of stadial development. The second links global business strategy to the analysis of competition as a dynamic process in classical economics. These two ideas are combined, to provide the basis for a 'cumulative causation' argument. In this approach, expansion of production, innovation, and increasing returns, are mutually reinforcing, causing a progressive spiral of growth. However, it is pointed out that the same process can cause 'vicious circles' as well as 'virtuous circles'. If demand starts to stagnate, this tendency can be self-reinforcing, with firms who are not industry leaders going to the wall, and a tendency to monopolisation asserting itself. Thus the process of globalization needs to be guided; the 'virtuous circle' is not a necessary outcome.
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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number
0009.
Find related papers by JEL classification: B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith) B31 - Schools of Economic Thought and Methodology - - History of Thought: Individuals - - - Individuals D29 - Microeconomics - - Production and Organizations - - - Other F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
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