Free Trade, Business Strategy and Globalization
AbstractThis 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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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0009.
Date of creation: Feb 2000
Date of revision:
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More information through EDIRC
Globalization; stadial analysis; process competition; cumulative causation;
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 Economic 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; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-06-14 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Reid, Gavin C, 1985. "Keynes versus the Classics: Fluctuations and Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(3), pages 315-27, November.
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- North, Douglass C., 1993.
"Economic Performance through Time,"
Nobel Prize in Economics documents
1993-2, Nobel Prize Committee.
- Reid, Gavin C, 1989. "Adam Smith's Stadial Analysis as a Sequence of Societal Growth Trajectories," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(1), pages 59-70, February.
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