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Free Trade, Business Strategy and Globalization

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.

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Date of creation: Feb 2000
Date of revision:
Handle: RePEc:san:crieff:0009
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462438
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  1. Gavin C. Reid, 1987. "Disequilibrium and Increasing Returns in Adam Smith's Analysis of Growth and Accumulation," History of Political Economy, Duke University Press, vol. 19(1), pages 87-106, Spring.
  2. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
  3. 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.
  4. 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.
  5. Hahn, F H, 1989. "Kaldor on Growth," Cambridge Journal of Economics, Oxford University Press, vol. 13(1), pages 47-57, March.
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