Thursday, August 16, 2007

Osmosis and globalization

Osmosis - a physical phenomenon in which flow of physical particles occur through a permeable membrane from one side to another. Read about an example of water-flow here.
I think osmosis is an analogy for what is happening with the global economy now.  As long as there was no globalization (read the presence of a impermeable membrane), the low-quality, cheap, toxic, bacteria-infested food stayed in the developing countries, where people had become immune to common microbes.  However, once the effects of globalization started kicking in, the seemingly impenetrable membrane turned permeable and lo and behold we have toxins and microbes flowing into the developed world.

One would have expected that the permeability should have enabled the flow of technology and quality control processes into the developing world, raising the average quality of goods and services overall.  However, that seems to occur with a certain degree of selectivity.  Some sectors in the developing world did experience improvement due to increased competition and he presence of good, well-managed large western firms.  However, the developed world did not get back quality goods and services - but lower prices on goods and services (read cheap IT programmers).  In summary, while the quality of goods and services in the developing world improved, the prices of goods and services in the developed world reduced.

Clearly, there is an imbalance.  However, there was no other way this could have happened.  Globalization is a juggernaut, that once set rolling is unstoppable.  Be it the Chinese financing US mortgages (through the Chinese government's purchase of US treasury bonds) or the US consumers financing the military expansion of the Chinese by buying Walmart goods (Walmart sources almost entirely from China - where it is difficult to tease our the government from private enterprise), the world surely is a different place.

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