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Being the biggest economy has its attractions. It helps to provide military security and gives a country more clout in global economic affairs. Being the main reserve currency is also useful. America's ability to borrow and to settle its imports in dollars has saved it from paying more interest to finance its profligate ways.

However, remaining number one cannot be an end in itself. The goal of economic policy should be to improve living standards, which depend on a country's absolute, not relative, rate of growth. Indeed, an obsession with remaining number one could lead America to adopt policies that are likely to hasten the day China pulls ahead. Trade barriers, subsidies and restrictions on offshoring merely shield inefficient firms that need to become more productive if America is to thrive.

If rich economies raise import barriers in the misguided belief that they will protect Western living standards, they could destroy the main source of wealth-creation in the 21st century. They could also deny better living standards to hundreds of millions of people in the developing world. It is rich countries' fear of emerging economies' success, not that success itself, that is the real danger to the world economy. It would be ironic if the triumph of free trade and market economics in the emerging economies were to turn the rich world more protectionist and interventionist. If they continued down that path, today's rich world might even end up as tomorrow's (relatively) poor ones.

That might sound far-fetched, yet China, once the world's technological leader, provides a sobering lesson on how economies can slide down the international league table.

In America today the defendant of protectionism are increasing. As this survey has argued, that is because although globalisation benefits economies as a whole, the gains are unevenly distributed, and the costs-job losses and lower wages-are much more visible than the wider benefits to consumers generally. Workers tend to be better organised and more vocal than consumers.

In recent years, as profits have surged, most workers' real incomes have been flat or even falling; only those near the top of the tree have enjoyed big pay rises. Globalisation has shifted the balance of power against workers and in favour of companies. But unless ordinary folk are seen to share in the gains from globalisation, there will be growing demands for import barriers or much higher taxes on booming company profits.

The trouble is that, in a globalised economy, policies aimed at taxing companies will fail to spread the rewards more widely. Firms will simply move to a more congenial environment. The best way to boost national economic prosperity is to make labour and product markets work more efficiently, speed up the shift of jobs from old industries to better-paying new ones, and improve education and training to prepare workers for tomorrow's jobs.

The Economist. September 16th, 2006, p. 28


Guided commentary

  1. Based on the text, say why Western countries are afraid of China. (03 points)
  2. Referring to the text, what are the bases of a powerful economy? (03 points)
  3. According to the text, give the effects of protectionism on both Western and emerging countries' economies. (03 points)
  4. How can emerging countries deal with Western countries' protectionism? (05 points)
  5. In your opinion, what effects does protectionism have on poor countries' agricultural products? (06 points)

 

 

 

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