Midterm

CURRENT RE-SHAPING OF INTERNATIONAL BUSINESS

OBECNE ZMIANY KSZTAŁTU BIZNESU MIĘDZYNARODOWEGO

DOI: 10.15611/pn.2016.450.41 JEL Classification: F13

nr 450 ● 2016

ISSN 1899-3192 e-ISSN 2392-0041

Summary: In this research work, the author focuses on the analysis of the current re-shaping of international business. Due to technical progress and to the growth of economic ties be- tween particular countries, participants in the world economy, the benefits resulting from li- beralised international trade and from the freedom of movement of foreign direct investments become bigger not only for the industrialised countries but also for the so-called “emerging markets”, that is, the countries that find themselves on the stage of the accelerated develop- ment. It has to be emphasized that there are the needs for new approaches to trade cooperation in the light of the forces that are currently re-shaping international business. It suggests that the multilateral trading system will need to adjust to developments in trade and in the trading environment. The key of trade developments within the broader socio-economic context is especially the rise of global supply chains, the general shift of trade power away from the West towards Asia. What indicates the importance and innovativeness of the research is the presentation of new models of the foreign trade policy and trade interests. First of all it has to be underlined that in the new theoretical terms in the demand for trade policy the specific factor is very important. The low specificity of factors means that factor returns are equalized throughout a region’s economy. On the other hand some factors are stuck in their present uses; therefore, factor returns are not equalized throughout a region’s economy, but are indu- stry specific. The main objective of the research task is to give a comprehensive analysis of the models of foreign trade policy, trade interests indicated by export orientation and import sensitivity, protectionist pressures in different political system and different types of autho- ritarian regimes, the level of protectionist pressures, the rise of qualitatively new politics in north-south relations like bilateral tendencies. It should be stressed that free trade in itself is not responsible for the economic growth, but macroeconomic stability and increasing invest- ment are significant.

Keywords: international business, current re-shaping, trade policy, public choice, liberalism, protectionism.

* The paper prepared in the framework of the Grant OPUS, Narodowe Centrum Nauki − NCN (National Centre of Science – NCS), Nr UMO – 2013/11/B/HS5/03572

472

Zdzisław W. Puślecki

Streszczenie: W podjętej pracy badawczej autor skoncentrował się na analizie obecnych zmian kształtu biznesu międzynarodowego. Stosownie do postępu technicznego i wzrostu gospodarczego powiązania między poszczególnymi państwami, uczestnikami gospodarki światowej, wpływające na korzyści będące rezultatem zliberalizowanego handlu międzynarodowego i swobodnego przepływu bezpośrednich inwestycji zagranicznych, stają się wyższe nie tylko dla państw wysoko uprzemysłowionych, ale także dla tak zwanych rynków wschodzących, to jest państw znajdujących się w fazie przyspieszonego rozwoju. Należy zaznaczyć, że prowadzi to do potrzeby ukształtowania się nowego podejścia do współpracy handlowej w świetle sił, które obecnie zmieniają kształt biznesu międzynarodowego. Sugeruje to, że aktualny wielostronny system handlowy powinien dostosowywać się do dynamiki rozwojowej handlu międzynarodowego i do otoczenia handlowego. Kluczem do dynamiki rozwoju współczesnego handlu międzynarodowego w ramach szerokiego kontekstu społeczno-ekonomicznego jest przede wszystkim wzrost globalnego łańcucha dostaw i ogólne przesunięcie się strumienia handlowego z Zachodu w kierunku Azji. Biorąc pod uwagę ważność i innowacyjność podjętego badania naukowego, należy wskazać przedstawienie nowych modeli zagranicznej polityki handlowej i interesów handlowych poszczególnych państw. Warto przede wszystkim podkreślić, że w nowym ujęciu teoretycznym w zapotrzebowaniu na rodzaj prowadzonej polityki handlowej bardzo ważny jest czynnik specyficzny. Słabe wyodrębnienie czynnika specyficznego oznacza, że czynniki przynoszące dochód pojawiają się w gospodarce regionalnej. Z drugiej jednak strony, niektóre czynniki można wyodrębnić na podstawie ich aktualnego działania, zatem czynniki przynoszące dochód nie ujawniają się tylko w regionach, lecz w odpowiednich gałęziach przemysłu. Celem głównym pracy jest szeroka analiza modeli zagranicznej polityki handlowej, interesów handlowych wskazanych przez orientację eksportową i „wrażliwość” importową, presji protekcjonistycznych w różnych systemach politycznych i w różnych rodzajach reżimów autorytarnych, poziomu presji protekcjonistycznych, ilościowego wzrostu nowych polityk w stosunkach między Północą i Południem, na przykład tendencji bilateralnych. Należy przy tym równocześnie podkreślić, że wolny handel sam w sobie nie jest odpowiedzialny za wzrost gospodarczy, lecz decydujące znaczenie ma stabilizacja makroekonomiczna i wzrost inwestycji.

Słowa kluczowe: biznes międzynarodowy, obecna zmiana kształtu, polityka handlowa, wybór publiczny, liberalizm, protekcjonizm.

1. Introduction

Due to technical progress and to the growth of economic ties between particular countries, participants in the world economy, the benefits resulting from liberalised international trade and from the freedom of movement of foreign direct investments become bigger not only for the industrialised countries but also for the so-called “emerging markets”, that is, the countries that find themselves on the stage of the accelerated development. It has to be emphasized that there are needs for new appro- aches to trade cooperation in the light of forces that are currently re-shaping inter- national business. It suggests that the multilateral trading system will need to adjust to developments in trade and in the trading environment. The key of trade develop-

Current re-shaping of international business 473

ments within the broader socio-economic context is especially the rise of global supply chains, the general shift of trade power away from the West towards Asia.

In the process of the development of global economy, apart from the phenome- non of growing interaction between various countries and business which participa- te in the international economy, in the course of increasing competition in the area of new markets and of capital investments, the control measures in international trade can be observed. They are the subject of multilateral negotiations concerning the foreign trade liberalization issues, negotiations conducted on the World Trade Organisation (WTO).

2. Research and methodology

A realistic point were important trends in the global trade regime during the world economic crisis. The protectionist pressures revenues played a very important role in that time of the economic development. The main aim of the article is the indica- tion of the current re-shaping of international business. The main objective of the research task is to present the political economy models of foreign trade policy, trade interests indicated by export orientation and import sensitivity, protectionist pressu- res in different political system and different types of authoritarian regimes.

The analyzed problems were solved with the use of both quantitative and quali- tative research methods. The main research method applied in this economic analy- sis, was a method of scientific study used for splitting (of individual items, their sets, phenomena) by means of logical abstraction. There was also used the institutional method, analogy (comparative) method, which consisted in finding similarities and differences between the items under study, the documentation method and statistical methods. The descriptive method, as well as methods of descriptive statistics and forecasting were applied. Additionally, there were used the methods of deductive and inductive forecasting.

3. The models of foreign trade policy

Traditionally, political economy models of trade policy have tendend to focus on the demand for protection, with factor endowments driving political reactions to the exposure to international trade. Such a model simply assumed that adversely affec- ted economic agents would organize to seek protection, which would be afforded to them by their elected representatives in the political system. The supply side for trade policy was either ignored or underspecified in most models [Thies, Porche 2007].

In the foreign trade policy theory interesting are the reviews of Alt et al. [1996] and Nelson [1988] about the demand for trade policy in terms of the theoretical im- portance of factor specificity. Specific factor refers to the ease with which factors

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(land, labor, and capital) can move from one sector to another in an economy. The two dominant approaches to explaining the demand side of trade policy used radi- cally differeent assumptions about the specificity of factors. The Heckscher-Ohlin model, used by Rogowski [1989] in his seminal contribution “Commers and Coa- litions”, assumes very low-factor specificity. The low specificity of factors means that factor returns are equalized throughout a region’s economy. Producers should export goods that intensively use their abundant factors and import goods that inten- sively use their scarce factors, with the result that owners of abundant factors will favor free trade and owners of scarce factors will favor protectionism. Trade policy coalitions will therefore be organized along factor or class lines. On the other hand, Ricardo-Viner assumes that some factors are stuck in their present uses; therefore, factor returns are not equalized throughout a region’s economy, but are industry specific. Trade policy coalitions should form along the lines of exporting versus import-competing industries.

Neither of these models explains how preferences over trade policies are actually translated into political action [Alt et al. 1996]. In a discussion of the endogenous tariff literature, Nelson [1988] notes that the mobility costs of the specific-factors model may be a result of productivity differentials, labor union activity, or individu- al preferences for membership in a given geografic area, industry, or firm (i.e., some form of solidarity). In all of these cases, one can derive a link to preferences for tariff policy, “but without additional information why the specific-factor model is chosen, it does not tell us much about political organisation”.

Alt et al. [1996] suggest that one can begin to understand this process by assuming that rational individuals make cost/benefit calculations. The Heckscher- Ohlin and Ricardo-Viner models show us the benefits that individuals hope to recive, but the costs of collective action also intervene as they organize to achive those benefits in the political system. Olson [1985] argues that small groups with specialized interests are easier to organize and more effective in securing economic rents than large groups with diffuse interests. Small groups are better able to control free riders than large groups, and groups with specific or homogenous interests can easier coordinate and target their activities than groups with diffuse or heterogenous interests. This approach is thought to explain the success of agricultural producer groups from developed countries in the organization for protection as well as their inability to do it in developing countries [Anderson 1995; Coleman 1998; Olson 1985; Olson 1986; Sheingate 2001].

However, Nelson [1988] points out that we should not assume that organized interests will be equally responsive to all issues. Institutionalized interaction among actors may help to explain systematic patterns of action, espacially as institutions created for specific historical purposes may outlive those purposes. Alt et al. [1996] suggest that if a particular group has paid the fixed costs of establishing collective action and developed well-worn channels of acces to public officials, it may defend its trade policy preferences even when the stakes are low because the marginal costs

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of action are low. It may be the case that “a much more affected but inchoate group does nothing because the start-up costs of organization are too daunting”. Past strength of an organization should therefore be an important intervening variable predicting group action on trade policy. Further, as Nelson [1988] argues, once these institutions exist, supply-side interventions may also affect their usefulness as some are deemed legitimate or illegitimate aggregators of interest. Thus, we must examine the way in which economic institutions and political institutions interact. Most economic models simply assume that a model of the economy is a model of the demand side for trade policy, but Nelson [1988, p. 810] suggests that we have to elaborate the mechanisms by which demand is articulated to the suppliers of trade policy. For a good overview of this argument, it especially pertains to agriculture [Thies, Porche 2007].

If the political systems reward small sectoral groups, than individuals will not pay the costs of organizing large intersectoral coalitions. If the political system rewards large mass movements (i.e., majoritarianism), than individuals will have to pay the costs of organizing large intersectoral coalitions in order to achive any benefits. Collective action costs and political institutions are interactive with factor specifity. They suggest that Rogowski’s [1989] Heckscher-Ohlin framework requires low factor specifity, low collective action costs, and domestic political institutions that favor mass movements. The Ricardo-Viner framework used by the endogenous tariff literature requires that factors are specific, collection action costs are high, and institutions are less majoritarian, with changes in any of these three variables also affecting the type of coalitions that form.

In the a rational dictator model state, the state may be seen as either pursuing “good government” goals along a social welfare function or intervening in the econ- omy for its own self-interested model of the state viewed by politicians such as of- fering preferential trade policy to economic actors in exchange for political support [Magee et al. 1989; Grossman, Helpman 1994]. On the other hand, pluralist theory typically views the state as a neutral aggregator of demands from groups in society. The supply of trade policy is then determined by the balance of power on any given issue. The supply side of trade policy is relatively undeveloped theoretically, and yet a crucial part of the equation. A variety of different characteristics of the political system is posited to affect the supply of trade protectionism, such as politicians incentives to cultivate personal votes, the size of electoral districts, party fragmen- tation, federalism, presidential versus parliamentary systems, and so on [Nielson 2003; Rodrik 1995; Rogowski 1987a; Rogowski 1987b].

On a theoretical level, understanding the choice of trade policies in countries is very important. A survey of economists in 1984 suggested that one of the few things they agreed on was that, under most conditions, tariffs, and quotas reduced the gen- eral welfare [Frey 1984]. The stubbornness of protectionism in the face of interna- tional and academic pressure against it has led economists to seek explanations. These explanations range from the simple ignorance of politicians to arguments

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about the rationality of protection for “infant industries” and “optimal tariff levels” in developing states. Faced with this frustrating question, scholars have increasingly turned to political answers in order to explain the choice of what would seem to be an “irrational” policy [Frey 1984; Nau 1989; Nelson 1988].

4. Trade interests indicated by export orientation and import sensitivity

The evidence considered provides substantial support for the argument that the trade interests of their constituents, as indicated by export orientation and import sensiti- vity of their district, influence policymakers’ behaviour on political and security issues. These effects are mediated by the party and the heterogenity of constituency and are consistent in both roll-call voting and sponsorship activity [Kleinberg, For- dham 2013]. Export orientation appears to be somewhat more important than import sensitivity. Both have substantively meaningful effects on sponsorships, but only export orientation is a statistically significant predictor of roll-call voting [Kleinberg Fordham 2013].

Discussing the liberal argument it is important to underline that trade reduces international conflict and promotes cooperative foreign policies. The first is that the benefits of international trade indeed appear to influence policymakers’ attitudes to- ward trading partners as the liberal argument suggests [Kleinberg, Fordham 2013]. These results complement similar effects which can be found in surveys of mass public [Kleinberg, Fordham 2010; Fordham, Kleinberg 2011]

The second conclusion is an important qualification to the liberal argument, though not one that is at odds with its underlying logic. Because the aggregate be- nefits of international trade are not shared equally within the trading states, trade’s political effects do not apply to everyone. The fact that some people can expect their income to decline as a result of international trade is critically important in a situ- ation when a conflict between trading partners is actually reduced. These people could contribute to demands for a less-cooperative foreign policy as well as for trade protection. In principle, the winners in the trading relationship should be able to re- move this motive by compensating the losers out of the aggregate benefits of trade. In practice, such compensation is not always offered [Kleinberg, Fordham 2013].

It is important to underline that legislative measures do not always have an im- mediate effect on national policy [Kleinberg, Fordham 2013]. For exemple the East Asia Security Act did not became law, though it had substantial support. Many other measures have a large number of cosponsors. The executive branch can and does block many such measures that wolud harm for exemple US relations with China. These legislative measures are still consequential. The cost of blocking them rises with the number of members who support them. Facing an unfavorable domestic po- litical environment, the executive might set aside cooperative measures that it would

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otherwise have proposed. Moreover, for exemple the Chinese government does not discuss hostile proposals in Congress, so they may affect political relations, even if they do not become national policy [Kleinberg, Fordham 2013].

A bilateral relationship is also very important. This relationship is cleary unusu- al in some key respects. Relations of the USA with China are far more uncertain than relations with other major American trading partners, many of whom are lon- gstanding democratic allies. Those harmed by trade with other states would make it difficult to convince other Americans to view them as potential enemies. However, it does not follow that trade cannot have effect on these relationships. There are po- ints of tension and disagreement even among the closest allies. Those who lose from trade might support less cooperative positions on these differences, perhaps using them as the basis for limiting the trading relationship. The 1996 Helms-Burton Act’s effort to force European firms to adhere to American sanctions against Cuba is one possible example of such a measure [Kleinberg, Fordham 2013]. Special research would be necessary to test the domestic political effects on trade in the context of friendlier international relationships, but there is not any reason to expect these ef- fects to be confined to the relations between the United States and China [Kleinberg, Fordham 2013].

5. Protectionistic pressures in different political systems

It is important to indicate, that the role of trade unions in different political systems may be, to a high degree, different. In authoritarian systems it is, as a rule, smaller than in democratic ones. It would seem that if protectionistic pressure on the part of trade unions is weaker, the situation for economic growth is much better. Following that line of reasoning we could come to a conclusion that the authoritarian system is better for the effectiveness of the labour market. The examples of Chile, South Ko- rea, Singapore and Turkey from the seventies and the early eighties could confirm that point of view. In many cases during those two decades the authoritarian regimes persecuted trade unions and put restrictions on the basic labour rights. During that period of oppression, South Korea, Singapore and Turkey experienced a spectacular growth in the sector of processing industry and in the growth of demand for labour. Growing profits and the demand for labour in a processing industry, caused a gene- ral growth of prosperity of the employed. Although similar results were not noted immediately during the authoritarian phase of development in Chile, a number of observers express the opinion that the reforms introduced at that time helped to re- organise Chilean economy in the nineties. The application of democratic rules, on the other hand, may lead to lower productivity of labour force. In a number of years different democracies, for example for the European Union, had to use significant financial resources for the employment of those who belonged to trade unions.

A different point of view shows that government legislation concerning the la- bour market may be applied more effectively in an authoritarian system than in a

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democratic one. The authoritarian regimes often make use of individual interests of given circles. In most democratic countries there is no broad enough basis that wo- uld allow to use labour market policy for gaining the support from pressure groups, including the urbanised labour marked elite. The major difference between autho- ritarian and democratic regimes lies in the level of the outside influence. In a well functioning democracy, the outside opinions are also taken into account and there occur some limitations which come from the outside, which restricts the achieve- ments of given groups of interest. In a dictatorship, a government cares only that those groups are not too strong.

There is, however, a number of democracies among the industrialised countries where an effective labour market exists. There is also a number of democracies with effective labour market policy among the developing countries. Similarly, in the countries in which the transformation from the authoritarian regime towards a democracy is taking place, avoiding unfavourable phenomena on a labour market is often a priority. For example, the Chilean government moved towards democracy and to free trade unions without home income growth. The end of oppression in South Korea, in 1987, started the partnership relations in full of conflicts industry [Banerji, Ghanem 1997].

It is worth considering which of the two points of view presented above sho- uld be given support, that is, which of them is the proper one. The analysis of that problem may be based on the Grossman and Helpman model [Grossman, Helpman 1994]. This model describes economic development on the basis of two sectors − urbanised, regulated processing sector, and rural, unregulated agricultural sector. The protection of the labour market, especially of minimum wages, is usually ap- plied in order to bring the benefits for the employees of the regulated sector, since the sector of unregulated employees does not come under the legislation concerning the labour market.

The sector of regulated employees, and also the owners, demand from the go- vernment that it leads an economic policy that is favourable to them. The employed demand high minimum wages, while capitalists demand high profits. Both groups demand the restrictions on the degree of economy openness. In a closed economy, higher market minimum wages and higher profits are usually connected with higher prices for home consumers, and this is not easy when those consumers are free to buy the substitutes in a form of imported goods. Thus, incomes in an economy may be created by protection and later divided among the employees of the regulated sector and the capitalists, although sometimes the government itself takes a part of those incomes [Banerji, Ghanem 1997].

A government conducting an economic policy takes into account a number of factors. Firstly, it has to decide the degree of obtaining the resources, that is, how much it wants to obtain from those resources. Hence the importance of investments and of future economic growth, and also of defining the possibilities for keeping the power it is currently holding. Secondly, the government should define the scale of

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support from each of the pressure groups that can influence the situation. The po- sition and importance of each group for the development of political processes sho- uld be considered. For example, in the country where the regulated labour market is divided, and politically weak, only capitalists may have a deciding voice in political processes. And the contrary also happens in the societies where the labour market is organized. It may play an important role in mobilising voters.

6. Different types of autoritarian regimes

An interesting question is, which authoritarian regimes are most politically liberal? Among the authoritarian regime types often identified in the literature, multiparty, and to a lesser extent single-party, regimes will tend to have the largest selectorates. Therefore it is argued that multiparty and single-party authoritarian regimes will have more open trade policies than other authoritarian regime types, having other things equal. More specifically in the Wright–Geddes data [Wright 2008a; 2008b; Geddes 1999], the coding is divided into four categories: single-party, military, mo- narchist, and personal regimes [Hankla, Kuthy 2013]. In the case of using these data, it can be expected that single party regimes will tend to have more liberal trade po- licies than other authoritarian regime types. For the test using the Hadenius and Teorell data [Hadenius, Teorell 2007], it can be expected that multiparty regimes will tend to have more liberal trade policies in comparison with any other four regi- me types (single-party, military, monarchy, and personal regimes) [Hankla, Kuthy 2013].

The second component of institutionalization argument is that regime stability encourages free trade policies in authoritarian systems. More institutionalized au- tocratic regimes are better able to co-opt dissent and should therefore tend to enjoy longer and more stable tenures. As a regime’s stability increases, the time horizons, in turn produce powerful incentives to enact policies that will benefit the country’s economy in the long run rather than just shore up support for the leadership in the immediate future. As Olson [1986] has argued even kleptocratic dictators have good reason to maintain the health of their national economies, if only to provide sources of future loot. By contrast, authoritarian leaders sitting atop unstable regimes and fearing removal will not be thinking about the long-term future. Instead their focus will be providing immediate benefits to their supporters in order to remain in power. As a consequence, the leaders of more stable autocratic regimes will be more likely to provide the public good of free trade, while those whose hold on power is preca- rious will tend to rely on particularistic goods such as protectionism to keep their winning coalition intact [Hankla, Kuthy 2013].

This argument follows the logic presented by Hankla [2006] on time horizons and trade policy decisions in democracies, expect that it concerned here authoritarian stability rather than electoral volatility. It is also similar to the argument developed by Wright [2008b] linking long time horizons in authoritarian regimes to the

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effectiveness of foreign aid (a rare piece of research exploring the policy implications of regime stability under dictatorship). Indeed, the prospects for stability to matter are perhaps greater in authoritarian regimes than in democracies, because for ruling groups in the regimes, losing power often results in death or imprisonment. Therefore, the pressure for protectionism in an attempt to gain short-term support in new unstable regimes is likely to be even grater for authoritarian governments than for those in a democracy. Additionally, truly stable authoritarian regimes tend to have individual leaders with very long time horizons (far beyond those of stable democratic leaders), providing them with stronger incentives to choose policies, like free trade, that may contribute to the long-run economic growth [Hankla, Kuthy 2013].

Seeking to understand trade policymaking in authoritarian regimes is all the more pressing because so few others have spent time on the issue. It is worth taking a moment, however, to consider two rare articles that touch on trade policymaking under autocracy. Frye and Mansfield [2003] argue that regime type is not as important an idicator of trade opennes as the number of veto players with influence over policy change [Hankla, Kuthy 2013]. They find that in postcommunist East- Central Europe, both democracies and autocracies with more veto players also enjoyed freer trade. This link, they belive, is a product of incorporating a wider variety of voices into policymaking, thereby reducing the ability of governments to depend on patronage to stay in power [Hankla, Kuthy 2013]. While Frye and Mansfield make an important contribution to understanding of how trade policy is made under autocracy, they focus their attention only on postcommunist East- -Central Europe and they do not address the role of regime stability [Hankla, Kuthy 2013].

It is important to underline that authoritarian regimes do not behave similarly to one another with regard to their trade policies and that it is a mistake to consider such regimes as identical [Hankla, Kuthy 2013]. Using the Hadenius and Teorell data [Hadenius, Teorell 2007] shows that multiparty regimes have significantly lower levels of trade protectionism than single-party autocracies, monarchies, non party regimes, and military juntas. As a robustness check, it also shows significant support for Wright–Geddes data [Wright 2008a; 2008b; Geddes 1999]. In addition it shows evidence using both the Hadenius and Teorell and Wright-Geddes for a conclusion that more stable regimes will, on average, have more liberal trade policies. The effect of individual leader duration appears weaker, but there is some limited evidence of its importance [Hankla, Kuthy 2013].

Scholar understanding of the behavior of authoritarian regimes will need to be tied closely to an examination ot their institution and institutionalization. Perhaps the most fruitful arena for future research will be to focus on the specific preferences of selectorates composition and policy outcome [Pepinsky 2008]. Such research could answer the question how different formal institutions in autocratic system mediate these preferences in the formation of policy. It could also shed light on the types

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of selectorates likely to exist in different types of authoritarian regimes. A deeper examination of these questions can extend the knowlede of how autocratic institutios mediate social and elite preferences in the development of policy in a wide variety areas [Hankla, Kuthy 2013].

7. The level of protectionistic pressures

The above arguments show that the policy is defined by political factors (including the type of the government and the burdens resulting from obligations towards employees and capitalists), and by economical factors (wages, prices, the structure of production and consumption). On the basis of the present discussion, we can present two equations, one pertaining to the level of protection, and the second pertaining to the national economy and deformation of wages.

1) π=f(e,l,k,R) 2) φ = f1 (π, e, l, k, R) The level of protection (π) depends on the economic parameters (e), a relative po-

litical importance of urbanised employees and capitalists (l and k, respectively), and on the type of the government (R). Deformation of wages is, on the other hand, the function of π and of e, l, k and R. In case of a small economy, economic parameters that can influence π and φ include flexible consumer and producer prices, demand flexibility, wages and the demand for labour force, and also the price of goods on an international market.

One can expect, a priori, that the growth of π is dependant on l and k. If interest groups become stronger, the pressure to form incomes based on protectionism may become stronger. The influence of R, that is, the influence of political authoritarianism on the level of protectionism, that is, π, depends on the fact whether the opinion, that the level of protectionism depends on the effects of democratisation, is correct. It is also thought that the increase of the deformation of wages depends on π and l, while its decrease depends on k. As long as the incomes are obtained from trade protections, those incomes can be handed over to urbanised employees. An important problem in case of urbanised labour force as an interest group with growing strength is the fact that urbanised employees may gain a big share in the division of incomes but the growth of political importance of the capitalists may cause that the shared incomes, handed over to the labour force in regulated sectors of economy will become smaller [Banerji, Ghanem 1997].

There is no doubt that it is easier for wealthy rather than poor societies to choose democracy [Helliwel 1992]. Since those wealthier societies at the same time have a tendency to a bigger openness, the direction of cause-result events may run from the openness of society to the political system, and not, as was suggested earlier, in the opposite direction. The research shows also that the level of education plays an important role in this respect. The countries with a higher level of education of labour force are more open.

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On the basis of the earlier considerations, one can come to the conclusion that authoritarian systems have a tendency towards a broader application of protectionism than democratic systems, and that, in turn, the trade restrictions accompany significant deformations of wages on the labour market. This opinion may be justified on the basis of the observations of the situation in a number of countries.

Freedom of association is one of the elements of good management and the necessary condition for development. The authoritarian governments do not respect, however, the freedom of association, which is connected with the policy of trade restrictions and with the deformations on the labour markets. One cannot state, however, that an improper or ineffective policy on the labour market belongs exclusively to authoritarian regimes or that authoritarianism automatically generates this kind of policy. There is a number of examples of authoritarian countries which do not conduct policies of that kind. The works of such authors as Fields or Freeman show that the repressions against the labour force are not necessary, if one wants to achieve a required economic growth [Fields 1994; see also Freeman 1993].

Finally, it should be pointed out that there exists a close relation between democracy and the economic growth, There are well known examples of open societies that stimulate the economic growth. It is true mainly in case of highly developed and strongly urbanised countries. In the countries with a developed democracy, the pressure groups have a bigger opportunity for acting. The research shows that the presence of trade unions helps to accelerate the economic reforms [Devarajan et al. 1997]. The benefits resulting from the liberalisation of the international trade are bigger when trade unions exist in the sector of the economy under protection. The growth of import abilities leads to the decrease of wage pressures, and when trade unions agree to that, such a situation allows for a better allocation of labour force in the economy. This is true both in the case of active and passive trade unions, although the effects are better in case of active trade unions.

Trade unions active on an urbanised labour market had a significant influence on the decisions of governments, in the course of multilateral trade negotiations within WTO. It was especially evident in the negotiations on lowering customs duties and non-tariff measures in steel, shipbuilding, textile and clothing industries, and in coal mining. In the so-called “sensitive” industries, which, for example, in the European Union were under special trade protection, the position of trade unions was very strong.

8. Bilateral tendencies in foreign trade policy

The tendencies in international trade development can create changes in domestic markets, placing pressure on political actors to obtain aid from the government. There are also groups which want to coordinate activities and change foreign trade policy. Countries provide the justification for protection of the internal single market to respond to global competition. It is important to underline that essentially the

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government appears to supply protection for affected parties; yet, the overall impact on consumers, producers, and foreign competition is negligible [Thies, Porche 2007]. Significant government ownership of the productive resources of a country has a negative effect on trade liberalisation, while fragmentation of decision-making authority, expressed as fragmentation within the government and pluralism in society, has a positive impact on the libaralization of trade policy [Kennedy 2007].

In the area of foreign-policy the analysis has focused on “three i’s”: interest groups, international structure, and ideas [Kennedy 2007]. In the interests groups literature, government policy is viewed as the outcome of competition between groups for trade policies that benefit their industry [Nau 1989; Milner 1995; Milner, Yoffie 1989; Schattschneider 1935]. International structure suggests that freer trade was a reflection on U.S. interests and its hegemonic status after World War II, while a decline in free trade is a reflection of the U.S.’s hegemonic decline [Krasner 1976]. The literature on ideas suggests that policy beliefs are reflected in laws and institu- tions. These laws and institutions, in turn, carry a type of interia that continues to influence policy outcomes long after changes in international and internal structure would predict policy change [Goldstein 1989; 1995]. In contrast to these explana- tions government interests in the economy and in maintaining stability also play a large role in trade policy [Kennedy 2007].

At one end, a multilateral forum like World Trade Organisation (WTO) with near universal membership offers the maximization of gains from trade and reduced transaction costs. However, a single state cannot expect to have much control over trade partners or liberalistion agendas at the multilateral level. At the other end, a bilateral FTA often yields very small gains from trade and usually increases transaction costs by producing idiosyncratic sets of rules. However, at the same time, a large state can acquire a high level of control in terms of partners, issues and agenda selection, and sectoral exclusions or inclusions based on domestic political needs [Pekkanen et al. 2007]. One can contend that the industrialized aggregate economic gains are in the interest of national welfare (largest in multilateral forums) or, seeking control over rules, in line with political interests (greatest in bilateral forums).

It is important to underline that the liberalizing rules on agriculture, and other less competitive sectors, are no longer an acceptable political price for the economic gains bundled across sectors. Yet, this sort of vague statement fosters uncertainty for domestic actors at home in uncompetitive sectors like agriculture and in several cases like for example in the European Union and Japan trade officials need to show that they have more concrete control for political reasons − an element more credible in a bilateral setting than a multilateral one [Pekkanen et al. 2007]. Leading investor states negotiated also a web of bilateral investment treaties (BITs) [Radice 2015]. This situation may also indicate the departure from globalisation to the mercantilist tendencies in the foreign trade policy.

484 Zdzisław W. Puślecki

As the economic growth resumed in 2009, it was the so called emerging economies that recovered far more quickly, and it has become a cliche that the BRIC economies (Brazil, Russia, India and in particular China), were driving a recovery that, at the level of aggregate global production and trade, was remarkably robust. Even if some of the bubble markets around the world remained deflated (US and most European housing most notably), once short-term speculative forces are taken into account, the rising prices of food and industrial commodities reflected that recovery [Radice 2015]. This was a resumption of a decade-long growth trend in Africa as well as Asia and Latin America. The apparent return to slower global growth and renewed financial uncertainties has not reversed the shift in the relative dynamism of North and South [Radice 2015].

9. Results

Trade liberalization has a special positive significance in the global context. However, the international trade policy is strongly affected by the force and trends of the world economy development. The changes are evident in the growing importance of international trade to national economies and to domestic groups within those economies, in the closer linkages between trade and other international issues. In this context it has to be emphasized that on a theoretical level, understanding the choice of trade policies between liberalizm and protectionism in countries is very important.

A question is how we can recognize the type of power and the type of rule? First of all, we should investigate what level of resources a given government is going to achieve. If an authoritarian government is more or less corrupted than a democratic one, it will be creating an income, to a bigger or lesser degree, through protectionism. It will also appropriate some part of that income. Secondly, a given type of government may remain under the influence of different pressure groups. If an authoritarian government is trying, to some extent, to subordinate special pressure groups including the regulated labour sector, it will be, to some extent, generating incomes through protection and it will be turning over some part of them to those special pressure groups.

It should be pointed out that there exists a close relation between democracy and the economic growth. There are well known examples of open societies that stimulate the economic growth. In countries with a developed democracy, the pressure groups have a bigger opportunity for acting. The research shows that the presence of trade unions helps to accelerate the economic reforms. The benefits resulting from the liberalization of the international trade are bigger when trade unions exist in the sector of the economy under protection. The growth of import abilities leads to the decrease of wage pressures, and when trade unions agree to that, such a situation allows for a better allocation of labour force in the economy.

Current re-shaping of international business 485

This is true both in the case of active and passive trade unions, although the effects are better in case of active trade unions.

Trade policy takes on additional importance in the economic battle of the valiant liberal reformers, fighting against self-dealing rent seekers profiting from the inconsistencies of the transition economy. Many of the clientelist policies that shelter rent seekers are impossible to maintain in the face of competition in the international economy. On the other hand, high tariff walls, export licensing, and artificial exchange rates provide numerous sources of rents for business people who are trying to promote their own loyalties. The reduction or the elimination of trade restrictions stimulates significantly the growth of the world trade exchange, while the foreign trade, in turn, is an important factor of the economic growth of individual countries.

Scholar understanding of the behavior of authoritarian regimes will need to be tied closely to an examination of their institution and institutionalization. Perhaps the most fruitful arena for future research will be to focus on the specific preferences of selectorates composition and policy outcome. Such research could answer the question of how different formal institutions in autocratic system mediate these preferences in the formation of policy. It could also shed light on the types of selectorates likely to exist in different types of authoritarian regimes. A deeper examination of these questions can extend the knowledge of how autocratic institutios mediate social and elite preferences in the development of policy in a wide variety of areas.

Further trade liberalisation and improved framework policies would increase trade and promote growth. It has to be emphasized that openness to trade is associated with higher incomes and growth and there is a need for new approaches to trade cooperation in the light of the forces that are currently re-shaping international business. The key of trade development within the broader socio-economic context is especially the rise of global supply chains, the general shift of trade power away from the West towards Asia. A major factor, was the even more remarkable transformation of China, as market reforms opened up its economy to foreign trade and investment, and unleashed an unprecedented growth dynamic that has continued, with only minor slowdowns. In the new circumstances for the development of the global economy and the global trade, the People’s Republic of China seems to be a production superpower, able to change the world trade. In many areas it possesses comparative advantages. China may continue its development to specialize in electronics and increasingly in services. With or without further trade agreements, services will be more traded and trade policies will have to adjust to alterations in the organization of global value change. The question raised is whether the West will see China’s rise as an opportunity for cooperation or for conflict. Economic growth is generally more preferable in China to military and extensive expansion. With new investments, the country can transform its position through industrial expansion at home and sustain it through international trade. China is especially sensitive to

486 Zdzisław W. Puślecki

the advantages of intensive growth and will not wish to disrupt essential economic arrangements that have been crucial to its success.

The integration of China and India into the world trade system may increase aggregate welfare in the rest of the world by 0.4%, but the factor incomes in individual sectors may fall or rise by more than 5%. Dealing with relative wage pressures and needs for structural adjustment due to rising trade integration will thus be important. The benefits from trade libaralization are transmited through several channels like shifting production from low to high locations, relocation of factors of production towards sectors and firms with high productivity and rising incomes due to an increase in market size that supports more specialisation, faster technology diffusion and stronger incentives to invest in “non-rival” assets. The former two effects include mostly static international trade in goods, services and factors of production, while the latter entails dynamic growth effects. Significant static and dynamic efficiency gains could be reaped through further multilateral trade liberalization while global welfare gains from regional agreements are much more limited due to trade diversion. While fostering multilateral trade liberalization has recently proved difficult and regional arrangements have been frequent, the former should remain priority due to larger benefits and despite the practical challenges of seeing through such reforms in a multipolar world. These results are based on the “Partial multilateral” trade liberalization scenario which depends on multilateral cuts in tariffs (50%) and transaction cost (25%) realative to the baseline.

It is important to underline that also fiscal consolidation will require major efforts in several countries. Fiscal pressures will build up in reverce areas over coming decades unless extensive fiscal reforms are pursued. Asia growth could be curbed further by damages from environmental degradation due inter alia to climate changes, which are likely to affect these countries earlier than expected. By 2060, environmental damages in South and South-East Asia may lower GDP by more than 5% compared to the central scenario.

China’s growth is good for the world economy with significant terms of trade gains being experienced in its trading partners, reduction in poverty and increases in living standards. Chinese economic growth has been good for the Chinese with massive reductions in poverty and rising living standards. Moreover, China is now a very large regional power and the preceding discussion has provided evidence that it is having a very large growth effect on its neighboring trade partners. If China continues its path of stable and effective, innovative growth there is every reason export will continue and benefits for its trade partners expand.

Rapid and now effective economic growth appears to have spread from China and other East/South Asian countries to Latin America and Africa, and, while much of the old capitalist heardland is mired in economic stagnation and fiscal crisis, the ‘emerging economies’ face an investment glut. Current trends in the world economy and global politics provide evidence that the Global South has now arrived at ‘normal’ capitalism at last, bringing with it new patterns of uneven development, inequality

Current re-shaping of international business 487

and injustice. Its newly confident elites, now fully engaged in global circuits of trade, investment and finance, and in global governance too, appear to have left behind their previous colonial role. It is clear that the Global South, or in elite-speak the ‘emerging economies’, have suffered less and recovered more quickly that the advanced capitalist heartland. In addition, it now seems that the patterns of political impact – not in the sense of immediate crisis measures but of long-term ‘tectonic” shifs – may be equally significant and unextected. While political elites in the USA, the European Union and Japan struggle to find pats of recovery that are acceptable to their confused and divided electorates, remarkable changes of various kinds are observable across Asia, Africa and Latin America.

10. Conclusions

Both structural and micro-political economy analyses of foreign trade policy have missed the impact of changing ideas about protectionism and relatively unchanging institutions designed to handle domestic producer complaints. The political consensus on the supply of trade policy and protectionism change over time. In the economic depression tariffs revenues and protectionism play important roles in the politics of political parties. At the same time in the market economy even during the economic depression one can observe a little support for liberal foreign trade policy. In a global financial and economic crisis also protectionist tendencies which accompany economic recession start to prevail. It is necessary to emphasize that in the foreign trade policy there are not pure liberalism and pure protectionism. In the high economic growth there is a tendency to liberalism in the foreign trade policy and in the economic crisis there is a tendency to protectionism.

The foreign trade policy plays a key role in the maintenance of both economic and political liberalization. The prominence of rent seeking in a country can have a far-reaching implication for its economic development. Especially in underdeveloped or transitional countries, rent seeking takes scarce resource out of productive areas in the economy, using them to promote and/or perpetuate further rents. However it should be stressed that free trade in itself is not responsible for the economic growth, but more significant are the determining macroeconomic stability and increasing investment.

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Other info:

During this module you will:  Read:

· Required:

· de Mooij, M., & Hofstede, G. (2010). The Hofstede model. International Journal Of Advertising, 29(1), 85-110. Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=ufh&AN=48653916&site=eds-live&scope=site

· Ho, F., Wang, H., & Vitell, S. (2012). A Global Analysis of Corporate Social Performance: The Effects of Cultural and Geographic Environments. Journal Of Business Ethics, 107(4), 423-433. doi:10.1007/s10551-011-1047-y. Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=74713922&site=eds-live&scope=site

· Rothwell, W. J. (2012). 13 practical tips for training in other countries. T+D, 66(5), 38-42. Retrieved from: http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=74553256&site=eds-live&scope=site

· Module Notes: The Influence of Culture on a Country's Business Strategy

Read:

· Required:

· Friedman, T. (2005). World Without Walls.  CIO Insight , (51), 42-50. Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=16501291&site=eds-live&scope=site

· Friedman, Thomas L. 2005. "It's a Flat World, After All." New York Times Magazine 154, no. 53173: 32-37. Newspaper Source, EBSCOhost (accessed February 11, 2015). Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=nfh&AN=16613614&site=eds-live&scope=site

· Friedman, T. L., Cairncross, F., Duffy, R., & Ghemawat, P. (2007). It Is a Flat World, after All?. Foreign Policy, (160). 4. Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=edsjsr&AN=edsjsr.25462158&site=eds-live&scope=site

· Levitt, T. (1983). The globalization of markets. Harvard Business Review, 61(3), 92-102. Retrieved from http://vlib.excelsior.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=3868164&site=eds-live&scope=site

· Module Notes: Globalization and the Challenges and Opportunities it Presents to International Business