g strong rivalry makes for more discerning customers and supports more related

G strong rivalry makes for more discerning customers

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E.g. strong rivalry makes for more discerning customers, and supports more related and supporting industries, which lead to even more investment in created factors Role for national government “Many see government as a helper or supporter of industry. Yet many of the ways in which government tries to ‘help’ can actually hurt a nation’s firms in the long run… Governments role is as a pusher and challenger. (Porter) Governments can positively influence all four of the diamond elements. by stimulating early demand for advanced products, by enforcing strict product standards (e.g. environmental performance), through advanced factor creation (R&D, training and education, infrastructure…), by stimulating rivalry through strict enforcement of antitrust regulations and intellectual property rights. Dilemma with trade Creates larger markets, opportunities for specialisation, lower costs, higher real income, greater product range and overall global prosperity Firms’ profits would increase from lower costs and more productive resource allocation, cuts monopoly power, leads to economies of scale → no longer limited by size of domestic markets But, these benefits accrue in the long term…usually after decades In the shorter term, often considerable pain in adjustment with specialisation/ transformation New growth industries – winners Old declining industries – losers But long term benefits predicated on this assumption, i.e. that workers and industries willing to
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LISA YANG IBUS20002 Business in the Global Economy adjust in the short term → not always so China’s integration into the global economy has lifted hundreds of millions of Chinese out of poverty. Over the long run trade with China is projected to raise American incomes. Firms profit from a larger global market and reduced supply costs, and should also gain— eventually—from the reallocation of labour away from shrinking manufacturing to more productive industries. In the short run, America’s gains from trade with China are minuscule. Misplaced assumptions that workers would easily adjust to the upheaval of trade Blow to manufacturing industries ripple through regional economics, battering suppliers and local industries Such places lacked growing industries to absorb displaced workers, and the unemployed proved reluctant (or unable) to move to more prosperous regions. Role of government: Acknowledge that trade generates enormous gains in global welfare Provide more trade adjustment assistance Employees: job training, job-seeking assistance, short term income insurance, relocation allowances Firms: technical assistance to increase competitiveness, cost-sharing for consulting services, expert advice on business recovery Cost generally lower than gains from trade
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