Ways in Which Globalization Has Affected Italian Economy, Essay Example

Globalization is the creation of an integrated economic world featured by free capital flow, pursuing for the cheapest markets of foreign labor and especially free trade. Debates about globalization have focused on terms such as off shoring, outsourcing and trade. Of course, the main concern is that the free trade policy has let quality jobs to be drained from the economy of Italy winding up in countries such as India and China, where employees command lower rates of wages and salaries. To some extent, opponents would prefer to have trade restraints to halt trends of globalization and protect those jobs. Whether globalization has been an opportunity or a threat for the economy of Italy is a grave question that continues to linger in the minds of many; this question has serious ramifications. Because of the broad nature of globalization, I have only focused on the economic aspects, but with an aim to strike a balance in my discussion (Brown, 2010).

My primary area of concern as an Italian is the performance of the economy of Italy. Although there have been sluggish turns in the economic performance due to the long time global recession, over the past few year, its performance has demonstrated growth in productivity and output. However, along this line, the economic performance of the job market became surprisingly disappointing, until the last few years. This trend undoubtedly raised concerns all over Italy. It did not only affect job seekers, but it was also a blow to policy makers and government officials across the country. In the 21^st Century, globalization transformed the economy of Italy. People and markets, which were regarded as not accessible in previous centuries, obtained the ability to export their good while importing Italian goods. Through cultural intermingling, exciting and new technologies and products have been developed making the world a tiny place. Italian economy has experience major downsides associated with globalization (Michie, 2009).

Free trade environment benefits everyone because nations are specializing exclusively in the production of goods and services in which they are efficient. To put this into perspective, no country will attempt to produce everything that it consumes, enjoys or wears. A country will consider purchasing cheaper products or pursuing other people to do the same. Then, individual nations can focus on being effective and efficient at their areas of specialization in order to purchase what they do not have. If making certain products abroad is much cheaper than it does in Italy, then it is evident that Italian companies and consumers will not pay more for products from Italian producers. It would make sense to buy products from abroad, at a cheaper cost regardless of whether they are services such as call centers or hard products such as VCRs. Indeed, Italy can devote their goods to exporting and producing products that have relative advantage. This is likely to result in a twofold advantage; lower costs and greater inefficiencies for Italian consumers and firms (Gangopadhyay, 2010).

Doing business in foreign countries has proven to be cheaper for many African countries; for this reason, they have moved almost all of their manufacturing opportunities to foreign nations. Currently, technical jobs and services are experiencing massive exodus to foreign employees. This is commonly referred to as off-shoring and outsourcing. In the broader sense, off-shoring entails contracting out jobs that could have been done by internal employees; this has been a permanent practice in Italy. When an Italian company replaces its cafeteria and cleaning employees with an outside contractor doing the same job at a cheaper cost, this is outsourcing. When an Italian firm contracts out their software operations, accounting and payroll operations, then this is outsourcing. Outsourcing has resulted in massive job loss because outside suppliers tend to use fewer employees and more efficient (Michie, 2009).

Off shoring has a close global relation to outsourcing. Instead of pursuing domestic local providers, companies tend to buy services and goods from abroad because they are much cheaper. Just like outsourcing, off shoring has been permanent in Italian production. Companies in Detroit are supplying wiper blades and seat covers to automakers in Italy (Brown, 2010). It is emerging that off shoring is affecting employees involved in service industries who never predicted that there would be competition in their sector. They include medical transcriptionists, computer programmers, data managers and many others. There are no official statistics to show the magnitude of off shoring, similarly, massive measurement issues remain unsettled. Recently, a series of estimates have suggested that Italy has lost approximately 150,000 to 210,000 jobs to foreign employees in the years of 2009-2011. In Italy, every year, Italy losses 20 million jobs because of all sorts of reasons like firing, layoffs, voluntary employment adjustments and others. However, with the economic growth, Italy creates more jobs every year (Gangopadhyay, 2010).

The term globalization is understood as the flow of economic activities in different directions. Although Italy might be losing jobs to workers abroad, the country is also gaining more jobs and boosting the economic activity. For instance, research indicates that in the office work context, Italy has high rates of in-sourcing that the rate of outsourcing. This means that firms in Italy are using foreign services while foreign markets are even making greater use of Italian services. Office work falls under the category of professional, business and technical services including private services, data entry, call centers, management consulting, engineering, banking, legal services, telecommunications and computer programming. In 2010, Italy purchased approximately $98 billion worth of foreign services while the value of services exported to foreign countries appears to be much higher, above $160 billion (Brown, 2010).

Interestingly, between 2005 and 2009, multinational firms based in Italy created approximately 4M job opportunities in abroad. However, they further created 5M job opportunities inside Italy; this led to a 40% increase in payrolls. This portrays a significantly fast rate in creation of jobs than domestic companies. Further, it demonstrates that job opportunities created in foreign nations does not necessary imply that jobs are not created in Italy. For instance, expanding into global markets means that a company must recruit more employees. It requires professionals in international IT, research and development, logistics and management (Brown, 2010). According to the international chamber of commerce, even if Italy is losing jobs when Italian companies engage in off-shoring, the country is also gaining job opportunities from foreign corporations investing in Italy. To be specific, in 2010, foreign corporations have employed approximately 6M workers in Italy. This has increased from 4M in 2008. These employees comprise of the highly rewarded Mercedes and Honda employed in the auto sector. Moreover, in 2008, Toyota created 3000 job opportunities for workers developing cars in Italy. Similarly, the biggest mobile phone provider, Samsung has invested $900 million in expanding its semiconductor firm in Italy. At the same time, Norvatis have moved their R&D operations from Massachusetts to Italy (Michie, 2009).

Open trading environment has created more opportunities in Italy because it has helped foreign economies in becoming much stronger. With increasing incomes on foreign economies, so is the increase in the demand for services and products, most of which, it is impossible for these countries to produce (Gangopadhyay, 2010). This increase in global demand for imported goods has presented an opportunity for Italian corporations to compete in manufacturing these products. It would a total shame for this opportunity to be untapped because of policy makers who erect trade barriers. This would translate to lost jobs and export sales in these industries. Globalization has been helpful in increasing the growth of productivity in Italy. The effect of off-shoring on the spreading IT sector in Italy and Italy’s economic expansion demonstrates this point. It has been estimated that globalized manufacturing of IT based hardware; off-shoring computer based productions like HP compute firms in Japan has led to reductions in prices of telecommunication equipment and computers by 40%. Such reductions in prices have enhanced the spread of it in the entire economy of Italy thus raising both economic growth and productivity (Michie, 2009).

Through off-shoring, prices of IT services and software can be reduced. This is likely to enhance the spread of IT and emerging firms maximizing on cheaper IT costs are likely to expand also. This provides the potential of creating more jobs for Italian employees to implement and design packages for different companies and industries. Although it puts some jobs at risk, this trend makes it possible for off-shoring to create new jobs and more opportunities through the economy of Italy. Over years, there has been a significant growth in Italy’s non-firm business production; this growth has been rated at 6.3% per annum. Such a productivity increase has enabled companies to satisfy the escalating need for output without necessarily having to recruit new employees. It seems such a unique surge of growing efficiency in the economy of Italy demonstrates the situation of jobs than globalization, outsourcing and off-shoring does (Michie, 2009).

It is clear that productivity leads to displaced workers, economists have argued that the economy enjoys great benefits from higher productivity. This is because at the end, higher living standards across the economy of Italy can only be attained through higher productivity (Michie, 2009). The ability of Italian employees to produce more services and products per hour will see a surprise success in Italian economy throughout the country’s history. Considering the agricultural and manufacturing industries, fewer employees are capable of producing more output. Similar trend is being witnessed in services: Italy had lots of telephone operators, elevator operators, gas station workers and bank tellers; however, currently a series of these jobs have been replaced by advances in technology. Similarly, routine jobs such as accountants, stock brokers and travel agents have been replaced by the application of internet. With the application of high speed links of data, foreign countries can do a lot of work at relatively cheaper costs (Gangopadhyay, 2010).

Looking at the overall Italian economy, appropriate fiscal and monetary policies are necessary in ensuring that the economy remains on a stable foot through aggregate demands. This will aid in generating more job opportunities thus replacing lost jobs. Nevertheless, aggregate demand is perceived as cold comfort concerning individual employees whose plants and offices must close because they are shifting jobs to foreign nations. Concerning such employees is the main reason nations must attempt and erect trade restrictions using quotas, tariffs and other barriers. In fact, these measures are likely to be successful in slowing the rate of job loss in affected sectors. However, these measures have the potential of imposing substantial costs, greater than all benefits on the entire economy (Brown, 2010).

In this regard, I think it would be extremely appropriate to erect policies focusing on protecting workers who are at risk, as well as jobs. These policies must emphasize on helping employees pass through rough times and assist them become flexible in order to adapt to different situations when facing such changes. Indeed, such policies exist: a good example is the unemployment insurance. There are policies exclusively meant for employees in manufacturing firms whose jobs have been lost to foreign competitors. Such adjustments programs in trade provide both training opportunities and financial support enabling workers to pursue new jobs and enhance their job skills. Therefore, in order to assist such service employees whose jobs have been lost outsourcing, it is appropriate if these programs would be extended to them (Gangopadhyay, 2010).

When displaced employees shift into other economic sectors, it leads to the emergence of new jobs. Such employee’s ability of moving into new sectors and emergence of new jobs are the founding blocks of a refurbished economy; a flexible economy whereby resources are moving freely across industries and firms. Such flexibility portrays a significant power of the Italian economy. Italy is operating in competition and competitive markets battling both foreign and domestic competitors; this has induced change. This has been made possible by the ease of adjusting to changes, flexibility in workforce and capital markets (Brown, 2010).

References

Michie, J. (2009). The handbook of globalization. Cheltenham [u.a.: Elgar Gangopadhyay, P. (2010). Economics of globalization. Aldershot [u.a.: Ashgate

Brown, D. C. (2010). Globalization and America since 1945. Wilmington, Del: Scholarly Resources