Sunday, June 3, 2012

Market concentration and globalisation

I had earlier blogged about Pankaj Ghemawat's views on globalisation here and here. In another piece titled "Who's Afraid of a Few Big Companies Taking Over the World?" he addresses the issue of market concentration and argues that concentration is not such a serious issue.
"In this post I'll focus on one type of market failure: market concentration. There is often a lot of negative discussion buzzing around globalization and market concentration. As people see their local shops replaced with multinational chains and industrial megamergers make headlines, there is a perception that a small number of powerful competitors are taking over the world. This is one of the most widespread beliefs about globalization — in a survey of business executives I conducted a few years back, 58% agreed that "globalization tends to make industries become more concentrated." And among the general public, another survey reveals concentration to be the leading worry about the market economy in the U.S., Britain and Germany: people worry that large corporations will squeeze out small firms."
Arguing that globalisation has reduced concentration rather than increase it, he continues:

And not only is globalization not systematically reducing competitive intensity by increasing concentration, it can actually help correct the problems involved when a small number of competitors take control of a market. When competition is lacking in domestic markets, consumers suffer from high prices, poor quality products, or a lack of variety. This is where foreign competition can lend a helping hand. Whether through trade or foreign direct investment, competition from abroad can provide consumers with immediate relief, as well as spur producers to up their game."
While the examples quoted being questioned and rebuttal of Ghemawat in the comments offer interesting insights, "equitable" globalisation is still an aspiration. How do large segments of population outside the system benefit from international trade and an interconnected world? How will it make a difference to their lives? How is international trade relevant to a tribal living in interior parts of a developing country? How will it benefit his or her family? Will opening up the economy in terms of trade directly benefit or negatively effect him? As consumers in a globalised world having access to a choice of products at competitive prices is only a limited way of looking at the issue. Large populations have no power to participate in the market? How can globalisation help? How can access be provided to them so as to be able to benefit from the fruits of growth and development? While globalisation does have an impact on domestic economies and will lead to job loss and unemployment, what mitigating factors need to be taken to offset this negative trend? Can multilateral trade rules provide some answers? A more critical piece on concentration and the negative role of big corporates is found here. Will look forward to Ghemawat's future posts on this for some answers.

No comments: