With globalization proceeding fast, US firms are increasingly exposed to competition from China and other low-cost countries. From your paper I gather that this will result in a higher rate of plant closure, eventually leading to the bankruptcy of many firms. Wouldn’t this justify a more cautious approach by President Bush? (Michael Bryant, Chicago, IL, USA)

First, I should be clear that my work emphasizes the reallocation of activity across sectors that is driven by globalization. Industries and firms that use relatively low-skilled labor have seen and will continue to see higher rates of plant closure (and firm shutdowns). However, so far, the US economy has been particularly adept at creating opportunities in new sectors. Second, it is not clear to me how much of a role the executive branch can play in slowing down globalization - I say that even though one of my Tuck colleagues is currently working in the White House on international economic issues. Trying to slow globalization is a non-starter, we have to try to be ahead of the changes.

How can the French hope to survive global competition if every employee gets a long-term contract?

The consequences of having long-term implicit labor contracts in France have been evident for some time. The rate of job creation is lower and firms have founds creative ways to use machines and technology to substitute away from labor. French firms are among the most capital-intensive in the world. By the way this is not a good thing as it raises their costs. In the long run, I think the French will have to find ways to lower the cost of hiring each new worker. We saw a small step in the current proposed law for young workers and the result was quite a bit of bad news for the future of French wages and employment.

Before the First World War, Europe was in a situation very akin to a "perfect" market: the flow of capital was nearly unrestricted, the elites were culturally omogeneous, there was no restriction between domestic and external markets (obviously limited to the colonies owned by each European country). What's really new nowadays, when we say "global competition"? (Filippo Mercurelli, Rome, Italy)

You are correct that Europe and the world experienced a period of globalization in trade and capital leading up to the World War I with numerous similarities to today’s events. There are still quite a few differences from the current episode. Most important is the rapid reduction of communication costs allowing for the enormous exchange of data and ideas - the telegraph just doesn’t quite compare. This has allowed firms to develop sophisticated international supply chains. The goods crossing borders today are typically intermediate components whereas 100 years ago the ships were more likely to be loaded with primary materials.

In your paper you talk about cheap manufactured goods. But what about computers and other electronic equipment, which are increasingly dominated by Asian producers? Are we losing competitiveness in high-tech industries as well? (Catherine O'Connor, New York, NY, USA)

Not all “high-tech” goods are equally sophisticated. The assembly of keyboards, mice, and desktops is extremely labor intensive and low-tech while the design and production of CNC (computer numerically controlled) machine tools is truly skill and capital intensive. My paper emphasized the there are large differences within industries in the degree of technological sophistication and that in an industry such as computers, there are firms that will suffer from low-cost country competition and those that are relatively insulated. As to losing competitiveness, firms should expect to see, and do see, strong competitors at every level of the technology spectrum. As consumers, this is fantastic news.

Can the US lose clout in manufacturing without losing its economic leadership? (Dan Thornill, Boston, MA, USA)

The US manufacturing sector has read its obituary more times than Mark Twain. We cannot expect to be the only high end manufacturer in the world, nor should we try to develop strategies to identify key industries that we want to retain. In my opinion the US gets its technological leadership from its flexibility, the motivation of the workforce and, at least historically, from the broad and deep education of its workers. I worry much more about the slowdown in college completion rates than about the manufacturing sector.

In the era of globalisation, investments move freely across international frontiers. Whenever a multinational enterprise decides to invest abroad, however, it often has to face political, social and economic hostility, both in the home and host countries. In your opinion, which are the major threats to companies' internationalization strategies? (Shabnamjit Singh, Aberdeen, UK)

To clarify, investments are supposed to move freely across borders however the best evidence suggests that there are still substantial impediments to the free flow of capital, even in developed countries. Just consider the recent takeover controversies in the French energy sector or in the steel industry. That said, the biggest issue facing firms in developing and implementing international strategies is information collection within the firm. Most firms are very reactive to global events (Dubai Ports for example) in part because there are up front costs of being proactive, systematically collecting information on international opportunities and costs, identifying key personnel who should get the information and be charged with decision-making, and fully integrating international into the corporate strategy.

How did the Spanish Flu epidemic impact the economy at the time (1918) and has anyone looked at the impact to the world or specific country economies if Avian flu becomes a pandemic? (Tom Foremski, USA)

That is a good question and I don’t know of any studies that quantify the impact. One problem is that the end of the war will provide a confounding event that would also have a significant impact on economic performance.

India is a major exporter of generic drugs. In the next 3 years a large number of drugs will come off the list of patent-protected drugs. With the current increase in Indian exports and the growing acceptance of generic drugs in Europe, what threat does India play to European pharma industry? (Evans Mbu, UK)

I do expect that Indian firms will attempt to enter both the US and European markets in the next decade. In fact the globalization of pharma production is just beginning and will have profound consequences for the current major players. Those who develop strategic alliances with firms in low-cost countries, or those that are able to move significant pieces of their cost structure to those countries, will be left standing. Unfortunately, I would also expect to see substantial moves to protect the market in Europe which would be bad for consumers.

If cheaper labor favors some countries over others, wouldn’t it be fairer that all governments agree on a common regulatory policy and let companies compete only on their ability to produce goods more efficiently? (Alberto Perez, Caracas, Venezuela)

I am not sure what “fairer” means, but I am opposed to the idea of common regulatory policies across countries. Countries make choices, and should be free to make choices, about the level of regulation, such as labor market standards and environmental quality, based on the individual levels of development and numerous other factors. For example, imposing a worldwide common minimum wage would not level the playing field, rather it would be most likely to reduce the growth prospects of the poorest countries without improving the welfare of the richest. For the most part, cross country differences in the cost of labor reflect differences in productivity of the workers. We would never suggest that a worker without a secondary education be paid the same as a worker with a PhD.