Globalisation gifts

A belated Oscar for best supporting role should go to globalisation, say Richard W. Fisher (president and CEO) and W. Michael Cox (senior vice president and chief economist), both of the Federal Reserve Bank of Dallas.

By providing Hollywood with a big box office for its films, this oft-reviled and oft-misunderstood economic phenomenon has contributed a lot to better movies. It's a simple matter of money – lots of it:

  • Of the 15 biggest-budget movies ever made, eight of them would have lost money if they were only seen in the United States – a total of $458 million dollars in red ink.

  • Include overseas sales, however, and the eight made money, raking in nearly $1.1 billion over production costs.

    The benefits of globalisation's big markets extend far beyond the movie industry, say Fisher and Cox:

  • Larger markets give companies a wider field to search for scarce capital, cheaper inputs and human talents.

  • They provide added impetus for innovation, business formation and risk taking.

    Overseas sales account for more than 40 per cent of top U.S. drug firms' revenues, even though they have a huge home market. The profits promised by a large global market give drug companies greater incentives to undertake the risky business of R&D.

    When introduced in the 1980s, U.S. cell phones carried a hefty price tag of $4,300, beyond the means of all but the rich countries' upper crust. Over the years, prices tumbled for computer chips, the cell phone's chief components. Texas Instruments just unveiled a single chip called LoCosto, which performs all cell phone functions, allowing newer models to be sold for as little as $30.

    Movies, pharmaceuticals and cell phones are among a host of modern-day industries with high fixed and low marginal costs. The upshot, say Fisher and Cox: The bigger the market, the better.

    Source: Richard W. Fisher and Michael Cox, Globalization's gifts, Dallas Morning News, April 13, 2007.

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    For more on Trade Issues:

    FMF Policy Bulletin/ 17 April 2007
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