“Economic efficiency” is one of the fundamental principles of economics. An efficient economy exists when every resource is allocated in the best possible way while minimizing waste and inefficiencies. The objective is to optimize productivity – producing goods and providing services at the minimum possible cost. A state of full efficiency is, of course, a theoretical concept. Nonetheless, by striving for this state economies, enterprises, and households aim to minimize waste and optimize the cost of producing goods and providing services.
The principle of ‘economic efficiency’ is at the core of the globalization of trade and commerce. Countries have their strengths regarding resources (man, material, money etc.), technology, infrastructure, policy framework, etc. Affording countries to produce goods and services according to their strength means optimum utilization of the available resources for the benefit of all the trade partners. However, local political and geopolitical considerations impede the achievement of full economic efficiency.
The globalization of trade and commerce in the past five decades resulted in a shift in the production of goods and services to Asia with abundant human and mineral resources. First Asian tigers and subsequently, China, Vietnam, Taiwan, and India became major producers of goods and services and Western economies took charge of research & development, technology, financial services, and logistics, etc. Even the production of fossil fuels, to support the rising consumption of energy, was outsourced to Middle East Asia, Australia, Africa etc. The trend has arguably contributed to a structural downward shift in global inflation, despite a relatively loose monetary policy regime.
The arrangement has worked well for most of the economies that
opened up to participate in the process of globalization. In particular, the
past three decades have been an era of overall peace and prosperity. However, logistic
challenges and geopolitical developments in the past 3 years are threatening to
reverse the trend. The question to examine is whether we are going to witness
geopolitics and political ambitions triumph the globalization based on the principle
of economic efficiency; or it’s just a passing phase.
