Ahead to FarmsBy Peter Schirmer and Melissa Taylor
From Farms, Factories and Free Trade
pp. 1-4, published 1995
Nineteen-hundred ninety-five was a year of optimism. In April, the World Bank proclaimed in a news release, "Rapid Growth Expected as 'Globalization' Takes Hold," and went on to project that world merchandise trade would grow by more than 6 percent a year if trade liberalization continues. In an interview with the Wall Street Journal, Harvard economist Jeffrey Sachs averred, "We are in the midst of one of history's greatest expansions of market capitalism" (Davis and Harper, p. A1). Georgia State economist Donald Ratajczak echoed this sentiment at a conference of the Southern Growth Policies Board.
There is good reason to be optimistic: international trade, in tandem with advances in information and communication technology, may bring an era of long-term prosperity for developing and industrialized nations (Davis and Harper, 1995). Echoing the World Bank, the Wall Street Journal reported that "growing global markets would create big opportunities for dynamic U.S. companies and their employees" (Davis and Harper, p. A1). Much of this growth is driven by the increased integration of developing countries into the global economy, creating unprecedented new opportunities for companies in industrialized countries (World Bank, 1995).
The dynamic companies enjoying the benefits of trade are not simply IBM, Boeing and RJR Nabisco; many small firms, in fact, are already "going global," and are enjoying ample rewards for their efforts. A Business Week special report on small exporters noted that a national survey of nearly 750 companies found that 20 percent of small companies exported products and services last year, up from 16 percent in 1993 and 11 percent in 1992 (Barrett, 1995). Small businesses are estimated to account for more than half of all manufactured goods exported from the United States (Barrett).
The experience of Lucerne Farms, a tiny horse feed company based in Maine, illustrates the power of globalization. With the fall of the dollar against the yen, the company's products were 25 percent cheaper in Japan in 1995 than in 1994 (Barrett, 1995). This prompted a Japanese distributor to contact the company, which expects 1995 orders from Japan to double total revenue. The Business Week report also sees opportunities in the markets of newly industrialized Southeast Asia for environmental companies, specializing in areas such as waste-water treatment and landfill management. These examples suggest the range of Kentucky firms which could enjoy gains from world trade.
Another small producer in Kentucky who may benefit from global trade is the farmer. The United States Department of Agriculture projects that agricultural exports will rise 11.5 percent in fiscal year 1995, to a record $48.5 billion, and it appears that the United States is poised to begin a period of rapid expansion in agricultural exports (Koretz, 1995). Export growth will be greater for high-value, consumer-oriented goods than for bulk commodities or intermediate products. Exports of high-value U.S. agricultural products rose $1.5 billion in 1994 to a record $16.2 billion (Foreign Agricultural Service, 1995a).
Along with international trade, foreign investment is creating new opportunities for Kentucky's small producers. Kentucky has 259 industrial facilities with foreign ownership, employing over 54,000 people, with an investment of $8 billion (Kentucky Legislative Research Commission, 1995). Not only do these plants have a large direct impact on the state's economy, but their effect is multiplied several times over, through additional purchases by employees and firms. For example, in November 1992, the Toyota plant in Scott County was purchasing parts and supplies from 40 Kentucky establishments, spanning the state from Mayfield to Ashland (Haywood, 1992).
The globalization of the economy offers the hope of expanded prosperity, but this is by no means assured. Failure to adapt to the new business environment will not result in stagnation but loss. This is most unfortunate, for many people—politicians, front-line workers, teachers, farmers, even business managers and entrepreneurs—may be intimidated by the demands of the global marketplace, and understandably so. Change can occur at a breathtaking pace, and the issues are exceedingly complicated. Yet despite the complexity of new forces affecting the economy, they cannot be ignored. Indeed, a government, a producer, even an individual employee cannot simply decline to compete in the global marketplace. The very existence of open markets means that we are in competition with governments which have developed cogent, comprehensive and forward-looking development plans; we are in competition with foreign producers of goods and services who use state-of-the-art manufacturing and information systems; and we are in competition with foreign workers who may have a better education or demand lower wages or both. The real question is not whether to compete globally, but how to do it.
Globalization will ultimately touch the lives of almost everyone in almost every community. However, some will feel a more immediate and direct impact from trade liberalization and rising international investment. The impact will not be entirely positive, nor will it be entirely negative. In short, as with any major change in the economy, there will be winners and losers in the era of expanding global markets and reduced barriers to trade. The same industry may include both winners and losers, depending on how different firms respond to new challenges. Likewise, communities may benefit, suffer, or see mixed results depending on the kinds of jobs they gain or lose.
We begin by asking how globalization might affect two cornerstones of Kentucky's rural economy—agriculture and manufacturing. Next, we report the results of a survey of rural manufacturing firms, and explore the question of whether rural firms are prepared for an era of increased competition and increased opportunity. Following the survey is a special section from Dr. R.E. Burnett, Assistant Director of the Patterson School of Diplomacy and International Commerce at the University of Kentucky. Dr. Burnett explains why many small and rural firms aren't well-prepared for globalization and suggests what can be done to help these firms. We conclude with a discussion of emerging strategies which enable rural firms to help themselves become more competitive.
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