The Political Economy of Globalization

The Political The Political Economy of Economy of

GlobalizationGlobalization

Globalization DefinedGlobalization Defined

Globalization broadly refers to Globalization broadly refers to the expansion of global the expansion of global linkages, the organization of linkages, the organization of social life on a global scale, social life on a global scale, and the growth of a global and the growth of a global consciousness, hence to the consciousness, hence to the consolidation of world consolidation of world society…society…

……Such a definition captures Such a definition captures much of what the term much of what the term commonly means, but its commonly means, but its meaning is disputed. It meaning is disputed. It encompasses several large encompasses several large processes; definitions differ processes; definitions differ in what they emphasize.in what they emphasize.

……Globalization is historically Globalization is historically complex; definitions vary in the complex; definitions vary in the particular driving force they particular driving force they identify. The meaning of the identify. The meaning of the term is itself a topic in global term is itself a topic in global discussion; it may refer to “real” discussion; it may refer to “real” processes, to ideas that justify processes, to ideas that justify them, or to a way of thinking them, or to a way of thinking about them…about them…

……The term is not neutral! The term is not neutral! Definitions express different Definitions express different assessments of global assessments of global change. Among critics of change. Among critics of capitalism and global capitalism and global inequality, globalization now inequality, globalization now has an especially pejorative has an especially pejorative ring.ring.

Do you get Do you get it???it???

How about an easier How about an easier definition…something definition…something that makes sense that makes sense that I can that I can understand…OK then, understand…OK then, let’s try this….let’s try this….

Question:Question: What is What is Globalization?Globalization?

Answer:Answer: Princess Diana’s Princess Diana’s death.death.

Question: Question: How come? How come?

Answer: Answer:

An English An English princess…princess…

……with an Egyptian with an Egyptian boyfriend…boyfriend…

……crashes in a crashes in a French tunnel…French tunnel…

……riding in a riding in a German car…German car…

……with a Dutch with a Dutch engine…engine…

……driven by a driven by a Belgian Belgian chauffeur…chauffeur…

……who was drunk who was drunk on Scottish on Scottish whiskey…whiskey…

……followed closely by Italian paparazzi…followed closely by Italian paparazzi…

……on Japanese motorcycles…on Japanese motorcycles…

……she was treated by an American she was treated by an American doctor…doctor…

……using Brazilian medicines…using Brazilian medicines…

……All this All this interesting interesting information has information has been supplied to been supplied to you by a Brit…you by a Brit…

……using American using American Apple Apple technology…technology…

……And you’re And you’re probably reading probably reading this on a this on a Chinese-made Chinese-made computer…computer…

……that uses that uses Taiwanese Taiwanese chips…chips…

……and a Korean and a Korean monitor…monitor…

……assembled by assembled by Bangladeshi Bangladeshi workers…workers…

……in a Singapore plant…in a Singapore plant…

……transported by transported by Pilipino sailors…Pilipino sailors…working on working on Greek ships…Greek ships…

……hijacked by hijacked by Somali pirates…Somali pirates…

……released by released by French French mercenaries…mercenaries…

……then unloaded then unloaded by Romanian by Romanian dock workers in dock workers in Rotterdam…Rotterdam…

……and brought to your store by and brought to your store by Bulgarian truck drivers…Bulgarian truck drivers…

……where you buy it where you buy it from a Polish from a Polish sales assistant…sales assistant…

……and that, my and that, my friends, is friends, is

Globalization!!!Globalization!!!

But seriously….But seriously….

The following definitions The following definitions represent currently represent currently influential views from influential views from academia:academia:

Friedman, Friedman, The Lexus and the The Lexus and the Olive TreeOlive Tree, 1999, 1999

““[T]he inexorable [T]he inexorable integration of markets, integration of markets, nation-states, and nation-states, and technologies to a technologies to a degree never witnessed degree never witnessed before in a way that is before in a way that is enabling individuals, enabling individuals, corporations and corporations and nation-states to reach nation-states to reach around the world around the world farther, faster, deeper farther, faster, deeper and cheaper than ever and cheaper than ever before…the spread of before…the spread of free-market capitalism free-market capitalism to virtually every to virtually every country in the world.”country in the world.”

Robertson, Robertson, Globalization, Globalization, 19921992

““The compression of The compression of the world and the the world and the intensification of intensification of consciousness of consciousness of the world as a the world as a whole…concrete whole…concrete global global interdependence interdependence and consciousness and consciousness of the global whole of the global whole in the twentieth in the twentieth century.”century.”

Waters, Waters, GlobalizationGlobalization, 1995, 1995

““A social process in which the A social process in which the constraints of geography on social and constraints of geography on social and cultural arrangements recede and in cultural arrangements recede and in which people become increasingly which people become increasingly aware that they are receding.” aware that they are receding.”

Albrow, Albrow, The Global AgeThe Global Age, 1996, 1996““The historical The historical

transformation constituted transformation constituted by the sum of particular by the sum of particular forms and instances of …forms and instances of …[m]aking or being made [m]aking or being made global (i) by the active global (i) by the active dissemination of practices, dissemination of practices, values, technology and values, technology and other human products other human products throughout the globe (ii) throughout the globe (ii) when global practices and when global practices and so on exercise an so on exercise an increasing influence over increasing influence over people’s lives (iii) when people’s lives (iii) when the globe serves as a the globe serves as a focus for, or a premise in focus for, or a premise in shaping human activities.”shaping human activities.”

McMichael, McMichael, Development and Development and Social ChangeSocial Change, 2000, 2000

““Integration Integration on the basis on the basis of a project of a project pursuing pursuing ‘market rule ‘market rule on a global on a global scale’”.scale’”.

Mittelman, Mittelman, The Globalization The Globalization SyndromeSyndrome, 2000, 2000

““As experienced from below, As experienced from below, the dominant form of the dominant form of globalization means a globalization means a historical transformation: historical transformation: in the economy, of in the economy, of livelihoods and modes of livelihoods and modes of existence; in politics a loss existence; in politics a loss in the degree of control in the degree of control exercised locally…and in exercised locally…and in culture, a devaluation of a culture, a devaluation of a collectivity’s collectivity’s achievements… achievements… Globalization is emerging Globalization is emerging as a political response to as a political response to the expansion of market the expansion of market power… [I]t is a domain of power… [I]t is a domain of knowledge.”knowledge.”

4 Types of Globalization4 Types of Globalization

1. Economic1. Economic – – involves long-involves long-distance flows of distance flows of goods, services goods, services and capital, as and capital, as well as the well as the information and information and perceptions that perceptions that accompany accompany market market exchange.exchange.

2. Military2. Military – refers – refers to long-distance to long-distance networks of networks of interdependence interdependence in which force in which force and the threat of and the threat of promise of force, promise of force, are employed are employed (ex. Nuclear (ex. Nuclear power).power).

3. Environmental3. Environmental – – refers to long-refers to long-distance transport distance transport of materials in the of materials in the atmosphere of the atmosphere of the oceans, or of oceans, or of biological biological substances such as substances such as pathogens or pathogens or genetic materials, genetic materials, that affect human that affect human health and well-health and well-being.being.

4. Social and Cultural4. Social and Cultural – involves the – involves the movement of ideas, movement of ideas, images, and people; images, and people; religious and religious and scientific scientific knowledge; and the knowledge; and the imitation of one imitation of one society’s practices society’s practices and institutions by and institutions by others – which others – which sociologists refer to sociologists refer to as “isomorphism.”as “isomorphism.”

Globalization and the NorthGlobalization and the North

Stage 1Stage 1

Pre – 1492Pre – 1492

The First The First “Globalizers”“Globalizers”

Prior to Columbus, Prior to Columbus, most economic most economic activity was activity was local.local.

Armies were the entities that covered Armies were the entities that covered vast distances in pursuit of conquest.vast distances in pursuit of conquest.

Vikings and Marco Vikings and Marco Polo are Polo are examples of pre-examples of pre-Colombian Colombian “globalizers” “globalizers” who brought who brought with them exotic with them exotic foods, spices, foods, spices, crafts, etc…crafts, etc…

Chinese and Arab Chinese and Arab traders moved traders moved goods across goods across Asia, the Middle Asia, the Middle East, and North East, and North Africa.Africa.

Stage 2Stage 21492-19451492-1945

Empire and a Empire and a Colonial Division of Colonial Division of

LaborLabor

Beginning in the fifteenth Beginning in the fifteenth century, European powers century, European powers financed explorations to financed explorations to Africa, Asia, and the Western Africa, Asia, and the Western Hemisphere. Soon these Hemisphere. Soon these explorations turned to explorations turned to conquest and a “colonial conquest and a “colonial division of labor.”division of labor.”

Foreign lands produce the raw Foreign lands produce the raw materials and the “mother country” materials and the “mother country” produces the manufactured products produces the manufactured products (a price scissors).(a price scissors).

Slave trade Slave trade expands in North expands in North America.America.

Stage 3Stage 3

1945 – 20121945 – 2012

New DivisionsNew Divisions

The pre-1945 divisions of labor The pre-1945 divisions of labor have changed radically in the have changed radically in the last few decades. While the last few decades. While the richer countries of Europe and richer countries of Europe and North America along with Japan North America along with Japan still largely export industrial still largely export industrial products, among the poorer products, among the poorer nations, six groups have nations, six groups have emerged:emerged:

1. Big Emerging 1. Big Emerging MarketsMarkets – – Mexico, Brazil, Mexico, Brazil, Argentina, South Argentina, South Africa, China, Africa, China, India, Indonesia, India, Indonesia, Korea, Turkey. Korea, Turkey. These countries These countries are still are still relatively poor.relatively poor.

2. Would-be BEMs2. Would-be BEMs – Colombia, Venezuela, – Colombia, Venezuela, Chile, Greece, Portugal, Thailand, and Chile, Greece, Portugal, Thailand, and Malaysia. They have moved beyond clothing Malaysia. They have moved beyond clothing and electronics into more diversified and electronics into more diversified industrial and service sectors.industrial and service sectors.

3. OPEC Nations3. OPEC Nations – these are the oil- – these are the oil-exporting countriesexporting countries

4. Former Communist 4. Former Communist EconomiesEconomies – despite – despite a relatively high a relatively high state of state of industrialization, industrialization, most of the 26 most of the 26 former Soviet Bloc former Soviet Bloc nations are nations are struggling and struggling and finding it difficult to finding it difficult to compete.compete.

5. Raw Materials 5. Raw Materials Exporters and Exporters and Light Light ManufacturersManufacturers – – about 40 about 40 countries have countries have little heavy little heavy industry and are industry and are suppliers of raw suppliers of raw materials.materials.

6. Least Developed 6. Least Developed CountriesCountries – about – about 60 countries, 60 countries, mostly in Africa, are mostly in Africa, are so poor that their so poor that their economic economic connection with the connection with the rest of the world is rest of the world is limited to minimal limited to minimal trade and trade and investment and investment and dwindling foreign dwindling foreign aid.aid.

Globalization’s InstitutionsGlobalization’s Institutions

The beginning: The beginning: Bretton WoodsBretton Woods

The Bretton Woods system of The Bretton Woods system of monetary management monetary management established the rules for established the rules for commercial and financial commercial and financial relations among the world's relations among the world's major industrial states in the major industrial states in the mid-20th century.mid-20th century.

The Great Depression and The Great Depression and World War Two led to a World War Two led to a collapse of banks and trade.collapse of banks and trade.

The US emerged from this crisis The US emerged from this crisis with half the globe’s industrial with half the globe’s industrial production and 4/5ths of its gold production and 4/5ths of its gold reserves. US negotiators were in reserves. US negotiators were in a good position to ensure the a good position to ensure the new Bretton Woods rules new Bretton Woods rules favored continued US economic favored continued US economic dominance.dominance.

The Bretton Woods vision The Bretton Woods vision was to create public was to create public institutions to anchor institutions to anchor each of the three pillars of each of the three pillars of global economic activity:global economic activity:

1. 1. ProductionProduction – – World Bank:World Bank:

Designed to help Designed to help with with reconstruction reconstruction after the war and after the war and to assist long-to assist long-term production term production in poorer in poorer countries.countries.

2. 2. FinanceFinance – – International International Monetary Fund Monetary Fund (IMF):(IMF):

Oversees the Oversees the international and international and financial and financial and monetary order monetary order (loans).(loans).

3. 3. Trade Trade – GATT: later changed to the – GATT: later changed to the World Trade Organization (WTO)World Trade Organization (WTO)

The institution set up to free The institution set up to free restrictions on trade.restrictions on trade.

Theoretical Aspects of Theoretical Aspects of “Neo-Liberalism”“Neo-Liberalism”

1. Rule of 1. Rule of the “free the “free market”market”

Neo-Liberalism Neo-Liberalism

2. Cuts in 2. Cuts in social social services services (SAPs)(SAPs)

Neo-LiberalismNeo-Liberalism

3. De-regulation of 3. De-regulation of businesses / businesses / corporationscorporations

4. Privatization of public 4. Privatization of public servicesservices

5. Elimination of the 5. Elimination of the concept of “community” concept of “community” or “common good”or “common good”

Globalization and the SouthGlobalization and the South

Terms and Terms and ConceptsConcepts

Less Developed Countries (LDCs)Less Developed Countries (LDCs)

……are highly disadvantaged and are highly disadvantaged and have a limited ability to advance have a limited ability to advance their interests and compete with their interests and compete with the economic giants in the the economic giants in the North..North..

Newly Industrializing Countries Newly Industrializing Countries (NICs)(NICs)

……are usually placed by analysts as are usually placed by analysts as being in the South, but in some being in the South, but in some cases can be classified as a cases can be classified as a developed market economy (i.e. developed market economy (i.e. South Korea, Portugal, Mexico.South Korea, Portugal, Mexico.

Least Developed Countries Least Developed Countries (LLDCs)(LLDCs)

……are the lowest third of the low-are the lowest third of the low-income countries and are income countries and are experiencing a decline in experiencing a decline in absolute conditions over the last absolute conditions over the last 2 to 3 decades.2 to 3 decades.

Approaches to Approaches to DevelopmentDevelopment

1. Liberal1. Liberal – development can be achieved – development can be achieved within the existing structure. Focus is on within the existing structure. Focus is on GNP, trade levels, employment and wage GNP, trade levels, employment and wage statistics. Recipe for success? Free trade, statistics. Recipe for success? Free trade, free investment, and other unimpeded free investment, and other unimpeded economic exchange will eventually create economic exchange will eventually create prosperity for all. prosperity for all.

2. Structuralist2. Structuralist – development can only be achieved – development can only be achieved when the politico-economic organization of the world when the politico-economic organization of the world is radically altered to bring development to the LDCs. is radically altered to bring development to the LDCs.

a. Dependencia modela. Dependencia model

b. Primary products / raw materialsb. Primary products / raw materials

c. Neo-Colonialism c. Neo-Colonialism

3. Mercantilist3. Mercantilist – political considerations – political considerations govern international economics. Trade, govern international economics. Trade, investment, and aid policies of the North investment, and aid policies of the North are meant to help the North, not the LDCs!are meant to help the North, not the LDCs!

The results of LDC development attempts so The results of LDC development attempts so far…?far…?

1. Disparity of wealth within 1. Disparity of wealth within countries.countries.

2. Disparity of wealth between 2. Disparity of wealth between countries.countries.

The effects of modernization?The effects of modernization?1. Explosive population growth.1. Explosive population growth.2. Rapid urbanization.2. Rapid urbanization.3. Industrial and environmental 3. Industrial and environmental

dangers. dangers.

Capital Needs and DevelopmentCapital Needs and Development

Globalization has enhanced Globalization has enhanced countries’ needs for countries’ needs for capital, capital, which can be used to which can be used to supplement their own internal supplement their own internal efforts to improve socioeconomic efforts to improve socioeconomic conditions. Countries need conditions. Countries need hard hard currency currency such as dollars, euros, such as dollars, euros, and yen, which are acceptable in and yen, which are acceptable in private channels of international private channels of international economics. economics.

Capital Needs and Development Capital Needs and Development

The 4 Main The 4 Main Sources of Hard Sources of Hard

CurrencyCurrency

1. Loans1. Loans – usually – usually extended by extended by private or private or government government sources. sources.

Problem: leads to Problem: leads to debt crises.debt crises.

Economic Economic ramificationsramifications of of loans: bank loans: bank failures in the failures in the North and North and inability to pay inability to pay for social and for social and economic economic development in development in the South due to the South due to large debts.large debts.

Political Political ramificationsramifications of of loans: strains loans: strains between lending between lending and borrowing and borrowing countries and countries and political political instability in instability in countries that countries that are struggling to are struggling to pay off debt.pay off debt.

2. Private 2. Private investment investment through MNCsthrough MNCs – –

Problem: LDCs are Problem: LDCs are disadvantaged disadvantaged compared to the compared to the countries of the countries of the North. North.

……One study showed that One study showed that average average LDC balance for the period of LDC balance for the period of 1984-1990 showed a net inflow 1984-1990 showed a net inflow of $132.1 billion in investment of $132.1 billion in investment capital into LDCs but an outflow capital into LDCs but an outflow of $97.6 billion in profit taking - of $97.6 billion in profit taking - for a net capital inflow of $34.5 for a net capital inflow of $34.5 billion…billion…

……However, LLDCs fared poorly. However, LLDCs fared poorly. Example? Africa…which had a Example? Africa…which had a net investment inflow of $8.9 net investment inflow of $8.9 billion, but a net profits outflow billion, but a net profits outflow of $20.6 billion. Thus MNC of $20.6 billion. Thus MNC activity in Africa activity in Africa cost cost the the continent $11.7 billion!continent $11.7 billion!

3. Trade3. Trade – export earnings – export earnings do provide hard do provide hard currency. currency.

Problems: Problems: a. LDCs command a. LDCs command

only 28% of world only 28% of world export market.export market.

b. Most LDCs b. Most LDCs suffer from chronic suffer from chronic trade deficits.trade deficits.

c. Heavy c. Heavy dependence on other dependence on other countries for primary countries for primary products.products.

4. Foreign Aid4. Foreign Aid – limitations – limitations include….include….

A. Political considerations A. Political considerations – most often – most often given on the basis of political-military given on the basis of political-military interest and not development needs.interest and not development needs.

B. Military content B. Military content – in the 1980s and – in the 1980s and 90s, approximately half of all U.S. aid 90s, approximately half of all U.S. aid involved military transfers.involved military transfers.

C. Measuring recipient per capita aid C. Measuring recipient per capita aid – – in the 90s, LDCs received $11.80 per in the 90s, LDCs received $11.80 per capita (Israel received $617 per capita (Israel received $617 per capita). capita).

D. Donor aid relative to wealth D. Donor aid relative to wealth – of the top 18 – of the top 18 industrialized countries, the U.S. was #1 in industrialized countries, the U.S. was #1 in total dollars given (11.4 billion in 1990), but total dollars given (11.4 billion in 1990), but ranked #17 in amount given as total ranked #17 in amount given as total percentage of GNP. percentage of GNP.

E. The way aid is applied E. The way aid is applied – often used to fund – often used to fund highly symbolic but economically unwise highly symbolic but economically unwise projects such as airports, sports arenas, or projects such as airports, sports arenas, or large government buildings. Inefficiency large government buildings. Inefficiency and corruption also a problem.and corruption also a problem.

Alternatives to Economic Alternatives to Economic Globalization?Globalization?

Yes! Say critics, Yes! Say critics, based on several based on several

core values:core values:

Alternatives to Globalization?Alternatives to Globalization?

1. New Democracy1. New Democracy

… …is an egalitarian is an egalitarian approach to approach to economics; every economics; every person is a person is a participant in the participant in the economy.economy.

2. Subsidiarity2. Subsidiarity

…“…“localizing” localizing” purchases improves purchases improves the livability of the the livability of the local economy and local economy and also reduces the also reduces the distance raw distance raw material and final material and final products travel to products travel to meet end users.meet end users.

3. Ecological 3. Ecological SustainabilitySustainability

……limit consumption limit consumption and exploitation. and exploitation. Conserving Conserving resources allows us resources allows us to meet today’s to meet today’s needs without needs without compromising our compromising our ability to meet ability to meet tomorrows.tomorrows.

4. Common Heritage4. Common Heritage

Ecological resources Ecological resources (the commons) (the commons) cannot be cannot be monopolized. monopolized. History, culture, History, culture, and civil services and civil services belong to everyone.belong to everyone.

5. Diversity of Indigenous Peoples5. Diversity of Indigenous Peoples

The collective and individual right to The collective and individual right to maintain and develop our distinct maintain and develop our distinct identities and characteristics…identities and characteristics…

6. Human Rights6. Human Rights

“…“…a standard of living adequate for…health and well-a standard of living adequate for…health and well-being…including food, clothing, housing, medical being…including food, clothing, housing, medical care, necessary social services, and the right to care, necessary social services, and the right to security in the event of unemployment…” (United security in the event of unemployment…” (United Nations, 1948). Nations, 1948).

7. Jobs, Livelihood, 7. Jobs, Livelihood, EmploymentEmployment

8. Food, Security, 8. Food, Security, and Safetyand Safety

1. Equity1. Equity

The “touchiest” of The “touchiest” of the principles; the principles; CouldCould resources resources – natural, – natural, human, and human, and economic, be economic, be distributed more distributed more evenly?evenly?

10. Precautionary 10. Precautionary PrinciplesPrinciples

When a practice or When a practice or product raises product raises potentially potentially significant threats significant threats to harm to human to harm to human health or the health or the environment, environment, precautionary precautionary action should be action should be taken to ban or taken to ban or restrict it.restrict it.

The Political Economy of Globalization

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