Reported by John C.T. Ko September 9, 2006 Globalization and the New Economy.

Reported by John C.T. KoSeptember 9, 2006

Globalization andthe New Economy

Globalization Presenter: John C.T. Ko

What is Globalization ?

The increased freedom and capacity of individuals and firms to:

undertake economic transactions with residents of other countries

operate on a global scale


Globalization

Definition:– An economic phenomenon?

– A social phenomenon?

– A cultural phenomenon? The movement towards the expansion of economic

and social ties between countries through the spread of corporate institutions and the capitalist philosophy that leads to the shrinking of the world in economic terms.


Globalization influences

Cultural Influences

Social Influences

Changing nature of The nation state

Inter-connectedEconomic cycles

Financial markets

Labour markets


Globalization could involve all these things!


Driving Forces of Globalization

A reduction in official obstacles/barriers for conducting business with foreigners

Fast reduction and convergence of transaction costs associated with doing this business.


Key Trends in Globalization

(a) Trade Integration (i.e. trade as a share of GDP)

(b) Globalization of Capital Markets (bonds, shares)

(c) Globalization of Production (multinational activity)

(d) Globalization of Technology - international exploitation of technology; collaboration between businesses; generation of innovations across countries

(e) Regionalism - the growth of formal and informal trading blocs (NAFTA etc)


• As a consequence of globalization, the world economy has been transformed into a global division of labor, or a big “global food chain”.

• In the poor countries that have not been successful in getting aboard this global food chain, the people are economically miserable.

• Today the difference in income between poorest two billion people who are trying to survive every day in a fight against hunger and disease, and a half billion rich others whose main concern is to second-guess the plot of their favorite soap opera is, on average, 30:1.

• So, according to Prime Minister Guy Verhofstadt of Belgium, “the question of the century” is “How can we prevent a violent class struggle between the world’s poorest and richest people?”

Global Division of Labor,a.k.a., “Global Food Chain”

Measures of Globalization


Measures of Globalization

Economic integration (trade, finance, customs…)

Global production networks


Integration of Economies

The increasing reliance of economies on each other

The opportunities to be able to buy and sell in any country in the world

The opportunities for labor and capital to locate anywhere in the world

The growth of global markets in financeStock Markets are now accessible

from anywhere in the world!


Integration of Economies

Made possible by: The World is Flat– Technology– Communication networks– Internet access– Growth of economic cooperation –

trading blocs (EU, NAFTA, etc.)– Collapse of ‘communism’ (Wall of

Berlin)– Movement to free trade


Global Production Networks

MNEs

•Proprietary Technology•Management Know-How•Global Brands•Global Distribution•Scale

Local Firms

•Low Labor Cost

•Local Knowledge

•Domestic Distribution

•Direct Ownership•Joint Venture•Licensing•Franchising•Supplier Agreement


3 Eras of Globalization

According to Friedman (Author of “The World is Flat”)

1st Era:

– Began from 1492 and ended around 1800: When Columbus set sail, opening trade between the Old World and the New World.

– This period shrank the world from a size large to a size medium.

– the dynamic force driving global integration, was countries and governments. Cont/…


3 Eras of Globalization

2nd Era: – Roughly from 1800 to 2000, interrupted by the Great

Depression and World Wars I and II. This era shrank the world from a size medium to a size small. Key agent of change, the dynamic force driving global integration, was multinational companies.

3rd Era: – Since 2000, globalization is shrinking the world from

a size small to a size tiny and flat. The dynamic force is the newfound power for individuals to collaborate and compete globally.

Effects of Globalization


Effects of Globalization

Economic growth

Adjustment costs and inequality

Global environmental threat


Global output shifts


Global trade shifts


Globalization and Cost adjustment

Fall in Sea Transport

Costs(containerizatio

n)

Declining Air Freight

Costs

Expansion of electronic

Data Exchange

Decline in tariff and non-tariff barriers

Outsourcing

Liberalisation of

Domestic Markets


Examples of price decline intransport and communication

Between the early 1980's and 1996 real sea freight costs fell 70%.

Real air freight costs have fallen 3-4% a year over a long period.

Real costs of international phone calls fell 4% a year in the developing countries in the 1990's and 2% a year in the industrial countries.


Cost of a 3-Minute Telephone Call, New York to London (Constant 1990, U.S. $)

3-minute call from New York To London

1930 $300 (in today’s prices)

2002 $0.20


Examples of Innovation Driving Improved Quality/ Lower Cost

Containerization easier trackingless pilferage/lossesfaster port services

Electronic datainterchange

easier trackingfaster delivery (better scheduling)just-in-time inventory management

Fiber optics Lower costs


The U.N. Report on the World Social Situation 2005 released on August 25, 2005, “finds much of the world trapped in an ‘Inequality Predicament’.” According to the report:

1. Inequalities between and within countries have accompanied globalization.

2. Unemployment remains high in many contexts and youth unemployment rates are particularly high.

3. Millions are working but remain poor; nearly a quarter of the world’s workers do not earn enough to lift themselves and their families above the $1 per day poverty threshold. Cont/…

The U.N. Report on the World Social Situation 2005


4. In many countries wage inequalities, especially between skilled and unskilled workers, have widened since the mid-1980s, with falling real minimum wages and sharp rises in the highest incomes.

5. Despite progress in some contexts, health and education inequalities have widened, especially within countries. Sub-Saharan Africa and parts of Asia are in the worst predicament.

6. Violence is often rooted in inequality.7. Indigenous peoples, persons with disabilities, older

persons and youth are typically excluded from decision making processes that affect their welfare.



Globalization for whom? Has income inequality been reduced?


Environmental deterioration

Per capita income

Environmental carrying capacity

Environmental KUZNETS curve


1972

1986

Per capita income (PPP$)

Su

lfu

r D

ioxi

de

g

/m3

Environmental KUZNETS curve (sulfur dioxide)

DEVELOPMENT


1986

1972

Per capita income (PPP$)

Environmental KUZNETS curve (particulate matter)

DEVELOPMENT

Opportunities and Risks of Globalization


Globalization offers enormousopportunities to developing countries

o Enormous productive potential of new technologies

o Growing mobility of productive factorso Access to much larger markets through import

liberalization, shrinking economic distance and information revolution

o Spread of global production systems seeking new locations and markets

o New rules of the game to ensure openness, equal treatment, property rights, transparency and predictability


But succeeding in this world involvesmore than passive opening up ...

o Technologies is not effectively used by developing economies just by opening up to free trade, technology or capital flows

o Knowledge is not fully embodied in machines, licenses or people: has strong silent elements

o Silent elements need local effort to master: to understand, adapt, use, improve

o This effort generally faces pervasive market and institutional failures: within the firm, between firms and between enterprises and factor markets / institutions


Global Trade

Benefits of Trade:– Increased choice– Greater potential

for growth– Increase

international economies of scale

– Greater employment opportunities

Trade has led to massive increases in wealth for many countries.


Global Trade

Disadvantages of trade:– Increase in gap between

the rich and the poor– Dominance of global

trade by the rich, northern hemisphere countries

– Lack of opportunities for the poor to be able to have access to markets

– Exploitation of workers and growers

How far does trade help children like these?


Corporate Domination

Key Issues:– Damage to the

environment?– Exploitation of

labour? – Monopoly power– Economic

degradation– Non-renewable

resources– Damage to cultures

Shell and Nike’s activities have come under severe criticism in some quarters.


Other Issues:

Accountability of Global businesses?

Increased gap between rich and poor fuels potential terrorist reaction

Ethical responsibility of business?

Efforts to remove trade barriers

There are plenty of people who believe that globalization is a negative development, protests at the G8 summits, pollution, poverty and concern over GM crops are just some of the issues.

Survey and research on Globalization


● Of the 38,000 people in 44 nations surveyed, views on globalization are distinctly more positive in low-income, developing countries than in rich, developed countries.

● In Sub-Saharan Africa, 75% of households thought that multinational corporations (foreign direct investment) had a positive influence on their country, compared to only 54% in rich countries.

Pew Global Attitude Survey


• Anti-globalization protesters were viewed more positively in the U.S. and West Europe.

• People in developing countries tend not to blame globalization for lack of progress in their countries, but rather poor governance in their own countries.

Pew Global Attitude Survey


● Only 28% of people in the U.S. and Western Europe thought that such integration was “very good.”

● In contrast, in Vietnam and Uganda, the figures for “very good” stood at 56% and 64%, respectively.

● Developing Asia, 37% for “very good”● Sub-Saharan Africa, 56% for “very good”

Is growing global free trade andinvestment good for your country?

Globalization Presenter: John C.T. Ko Source: UNDP


Among others, the U.N. Report recommends that:¶ Worldwide asymmetries resulting from

globalization should be addressed, with emphasis placed on more equitable distribution of the benefits of an increasingly open world economy.

¶ To prevent global conflict and violence, attention should be paid to reducing the inequalities in access to resources and opportunities.



• According to Moises Naim (author of Illicit: How Smugglers, Traffickers, and Copycats are Hijacking the Global Economy, October 2005), along with rapid globalization, acts of piracy and illicit trades are booming and so are the traffickers’ revenues and their political influences.

• To those safely on dry land, pirates may seem to be figures from Hollywood or the history books. Those at sea know better.

• Today’s pirates are nasty fellows with rocket-propelled grenades and speedboats. According to the International Maritime Organization, 266 committed or attempted acts of piracy were reported in 2005.

Cont/…

Dark Side of Globalization


• The 1990s witnessed changes in politics, technology, and economics that dissolved the sealants on which nation states had relied to safeguard their borders. These changes benefited traffickers more than governments.

• Hamstrung bureaucracies in rich and poor countries alike losing battles against these agile, well-financed, politically powerful, and ever-shifting networks of determined individuals that trade pirated movies, weapons of mass destruction, human organs, endangered species, drugs, or stolen art, and launder money. Cont/…



• Al-Qaeda continues to be a menace even though no state openly and actively sponsors them. It was stateless networks that hit New York on 9/11 and Madrid in March 2004. And stateless networks will hit again.

• For the fight against these amazingly efficient illicit international organizations to have any hope of success, it has to be a multilateral effort, with many countries sharing similar goals, priorities, and commitment. Unfortunately, societies are now fighting losing battles.

• Countries containing anywhere between a billion and a billion and a half people are falling ever further behind. This is itself a serious threat to the long-run sustainability of globalization.


Pros and Cons on Globalization


The debate over globalization

Pro globalization view:– On one hand, it represents the key to economic

development by some

Anti-globalization view:– On the other hand, some people believe it is anti-

development because it increases inequality, threatens employment and living standards, and impedes social progress.


Pros on Globalization

(a) The Perspective – pro-Globalization–There are important gains from trade through specialization and comparative advantage

–Policy implications: Encourage free trade and market liberalization–Globalization viewed as a positive sum game–Positive link between growth of trade and the growth of world GDP–Supporters point to the example of the “dynamic globalizers”

Asian Tigers, Brazil, China, Hungary, India, Uganda, Vietnam and Mexico

The more globalized developing countries saw their aggregate per capita growth rate rise from 1 percent in the 1960s, to 3 percent in the 1970s, 4 percent in the 1980s and 5 percent in the 1990s

Exports from developing countries as a whole accounted for 29 per cent of world trade in 2001.


EX.: A reduction in absolute poverty

People living on less than $1.08 a day at 1993 PPP

Regions 1981 1990 2001East Asia & Pacific 767 472 284

(Excluding China) 161 95 72

China 606 377 212

Europe and Central Asia 1 2 18

Latin America and Caribbean 36 49 50

Middle East and North Africa 9 6 7

South Asia 475 462 428

Sub-Saharan Africa 164 227 314

Total 1,451 1,219 1,101

Total, excluding China 845 841 888

Sources: World Bank, World Development Indicators 2004

Unit: Million people


Cons against Globalization

(b) The `Anti Globalization’ Perspective – Emphasises exploitation and global inequality and relative

povertyThe richest country (the United States) has a real income per h

ead 70 times that of the poorest (Sierra Leone).During the 20th century, global average per capita income rose

strongly but the distribution of income among countries has become more unequal than at the beginning of the century (IMF, World Economic Outlook, 2000)

– Fears over loss of cultural diversity – homogenization of culture and institutions (The spread of McDonald’s!)

– Spread of human trafficking– Policy implications: Protectionism is justified, policy should

encourage “localization” rather than globalization


EX.: Africa’s marginalization

Many countries in sub-Saharan Africa have failed to share in the gains of globalization.

Their exports still predominantly primary commodities.

Why the failure? Mainly because of:

(1) Poor policies and infrastructure, weak institutions and corrupt governance have marginalized these countries.

(2) Geographical and climatic disadvantage have locked some countries out of global growth.

Conclusion


In favour or against globalization?

Meaningless question as asking whether rain is good or bad:Because it depends on when, where, how much, how to utilize and on its specific qualities.

Analogously in the case of globalization we have to distinguish different: phases, aspects, effects. We have to choose one point of view

The obstacles on integrating globalization: - understanding of the complex effects of globalization

in different contexts - choice of the most appropriate instruments to govern

globalization.


The policy dilemma and globalization

What we need both at the national and international level is:– more effective competition on a really level playing field (→↓

inequality and poverty)– more democratic control on government from citizens– more democratic control on corporations from stakeholders– the problem is not so much the dislocation of nominal

power between the three factor sources, but the quality of the exercise of power at the national and global level:-genuinely competitive markets-accountability and transparency of government and corporate governance

Under these conditions, globalization may offer crucial opportunities of development guaranteeing at the same time its sustainability.

What can be Done?


Possible changesin global rules of the game

Stanley Fischer: “The international trading system is biased against the poor countries”

Removal of agro subsidies; free trade in sensitive products etc.

Creation of new LDC-funding sources Global transfers: reduction in the debt-service bur

dens to HIPCs Creation of a formal “national bankruptcy” proced

ure for over-indebted countries. Reform of IMF and WB: e.g. flexibility in its conditi

onality


Thank you!

Grand Hotel, Taipei

Reported by John C.T. Ko September 9, 2006 Globalization and the New Economy.

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Transcript of Reported by John C.T. Ko September 9, 2006 Globalization and the New Economy.