Globalisation

Definition

Globalisation refers to a large number of business enterprises being carried out in many different locations across national boundaries. Much more than just importing or exporting from one country to another, true globalisation involves one firm procuring from, manufacturing in, and selling to many different countries. There has been an increasing trend in the world towards globalisation, which is characterized by such trends such as: {1-7}

1. Greater free trade.
2. Greater movement of labour.
3. Increased capital flows.
4. Growth of multinational companies.
5. Increased integration of global trade cycle.
6. Increased communication and improved transport, effectively reducing barriers between countries.

Economists generally stress the interconnectedness in their definitions:

'Globalisation can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away, and vice versa.' Anthony Giddens {8}

'The concept of globalisation reflects the sense of an immense enlargement of world communication, as well as of the horizon of a world market, both of which seem far more tangible and immediate than in earlier stages of modernity.' Fredric Jameson. {8}

'Globalisation as a concept refers both to the compression of the world and the intensification of consciousness of the world as a whole.' Roland Robertson. {8}

Benefits

In theory, globalisation offers many advantages: {2, 9-11}

1. Lower prices for consumers.
2. Greater choice of goods.
3. Bigger export markets for domestic manufacturers.
4. Economies of scale through being able to specialize in certain goods.
5. Greater competition.
6. Greater employment opportunities.
7. Access to bigger markets.
8. Faster spread of new technologies.

Globalisation is a fact, and even the Jakarta cab driver may be wearing sandals manufactured in China, and be sporting a shirt from Bangladesh and/or a watch from Taiwan. He will pass hoardings advertising electronics made in China and Korea, and have to wait behind buses made in India. Even his midday meal may include rice imported from Vietnam or Thailand.

Globalisation began millennia ago with Eurasian trading patterns.{12-13} The northern regions supplied furs and amber. The European countries, ever at war with each other, produced weapons, plus wool in the north and grain, wine and olive oil in the south. Precious metals came from many sources, but increasingly from Mexico and Peru after the Spanish conquest. The Indian subcontinent produced high-quality cotton textiles, and China was the source of tea, spices, porcelain and silks. Under this mutually-beneficial system, the Hanseatic League handled the northern European trade, the Italian trading cities sold on the goods brought from China, the medieval Islamic states grew rich on protecting the overland caravan routes, Indian fabrics found a market everywhere, and China received its ever-needed silver for currency purposes. {14} The system drew to an end when the break-up of the Mongol empire into smaller kingdoms threatened the security of inland routes, and the Atlantic nations sought cheaper, sea-borne passages to China. Then came the Industrial Revolution, colonization by the western powers, trading under the self-regulating gold standard {15}, and finally the unfettered competition we know today.

So were sown the seeds of present world. Britain, industrializing first, did not maintain its lead when the large London banks found overseas projects more attractive than investment in British industry. France industrialized slowly, and its attachment to agricultural subsidies still causes difficulties. Russia industrialized too fast, and, when the Tsarist and Kerensky governments were unable to feed urban populations during the First World, suffered a Bolshevik revolution. Islamic countries, deprived of trade contacts and revenues, and hampered by social restrictions, have fallen prey to religious fundamentalism. {16-17}

Only in north America did industrialization proceed fairly smoothly. Immigrants expanded into lands cleared of Indians by disease and sometimes wholesale killing, {18} shook off European hegemony, and — endowed with space, natural resources and a swelling work force through immigration — developed the mass production models that served it well during the Second World War and for thirty years afterwards. {19}

Imperial China enjoyed an excellent internal trade which allowed individual families to diversify in agricultural products, and also preferred to keep its young women in the family rather than allow employment in factories: two conditions that retarded industrialization until the second half of the twentieth century. Women's status differed in Japan, where western ideas flooded in with the new Meiji government, allowing the country to industrialize quickly, defeat Russia in the 1904-5 war, and become the world's second largest economic power on recovering from its 1945 defeat. {12, 19}

Unless possessing large oilfields (Nigeria, Indonesia), both Africa and the world's former colonies stayed relatively poor. Exceptions are Canada, Australia and New Zealand, which more closely resembled America in resources and adopted similar development models. {20}

Disadvantages

Globalisation has also brought problems: {2-10}

1. Exposed the less-developed countries to the forces of superpower markets.
2. Created an unlevel playing field where smaller companies lack the resources to compete effectively.
3. Made countries critically dependent on each other.
4. Linked countries so that adverse economic conditions spread quickly and may become mutually reinforcing.
5. Facilitated the spread of disease in humans, animals and plants.
6. Led to a drain of higher-skilled workers.
7. Destroyed cultural and species diversity.
8. Taken over public life and eroded the power of democracies.

The present system is unstable, and places smaller countries, i.e. those outside China, the US and Europe, at a widening disadvantage. {21} From 1960 to 1995, the ratio of per capita income between the richest and poorest groups of countries increased from 30:1 to 80:1. {22}

Predatory Capital

Many countries have suffered attacks on their currencies: Britain in 1992 {23}, Mexico in 1982 and 1995 {24}, Russia in 1998 {25}, south-east Asia in 1997-8. {26} In all cases there were weaknesses waiting to be exploited, but the resulting capital flight plunged the countries into difficulties, allowed assets to be acquired cheaply by foreign concerns, and enriched foreign banks and businesses.

Social unrest and foreign control of Mexican industry led to the nationalization of railroads in 1929 and 1930, and of the petroleum industry in 1938. American investment returned to Mexico in 1970s, under the Portillo government modernization and industrialization program, where GDP grew at 6-8% p.a. Beset, however, by falling oil prices, higher world interest rates, rising inflation, an overvalued peso, a deteriorating balance of payments, and disappearing foreign reserves, the government devalued {27} the peso three times in 1982, declared a moratorium on debt repayment and then nationalized the banking industry. {28} The result was capital flight, and onerous loans from the IMF, which one commentator described as 'the most concerted organized looting operation in modern history'. {29-30} Mexico's reputation for safe investment had been restored by 1994, but the country was persuaded by the US to devalue by 13%. Before the announcement, however, some US$4 bn left the country, and the peso plunged 39%. Banks place the blame with the Mexican authorities, {24, 31-32} but Wall Street firms were the beneficiaries, gaining ownership of financial assets previously closed to them. {31}

Such actions, presented as simple market reactions in the mainstream and textbook press, are often seen very differently by the developing world, {33-34} even as an arm of American policy {35-36} stated by the Clinton administration as the right of the US to use military force unilaterally to ensure 'uninhibited access to key markets, energy supplies, and strategic resources.' {37} It is worth quoting the Brazilian delegate to the 1990 annual meeting in Washington of the IMF and World Bank:

'Since the beginning of the debt crisis Latin America has transferred roughly $250 billion to creditor countries whereas it has received only $50 billion in financial resources. The figures are eloquent enough: the region exported resources in amounts several times greater than those of the Marshall Plan.' {38}

Even the short-lived 'Arab spring' was more a protest for affordable food than for political freedom, and inflated food prices were not helped by market speculation. {39}

Subsidies and tariffs by the rich agricultural nations create not only an unlevel playing field, locking the world into inequalities of wealth and opportunity, but close the door to markets for more sophisticated western goods. {40}  Rich countries spend $1 billion every day on agricultural subsidies. IMF and World Bank programs force poor countries to open their markets to unfair competition, often requiring them to grow export crops, which are notoriously subject to market swings. Some African crops, like palm oil, have not received the research enabling the plants to do better in south-east Asia. {40} Exports to rich country markets also face tariff barriers four times higher than those encountered by rich countries. The barriers cost poor countries $100 bn a year, twice as much as they receive in aid. {41} Health requirements are often too high for poorer countries to attain — disease-free areas, inspection prior to export, maximum levels of pesticide or insecticide use — or even US farmers. {41-46}

World Picture

Prosperity came slowly and unevenly. Per capita GDP in 1990 international dollars: {47}

Year	West	Asia	Latin America	East Europe & USSR	Africa	World
1	569	456	400	406	472	467
1000	426	465	400	400	428	450
1500	753	568	416	498	416	567
1820	1,202	581	691	686	421	667
1870	2,050	556	676	941	500	873
1913	3,988	696	1,494	1,558	637	1,526
1950	6,297	717	2,503	2,602	890	2,113
1973	13,379	1,718	4,513	5,731	1,410	4,091
2003	23,710	4,434	5,786	5,705	1,549	6,516

Growth in the early capitalist period, 1820-70, was largely confined to the USA, Europe and Latin America. The old 'liberal order' of 1870-1913 extended growth to other counties. The period following, plagued by world wars and depressions, was poor for everyone. The golden period for global growth was 1950-73, when global GDP grew 3%/year. Growth in 1973-2003 achieved only half that.

Population in millions: {47}

Year	West	Asia	Latin America	East Europe & USSR	Africa	World
1	26	168	6	9	17	226
1000	27	183	11	14	32	267
1500	60	284	18	30	47	438
1820	144	710	22	91	74	1,042
1870	234	765	40	142	90	1,272
1913	372	978	81	236	125	1,791
1950	481	1,383	166	267	228	2,526
1973	610	2,249	308	360	390	3,916
2003	741	3,734	541	409	853	6,279

With the growth in trade has come branding and advertising, and even today countries retain traditions that allow products to be sold at a premium: America for electronic innovation, Italy for hand-crafted fashion goods, and Germany for solid engineering.

Progress is still slow. {48} Dani Rodrik {9} has urged developing countries not to rely on financial markets or the international financial institutions, but first put their own house in order. Important were property rights, the rule of law, sound money, and honest public finances — indeed just what fostered the Industrial Revolution in England. There is no simple recipe for growth. {49} Six key matters were export subsidies, domestic-content requirements, import-export linkages, import quotas, patent and copyright restrictions, and directed credit.

Global Economy

There is no need to demonise business leaders and politicians, who largely work with the world as they find it, securing what social and moral justification they can, but there are good reasons for doubting any trade model based on market economics will bring prosperity and greater equality. {50} It is intellectually flawed, and does not correspond to reality. Indeed, its limitations are probably well known and accepted, as the burgeoning debt, increasing wars, and further restrictions on civil liberty all point to powerful interests determined to prevent a move to more equitable economies.

But the most compelling evidence comes from the study of global economics. {51} Countries did not attain prosperity in the ways advocated by the World Bank, and would not have done so had they tried. Free trade would have prevented their growth of internationally competitive industries, and kept them as suppliers of raw materials or simple assembly goods. Industrialization is capital intensive, and only succeeds when it replaces high-paid jobs. Labourers in emerging markets are poor, and work in factory conditions similar to those of the early nineteenth century: low technology, low capital investment and low wages, e.g. footware and garment manufactures in Bangladesh, Malaysia and Vietnam. Wages are kept at subsistence level to make the factories viable, and those low wages are insufficient to fund further local development. Companies simply move elsewhere if threatened with wage demands, and only large and increasingly militarised countries like Russia and China can provide the protection needed to make large leaps forward. Hence the aggressive stance of America and NATO, which is often seems to be recklessly threatening, but finds itself defending a system where US hegemony is imperative. {52} Without the strength of the US dollar, the western world would be forced to address national debt problems and adopt less favourable market models. Politicians, business and army chiefs do not conspire behind locked doors towards a fascist takeover of the world's resources, of course: they simply read the mainstream press, which is staffed by journalists brought up in the same beliefs and interests. From that perspective, countries are simply poor because they haven't adopted free trade policies, and there is no incentive to look for deeper explanations. Besides, if the 1% control business in the western democracies, power is even more concentrated in the political elite of Russia and China, whose lifestyles and outlooks increasingly resemble those of their western counterparts. Political systems work for many interests, not only those of the average citizen. In general, superpowers need to foster re-distributive policies {51} and common purpose. {54}

Even social structures can work against poorer countries. Islam prohibits the economic exploitation implicit in western market models. Many African peoples have a semi-nomadic existence. Under colonisation they were drawn into western notions of money to pay taxes, and sometimes given a more tribal nature so that friendly chiefs could enforce the policies of their colonial overlords, but they remained communal societies at heart, self supportive and redistributing goods more than individually competing for wealth. Political, health and education standards were kept rudimentary, which again prevented real growth when Independence came. {55}

Today it is inefficiencies in food distribution and the ravages of war that keep a billion people hungry, though the overpopulation threat is real. Countries need to co-operate to manage land and water resources more effectively, educating women, introducing better farming techniques {56} and limiting human reproduction sensibly. Agriculture accounts for one third of greenhouse gas emission, and farmers use 171 million tons of nitrogen as fertilizer every year, much of which ends up polluting water supplies and even the oceans themselves. Genetically modified crops are aggressively promoted, but often require special fertilizers, insecticides and more water than poor farmers have access to. Only a move away from grossly expensive warfare to self-sustaining development {57-63}will solve the looming problems of the world {64-67} where over 70% live on less than $10/day.

But globalisation affects not only the third world but western democracies where public decisions increasingly follow corporation agendas, aided by political leaders more concerned at finding lucrative employment afterwards than defending the electorates they ostensibly serve. Transnational organisations have unlicensed and growing power. Of the top 100 economies of the world, 51 are now corporations, and only 49 are countries. The top 200 corporations have more wealth than 182 countries combined, have twice the economic influence than 80% of humanity, but employ only 0.3% of the world’s population. Five of the top 20 corporations are banks. Fraud, rigging, insider dealing, and money laundering continue unchecked, and the daily derivative trading is now a third higher than before the 2008 crash. The European Parliament has recently passed the Trade Secrets Protection Directive that gives corporations extra powers to criminalize and prosecute whistleblowers, journalists and news organisations that publish leaked internal documents, for all that those corporations increasingly use transfer pricing and tax havens to evade their larger responsibilities. {68}

References and Further Reading

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