Trade, Interdependence, and Globalization Lecture 11 Trade, Interdependence, and Globalization

Globalisation Globalisation could involve all these things!

Globalization

What is Globalization? Global industrialism or globalization is a process of forging international political, economic, religious, and socio-cultural interconnections 7-11 Beijing KFC Kuwait

Globalization Definition Variety of definitions, centering around the world becoming “smaller” and more interconnected in the areas of commerce, culture, and politics Causes: technological advances in communication, travel, and computational power, expansion of trade

Thomas Friedman, “The Lexus and the Olive Tree” A globalist system has replaced the Cold War system The new system has unique rules, logic, pressures and incentives driven by international capitalism Features integration: free flow of capital, goods, ideas more broadly, faster, deeper than anytime in the past. The “Golden Straightjacket”: must abide by goals of free market principles, efficiency. Rewarded if you do. New key players: The “Electronic Herd.” Globalization promotes cultural homogenization, the “Big Mac.”

Thomas Friedman’s Definition of Globalization

Friedman: Globalization’s New Structure and Balance of Power Traditional balance between states (countries), U.S. is the paramount player Balance between states and global markets: states can’t ignore the market any longer without costs Balance between individuals and states: people influence governments through the market at home and abroad (for good and evil). Globalization produces “super-empowered individuals

Important Conclusions from Friedman’s Argument Rewards. Those who participate in globalization are rewarded, though there are winners and losers. Peace Dividend. Those engaged in globalization have too much to lose with war. Democratic Dividend. Free movement of information with markets produces drive for freedom and liberty—seeds of democracy.

History of Globalization According to Thomas Friedman

The Stages of Globalization (From Thomas Friedman in The World is Flat) Globalization 1.0 (from 1492 to 1800) Globalization 2.0 (from 1800 to 2000) Globalization 3.0 (from 2000 to the present) Globalization 1.0 * 1492 to 1800 * World went from large to medium-size * All about countries and muscles * Key agents of change: brawn and horsepower Globalization 2.0 * 1800 to 2000 * World has shrunk from medium to small-size * Key agent of change: multinational companies * First half: global integration powered by falling transportation costs (steam engine and railroad) * Second half: global integration powered by falling telecommunications costs (telephone, PC, satellites, fiber-optic cable) Globalization 3.0 * 2000 – now * World is now tiny (everyone is everyone else’s close neighbor) * Competitive playing field is being leveled * Key agent of change: software, in conjunction with the global fiber-optic network * Enabling people to collaborate and compete globally

Globalization 1.0 Christopher Columbus Christopher Columbus “discovering” the New World in 1492.

Globalization 2.0 (first half) Railroads Global integration during the first half of Globalization 2.0 was driven by falling transportation costs (for example, steam engine and the railroads). Steam engine

Globalization 2.0 (second half) Satellites Fiber optics Global integration during the second half of Globalization 2.0 was driven by falling communications costs (e.g., satellites, fiber optics, the personal computer, and wireless smart phones). Apple Mac Pro OpenMoko open source smart phone

Globalization 3.0 Key agent of change: software, in conjunction with the global fiber-optic network enabling people to collaborate and compete globally 3.0 2.0 1.0

Globalization 3.0 (continued) Schematic Map of the Internet

Aspects of Globalization

5 ASPECTS OF GLOBALIZATION ECONOMIC TECHNOLOGICAL CULTURAL POLITICAL MILITARY THESE ASPECTS ARE ALL INTERCONNECTED! ********************* After this lecture, can you give 1 example of each of the above?

1. Economic Globalization

1. Economic Globalization TODAY: Economies Are Increasingly Linked Together EXS: NAFTA (MX, CA, US), The EU, WTO (World Trade Organization) WTO Only global international organization dealing with the rules of trade between nations Goal: help producers of goods and services, exporters, and importers conduct their business

1. ECONOMIC GLOBALIZATION MULTI-NATIONAL CORPORATIONS OLD: Dutch East India Company? 1602 company of Dutch merchants & independent trading companies Spice trade monopoly in East Asia Power to colonize territories & enslave indigenous people Indonesia & South Africa

1. ECONOMIC GLOBALIZATION NEW: Nike, Wal-Mart, Royal/Dutch Shell Top 100 multinationals are all US-owned companies! Royal/Dutch Shell: global group of energy and petrochemical companies, operating in more than 140 countries and territories, employing more than 112,000 people

2. Technological Globalization

2. TECHNOLOGICAL GLOBALIZATION “World Wide Web” has exploded in last 10 years Computers can move money around world = “finance capital” Silicon Valley is 9th largest economy in world! Africa Number of telephones is decreasing More computers in Manhattan than all of Africa! Post-colonial infrastructures don’t support technology

3. Cultural Globalization

3. CULTURAL GLOBALIZATION Cultural Imperialism = Dominance of one culture over others Hollywood movies, MacDonald’s, Disneyland, Starbucks Dominance of the English language and invasion of other languages Do people all over the world have the same taste? Africa “Culture Industry” = opportunities for Africans to sell their culture in the “global market” that values traditional culture

3. CULTURAL GLOBALIZATION McArabia Kofta

4. Political Globalization

4. POLITICAL GLOBALIZATION The United Nations: Global assoc. of govts. facilitating cooperation in international law, security, economic development, and social equity Whose interests does the UN represent? The US and the UK were the only nations in support of going to war in Iraq Can a global politics with social values exist? Alternative political gatherings: Annual World Social Forums since 2001, The Piece Process @ Gav!

4. POLITICAL GLOBALIZATION South Africa In 2001, US pharmaceutical corporations sued South African companies for infringing on AIDS medication patent laws In 2003, President George W. Bush announced the Emergency Plan in 2003 - the largest international health initiative in history by one nation to address a single disease HIV/AIDS Situation in 2004 HIV Infected: 5.3 million AIDS Deaths: 370,000 AIDS Orphans: 1.1 million

5. Military Globalization

5. MILITARY GLOBALIZATION Nuclear Bombs F/A-22 Raptor

5. MILITARY GLOBALIZATION Global alliances become clear during war time Ex: Today’s US alliance with Britain in wars against Afghanistan and Iraq What will happen with North Korea and nuclear weapons? Africa “Trade in Arms” = US sold $227 million in arms to AF in 1990s US train and provide weapons for African armies on both sides of their civil wars (ex. Mobutu civil war in Congo) US is the #1 exporter of weapons globally US is the last on the list of exporters of non-military aid to the developing world

5. MILITARY GLOBALIZATION Smart Bombs Sidewinder Missiles

Consequences/Effects of Globalization

Globalization Consequences/Effects Consequences cited by various scholars and activists: Cheaper goods and services Growing wealth for certain actors Environmental damage Exploitation of labor

Globalization Consequences/Effects Consequences cited by various scholars and activists (cont.): Mixing of cultures: Dominant Western culture eroding traditional cultures Backlash from those who want to maintain traditional cultures “Lexus and the Olive Tree” (Friedman) “McWorld vs. Jihad” (Barber)

Globalization Consequences/Effects Consequences cited by various scholars and activists (cont.): Diseases spread more rapidly Economic crises spread more rapidly Increased trafficking of humans and drugs Terrorism/asymmetric warfare made easier

Globalization Consequences/Effects Global Culture: Homogenization Technology (Internet, TV, cell phones etc.) is sweeping away cultural boundaries creating the possibility and even the likelihood of a global culture. Global entertainment companies shape the perceptions, values, and dreams of people, everywhere. This spread of values, norms, and culture tends to promote Western ideals of capitalism and consumerism. Resulting in the disappearance of local cultures, traditions, and identities replaced by a single commodity/ single identity world – the Westernization of culture Ladies only line Saudi Arabia

the meaning of good, appropriate, success changes Globalization Consequences/Effects Asymmetry in Power Relations and Flows Coca-colonization: Coke, McDonald’s, Levi’s, MTV, Disney, computer games, American (or American style) TV shows, look-alike shopping malls with look-alike goods the meaning of good, appropriate, success changes Banana Republicanization Move from the dominant to the weaker Big Bird does China like to teach the world to sing

Summary of Consequences/Effects Pros and Cons to Globalization

Pros increases economic prosperity and opportunity higher degrees of political and economic freedom in the form of democracy Improved standard of living – reduction in poverty Improved gender relations Increased life-span

Cons Increased environmental damage increased poverty, inequality, injustice erosion of traditional culture Corporations are motivated by profit and have little concern for people economic globalization developments feed into ethnic, religious, and factional tensions that lead to wars and help breed terrorism Terrorists now globally interconnected and empowered with knowledge, create a whole new category of warfare based, in part, on the disruption of the interconnections which are both created by and necessary for globalization Corporations shape political policy of countries e.g. over fishing

Trade

Role of Trade with Globalization A key element of economic globalization Dramatic increases in trade over the past 200 years Technological advances (most notably the steam engine) powered expansion of trade in 19th and early 20th centuries After setback of Great Depression and World War II, trade grew again, accelerating with collapse of communist bloc and advances in information technologies Institutions such as GATT (later WTO) have facilitated trade globally Growth of regional free trade blocs

Economic Approaches to Trade Mercantilist/autarkic practices Liberal, “free trade” policies A mix of the two extremes (protecting certain domestic industries, etc.)

Effects of Trade Differences in countries’ exports (primary products vs. high-tech manufactured goods) can lead to dependency relationships and inhibit development of poorer countries “Free trade” vs. “fair trade” Comparative and absolute advantage (see lecture #10)

Free Trade Controversy Free trade and barriers to trade WTO (previously GATT) Most favored nation and reciprocity principles Efforts to reduce tariffs, subsidies, quotas, and other barriers to free trade (and ongoing disputes, such as agricultural subsidies by wealthy countries) Regional free trade agreements (e.g., NAFTA) Conflict with WTO goals

Subjects and Modalities Main Outcomes Value of Trade Covered Summary of GATT Rounds   Round N of Countries Subjects and Modalities Main Outcomes Value of Trade Covered Average Tariff Cut Average Post Round Tariffs Geneva 1947 23 Tariffs; Item-by-Item Negotiation Concessions on 45,000 tariff lines $ 10 billion 35%   Annecy 1949 33 Modest tariff reductions 37% Torquay 1950 34 8,700 tariff concessions 26% 1956 26 $2.5 billion 15% Dillon 1960-1961 Tariff adjustments following creation of EEC $4.9 billion 20% 17% Kennedy 1962-1967 62 Linear cuts 30,000 tariff lines bound $40 billion 8.7% Tokyo 1973-1979 102 Tariffs; NTBs; Linear cuts; Codes $155 billion 34% 6.3% Uruguay 1986-1994 103 start, 128 end Item-by-Item and Linear; WTO  WTO Dispute Resolution $3.7 trillion 39% 4.0%        

See Supplemental Readings

Regional Trade Agreements Besides economic organizations, regional trade agreements form a key part of the institutional structure of the world economy Regional trade agreements have proliferated around the world since the beginning of the 1990s

Five Types of Regional Trade Agreements 1. Partial trade agreement – two or more countries liberalize trade in a selected group of product categories 2. Free trade area (FTA) – trade in goods and services fully liberalized between two or more countries North American Free Trade Agreement (NAFTA)

Five Types of Regional Trade Agreements (cont.) 3. Customs union (CU) – an FTA plus a common external tariff (CET) European Union in the 1970s and 1980s MERCOSUR in South America 4. Common market – a CU plus free mobility of factors of production European Union in the 1990s

Five Types of Regional Trade Agreements (cont.) 5. Economic Union – common market with coordination of macroeconomic policies (including common currency, harmonization of standards and regulations) United States Canada European Union

Global Institutions that Affect IPE

International Institutions The three global organizations playing a major role in international economic relations are: The International Monetary Fund (IMF) The World Bank The World Trade Organization (WTO) Let’s take a closer look at the functions of these organizations…

IMF

The IMF Founded by the Bretton Woods meetings between the Allies in July 1944 Each of the 184 members charged a quota 25% in SDRs or convertible currencies US quota is SDR 37,149.3 million (largest) Palau quota is SDR 3.1 million (smallest) The size of the quota determines the member’s voting power 250 basic votes + 1 voter/SDR 100,000 quota US has 371,743 votes (17.11%) Palau 281 votes.

The IMF The IMF was established to: Promote international monetary cooperation; Promote exchange stability and orderly exchange arrangements To foster growth and high levels of employment, and to provide temporary financial assistance to countries to help ease balance of payments adjustment

The IMF Fundamental disequilibrium and exchange crisis Crisis occurs when a country runs out of foreign exchange reserves – a major currency or gold that can be used to pay for imports and international borrowings IMF conditionality – requirement for the borrowing member to carry out economic reforms in exchange for a loan

The World Bank

The World Bank Also founded at the Bretton Woods Conference Founded as the International Bank for Reconstruction and Development (IBRD) World Bank has 184 members

The World Bank Main functions: development lending Today, IBRD is one of the five subgroups making up the World Bank Group IDA (International Development Assn.), IFC (International Finance Corp.), MIGA (Multilateral Investment Guarantee Agency), ICSID (Int’l Cent. For Settlement of Investment Disp.)

WTO

From GATT to WTO Uruguay Round Agreement signed in 1994 The round established the WTO: 144 members as of 1 January 2002 reaches beyond GATT to new trade issues; has a more effective dispute settlement mechanism; and monitors national trade practices more consistently

The WTO Main Tasks of the WTO Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for LDCs Cooperation with other international agencies

The WTO Interdependence Norms Liberalization – negotiations to reduce protection. Nondiscrimination – enshrined in the concept of most favored national status (MFN): every WTO member must treat each of its trading partners as it treats its most favored partner National treatment – imports must be given a similar treatment on the domestic market as domestically produced goods

The WTO Sovereignty Norms Reciprocity – negotiations proceed in terms of exchange of “concessions” of substantially equivalent value. Safeguards – right of government to preserve economic stability through (nondiscriminatory) protection recognized.