1. Trade, Interdependence, and Globalization
Lecture 11
Trade, Interdependence, and Globalization

2. Globalisation
Globalisation could involve all these things!

3. Globalization

4. 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

5. 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

6. 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.”

7. Thomas Friedman’s Definition of Globalization

8. 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

9. 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.

10. History of Globalization According to Thomas Friedman

11. 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

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

13. 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

14. 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

15. 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

16. Globalization 3.0 (continued)
Schematic Map of the Internet

17. Aspects of Globalization

18. 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?

19. 1. Economic Globalization

20. 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

21. 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

22. 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

23. 2. Technological Globalization

24. 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

25. 3. Cultural Globalization

26. 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

27. 3. CULTURAL GLOBALIZATION
McArabia Kofta

28. 4. Political Globalization

29. 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 Gav!

30. 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 the largest international health initiative in history by one nation to address a single disease
HIV/AIDS Situation in HIV Infected: 5.3 million AIDS Deaths: 370,000 AIDS Orphans: 1.1 million

31. 5. Military Globalization

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

33. 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

34. 5. MILITARY GLOBALIZATION
Smart Bombs
Sidewinder Missiles

35. Consequences/Effects of Globalization

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

38. 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)

39. 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

40. 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

41. 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

42. Summary of Consequences/Effects
Pros and Cons to Globalization

43. 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

44. 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

45. Trade

46. 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

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

48. 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)

49. 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

50. 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
Tariff adjustments following creation of EEC
$4.9 billion
20%
17%
Kennedy 62
Linear cuts
30,000 tariff lines bound
$40 billion
8.7%
Tokyo
102
Tariffs; NTBs;
Linear cuts;
Codes
$155 billion
34%
6.3%
Uruguay
103 start, 128 end
Item-by-Item and Linear;
WTO
 WTO
Dispute Resolution
$3.7 trillion
39%
4.0%

51. See Supplemental Readings

52. 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

53. 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)

54. 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

55. 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

56. Global Institutions that Affect IPE

58. 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…

59. IMF

60. 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.

61. 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

62. 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

63. The World Bank

64. 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

65. 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.)

66. WTO

67. 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

68. 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

69. 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

70. 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.