GLOBALISATION – A HISTORICAL

PERSPECTIVE

We shall be concentrating on the economic aspects which has been the primary force behind globalisation .

Different historians, Economists, sociologists have viewed globalisation from different perspectives.

Man’s struggle against oppression is a struggle between memory and forgetfulness. (Milan Kundera)

Manchester United, Chelsea, Arsenal, Liverpool, Barcelona, F.C. Porto, Real Madrid. ( Huge fan following).

How did they gain so much wealth to maintain multi – million dollar football teams?

“Medicine is a social science and politics is nothing else but medicine on a large scale” Rudolf Virchow

Historical Share of Global GDP

www.deloitte.com/dtt/research/0,1015,sid%253D...

1400 – 21st century The first era- 1400 to 16th century

(long distance trade) The second era- 17th century to 1900.

The third era- 1900-1950

The fourth era- 1950 till 1970

The fifth era- 1970 - onwards

The first tides of globalisation- 1492- Columbus discovers America-

1498- Vasco Da Gama makes an end run around Africa and snatches monopoly rents away from the Arabs and Venetian spice traders.

Adam Smith believed that they were two most important events in recorded history.

Long distance trade in 16th to 17th century

Trade in non-competing goods. Europe imported- spices, linen and woolens. Asia imported- silver, linen and woollens.The

presence of these goods had an impact only on the very rich.

Goods with very high value to bulk ratios were shipped.

Long distance trade between countries increased as transport costs declined and conflicts declined.

The second Era- 1700 to late 18th century

Rise of trade in basic competing goods.

Globalization forces has a big income distribution impact on long distance trading partners.

Decrease in transport costs.

The third era- Late 18th century to 1950

Integration in to the market. Cash crops overtook food crops. Bengal famine Cultural system in Java severely retarded the

social and economic development. Opium wars perpetrated on China by Britain.

The fourth era- 1950 till 1970

Free from colonial rule.

Capitalism vs. Socialism.

Welfare approach

Vietnam War, Cuban revolution.

End of Cold War.

The fifth era- 1970 – onwards-

Imperial policies > development New-Economic Order. MNC’s / TNC’s in forefront of this

economic order World Bank promoted post colonial model

to plant more commodities for export. Commercialisation of third world

agriculture through green revolution. WB advised 3rd world nations to plant more

commodities for export which lead to oversupply, lower prices, falling terms of trade, environmental degradation and increasing poverty.

Technological transfer- ( Hathi ko dant khane auta huncha dekhuane arko huncha)

The phenomenon of dumping Union carbide- Bhopal Clinical trials Outsourcing ( call centres, garments, ) Big Dams/ Pesticides/ Insecticides Aid with conditionality's attached.

Origins of third world debt- Who lent the money to developing

countries?The growth of petro dollars- (Middle east politics)Commercial banks were searching for possible

lenders. Governments in the developing world were obvious candidates. “ A fifth of the borrowed money went to arms, often to shore up oppressive regimes. Many governments started large scale development projects some of which proved of little value. And often the money found its way in to private banks.

Origins of third world debt-

The large scale default of loans by developing countries is known as the Debt Crisis and to the ‘rescue’ of the defaulting nations came the international institutions and structural adjustment programs.

The Debt Crisis-

The debt crisis refers to the panic generated by international financial and political circles in the late 1970’s to mid 1980’s when it began to appear that heavily indebted third world countries would be unable to continue making payments to commercial banks in wealthy countries leading to a collapse of the global financial system.

The collapse was averted by the energetic intervention of wealthy countries through the World Bank and the International Monetary Fund). These institutions took centre stage in to the resolution (or perhaps more accurately the effective displacement of the crisis. “ Solving” the Debt crisis involved imposing Structural Adjustment Policies on the economies of debtor countries thus allowing these economies to ‘return to growth’ and most importantly, to continue making interest payments on their foreign loans.

Causes of the Debt- The legacy of colonialism – Odious debt- Mismanaged lending and spending. The poor subsidising the rich.

Refer to notes-

India tax house ambani 40 storey.

Paying of the debt- Debt Burden-

For every 1$ received in grant aid, low income countries pay 2.30$ in debt service

Many African countries spend more on debt than either health or education. (Cameroon, Ethiopia, Gambia, Guinea, Madagascar, Malawi, Mauritania, Senegal, Uganda and Zambia all spent more on debt than health (2000- 2005).

Funding dictators at runaway interest rates

Total loans made to oppressive regimes (low and middle income counties) 500 billion $.

Loans to South Africa’s apartheid regime (being repaid by current government) 22 billion $.

Increasing debts- In 1970, the world’s poorest countries

( roughly 60 countries classified as low-income by the World Bank) owed 25 billion $ debt.

By 2002 it was 523 billion $. 550 billion $ paid in both principal and

interest over the last 3 decades on 540 billion $ loan, and yet there is still a 523 billion $ debt burden.

- John Madslien, BBC 2005.

Odious Debt

http://datatopics.worldbank.org/debt/ids/country/NPL

International Debt Statistics The World Bank.html

2012_worlddebtfigures.pdf

Key IMF Assumption – Debt Should be Paid First, No Default!

Debt repayment always comes first. Debt should be kept at a sustainable

level so that debtors do not default on public debt.

Aid and domestic revenues should be spent on debt reduction, if possible, which over time will create more fiscal space for public sector spending.

aaik_imf_policies.pdf How The IMF-World Bank and Structural

Adjustment Program(SAP) Destroyed Africa - NewsRescue.com NewsRescue.com.html

State led economy

Free market

Key IMF Assumption – Debt Should be Paid First, No Default!

Debt repayment always comes first. Debt should be kept at a sustainable

level so that debtors do not default on public debt.

Aid and domestic revenues should be spent on debt reduction, if possible, which over time will create more fiscal space for public sector spending.

Structural Adjustment Program (SAP)

Structural adjustment policies are economic policies which countries must follow in order to qualify for new World Bank and IMF loans and help them make debt repayments on the older debt repayments on the older debts owed to commercial banks governments and the World Bank.

SAP prescription was and is usually seen as embracing three interrelated aims and processes Reduce the role of the state relative to

the market in the economy. Enhance economic efficiency by

allowing prices to be determined by market forces such as exchange rates, interest rates and real wages.

Integrate the national economy in to the world economy by lifting barriers to trade and investment.

Assumptions that free market reform in based upon.

Most rationale and efficient allocation of resources can only take place without government interferences.

Economic Growth is the measure of human progress.

Economic globalisation in which trade in goods and capital can flow across national borders unimpeded (hindered) in a single integrated market benefiting everyone. It leads to growth, efficiency and spurs (stimulates competition)

Countries will benefit if they become internationally competitive and switch from domestic production for self sufficiency.

.refer to notes-

Conditions/Rules of Free Market Governments privatise state and

enterprises-

Public expenditure for social services cut.

Free market allowed to run- no impediments to the free flow of money, goods, health, social security and well being.

SAPs and Health Determinants Erode labour market institutions Financial market liberalization worsens

income inequalities Shifts in taxation policies (less

progressive) Reduced public spending (on education,

health, environmental protection)  Exacerbate inequalities between rural and

urban populations, indigenous and dominant cultural groups 

Cornia, A.C. 2001 (ed) “Inequality, Growth and Poverty in an era ofLiberalization and Globalization,” UNW/WIDER.

Growing Income Inequalities

0

50

100

150

Global Income Ratio: Top to Bottom Quintile of

Countries

1820187019131960199019971999

Inequalities decrease: Poverty reduction Rate of economic growthAnd increase: Rates of suicide & homicide Conflict Costs of policing and

security South Africa 2001: Police budget - $1.96

billion Health budget - $1.56

billionSource: UNDP 1999 Sources: Labonte & Torgerson, 2004;

Small Arms Survey, 2003

Consider the following In 1970, the world’s poorest countries (roughly 60

countries classified as low-income by the World Bank), owed $25 billion in debt.

By 2002, this was $523 billionFor Africa, In 1970, it was just under $11 billion By 2002, that was over half, to $295 billion Debts owed to the multilateral institutions such as the

IMF and World Bank is currently around $153 billion For the poorest countries debts to multilateral

institutions is around $70 billion. $550 billion has been paid in both principal and interest

over the last three decades, on $540bn of loans, and yet there is still a $523 billion dollar debt burden.

Source- Jorn Madslien, BBC, June 29, 2005

Nations are required to follow conditions for approval of the loan. These are technically known as conditionalities-Some of them are: Cutting social expenditures, also known as austerity, Implementing user fees in basic services such as

education and health, Focusing economic output on direct export and

resource extraction, Devaluation of overvalued currencies, Trade liberalization, or lifting import and export

restrictions, Increasing the stability of investment (by

supplementing foreign direct investment with the opening of domestic stock markets),

Balancing budgets and not overspending, Removing price controls and state subsidies, Privatization, or divestiture of all or part of state-owned

enterprises, Enhancing the rights of foreign investors vis-a-vis

national laws, Improving governance and fighting corruption.

All of us live under the dictatorship of debt, and it grows more powerful

by the day. But its rule is much more oppressive for the South than the North, for the poor than the rich. Debt in the poorest places on earth

has become a modern form of slavery. Unless it is cancelled and the chains are broken, there is no prospect whatever of liberation.

In 1997 the foreign debts of ‘developing’ countries were more than two trillion (million million) US dollars and still growing. The result is a debt of

$400 for every man, woman and child in the developing world – where average income in the very poorest countries is less than a dollar a day.

The real issue is not consumption itself but its patterns and effects.

… Inequalities in consumption are stark. Globally, the 20% of the world’s people in the highest-income countries account for 86% of total private consumption expenditures — the poorest 20% a minuscule 1.3%. More specifically, the richest fifth:

Consume 45% of all meat and fish, the poorest fifth 5%Consume 58% of total energy, the poorest fifth less than 4%Have 74% of all telephone lines, the poorest fifth 1.5%Consume 84% of all paper, the poorest fifth 1.1%Own 87% of the world’s vehicle fleet, the poorest fifth less than 1%Runaway growth in consumption in the past 50 years is putting strains on the environment never before seen.

— Human Development Report 1998 Overview, United Nations Development Programme (UNDP) — Emphasis Added

Next Class- Definitions and aspects of

globalisation- Major institutions and their role-