Globalization

Class 22 – Tuesday, 4 May 2009J A Morrison 1

Agenda: Globalization

I. Theory: Studying GlobalizationII. Empirics: Observing GlobalizationIII. Soc Sci: Explaining the VariationIV.Assessment: Evaluating

Globalization (Next Time)

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Agenda: Globalization

I. Theory: Studying GlobalizationII. Empirics: Observing GlobalizationIII. Soc Sci: Explaining the VariationIV.Assessment: Evaluating

Globalization (Next Time)

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I. STUDYING GLOBALIZATION

1. Defining Globalization2. The Implications of Globalization3. The Determinants of Globalization

So, what is this phenomenon “globalization”?

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The literal meaning of globalization is rendering things global. (OED)

A more precise formulation would run: “fundamental changes in the spatial and

temporal contours of social existence, according to which the significance of space or territory

undergoes shifts in the face of a no less dramatic acceleration in the temporal structure of crucial

forms of human activity.” (Stanford Encycl. of Philosophy)

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Globalization, then, is really about the elimination of differences across space and the changes in life that follow as a result.

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I. STUDYING GLOBALIZATION

1. Defining Globalization2. The Implications of Globalization3. The Determinants of Globalization

Globalization has implications for social, political, and economic

outcomes.

(We’re particularly interested in the latter two.)

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The Social Implications• The Division of Labor in Society

(1893)• Globalization affects social

organization• Mechanical Solidarity: bonds forced

by proximity– E.g. members of same tribes

• Organic Solidarity: bonds developed by interdependence– E.g. individuals with similar internal

characteristics10

Émile Durkheim

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Consider, for instance, the power of the tubes…

Consider, for instance, the power of the tubes…

(Ted Stevens)

RickRolling.

(BTW: You’ve been RickRoll’d.) 12

Economic Implications• Development: Does globalization make the pie

bigger?• Distribution: Who enjoys the gains brought by

globalization?– Developed countries?– Developing countries?– MNCs?– Consumers?

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Political Implications• Reorganization of the International System

– Non-state actors (MNCs, NGOs, &c) become major players in IP

– Changes in distribution of power

• Changes in Accountability– States respond to different groups than do MNCs

or NGOs

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Power Transfer: States Firms (?)• Key Ingredients

– Some multinational corporations (MNCs) are bigger than some states

– Capital is “footloose”—free to relocated

• Results– States compete for MNCs and the benefits they

bring– Shifting responsibilities: who is to blame for

externalities?

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I. STUDYING GLOBALIZATION

1. Defining Globalization2. The Implications of Globalization3. The Determinants of Globalization

What determines the level of globalization?

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Transport & Communication Costs

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Shipping/ Communication

1930 1990

Shipping by SeaNew York-London

$95 in ocean freight and post

charges per short ton

$29 in ocean freight and post

charges per short ton

Shipping by AirNew York-London

$0.68 per passenger mile

$0.11 per passenger mile

Cost of a 3-minute Phone CallNew York-London

$244.65 $3.32

When the World Shrank

• 1522: Magellan Sails around the World• 1827: Steamship crosses Atlantic• 1861: Transcontinental Telegraph • 1869: Transcontinental Railroad• 1927: Lindbergh’s Transatlantic Flight• 1989: Creation of WWW

And…19

The iPhone(29 June 2007)

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The story here is clear.

These developments work like a one-way ratchet: once the iPhone

is invented, there is no uninventing it.

(Sorry Micro$oft)

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Contrived Barriers to Globalization• Linguistic and Cultural Barriers

– Language overlap increases/decreases (e.g. Latin; English)– Cultural diversity also rises and falls

• Politically-Imposed Restrictions– Restrictions on economic interchange (tariffs, &c)– Restrictions on information flow (e.g. “Great Firewall of China”)

These barriers are variable over time.

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If the level of globalization may fluctuate, how has the level of globalization changed

over time?

How does it vary across space?

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Agenda: Globalization

I. Theory: Studying GlobalizationII. Empirics: Observing GlobalizationIII. Soc Sci: Explaining the VariationIV.Assessment: Evaluating

Globalization (Next Time)

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Globalization encompasses more than just “economic” phenomena…

But we typically use “economic” measures to determine the level of globalization.

Specifically, we look at the amount of movement of: people, goods & services,

and capital.

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II. OBSERVING GLOBALIZATION

1. Globalization Across Time2. Globalization Across Space

First, let’s look at this cross-temporally.

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Globalization across Time• Trade: Share of Exports in World Output

– Peaked in 1913– This point was not surpassed until 1970 (G&I, 5)

• Capital: Flows relative to National Income– Level of integration still has not reached the levels

achieved among developed countries between 1870 and 1913 (G&I, 217)

• Migration: Movement relative to World Population– More people crossing borders in 1900 than today (Hatton

& Williamson, 1998.)

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0

2

4

6

8

10

12

14

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1820 1870 1900 1913 1929 1950 1960 1970 1980 1992 2000

Year

Per

cent

World Exports/GDP (in constant dollars)

1875 1913 1931 1950 1985 2000

France 13.5% 20% 30% 18% 5.7% 3.6%

Germany 5% 17% 21% 26% 5.7% 3.6%

Italy 9% 18% 46% 25% 5.7% 3.6%

UK 0% 0% n.a. 23% 5.7% 3.6%

Canada n.a. 26% n.a. n.a. 9.0% 4.8%

US 45% 44% 48% 14% 4.6% 3.0%

Average Tariffs on Imported Manufactured Goods

Two Eras of Globalization• Two Eras

– 1st Age: Mid-19th Century to 1914– 2nd Age: 1945 to Present

• Similar Causes– Revolutions in transportation & communication– Commitment by states to decrease impediments

• Two Different Stories– Trade: Share of exports in world output peaked in 1913

and was not surpassed until 1970– Money & Migration: Still haven’t rivaled previous levels

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II. OBSERVING GLOBALIZATION

1. Globalization Across Time2. Globalization Across Space

Now, let’s examine this cross-sectionally.

Which countries are the most globalized today?

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World’s Most Globalized

34A. T. Kearney/Foreign Policy Magazine Globalization Index. (Pub 2007)

World’s Least Globalized

35A. T. Kearney/Foreign Policy Magazine Globalization Index. (Pub 2007)

Those numbers capture the total volume of globalization in those

countries.

But which rely most heavily on foreign integration?

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Trade Dependence vs. Economic Size (1 of 2)

Country Trade (% of GDP)Economic Size

(GDP – Global Top 20)

Japan 20 2

Argentina 22 17

Brazil 23 11

US 26 1

India 28 12

Australia 46 15

China 49 6

Italy 56 7

France 56 5

UK 58 4

Source: World Bank, World Development Indicators 2003

Country Trade (% of GDP)Economic Size

(GDP – Global Top 20)

Spain 62 10

Mexico 64 9

Germany 67 3

Russian Federation 69 16

South Korea 87 13

Canada 87 8

Switzerland 88 18

Sweden 89 20

Netherlands 130 14

Belgium 169 19

Source: World Bank, World Development Indicators 2003

Trade Dependence vs. Economic Size (1 of 2)

Trade in the US Economy

0

5

10

15

20

25

30

35

40

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1879 c.1900 c.1910 1929 1939 1950 1960 1970 1980 1990 1997

Per

cent

age

Merchandise Exports/GDP Merchandise Exports/Production

Source: Bureau of Economic Analysis, Dept. of Commerce

US Financial Inflow and Outflow 1960-2002

0

200

400

600

800

1000

1200

1960 1965 1970 1975 1980 1985 1990 1995 2000

$ B

illi

on

s

Financial Outf low (US' claims on assets abroad)Financial Inf low (Foreigners' claims on US' domestic assets)

US Direct Investment

Abroad

Foreign Direct Investment in the

US

1914 7% 3.5%

1929/30 7% 1%

1960 6% 1%

1996 20% 16%

2001 23% 15%

US Foreign Direct Investment, Selected Years(as percent of US GNP/GNI)

Source: OECD, World Development Indicator

So, we have both cross-temporal and cross-sectional variation.

The over all level of globalization has varied across time.

And the degree to which individual countries are globalized varies by

the country.42

As social scientists, we ask: how do we explain this variation?

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Agenda: Globalization

I. Theory: Studying GlobalizationII. Empirics: Observing GlobalizationIII. Soc Sci: Explaining the VariationIV.Assessment: Evaluating

Globalization (Next Time)

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III. EXPLAINING THE VARIATION

1. Cross-Temporal Variation2. Cross-Sectional Variation

Let’s begin with the cross-temporal variation.

The first question is: why did the variation in the level of

globalization vary over the course of the 19th & 20th Centuries?

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Explanations of Cross-Temporal Variation of Globalization

• Economics: Changes in Market Reactions (Eichengreen)

• Politics – Warfare (Eichengreen)– Distribution of power (Kindleberger; Krasner)

• Values: Nationalism vs Universalism (e.g. Fascists versus Liberals)

• Strategies: Experimentation with different policy bundles (e.g. Smoot-Hawley, RTAA)

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A Key Point: Remember that there is nothing inevitable about

globalization. The course was reversed dramatically in 1914, and

it could be reversed again.

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We might also wonder about the different character of these two

periods.

How do we explain the different character of the two eras? Why the

different policy bundles?

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III. EXPLAINING THE VARIATION

1. Cross-Temporal Variation2. Cross-Sectional Variation

How might we explain this cross-sectional variation?

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Values: Jihad vs McWorld

• Benjamin R. Barber; 1992 article in Atlantic Monthly

• McWorld– Preference for liberalization & globalization– Economics over politics

• Jihad– Tradition and “traditional values”– Nation-state and/or religion over economics

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How do the Values Compare?

53Source: World Values Survey, pooled sample 1995-2001

Strategies: Many Recipes• Washington Consensus

– Open markets– Conservative fiscal & monetary policy

• Latin American Model– Import Substitution Industrialization (ISI)– “Keynesian” macroeconomic policy

• China & India– Hybrid Model; “Sequenced” liberalization– Export oriented industrialization “Neomercantilism”

There is continued debate about which countries adopted which models and about the performance of each!

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Politics: Alliances & History• Gowa, Allies, Adversaries, & Int’l Trade (1992)

Integration follows security policy– Security is more important– Help your friends, not your enemies– Integration strengthens alliances

• Influence of History– Soviet bloc is slowly entering Western economic

alliance

• EU: let’s not fight anymore (Kiko!)

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Economic Explanations• Development & Integration are highly correlated• Most assume that integration growth• Rodrik reverses that

– “A sound overall development strategy that produces high economic growth is far more effective in achieving integration with the world economy than a purely integrationist strategy that relies on openness to work its magic. In other words, the globalizers have it exactly backwards. Integration is the result, not the cause, of economic and social development.” (59)

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(Quick Note: Colander is going to bring Rodrik here next spring for a

talk. Stay tuned!)

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Are there other explanations?

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Agenda: Globalization

I. Theory: Studying GlobalizationII. Empirics: Observing GlobalizationIII. Soc Sci: Explaining the VariationIV.Assessment: Evaluating

Globalization (Next Time)

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Final Exam• Distributed this Friday; Due Wednesday, 13 May by 5:30• Write three Responses with some choice (total 1700 words)• Rules listed Online• Tough Exam

– Generate Separation– Culminating Experience

• How to Prepare– Organize & Polish Notes– Get slides & lectures before the exam– Review Discussion Questions

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