40 Globalization

Just as capitalism was originally designed as a term of abuse rather than of praise or mere description, globalization is more often used to criticize than eulogize the 21st-century world economy. It summons up images of sweatshops in Malaysia, call centers in Bangalore, mines in Brazil, and of branches of Starbucks and McDonald’s all over the world.

All of the above are a consequence of globalization, but to describe the phenomenon in such terms alone would be highly misleading. In economics, globalization refers to the commercial and economic links that straddle the world and that have done so for much of human history.

As old as the hills? Globalization has been growing in importance since 1492, the year Columbus made landfall in the Americas, though there was vibrant international trade between Europe and the East long before that. Although use of the term has been prevalent since the 1980s, and although the decades following the fall of the Berlin Wall and the end of the Cold War are widely regarded as a high-water mark for globalization, this is far from being the first era of widespread international trade, commerce and migration. That accolade must go the Victorian age. In the late 19th century, as the British empire reached its apex, John Maynard Keynes described how, prior to 1914:

The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share … in their prospective fruits and advantages …

It was not just the First World War but also the period of protectionism following the Great Depression that brought an end to this era. Many fear that this modern age of globalization could meet a similarly miserable end.

“Globalization is a fact of life. But I believe we have underestimated its fragility.”

Kofi Annan

Key factors behind globalization There are five key factors behind recent globalization:

1. Free trade. Governments worldwide have torn down a number of major barriers and tariffs on imports and exports. For instance, after adopting free-market reforms in the late 1980s and early 1990s, China removed many retrictions on its export markets. Because of its mammoth population, and therefore low wages, this meant an influx into rich nations of cheap goods emanating from China and its neighbors.
2. Outsourcing. Companies have been able to save money by shifting production of their goods and services to cheaper locations overseas. Many manufacturers have shut down their plants in the US and UK and relocated them to China, Mexico and elsewhere, where workers accept lower wages and—controversially—working conditions are frequently poor. Many service companies have relocated their call centers, and even parts of their main business, to India and elsewhere, where fluent English-speaking graduates are plentiful.
3. The communications revolution. Two major revolutions have greased the wheels of international commerce. The first was “containerization”—the breakthrough in shipping whereby goods are now transported worldwide in standard-sized containers, cutting costs and improving transit time. The second was the broadband breakthrough. As the Internet boom hit its peak in the late 1990s engineers spent billions on a new international fiber-optic network of cables. Although the dot-com bubble burst soon afterward, this global web of information superhighways brought fast and cheap Internet connection to millions.
4. Liberalization. Many countries which, during the Cold War, had tended to keep their borders closed to foreign contacts, were encouraged to open them. This allowed Western companies to enter new markets. The elimination of so-called capital controls meant money could flow freely in and out of these new, younger economies in a way it had never done before. Meanwhile, governments in the developed world made it easier for firms to hire and fire workers by relaxing labor laws.
5. Legal harmonization. Countries around the world have made efforts to align their laws on property rights and intellectual property so that, for instance, a patent filed in the US will be recognized in China and vice versa. Future plans include laying down international standards for the quality of goods, to avoid recurrences of recent incidents in which products from China and elsewhere were found to have potentially dangerous defects.

Gains of globalization Globalization has without doubt made billions around the world significantly richer. The economies of countries such as Brazil, India and China have been boosted by massive leaps in their exports. In addition, the entrance of this new band of exporters pushed down inflation around the world for almost a decade from 1997 onward, as companies took advantage of the opportunity to cut costs and passed on the resulting savings to their customers.

Indeed, there is much evidence to suggest that globalization was largely responsible for what has become known as the “Great Stability” for the fifteen or so years up until 2007. During that period, the world economy grew faster and for a longer stretch than ever before, and inflation remained low and stable. True, this was followed by a major financial crisis, but that was largely due to other factors (see Credit crunches).

Criticisms of globalization The faster the tenets of globalization have spread throughout the world, the louder and more strident have become the criticisms. Meetings of the major multilateral institutions regularly draw thousands of protestors. The World Trade Organization’s meeting in Cancun in 2003, for example, was marred by the suicide of a South Korean farmer over the removal of agricultural support.

Opponents of globalization, who include Naomi Klein, Joseph Stiglitz and Noam Chomsky, sometimes label its most ardent proponents neoliberalists. They attack the phenomenon largely from three angles:

1. Economic. They argue that although globalization has pushed up the total amount of wealth generated around the world, that wealth has not been evenly shared. Indeed, inequality levels around the world have risen to their highest levels since the 1930s (see Inequality), and while some have become billionaires thanks to global trade many in the poorest countries remain extremely poor.
2. Human Rights. Some major clothing and footwear manufacturers have come under fire for using sweatshops where employees are paid extremely low wages and forced to work in appalling conditions for long stretches.
3. Cultural. Critics argue that the increased influence of multinational corporations, and the increasing dominance of Western brands, have made it hard for indigenous cultures to retain their identities and caused smaller independent shops and producers to be elbowed aside.

An era of peace and democracy? Despite the manifold criticisms of globalization, the evidence shows that, on balance, it has dramatically improved standards of living in those countries that have embraced it—though, as ever in capitalism, the gains are not evenly distributed. Moreover, the fact that it boosts the fortunes of the middle and professional classes suggests that it may also aid the spread of democracy. Political strategists suspect that the Communist Party may struggle to maintain its grip on power in China as popular demands for democratic rule, fueled by the growing influence of the middle classes, increase in volume.

Another argument in favor of globalization is that stronger economic links between nations tend to deter them from going to war with one another. Thomas Friedman, the US journalist and author of the paean to globalization, The World is Flat, posited that no two countries with a McDonald’s had ever been to war with one another. However, such an assertion was disproved when Russia waged war on Georgia in 2008. And the lesson from the first era of globalization, which came to a nasty end with the First World War, is that you can never assume the spread of trade and wealth has changed the world forever.

the condensed idea

Globalization is the adrenaline of capitalism

timeline
1800s	First era of globalization
1914	First World War brings the first era to an end
1980s	First studies of economic globalization
1989	World Wide Web is developed by Tim Berners-Lee
2007	A UN report reveals that flows of trade and investment worldwide have hit a record peak