Globalization is not a single process but a set of processes that operate simultaneously and unevenly on several levels and in various dimensions.
We could compare these interactions and interdependencies to an intricate tapestry of overlapping shapes and colours. Yet, just as an auto mechanic apprentice must turn off and disassemble the car engine in order to understand its operation, so must the student of globalization apply analytical distinctions in order to make sense of the web of global interdependencies.
In ensuing chapters we will identify, explore, and assess patterns of globalization in each domain while keeping in mind its operation as an interacting whole. Although we will study the various dimensions of globalization in isolation, we will resist the temptation to reduce globalization to a single aspect. Thus will we avoid the blunder that kept the blind men from appreciating the multidimensional nature of the elephant.
Indeed, technological progress of the magnitude seen in the last three decades is a good indicator for the occurrence of profound social transformations. Changes in the way in which people undertake economic production and organize the exchange of commodities represent one obvious aspect of the great transformation of our age.
Economic globalization refers to the intensification and stretching of economic interrelations across the globe. Gigantic flows of capital and technology have stimulated trade in goods and services.
Markets have extended their reach around the world, in the process creating new linkages among national economies. Huge transnational corporations, powerful international economic institutions, and large regional trading systems have emerged as the major building blocs of the 21st century's global economic order. The emergence of the global economic order Contemporary economic globalization can be traced back to the gradual emergence of a new international economic order assembled at an economic conference held towards the end of World War II in the sleepy New England town of Bretton Woods.
In addition to arriving at a firm commitment to expand international trade, the participants of the conference also agreed to establish binding rules on international economic activities. Moreover, they resolved to create a more stable money exchange system in which the value of each country's currency was pegged to a fixed gold value of the US dollar. Within these prescribed limits, individual nations were free to control the permeability of their borders.
This allowed states to set their own political and economic agendas. Bretton Woods also set the institutional foundations for the establishment of three new international economic organizations. The International Monetary Fund was created to administer the international monetary system. The International Bank for Reconstruction and Development, later known as the World Bank, was initially designed to provide loans for Europe's postwar reconstruction.
During the s, however, its purpose was expanded to fund various industrial projects in developing countries around the world. Finally, the General Agreement on Tariffs and Trade was established in as a global trade organization charged with fashioning and enforcing multilateral trade agreements.
As we will see in Chapter 8, the WTO became, in the s, the focal point of intense public controversy over the design and the effects of economic globalization. In operation for almost three decades, the Bretton Woods regime contributed greatly to the establishment of what some observers have called the 'golden age of controlled capitalism'. Existing mechanisms of state control over international capital movements made possible full employment and the expansion of the welfare state.
The Bretton Woods Conference of wealthy countries of the global North a temporary class compromise. By the early s, however, the Bretton Woods system collapsed. Its demise strengthened those integrationist economic tendencies that later commentators would identify as the birth pangs of the new global economic order.
What happened? In response to profound political changes in the world that were undermining the economic competitiveness of US-based industries, President Richard Nixon abandoned the gold-based fixed rate system in The ensuing decade was characterized by global economic instability in the form of high inflation, low economic growth, high unemployment, public sector deficits, and two unprecedented energy crises due to OPEC's ability to control a large part of the world's oil supply.
Political forces in the global North most closely identified with the model of controlled capitalism suffered a series of spectacular election defeats at the hands of conservative political parties who advocated a 'neoliberal' approach to economic and social policy.
These British philosophers considered that any constraint on free competition would interfere with the natural efficiency of market mechanisms, inevitably leading to social stagnation, political corruption, and the creation of unresponsive state bureaucracies. They also advocated the elimination of tariffs on imports and other barriers to trade and capital flows between nations. British sociologist Herbert Spencer O- 19O3 added to this doctrine a twist of social Darwinism by arguing that free market economies constitute the most civilized form of human competition in which the 'fittest' would naturally rise to the top.
Yet, in the decades following World War II, even the most conservative political parties in Europe and the United States rejected those laissez-faire ideas and instead embraced a rather extensive version of state interventionism propagated by British economist John Maynard Keynes, the architect of the Bretton Woods system.
By the s, however, British Prime Minister Margaret Thatcher and US President Ronald Reagan led the neoliberal revolution against Keynesianism, consciously linking the notion of globalization to the 'liberation' of economies around the world. This new neoliberal economic order received further legitimation with the collapse of communism in the Soviet Union and Eastern Europe. Privatization of public enterprises 2.
Deregulation of the economy 3. Liberalization of trade and industry 4. Massive tax cuts 5. Strict control on organized labour 7. The reduction of public expenditures, particularly social spending 8. The down-sizing of government 9- The expansion of international markets 1O.
The removal of controls on global financial flows developments related to economic globalization have been the internationalization of trade and finance, the increasing power of transnational corporations, and the enhanced role of international economic institutions like the IMF, the World Bank, and the WTO. Let us briefly examine these important features. The internationalization of trade and finance Many people associate economic globalization with the controversial issue of free trade.
In the last few years, the public debate over the alleged benefits and drawbacks of free trade reached a feverish pitch as wealthy Northern countries have increased their efforts to establish a single global market through regional and international trade-liberalization agreements such NAFTA and GATT.
To be sure, there is evidence that some national economies have increased their productivity as a result of free trade. Moreover, there are some benefits that accrue to societies through specialization, competition, and the spread of technology.
But it is less clear whether the profits resulting from free trade have been distributed fairly within and among countries. Most studies show that the gap between rich and poor countries is widening at a fast pace.
Hence, free trade proponents have encountered severe criticism from labour unions and environmental groups who claim that the elimination of social control mechanisms has resulted in a lowering of global labour standards, severe forms of ecological degradation, and the growing indebtedness of the global South to the North.
We will return to the issue of global inequality in Chapter 7- The internationalization of trade has gone hand in hand with the liberalization of financial transactions. Its key components include the deregulation of interest rates, the removal of credit controls, and the privatization of government-owned banks and financial institutions.
Globalization of financial trading allows for increased mobility among different segments of the financial industry, with fewer restrictions and greater investment opportunities. This new financial infrastructure emerged in the s with the gradual deregulation of capital and securities markets in Europe, the Americas, East Asia, Australia, and New Zealand. A decade later, Southeast Asian countries, India, and several African nations followed suit. During the s, new satellite systems and fibre-optic cables provided the nervous system of Internet-based technologies that further accelerated the liberalization of financial transactions.
Network website www. Secondary Source: World Watch, Vol. The advance of deregulation and liberalization, O Millions of individual investors utilized global electronic investment networks not only to place their orders, but also to receive valuable information about relevant economic and political developments. In , 'e-businesses', 'dot. In , global business-to-business transactions are projected to reach 6 trillion dollars.
Ventures that will connect the stock exchanges in New York, London, Frankfurt, and Tokyo are at the advanced planning stage. Such a financial 'supermarket' in cyberspace would span the entire globe, stretching its electronic tentacles into countless decentralized investment networks that relay billions of trades at breathtaking velocities. Yet, a large part of the money involved in these global financial exchanges has little to do with supplying capital for such productive investments as putting together machines or organizing raw materials and employees to produce saleable commodities.
Most of the financial growth has occurred in the form of high-risk 'hedge funds' and other purely money-dealing currency and securities markets that trade claims to draw profits from future production. In other words, investors are betting on commodities or currency rates that do not yet exist. For example, in , the equivalent of over 2 trillion US dollars was exchanged daily in global currency markets alone.
Dominated by highly sensitive stock markets that drive high-risk innovation, the world's financial systems are characterized by high volatility, rampant competition, and general insecurity.
Global speculators often take advantage of weak financial and banking regulations to make astronomical profits in emerging markets of developing countries. However, since these international capital flows can be reversed swiftly, they are capable of creating artificial boom-and-bust cycles that endanger the social welfare of entire regions.
The Southeast Asia Crisis represents but one of these recent economic reversals brought on by the globalization of financial transactions. The New York Stock Exchange. Billions of shares change hands on an average trading day. The Southeast Asia Crisis In the s, the governments of Thailand, Indonesia, Malaysia, South Korea, and the Philippines gradually aban- doned control over the domestic movement of capital in order to attract foreign direct investment.
Intent on creating a stable money environment, they raised domestic interest rates and linked their national currencies to the value of the US dollar. The ensuing irrational euphoria of international investors translated into soaring stock and real estate mar- kets all over Southeast Asia.
However, by , those inves- tors realized that prices had become inflated much beyond their actual value. Unable to halt the ensuing free fall of their currencies, those governments used up their entire foreign exchange reserves. As a result, eco- nomic output fell, unemployment increased, and wages plummeted.
Foreign banks and creditors reacted by declin- ing new credit applications and refusing to extend existing loans. By late , the entire region found itself in the throes of a financial crisis that threatened to push the global economy into recession. This disastrous result was only nar- rowly averted by a combination of international bail-out packages and the immediate sale of Southeast Asian com- mercial assets to foreign corporate investors at rock-bottom prices.
Today, ordinary citizens in Southeast Asia are still suffering from the devastating social and political consequences of that economic meltdown. Powerful firms with subsidiaries in several countries, their numbers skyrocketed from 7, in to about 50, in This geographical concentration reflects existing asymmetrical power relations between the North and the South. Yet, clear power differentials can also be found within the global North. Rivalling nation-states in their economic power, these corporations control much of the world's investment capital, technology, and access to international markets.
In order to maintain their prominent positions in the global marketplace, TNCs frequently merge with other corporations. A close look at corporate sales and country GDPs reveals that 51 of the world's largest economies are corporations; only 49 are countries.
Hence, it is not surprising that some critics have characterized economic globalization as 'corporate globalization' or 'globalization-from-above'. TNCs have consolidated their global operations in an increasingly deregulated global labour market. The availability of cheap labour, resources, and favourable production conditions in the global South has enhanced corporate mobility and profitability.
Denmark , Poland , South Africa , Israel 99, Ireland 84, Malaysia 74, Pakistan 59, New Zealand 53, Hungary 48, Their ability to disperse manufacturing processes into many discrete phases carried out in many different locations around the world reflects the changing nature of global production. Such transnational production networks allow TNCs like Nike, General Motors, and Volkswagen to produce, distribute, and market their products on a global scale.
Transnational production networks augment the power of global capitalism by making it easier for TNCs to bypass nationally based trade unions and other workers' organizations. Anti-sweatshop activists around the world have responded to these tactics by enlisting public participation in several successful consumer boycotts and other forms of nonviolent direct action. Volkswagen's transnational production network.
No doubt, the growing power of TNCs has profoundly altered the structure and functioning of the international economy. These giant firms and their global strategies have become major determinants of trade flows, the location of industries, and other economic activities around the world. As a consequence, TNCs have become extremely important players that influence the economic, political, and social welfare of many nations.
Here is a final example. Nokia's role in the Finnish economy Named after a small town in southwest Finland, Nokia Cor- poration rose from modest beginnings a little more than a decade ago to become a large TNC that manufactures 37 of every 1OO cellphones sold worldwide.
Today, its products connect one billion people in an invisible web around the globe. However, Nokia's gift to Finland - the distinction of being the most interconnected nation in the world - came at the price of economic dependency. Nokia is the engine of Finland's economy, representing two-thirds of the stock market's value and one-fifth of the nation's total export.
Yet, when Nokia's growth rate slowed in recent years, company executives let it be known that they were dissatisfied with the country's rela- tively steep income tax.
Today, many Finnish citizens fear that decisions made by relatively few Nokia managers might pressure the government to lower corporate taxes and aban- don the country's generous and egalitarian welfare system. These three institutions enjoy the privileged position of making and enforcing the rules of a global economy that is sustained by significant power differentials between the global North and South. Since we will discuss the WTO in some detail in Chapters 7 and 8, let us focus here on the other two institutions.
During the Cold War, their important function of providing loans for developing countries became connected to the West's political objective of containing communism. Starting in the s, and especially after the fall of the Soviet Union, the economic agenda of the IMF and the World Bank has synchronized neoliberal interests to integrate and deregulate markets around the world.
In return for supplying much-needed loans to developing countries, the IMF and the World Bank demand from their creditor nations the implementation of so-called 'structural adjustment programmes'. Unleashed on developing countries in the s, this set of neoliberal policies is often referred to as the Washington Consensus'. The various sections of the programme were mainly directed at countries with large foreign debts remaining from the s and s.
The official purpose of the document was to reform the internal economic mechanisms of debtor countries in the developing world so that they would be in a better position to repay the debts they had incurred. In practice, however, the terms of the programme spelled out a new form of colonialism. A guarantee of fiscal discipline, and a curb to budget deficits; 2. A reduction of public expenditure, particularly in the military and public administration; 3.
Tax reform, aiming at the creation of a system with a broad base and with effective enforcement; 4. Financial liberalization, with interest rates determined by the market; 5.
Competitive exchange rates, to assist export-led growth; 6. Trade liberalization, coupled with the abolition of import licensing and a reduction of tariffs; 7. Promotion of foreign direct investment; 8. Privatization of state enterprises, leading to efficient management and improved performance; 9- Deregulation of the economy; 1O.
Protection of property rights. It is no coincidence that this programme is called the Washington Consensus', for, from the outset, the United States has been the dominant power in the IMF and the World Bank. Unfortunately, however, large portions of the 'development loans' granted by these institutions have either been pocketed by authoritarian political leaders or have enriched local businesses and the Northern corporations they usually serve.
Sometimes, exorbitant sums are spent on ill-considered construction projects. Most importantly, however, structural adjustment programmes rarely produce the desired result of'developing' debtor societies, because mandated cuts in public spending translate into fewer social programmes, reduced educational opportunities, more environmental pollution, and greater poverty for the vast majority of people. Typically, the largest share of the national budget is spent on servicing outstanding debts.
Pressured by antiglobalist forces, the IMF and the World Bank were only recently willing to consider a new policy of blanket debt forgiveness in special cases.
Having accepted substantial structural adjustment programmes that led to the privatization of state enterprises, the reduction of tariffs, and the elimination of many social programmes, the Argentine government celebrated low unemployment rates, a stable currency pegged to the dollar, and strong foreign investment. For a few short years, neoliberal economics seemed vindicated.
However, as the IMF demanded even stronger austerity measures in return for new loans, the Argentine economy went sour. In order to prevent the complete financial and social collapse of his nation, Eduardo Duhalde, the country's fifth president in only two weeks, fur- ther limited people's access to their savings deposits and decoupled the peso from the dollar.
Within hours, the cur- rency lost a third of its value, robbing ordinary people of the fruits of their labour. After all, the intensification of global economic interconnections does not simply fall from the sky; rather, it is set into motion by a series of political decisions. Hence, while acknowledging the importance of economics in our story of globalization, this chapter nonetheless ends with the suggestion that we ought to be sceptical of one-sided accounts that identify expanding economic activity as both the primary aspect of globalization and the engine behind its rapid development.
The multidimensional nature of globalization demands that we flesh out in more detail the interaction between its political and economic aspects. These processes raise an important set of political issues pertaining to the principle of state sovereignty, the growing impact of intergovernmental organizations, and the future prospects for regional and global governance.
Obviously, these themes respond to the evolution of political arrangements beyond the framework of the nation-state, thus breaking new conceptual ground.
After all, for the last few centuries, humans have organized their political differences along territorial lines that generate a sense of'belonging' to a particular nation-state. This artificial division of planetary social space into 'domestic' and 'foreign' spheres corresponds to people's collective identities based on the creation of a common 'us' and an unfamiliar 'them'. Thus, the modern nation-state system has rested on psychological foundations and cultural assumptions that convey a sense of existential security and historical continuity, while at the same time demanding from its citizens that they put their national loyalties to the ultimate test.
Nurtured by demonizing images of the Other, people's belief in the superiority of their own nation has supplied the mental energy required for large-scale warfare - just as the enormous productive capacities of the modern state have provided the material means necessary to fight the 'total wars' of the last century. Emphasizing these tendencies, commentators belonging to the camp of hyperglobalizers have suggested that the period since the late s has been marked by a radical 'deterritorialization' of politics, rule, and governance.
Considering such pronouncements premature at best and erroneous at worst, globalization sceptics have not only affirmed the continued relevance of the nation-state as the political container of modern social life but have also pointed to the emergence of regional blocs as evidence for new forms of territorialization.
As each group presents different assessments of the fate of the modern nation- state, they also quarrel over the relative importance of political and economic factors. Out of these disagreements there have emerged three fundamental questions that probe the extent of political globalization.
First, is it really true that the power of the nation-state has been curtailed by massive flows of capital, people, and technology across territorial boundaries? Second, are the primary causes of these flows to be found in politics or in economics?
Third, are we witnessing the emergence of global governance? Before we respond to these questions in more detail, let us briefly consider the main features of the modern nation-state system. The modern nation-state system The origins of the modern nation-state system can be traced back to 17th-century political developments in Europe. In , the Peace of Westphalia concluded a series of religious wars among the main European powers following the Protestant Reformation.
While the emergence of the Westphalian model did not eclipse the transnational character of vast imperial domains overnight, it nonetheless gradually strengthened a new conception of international law based on the principle that all states had an equal right to self-determination. Whether ruled by absolutist kings in France and Prussia or in a more democratic fashion by the constitutional monarchs and republican leaders of England and the Netherlands, these unified territorial areas constituted the foundation for modernity's secular and national system of political power.
According to political scientist David Held, the Westphalian model contained the following essential points: 1. The world consists of, and is divided into, sovereign territorial states which recognize no superior authority. The processes of law-making, the settlement of disputes, and law enforcement are largely in the hands of individual states. International law is oriented to the establishment of minimal rules of co-existence; the creation of enduring relationships is an aim, but only to the extent that it allows state objectives to be met.
Responsibility for cross-border wrongful acts is a 'private matter' concerning only those affected. All states are regarded as equal before the law, but legal rules do not take account of asymmetries of power. Differences among states are often settled by force; the principle of effective power holds sway.
Virtually no legal fetters exist to curb the resort to force; international legal standards afford only minimal protection. The collective priority of all states should be to minimize the impediments to state freedom. Moreover, states also provided the military means required for the expansion of commerce, which, in turn, contributed to the spread of this European form of political rule around the globe. The modern nation-state system found its mature expression at the end of World War I in US President Woodrow Wilson's famous 'Fourteen Points' based on the principle of national self-determination.
But his assumption that all forms of national identity should be given their territorial expression in a sovereign 'nation-state' proved to be extremely difficult to enforce in practice. Moreover, by enshrining the nation-state as the ethical and legal pinnacle of his proposed interstate system, Wilson unwittingly lent some legitimacy to those radical ethnonationalist forces that pushed the world's main powers into another war of global proportions.
Yet, Wilson's commitment to the nation-state coexisted with his internationalist dream of establishing a global system of collective security under the auspices of a new international organization, the League of Nations. His idea of giving international cooperation an institutional expression was eventually realized with the founding of the United Nations in While deeply rooted in a political order based on the modern nation-state system, the UN and other fledgling intergovernmental organizations also served as catalysts for the gradual extension of political activities across national boundaries, thus undermining the principle of national sovereignty.
The Security Council of the United Nations in session. Bush effectively pronounced dead the Westphalian model by announcing the birth of a 'new world order' whose leaders no longer respected the idea that cross-border wrongful acts were a matter concerning only those states affected. Did this mean that the modern nation-state system was no longer viable?
The demise of the nation-state? Hyperglobalizers respond to the above question affirmatively. At the same time, most of them consider political globalization a mere secondary phenomenon driven by more fundamental economic and technological forces. They argue that politics has been rendered almost powerless by an unstoppable techno-economic juggernaut that will crush all governmental attempts to reintroduce restrictive policies and regulations.
Endowing economics with an inner logic apart from, and superior to, politics, these commentators look forward to a new phase in world history in which the main role of government will be to serve as a superconductor for global capitalism.
Pronouncing the rise of a "borderless world', hyperglobalizers seek to convince the public that globalization inevitably involves the decline of bounded territory as a meaningful concept for understanding political and social change. Consequently, this group of commentators suggests that political power is located in global social formations and expressed through global networks rather than through territorially based states.
In fact, they argue that nation-states have already lost their dominant role in the global economy. As territorial divisions are becoming increasingly irrelevant, states are even less capable of determining the direction of social life within their borders.
Hyperglobalizers insist that the minimalist political order of the future will be determined by regional economies linked together in an almost seamless global web of production and exchange.
A group of globalization sceptics disagrees, highlighting instead the central role of politics in unleashing the forces of globalization, especially through the successful mobilization of political power. In their view, the rapid expansion of global economic activity can be reduced neither to a natural law of the market nor to the development of computer technology. Rather, it originated with political decisions to lift international restrictions on capital made by neoliberal governments in the s and s.
Once those decisions were implemented, global markets and new technologies came into their own. The clear implication of this perspective is that territory still matters. Hence, globalization sceptics insist on the continued relevance of conventional political units, operating either in the form of modern nation-states or global cities. In my view, the arguments of both hyperglobalizers and sceptics remain entangled in a particularly vexing version of the chicken- and-the-egg problem.
After all, economic forms of interdependence are set into motion by political decisions, but these decisions are nonetheless made in particular economic contexts.
As we have noted in previous chapters, the economic and political aspects of globalization are profoundly interconnected. There is no question that recent economic developments such as trade liberalization and deregulation have significantly constrained the set of political options open to states, particularly in the global South. For example, it has become much easier for capital to escape taxation and other national policy restrictions.
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