Globalization - theory and practices Prof. Tomasz Bernat Microeconomics Department Institut of Economics tomasz.bernat@usz.edu.pl
GLOBALIZATION - agenda Economic point of view Defining Globalization Components of Globalization Thinking About Globalization Globalists vs. Skeptics Major Questions and Dilemmas of Globalization Slajd nr 2
Imagine. Consider your typical day: You wake up to an alarm clock made in Korea. You pour yourself orange juice made from Florida oranges and coffee from beans grown in Brazil. You put on some clothes made of cotton grown in Georgia and sewn in factories in Thailand. You watch the morning news broadcast from New York on your TV made in Japan. You drive to class in a car made of parts manufactured in a half-dozen different countries. So, what is the place/country you live in? Slajd nr 3
GLOBAL COMPANIES Slajd nr 4
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Global companies rankings http://fortune.com/global500/ http://www.pwc.com/gx/en/services/auditassurance/publications/top100-marketcapitalisation.html http://www.forbes.com/forbes/welcome/ Slajd nr 6
Interdependence and the Gains from Trade Remember, economics is the study of how societies produce and distribute goods in an attempt to satisfy the wants and needs of its members. Slajd nr 7
Interdependence and the Gains from Trade How do we satisfy our wants and needs in a global economy? We can be economically self-sufficient. We can specialize and trade with others, leading to economic interdependence. Slajd nr 8
Interdependence and the Gains from Trade Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity. But this gives rise to two questions: Why is interdependence the norm? What determines production and trade? Slajd nr 9
Interdependence and the Gains from Trade Why is interdependence the norm? Interdependence occurs because people are better off when they specialize and trade with others. What determines the pattern of production and trade? Patterns of production and trade are based upon differences in opportunity costs. Slajd nr 10
Globalization Definitions https://www.youtube.com/watch?v=3otlypprze4 Slajd nr 11
Definitions of Globalization 1.Joseph Nye and John Donahue: Globalism is a state of the world involving networks of interdependence at multicontinental distances. 2. World Bank: Globalization is the growing integration of economies and societies around the world. Slajd nr 12
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. Slajd nr 13
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 Slajd nr 14
Important Conclusions from Friedman s argument 1. Rewards. Those who participate in globalization are rewarded, though there are winners and losers. 2. Peace Dividend. Those engaged in globalization have too much to lose with war. 3. Democratic Dividend. Free movement of information with markets produces drive for freedom and liberty seeds of democracy. Slajd nr 15
Components of Globalization Economic globalization Cultural globalization Political globalization Slajd nr 16
GLOBAL ECONOMY Slajd nr 17 1
Is there a global economy? If so, is this good? Globalizers (Integrationists): Yes! 1. Increased integration has brought a higher volume of trade. This means more goods and services for most of the world. 2. Increased GDPs and overall standard of living for those that participate Slajd nr 18
The world export in years 1948-2014, in bln $ 20000 0 59 318 3496 15302 19004 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 Slajd nr 19
Development cycle working well Economies in post-industrial societies increasingly depend on the service sector Developing countries are industrializing. Slajd nr 20
America, West Europe? Loss of manufacturing jobs natural. Increasing role of the service sector: IT, banking, insurance, service industries help raise GDP per capita and the overall standard of living Cheaper goods and services with global market Slajd nr 21
Is economic globalization good? All boats rising (for those who participate) but at different rates Raised incomes, though not equal More individual choice and freedom in the marketplace Costs of goods and services go down Slajd nr 22
Globalization, Growth and Poverty, Key Points: 1. Strong correlation between integrating into the world economy and economic growth. Poor countries with around 3 billion people have broken into the global market for manufactures and services. 2. Higher growth rates increase a country s GDP and standard of living. Slajd nr 23
3. Globalization has reduced the number of people living in poverty by over 120 million. 4. Globalization has not increased income inequality (as many skeptics claim). 5. Globalization has reduced poverty, but not everywhere. About 2 billion people have been left out of the globalization process. Slajd nr 24
The success stories or new globalizers include: China India Bangladesh Uganda Vietnam Why successful? Good investment climate Social policies that aid human capital Slajd nr 25
UN Report China has lifted 150 million people out of poverty in the last 10 years the biggest success story in international poverty alleviation. Why? Rapid economic growth Political will (centralized government) Economic and policy reforms more open trade, investment, technology Slajd nr 26
Skeptics (Separatists): No. 1. Not a globalized economy. Trade is overwhelmingly dominated by the developed countries (U.S. and Europe). These countries amass 76% of the exports in goods and services. 2. World economy is dominated by the U.S. and major western powers. 3. Major U.S. trade partners: Canada, Mexico, Japan, China, Germany, U.K. South Korea, Taiwan, France, Italy. Slajd nr 27
LOCATIONS OF THE WORLD S 500 LARGEST MULTINATIONAL ENTERPRISES Country/bloc Number of MNEs United States 179 European Union 148 Japan 107 Canada 12 South Korea 12 Switzerland 11 China 10 Australia 7 Brazil 3 Other 11 Slajd nr 28
Skeptics (Separatists): No. 4. Developed countries have overwhelming advantage with investment and trade. Do little to help poor countries. 5. Center for Global Development and Foreign Policy Magazine recently ranked overall contributions by developed countries to developing countries. The U.S. (despite having the largest economy) ranked second to last out of 21 countries. U.S. spends 0.1 percent of its GDP on development. Slajd nr 29
Important Points 1. China and India are important cases but they don t represent the world. 2. Need to ask what life would be like in China, India and other globalizers without reforms. 3. Rich countries HAVE grown richer, and most of the VERY POOR countries HAVE stayed poor. Question is WHY. Slajd nr 30
4. Some governments clearly fail to provide a sufficient environment for economic growth and development. Others fail to create fair tax systems e.g. Guatemala. Role of ethnic conflict? 5. Some governments are politically unready to even try to provide the a proper environment e.g. failed states. Slajd nr 31
6. Key differences between the Globalists and Skeptics revolve around: a. Efficiency: let em eat cake b. Fairness: social safety-netters c. Quality of life under globalization Need policies that address all of them: Sustainable development Slajd nr 32
GLOBAL CULTURE Slajd nr 33 3
Is there a Global Culture? Globalists: Yes and No. 1. Decline of nationalism. 2. Growing universal language: English 3. Universal Market of popular culture: entertainment, the Internet, food, etc. Slajd nr 34
4. Globalization does not destroy local cultures, though it may influence them. 5. Likely growth of a democratic culture. Over 120 democracies today, including over ½ of the world s population. Most of these encompass capitalist economies. Slajd nr 35
Skeptics: No. 1. Nationalism and ethnic nationalism are alive and well in many parts of the world. 2. Globalization = Americanization, a McWorld led by the U.S. Vast majority of products originate from the U.S. 3. Globalization undermines and destroys local cultures e.g. Guatemala and Mayan culture. 4. Globalization engenders a backlash and resistance. Slajd nr 36
GLOBAL POLICY Slajd nr 37 3
Has globalization reconfigured Political Power and National Interests? Globalists: Yes 1. The power of governments has declined in the face of the market. 2. Downside: states are more vulnerable economic pressures and non-state actors e.g. terrorists. Slajd nr 38
3. Societies are freer of government control; people are better able to link up for common purposes. 4. War is less likely because of the costs 5. The U.S. is the dominant power but it acts as a positive force in the globalization process providing rules of the market and creative destruction. 6. States are losing their sovereignty to the market and other multilateral organizations Slajd nr 39
Skeptics: No. 1. States are still powerful, some clearly more than others US unilateralism. 2. National interest? Each state still defines its own if it can. 3. States ignore the goals and regulations of multilateral organizations when it benefits them. Slajd nr 40
Dilemmas and Strategies 1. Each side can muster evidence for its cause what is the broad, sustainable picture? 2. Globalization can be trainwrecked - Economic collapse -War -Terrorism Slajd nr 41
Dilemmas and Strategies 3. Globalization s impact on the environment and our future? Global warming, resource use, rainforest destruction, etc. 4. Can everyone globalize at once? 5. How can governments provide a stable economic environment in the face of AIDS and ethnic conflict? 6. Gender discrimination and empowerment Slajd nr 42
America? Comprehensive Policy 1. Support globalization but negotiate a more level playing field for American workers. 2. Improve worker training and retooling at home. 3. Support governments that both liberalize their economies and attempt to improve human capital. Offer sweet deals. 4. Bring cases of worker exploitation to the spotlight. Slajd nr 43
America? Comprehensive Policy 5. Encourage and negotiate improvements in human rights in other countries but protect the market of opportunity. 6. Encourage the economic empowerment of women. 7. Better entrust and finance UN agencies to achieve sustainable development. Slajd nr 44