1. What do economists mean by globalization? When did globalization start? What is causing it?
This is a question on my graduate global economics course take-home assignment, and you know what, I was supposed to answer in two paragraphs. Oops. I will have to shorten it for school, but here was my stab at giving the question justice. I managed to be pro-free trading but critical of pro-globalization claims.
What do economists mean by globalization?
Globalization does not have one standard definition, and interpretations vary across perspectives. Even with the discipline of economics, it is difficult to identify an authoritative definition. By 'globalization', economists are generally speaking of increasing market integration allowing for the movement of goods, finance, capital, production, investment, and to a lesser extent labour, across borders. Globalization by its definition implies that the integration approaches a singular market system world-wide. As such, a more cautious view would see the world as ‘globalizing’, a process underway but not complete. Nevertheless, few economies can be said to be isolated from the world economy, and all economies encounter globalizing pressures and are in some way affected by globalization even if they resist integration. The answers to what globalization is to the economist, where it started and what is causing it are closely linked.
When did globalization begin?
Interdependence in trade produced by open trade borders across territorial boundaries existed here in the Americas before the arrival of the Europeans, and also flourished along the Indian Ocean from Southern Africa through to the Middle East, Persia and Asia and across the Silk Road from the Far East across Central Asia to Europe in medieval times. These trade routes and the merchant trader economy that facilitated them could be said to demonstrate elements of a globalizing economy and produced degrees of inter-societal integration. The introducing of the Westphalian system of nation-states created an international system that now co-exists and creates ongoing tensions with globalization.
To add to this historical perspective, one might argue that two early paradigms grew out of the relationship of material progress, to civilization progress to resources and wealth accumulation required for the pace of progress of each. In one paradigm, sustainable use of resources is matched with the desire for good relations with neighbours, friendly and mutual trade and slower material and technological progress. In the second paradigm, faster growth and progress was driven by competition with neighbours and ultimately dominance over trade. Whenever progress/dominance civilization outgrew its own available resources and required more than could be gained through friendly trade it required conquest or at least dominance over trade to ensure sufficient concentration of wealth. It pursued conquest and dominance over its other dominance/progress oriented neighbours, and over mutuality/sustainability societies as well. It acquired colonies that by design offered a balance of trade more beneficial to the empire than colony. Colonial elites faced a tension between loyalty to empire and the benefits of development through the empire's resources which were predominant in the early stages of colonialism, and the benefits of independence and free trade which tended to outweigh the former as the colonial economy grew.
After 1492, the Americas and Europe were in contact, with the European economy displacing the indigenous trading systems of the Americas. During the colonial mercantilist period, wealth and power was concentrated in the royalty and aristocracy. The feudal reign benefited the merchant class to a degree, until settlers recognized their disadvantage and pursued independence and colonial and merchants at home recognized that mercantilist constraints on trade between empires stood in the way of their enterprise. John Locke’s liberal philosophy lay the foundation for secular, democratic ideals along with other Enlightenment writers, and lay the ground Adam Smith’s and David Ricardo’s classic economic liberalism. The decline of monarchic mercantilism and the rise of liberalism resulted in an early ‘globalization’ which occurred in the decades leading up to WWI, in part causing the war which in turn halted the globalization. The Westphalian states that had acquired vast empires now dealt with each other’s aggressiveness along with the instability from the struggle of merchant capitalists to shift power from monarchies, and the power struggle of the working class with capitalists. Internal conflict and military alliances were the result. The Russian Revolution had the proletariat revolt against the aristocracy and the economic elite, and planted the seeds for a divided world in the second half of the twentieth century.
What is causing it?
After WWII, the reconstruction funds in Europe, the Marshall Plan and GATT were able to create strong growth in the West through reconstruction and liberalized trade creating the ‘fierce international competition’ by the mid-70s. Post-WWII saw the independence of the former colonies of the West, and the pattern of lending from Bretton Woods along with liberalization prescriptions of the SAP’s saw developing countries reduce tariffs, open up to foreign investment and reduce subsidies and state involvement in their economies. Cold War bad lending and proxy wars created rampant corruption and fueled conflicts that had their roots in colonialism, contributing to a wildly distorted global economy. Communications technology and liberalization of finance and pure capital created the de-localizing character of globalization, vastly distorted winners and losers and concentrated wealth in major urban financial centres. Since 1989, the ‘other’ international economy centered in Soviet socialism and the network of socialist states began to rapidly dissolve with the fall of the Iron Curtain, opening the possibility for a global economy. Today, therefore, it is possible to describe the international economy as one of ‘globalization’ in the sense that goods, capital, investment and production can flow across nearly any border driven by market forces rather than state forces. The markets that are not integrated significantly into the global economy are less significant, are not free from the influence of globalization and face globalizing pressures.
Market integration for the developing countries is marked by a low level of participation in the more valuable segments of the supply chain, demonstrating that liberalizing policies alone can’t achieve integration and can actually work against it. The mass liberalization during the SAP period drove down commodity prices while the share of exports in commodities for developing countries remained too high. At the same time, the value of capital moved to technology and knowledge largely monopolized in the West, known as the knowledge economy. The question remains as to whether developing countries are truly integrated into the economy of finance, high technology and knowledge – where most of the wealth is concentrated and whether finance, high-technology and knowledge actually operate as free markets. For instance, a consumer purchasing pharmaceuticals is faced with a virtual no-choice purchase (perhaps life or death) from a firm with a 20 year monopoly on pricing. This has to be the farthest thing from perfect competition, which is a free market's answer to efficiency and social welfare for the consumer. Add to this, the duplicitous position of Northern countries on liberalization and protection. Northern countries ask developing countries to liberalize indiscriminately for their own good, while they themselves pick and choose which industries to protect and when to liberalize them. Are they really promoting free trade, or just dominance over trade?
The second paradigm revisited
To return to the original paradigms, the societies pursuing slower growth, friendly trade and sustainable resource use were slower to migrate, since mass migration in the last few centuries has largely been a product of empire. These societies are known as indigenous since they form the original peoples in the lands they occupy. The indigenous civilizations viewed property in a less fixed fashion, and slower material progress and less emphasis on dominance meant they had not acquired the technologies and resource systems for military strength. The meeting of dominance/progress societies with fixed property and higher military capability, with mutually relating/sustainability societies with loosely defined collective territory and lower military technology put the latter at a disadvantage in land dealings and military, and to add to this their populations were often decimated by disease they hadn't been exposed to before.
However, it can also be argued that the dominance/progress paradigm has been its own worst enemy, if the lasting well-being of the majority of people is any type of goal for economics. The lack of real mutuality in trade predictably resulted in mutual loss on many levels, even as material gains flowed to to the dominant in dominance/progress socieities. The fast growth civilizations created enormous instability and inequity within their own societies and dominated other indigenous and non-indigenous societies. The domination over indigenous societies has created a long-lasting state of unequal and strained relations between them, and the domination of non-indigenous societies has created long-lasting enmities and cyclical war. The real questions of globalization as market integration is whether the paradigm of progress/dominance has ever created real free markets given the significant distortions that the pursuit of dominance creates? Can such a paradigm create stable market integration that can last more than a few historical seconds before imploding in environmental and violent catastrophes? Is there a second trend slower to mature and arising from the paradigm of sustainability/mutual trade, that will create true market integration globally - one that is sustainable, being based on ecological wisdom and friendly trade?
