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LESSON 1:GLOBALIZATION - DEFINITION,

DIMENSIONS AND TYPES

UNIT IGLOBALIZATION DEBATE

Hello friends! Globalization continues to be the most used andabused word of our times and it is worthwhile to understand itin its entirety before deciding which side of the debate we wantto take.In this context let us begin by first understanding whatglobalization means.

What is GlobalizationThe term globalization describes the increased mobility of goods, services, labour, technology and capital throughout theworld. Although globalization is not a new development, itspace has increased with the advent of new technologies,especially in the area of telecommunications.In its broadest sense, globalization can be seen as an inherentpart of human experience. Since prehistoric times humans havebeen growing in number; interacting with other groups,peacefully or not; building larger economic, social, and politicalorganizations; discovering, using, and sometimes destroyingthe resources of the planet; and generating new knowledge andtechnologies. That process has led to the emergence of empires,with the ebb and flow over the centuries of explorers, crusaders,missionaries, merchants, and colonists.The powerful wave of globalization associated with moderneconomic growth in the second half of the 1800s and early1900s brought the level of world integration to a new peak,with convergence in commodity and, to a lesser extent, factorprices. It ended in pain and disintegration with two world warsand a global economic depression between them. The world

emerged in the 1950s divided both politically and militarily. Butsoon, another pervasive wave of economic, political, and socialintegration was rolling forward. That process has been driven byimportant changes in the generation, adoption, and diffusionof technology, including major advances in communication andtransportation. It has been further promoted and accelerated byeconomic deregulation and liberalization in many countries andby the end of the Cold War, which eliminated some of thegeopolitical barriers to world integration. The dramatic increasein world population is also creating denser economic, social, andenvironmental linkages.Here, we take a broad view of globalization to include threegeneral dimensions, each with economic and non-economiccomponents.First, globalization refers to the multiplication and intensifica-tion of economic, political, social, and cultural linkages amongpeople, organizations, and countries at the world level. Thisnotion includes a greater flow of trade and finance; expansionof cross-border communications; greater international interac-tions among political groups, nongovernmental organizations(NGOs), and other members of civil society; and even increasedlevels of tourism.

A second dimension is the tendency toward the universalapplication of economic, institutional, legal, political, andcultural practices. It is related to the first dimension in thatincreased linkages generate a need for common institutions andrules. Examples in the economic arena include the codificationof trade rules under the World Trade Organization (WTO) andits predecessor the General Agreement on Tariffs and Trade(GATT); common approaches to banking supervision,accounting, and corporate governance; the convergence towardeconomic policies based on similar standards of monetary andfiscal discipline; and reliance on free markets. Recent phenomenasuch as the spread of democracy, the increase in the number andcoverage of environmental treaties, and even the controversialpossibility of cultural homogenization in the areas of entertain-ment, food, and health, are examples of the majornon-economic aspects of this second dimension.Finally, a third dimension is the emergence of significantspillovers from the behavior of individuals and societies to therest of the world. Environmental issues such as cross-borderpollution and global warming are inherently international.National economic crises may lead to financial contagion andripple effects on the economies of other countries, requiringcoordinated international responses. Health issues, such as thespread of HIV/ AIDS, require an international approach, as doissues of global crime (for example, drug trafficking and moneylaundering). And there are also the problems of war andinternational violence. Again, the dimensions are linked.Spillovers occur because there are more channels of interaction.

Then, global norms and institutions are required to provide aframework for coordinating responses.The economic aspects of globalization usually receive the mostattention. Indeed, some observers tend to equate globalizationwith policies of domestic and international market liberaliza-tion, and in the case of developing countries, withinternationally coordinated structural adjustment and stabiliza-tion programs. Here, we take a broader view of both the driversand the dimensions of globalization.

Different Interpretations And Policy Perspectives On

GlobalizationThe analysis of economic integration at the world level has along history. Adam Smith and David Ricardo argued that freertradedomestic and internationalwould bring benefits toindividuals and societies. An alternative view, anchored indoctrines of economic mercantilism and power politics,emphasized the need to accumulate power by the State, and tosubordinate and manipulate the economy to that end. From adifferent perspective, the tendency of capitalism to expandworldwide was articulated by Karl Marx, who saw thatexpansion as an implacable and harsh modernizing force of traditional societies. While Marx shared with classical

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WORLDECONOMYANDGLOBALIZATION

economists the notion that the expansion of capital generatedbenefits, V.I. Lenin, echoing some of the themes of mercantilism and power politics, interpreted capitalist expansionas a negative process, leading inevitably to imperialism and war.

After World War II, the debate on expanding trade and financiallinkages, from the perspective of developing countries, includeddifferent views on the costs and benefits of the process of integration into world markets. Negative evaluations came fromthe literature on colonialism and neocolonialism, the notion of

the secular decline of the terms of trade facing developingcountries in world markets, and the theory of dependency.Mainstream development economics emphasized the impor-tance of greater participation in the world economy, particularlythrough the flow of finance and trade, which would improvewelfare in developing countries. An expanding subset of theliterature on international economic developments during the1970s focused on multinational corporations, in both develop-ing and developed countries, with very different views about thewelfare implications of the emergence and expansion of largeinternational firms. Most of these arguments are being echoedagain in current discussions on globalization.

A broader view of the expansion and intensification of linkagesamong countries, encompassing more than just economics,came with the idea of interdependence, which highlighted theconsequences of this phenomenon for the conduct of foreignpolicy by the main world powers. Currently, the debate onglobalization and its consequences is far-reaching. It considersthe implications for foreign and domestic policies of nations,the operation of their social and political institutions, thefunctioning of civil society, legal and regulatory frameworks, theenvironment, cultural aspects, and conflict and war.

Links between Globalization, Poverty and Food

SecurityThe outline of a framework linking globalization, poverty, andfood security is presented in the figure. Different dimensions of globalization are listed at the top (first level) and are shown asaffecting the government, civil society, markets, andenvironment in developing countries (second level). Forinstance, globalization may influence the autonomy of government policies and the availability of public resources. Itmay affect cultures and values while allowing new cross-countryalliances in civil society. It may change the actors in, and thestructure of, markets - domestically and internationally - andmay lead to larger environmental spillovers. In turn, thesechanges have implications for different sectors: agricultural/industrial, rural/ urban, food/ nonfood (third level). Finally, the

different dimensions of globalization affect poverty throughtheir impact on economic and non-economic assets andcapabilities, mechanisms for the redistribution of income, andinstitutional factors (fourth level).We will define globalization as the process by which nationalitybecomes increasingly irrelevant.There are at least two important types of globalization:Globalization of consumption: the nation in which a productwas made becomes independent of the nationality of theconsumer. i.e. a Canadian consumes foreign products in

proportion to the economic size of the originating country.NOT similarity in culture, language, or institutions. NOTproximity or trade relations.Globalization of production/ ownership: the nationality of theowner and controller of productive assets is independent of thenation housing them. Canadas assets are owned by foreignersat the same proportion as foreigners own all world assets.Consequently, only about 3% of Canadian assets would beowned by Canadians. Similarly, Canadian based firms would

have roughly 97% of their total assets overseas.Examples of Globalizationthe GM LeMansdesign: Germanycomponents: Japan, Taiwan, Singaporeassembly: Koreaadvertising campaign: Britainthe Airbus consortium:

jointly owned by companies from 4 countries: France, German,Britain, and Spain.wings from Britain, fuselage and tail from Germany, doorsfrom Spain, cockpit and final assembly in France.1,500 suppliers in 27 countriesMore than 35 percent of components for the consortiumsaircraft are supplied from over 500 American companies.Numerous suppliers also are located in the Asia-Pacific.Singapore Technologies Aerospace produces wing ribs andpassenger doors for the A320, and engine mounts and thrustreverser doors for the A340. Indias Hindustan AeronauticsLimited also builds A320 passenger doors.Paul Krugman writes: My favorite concrete example of thedriving forces behind globalization is the recent and rapid rise

of Zimbabwes vegetable exports. In recent years, truck farmersnear Harare have got into the business of supplying fresh vegetables to London markets. The vegetables are picked andtrucked immediately to the airport, flown through the night toHeathrow, and are there on the shelf in Tesco the next morn-ing.Supporting these anecdotes, the trade and FDI data show theglobalization under way. The following figure from TheEconomist shows trade rising relative to world GDP. Mean-while FDI stocks have risen from approximately equal to annualtrade flows in 1980 to about 75% larger in 1991.Nevertheless, we are far away from living in a truly globaleconomy.Consider the leading multinationals. With few exceptions(Nestle), they have a home-country bias (home sales a higher %of total sales than home GDP as a % of world GDP) in boththeir assets and sales.Consider the large MNEs making autos in the US. DeborahSwenson has analyzed data on the percent of inputs originatingin the US and the percent of shipments remaining in the US forFree Trade Zone assemblers. For the Big 3, 95% of inputs aredomestic and 92% of shipments remain in the US. For foreign

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assemblers, 67% of inputs and 88% of shipments are domes-tic.FDI outside of the home country is regionally clustered(especially taking into account economy sizes): Japan is theprincipal investor in Korea and other Asia-Pacific areas. Ger-many dominates E Europe. The US dominates the rest of the

Americas. Affiliates of US MNEs in Europe sell most of their product(on average 60%) in the country in which the affiliate is located.What are the forces driving globalization?This export business [Zimbabwe vegetable exports toLondon] depends on at least three things.cheap air transport - the beat-up old Boeings that have becomethe tramp steamers of modern commerce.modern telecommunications - the vegetables are delivered toorder, which means that messages must be sent to the farmersin a way that used to be possible only in advanced countrieswith good phone systems.an open British market. It could not happen if import quotasor high tariffs prevented the sales.

In general we may think of three primary driving forces for theglobalization process.falling transportation costs: i.e. lower amounts of money andtime foregone to move goods over long distances.falling trade barriers: i.e. lower tariffs and (in most cases) fewernon-tariff trade impediments.falling communication costs: i.e. technology that allows ideas tobe moved long distances quickly and inexpensivelyTo these three key factors, we may add one more consideration.

As per capita incomes have converged among the OECDnations (Europe, North America, Japan), this has promotedmore similar buying patterns, making goods produced abroadmore attractive than they were before.Greater similarity in buying patterns may also emerge fromincreased travel and migration. For example: With the exposureto new cuisines, Americans are sprinkling an average 3.1 poundsof spices onto food annually, nearly a pound more than adecade ago.

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