Economic globalization Economic globalization and global economic and global economic

governance governance

Federico SteinbergFederico Steinberg

OutlineOutline

Economic GlobalizationEconomic Globalization Economic and Political effects of Economic and Political effects of

globalizationglobalization The challenge of global economic The challenge of global economic

governancegovernance

What is economic What is economic globalization?globalization?

““A A dynamic process of global economic dynamic process of global economic integration characterized by increasing integration characterized by increasing

freedom in the movement of labor, freedom in the movement of labor, goods, services, technology, and capitalgoods, services, technology, and capital””

(De la Dehesa, 2000). (De la Dehesa, 2000).

Increase in international flows of:: GoodsGoods

ServicesServices CapitalCapital

InformationInformation¿Migration

?

Trade and investmentTrade and investment

New global value chains:New global value chains:Example: Example: Volvo S40Volvo S40

ImmigrationImmigration

3,5% of world population is migrant (220mn)3,5% of world population is migrant (220mn) Causes: labor shortage and ageing in Causes: labor shortage and ageing in

OECD, abundance in developing countriesOECD, abundance in developing countries Impact: higher employment rate, higher Impact: higher employment rate, higher

mobility and low unemployment rate in mobility and low unemployment rate in OECD countriesOECD countries

Elements of conflict in the EU:Elements of conflict in the EU: Direct competition for jobs and ▼ wagesDirect competition for jobs and ▼ wages Fear over the sustainability of the Welfare StateFear over the sustainability of the Welfare State

GlobalizationGlobalization• Explanations:Explanations:

- Ideas- Ideas

- interests- interests

- Institutions- Institutions

- technology- technology• Is reflected in:Is reflected in:

- Deep economic liberalization- Deep economic liberalization

- Incorporation of millions of people to the- Incorporation of millions of people to the

world economy, especially in Asiaworld economy, especially in Asia

- Change in the balance of power- Change in the balance of power

Theoretical Economic implications of Theoretical Economic implications of globalizationglobalization

Greater economical interdependenceGreater economical interdependence Better allocation of natural resourcesBetter allocation of natural resources Greater opportunities of growthGreater opportunities of growth Higher speed in technological Higher speed in technological

transfertransfer

But…But…

Is globalization something Is globalization something new?new?

Ratios of commercial and financial integration Ratios of commercial and financial integration similar to the ones in 1900…BUT:similar to the ones in 1900…BUT:

New role of trade in services New role of trade in services Intra-industrial tradeIntra-industrial trade Role of MNCsRole of MNCs Higher financial interdependence:Higher financial interdependence:

Importance of the portfolio investment Importance of the portfolio investment flowsflows

Frequency of crisis: México 1994/95, Asia Frequency of crisis: México 1994/95, Asia 1997, Brazil/ Russia 1998, Argentina 2001, 1997, Brazil/ Russia 1998, Argentina 2001, CURRENTCURRENT

Role of emerging marketsRole of emerging markets

Rapid growth of emerging countries

30%

35%

40%

45%

50%

55%

60%

65%

70%

(% d

el P

IB m

un

dia

l)

PIB en función del Poder de Paridad AdquisitivoFuente: FMI

Economías Desarrolladas Economías en Vías de Desarrollo

Emerging markets re-Emerging markets re-emergeemerge

And the trend will And the trend will continuecontinue

But China is the But China is the convergence storyconvergence story

But waitBut waitSize is not Size is not

global global presence,presence,

YETYET

A new world mapA new world map

Social trends (I)Social trends (I)

Ageing Ageing UrbanizationUrbanization

Social trends (II): Social trends (II): InequelityInequelity

What is driving it?What is driving it? Will it generate a backlash against Will it generate a backlash against

globalization?globalization?

Social trends (III)Social trends (III)New middle classesNew middle classes

New opportunities for MNCsNew opportunities for MNCs But products need to be costumizedBut products need to be costumized

Growing energy demand

Structural features and transformations of the world

economy Convergence Multipolarity Interdependence Growing rivalry and competition Geo-economics and mercantilism/nationalism Crisis/transformation of global economic

institutions

New costs and risks…New costs and risks…

Less policy space for governments in Less policy space for governments in economic policy:economic policy: The Welfare State under pressure in rich countriesThe Welfare State under pressure in rich countries Unequal opportunities in poor countriesUnequal opportunities in poor countries

Short run adjustment costs:Short run adjustment costs: Higher unemployment/lower wagesHigher unemployment/lower wages Sectorial restructuring, relocation and outsourcingSectorial restructuring, relocation and outsourcing Increased inequalityIncreased inequality

Greater economic insecurity: Greater economic insecurity: Microeconomic level: personal economic risksMicroeconomic level: personal economic risks Macroeconomic level: higher markets volatility and Macroeconomic level: higher markets volatility and

greater exposure to external greater exposure to external shocksshocks

Political impact of Political impact of globalizationglobalization

Diffusion of power in the world economyDiffusion of power in the world economy States lose power in favor of:States lose power in favor of:

MarketsMarkets International economic institutions International economic institutions New non-state actors(MNCs, NGOs, mafia, …)New non-state actors(MNCs, NGOs, mafia, …)

sovereignty reducedsovereignty reduced BUT:BUT:

States are still the main actor of IRStates are still the main actor of IR The loss of power does not affect equally all countriesThe loss of power does not affect equally all countries

This situation demands new global economic rulesThis situation demands new global economic rules Global governanceGlobal governance

Increasingly globalized world economyIncreasingly globalized world economy++

Economic Polices and Regulations still nationalEconomic Polices and Regulations still national++

Unequal distribution of gains from globalization Unequal distribution of gains from globalization ++

Loss of sovereignty (and legitimacy)Loss of sovereignty (and legitimacy)= CONFLICT= CONFLICT

(specially after the financial crisis)(specially after the financial crisis) Need for new global rulesNeed for new global rules Global Economic GovernanceGlobal Economic Governance (Everywhere?)(Everywhere?)

Global GovernanceGlobal Governance““Global governance refers to the creation of rules and Global governance refers to the creation of rules and

the exercise of power on global scale […] Since there the exercise of power on global scale […] Since there is no global government, global governance entails is no global government, global governance entails strategic interaction among entities that are not strategic interaction among entities that are not hierarchical distributed.” Robert Keohanehierarchical distributed.” Robert Keohane

Economic perspective: global governance Economic perspective: global governance focuses on providing focuses on providing globalglobal public goods: public goods: No rivals in consumptionNo rivals in consumption Non excludible through pricesNon excludible through prices With positive externalities and trans boundary With positive externalities and trans boundary

effects effects In a multipolar world, without an In a multipolar world, without an

hegemonic power, international hegemonic power, international cooperation is neededcooperation is needed

¿WHICH ONES?

Problems and challenges Problems and challenges (I)(I)

But since global governance is exercised But since global governance is exercised from different areas it raises problems:from different areas it raises problems: It can be democratic or notIt can be democratic or not Even if it is democratic, it will present Even if it is democratic, it will present

accountability problemsaccountability problems and “democratic deficit” and “democratic deficit” Therefore, the challenge is to establish a Therefore, the challenge is to establish a

global economic governance that allows:global economic governance that allows: Taking advantage of globalization and reduce its Taking advantage of globalization and reduce its

adverse effectsadverse effects Distribute more fairly its benefits as to avoid a Distribute more fairly its benefits as to avoid a

backlashbacklash against globalization against globalization

Problems and challenges Problems and challenges (II)(II)

Resistance to the transfer of Resistance to the transfer of sovereignty to supranational sovereignty to supranational organismsorganisms US (Climate change, ICC, ODA, etc.)US (Climate change, ICC, ODA, etc.) Emerging countries (¿irresponsible Emerging countries (¿irresponsible

position?)position?)

European Union as a supranationality European Union as a supranationality model?model?

Problems and challenges Problems and challenges (III)(III)

A more legitimate A more legitimate leadership (and leadership (and effective)effective)

What role for the G-20?What role for the G-20?

Long run Long run perspectiveperspective

The global economic governance The global economic governance agendaagenda

Global Trade Governance – WTOGlobal Trade Governance – WTO Reform of the international monetary Reform of the international monetary

systemsystem Global imbalances, reserve currency, Global imbalances, reserve currency,

adjustmentadjustment Development and fight against poverty Development and fight against poverty

(ODA, ODG and food security)(ODA, ODG and food security) Energy security and climate changeEnergy security and climate change International MigrationsInternational Migrations More equality in the distribution of More equality in the distribution of

income and opportunities?income and opportunities?