globalization SLIDES + CONCEPTS

globalization

globalization

the expansion and intensification of social relations and consciousness across world-time and world-space

• Intensification of worldwide social relations

• Enlargement of world communications & market

• Transformation of spatial organization of social relations & transactions

• Compression of the world and intensification of consciousness

• Compression of time and space in social relations

qualities of globalization

1. The creation of new and multiplication of existing social networks and activities that cut across traditional political, cultural, and geographic boundaries

2. The stretching and expansion of social relations, activities, and interdependencies

3. The intensification and acceleration of social exchanges and activities

4. Extends deep into the core of the self, facilitating the creation of new individual and collective identities nurtured by the relationship between the individual and the world

globalization literature

1. Globalization is a done deal. The West has won the Cold War. Liberalism is ascendant.

2. Is the world really globalizing? The state remains dominant. Ethnic fractionalization threatens peace. Was the first wave just wishful thinking on the part of the winners of the Cold War?

3. Transformationalists and a multitude of other perspectives emerge. Globalization is not just about Western liberalism; it’s the process of creating something new. This is a contested process; there is no one path.

dimensions of globalization

1. Total human population

2. Rate of urbanization

3. Global output per person

nation-state system

• According to Herman Schwartz, globalization is simply the presence of global price pressures on all market actors.

• Political globalization has been dominated by the spread of the nation-state system.

• The evolution of the nation-state system has been long and violent, and it has only reached the farthest corners of the globe recently.

• The current “globalized” international system remains highly reliant on the nation-state as the primary political unit, and it will likely remain so.

• Agency costs increase with scale

• Cooperation/commitment & [common] interest

  • Cooperation is more powerful than coercion

Ricardian theory/neoclassical growth theory

Maximize best output (prioritize comparative advantage)

Kaldorian theory/endogenous growth theory

Develop existing resources and invest in profitable sectors (prioritize long-term profit, often via technological change)

Spain

Oceanic Age:

• Militantly powerful

• Money metals susceptible to deflation (via colonization of the Americas)

  • Neglect of domestic economy

• King dominant

• Merchants expelled in inquisition

• Nobility weak

France

Oceanic Age:

• Destroyed merchant class with overtaxation, allowed “tax farming” by nobility

  • Nobility take cuts of taxes and use this as a source of income

• Strong nobility but no centralization

  • King could play them off each other

  • Scared of England

• Peasant revolts

• Strong monarchy

England

Oceanic Age:

• Balance between 3 groups

• Strong mercantile class sets the foundation for capitalism in the future

  • Island location ⇒ development of distance trade & maritime abilities

  • Integrated domestic economy

  • Extensive waterways

• Strong nobility, centralized parliament

nobles

Used violence to take control of regions and extracted surplus grain by controlling mills.

kings

Wanted to monetize the micro-economies in order to extract surplus directly from peasants and create a bureaucracy to challenge the nobles.

merchants

Monetized the economy through short and long-distance trade and established armed trading cities.

peace of Westphalia

• The world is divided into sovereign territorial states, which recognize no superior authority.

• The processes of law-making, dispute settlement, and law enforcement are largely in the hands of individual states.

• International law is geared towards establishing minimal rules of co-existence; the creation of enduring relationship is an aim, but only to the extent that it allows states to meet their objectives.

• Responsibility for cross-border violations is a private matter concerning only those affected.

• All states are equal before the law, although the law doesn’t take into consideration asymmetries of power.

• Differences among states are often settled by force; the principle of effective power stands. Few legal mechanisms exist to curb the use of force; international legal standards offer only minimum protection.

• The collective priority of all states should be to minimize the impediments to state freedom.

UN/united nations

• Based on the state system

• Every state gets a vote in the General Assembly

• 10 states rotate onto the Security Council

• 5 states have permanent membership with veto authority on the Security Council

  • US, UK, Russia, France, China

credible commitments

Governments can make by

• Demonstrating a precedent of responsible behavior.

• Submitting to constraint by a set of rules, supported by divided power to enforce those rules.

mercantilism/nationalism

• National power and wealth are closely related.

• Trade is one way that nations can acquire wealth from abroad.

• Not all types of economic activity are equal; manufacturing should be promoted.

classical liberalism

• The purpose of economic activity is to enrich individuals, not states.

• Countries gain from trade regardless of whether the balance is positive or negative.

• The type or sector of economic activity doesn’t matter; the key is producing what is relatively low cost at home and trading for what is relatively expensive at home.

comparative advantage

• Everyone should produce what they produce best, then trade with others.

• This is true even when others can produce a product better; comparative advantage is more important than absolute advantage.

marxism

• Two fundamental characteristics: private ownership of the means of production and wage labor.

• Labor theory of value: a product’s value comes from the labor needed to produce it.

• Price: Labor wages + Surplus (or profit). Capitalists gets the surplus.

capitalism

Maxism predicts that this will collapse:

• Wealth will become more concentrated through economic competition, which drives producers to become more efficient.

• A falling rate of profit means that wages will be compressed.

• Capital accumulation changes the ratio of constant capital and variable capital.

• Wage earners are also consumers; consumers will become too poor to purchase products.

• Workers will overthrow the capitalist system as wealth inequality grows.

• Individuals acting in their own self-interest do not harmoniously contribute to a greater good; individual interests are in conflict and create collective action problems that undermine the greater good.

international political economy

• Capitalism not only creates systemic exploitation of labor by capitalists within countries, it also creates systemic exploitation of developing states by capitalist states.

• This happens through

  • Colonialism

  • Multinational corporations operating in developing states

  • International economic institutions whose rules provide and advantage to developed states

liberalism

• The economy is characterized by interconnected and self-regulating markets.

• Buyers and sellers, employers and firms, are independent actors that interact freely with each other.

• Scientific approach to political economy.

• Response to Marxism and the maturation of capitalism.

utility

Satisfaction, pleasure, or happiness gained from something

labor theory of value

• The value of a product depends on utility it provides.

• Each consumer derives different utility from a product.

• Utility diminishes with each unit of a product obtained.

price

& marginal utility

• The theory of demand and supply applies to all goods and services.

• Markets tend toward equilibrium.

• Marginal analysis accounts for these features.

• Consumer tastes are assumed to be a given.

resource allocation

• Mercantilists: The state guides (an ought to guide) __ to maximize national power.

• Classical Liberals/Neo-Classical: Politics play (and ought to play) a minimal role in the economy; __ is determined by market-based transactions between autonomous individuals.

• Marxists: The most important decisions are made by large capitalist enterprises supported by a political system controlled by the capitalist class that exploits the working class (and the working class ought to revolt against this).

economic values

• Mercantilists: Is there some alternative allocation of resources that would enhance the nation’s power in the international system? (Power/Security)

• Liberals: Is there some alternative allocation of resources that would enable the society to improve its standard of living? (Efficiency)

• Marxists: Is there an alternative political and economic system that will promote a more equitable distribution of income? (Equality)

first era of globalization

Ended with:

• Increasing domestic pressure to protect domestic producers and abandon the gold standard.

• World War I led countries to suspend currency convertibility, including Great Britain.

• After the war, Great Britain tried to reinstate the gold standard, despite war debts and a diminished economy. It finally abandoned it in 1931.

• Countries increasingly faced speculative attacks on currency, leading to restrictions on exchange and capital mobility.

• Additionally, a cascade of tariffs strangled international trade.

• By the outbreak of WWII, the globalized economy was no more.

Bretton Woods

• 730 delegates from 44 allied nations.

• Established the trifecta of global economic institutions:

  • The International Monetary Fund (IMF), 1945.

  • The World Bank, 1945.

  • The General Agreement on Tariffs and Trade (GATT), 1947.

• Held at the Mount Washington Hotel in Bretton Woods, New Hampshire, July 1-22, 1944.

exchange rate

The price of one currency in terms of another.

• System is a set of rules that govern how much national currencies can appreciate and depreciate in the foreign exchange market.

  • Fixed Exchange-Rate System

  • Floating ERS

  • Fixed-But-Adjustable ERS

  • Managed Float ERS

fixed exchange rate

• A currency’s exchange rate is determined by its price on the foreign exchange market.

• In a fixed exchange rate system, governments only allow small changes in the price of their currencies.

• To maintain a fixed price, governments buy and sell their currency using their foreign exchange reserves (savings of other currencies).

  • Example: If the dollar is too cheap against the yen, the US will sell yen and buy dollars.

  • Example: If the dollar is too expensive against the yen, the US will buy yen and sell dollars.

• To maintain fixed exchange rates, the government must prevent the currency from changing value by buying and selling currencies in the foreign exchange market.

• If it runs out of foreign exchange reserves, it can’t do this!

floating exchange rate

• The government allows the price of the currency to fluctuate on the foreign exchange market.

• Private buyers and sellers determine price.

fixed-but-adjustable exchange rate

• The Bretton Woods System

• Countries maintained fixed rates, but they were sometimes permitted to let rates float under extreme conditions.

managed float exchange rate

Governments independently decide how much they want the currency rate to fluctuate and sometimes use foreign reserves to manipulate the price.

balance of payments

• An accounting of all international transactions between a particular country and the rest of the world in a given period (usually a year).

• Countries that have more money coming into the country than going out have a surplus.

• Countries that have more money going out of the country than coming in have a deficit.

• Should not be too out of whack.

international monetary fund

• An IGO based in Washington, DC, designed to work with member states to foster economic growth, macroeconomic stability, and poverty reduction

• The IMF’s “fixed-but- adjustable” exchange rate system went into effect in 1959.

• Three primary mechanisms:

  • Governments were allowed to limit international capital flows.

  • Countries had to donate money to a stabilization fund that would back up members’ foreign reserves.

  • The IMF was empowered to monitor members’ macroeconomic policies and decide when and if a country could devalue its currency.

Bretton Woods system

Collapsed via

• Three options:

  • Devalue the dollar against gold.

  • Restrain economic activity in the U.S. in order to reduce imports.

  • Expand economic activity in the rest of the world to increase U.S. exports.

• Despite negotiations, the “fixed-but- adjustable” exchange rate system collapsed in early 1973.

• Starting in the 1960s, a “dollar glut” emerged as the U.S. began running persistent balance of payments deficits.

• By 1970, the U.S. held $11 billion in gold, but claims against that gold stood at $47 billion.

international financial integration

• The financial system brings borrowers and savers together.

• Savers: Individuals and firms that spend less income than they earn. What to do with the extra money?

• Borrowers: Individuals and firms that spend more income than they earn. Where to get the extra money to fund these expenditures?

• By the late 1970s, capital controls (which kept finance from moving across borders) began to fall apart.

trilemma

planet money

• Cotton grown in MS

• Yarn spun in Indonesia

• Shirts sewed in Bangladesh and Colombia

• Imported clothing waste is exported, eg. Kenya’s Gikombo Market

free trade agreements

• Drafted in ways that reflect the negotiating power of wealthy states

• Enforcement also relies on state power, which disadvantages smaller, poorer states

tariff

a tax or duty charged on imported goods

subsidy

a payment by the government to support a private enterprise

import quota

Limit on the amount of a product that may be imported from abroad

export quota

Limit on the amount of product that may be exported abroad

protectionism

A policy of protecting domestic enterprises from foreign competition

GATT

• Uruguay round

  • Complete review and revision of the 1947 GATT Agreement (now there is “GATT 1947” and “GATT 1994”).

  • Establishment of an actual intergovernmental organization: the WTO.

  • Revision and formalization of the dispute resolution process.

WTO

• All member states agree to the terms of the agreement, but powerful states have more negotiating power.

• The agreement gives less powerful states a tool that they would otherwise not have to hold all members accountable and protect themselves from retaliation. They can use this to leverage concessions.

• The agreement depends on member states to enforce its terms; less power states can’t do this as well.

• Does not fundamentally challenge state power or sovereignty, even while promoting global rules.