The Contemporary World

Globalization

Globalization

The process in which people, ideas, and goods spread throughout the world, spurring more interaction and integration between the world's cultures, governments, and economies.

Features of Globalization

Historical instances like the Silk Road connecting China and Europe, an increase in cross-border trade, investment, and migration, and a more extensive and faster globalization compared to earlier waves.

Economic Impact of Globalization

Examples include a 20-fold increase in the volume of world trade since 1950 and a doubling of foreign investment flows from 1997 to 1999.

Technology

• Drivers of Globalization

• particularly information technology, plays a significant role in advancing globalization by transforming economic life and enabling faster and more informed economic activities globally.

IMF's Definition of Globalization

According to the International Monetary Fund (IMF), globalization is the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, international capital flows, and the rapid diffusion of technology.

Dimensions of Globalization

Globalization is a multi-dimensional process involving economic, political, technological, cultural, religious, and ecological dimensions. It results in the creation of something new, multiplying social connections, and transgressing traditional boundaries.

Worldwide Connectivity

Globalization is about growing worldwide connectivity, as described by Steger.

Globalization Involves New Social Networks

The creation of new social networks and the multiplication of existing connections that cut across traditional, political, economic, cultural, and geographical boundaries. (Example: Brazilian World Cup: Today’s media combine conventional TV coverage with multiple streaming feeds into digital devices and networking sites that transcend nationally based services.)

Globalization Expansion and Stretching

Reflected in the expansion and stretching of social relations, activities, and connections, such as reaching financial markets globally, electronic communication around the clock, and the emergence of large shopping malls catering to consumers worldwide. (Examples: Non-governmental organizations, commercial enterprises, social clubs, regional and global institutions and associations (UN, EU, ASEAN, Google, and others).

Globalization Intensification and Acceleration

Involves the intensification and acceleration of social exchanges and activities, with examples like the worldwide web relaying distant information in real-time, satellites providing instant pictures of remote events, and the routine use of sophisticated social networking platforms like Facebook and Twitter. (Examples: The intermingling of local and global, shaping local happenings by events occurring far away and vice versa.)

Globalization in Human Consciousness

Globalization processes occur not only on an objective, material level but also involve the subjective plane of human consciousness, making the global frame of reference for human thought and action. (Examples: Extension into the core of the self and its dispositions, facilitating the creation of multiple individual and collective identities nurtured by the intensifying relations between the personal and the global.)

Prehistoric Globalization

• 10000 BCE-3500 BCE

• In this earliest phase of globalization, contacts among hunters and gatherers – who were spread around the world – were geographically limited due to the absence of advanced forms of technology.

Pre-modern Globalization

• 3500 BCE- 1500 CE

• In this period, the invention of writing and the wheel were great social and technological boosts that moved globalization to a new level. The invention of the wheel in addition to roads made the transportation of people and goods more efficient. On the other hand, writing facilitated the spread of ideas and inventions.

Early Modern Globalization

• 1500-1750

• It is the period between the Enlightenment and the Renaissance. In this period, European Enlightenment projects tried to achieve a universal form of morality and law. This, with the emergence of European metropolitan centers and unlimited material accumulation which led to the capitalist world system, helped to strengthen globalization.

Modern Globalization

• 1750-1970

• Innovations in transportation and communication technology, population explosion, and an increase in migration led to more cultural exchanges and transformation in traditional social patterns. The process of industrialization also accelerated.

Contemporary Globalization

• from 1970 to present

• The creation, expansion, and acceleration of worldwide interdependencies occurred in a dramatic way, representing a significant leap in the history of globalization.

Economic Dimension

Refers to the extensive development of economic relations across the globe as a result of technology and the enormous flow of capital that has stimulated trade in both sources and goods.

Major Players in Global Economy

Huge international corporations (General Motors, Walmart, Mitsubishi), International Economic Institutions (IMF, World Bank, The World Trade Organization), Trading Systems.

Result of Economic Globalization

Wide gap between rich and poor countries.

Major Sources of Economic Growth across Countries

Property rights, regulatory institutions, institutions for macroeconomics, stabilization, institutions for social influence, institutions for conflict management.

Political Dimension

Enlargement and strengthening of political interrelations across the globe.

Key Political Issues

State sovereignty, increasing impact of various intergovernmental organizations, future shapes of regional and global governance.

Examples of Political Globalization

European Union, United Nations, NATO, The World Trade Organization.

Impact of Political Globalization

The world in many ways turned into a borderless world, but governments often seek to restrict migration from poor countries.

Cultural Dimension

Increase in the amount of cultural flows across the globe.

Characteristics of Cultural Globalization

Dominant cultural characteristics include individualism, consumerism, and the drive for economic success stimulated by the internet and technological devices.

Result of Cultural Globalization

Rise in homogenized popular culture, cultural diversity often results in hybridization.

Role of Media in Cultural Globalization

Media empires (Yahoo, Google, Microsoft, Disney) play a major role in the flow of culture.

Religious Dimension

Religion is a personal or institutionalized set of attitudes, beliefs, and practices relating to or manifesting faithful devotion to an acknowledged ultimate reality or deity.

Significance of Religion

Religion is central to defining civilizations and often central to conflicts globally.

Example of Religious Globalization

Jihadist globalism, a religious response to materialist influences, seeks to transform the world based on religious beliefs.

Roman Catholic Teaching of Globalization

Eight principles summarize Roman Catholic teachings on globalization, including commitment to universal human rights, the common good, solidarity, and justice.

Justice Categories in Catholic Teaching

Commutative justice (fulfilling contracts), distributive justice (equity in goods distribution), social justice (creation of conditions for justice).

Commutative justice

fulfilling contracts

distributive justice

equity in goods distribution

social justice

creation of conditions for justice

Ideological Dimensions

Ideology is a system of widely shared ideas, beliefs, norms, and values among a group of people, often used to legitimize political interests or defend power structures.

Major Ideological Claims of Advocates of Globalism

Globalization is about liberalization and global integration of markets, it is inevitable and irreversible, nobody is in charge of globalization, it benefits everyone, and furthers the spread of democracy in the world.

Economic Globalization

Increasing interdependence of world economies due to cross-border trade of commodities and services, international capital flow, and rapid spread of technologies.

IMF's Definition of Economic Globalization

Integration of economies worldwide, including the movement of goods, services, capital, labor, and technology across borders.

Rapid Growth of Information, Marketization

Two Major Driving Forces for Economic Globalization

Rapid Growth of Information

Information plays a crucial role in productive activities.

Marketization

Restructuring processes that enable state enterprises to operate as market-oriented firms, often achieved through reduction of state subsidies, organizational restructuring, decentralization, and privatization.

16th century

long-distance trade marked the origin of modernity and globalization, such as the Silk Road connecting Asia, Africa, and Europe.

19th century

globalization approached its modern form with growth in international exchange of goods.

19th and 20th centuries

the global economy grew by an average of nearly 4 percent per annum, driven by international trade.

International Monetary System (IMS)

Rules and standards facilitating international trade and capital flow among nations, governing exchange rates.

Gold Standard

Backing a country's currency with gold reserves, enabling freely convertible currencies at a fixed price.

Bretton Woods System

Established in 1944, a monetary system based on the US dollar as the primary reserve currency, ended in 1971.

Floating Exchange Rate System

Developed in 1973, a market-based system where exchange rates fluctuate.

European Monetary Integration

A 30-year process that led to the creation of the euro and the European Monetary Union (EMU).

European Monetary System (EMS)

An arrangement from 1979 aimed at stabilizing exchange rates among European countries.

European Monetary Integration

A 30-year process beginning in the late 1960s to reduce the influence of the US dollar on domestic exchange rates and led to the creation of the euro.

European Monetary System (EMS)

Established in 1979 to stabilize exchange rates among European countries.

Bretton Woods System

A monetary system based on the US dollar, created in 1944 and ending in 1971.

Floating Exchange Rate System

A market-based system developed in 1973.

European Financial Stability Mechanism (EFSM)

A permanent fund created by the EU to provide emergency assistance to member states.

European Financial Stability Facility (EFSF)

An organization created by the EU to provide assistance to member states with unstable economies.

European Stability Mechanism

Activated by the EU in 2013 as a permanent mechanism.

International Trade

The exchange of goods, services, and capital across national borders, vital to the GDP of many countries and essential for resource acquisition in various nations.

Specialization and Comparative Advantage

Two key concepts in international trade economics.

Specialization

The process where countries and businesses focus on producing goods and services where they are most efficient, leading to maximum advantages over rivals.

Comparative Advantage

Arises when two countries have different relative efficiencies, allowing both to benefit from trade.

Benefits of International Trade

Competition leading to competitive pricing, Greater availability of goods and services, Efficient resource utilization in wealthy countries, Exposure to products not available domestically.

Trade Policies

Regulations and agreements governing trade relations between countries, defining standards, goals, rules, and regulations.

Tariffs

Taxes or duties on imports or exports, used for protecting local industries.

Trade Barriers

Measures that make imported goods or services less competitive than local ones, including tariffs, duties, subsidies, embargoes, and quotas.

Safety Regulations

Ensure imported products meet safety and quality standards.

National Trade Policy

Protects the trade and interests of a nation.

Bilateral Trade Policy

Regulates trade relations between two nations, considering both nations' policies and negotiations.

International Trade Policy

Defines policies under international economic organizations such as the WTO, aiming to uphold the interests of developed and developing nations.

Trade Policy and International Economy

• Developed countries typically support free trade policies in open-market economies.

• Developing nations may prefer partially-shielded trade practices to protect local industries.

• Trade policy influences market changes, free and fair-trade practices, and international trade growth.

World Trade Organization (WTO)

• Ensures smooth, predictable, and free trade between nations.

• Global international organization dealing with trade rules.

• Facilitates access to developing markets for industrialized countries.

Global Economy Outsourcing

• Outsourcing: Assigning tasks and obligations under a contract to another party (subcontractor), common in complex projects.

• Outsourcing involves finding a partner, relationship-specific investments, and governance by incomplete contracts.

• Outsourcing encompasses the growth of international trade in intermediate goods and business services.

Outsourcing

Assigning tasks and obligations under a contract to another party (subcontractor), common in complex projects

Determinants of Outsourcing Location

• Country size affects market thickness.

• Technology for search impacts partner finding.

• Technology for specializing components influences investment in prototypes.

• Contracting environments affect partner relationship and investment inducement.

Market Integration

The ease with which two or more markets can trade with each other, characterized by similar price patterns and relations among different markets.

Stock Market Integration

When stock markets in different countries show similar trends and expected risk-adjusted returns, allowing investors to move between markets without extra costs.

Financial Market Integration

Facilitated by common currencies and the elimination of technical, regulatory, and tax differences to encourage free capital and investment flow across borders.

Global Corporation

A business operating in two or more countries, also known as a multinational company, with advantages such as revenue diversification and access to more customers and capital.

Early Historical Periods

Marked by globalization patterns in trade and exchange, driven by shipping and navigation technologies.

Post-World War II

Multinational corporations (MNCs) led economic recovery and expansion, with American corporations playing a significant role.

Present

Transformation of global corporations, with increasing global expansion and diversity of challenges.

The Finance Function in a Global Corporation

• CFOs play a vital role in managing internal capital markets and exploiting opportunities.

• Functions include financing, risk management, and capital budgeting to add value.

Foreign Direct Investment (FDI)

• Investment made by a company or individual in one country's business interests in another country.

• May involve establishing operations, acquiring assets, or gaining control or substantial influence over a foreign business.

• Various methods to establish FDI, including opening subsidiaries, acquiring controlling interests, mergers, or joint ventures.

BRICS Economies

• Acronym for Brazil, Russia, India, China, and South Africa, representing their combined economies.

• Speculated to become dominant global economies by 2050, with China and India as major suppliers of manufactured goods and services, and Brazil and Russia as dominant raw material suppliers.

• Attractive economies for foreign investment due to lower labor and production costs.

General Agreement on Trade in Services (GATS)

• Multilateral agreement covering trade in services, negotiated during the Uruguay Round and in effect since 1995.

• Provides a framework for rules governing services trade, commitments to liberalize trade, and dispute resolution mechanisms.

• Similar in principle to the General Agreement on Tariffs and Trade (GATT) for trade in goods, with objectives of equitable treatment and progressive liberalization of services trade.

State

A compulsory political organization with a centralized government that maintains a monopoly of the legitimate use of force within a certain territory.

Nation

An imagined political community that is both inherently limited and sovereign.

Imagined Community

Nations are imagined because the members of even the smallest nation will never know most of their fellow members, yet in the minds of each lives the image of their communion.

Golden Straitjacket

A term coined by Thomas Friedman to describe how globalization pressures states to conform to free-market principles.

Neoliberalism

An economic ideology that values market exchange as an ethic and emphasizes reducing government intervention in the economy.

Economic Sovereignty

The power of national governments to make decisions independently of other governments.

International Legal Sovereignty

Recognition of a state as a member of the international community.

Westphalian Sovereignty

The principle that one sovereign state should not interfere in the domestic affairs of another.

Interdependence Sovereignty

The capacity to control the flow of people, goods, and capital into and out of a country.

Domestic Sovereignty

The capacity of a state to choose and implement policies within its territory.

Preferential Trading Area (PTA)

An agreement that reduces or eliminates tariff barriers on selected goods imported from member countries.

Free Trade Area (FTA)

An arrangement that removes barriers to trade on all goods coming from other member countries.

Customs Union

A union in which all barriers to the mobility of resources and goods are removed among member countries, and a common external tariff is applied to non-members.