Economic Globalization Notes
What Does Economic Globalization Mean?
Economic globalization is viewed by some as being rooted in economics, encompassing global trade, transportation, communication systems, wealth distribution, and resource conflicts.
Examples of economic globalization:
Oil and gas pipelines from Canada to global markets.
Canadian manufacturers buying products from countries with lower labor costs.
Availability of fresh produce from Mexico in Canadian supermarkets due to international trade agreements.
Economic globalization's effects:
Opportunities and challenges for Albertans due to oil and gas exports.
Concerns about climate change from fossil fuel dependence.
Savings on imported goods but potential job losses in Canada due to global competition.
Low prices for consumers but potentially insufficient earnings for foreign producers.
Question: To what extent does globalization contribute to sustainable prosperity for all people?
Economic globalization is a double-edged sword. Taking advantage of its benefits while avoiding its negative impacts helps enterprises develop in a healthy environment. --Cheng Siwei, Chinese economist, 2007
Aspects of Economic Globalization
Globalization reduces barriers between countries, encouraging closer economic, political, and social interaction. It has the potential to vastly increase people's living standards by sharing knowledge and labor. --William K. Tabb, economist
Economic globalization has the potential to create healthy interdependence that will lead to prosperity for everyone. --Optimistic View
Countries and peoples are more economically integrated than ever because communication and transportation costs have been greatly reduced, and barriers to the flow of goods, services, capital, and knowledge have been taken down. --Joseph Stiglitz, Nobel Prize winner in Economics in 2001
Economic globalization reaches into every aspect of life, but builds fences between people, shutting some out of schools, hospitals, workplaces, and communities. People are unemployed, and their basic needs are not being met. Globalizing trends can discard an entire industry or even write off an entire country. --Naomi Klein, Canadian author and journalist
The relatively free movement of money, people, information, and goods across borders has helped increase the size and economic power of transnational corporations.
Some multinational corporations are wealthier than some countries' governments.
Robert Reich wrote in The Work of Nations, “We are living through a transformation that will rearrange the politics and economics of the [21st century]. There will be no national products or technologies, no national corporations, no national industries. There will no longer be national economies, at least in the way we have come to understand that concept.”
Computers often contain parts manufactured in multiple countries and assembled elsewhere, then sold globally. Countries with weaker economies depend on the smooth operation of economic globalization.
Interdependence creates instability because a crisis in one country, like mad cow disease or a strike, can cause a global economic problem leading to job losses and factory closures. However, it is also argued that stability is increased because countries that trade with one another are unlikely to go to war.
Comparing corporate income with countries’ gross national product shows that 51 of the world’s top 100 economies are corporations. For example, Wal-Mart is bigger than Indonesia, and General Motors is about the same size as Ireland, New Zealand, and Hungary combined.
Factors that affect the global economy:
War within a country or among countries
Famine
Economic uncertainty
Government economic policies
Price changes for non-renewable energy
Changes in investors’ confidence
Natural disasters
How Did 20th-Century World Events Shape Contemporary Economic Globalization?
In 1914, European empires controlled wealth, territories, and the lives of millions of people around the world.
Imperial powers wanted to protect or expand their colonies and trade, which led to World War I.
Disturbing trade arrangements would affect the lives and prosperity of people during that time. Similar disturbances today affect your life and prosperity.
Costs of World War I:
About 15 million soldiers and civilians were killed.
Canada lost more than 66,000 soldiers.
European cities, towns, farms, roads, factories, ports, ships, and railways had been destroyed.
European governments borrowed heavily from the United States.
By 1918, European governments owed more than (U.S.).
In 1919, world production of manufactured goods was more than . After the war, many countries restricted international trade while they tried to rebuild. per cent lower than it had been in 1913. In Russia, production had dropped by 80 per cent.
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The Treaty of Versailles, signed after World War I, imposed harsh conditions on Germany in the form of reparations, payments for war damages in Britain, France, Russia, and other countries.
John Maynard Keynes said that crippling Germany and Austria with war debts would starve the people and guarantee another major war.
Germany had to give up its colonies, which were divided among other European governments and Japan without consulting the Indigenous people.
The effects of World War I on the Canadian economy:
By 1918, World War I was costing the Canadian government more than a day.
After the war, interest payments on the country’s war debt totalled a year, and soldiers’ pensions cost another a year. As a result, income tax became a permanent feature of Canadian life.
The need for soldiers, nurses, and farm and factory workers had led to a shortage of workers. This changed after the war as soldiers returned home and weapon manufacturing stopped. As a result, unemployment rose.
In 1914, Russia was ruled by Czar Nicholas II. The Russian empire covered one-sixth of the earth’s surface and included nearly 150 million people of more than 100 different nationalities. The czar was as an absolute monarch who completely controlled the country and its people.
When World War I started, Russian soldiers had poor weapons and leadership. They were defeated in battle after battle. Nearly four million Russian soldiers were killed, wounded, or taken prisoner in the first year of the war.
John Maynard Keynes said, “An inefficient, unemployed, disorganized Europe faces us, torn by internal strife and international hate, fighting, starving, pillaging and lying,” in The Economic Consequences of the Peace, 1920
Throughout Russia, food and fuel shortages became common. Workers rebelled, demanding better wages and working conditions. When peasants and deserting soldiers joined the rebellion, the Russian economy shut down.
Nicholas II was forced to give up his throne in 1917 — and he and his family were murdered in 1918.
Communist Russia:
In 1922, the Union of Soviet Socialist Republics emerged out of the former Russia.
Communism opposed capitalism and capitalist countries, such as the United States.
Land and other property were to belong to everyone. Everyone would work for the benefit of all and would receive help as he or she needed it.
The Communist Party controlled the government and the economy — farming, industry, and transportation.
The dictator Joseph Stalin transformed the country’s economy and made the Soviet Union into an industrial and military giant.
Joseph Stalin said, “The history of old Russia consisted, amongst other things, in her being beaten continually for her backwardness . . . We are 50 or a hundred years behind the advanced countries. We must make good this distance in 10 years. Either we do it, or we shall be crushed,” in Pravda, February 5, 1931.
The Great Depression
During the late 1920s, many countries, including Canada, experienced an economic boom. But on the New York Stock Exchange, share prices had started going down. On Tuesday, October 29—a day known as Black Tuesday—some worried investors started selling. This started a panic, and share prices plummeted.
Many people who had lost money could no longer pay their bills. Those who had borrowed money could not repay loans—and those who were owed money could not collect. This meant that many people had less money to spend on consumer goods—and this reduced demand. Many companies laid off workers, and some even closed their doors for good.
Gradually, the entire world moved into an economic depression—the Great Depression.
The Great Depression in Canada:
Between 1929 and 1933, Canadian exports fell by 50 per cent.
By 1933, 26.6 per cent of Canadians were out of work
Some Prairie communities suffered greatly. The price of grain fell steadily after 1929. In addition, a drought that had started in 1928 continued off and on until 1937.
World War II
Adolf Hitler and the Nazi Party promised to fix things, and in 1933, he was elected leader. He immediately dissolved the German parliament and declared himself führer, or absolute ruler.
On September 1, 1939, German forces invaded Poland. In response, Britain, France, Australia, New Zealand, and Canada declared war. The United States entered the war on the side of Britain and its allies when Japan attacked Pearl Harbor in 1941.
More than 50 countries and colonies were drawn into the war. More than 60 million people, both military and civilian, died.
During the war, German money became almost worthless. In 1918, a loaf of bread cost two marks. By 1924, a loaf cost six million marks. People struggled to survive.
World War II in Canada:
About 42,000 Canadians died in the fighting during World War II.
Another 54,000 were wounded physically or psychologically.
Government spending increased and the manufacture of arms, airplanes, and ships rose.
Unemployment fell, and more than a million women joined the workforce, many for the first time.
From 1939 to 1941, employment in Canada’s manufacturing sector rose by 50 per cent.
By the end of the war, less than one per cent of Canadians were unemployed.
What Factors Laid the Foundations of Contemporary Global Economics?
People knew they had to find a way of avoiding another similar global conflict, so representatives of Britain, the United States, Canada, and other countries worked together to build an organization that would
support people who wanted to choose their own government
help countries co-operate on trade issues
protect smaller countries against invasion by larger countries
ensure that no single country controlled the world’s oceans
Delegates tried to figure out how they could prevent the kind of economic turmoil that could lead to another world war.
John Maynard Keynes believed the unrestricted capitalism that had existed before World War I had failed and said governments should set up programs to hire the unemployed to generate demand.
Friedrich Hayek mistrusted government control, and believed that competition and the market would keep an economy healthy, and that government should stay out of the way.
The World Bank and the International Monetary Fund would be supported by the United Nations and would help expand international trade.
The World Bank and the International Monetary Fund: A Comparison
Supporters of the World Bank and IMF say that these organizations have helped stabilize the global economy and brought prosperity to many countries. But critics say that they have become too influential and that their help, especially in developing countries, comes at too high a cost.
When the IMF lends money to countries, for example, it may order the government to reduce spending.
Some countries agreed to work together to establish trade rules. This led to the General Agreement on Tariffs and Trade—GATT—which was signed in 1947. GATT members agreed to gradually eliminate tariffs and other trade barriers between themselves.
The World Trade Organization emerged from the GATT in 1995. By 2007, the WTO was regulating trade in services, such as telecommunications and banking, as well as goods.
The World Bank and IMF both have the following points: Headquartered in Washington, D.C. Established by international treaty to help countries in economic trouble Under the control of the UN Owned by the governments of its members, which provide its funds Head of IMF is nominated by the European Union; has a board of 24 executive directors Founded by member countries, which pay a quota based on their wealth — countries that contribute more money have more votes
The World Bank has the following: Head of the bank is appointed by the U.S. government Original Goals To lend to money to help war-torn countries rebuild To speed up economic progress and industrialization in countries To help countries develop their natural resources To negotiate long-term loans to increase productivity in countries Current Goals To increase growth and reduce poverty in developing countries To fund specific infrastructure projects
The International Monetary Fund has the following: Purposes: To help countries get back on a stable financial footing after World War II To agree on rules about how countries deal with monetary affairs To govern international trade and finance Original Goals: To set dependable international exchange rates for world currencies To establish economic stability and promote foreign trade Current Goals To provide emergency short-term loans to countries To demand reforms in a country to promote good governance and get rid of corruption
How Did Main Elements Lay The Foundation for Contemporary Globalization?
In the years after World War II, the United States and the Soviet Union became economic and military superpowers.
The Cold War interfered with global trade: The IMF, the World Bank, and the GATT were unable to resolve the issues that divided communist and non-communist countries.
But the Bretton Woods version of economic globalization needed open borders, free communication, and access to world markets.
During the 1980s, people in various communist countries struggled to throw off Soviet control, and in 1989, the Soviet Union began to collapse.
By the 1970s, some governments were spending so much on expanding their economy that they had built up huge debts. In addition, inflation was rising, and so was unemployment.
By 1974, Hayek’s ideas had become so popular that he shared the Nobel Prize in Economics. Friedman won the award two years later.
In 1975, 8 per cent of the economies were capitalist $23 billion compared when war ended 28 per cent of economies were capitalist $644 billion.
Supporters of Milton Friedman’s views have called him the most influential economist of the second half of the 20th century
Hayek and Friedman believed that less government intervention and freer markets would generate economic health and prosperity. As a result, Britain and the U.S. began to move toward a market economy in which individuals were freer to make their own decisions with little intervention from the government.
The Index of Economic Freedom calculates a country’s position on a list that measures business freedom, trade freedom, and freedom from government interference. According to the 2007 index, Hong Kong has the most economic freedom. Canada ranked , after Switzerland. The country with the least economic freedom is North Korea.
Deng brought in market-oriented economic changes and remained a major force in reforming China’s economy during the 1980s and 1990s.
Farmers continued to turn over part of their earnings to the state, but they were also able to sell some produce privately and keep the profits.
In China 2005, WTO states showed that China had become the third- largest imported and exported only the US and EU were higher growth were going more fast and second largest world market.
Canada exported to China as fourth-largest importer as Canadian goods.
What Factors Contribute To Expanding Globalization?
Globalization creates changes in all aspects of people’s lives—the kind of work they do, the food they eat, the clothes they wear, what they read, watch, and listen to, and even how they relate to the physical environment.
Innovations in communication technologies have changed the world.
Technological convergence is also increasing the rate of globalization: Cellphones, for example, take photographs, make short videos, store hundreds of recordings, function as personal organizers, capture updates on the latest sports scores via the Internet, send e-mails and still allow you to make phone calls to others.
Today, a typical consumer product is designed, developed, manufactured, and assembled by a host of companies, which may be located practically anywhere in the world.
One way the media contribute to expanding globalization is by running commercials that encourage consumers to buy products: The effect of the media becomes even stronger when celebrities—whose influence is boosted by media coverage—lend their names to product lines.
Jean Paul Rodrigue an Economist says transportation is no longer of much concern for customers if its expected cost and time range. Concerns are mainly with cost and level of service. Transportation is distance appears to be meaningless.
Impact: Maquiladoras in Mexico
Stretching the length of the border between the United States and Mexico is a 210-kilometre strip of land known as the maquila or maquiladora zone- Maquilas, or maquiladoras, are foreign-owned factories. About 40 per