Download Globalization

Topic 4: Globalization – "Technology, Trade
Regimes, Capital Flows, and the Inte
rnational Economy"
Nicholas Ashford
18 February 2015
Topic 4 Objectives
 Understand the importance of placing the discourse of
sustainable development within the much broader concept
of globalization
 Discuss the factors behind and impacts of globalization
 Consider the opportunities and challenges created by
globalization for addressing sustainable development
 Review trade theory and the notions of comparative and
competitive advantage
 Discuss the role of MNEs in globalization
Why are we interested in globalization?
 The nation-state has a responsibility to promote
sustainable development (Stockholm, Rio, Johannesburg,
Agenda 21)
 But, globalization could undermine the ability of
governments to establish an economic and regulatory
environment that promotes sustainable development by
transferring political and economic power to corporate
interests
 Need to understand the drivers of globalization and how
they might enhance, undermine, or provide new
opportunities for government action
Ecosystem Disruption
Climate Change
Toxic pollution
Resources
Increased
environmental footprint
from the need to
increase employment
& industrial throughput
Environmental/energy
improvements creating
employment
Environment
Trade & environment
Investment & environment
Development & environment
Technological
change &
globalization
Economy
Work
Skills
Wages
Purchasing Power
Job Security
Health and Safety
Job Satisfaction
Number of Jobs
Changing international
division of labor
Changes in the nature
of work
Improvements in
competitiveness, productiveness,
and the use of physical, natural,
& human capital
Economic changes (arising from
labor replacement & capital
relocation)
Financing growth and
development
Globalization
 A process by which the world is becoming more
interconnected, both in economic relations and in
social and political interactions among
organizations, communities, and individuals across
the world
Concepts
Skeptics
Internationalization not globalization
Regionalization
Power
The nation-state rules
Inter-governmentalism
Culture
Resurgence of nationalism and
national identity
Economy
Development of regional blocs
Triadization
New imperialism
Growing North-South divide
Irreconcilable conflicts of interest
Inequality
Order
International society of states
Political conflict between states
inevitably persists
International governance and
geopolitics
Communitarianism
Globalists
One world, shaped by highly
extensive, intensive and rapid flows,
movements and networks across
regions and continents
Erosion of state sovereignty,
autonomy and legitimacy
Decline of nation-state
Rise of multilateralism
Emergence of global popular culture
Erosion of fixed political identities
Hybridization
Global informational capitalism
The transnational economy
A new global division of labour
Growing inequality within and across
societies
Erosion of old hierarchies
Multilayered global governance
Global civil society
Global polity
Cosmopolitanism
Source: Held and McGrew (2002, p. 37).
Globalization Theories
 World-System Theory
 the spread of the capitalist system across the globe
 World Polity Theory
 the theory that “a rationalized world institutional and
cultural order has crystallized that consists of universally
applicable models that shape states, organizations, and
individual identities”
 World Culture Theory
 the formation of a “world consciousness” that gives
meaning to living in the world as a single place
Source: Frank Lechner, http://www.sociology.emory.edu/globalization/theories01.html
Globalization: Opportunity or Challenge?
Opportunity
Challenge
Expand existing domestic
production/services to international
markets
International marketplace may present
additional competitive challenges
Benefit from lower factors of production
by locating facilities abroad
Advantages may be undercut by currency
fluctuations, political instability,
inadequate infrastructure, and lower
worker productiveness
Avoid costly domestic financial,
environmental, or tax regulation by
operating abroad
Foreign regulatory systems may be
uncertain, and foreign governments may
be subject to unanticipated corruption
Different tax treatment of investment and
profits and different rules for the
expatriation of capital and requirements
for domestic content can undermine the
profitability of operating internationally
International economy is composed of the
following five highly interrelated aspects:
1. Trade in goods and services
2. International distribution of production/
generation of services (more commonly called
the international division of labor)
3. Flows of capital across national borders
4. Flows of information and knowledge
5. Flows of labor across national borders (‘brain
drain’ and the migration of ‘low-skilled’ workers)
Drivers of Globalization
1.
The gradual removal of barriers to trade and to the
movement of capital, services, knowledge, and (to a
lesser extent) people between nations
2.
The rapid reduction in the costs of transportation
(energy efficiencies/logistics) and communication.
(communication yes, but transportation ?)
3.
The creation of new institutions to supplement
existing ones to formulate and oversee normative
rules of engagement (especially for trade, but also
increasingly for the environment) at the
international level
Industrial Globalization
 Three forms of ‘global Industrialization’
 Internationalization – expansion of product/service
market abroad, with the locus of production in the
parent country (enabled by cheap transportation, ICT,
and e-commerce)
 Multi-nationalization – production/service facilities in
several places, with R&D remaining in parent country
 Creation of Strategic Alliances – merging and sharing of
technical and managerial know-how
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among firms
among labor and environmental organizations, and other NGOs
among universities
among governments
Effects of ‘Globalized’ Commerce:
 Scale Effects – global resources are used more
efficiently
 Structural Effects – changes in the composition and
location of production and consumption
 Technology Effects – technology enables globalization
and technological change is a consequence of
increased competition from globalization
 Product Effects – the convergence of consumer tastes,
influenced by advertizing and mass media
Industrial Globalization, cont.
 What environmental or social impacts might occur
from Internationalization or multi-nationalization?
Trade
 What is trade? What is a trade regime?
 What is the role of the WTO?
 What is the difference between the WTO and
NAFTA?
 How does trade within the EU differ from both?
 Are environmental and labor issues incorporated
into the WTO agreements and NAFTA? If so, how?
 Is free trade really “free”? (contrast with “fair
trade”)
Trade, cont.
 Trade consists of the flow of goods and services
between nations
 These flows are heavily mediated by:
 the international division of labor (that is, the location of
production versus consumption)
 the institutional organization of that labor (for example,
MNEs, which conduct significant interfirm transfers of
goods and services)
 Trade is not a goal in itself, but rather a means towards
the goal of increasing economic development
WTO on the Environment and SD
 “An important element of the WTO’s contribution to
sustainable development and protection of the
environment comes in the form of furthering trade …
in goods and services to promote economic
development, and by providing stable and predictable
conditions that enhance the possibility of innovation.
This promotes the efficient allocation of resources,
economic growth and increased income levels that in
turn provide additional possibilities for protecting
the environment.”
Source: WTO An introduction to trade and environment in the WTO,
http://www.wto.org/english/tratop_e/envir_e/envt_intro_e.htm
Trade and ‘Spillover’ Effects
 Spillover effect – a secondary effect (e.g., innovation)
that follows the primary effect (i.e., trade)
 Trade provides entrepreneurs with an incentive to
devise new ways to export or to compete with imports
– results in innovation and increased learning
opportunities
 Government’s enhanced management of economic
affairs (as a result of trade) may also enhance their
capacity to address environmental problems, product
safety, and worker H&S
Factor-Endowment Trade Theory
 David Ricardo’s theory of comparative advantage
 Countries can better their financial position by
specializing in what they do best. Does efficiency always
lead to economic growth?
 Heckscher-Ohlin theory
 Countries’ differing endowments of factors of
production can explain different countries’ gains from
trade
 Capital-rich countries specialize in goods whose
production requires an abundance of capital, while
labor-rich countries specialize in labor-intensive goods
and land-rich countries in land-intensive (that is,
agricultural) goods
Stopler-Samuelson on Who Benefits?
 A theory of the politics of trade – who benefits and
who loses?
 Assumption: Trade is beneficial for producers of
exports and harmful for producers who compete with
imports
 Finding: Trade makes the national owners of an
abundant factor of production better off and the
owners of a scarce factor of production worse off
Problems with Ricardo’s Theory
 International differences in factor costs* and endowments**
have been important in the determination of the international
division of labor and the patterns of international trade
 But –Ricardo’s theory of comparative advantage does not have
sufficient explanatory power
 Most world trade seems to be taking place between countries
with similar factor endowments and costs
 What else do we need to consider?
* Are there externalities?
** Are there big differences in labor skills and wages/surpluses
(the latter influenced by wage suppression)?
Problem with Ricardo’s Theory, cont.
 The theory is predicated on the assumption that labor and
capital are mobile internally AND capital earned from trade
cannot cross borders – as was the case in the pre-1970 Bretton
Woods world – and will be invested in the country in which the
product was produced. Can lost capital be repatriated?
 Capital is now highly mobile – it can follow absolute advantage
rather than comparative advantage
 Thus, one country could conceptually end up producing
everything (~China) …and/or possibly one firm monopolizing
production = the winner-takes-all economy (cf. the 2nd
Machine Age)
 Also, prices within a country do not represent real efficiency –
they are a factor of market structure and government
subsidies
‘Competitive’ Advantage
 Competitive advantage is a much broader concept than
comparative advantage
 Porter’s diamond:
 Factor conditions (such as resources, labor, and infrastructure)
 Demand conditions (characteristics of consumers in domestic
markets)
 Related and supporting industries (suppliers, collaborators,
competitors)
 Firm strategy, structure, and rivalry (market conditions,
competitive structure, and company organization, that is, the
factors that influence an industry’s/firm’s attitude toward
competition and innovation)
‘Competitive’ Advantage, cont.
 Porter’s diamond does not explicitly recognize a
role for government
 Government is described as having a proactive
‘influence’ on the four attributes
 Governments can affect all four elements of Porter’s
diamond through subsidies, the creation of
infrastructure, tax policy, education policy,
standardization, regulations, and other measures
‘Free’ vs. ‘Sustainable’ Trade
 The term free implies freedom
 Thus, if you support certain trade restrictions you
could be viewed as being against freedom!
 Reality:
 Only about 15% of global trade is genuinely free
 MNEs manage about 40% of global trade via intrafirm
trade among their own subsidiaries
 The real question is what set of regulations and
restrictions should be used
 ‘Sustainable’ rather than ‘free’ international trade
Growth and Trade Restrictions
 Today’s advanced economies developed from behind trade
restrictions and protections
 The cross-national evidence on the relationship between
open trade policies and higher economic growth and
poverty reduction has shown no systematic relationship
between a country’s average level of tariff and nontariff
restrictions and its subsequent economic growth rate
 Integration into the world economy through trade
liberalization should be viewed as an outcome rather than
a prerequisite of a successful growth strategy
Growth and Trade Restrictions, cont.
 Almost all the outstanding success stories, such as China,
India, and the East Asian countries, involved partial and
gradual trade and capital liberalization
 A country’s trade policy should be eclectic and should take
into account a series of national and external variables,
such as the industries that will be harmed from trade
openness and the capacity of the domestic market to
reallocate workers
Multinational Enterprises (MNEs)
 What is a MNEs?
 Why have MNEs typically been excluded from
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neoclassical economics?
What is the link between MNEs and FDI?
What types of FDI exist?
How might a MNE impact the environment or working
conditions in a country? (Think about efficiency
spillovers)
Why do some view MNEs as ‘highly controversial’?
Multinational Enterprises (MNEs)
 Vernon’s product cycle theory
 Every product follows a certain life cycle from innovation
through maturity to decline and to final obsolescence
 Firms must act internationally to limit foreign competition
 The Reading school’s eclectic theory
 The unique nature and extraordinary economic success of the
MNE are due to particular (technology-based) characteristics
that give the MNE important advantages over purely
domestic corporations
 Porter’s strategic theory
 It is the firm’s strategy that actually determines its structure
and its location of economic activities
A New Bretton Woods/Financial
Architecture
 Do you think the U.S. could lead the development of a
Bretton Woods II?
 What options exist to create a new form of financial
architecture?
Todaro’s Five Questions
1.
How does international trade affect the rate, structure, and
character of LDC (less developed country) economic growth?
2.
How does trade alter the distribution of income and wealth within a
country?
3.
Under what conditions can trade help LDCs achieve their
development objectives?
4.
Can LDCs by their own actions determine how much they trade?
5.
In the light of past experience and prospective judgment, should
LDCs adopt an outward-looking policy (freer trade, expanded flows
of capital and human resources, ideas, and technology, etc.) or an
inward-looking one (protectionism in the interest of self-reliance) or
should they pursue some combination of both, for example, in the
form of regional economic cooperation?
Kaplinsky on Structural Changes in Production
and Consumption
 Why should we be concerned if China and India
dominate production and retailing is dominated by WalMart, TESCO, etc.?
 As a leading exporter of labor-intensive, manufactured
products, how might China potentially accelerate a ‘race
to the bottom’ elsewhere?
 What is the significance of the Asian Drivers as a
growing source of outward FDI?
 What percentage of inward FDI is captured by the Asian
Drivers? What does this mean for economic
development in other development regions?