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Professor Anton Filipenko,
Head of Department of World
Economy and International
Economic Relations,
Institute of International Relations
of Kyiv Taras Shevchenko
National University
THE NATURE OF ECONOMIC GLOBALIZATION
The article is devoted to discourse substantiation of economic globalization in the
context of applying the theoretical concept to analyzing the complex and controversial
phenomenon of modern world economy. It covers the objective prerequisites and factors,
historical stages and forms of economic globalization. Discovering the mechanisms and
ways of optimal interaction between both Ukrainian and the world economy in the age of
globalization are analyzed more precisely.
Forms of Economic Globalization
The discursive ground of economic globalization includes, on the one hand,
interpretation of this process by the proper linguistic-category facilities in the context of
scientific world view of the modern epoch, and discovers its driving forces and
contradictory consequences for different actors of international economic relations on the
other [1, 151]. The economic constituent of globalization is linked primarily with the
sources, factors and forms of economic advancement that are mainly represented by
investments and technologies, labour force, intellectual and financial resources,
management and marketing etc.
The forms which reveal these processes are the following:
 international
trade
and
investments
expansion,
liberalization
and
deregulation of capital flows;
 unprecedented diversification of international financial and labour markets;
 the increasing role of multinational corporations in the world economic
processes;
 harsh global competition;
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 the emergence of global and strategic management systems;
 significant share of information and communication technologies in
economic development.
Summarizing the present definitions of globalization it should be noted that
globalization is the product of postmodern epoch, the transition from industrial to
postindustrial stage of economic development followed by the basic foundation of
noospheric-cosmic civilization [2]. The essence of globalization lies in the increase of
unity and system integrity of world economy based on market paradigm and the
intensifying global integration processes*. The aforementioned explains the qualitative
and quantitative indicators which characterize the development of this process. The most
important of those are:
• the growing interdependence between the economies of different nations;
• the increasing integrity and unity of world economy followed by the greater
openness of national markets;
• intensified international labour division and co-operation.
At the same time there is a growing threat of nuclear catastrophe, greenhouse
effect, interference with natural ability of man through engineering, cloning etc.
Individual nations and states gradually give up their functions of international relations
and law subjects to the external control of supranational bodies. The emergence of so
called global village is expected to promote greater transparency of economic
transactions but so far there is a reverse process. It was especially noticeable during the
world financial crisis in 1997 - 1998.
Global communication networks are expanding due to introduction of the cuttingedge technology, electronic communication networks, that again induces their realization
beyond state control.
*
Robert Samuelson defines economic globalization as “the worldwide convergence of supply and demand” and
George Soros refers to the global economy as a “gigantic circulatory system.” (Economic Globalization: Stability or
Conflict? –in: Strategic Assessment 1999. Priorities for a Turbulent World. National Defense University. Institute for
National Strategic Studies.- Wash., 1999, p.20.) Manuel Castells’ definition is closer to the latter, he uses “the global
network” term to describe globalization (Castells M. Information epoch. Economy, society and culture.// Translated from
English into Russian.- Moscow, 2000, p.105,153.) Russian authors G. Anilionis and N. Zotova perceive globalization as
“merely relative and partial intensification of word economic community”. (Anilionis G., Zotova N. Global World: single
and divided. Evolution of globalization theory. – in Russian. - Moscow, 2005, p. 233)
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Scientific and technical achievements lead to the cutback in spendings on
intergovernmental and intercompany economic contacts. Thus if a three minute
telephone talk between New York and London cost 300 dollars in 1930 (by 1996
exchange rate), it costs only one dollar now.
The number of nations and states involved in the process of globalization is
growing considerably. Lately the special dynamism has been characteristic to new
industrial countries of Asia and some Latin American states. The tendency to the
development of global civilization with common tastes, values and public awareness is
gaining strength. The bases for international civil society and the pluralism structures of
global elites are now being created. Global cultural space is westernizing facing the
simultaneous resistance especially in the Muslem countries.
The proscenium of world economic life is presently being replenished with the
new actors which along with the traditional become the main trendsetters in the world
economy [3, 72].
The main subjects that influence decisively the world economy today are as
follows:
♦ International organizations:
 International monetary fund (IMF)
 The World bank
 The United Nations Trade and Development Conference
(UNCTAD)
 Food and Agriculture Organization of the United Nations (FAO),
 International Labour Organization (ILO)
 World Trade Organization (WTO);
♦ G8 countries;
♦ Regional organizations (amount to 60);
♦ Multinational corporations (almost 60 thousand);
♦ Institutional investors (pension and investment funds, insurance
companies);
♦ Non-governmental organizations;
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♦ Cities;
♦ Prominent individuals (Nobel laureates, university professors, successful
financiers, businessmen etc.).
Emphasizing the significance of large cities it should be noted that, for example,
the amount of goods and services produced in Tokyo is twice the number of the
corresponding Brazilian total.
The world economy is becoming globalized as a result of new forms of
competition emergence, when the growing amount of participants in the international
economic relations lack definite state belonging.
Thus, globalization becomes a permanent factor of domestic and international
economic life.
Stages and Historic Types of Economic Globalization
There are two main approaches to the periodization of economic globalization.
According to the first approach, economic globalization is a phenomenon of the
times preceding the period of the great geographical discoveries. It can be characterized
as slack globalization, when interstate economic relations have sporadic, discrete
character, remaining on separate local areas and territories. From the epoch of the great
geographical discoveries up to the middle of the XIX century it transforms into the stage
of slowly progressing globalization, when a world market is formed, international labour
division develops and the specialization type of individual countries and regions can be
defined. The next stage (mid- XIX - the 80th of the XX century) is known as bystructural
globalization, that is connected with the world economic disintegration and continuous
counteraction of its opposite systems. The final is the stage of the organized or
successive globalization that was developing in the integrated world market economy as
the objective process and major feature of postindustrial civilization.*
* When analyzing historical forms of globalization, British authors recognize archaic, protoglobalization, modern and
postcolonial globalization. The archaic form is a product of preindustrial period of human history, characterized by sporadic
ties between tribes, and later on, between countries and regions; protoglobalization lasted from 1600 up to 1800 and was
dominated by industrial production development, scientific, industrial and financial revolutions, world market emergence;
modern globalization (1800-1950) had two main dimensions: national states uprising and rapid industrialization, entailing
international labour division; and finally, essential features of postcolonial globalization are based on formation of new
architecture of relations between the developed and developing countries, on the establishment of regional integration units,
the increasing role of multinational corporations, the modified role of the state in economic and political life of society.
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The second approach stresses that globalization is inherent to the economic
development of the end of the XX century, thus connects its genesis with the last quarter
of the XX century [4, 16-17]. At the present stage it becomes the determinant of both
national and international development, transforming into the dominant tendency of
world economic processes.
The impact globalization has upon national economies and the development of
world economy is quite contradictory. On the one hand, it extraordinary extends the
potential of individual countries to the use and optimum combination of different
resources, their intensifying and comprehensive participation in the international labour
division. On the other hand, global processes strain competition, causing misuse and
manipulations in financial and investment resources, which is a real threat for low- and
middle-income countries. “Millions continue marginal existence, to millions experience
of globalization creates no possibilities, stimulating forces of destruction and
elimination”, - the Secretary General of the UNO K. Annan noted [5].
Thus, regardless of the irrefutable advantages of globalization, its ambiguousness
and diverse influence on different groups of countries and industries should also be taken
into account. In the process of structural global transformations the most advantageous
are the manufacturing and service industries which receive the major part of capital
recourses and skilled labour. At the same time other industries (for example, coal
industry) are experiencing slowdown and acute shortage of production factors. Another
consequence of structural global changes is the deindustrialization process, which began
in 1970th as a result of global fuel and energy crisis (“The Dutch Disease”). Current
development of service economy, noospherization of industries, further improvements in
space, information and computer technologies, gradual transition to “Neoeconomy” and
post-economic forms of society can be considered as the positive features of the
deindustrialization.
(Globalization in World History. Edited by Hopkins A.G. – London, 2002, p.3-8.). A. Frank emphasizes the 5-thousandyear development of globalization (Frank A.G. ReOrient: Global Economy in the Asian Age. – University of California
Press 1998, p.52). Most authors tend to relate globalization to economic procesess of the Great Geographical Discoveries,
i.e. starting from 1500 ( See.: Legrain Ph. Open World: The Truth about Globalisation. – London, 2003, p.82).
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The negative aspect of deindustrialization lies in the threat of returning to the
obsolete, traditional, archaic structures of economy in a number of developing countries
and some transitional economies due to their non-competitiveness and weak resource
base of economic development. The foremost task of the emerging market economies
consists in minimizing their vulnerability to the external shocks and to the changing
positions of foreign investors manipulating with huge volatile capital flows. Developing
countries are the ones mostly threatened by globalization because of the shortage of
human capital, modern institutions, economic infrastructure and decision making
necessary to realize their potential [6, 118-119].
Industrially developed countries draw the greatest dividends from globalization.
By means of trade, investments, access to the external resources globalization facilitates
the replacement of low-qualified labour at the expense of these or other countries. The
total amount of such labour force in general spendings grow due to the cutback in
business expenses, wages and incomes insurance. Thus a tax base in these countries
decreases followed by the increasing demand for social guarantees under little prospects
of their provision. Consequently, globalization has considerable influence on industrially
developed countries all over the Globe:
1) we are experiencing the shift in approaches to developing and conducting
trade, industrial and competitive policy
2) internal transactions expansion complicates the realization of economic and
tax policy
3) governments run into difficulties of managing the electronic transactions as
the growing global market lacks definite geographical territorial belonging
4) it becomes more difficult for countries to realize the aims of social welfare
due to the diminishing efficiency of labour legislation and standards caused
by the capital mobility.
The Levels of Globalization
The important aspect of globalization analysis is represented by consideration of
its multilevel, hierarchical system.
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The world level of globalization is determined by increasing economic
dependence among countries, regions and their economic systems. The openness of
economy, share of foreign trade or exports in GDP, foreign investments and international
payments are the major indicators of the globalization within individual states. Industry
globalization is clearly illustrated first of all by the share of intraindustry trade - world
production ratio and the factor of industry specialization which is a correlation of
domestic and international export quotas of the industry.
The globalization at a company level depends on a company’s diversified incomes
and assets in different countries in order to increase the export of goods and services and
the use of local advantages such as wider access to natural resources and relatively cheap
labour force. The allocation of sales incomes and main assets on foreign markets,
intracompany trade, certain technological transfers and outsourcing are also important
when determining the degree of globalization at a company level.
The use of modern information and communication technologies contributing to
information exchange among countries, expanding consumer awareness, substantially
decreasing the cost of services, is a general precondition for globalization development
within individual companies. According to Bill Gates, the usual processing of airline
tickets by a travel agency costs $8, while the on-line booking is only $1. Bank charges
for one telephone transaction equal to $0,25 and the Internet technologies cut expenses
down to $0,01 [7, 90]. The European and Asian cable systems enable corporations to
shape regional and at times global demand in many countries simultaneously.
Global communication networks provide for coordination of production and
common objectives on the world scale. Thus companies located in different parts of the
world produce similar final product. The decrease of investment and trade tariffs by the
most states intensifies the opening of new markets for international corporations, which
both export and create production capacities for local producers. The standardization and
socialization of global community is one of the current trends.
Substantial nature of economic globalization has its immanent forms of display.
Those are mainly crystallized and embodied in:
- the increasing volumes and diversified patterns of international trade
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- foreign direct and portfolio investments as popular instruments of
promoting national economic development
- international labour migration
-
the importance of knowledge, technologies, management, marketing,
generated by industrially developed countries and used in other economic
systems that gradually converge in the world economy processes etc.*
One of the striking examples of globalization process is the extreme upswing in
the financial transactions and the unprecedented intensification of the international
financial market. While in 1978 the daily volume of operations of the exchange dealing
was $15 billion, and $880 billion in 1992, presently it amounts to $1.5 trillion. Pension
and mutual funds, insurance companies and trusts, transnational banks are the main
subjects of international financial market. Modernization of international markets is
aimed at distributing the experience of leading financial centers on all international
financial operations on the basis of world standards that operate in monetary and
financial field, including the IMF system. They include an accounting, audit, bankruptcy,
corporate management, relating to all agents of international financial market. Hence, the
globalization of financial flows is accompanied by serious economic fluctuations that
demand important correlations in the coordination system and adjustments in
international financial markets.
One of the forms of globalization is the emergence and development of
multinational corporations based upon a considerable expansion and diversification of
their activities. In particular they control half of the world trade in goods, greater part of
trade in services, 80 % of sowing areas designated for exports of agricultural stuff. At the
beginning of the XXI century a total sales volume of multinational corporations and their
foreign subsidiaries equaled more than 7 $billions, that commensurate with the world
exports. They possess about 7% of international technology exchange, know-how,
patents and licenses. The main driving forces for such an extensive activity of these
companies are:
*
Latin American economist Eduardo Aninat refers to globalization as «the increasing transborder trade, capital and
information flows, growing migration» (Aninat E. Answers to issues posed by globalization. – In Russian. – Finance and
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• considerable market expansion through horizontal and vertical integration
development;
• substantial cut of production costs due to its growing scale and the attraction
of cheap raw materials and labour;
• control over technological transfers.
Thus, a global firm is the main subject of multinational production. It consolidates
the production process, international transactions, management, marketing, scientific and
technological research and other elements of strategic activity within the common
organizational, financial, technological framework. The characteristic feature of such
companies is also the development and intensification of intercompany trade in the form
of distribution of components and semimanufactures to a mother company or through the
exchange in highly specialized final products. This second form indicates the ways
subsidiaries introduce their product to the international market and adjust it to the market
requirements. Trade in the specialized final products prevails in highly globalized firms
and industries. Cooperation within the international production delivery systems is
carried out by means of subcontracting form of cooperation.
A subcontracting system includes different types of intermediate products and
components of jointly designed goods, the development of international logistic systems
and strategic marketing. The abovementioned creates pre-conditions for international
cooperation of various companies. Finally, another form of globalization at a company
level includes a foundation of strategic alliances based upon establishing a system of
permanent communications among different companies in various countries. Mainly
great oligopolic firms can be the members of strategic alliances. The subcontracting
system may include companies specializing in commodities which are not sensitive to
the economy of scales.
Great number of strategic alliances is concentrated in the sphere of scientific and
technological research. The computer, telecommunication industries, for example, are
represented mainly by large American, European and Japanese firms which create
oligopolistic market structures that dominate the corresponding market segments. [8, 3 5development, 2002, March, p. 8.)
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36]. Thus, the economic development based on a company level globalization acquires a
new impulse due to additional resource attraction.
Labour force is one of the essential components of globalization, its personified
factor and indicator. International labour migration emerged as a global phenomenon at
the end of the twentieth century. All developed nations have become de facto receivers
of immigrants. Migratory movements can be characterized by great dynamism and the
growing scale of the process. During the XVII - XVIII centuries 15 million Africans
were moved out to Brazil, Caribbean countries and to North America as slaves.
Currently nearly 200 million people live outside the country of their birth. Annually
about 1.5 million persons emigrate and almost 1 million find temporary asylum in other
countries. The number of international migrants is set to increase in the years to come.
This globalizing factor is one of the most contradictory in the system of modern
world economic development.
On the one hand there is a significant intensification in migration and the increase
in the influence foreign labour exerts on the economic development of individual
countries and regions. For example, at the beginning of 1980th out of 13 million
population of the Persian gulf states 4 million were emigrants, and out of 4.3 million of
working population almost 2,5 million were foreigners. In 1985 the number of migrants
reached 6 million. In some countries the number of immigrants exceeds the native
population. In Kuwait they amount to 60 % of total population, and in Qatar and the
United Arab Emirates up to 75 %. In Luxemburg non-natives amount to 89 %, and in the
Netherlands up to 25 %. On the other hand, the developments of the 1990-s related to the
collapse of the USSR and Yugoslavia, the establishment of the European economic and
currency union, resulted in the introduction of tough immigration legislation which
hampered the development of international migratory processes.
Another restraining reason is a prevailing demand for highly skilled immigrants
that is reflected in the national migratory legislation of the industrial states. This very
aspect is of great interest for multinational corporations which facilitate the free
movement of labour and contribute to reducing the shortages of skilled workers in
individual countries. Taking the abovementioned into account we can conclude that the
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pre-conditions for the development of global market of “human capital” (i.e. of highly
educated labour) are now being formed [9, 116-117].
Consequently, globalization of economic development is one of the crucial
features of moderm civilization. It includes the production factors and conditions, its
industries and territorial formations. At present almost all countries, to a certain degree,
are involved in the process of globalization. Globalization favours the developed
countries, the core of the world economy.
Unprecedented scope of economic flows as the direct effect of globalization can
be compared to natural phenomena and cataclysms. Under such circumstances less
developed countries become helpless and extremely vulnerable to global economic,
financial, technological and other factors. All this requires the elaboration of national and
international mechanisms to protect and mitigate negative influence of globalization on
internal and world economic development.
Ukraine and Globalization
One of the main tasks of the foreign economic policy of Ukraine in such
conditions lies in working out an algorithm for optimum cooperation of national and
world economy. Intense dynamism of transitional changes and transformations which
take place both in the world and national economy complicates the choice of a model for
the external economic strategy. It is clear that the prospective model will be oriented at
structural changes and the internal market development. The place and the role of
Ukraine in the international labour division, in world economic processes depend on
many factors. The most important among those are the factors of natural resources and
human potential, the level of economic, scientific and technological development, the
type of specialization (in regional and world terms), the state of the institutional system
and external economic infrastructure. Ukraine’s inclusion into the world economic
processes will become possible under the condition of high-quality perfection of all
constituents which determine the position of the country in the world economy and
international economic relations. In the geostrategic coordinates system Ukraine should
provide for the most complete use of world economic potential on the whole by a free
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maneuver with the accent on certain priority directions:
the European Union, the
Commonwealth of Independent States (CIS) and Russia. The multifactor external
economic policy based on the directions that are predetermined above all should also be
taken into account. The market-commodity factor of external economic policy is
extraordinarily important. It is to provide for the real participation of national businesses
in the international markets. At current stage Ukraine is oriented to the traditional
markets of goods and services due to a weaker development of other internal attributes of
the tertiary sector of national economy. The commodity structure of the foreign trade is
determined economically, not administratively. Fuel and energy resources, machinery
and technologies, consumer goods prevail in our imports meeting the current necessities
of our country. In the nearest prospect our goal is to opt for the investment-technology
resources, so called soft commodities (soft-ware) which correspond to the necessities of
postindustrial economy. The export structure cannot as well be formed chaotically,
unsystematically. It should consist of the commodities provided mostly by the industries
of comparative advantages, whose potential would provide the possibility to fill certain
niches in the corresponding markets with the course of time. Engineering and militaryindustrial complex, powder metallurgy, electric welding, biotechnology have the best
preconditions for realizing the niche strategy. Prospects of transit cargo transportations
both within the limits of Europe and farther to the Middle East, the Mediterranean,
Africa and Asia are objectively determined by the geographical position of Ukraine. The
other services: construction, financial, legal, consulting - also have the proper basis
represented by skilled intellectual labour. Finally, the national recreation tourist industry
can become a significant source of capital inflows. Ukraine’s effective participation in
the international labour division and cooperation is possible provided that all of these
challenges are properly addressed.
References
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ruining and discovering new contradictions” (Foucault M. Archeology of knowledge.
– Translated from French into Russian. – Kyiv, 1996).
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early industrialization epoch. (Globalization in World History. Edited by Hopkins
A.G. – London, 2002, p.3, 116).
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des 21. Jahrhunderts. – Berl, 1996.
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theory. – in Russian. - Moscow, 2005.
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15. Castells M. Information epoch. Economy, Society and Culture.// Translated from
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