Defining Globalization

The issue of definition

• People often have radically different definitions of
the term ‘globalisation’
• At least 5 broad definitions of globalization have
been distinguished because of the differences in
their emphasis and focus (even though they are in
some ways related and sometimes even overlap):
 5 definitions of
Globalizationlobalization
(Scholte, 2000)
• Internationalisation
• Liberalisation
• Universalisation
• Westernisation or modernisation
• Deterritorialisation or supraterritorialisation
 1. Internationalisation
• Globalization = cross-border relations among
countries
• Globalization means growing international
exchange and inter-dependency
• Emphasising the role of the states & cross-border
relations between states (including the enlarged
movements of people, messages, ideas between
states)
• Proponents argue that the states are not losing
importance and that the state borders are far from
dissolving
 2. Liberalisation
• Focus on eradicating the barriers between
states in the sense of ‘free’ global economy
& free trade
• Removing government imposed restrictions
on trade, foreign-exchange, capital controls
etc, between states (GATT => WTO), visas
• Globalization means international economic
integration
 3. Universalisation
• When the verb ‘globalise’ was coined in
1940s, it meant ‘to universalise’ and
expected a planetary synthesis of cultures in
a global humanism
• ‘Global’ in this sense means ‘worldwide’
• Globalization is process of spreading
objects and experiences to people all over
the world
 Problems with these definitions
• What is new and distinctive about contemporary
globalisation? Interconnections between countries
have been intensive even before; what makes the
last few decades so different?
• They forget about the uneven impact of
Globalization across different parts of the world
• They do not explain the extent to which this
interdependence has captured people’s
imagination
4. Westernisation/modernisation
• Such a definition equates Globalization especially
with ‘Americanization.’
• Globalization is sometimes described as
imperialism of McDonald’s, CNN, Hollywood
• Globalization = a dynamic whereby social
structures of modernity (capitalism, rationalism,
industrialism, bureaucratism etc.) are spread all
over the world, usually destroying pre-existent
cultures and local self-determination
 Problems with this definition
• Globalization is not a single all-conquering and
homogenising force, driven by Western cultural
imperialism and capitalism
• Cultural experiences have not been simply moving
in the direction of cultural uniformity and
standardisation
• Such a conception overlooks the impact of non-
Western cultures; there is still room for reproduction
of considerable social and cultural diversity within
the interconnected global structure
5. De-territorialisation or supra-territorialisation

• Reconfiguration of geography, spread of

supra-territoriality
• Social spaces transcend territorial places,
territorial distances and territorial borders
• Globalization = “a process (or set of
processes) which embodies a transformation
in the spatial organisation of social relations
and transactions” (Held et al., 1999)
De-territorialisation or supra-territorialisation

• This definition of Globalization is the most

radical
• It accounts for far-reaching changes that
have occurred in the last few decades;
“Globalization refers in the first place to the
advent and spread of what are alternately
called ‘global’, ‘supraterritorial’,
‘transworld’ or ‘transborder’ social spaces”
(Scholte, 2000)
 Globality:
• is a social condition characterized by
the existence of global economic,
political, cultural, and environmental
interconnections and flows that make
many currently existing borders and
boundaries irrelevant (Steger, 2003)
 Globalization
• is a set of social processes that transform
our present social condition into one of
globality (Steger, 2003)
• “Globalization can thus be defined as the
intensification of worldwide social relations
which link distant localities in such a way
that local happenings are shaped by events
occurring many miles away and vice versa.”
(Anthony Giddens)
 4 distinct qualities / characteristics of
Globalization:
1.) Creation of new & multiplication of existing
social networks and activities that increasingly
overcome traditional political, economic, cultural
and geographical boundaries
2.) Expansion and stretching of social relations,
activities and interdependencies
3.) Intensification and acceleration of social
exchanges and activities (Internet, satellites…)
4.) Growing human consciousness about it all
 Hence, a definition:
• “Globalization refers to a multidimensional
set of social processes that create, multiply,
stretch, and intensify worldwide social
interdependencies and exchanges while at
the same time fostering in people a growing
awareness of deepening connections
between the local and the distant.” (Steger,
2003)
 Defining globalisation
• Emphasis on the diminishing significance of
time and space as the world becomes more
interconnected
• ‘time-space compression’
• Intensification of worldwide social relations
which link distant localities in such a way
that local happenings are shaped by events
occurring many miles away and vice versa
 Comments to this definition
• More helpful then previous definitions
• Helps distinguish the contemporary phase of
Globalization from earlier phases
• Alerts to the pivotal role of the rise of a global
consciousness:
• Globalization = a social process in which constraints of
geography on social and cultural arrangements recede
and in which people become increasingly aware that
they are receding
• ‘glocalisation’ (local is an aspect of Globalization, not
counterpoint to the global)
 What is Economic Globalization?

• Globalization - the trend towards a more integrated

global economic system
• Globalization of markets - the merging of historically
distinct and separate national markets into one huge
global marketplace
• Globalization of production - the sourcing of goods
and services from locations around the globe to take
advantage of national differences in the cost and
quality of factors of production (labor energy, land,
and capital)
▪ The process of creating networks of
connections among actors at intra- or
multi-continental distances, mediated
through a variety of flows including
people, information and ideas, capital, and
goods.
▪ Globalisation erodes national
boundaries, integrates national
economies, cultures, technologies and
governance, and produces complex
relations of mutual interdependence.
• The International Monetary Fund defined "economic
globalisation" as: "a historical process, the result of
human and technological progress.
• It refers to increasing integration of economies around
the world, particularly through trade and financial
flows.
• The term also refers to the movement of people
(labour) and knowledge (technology) across
international borders."
 Drivers of Globalization
• Two macro factors:
1. Multilateral trade negotiations
2. Widespread liberalization of investment
transactions
3. Technological change
• International trade occurs when a firm exports
goods or services to consumers in another
country
• Foreign direct investment (FDI) occurs when a
firm invests resources in business activities
outside its home country
 Drivers of Globalization

The Emergence of Global Institutions

• Global institutions:
– Manage, regulate, and police the global market
place
– Promote the establishment of multinational treaties
to govern the global business system
• Notable global institutions include the:
– World Trade Organization (WTO) /GATT
– International Monetary Fund (IMF)
– World Bank
 Bretton Woods Institutions: International Monetary Fund
(IMF)

• Three main objectives:

➢to promote international monetary cooperation;

➢to facilitate the expansion of international trade;

➢to promote exchange rate stability.

 IMF

• The primary role of the IMF is providing

short- and medium-term financial assistance to
the members that have temporary problems
with a balance-of-payments equilibrium.

• The resources for the IMF credits come from

quota subscriptions paid by the members.
 IMF

• Each member country pays the amount of money

proportionate to its economic size that is
measured by national income and trade volume.
• The size of quota is adjusted to the economic
power of a country at intervals of 5 years.
• A 25% of quota is paid in SDRs (Special Drawing
Rights) or in international currencies. The
remaining 75% a country pays in its own
currency.
 World Bank (WB)

- Main objective initially was to assist in the

reconstruction and development of damaged economies
by facilitating the investment of capital for productive
purposes.

- Responsible for providing finance and advice to

countries for the purposes of economic development
and poverty reduction, and for encouraging and
safeguarding international investments.
 World Bank (WB) - group of five international organizations

1. International Bank for Reconstruction and

Development (IBRD) lends to governments of
middle-income and creditworthy low-income
countries.
2. International Development Association (IDA)
provides interest-free loans and grants to
governments of the poorest countries.
3. International Finance Corporation (IFC) helps
developing countries to achieve growth by financing
investment, mobilizing capital in international
financial markets and providing advisory services to
business and governments.
 World Bank (WB) - group of five international organizations

4. Multilateral Investment Guarantee Agency

(MIGA) offers political risk insurance (guarantees)
to investors and lenders.
5. International Centre for the Settlement of
Investment Disputes (ICSID) provides
international facilities for conciliation and
arbitration of investment disputes.
 International Monetary Fund World Bank
• seeks to promote the economic
• oversees the international
development of the world’s
monetary system
poorer countries
• promotes exchange • assists developing countries
stability and orderly through long-term financing of
exchange relations among development projects and
its member countries programs
• assists all members – both
• provides to the poorest
industrial and developing
developing countries whose
countries – that find
per capita GNP is less than
themselves in temporary
$1,165 (2018) a year special
balance of payments
financial assistance through
difficulties, by providing
the International Development
short- to medium-term
Association (IDA)
credits
 International Monetary Fund World Bank
• supplements the currency • encourages private enterprises
reserves of its members in developing countries
through the allocation of through its affiliate, the
SDRs (special drawing International Finance
rights) Corporation (IFC)
• draws its financial
• acquires most of its financial
resources principally from
resources by borrowing on the
the quota subscriptions of
international bond market
its member countries
• has a staff of 9,000 from more
• employs about 2,400 staff,
than 170 member countries,
189 member countries
189 member countries
 The General Agreement on Tariffs and Trade (GATT)

• The objectives of the GATT (1947) were to establish an

orderly and transparent framework within which barriers
to trade could be gradually reduced and international
trade expanded.

• The principal mechanism for progress on trade

liberalisation within the GATT has been periodic
multilateral negotiating rounds.

• The primary focus of the GATT rounds has been the

promotion of multilateral tariff reductions, and the
extension of the agreed reductions to all members.
 GATT/WTO

• The GATT was a set of rules, a multilateral agreement, with

no institutional foundation, only a small associated
secretariat.

• The World Trade Organization (WTO) came into being in

1995. It is the successor to the GATT.

• The WTO is the international organization dealing with the

global rules of trade between nations.

• The WTO has 164 (July 2016) members accounting for over
95% of world trade. Over 20 others are negotiating
membership.
 GATT/WTO – Observers (22)

• Algeria, Andorra, Azerbaijan, Bahamas,

Belarus, Bhutan, Bosnia and Herzegovina,
Comoros, Equatorial Guinea, Ethiopia,
Vatican, Iran, Iraq, Lebanese Rep., Libya, Sao
Tome and Principe, Serbia, Somalia, Sudan,
Syria, Timor-Leste, Uzbekistan.
 Principles of the WTO’s trading system

1. Trade without discrimination

2. Freer trade: gradually, through negotiation
3. Predictability: through binding and
transparency
4. Promoting fair competition
5. Encouraging development and economic
reform
 Trade without discrimination

• Most-favoured-nation (MFN): treating other countries

equally. Countries cannot normally discriminate between
their trade partners. If a country grants someone a special
favor (such as a lower customs duty rate for one of their
product) it has to do the same for all other GATT/WTO
members.

• National treatment policy: treating foreigners and locals

equally. Imported and locally produced goods should be
treated equally - at least after the foreign goods have
entered the market.
 Principles of the WTO’s trading system
Freer trade: gradually, through negotiation

• Trade barriers coming down through negotiation.

Predictability: through binding and

transparency

• Foreign companies, investors and governments should be confident that

trade barriers (including tariffs and non-tariff barriers) should not be raised
arbitrarily; tariff rates and market-opening commitments are “bound” in the
WTO.
Promoting fair competition

• Discouraging “unfair” practices such as export subsidies and dumping

products at below cost to gain market share.
 Principles of the WTO’s trading system
Encouraging development and economic reform

• The trading system should be more beneficial for less

developed countries - giving them more time to adjust,
greater flexibility, and special privileges.

• Decisions in WTO are typically taken by consensus among

all member countries and they are ratified by members’
parliaments.

• Trade friction is channelled into the WTO’s dispute

settlement process where the focus is on interpreting
agreements and commitments, and how to ensure that
countries’ trade policies conform with them.
 Principal forum for trade liberalisation

• Eight rounds of multilateral trade negotiations

under the General Agreement on Tariffs and
Trade (GATT) have significantly decreased
trade barriers.

• Successive GATT rounds cut tariffs and

liberalised trade.
 The Tariff Concept
• Tariff
– A tax (duty) levied on a product when it
crosses national boundaries
• Import tariff
– Tax levied on an imported product
• Export tariff
– Tax imposed on an exported product
– Often used by developing nations
• Raise revenue, increase the world price
• Protective tariff
– To reduce the amount of imports entering a
country
• Insulating import-competing producers from foreign
competition
• Allows an increase in the output of import-competing
producers
• Revenue tariff
– To generate tax revenues
– Placed on either exports or imports
 Balance of Trade &
Balance of Payment

• Balance of trade (BOT) is the difference between the value of

a country's imports and exports for a given period and is the
largest component of a country's balance of payments (BOP).
• A country that imports more goods and services than it exports
in terms of value has a trade deficit while a country that
exports more goods and services than it imports has a trade
surplus.
• Trade imbalances can arguably pose threats to the domestic
and global economy. Countries that run extensive trade deficits
could rely on external capital flows too heavily and be
vulnerable to sudden stops, making the prospect of financial
crises more likely.
TABLE 1.1 Manufacturing an HP Pavilion, ZD8000 laptop computer
TABLE 1.2 Globalization goes white collar
TABLE 1.3 The fruits of free trade: a global fruit basket
 Forces driving globalisation

International Capital Liberalisation

• The 1960s and 1970s, when most countries still maintained
.
restrictive regimes
• Since its establishment in 1961, the Organization for
Economic Cooperation and Development (OECD) has
promoted the progressive liberalisation of capital movements.
The role of the United States in promoting capital
liberalisation. Member countries voluntarily enter into
obligations to liberalise capital movements.
• Regular examinations of capital controls were carried out by
the Committee on Capital Movements and Invisible
Transactions (CMIT), which requires countries to justify
remaining restrictions.
• The OECD Investment Committee (2004)
 Forces driving globalisation

International Capital Liberalisation

• In the 1980s, many advanced countries made significant

progress in liberalising capital movements. Virtually all capital
controls have now been abolished among industrial countries,
and there are no formal barriers to cross-border flows of
capital.

• The liberalization of capital movements during the 1980s has

been a global phenomenon in advanced countries.

• Throughout much of the 1990s, FDI outflows from the major

industrialised countries to industrialising countries rose at
approximately 15 per cent annually. FDI flows among the
industrialised countries themselves rose at about the same rate.
 Forces driving globalisation

Technological progress

▪ Automobile revolution (1940-1979)

▪ Information technology revolution (1980- )
▪ The rapid development of information
technologies.

Technological advances in transportation

and communications have reduced costs and
thus significantly encouraged trade expansion.
 Developments in transportation
▪ Improvements in transport technology has
“shrunk“ the world.
▪ 19th century steam engine
▪ 20th century jet engine.
▪ Countries have built efficient and
integrated transportation infrastructure (e.g.
airports, seaports, railways, highways to
facilitate movement)
▪ Increasing mobility of goods and people
 • Developments in communications

Internet has enabled consumers to

access information instantly, conveniently
and efficiently.

Internet has transferred the way people

communicate, do business, obtain information
and purchase goods and services.
History of Globalisation
The word "globalisation" has been used by economists since 1980s. The
concepts did not permeate popular consciousness until the later half of
the 1990s.
Various social scientists have tried to demonstrate continuity
between contemporary trends of globalisation and earlier periods.
The first era of globalisation (in the fullest sense) during the 19th
century was the rapid growth of international trade between the
European imperial powers, the European colonies, and the United
States.

After World War II, globalisation was restarted and was driven by
major advances in technology, which led to lower trading costs.
 Waves of Globalisation

• 1st wave: 1870-1914

– Falling tariff barriers.
– Improved transportation.
• 2nd wave: 1945-1980
– Agreements to lower barriers again.
– Rich country trade specialisation.
– Poor nations left behind.
• 3rd wave: 1980-present
– Growth of emerging markets
– International capital movements regain importance.
– Foreign outsourcing.
Advantages and Disadvantages of
Globalization
 Advantages of globalisation

– Productivity increases faster when countries

produce according to comparative
advantage.

– Global competition and cheap imports keep

prices low and inflation at bay.

– An open economy encourages technological

development and innovation with ideas from
abroad.
 Advantages of globalisation

– Jobs in export industries pay more than those in

import-competing industries.

– Free movement of capital gives the developing

countries access to foreign investment and keeps
interest rates low.

– Increased competition among nations – countries

that are better able to offer incentives to investors
will be more successful in attracting investment
and markets.
 Advantages of globalisation

– Improvements in standards of living. As countries trade and

open their doors to foreign investment, they earn more
revenue. Free trade allows for a larger variety of foreign
goods for the consumer to choose from.

– Increased awareness of foreign culture. Travel, the Internet,

mass media (products of globalisation) allow people to
learn more about foreign culture.

– Environmental management. Sustainable development as

the key to further growth. Sources of alternative energy.
 Disadvantages of globalisation

– Rules of the game are set by IMF, WTO and World Bank.

– Globalisation creates financial instability and foreign

liabilities.

– Erosion of traditional powers and policies of nation-states

by global bureaucracies.

– Widening income gap between the rich and poor.

– Brain drain
 Disadvantages of globalisation

– Globalisation is leading to a global monoculture (cultural,

social, political and economic homogenization).

– Loss of local culture. Global (Western) brands dominate

consumer markets in developing countries. Creation of
homogenous culture across the world. Spread of pop
culture.

– Environmental degradation: deforestation and related

problems (soil erosion, extinction of flora and fauna,
flooding), global warming.