Globalization: An

Overview
 Learning goals

Distinguish
Explain firm and
liberalization and
technology drivers
globalization

Identify Assess the role of

governance risks distance and
and data issues location

Extract early policy

takeaways
 Liberalization vs. Globalization

Liberalization: a Globalization: a factual Welfare of selective deals

government policy choice process driven by firms is ambiguous; globalization
in trade and investment and technology operates beyond borders
 What globalization is

An impersonal Not tied to a It shapes lives in

force and place. Not all spaces it
process taxable as a unit reaches
 Core drivers

Transnational
Technology: value chain
corporations:
unbundling and cross-
organization, takeovers,
border task relinking
finance, standards, scale

Consumer behavior
Cheap energy and lower
shifts plus national
transport costs
liberalization
 Governance gaps

• Power shifts from states to firms

• Transparency and accountability are weak
• Example: IP rules and large pharmaceutical firms
• Personal data becomes a commercial good
• Trade-off: access to information vs. privacy
 Crises and regulation

Corporate scandals Faith in self- States restored Risk of over-

and the 2007–09 correcting markets market functions regulation that chills
credit crunch weakened entrepreneurship
 Subsidies and moral hazard

LARGE BANKS AND CAR TAXPAYERS BEAR THE COST SAVING WEAK JOBS TODAY
MAKERS SECURED PUBLIC MAY DESTROY BETTER
SUBSIDIES AFTER 2007–09 JOBS TOMORROW
 Social contract and financial giants

Privatization of gains with Huge financial institutions Budget gaps imply higher
socialization of risks gained economic and taxes and stricter global tax
political clout policing
 About half of world trade
occurs within 3,000 km

Geography Doubling distance roughly

halves trade. The effect is
still matters shrinking but real

Distance still affects goods

and many services
 Persistent
Porter: evidence
performance gaps
shows location still
across nations and
Location matters
regions

and clusters TNCs disperse

activities, yet
Firms benefit from
domestic pools of
advanced tasks
specialized services
often stay at home
 Policy takeaways

Keep markets open

Raise transparency and
and cooperate on
protect data
cross-border regulation

Invest in digital and Develop domestic

logistics infrastructure clusters and skills

Design safety nets that

limit moral hazard
Globalization:
Overview and
Institutions
 Context since the late 1990s

Regionalism rising; Debate over who

WTO negotiations shapes globalization:
stalled (Seattle 1999, WTO, World Bank,
Doha impasse) IMF, TNCs
 Why institutions after WWII?

Logical

• Avoid conflict; rules reduce dominance struggles

Historical

• US preference for formal order after WWII; UK earlier relied on informality

Political

• Public acceptance harder for unilateral action; international regime helps

Economic

• Simultaneous action multiplies gains; rules protect reputation-poor countries

 Are institutions losing relevance?

IMF GOVERNANCE LEADERSHIP TURBULENCE WORLD BANK DISPLACED BY WTO MARGINALIZED BY

CONTESTED; LATIN AMERICA AT IMF; IMF REGAINED ROLE MARKETS IN PROJECT DOHA STALL; ILO
REPAID EARLY TO ESCAPE DURING 2007–09 CRISIS FINANCE QUESTIONED
CONDITIONALITY
US stance: rules vs discretion

Truman (1945): accept self-restraint under

international order

Bush (2004): no “permission slip” before acting

 TNCs, NGOs, and visibility

TNCs are salient targets in small host

countries

NGOs mobilize campaigns: land mines,

HIV/AIDS, climate, poverty, debt

Influence: UN Earth Summit (1992), block

MAI (1998), protests in Seattle (1999)
 From protest to program

ANTI-GLOBALIZATION EVOLVES TOWARD FOUR DEFICITS TO FIX: LEGITIMACY,

CONCRETE AGENDAS ACCOUNTABILITY, ORGANIZATION,
TRANSPARENCY
 World Social Forum vs Davos

• WSF networks disparate groups; agenda often anti–laissez-faire, anti-war,

anti-GM food
• Claims: Davos elite wields unilateral power over policies affecting millions
• Proposals: curb TNCs; expand mandates of UN, ILO, WHO; add democratic
checks
 Public backlash in advanced
economies

Support for taxing the Anxiety about

rich and capping offshoring and job
executive pay (esp. losses; perception that
bailed-out banks) globalization is too fast
 Protectionist reflexes after 2007–09

• ‘Buy domestic’ campaigns and large subsidies, incl. within the EU

• Risk to the Single Market; likely violations of trade obligations
• Mutual accusations lack moral high ground when many do the same
 Policy agency and technology

• Governments can remove or reintroduce barriers

• ICT and value-chain fragmentation create major opportunities
• Need balanced policies in rich and poor countries; regional outcomes likely
 Net effects: efficiency vs social goals

• Efficiency and standardization gains

• Costs: inequality of voice, environmental damage, urban sprawl, loss of
livelihoods
• Extreme pathologies: trafficking and organ trade
Globalisation:
Definitions and
Perspectives
 Why definitions matter

Term spans Thousands of

economics, competing
technology, politics, definitions exist;
sociology, culture. debate is persistent.
 Oxford English Dictionary (OED)

Businesses/organizations
Emphasis: standardising
Action or process of develop international
influence in cross-border
making global. influence or operate
dealings.
internationally.
 McGrew (1992) — ‘early’ definition

Multiplicity of linkages Politics and social

Two dimensions: scope
and interconnections activities are stretched
(stretching) and
across states and and interactions
intensity (deepening).
societies. deepen.
 Process vs. Outcome — Tettò-Gillies
(2003)

Globalisation is both spatial outreach Today’s wave is distinct due to the

and increased central role of TNCs (corporate
interconnectedness/interdependence. globalisation).
 Loose vs. strict — Fratianni &
Marchionne (2011)

Strict: transactions
Loose: cross-border Reality fits the loose
between distant
transactions not concept; trade is far
countries as
choked by man-made from perfectly
likely/intense as within
barriers. globalised.
countries.
 Space-related view — Combes et al.
(2008)

Gradual integration
Reallocation of
of national and
activities induced
regional
by integration.
economies.
 World Bank (2009)

‘A euphemism for One-dimensional

falling transport and narrow focus
and trade costs.’ on costs.
 OECD (2010) — broad vs. narrow

Broad: a process unifying the Economists’ narrow use: Drivers: capital-account

world’s people into a single society integration via trade, FDI, capital liberalisation, financial
that functions together. flows, migration, technology. deregulation, market opening, ICT.
 Bhagwati (2013)

Warning: do not
Integration of the
conflate ‘globalisation’
national economy into
with ‘economic
the world economy.
integration’.
 Anne Krueger

Increasingly rapid
exchange of ideas, Closer integration of the
people, and goods from world, not limited to the
falling transport costs economy.
and new technology.
 Production & firms — Ethier; The Economist;
Business schools

ETHIER: VERTICAL FRAGMENTATION OF THE ECONOMIST: NEAR-SIMULTANEOUS BUSINESS-SCHOOL USE (RUGMAN &
PRODUCTION ACROSS COUNTRIES; MARKETING AND SALE OF IDENTICAL HODGETTS): PROVIDE HOMOGENEOUS
DISPERSED LOCATIONS; GOODS/SERVICES WORLDWIDE. PRODUCTS GLOBALLY; TWO APPROACHES
INTERDEPENDENCE WITHIN FIRMS. — STANDARDISE VS TAILOR TO LOCAL
TASTE.
 Synthesis: common threads

Cross-border Integration of
Standardisation
connectedness markets,
pressures and the
and production, and
role of TNCs.
interdependence. people.
 Synthesis: key contrasts

Process vs. state/outcome.

Economic vs. social-political-cultural emphases.

Loose vs. strict interpretations of ‘global’ reach.

Efficiency/market focus vs. distributional and

governance concerns.
5.5. Pro and
Against the
Globalization
Overview of the Debate

Supporters: growth,
opportunities, cross-country
inequality falls

Sceptics: uneven gains, social

and environmental costs

Reality: role of states and

TNCs is nuanced; globalisation
is not uniform or irreversible
 Proponents’ Claims
‘Death of distance’ and ‘weightless
economy’

Standardised global goods;

production–consumption detachment

Central role of TNCs in shaping global

production

Accept some inequality if it supports

overall progress
 Sceptics’ Concerns

Wider inequality and

uneven geographic/social
distribution of gains
Loss of local brands; social
tension; environmental
degradation
Local forces remain strong;
state role persists and
evolves
State and TNC Realities
TNC sales and FDI concentrate in
developed regions

TNCs need infrastructure, skills,

security of property

Consumers often prefer

differentiation, not homogenisation

Largest TNCs still sell mostly at

home; labour mobility not free
 Critical Viewpoints
Marxian warnings on unchecked
capital and corporations

Krugman: export-led growth

disappointed in parts of Latin America

John Kay: specialisation by function;

advice on avoiding poverty

Modern trade largely intra-industry

due to fragmented production
 Finance and Crises
Financial globalisation under-delivered
on efficient allocation

Post-1997, many economies hoarded

reserves (resource cost)

Exposure to global capital raised

vulnerability to crises

Globalisation is reversible; faith in pure

neoliberalism faded after 2007–09
 Social Dimension and
Policy
Jobs: supporters see creation; critics
fear offshoring and environmental
harm
Segments of labour distrust loss of
national protection

Policy: expand education and training;

address bias against unskilled workers

Rights diffusion slower than spread of

commercial symbols
 Firms, ICT, and
Market Structure

ICT enables integrated

production; competitors in one
another’s backyard

Bilateralism/regionals sometimes
expand despite multilateralism

Some pushes are election-driven

and may invert globalisation
trends
 Adjustment and
Institutions

Pair liberal trade/FDI with

national and international rules
(e.g., polluter-pays)

Adjustment costs are often

transitory

With rising income, economies

shift from labour-intensive to
higher value-added
 Regionalism vs
Multilateralism

Regional integration is a
‘second-best’ form of
supranational governance
If blocs cooperate and keep
liberal external policies,
welfare can rise
Debate should focus on
liberalism vs controlled
interventionism
5.6 THE INTERNET
 What the Internet
Enables
Fast, cheap communication and
participation in global production

Rise of powerful platforms: Microsoft,

Google, Apple, Samsung, Huawei, etc.

Governments and hackers can intrude,

steal, and manipulate data

Activists accept benefits but demand

strict limits and controls
 Borderlessness vs
Reality
Cyberspace lets users be ‘everywhere
and nowhere’

Alters geography of production and

work (remote work, vacated office
space)
Firms sell globally and may hide
profits, complicating taxation

Localisation and clusters still matter;

face-to-face remains essential
 Borders Still Matter

Visas and administrative

barriers contradict a
‘borderless world’

Internet data live in physical

locations and fall under laws

Governments expand control;

national filters fragment the
web into ~200 internets
 National Controls:
Examples
France: ban on Nazi memorabilia
sales online

Iran: blocks immoral/anti-Iranian

content

South Korea: blocks gambling sites

China: censors content on obscenity,

crime, Falun Gong, Tiananmen 1989
 Policing and
Cybercrime

Cross-border police cooperation

against child pornography, drugs,
identity theft, viruses, hacking

Borders are being created online

despite reduced economic
distance

Local economic geography

retains strength and presence
Implications for Policy and Firms

Balance Balance information freedom with cybercrime control

Design Design tax rules for digital, location-hidden profits

Support Support clusters and in-person coordination where valuable

Plan for fragmented regulatory regimes rather than a single

Plan global internet
 What • Uniform regulations applied worldwide
• Best justified for new, standardised
'Global goods/services (copiers, fax, PCs, TVs,
medicines, mobiles)
Standards' • Hard to justify for traditional goods like food,
Mean except health and environment
 When Regional/Local Beats
Global
• Tastes and needs are locally specific; one-size-fits-all often fails
• For many services, regionalisation matters more than globalisation
• Rugman: managers should 'think regional and act local'
Regional • When multilateral trade slumps,
regional/preferential deals proliferate
Deals in a • They can help trade now but may impede
a truly multilateral system later
Crisis
 How • OECD (2007); Rugman & Oh (2011): about

Global •
two-thirds of revenue in the home region
Only about one-third abroad →
globalisation is often overstated
Are Big • Labour migration remains tightly
restricted
TNCs?
Barriers to Transferring Standards

John Gray: the 'universal civilisation'

idea fuels conflict

Consider the recipients’ choices, not

just exporters’ wishes

Lipsey: imposing rich-country standards

on the poor is 'policy imperialism'
 Local
• Wal-Mart exited Germany and South
Failures of •
Korea: strong local competitors and habits
Starbucks closed 61 of 84 stores in
Global Australia (2008): local coffee culture
dominated

Models
Culture and Product Design Differences

Internet use: West = 'library'; many Chinese =

entertainment → different web design

Volvo: darker interiors valued in China; lighter

in Sweden

Business style: US transactional vs Japan

needs-oriented
 India
India: consumption follows
the Hindu calendar; Diwali
peaks for gold/vehicles;
low demand for ready

and meals

China: China: social calendars

affect even haircuts and

Timing footwear purchases

and Deep preferences resist

Habits rapid standardisation

 People do not
think/act/shop like
Americans
Why 'Cultural
Transferring global social
Homogeneity'
standards needs long-term
Assumptions reform and trust building
Fail
Lipsey: England’s
institutional evolution took
~400 years
 Markets give choice
between local and global
Markets, offerings
Advertising, But heavy TNC advertising
and can narrow effective choice
and hurt local producers
Consumer
Choice Soft-drink example; 2006
UNESDA voluntary limits on
marketing to children
 Implications for Strategy and
Policy

01 02 03
Firms: design Governments: support Monitor market power
region- and health/environment and advertising that
country-specific standards while can distort consumer
offerings; avoid respecting cultural choice
uniform rollouts variety