Regionalization and Globalization in the Modern World Economy

Perspectives on the Third World and Transitional Economies

Alex E. Fernández Jilberto, André Mommen, Alex E. Fernández Jilberto, André Mommen

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351794510
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Originally published in 1998. This collection of outstanding essays explores the importance of regionalization and globalization to the world economy. International contributions explore the process of regionalization in the Pacific Area, The Americas, Africa and Europe, and question whether the world economy is characterized by increasing regionalization, rather than globalization. The book is an excellent contribution to debate on development economics. It investigates how the processes of globalization and regionalization, driven by liberalization of trade and capital markets, weaken nationally established monopolies and protected industries and it looks at the challenge to Third World nations and the countries of the former socialist bloc.

1

GLOBALIZATION VERSUS REGIONALIZATION

Alex E. Fernández Jilberto and André Mommen

Since 1945 the globalization of the world economy has made considerable progress. In the critical areas of trade, production and finance, the world has become more interconnected and integrated than ever before. The globalization of financial markets with their volatile effects on national economic management has destabilized and weakened the autonomy of all nation–states. The global market represents a concentration of power capable of influencing national government economic policy and, by extension, other policies as well (Sassen 1996: 39). Market forces and multinational corporations are creating tensions and shaping new patterns of interdependence. Growing corporate interests in foreign investments and exports urge the reduction of traditional trade barriers, while additional pressure arises from regional arrangements. This induces a process of deeper integration and liberalization of foreign trade. Integration refers to the fundamentally political process of policy coordination and adjustment designed to facilitate closer economic interdependence and to manage the externalities that arise from it (Haggard 1995: 2; Keohane 1984: passim).

Nation–states adapt to these global pressures or try to resist by joining regional trading blocs within an integrating world economy. Hence, globalization refers to the multiplicity of linkages and interconnections between states and societies which make up the present world. It represents two distinct phenomena: scope (or stretching) and intensity (or deepening). It implies an intensification in the levels of interaction, interconnectedness and interdependence between states and societies. It embraces a set of processes covering most of the globe (McGrew and Lewis 1992: 22) and refers to a profound reorganization of the economy and society in what has hitherto been called North and South, East and West. This division has gone and a ‘Triad’ configuration has appeared with the emerging industrial economies of Asia as a new gravitational pole of a globalizing economy (Schwartz 1994: 240–258).

A BORDERLESS WORLD?

The concept of ‘globalization’ has an outspoken liberal connotation. Globalization means the production and distribution of products and / or services of a homogeneous type and quality on a world-wide basis. When referring to globalization liberals are speaking of the disappearance of trade barriers and state regulation. A borderless world is the description many neo-liberal authors give of the future of the globalizing economy (Axford 1995: 94–122). This description focuses on the growth in transnational micro-economic links between the Triad of Europe, the Pacific Rim and North America (Ruggie 1993). It considers the process of globalization as a post-industrial wave (Drucker 1993) and it depicts the growing integration of the world economy from a strongly liberal point of view. According to these views, states and national economies will fade away and give birth to an integrated world market. Financial internationalization has fundamentally undermined state institutions (Cerny 1996: 91). Robert B. Reich believes that the ‘American’ corporation is becoming disconnected from the USA, because American-owned firms relocate abroad and foreign companies move into the USA. Hence, he thinks that the nationality of a firm’s dominant shareholders and of its top executives has less and less to do with where the firm invests and produces its goods (Reich 1991: 119–120). Indeed, American firms employ more and more foreign workers in foreign countries, and overseas capital spending by American firms increased from the early 1980s until the early 1990s. Some of this world-wide activity was nothing more than high-volume standardized production transplanted abroad in order to meet low-cost foreign competitors head-on. According to Reich (1991: 124), the major American company knows ‘no national boundaries, feels no geographic constraints’ and, although the role of global finance is growing, national savings increasingly flow to whoever can do things best, or cheapest, wherever they are located around the world. This trend is world-wide because national champions everywhere are becoming global webs with no particular connection to any nation (ibid.: 133). Many arguments in favour of this view of a globalizing world economy, because the concept of ‘globalization’ clearly refers to the process of economic and financial internationalization. Over the past decade, world merchandise exports have roughly doubled, from 10 to 20 per cent. With more and more services being transacted internationally, their share in world trade has risen from 15 to 22 per cent. Operations of the multinationals have expanded and sales by their foreign affiliates may now well exceed total world exports. These statistics all point to globalization – the growing international integration of markets for goods, services, and capital. Globalization is altering the world economic landscape in fundamental ways. It is driven by a widespread push towards the liberalization of trade and capital markets, increasing internationalization of corporate production and distribution strategies, and technological change that are rapidly dismantling barriers to the international tradability of goods and services and the mobility of capital (Falk 1995: 172–206). So globalization is creating wider markets for trade, an expanding array of tradables, larger private capital inflows, improved access to technology and, in turn, outward-oriented reforms adopted by developing economies also contribute to globalization. Globalization increases competition between policy regimes. This process of deeper integration requires maintaining a liberal trade and investment regime which contributes to a creeping process of global convergence between all economies. But global capital market integration combined with the volatility of capital flows is making macro-economic management more complex and requires maintaining the confidence of capital owners in developing economies. Thus the internationalization of services will likely lead the next stage of globalization. Telecommunications and information technology will revolutionize the world economy (Humphreys and Simpson 1996: 105–124) with the increasing tradability of services enlarging the scope of firms in developing countries. Declining costs will offer new opportunities to developing countries willing to liberalize their trade and wanting to invest in services. Therefore, globalization has to be understood as a process of suppressing state influence on the economy and of giving private capital hegemony over any investment decision. Moreover, thanks to deregulation, the financial revolution has put the financial sector in a position of hegemony over the real economy at both the international and the national level, undermining not only political autonomy but the very bases of state authority and democratic legitimacy (Cerny 1996: 91).

On the other hand, we have realists who think that the ongoing process of internationalization and therefore globalization on its own are just reflecting the growth and strength of national companies and the result of the bargaining strength of some powerful states imposing their economic power on weaker states (Kapstein 1991–2: 55–62). Between these two extremes a wide variety of interpretations exists. Some authors discussing the globalization drive argue that globalization only exists in the sector of culture and telecommunications, but that most economies are still ‘national’ in character. The authors of the French Regulation School reject the contention that the nation-state is passé or an accident of history. They argue that the embeddedness of economic institutions is essential for a strong economy and that the nation–state cannot be easily replaced by the market. They state that we do not live in a totally integrated world. Moreover, according to them, globalization is not a totally new phenomenon (Palan et al. 1996: 12–31), measured by indicators as the share of exports as a percentage of Gross Domestic Product (GDP) or the share of Foreign Direct Investment (FDI) in total investment flows (Boyer and Drache 1996: 13). Paul Krugman is sceptical about the real character of the globalization of the major economies:

One might point out that the American economy is not actually that globalized: imports are only 13 per cent of GDP, and at least 70 per cent of employment and value-added is in ‘non-tradable’ sectors that do not compete on world markets.

(Krugman 1996: 18)

Krugman’s thesis echoes the Marxist point of view. Marxists think that globalization is real, but also that when globalization is measured by exports as a share of GDP the reality is totally different (see Table 1.1). On that measure, countries are only a little bit more ‘globalized’ in 1992 than they were in 1913 (Henwood 1996:6). Basing his work on research done by Angus Maddison (1995: 37–39), a Marxist author like Harry Magdoff believes that not trade but the internationalization of finance is the notably distinguishing attribute of the modern globalization drive (Magdoff 1992: 44–75). In reality, the economies of small countries acquire more openness when successfully industrializing, because they can get proportionately bigger benefits from international trade than large countries (Maddison 1995: 38) (see Table 1.1). Because integration in the world market almost automatically implies open economies, it is said to sharply restrict nations’ capacity to autonomously design their own political economy. Nations are all shedding the protectionist measures that once upheld their respective welfare state systems (Esping-Andersen 1996: 1–31). With respect to this phenomenon, Samir Amin (1997: 5) argues that globalization via the market is a reactionary utopia which has to be countered by developing an alternative humanistic project of globalization consistent with a socialist perspective and a global political system which is not in the service of a global market, but which defines its parameters in the same way as the nation–state historically represented the social framework of the national market and not merely its passive field of deployment.

Table 1.1 Exports as percentages of GDP, 1820–1992

Source: Maddison 1995: 38.

Robert Wade thinks that ‘globalization’ is a ‘buzz word’ and that therefore one has to become sceptical about the globalization process, because the world economy is more international than global. Most multinational enterprises have a national home base and populations are much less mobile than goods and finance. Most national economies produce more than 80 per cent for domestic consumption (Wade 1996: 61). However, national economies have become more interconnected than ever before and they are integrated through FDI and international trade. National borders have become permeable and protectionism is no longer a guarantee of economic stability. Trade has steadily grown faster than output and FDI has grown even faster than trade. FDI flows grew three times faster than trade flows and almost four times faster than output (ibid.: 63). Firms have become involved in international networks and alliances, creating joint ventures for research and production of trade. Multinationals now control one-third of the world’s private sector assets and 30 per cent of private Gross National Product (GNP) in the major European countries. Wade argues that finance, more than production, has been internationalized. Liquidities are rapidly exchanged across borders because of the deregulation of the financial sector. In the 1960s and 1970s exchange controls hampered financial expansion abroad, but since the 1980s the ‘financial derivatives’ have added a new dimension to world finance and made governments powerless to control finance. Integration was advanced by the spread of new technologies and by firms wanting to protect their innovations by marketing their patents. The degree of internationalization of the exploitation of patents grew substantially higher than the degree of internationalization of trade. The share of trade in GDP is the highest in the small economies of Asia and Europe. But exports account for only 12 per cent of GDP or less for the USA, Japan and the single-unit Europe. Overwhelmingly, world production and trade are nationally oriented and controlled by big national capital. FDI goes mostly to the developed world and is only secondarily invested in a developing country in the same region (ibid.: 62–66).

Accelerated FDI followed widespread financial liberalization and the pursuit of new strategies of investment and productive organization on the part of multinational firms. Growth of world flows of FDI by multinational firms has exceeded the rates of merchandise exports since the mid-1980s. In many developing countries FDI constitutes the principal source of foreign capital and integrates them into the globalizing and regionalizing economy. The pattern of FDI is extremely complex, because FDI flows are concentrated within three poles of attraction: the USA, the EU and Japan. FDI flows towards the developing countries are concentrated and directed to just ten developing economies of which the Asian ‘tigers’ and China form the bulk. A large number of developing countries, mainly in Africa, are excluded from these benefits (Robson 1996: 33–44).

Moreover, with a share of 84 per cent in 1989, intra-regional trade was mainly concentrated among the northern industrialized nations. Wade argues that North–South trade is extremely regionalized and not globalized. EU trade concentrates on Eastern Europe, the Middle East and Africa, while Japan and the USA are the major trading partners of the emerging economies of Asia and Latin America (see Table 1.2). After the lowering of the trade barriers during the 1980s from an Organization for Economic Cooperation and Development (OECD) average of about ...