The Enigma of Globalization

A Journey to a New Stage of Capitalism

Robert Went

• Publisher: Routledge
• Year: 2002
• eBook ISBN: 9781134434312
• Topic: Business
• Subtopic: Business General
• Index: Business

Globalization is theorized in this book as an emerging new stage of capitalism. Robert Went takes us on a journey from the historical roots of globalization through to its relevance in the modern day.The Enigma of Globalization is a timely addition to an important debate and covers such themes as:* International trade* Free trade and international

1 Approximating globalization

Although globalization is a relatively new concept, it has already provoked all kinds of analyses and discussions, and has given rise to a rich mosaic of theories and diagnoses. Academics from different disciplines, policymakers and NonGovernmental Organizations (NGOs) continue to study and debate, sometimes passionately, the extent to which globalization really exists and is or is not something new. Innumerable books, research papers, and articles have been written about globalization’s causes, dynamics, consequences, and future. And all over the world conferences and seminars are being organized to study and debate the impact and effects of globalization, the need for and conceivability of regulation, and/or the rationales for resistance to globalization’s outcomes.¹

Although analyses, opinions and debates about globalization have gone in many directions, we will see in this chapter that since about the turn of the millennium this fascinating pandemonium has begun to give way to a consensus on some important questions.

1.1 ECONOMISTS ON GLOBALIZATION

Globalization has not left economic science untouched. There is an ongoing debate among economists, especially among trade and labor market specialists, about the extent to which increased inequality in developed countries can be explained by economic globalization.² Economists have debated whether we should talk about regionalization or triadization rather than globalization, if we look at actual developments in the world economy.³ The question whether the nation-state is (virtually) dead as an instrument of economic policy has been taken up by many economists.⁴ And last but not least, economists have studied the question to what extent big companies have become ‘footloose.’⁵ But in comparison with the animated discussions in some other disciplines, the interest globalization has caused among economists is more modest.

Economists’ most important contributions on globalization have, however, been made in debates about just how new contemporary global economic integration is.⁶ In this discussion, which has been rather important especially during the 1990s, one can – a bit schematically – distinguish three currents of opinion.

Economists such as former US Secretary of Labor Reich (1992) and Japanese business guru Ohmae (1995) have argued that globalization is a definite trend that is changing everything, and against which nation-states or trade unions can do very little or even nothing. Partially, in reaction to these claims, economists such as Hirst and Thompson (1996) and Ruigrok and van Tulder (1995b) have strongly questioned the importance, novelty and effects of globalization. Among other things these authors have argued that the world economy was at least as internationalized at the end of the nineteenth century as it is today.⁷ Finally, economists such as Altvater and Mahnkopf (1996) and Boyer and Drache (1996) have defended a third position, which can be summed up in the proposition that globalization is an exaggeration. These economists have argued that the world economy is changing significantly, with important implications for the organization and functioning of the world economy, but that we are (still?) far from a truly globalized economy, and that many of the claims of globalization ideologues are untenable.⁸

The importance attached by economists to this question seems to a large extent explicable by the fact that two central features of the current international regime – free trade and free capital flows – were also characteristic of the previous period of increasing internationalization, that is during the decades before the First World War.⁹ Many economists will sympathize with the statement by Sachs and Warner (1995: 61), ‘The world economy at the end of the twentieth century looks much like the world economy at the end of the nineteenth century. A global capitalist system is taking shape, drawing almost all regions of the world into arrangements of open trade and harmonized economic institutions.’

The First World War put an end to a long period of increasing internationalization of trade and financial flows. It then took approximately 60 years before the world economy’s pre-First World War level of openness to trade was reached again, and before financial flows were once again as liberalized as they had been in the years before the First World War.¹⁰ One way to interpret the increasing internationalization of the world economy since the mid-1970s is therefore to see this globalization process as the termination of a 60-year-long protectionist detour, and a return to free trade and free capital flows that was long overdue.

Most economists seem to hold such a view implicitly or explicitly, i.e. that globalization is nothing new, and to subscribe to the belief expressed by Higgott (1999: 26) that the ‘argument for liberalization and open markets as generators of wealth has been won at both intellectual and evidentiary levels’ (emphasis added). But is this really the case?

As far as free trade is concerned, the intellectual case for free trade goes back a long way to the theorem of comparative advantage that, as will be recapitulated in Chapter 2, is generally credited to David Ricardo (1817). Although this theory has been challenged from different angles since its inception, it remains to this day the dominant approach in mainstream economic thought. Most economists maintain that ‘(u)nder a system of free trade there would be conflicts in economic interests Neither among different nations Nor among the corresponding classes of different nations’ (Schumpeter, 1919: 100).

Much more controversial among economists, however, is the intellectual case for the combination of free trade and free capital flows.¹¹ Ricardo was of the opinion that the theory of comparative advantage will not hold if capital is mobile, because in that case specialization will be determined by absolute and not by relative costs. And Keynes, one of the principal architects of the Bretton Woods agreement, defended the principle that finance should be primarily national (cf. Chapter 3).

Moreover, precisely at the time when economies have reached unprecedented levels of international integration, doubts about the consequences of increasing economic internationalization have also been recurring with new strength at the evidentiary level. At the end of the twentieth century, in the slipstream of the failures and successes of globalization, doubts and criticisms about the consequences of international trade and international capital flows are – once again – increasing.

During the Asian crisis, which began in Thailand in July 1997, the renowned free-trade economist Bhagwati (1998) attacked, for example, the fundamental idea that ‘free capital mobility among all nations was exactly like free trade in their goods and services.’ Bhagwati forcefully argues that ‘the claims of enormous benefits from free capital mobility are not persuasive’ but a myth, ‘created by what one might christen the Wall Street–Treasury complex, following in the footsteps of President Eisenhower, who had warned of the military-industrial complex.’¹² And to give another example, Rodrik (1997a: 72–75), self-proclaimed ‘neoclassical economist’, has heavily criticized mainstream economics for its myopia, ignorance and arrogance: ‘International economists in particular have been too Panglossian about the consequences of globalization. ( . . . ) (E)conomists could play a much more constructive role if they were to recognize that the tensions between social stability and globalization are real. ( . . . ) (E)conomists must demonstrate more modesty, less condescension, and a willingness to broaden their focus.’¹³

1.2 PARTIAL CONSENSUS, NEW QUESTIONS

Few – if any – observers and analysts will disagree with the statement that at the end of the twentieth century many views on globalization had changed – sometimes drastically – and that skepticism about the effects and future of globalization had reached broader layers of academics, policymakers and NGOs. Two partially related developments stand out as major contributors to this shift in opinions.¹⁴

The first and most important factor was the – totally unexpected – outbreak of the crisis in several countries in East Asia in 1997, which were until then considered a model for underdeveloped countries.¹⁵ This crisis fundamentally altered perceptions and expectations of globalization, not only because of its depth and severe social effects, but also because of the subsequent extension of crises and instability to other parts of the world.¹⁶ In addition, the Asian crisis was a sharp warning about the dangers posed by the instability of the globalized financial markets – grossly underestimated, at least until then – and about the structural weaknesses of the ‘international financial architecture.’¹⁷

Second, international mobilizations by social movements and NGOs against (the consequences of) globalization, as in 1999 in Seattle (during the WTO summit) and in 2000 in Prague (during the annual meeting of the IMF and World Bank), have had a huge impact on public opinion and international organizations.¹⁸ These campaigns have attracted so much publicity and popular support that leading politicians and editorialists in the business press and newspapers have repeatedly expressed fears of what they call a ‘backlash against globalization.’¹⁹ Business Week (2000a), to give an example, editorialized that ‘(u)nless measures are taken now, with the world economy in a strong upswing, the backlash will become much, much worse once the economic cycle begins to turn down.’ And The Economist (2000b: 103), noting that the protestors ‘enjoy the sympathy of many people in the West’ and reflect ‘popular concern about the hard edges of globalization’, warned that ‘global economic integration may be at greater risk than many suppose.’²⁰ The doubts expressed in these and other popular publications seem exemplary of a more general feeling that the perspectives for globalization are not preordained. World Bank economist Williamson (1997: 117), for example, raised the question whether the world economy will ‘once again retreat from globalization as the rich OECD countries come under political pressure to cushion the side effects of rising inequality.’²¹

I submit that in the course of these developments, and as a result of the work and debates of academics from various disciplines, a consensus has begun to develop on some important questions, which were still heavily contested before the events in Asia. This partial convergence of opinions can be summarized in the following three points.

Important changes are indeed transforming the global economy. A number of researchers and policymakers have challenged this statement over the years from several angles, and until the end of the 1990s several of them would continue to argue that globalization does not exist, is a myth, or – in the words of Meiksins Wood (1997) – downright ‘globaloney.’ But since the Asian crisis even former skeptics such as Krugman write and talk unrestrainedly about ‘globalization’, and very few observers now seem to deny that today’s global economy differs in fundamental ways from previous periods.²² That does not mean that there are no disagreements left.²³ There definitely are, and they are discussed vehemently. But the scope of this debate has been narrowed down somewhat.

Globalization is not caused by technology. Although nobody denies that technological developments play an important enabling role in processes of globalization, very few contemporary analysts or observers claim that globalization is brought about by ‘some natural or technologically driven phenomena’ (Kitson and Michie, 2000: 14). To talk about a ‘backlash against globalization’ would be senseless if globalization was to be understood as the automatic outcome of exogenous technological processes, since that would imply that globalization is irrevocable. As Frankel (2000: 6–7) argues: ‘(T)here is a tendency to see globalization as irreversible. But the political forces that fragmented the world for 30 years (1914–1944) were evidently far more powerful than the accretion of technological progress in transport that went on during that period. The lesson is that there is nothing inevitable about the process of globalization.’²⁴

Globalization has not reduced inequality of income and wealth. Since the outbreak of the Asian crisis and its aftershocks, a growing number of researchers and observers have become aware of the fact that social differences are globally increasing in a double process of polarization, within countries and among countries. This is not to suggest that this social polarization only began with the Asian crisis in 1997. Even before its outbreak UNCTAD General Secretary Ricupero noted for example:

The big story of the world economy since the early 1980s has been the unleashing of market forces . . . . The ‘invisible hand’ now operates globally and with fewer countervailing pressures from governments than for decades. Many commentators are optimistic about the prospects for faster growth and for convergence of incomes and living standards which greater global competition should bring. However, there is also another big story. Since the early 1980s the world economy has been characterized by rising inequality and slow growth.

(UNCTAD, 1997: 5)

Data to support this analysis have been presented for example by the UNDP (1998: 29), which notes that 20 per cent of the world’s population living in the richest countries increased its income from 30 times the poorest 20 per cent’s income in 1960 to 82 times the poorest 20 per cent’s income in 1995. World Bank economist Milanovic calculated in a study covering 85 per cent of the world’s population from 91 countries that the richest 50 million people in the world earn as much as the poorest 2.7 billion (Elliot and Denny, 2002). And to give another example, Weller et al. (2001: 7) argue that the ‘distribution of world income between counties grew unambiguously in the 1980s and 1990s’, with the effect that the rich countries have gotten richer and the poor countries have gotten poorer:

The median per-capita income of the world’s richest 10% of countries was 76.8 that of the poorest 10% of countries in 1980, 119.6 times greater in 1990, and 121.8 times greater in 1999. The ratio of the average per capita income shows a similar, yet more dramatic, increase.²⁵

(Weller, Scott and Hersh 2001: 7)

In sum, there is a growing sense that a central feature of today’s globalized world economy is ‘the egregious and historically unprecedented degree of global inequality – in income and wealth, and life chances broadly construed. Though inequality between the North and the South is particularly extreme, there are stark (and rapidly deepening) inequalities within each of these regions as well’ (DeMartino, 2000: 218).²⁶ This sentiment contrasts of course sharply with the beliefs and expectations many economists, policymakers and opinion leaders have expressed about the effects of globalization.

Over the years, academics and policymakers have challenged these statements about globalization to varying extents, but around the turn of the millennium they have nevertheless become accepted rather widely. Future research programs of globalization will therefore (partially) chart new directions. Three broad puzzles appear key in this next round of analyses and debates. The first obvious question is what is driving globalization, if not the development of technology itself? The second related issue is just as clear-cut, since the moment we note that globalization is not irreversible the question arises whether globalization will persist and deepen, and under what conditions? Finally, a third question follows from the realization that globalizati...

Table of contents

• Cover Page
• Routledge Frontiers of Political Economy
• Title Page
• Copyright Page
• Preface
• 1 Approximating globalization
• 2 The genesis and contemporary comeback of the theory of free trade
• 3 The combination of free trade and free capital flows: theories of imperialism
• 4 The circuit of social capital
• 5 Capitalism and stages of accumulation
• 6 Globalization: a new stage of capitalism
• Bibliography