Responding to Globalisation

Jeffrey A. Hart, Aseem Prakash, Jeffrey A. Hart, Aseem Prakash

• Editore: Routledge
• Anno: 2002
• ISBN:
  9781134585090
• Edizione: 1
• Argomento: Politics & International Relations
• Categoria: Politics

This rigorous survey and companion volume to Coping with Globalization, focuses on the political, ideological and economic factors lying behind responses to globalization. A panel of international experts examine subjects which include;
* The international monetary system after the Euro
* The response of the Japanese software industry to globalization
* The dynamics of globalization strategy in South Korea
* Australian integration into the global economy
* The impact on China and Russia in their moves toward a market economy

Part I

This part analyzes how East Asian countries and Australia have responded to globalization. Dali Yang and Fubing Su examine China’s integration with the world economy. Chung-in Moon discusses South Korea’s response to the pressures for global integration both before and after the 1997 economic crisis. Marie Anchordoguy, focusing on the computer software industry, studies the response of the Japanese government and firms to globalization. Finally, John Ravenhill examines the domestic political economy of Australia’s quest to liberalize and yet maintain domestic cohesion.

Two decades after Mao’s death, China has shed autarchy and embraced integration with the world economy. The most dramatic feature of Chinese economic policies has been the inflow of foreign direct investment (FDI).Yang and Su contend that with increasing levels of FDI flows and other forms of market integration, China has “normalized.” Its leaders have shed the revolutionary rhetoric and have begun to respect international norms and market rules.

China started opening up with an objective of attracting foreign capital and technology while preserving the Chinese political system. The effectiveness of its policies has varied over time. When China initiated market-oriented reforms, few investors came. As the economy grew and reforms speeded up, China’s attractiveness for FDI increased, giving China some leverage over these flows. The leverage was limited, however, as the Chinese leadership found out in adjusting its investment policies in the mid-1990s. The authors conclude that globalization has speeded up the reforms by forcing the Chinese government and firms to respond to international competition and to play by the market rules.

The post-World War II era has witnessed many changes in the international political economy, including the rise and the fall of the East Asian Tigers. These countries have been praised for their agricultural reforms, export-orientation, and their investments in human capital. The 1997 economic meltdown, therefore, took many by surprise. The economic downturn in South Korea, in particular, raises important issues regarding the long-term viability of the developmental state model. In this context, Chung-in Moon examines the dynamics of globalization in South Korea. He contends that despite its outward orientation, South Korea remained a protectionist state. Its economic success could be attributed to strategic industrial policy and network synergy of state-business which manifested in a subtle form of (neo-) mercantile ideas and practices.

Prior to the 1997 crisis, globalization was used as a slogan to connote rising level of exports; reforming institutions of market and corporate governance, particularly the chaebols, was not on the agenda. The increasing levels of international trade and US pressure, forced South Korea to liberalize. However, it chose to liberalize trade and capital regimes, not the FDI regime. Consequently, it began to run a balance of trade deficit that was financed by unhedged short-term capital flows. The highly leveraged banks and manufacturing firms could not survive the rapid depreciation of the won. Moon’s conclusion is that since South Koreans now realize the structural limits to mercantilism, deeper integration with the world economy by reforming domestic economic institutions is unavoidable.

One of the hallmarks of globalization processes is the increasing salience of high-technology sectors, especially the information technology industry, in both the domestic economy and international trade. Anchordoguy explores the Japanese response in the software industry to processes of globalization. The software case is important because, though it is a technologically advanced industry deemed by Japanese leaders to be the key to Japan’s future economic success, it is struggling in both the operating system and applications software areas. She contends that the reason is the continued reliance on the traditional systems of industrial and market governance predicated on the keiretsu-system that worked well in traditional manufacturing industries.

It is contended that the pressures of globalization will lead to converging institutional structures across countries. On this count, the software industry is an interesting case because the pressures for convergence are very strong. Anchordoguy lays out two indicators for measuring convergence. The first indicator, technological convergence, measures the degree to which Japanese software companies have responded to international competition by offering products based on open, dominant standards. The second indicator, market convergence, reflects the degree to which the state and firms rely on the market mechanism to determine their products and prices. Based on these indicators, Anchordoguy examines whether Japanese software producers and the state have responded to global pressures by moving away from institutional arrangements and practices that manage market competition toward reliance on relatively unfettered market forces to determine the types, quantity and price of products offered. Her conclusion is that although there are indicators of progress towards convergence, much remains to be achieved. The Japanese government continues to use market forces to achieve specific outcomes but does not rely on them for key decisions of resource allocation.

East Asia and Australia have often been portrayed to jointly constitute a potential economic bloc, one of three pillars of the so-called triad. From viewing itself as an outpost of the West, Australia has steadily and consciously expanded its economic linkages with East Asia. John Ravenhill points out that, historically, Australia has been an insulated economy because of the policy of “protection all around.” The government sheltered domestic manufacturing and service industries behind high protective barriers and subsidized many operations of the primary sector. The growth of agricultural protectionism and food crop self-sufficiency worldwide, coupled with the slowing of demand for minerals following the oil price rises in the 1970s, weakened Australia’s traditional export sectors.

As a result of deteriorating terms of trade and slow rates of economic growth, the government dramatically changed its economic strategies in the 1980s, placing emphasis on liberalization. By the mid-1990s, however, liberalization as the principal means of responding to globalization was losing appeal. Due to high unemployment rates and a rising trade deficit in manufactured goods, economic liberalism is now unpopular with the electorate. Ravenhill concludes that Australia has yet to find a substitute for the “protection all round” to maintain domestic peace as well as to remain competitive in world markets.

1 Taming the market

China and the forces of globalization

Dali L.Yang and Fubing Su¹

China is no stranger to global interactions. The early Ming dynasty saw China launch grand seafaring ventures that predated those of Columbus and reached all the countries around the Indian Ocean and the China Sea. Neither was the Chinese mind as reclusive as the image of the Great Wall conjures up. Not only did the Chinese civilization lead the world in several historic inventions but it also adopted and adapted Buddhism as its leading religion. And at the time when the Pope was putting Galileo on trial in Rome, Jesuits were preaching the Galilean gospel in Beijing (Boorstin, 1983:62). From this perspective, China’s isolation during the late Mao era was a historical aberration, forced by China’s historic confrontation with both the United States and the Soviet Union.²

When China again started to reach out to Western markets after bouts of revolutionary self-destruction culminating in the Cultural Revolution, its leaders sought to take advantage of what the global market had to offer but avoid the pitfalls of capitalism. China would export in order to earn the foreign exchange needed to import Western equipment and other necessities. But the Chinese would continue on the socialist road under the leadership of the Communist Party.

Less than a quarter of a century after Mao’s death, however, the color of China has changed from red to green. Over this period, China’s leaders have gradually overcome their ideological reluctance and steadily liberalized the terms of China’s participation in the global marketplace. China today is one of the world’s top traders and favorite destinations for foreign direct investment. While the global market has presented challenges for China, it has also offered China’s leaders avenues for diffusing social tensions and boosting regime legitimacy.

It is now trite to say that globalization, in terms of increased capital and production mobility across borders, imposes constraints on states. What is interesting is how the constraint operates and how the state copes with these constraints (Cohen 1996). Is China similarly constrained? Has the Chinese state been better able to dictate the terms of engagement than countries with smaller markets? Has the Chinese government been successful in its effort to trade market access for technology in bargaining with multinationals? Will China seek to rewrite the rules of the global system to its liking as its economic might increases? In this chapter, we zero in on China’s integration with the world economy and hope to shed light on these questions. Before we proceed further, we should admit that the discussion offered here is highly selective. It is focused on the political and economic aspects of China’s integration into the global economy and does not discuss the impact of globalization on the transformation of state-society relations within China. We have also paid little attention to other and especially the cultural aspects of this process, which have recently received much attention in the literature on globalization (e.g. Appadurai, 1996; Watson, 1998).

We begin with an overview of China’s integration with the world economy. Then we examine the evolution of China’s foreign investment policies in order to assess the constraints on China. Next we examine Chinese government efforts to target foreign investment in specific industries and sectors. Overall, we argue that, as reforms and rapid economic growth increasingly made China an attractive destination for foreign direct investment, China has been able to gain some leverage over multinationals. Nevertheless, that leverage is not one-sided and unconditional and the Chinese government has had to curb its own arbitrary behavior and become more market-friendly. Finally we take a look at China’s program to meet its growing energy shortage and find that China has aggressively entered the international oil business. But Chinese behavior in this vital sector is designed to tame an unruly market rather than supplant the market. In conclusion, we find that China has in two decades become one of the most important players in the global economy. This means that Chinese interests are increasingly enmeshed with those of the global economy, making China more willing to take on global responsibilities.

Integrating into the global economy

In some sense China’s march into the global market is best viewed from the perspective of the consumer. Most American consumers have experienced first-hand the growing varieties of retail products that are made in China. While in the 1980s most Chinese-made products tended to be low-priced, in recent years more and more Chinese products have appeared with higher price-tags. Some Chinese manufacturers, such as the appliance makers Haier and Kelon, have started to move beyond being simple OEM (original equipment manufacturer) suppliers and have begun selling their products with Chinese brand names in American and European chain stores. In the meantime, the emergence of dominant domestic brands in China means that some foreign manufacturers are now willing to become OEM suppliers to Chinese brands.

The growing presence of Chinese producers in world markets is reflected in China’s rising rank as a global merchandise trader. In 1980, China’s foreign trade volume was at 38 billion dollars (US). China ranked as the 28th foreign trader and accounted for less than 1 percent of the world merchandise trade. By 1997, China’s merchandise trade volume, not including Hong Kong, had hit 325 billion dollars, ranking it as the world’s tenth largest trader. Its share of world merchandise exports had risen to 3.3 percent (WTO, 1998).³ The depth of China’s engagement with the world economy can also be measured by the ratio of trade to GNP. By this measure, China’s trade dependency rose nominally from about 10 percent in 1978 to more than 40 percent in 1995, far higher than the average for large economies.⁴ Trade has been a major engine of Chinese economic growth. Moreover, exposure to international competition via international trade has had a significant impact on the improvement of productivity of both state-owned and non-state enterprises in China (Perkins, 1996).⁵

As China has traded more with the rest of the world, it has worked hard to attract overseas investors. Initially and through the 1980s, the flow of foreign capital into China was limited as the Chinese economy was caught between plan and market. Rapid growth and liberalization of the Chinese economy in the 1990s have made the Chinese economy a much more attractive investment destination. From 1993 to 1997, China was the second largest recipient of foreign direct investment, behind just the United States. Overall, it appears that the Chinese economy is now substantially more open to foreign investors than China’s East Asian neighbors (Japan, ...