Intro to Poli Sci 1000 – Lecture 14: Globalization

1. Intro to Poli Sci 1000 – Lecture 14: Globalization Sean Clark Lecturer, Memorial University Doctoral Fellow, CFPS Fall Session, 2011

2. Lecture Blocks • 1. The origins of the world economy. • 2. Globalization & the world economy. • 3. Globalization & its impacts.

3. A Globalized World • Trade now more global, takes less time, & occurs more often than ever before. • Driven by both state (i.e. power) & private (i.e. profit) motives. Why? • 1. Industrialization w/in nations, thanks to: • Technology & production, • Labour skills, • Entrepreneurial strategies & behaviours, • Raw materials & geography. • 2. Economic relations among nations • Profit from their competitive advantages, • Develop new competitive advantages, • Translate their burgeoning trade-derived wealth into military and political power.

4. Early International Trading Systems • Trade, however, is not new. Was common even in ancient times. • Troy, Silk Road, Incan highways all evidence of this. • Gold, spice, slaves. • 3 great waves of globalization since 1500. • 1. ~1500: spreading influence of W Eur overseas, Ottomans into S Eur/N Africa/Near east, Chinese & Arab merchants into Indian Ocean & the Pacific. Eurs begin colonizing temperate zones of Africa, Americas, & Pacific. Chinese migrants by the mils into SE Asia & the Pacific. • By 17thC large amounts of silver mined in South America ended up in Chinese tresasureis, from purchase of precious commodities by the West. • 2. By the late 18th century: • Recognition of potential profit from trade (profits curbed by mercantilism). • Growing importance of manufactured goods (more complicated goods require different inputs). • Enormous increase in interdependence btn economies (peak from roughly 1850-1914). • Evidence of interconnectedeness: btn 1850 & WWI: 3mil Indians, 9mil Jpn, 10mil Russians, 20mil Chinese, & 33mil Europeans migrated over long distance.. (Tilly & Wood p99).

5. The Second Wave • Prior to mid-18th cent, mercantilism dominated (want exports > imports). • Impose ‘tariffs’ on imports to make foreign competition more expensive. • I.e. $4 UK cloth UK & $4 US cloth is even. But 25% US tariff = $5 for imported UK cloth, so stick to domestic product. • Also impose legislation prohibiting trade w opponents (i.e. Navigation Acts to keep goods on UK ships) • Lots of early exchange, but mercantilism reigned supreme. • Traders faced steep taxes. (thus stuck to most profitable goods, i.e. precious metals, spices, & humans). • Growth in trade profits = fall of protectionism 1780 to 1850. • UK produced more ships than could domestically consume, thus want to sell surplus overseas. Also wanted to import parts cheaply (i.e. German optics).

6. Industrialization & International Trade • British advantages: • Island geography (favourable to trade). • Highly commercialized society. • Long history & complicated institutional structure that ensured the protection of private property rights. • Considerable capital reserves. • Access to world markets guaranteed by RN. • Result: unprecedented industrialization. • Industry happened before (ie Rome, India, Song China), but never so extensive.

7. The Turn to Free Trade • British ‘Corn Laws.’ • Paid higher than world price for food. • British industrialists wanted (& got) free trade. • Manufacturers gained, agriculture lost. • Lasted until World War I (even while industrial advantages eroded). • UK kept system running even amidst 1880s ‘Great Depression.’

8. Globalization’s Grandmother • Britain’s commitment to free trade kept world markets open. • Royal Navy protected sea lanes. • British capital financed the New World (was the world’s central bank). • E.J. Hobsbawm: “As her industry sagged, her finance triumphed....Indeed, if London was ever the real economic hub of the world, the pound sterling its foundation, it was between 1870 and 1913.”

9. The Strains of Interdependence: Depression & War(s) • Competition = mercantilist pressure on UK. • 1880s global depression brought protectionism back to life. • Nevertheless, UK staves off system disintegration. • Meanwhile, interdependence continued. Were truly global: • Price movements. • Financial crises & economic fluctuations. • Trade, investment, & currency patterns. • Result: Victorian globalization in many ways similar to today.

10. Britain Wins (and loses): 1914 & the End of Globalization, Pt I. • Victorian interdependence would remain, but with WWI, cooperation would not. • WWI: the culmination of the failure of nations to find security & prosperity w/in a context of tightening interdependence. • Consequences of war: • Economic power moved from Europe to US. • Destroyed trade & financial relations & institutions.

11. The Interwar Years • Post WWI: unsuccessful attempt to rebuild prewar order. • Britain too weak, US not want to be leader. • 1929 US stock market crash sparked global recession. • 1930: American manufacturing production declined by 20% and exports by 35%. • Unemployment: Britain 16%, Germany 22%. • Hitler comes to power amidst zero intl econ coop.

12. The Great War, Redux • Many roots: • Ascent of Hitler. • Imperial ambitions of Stalin. • Weakness of Western Europe. • Isolationist proclivities of the United States. • As industrialized a slaughter as WWI, but took warfare to new heights of devastation, ethnic hatred, & genocide. • Aftermath: European & East Asian devastation, Western Hemispheric prosperity.

13. Aftermath & the World Economy • 2 giants: US & USSR. • USSR 20mil+ dead & W USSR is completely devastated. • Massive military, but exhausted. • US: relatively unscathed, rich, & had nuclear bomb. • Is world’s economic hegemon.

14. Bretton Woods & the Modern IPE Order • America knew IPE leadership required. • 1944 Anglo-American meeting in Bretton Woods. Envisaged a liberal world order: • Plan on free post movement of trade & capital. • Keep controls on exchange rates. • US would provide Western security & economic support. • 3 Institutions created: • World Bank (funds for reconstruction). • International Monetary Fund (stabilize exchange rates). • General Agreement on Tariffs & Trade (lower trading barriers).

15. Postwar Prosperity • Early postwar success. Many ‘growth miracles.’ • Ie. Western Europe, Japan, East Asian ‘Tigers.’ • Considerable economic cooperation. • G7 & G20 may be only ‘talking shops’, but at least get the great powers talking. • Growth of intl organizations. • Have been rapid advances in science & technology, thanks in part to the flow of ideas & scientists. • Problem: poor have tended to stay poor. • Income convergence btn rich & middle income, while worst remain mired in poverty. • If at bottom of wealth table in 1950, likely to be there in 2000. • Today, perhaps a broader convergence is underway. • Last decade suggests that some at the bottom are starting to catch up. • Many (i.e. World Bank, Wal-Mart) are extremely bullish on the South. • Is reason for caution, however, given previous era of Southern growth in ‘50s & ‘60s was not maintained.

16. Globalization Today • Interdependence trends have continued, but accelerated by technology. • Dramatic advances in communication, transportation, & computerization = drastic decline in the cost of global communication & transportation. • Global production, Youtube, Facebook, & Twitter have done much more to bind the world together than any conscious political decision. • Keohane & Nye: previous globalization was ‘thin,’ involving only a small # of people. Today is ‘thick.’ • Since 1970s: • Explosion of international financial flows, • Rapidly growing trade • Emergence of truly global markets & production chains, as well as the convergence of many prices on a global scale. • Global diffusion of technology and ideas. • Yet willingness to integrate is not universally shared. Many encourage not just a halt, but also to step back. • Klein ’99: global production is unsustainable (i.e. environment). • Stanford: ‘outsourcing’ has led to massive disconnect btn skilled & unskilled wages.

17. Globalization & Its Impacts • ‘Hyperglobalists’: traditional state sovereignty has been superseded by transnational forces (for good or ill). • No longer world of state vs state, but now firm vs firm (Ohmae). • Freidman: ‘golden straitjacket’ of global mkt = ltds what govt can & cannot do. • Threat of capital flight = govts listen. • Can be good: keeps govt in line (no abuse, war or companies will leave). • Critics: can be bad--will jettison welfare spending to keep taxes down & ignore environmental & labour regulations (‘race to the bottom). • Falk (‘99): NGOs, working across borders, have pushed states to accept new laws re humanitarian issues. • States have had to eo Landmines ban, ICC, carbon reduction, etc bc of globalizationally-empowered civil society groups. • Some (i.e. Lee Kuan Yew), however, argue this is simply another form of Western imperialism. • Technologies of globalization have made this possible. • ‘Skeptics’: states remain the most powerful (i.e. Gilpin). • Still have armies, tax resources, & productive workforces companies want to use. Firms are still slaves to regulation. • Govts ignore WTO, IMF, companies, big banks all the time. • World is ‘spiky’ (Florida), not ‘flat’ (Friedman). • Rather than ‘race to bottom’, MNCs still pay top $ for top talent (Rodrick: wages match productivity rate).

18. Globalization & Its Impacts, II • Gap btn skilled & unskilled wages has grown. • China’s nouveau riche want Jobs’ iPhone too, but much assembly-line work can now be outsourced overseas. • Cupertino staff does well, but made in Taiwan. • Optimists (i.e. Bhagwati): solve thru improving education, climb up the value chain. • Gains from massive intl mkt (econs of scale, new products, specialization of labour) outweigh losses (thus can compensate losers). • Poor families benefited by Wal-mart’s low costs. New Chinese & Indian middle classes made from spending by Western consumers. • Global South now offering fruits of ‘frugal innovation’ (i.e. Indian medical devices & cars). • Concerns re cultural homogenization. • ‘Global civilization’ looks awful English & North American (i.e. the Cola wars, MTV, & Idols ). • Languages are lost every year. • Barber (‘92): will see violent backlash (i.e. 9/11). • Hannerz (‘96), Cowen (‘02): worries are overplayed. Interconnectedness actually boosts vibrancy. • Internet means easier to buy Mozart & sell Inuit carvings. Trade & migration = new tastes & end to bad British food. • The question, then, is where to next? • Choices will come with both costs & benefits.