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“Economic Globalization” from Berkshire’s Global Perspectives on the United States

From Volume 3 of Berkshire’s Global Perspectives on the United States

Globalization, Economic

The global economy is no longer just a network of intertwined national economies. It has grown into a single entity responsible for a variety of new forms of international cooperation, but also a new form of global imperialism.

Globalization can be defined as a far-reaching societal transformation that increasingly causes the world to function as a single integrated society rather than a mosaic of independent countries separated from one another by national borders. As a result of globalization, many forms of human interaction now extend well beyond the borders of individual countries or regional groupings of countries. Like many previous societal transformations, globalization both enhances and threatens our collective well-being. On one hand, it increasingly binds disparate social groups together, making them interdependent in numerous and complex ways, although this interdependency is not always obvious at the local level. This aspect of globalization clearly creates new opportunities for international cooperation and mutually beneficial interactions among diverse people.

But, on the other hand, globalization can threaten our collective well-being as well. Since globalization extends the scope of human interactions beyond the regulatory control of individual countries, many social and economic processes now transpire without much government oversight. This aspect of globalization will likely produce serious problems for years to come, as countries around the world grapple with the inability to solve collective problems originating at the transnational level—problems such as global warming, environmental degradation, terrorism, economic crises, the spread of disease, and so forth. Because globalization is a complex and geographically dispersed process, it is not surprising that social scientists disagree on many of the issues surrounding it.
<h2>The Causes of Economic Globalization</h2>
Arguably, the confluence of four historical events, each occurring between the late 1960s and the early 1990s, produced the requisite conditions for our present-day movement toward the integration of national economies into a single world market, a process that social scientists typically call economic globalization. The first of these events, starting in the late 1960s and continuing well into the 1970s, was the occurrence of an usually harsh and prolonged economic downturn in many advanced industrial countries. Unlike other recessions, this one was exacerbated by soaring rates of inflation, triggered in part by a series of oil embargoes and the growing capacity of organized labor to negotiate wage increases. The resulting bout of stagflation—a period of slow economic growth coupled with high rates of inflation—considerably eroded the profitability of many corporations. Reacting to this situation, many corporations operating in the United States and other advanced industrial countries sought to reduce their labor costs by relocating their routine production jobs to low-wage regions of the world economy.

The second event, occurring along with this severe recession, was the advent of the information revolution, which began most notably with the invention of the microchip in 1972. The information revolution ushered in a new round of what the British geographer David Harvey calls “time-space compression”—the ability of technological advancements to reduce the amount of time required to transport people, physical goods, and information across geographical distances. For the average person, this made the world seem smaller, creating the much-lauded global village effect. For major corporations, the information revolution fulfilled a crucial requirement for economic globalization by enabling them to conduct business with overseas subsidiaries, subcontractors, and suppliers more easily.

Third, beginning in the early 1980s and continuing today, political leaders in many advanced industrial countries began implementing policies that facilitate economic globalization. Known as the Washington Consensus in the United States and neoliberalism elsewhere, this set of policies initially sought to overcome the slow economic growth of the 1970s by rolling back government social programs, reducing business regulations, privatizing government-controlled sectors of the economy, and lowering barriers to international trade and capital flows. The United States, arguably the country where these ideas enjoy the widest political support, significantly contributed to the spread of neoliberalism by encouraging other countries to embrace these policies and by influencing the standard practices of prominent international economic organizations. In the latter case, for example, U.S. policy makers and their academic advisers persuaded the International Monetary Fund and the World Bank to modify their lending policies. Since 1980s, these two international financial institutions have typically required borrowing countries to implement neoliberal reforms as a condition for loan eligibility. However, this practice has been controversial in many developing countries, primarily because it often increases poverty and income inequality over the short term. Overall, since neoliberalism creates a regulatory climate that facilitates cross-national flows of raw materials, capital, and finished goods, its growing prevalence has been an integral component of economic globalization.

Finally, with the end of the Cold War in 1991, capitalist markets began expanding into formerly socialist regions of the world economy. Before that time, nearly one-third of the world was essentially off limits to capitalist development. But this changed rapidly during the early 1990s, as policy makers in formerly socialist countries sought to improve their sagging economies by welcoming investments from foreign capitalists. It was at this time that the term <em>globalization</em> came into common usage, as it expressed the emergent reality that capitalism has become a truly global economic system. Clyde Prestowitz, a former Reagan administration trade official, points out that this process essentially created three billion new capitalists, many of whom are successfully competing for jobs formerly held by Americans.
<h2>Historical and Contemporary Economic Globalization</h2>
Despite widespread discussions about how economic globalization affects our daily lives, social scientists studying the topic disagree over whether it constitutes a historically unprecedented phenomenon. In a broad context, this debate yields two competing arguments. One argument maintains that, over the last two hundred years, the world economy has experienced several waves of economic globalization, and that the most recent wave, which is often called contemporary economic globalization, has not extensively reordered the centuries-old configuration of the world economy. The other argument, conversely, maintains that the current wave of economic globalization has indeed produced a qualitatively new and historically unprecedented economic system, one that for the first time in history closely approximates a truly global economy.

A small but growing number of social scientists, with the British social and political theorists Paul Hirst and Grahame Thompson being the most notable, see contemporary economic globalization as merely a high point in the ongoing ebb and flow of capitalist development. They assert that contemporary economic globalization simply represents an expansion and intensification of the production and exchange networks that have for centuries characterized the world economy. Their argument rests on two empirical facts. First, analyses of recent trade patterns indicate that, despite a recent upswing in international economic activity, most trade still occurs within and between three regional economic blocs, centered on East Asia, North America, and Western Europe. This finding implies that recent economic changes have not created a truly global economy. Rather it suggests that free-trade zones, such as North American Free Trade Agreement and the European Economic Union, have created vibrant regional economies, which are closely linked through trade flows. Second, analyses of historical trade patterns reveal three waves of economic globalization occurring since 1795, with each wave being followed by a period of contraction. Interestingly, the similarities between past and present waves of economic globalization can be seen by examining certain historical texts. Writing 150 years ago about the consequences of the geographic expansion of capitalism, the German political philosophers Karl Marx and Friedrich Engels sounded much like present-day scholars describing the consequences of globalization. Capitalism’s expansion, Marx and Engels wrote, had

drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction become a life-and-death question for all civilized nations, by industries that no longer work up indigenous raw materials, but raw materials drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of old wants, satisfied by domestic production, we now find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations. (Marx and Engels 1998, 39)

Overall, the findings mentioned above imply that recent economic changes merely return the world economy to the norms of the late nineteenth and early twentieth centuries, a time when national economies were deeply embedded within international economic flows. Perhaps more importantly, the findings also suggest that future events will likely reverse our current situation, creating a period in which national economies again become more independent of one another.

However, most social scientists believe that a qualitatively different economic system emerged over the last few decades, one that has subsumed many important national-level economic processes into a worldwide borderless economy. This perspective on economic globalization focuses on the qualitative transformations occurring in the international division of labor. Adherents of this view point out that, for much of the modern era, world trade patterns followed a classic international division of labor, in which developing countries specialized in growing, extracting, and exporting raw materials to advanced industrial countries, and advanced industrial countries specialized in manufacturing these raw materials into finished goods, which were then sold around the world. But, starting sometime in the early 1970s, the emergence of global commodity chains began to alter this long-standing pattern in world trade.

In global commodity chains, the production process involves a worldwide network of major corporations, subsidiaries, and subcontractors, each of which performs a specific task within a much larger chain of business activities. This arrangement endows corporations with unprecedented levels of organizational flexibility, allowing them to change their product offerings and reallocate their factors of production as market conditions change. The end result, of course, is a finished product. But unlike the previous economic systems, in which the whole range of business activities occurred primarily within one country, products made in global commodity chains may have been developed, financed, manufactured, marketed, and sold in countries located all around the world.Eventually, as this business strategy has become the norm in more and more industries, it has created a new international division of labor, in which developing countries specialize in labor-intensive and low-skilled manufacturing jobs, and advanced (post)industrial countries specialize in high-skilled activities, such as executive management and marketing, banking and finance, engineering and product design, and research and development.

In sum, this dominant view on economic globalization emphasizes that, although current levels of international trade may not be much higher than they were a hundred years ago, our present world economy has been qualitatively reconfigured. In particular, it maintains that the factors of production—raw materials, labor, and capital—are now allocated on a worldwide scale, creating a situation in which the world economy functions less like a system of intertwined national economies and more like a single entity, with product design, finance, manufacturing, marketing, and distribution processes operating concurrently across the globe.
<h2>Economic Globalization’s Effect on Democracy</h2>
Most policy makers and many social scientists see economic globalization as having a positive effect on democracy. During the 1990s, as communism ended, many commentators credited economic globalization with successfully promoting democracy in countries formerly governed by authoritarian regimes. The conventional view holds that democratization typically follows a three-step sequence of events. First, hoping to attract new capital investment, authoritarian regimes open up their economies to foreign investment. Second, in order to attract and keep foreign investment, authoritarian regimes must loosen their control over the economy, because global investors prefer to operate within liberal market economies rather than state managed economies. Finally, the ensuing introduction of economic reforms weakens the government’s grip over society in general, thereby allowing citizens to leverage their new economic freedoms into political freedom as well. Whether one agrees or disagrees with this logic, the proliferation of democratic regimes since the end of the Cold War has been truly impressive. For example, during the 1990s, the number of national elections held worldwide more than doubled the number held in the previous decade, and experts predict that this trend will continue, with the number of national elections held worldwide possibly doubling again by 2010.

Possibly more than any other scholar, the U.S. sociologist and political theorist Francis Fukuyama anticipated and celebrated the global triumph of democratic capitalism. Shortly after the Berlin Wall fell in 1989, he proclaimed in a now famous essay that the United States’ victory in the Cold War represented the “end of history.” In making this statement, Fukuyama was claiming that the political and economic structures of the United States would eventually be emulated by every country in the world, and that consequently the great ideological struggles of modernity had basically been resolved. The future, according to Fukuyama, will not contain any credible challenges to the global hegemony of democratic capitalism.

Despite democracy’s global triumph over other forms of governance, some scholars nonetheless hold pessimistic views about the future of democracy. The primary concern is that economic globalization, although it has not officially altered the centuries-old doctrine and practice of state sovereignty per se, does weaken and constrain the ability of governments to define and pursue their own interests. In particular, economic globalization creates an ever-widening mismatch between the territorially delimited authority of national governments and the transnational reach of many important economic processes. The result, many scholars believe, is that national governments are now incapable of controlling many of the domestic effects of economic globalization. Even in the world’s strongest democracies, it appears that control over domestic economic issues has been slowly shifting away from citizens and their democratically elected representatives and toward anonymous global market forces and unaccountable decision makers in multinational corporations and international agencies. In this way, economic globalization weakens the sovereignty of nation-states and the democratic mechanisms that hold decision makers accountable to the electorate.

Perhaps more than other institutions associated with democracy in the post-World World II era, the welfare state and labor unions have been adversely affected by the imperatives of a more economically integrated world. It appears that the open economic borders and flexible production systems associated with economic globalization have upset the previous balance of power between workers and corporations that underpins these two institutions. For example, if government officials push for higher taxes or stricter regulations on business practices, corporations can—albeit with varying degrees of difficulty—shift their affected business functions to other countries with more hospitable business climates. Likewise, if labor unions push for higher wages or better benefits, corporations can outsource their jobs to low-wage regions of the world economy. These outcomes reflect a new political reality in which national governments must increasingly compete against one another to create a business climate that attracts global investors.
<h2>Is Economic Globalization a U.S. Project?</h2>
Whether operating at the domestic or international level, market economies always rely upon a complex social, legal, and physical infrastructure that only national governments can provide. Even so-called free-market economies do not arise organically out the private sector, but rather are the result of sustained and coherent public-policy choices. For this reason, most social scientists disagree with popular accounts of how economic globalization originated. Most often, such accounts intimate that economic globalization began when corporations in the advanced industrial countries started relocating their routine manufacturing operations to low-wage regions of the world economy, something that was made possible by technological advancements associated with the information revolution. While the actions of the private sector were clearly important in this process, this view underestimates the degree to which U.S. policy makers and their allies in other advanced industrial countries actively encouraged economic globalization through specific public-policy choices.

It has always been the case that the world’s dominant country—for example, Great Britain in the nineteenth century—disproportionately develops and enforces the rules for international trade and commerce. The late twentieth century was no different. During this time, the United States played an indispensable role in organizing and rationalizing the emerging global economic system. The U.S. political scientist Edward Cohen, for example, demonstrates that U.S. policy makers actively pursued economic globalization, in part to spur domestic economic growth, but also to help integrate diverse countries into a community of democratic capitalist countries. Japan and certain European countries acted similarly. These facts suggest that since policy makers in powerful countries have pursued economic globalization, it should be seen as a politically induced phenomenon rather than as a technologically induced one.

Based on this logic, critics of economic globalization often blame the U.S. government for globalization’s undesirable side effects. In implementing neoliberal economic policies and opening their economies to global economic flows, many developing countries have experienced economic instability, increasing levels of poverty, and acute social dislocations, the latter resulting primarily from imports undercutting domestic agriculture and craft industries. At the same time, neoliberal economic policies usually make domestic and international owners of capital richer. For these reasons, some critics decry economic globalization as a new form of imperialism, one in which impersonal market forces have replaced previous forms of exploitation, such as colonialism, without significantly altering the economic relationship between the dominant and subordinate social actors.

Christopher J. Kollmeyer

<em>See also </em>Businesses Overseas, U.S.; Colonialism and Neocolonialism; Consumerism; McDonaldization; Media Corporations; Multinational Corporations; Tourism; Trade Agreements

Further Reading

Castells, M. (2000). <em>The rise of the network society</em> (Rev. ed.). Oxford, UK: Blackwell Publishers.

Chase-Dunn, C., Kawano, Y., & Brewer, B. (2000). Trade globalization since 1795: Waves of integration in the world-system. <em>American Sociological Review, 65</em>(1), 77–95.

Cohen, E. S. (2001). <em>The politics of globalization in the United States</em>. Washington, DC: Georgetown University Press.

Dicken, P. (2003). <em>Global shift: Reshaping the global economic map in the 21st century </em>(4th ed.)<em>.</em> New York: Guilford Press.

Fukuyama, F. (1989, Summer). The end of history? <em>The National Interest, 16</em>, 3–18.

Guillén, M. (2001). Is globalization civilizing, destructive or feeble? A critique of five key debates in the social science literature. <em>Annual Review of Sociology, 27</em>, 235–260.

Harvey, D. (1990). <em>The condition of postmodernity: An enquiry into the origins of cultural change. </em>Oxford, UK: Blackwell Publishers.

Harvey, D. (2003). <em>The new imperialism</em>. New York: Oxford University Press.

Held, D., McGrew, A., Goldblatt, D., & Perraton, J. (1999). <em>Global transformations</em>: <em>Politics, economics, and culture</em>. Stanford, CA: Stanford University Press.

Hirst, P., & Thompson, G. (1999). <em>Globalization in question</em> (2nd ed.). Cambridge, UK: Polity Press.

Marx, K., & Engels, F. (1998). <em>The communist manifesto</em>: <em>Modern edition with introduction by Eric Hobsbawn</em>. New York: Verso. (Original work published 1848)

Ohmae, K. (1999). <em>The borderless world</em> (Rev. ed.). New York: HarperCollins.

O’Riain, S. (2000). States and markets in an era of globalization. <em>Annual Review of Sociology, 26</em>, 187–213.

Prestowitz, C. (2005). <em>Three billion new capitalists: The great shift of wealth and power to the east</em>. New York: Basic Books.

Reich, R. (1991). <em>The work of nations: Preparing ourselves for 21st century capitalism.</em> New York: Vintage Books.

Robinson, W. (2004). <em>A theory of global capitalism</em>: <em>Production, class, and state in a transnational world</em>. Baltimore, MD: John Hopkins Press.

Sassen, S. (1995). <em>Losing control? Sovereignty in an age of globalization. </em>New York: Columbia University Press.

Schwartzman, K. (1998). Globalization and democracy. <em>Annual Review of Sociology, 24</em>, 159–181.

Stiglitz, J. (2002). <em>Globalization and its discontents</em>. New York: W. W. Norton.

Swank, D. (2002). <em>Global capitalism, political institutions, and policy change in developed welfare states</em>. Cambridge, UK: Cambridge University Press.

Weiss, L. (1998). <em>The myth of the powerless state</em>. Ithaca, NY: Cornell University Press.

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  1. […] about globalization and the global economic systems, and thought I should share an article on “Economic Globalization” from Berkshire’s Global Perspectives on the United States, published last year. One section, “Is Economic Globalization a U.S. Project?,” seems […]

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