Transcript Topic 4

Topic 4
Globalisation
Course Overview
• 4 main topics:
Topic 1: International Trade Theory and Policy
Topic 2: FDI and the Multinational Corporation
Topic 3: Exchange rate theory, capital flows and
International Institutions
Topic 4: Globalisation
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Overview
Topic 4: Globalisation
a. Introduction: definition of globalisation
b. The Case for globalisation
c. Giant private organisations as the driving
force behind globalisation
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Introduction
• What is meant by ‘globalisation’?
– Globalisation is a very powerful and very real aspect
of the modern world
– It represents a very influential force
– It has many dimensions: economic, political, social,
cultural, environmental, security
– Focus here is on globalisation applied to the world
economy
– It refers to a growing interdependence amongst
sovereign states in areas such as trade, investment
and communication
– Integration of economic processes across political
borders – resulting in business behaviour being
oriented to world markets rather than particular
national markets
Source: Intriligator M.D. (2001), "Globalisation of the world economy: Potential benefits and costs and a
net assessment", Centre for Globalisation and Policy Research, UCLA
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Introduction
• Trends:
– Accelerating growth in international trade –countries
are becoming much more dependent on foreign trade
– Production is increasingly organised on a global,
rather than national basis – the growth of
multinational corporations, the rates of foreign direct
investment have risen dramatically.
• Globalisation has involved greater openness in
the international economy, an integration of
markets on a worldwide basis, a movement
towards a borderless world
Source: Intriligator M.D. (2001), "Globalisation of the world economy: Potential benefits and costs and a
net assessment", Centre for Globalisation and Policy Research, UCLA
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Introduction
• Sources of/reasons for globalisation:
– The adoption of trade liberalisation strategies in an
increasing number of countries
– Technological advances that have significantly
lowered the costs of transportation and
communication, and information storage and retrieval.
E.g. Electronic mail, world wide web
– Changing companies – corporations that had been
mainly focused on a local market have extended their
range to a global reach
– New global roles of international organisations :World
Bank, IMF, WTO
Source: Intriligator M.D. (2001), "Globalisation of the world economy: Potential benefits and costs and a
net assessment", Centre for Globalisation and Policy Research, UCLA
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Introduction
• Sources of/reasons for globalisation:
– Cultural developments: move to a globalised and
homogenised media, arts and the widespread use the
English language for global communication
• Economic benefits of globalisation:
– The benefits stem mainly from competition:
specialisation, increased production and efficiency
(increased productivity), economies of scale – all
facilitating economic growth. Reductions in costs and
prices, increase in variety. Gains from trade.
– The result is the potential for increased output and
higher real wages and living standards
Source: Intriligator M.D. (2001), "Globalisation of the world economy: Potential benefits and costs and a
net assessment", Centre for Globalisation and Policy Research, UCLA
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Introduction
• Economic costs of globalisation:
– There can be substantial equity problems in
the distribution of the gains from globalisation
among individuals, regions, nations. Many of
the gains are going to rich countries causing a
growing disparity/inequality between nations
– Instabilities stemming from the
interdependencies of economies
– The control of national economies is seen by
some as possibly shifting from sovereign
governments to other entities – powerful
multinational corporations
Source: Intriligator M.D. (2001), "Globalisation of the world economy: Potential benefits and costs and a
net assessment", Centre for Globalisation and Policy Research, UCLA
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Giant private organisations as the
driving force behind globalisation
Source: Ellwood, W. (2002), “The No-Nonsense Guide to
Globalisation”, Amnesty International, Chapter 4: The
Corporate Century (Distributed during lectures, also
available on desk reserve in the library)
• This article discusses a viewpoint on the potential costs
of globalisation: the power of multinational corporations
• Introduction:
– Globalisation has introduced a level of commercial culture that is
homogenous e.g. Fast food restaurants sell the same foods with
only minor changes to local tastes.
– The multinational corporation is a cultural and economic tidal
wave roaring across the global replacing the diversity of human
society: erosion of local cultures, the existence of a global
monoculture able to disrupt traditional cultures
Source/Quoted directly from: Ellwood (2002), Amnesty International, Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Introduction:
– Over the past couple of decades - global rules
regulating the movement of goods and investment
have been relaxed. Private corporations have
expanded their global reach so that their decisions
affect the lives of people in the most distant parts of
the world. The holdings of these corporations are so
numerous sometimes it is difficult to trace the chain of
ownership.
– Proponents of globalisation argue that MNCs are the
ambassadors of democracy. Free markets and
political freedoms are inextricably linked and the
introduction of the first will lead to the second.
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Introduction:
– Today, 50 of the largest 100 economies in the world
are run by MNCs, not by countries – Mitsubishi is
bigger than Saudi Arabi; General Motors is larger than
Greece, Norway or South Africa.
– The combined annual revenues of the biggest 200
corporations are greater than those of 182 nationstates that contain 80% of the world’s population.
– Of course large companies have not just appeared
overnight. They have been with us since the early
days of European expansion overseas
– But nothing in history matches the economic and
political power of today’s corporations
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging businesses:
– Tendency towards monopoly is growing across a
range of industries
– Business executives push for the approval of mergers
on the grounds that getting bigger is the only way to
compete a lean and mean global marketplace.
– But a smaller number of large corporations eliminates
competition – the easiest way of getting rid of a
competitor is to buy them out.
– There has been a spate of mergers and acquisitions
over the past number of years and this reflects the
changing nature of the global economy, especially the
relaxation of regulations around foreign investment
and the liberalisation of international capital flows
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging businesses:
– Example: Early 2005 Procter & Gamble agreed to buy
Gillette in a $57 billion deal – combining some of the
world’s top brands. Procter & Gamble is already the
US’s largest consumer products company and the
merger creates the greatest consumer product’s
company in the world
– Companies are now free to compete globally, to grow
and expand into overseas markets – and the new
international climate of free trade in goods, services
and investment capital is furthering this consolidation
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging businesses:
– The assumption of this neo-liberal economic
model is that competition is good
– This belief has led to a worldwide campaign in
favour of privatisation of publicly-owned
enterprises
– According to this view, the government must
be downsized and its role in the provision of
public services curtailed
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging businesses:
– Neo-liberals argue that governments are inefficient,
bloated bureaucracies that waste taxpayers’ money –
so they must be restrained
– But rather than strengthen the role of the State by
streamlining bureaucratic inefficiencies, they argued
that private business should do the job instead
– Maniac enthusiasm for privatisation exploded when
Margaret Thatcher came into power in Britain in 1979:
• State-owned enterprises were quickly sold off: national
airline, government-run water, gas, telephone and electric
utilities
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging Businesses:
– In Ireland: Telecom Eireann was sold and much was
made of the opportunity for ordinary Irish people to
purchase shares in the newly privatised Eircom, but
many of these people lost a great deal of money on
these shares
– Aer Lingus is currently under preparation for being
sold
– As governments adopt the private enterprise model
and cut back on public expenditure they open up
areas to market forces that were previously
considered the responsibility of the State
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging Businesses:
– After World War Two politicians in the West were
forced by civic-minded electorate to expand social
welfare policies including education, healthcare,
unemployment insurance, state pensions etc. At the
same time the State expanded its role in the provision
of public infrastructure, building roads, bridges,
airports, prisons and hospitals
– Now with the notion of the ‘inefficient’ public sector,
governments are selling off public utilities
– But is the ever increasing power of private firms the
answer? Why not reform public sector inefficiencies?
Are private firms fair, encouraging equality?
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Merging Businesses:
– Privatisation has been strongly endorsed by the World
Bank and IMF- based on the notion that governments
have no business in the marketplace and the least
government is the best government
– Countries are privatising public assets and
encouraging foreign investment in their own private
sector
– But is foreign investment the best? Does investment
by foreign corporations guarantee economic
progress?
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Controlling foreign investment:
– It is not the quantity of foreign investment that
matters, but the quality
– National governments need to choose the kinds of
foreign investment that will produce net benefits for
their citizens and reject those investments whose
overall impact will be negative
– However, the power to influence the quality of
investment is dwindling as free-trade agreements and
the free movement of capital effectively tie the hands
of states which agree to them, inevitably
compromising government sovereignty
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Draining the public purse:
– Even in countries of the OECD (Organisation
for Economic Cooperation and Development)
corporations have the upper hand, trading off
one nation against another to see who can
offer the most lucrative investment incentives
– Governments drain the public purse in their
attempts to buy jobs from private investors
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Ireland: Cost per job in IDA
supported companies
25000
20000
15000
Euros
10000
5000
0
88/'94
89/'95
Source: Forfas Annual
Employment Survey, 2003
90/'96
91/'97
92/'98
93 to
'99
Years
94 to
'00
95 to
'01
96/'02
97/'03
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Giant private organisations as the
driving force behind globalisation
• Draining the public purse:
– The largest multinationals call themselves
‘global firms’ – which might lead one to
believe that they are stateless, disembodied
entities
– There are a few giant companies that are truly
stateless; most are firmly tied to one national
home base. For example, Microsoft is an
identifiably US corporation. Nortel Networks is
a Canadian corporation.
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Draining the public purse:
– Such companies have no problem stating their
allegiance to a nation when they want tax breaks,
grants etc. But this allegiance is fickle and quickly
diverted if opportunities for profit appear greater
elsewhere
– The fact that multinational corporations are relatively
footloose means they can move operations to where
costs are cheapest and play off one government
against the other in the process
– The sheer size, wealth and power means that
multinationals and the business sector in general
have been able to structure the public debate on
social issues and the role of the government in a way
which benefits their own interests
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• The Upper Hand:
– As corporations gain the upper hand, the fear of job
losses and the resulting devastation has created a
downward pressure on environmental standards and
social programs
– The Multilateral Agreement on Investment (MAI): most
infamous recent example of the attempt by big
business to remake the world its image
– After the WTO came into being in 1994, the globe’s
major corporations began to put together a plan for
codifying the rules of world trade in a way that would
give them complete freedom
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• The Upper Hand:
– The MAI was an agreement drafted by the
International Chamber of Commerce and presented
to the rich-nation OECD members for discussion, and
assumed approval
– Once passed, they would next go to the WTO
– Third World governments were rightly suspicious of
the MAI but with the weight of the OECD behind it,
supporters reckoned it would be speedily adopted as
an official document of the WTO
– OECD delegates began discussion the MAI in 1995
behind closed doors. By 1997 most of the treaty was
down on paper. Many politicians in the OECD
member countries weren’t even aware of the
negotiations
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• The Upper Hand:
– Activists in Canada saw a copy of the MAI and began
sending it around the world via the internet
– The MAI had set out to give private companies the
same legal status as nation-states in all countries that
were party to the Agreement
– It set out a clear set of rules so that corporations
would be able to defend their new rights against the
objections of sovereign governments
– The MAI was overwhelmingly biased towards the
interest of multinationals
– For example, under the MAI provisions corporations
could sue governments for passing laws that might
reduce their potential profits
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• The Upper Hand:
– The MAI also allowed foreign investors to challenge
public funding of social programs as a distortion of
free markets
– The MAI would provide foreign investors with new
and substantive rights with which they could
challenge the government programs, policies and
laws all over the world
– Once the text became public, groups around the
world began education campaigns on the potentiallydamaging impact of the MAI
– In a few months public anxiety about the deal came to
a head.
– Politicians were drawn into the debate and
governments were forced to enter ‘reservations’ to
protect themselves from certain MAI provisions
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• MAI Protest:
– By May 1998 it was clear that the talks were
at a standstill and the public opposition had
prevented further progress on the Agreement
– leading to the end of the MAI
– But the end of the MAI didn’t spell the end of
the corporate agenda – the focus shifted to
the WTO and other global venues where
multinationals could lobby for MAI-like
investment provisions
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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Giant private organisations as the
driving force behind globalisation
• Globalisation:
– A huge investment by giant corporations in
computerised, high-tech machinery has reduced
many jobs while boosting productivity and
constraining wage growth
– In an era of globalised free markets all countries try
and fight their way to prosperity by boosting exports.
Nations look outwards, depending more and more on
international trade for their economic survival
– The success of one country vis-à-vis another
depends on how competitively it can price its goods in
the world market. This kind of competition inevitably
means cutting costs and the easiest costs to cut are
wages
Source/Quoted directly from: Ellwood 2002, Amnesty International. Full reference at the end.
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• Reference: Ellwood, W. (2002), “The NoNonsense Guide to Globalisation”, Amnesty
International, Chapter 4: The Corporate Century
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