Transcript globecon_01
GlobalEconomics_001 The Integration of National Economies ONE WORLD? The Upside & the Downside Old News Home Work At one extreme are the globalization buffs (Globuffs) for whom international integration is an unmixed blessing. Is there a middle way? The Upside & the Downside At the other extreme are the isolation idealists (Isolidars) for whom open internationalization is a race to the bottom. Old News But it is old news. In the five decades 1865 - 1914 sharp reductions in trade barriers and in transport costs (railroads and the steamship) allowed enormous international flows of goods, capital and people. Migration was even more extensive than it is today. Tragically, it ended with the First World War. Bad News WWI was followed by periods of spotty prosperity and growing protectionism. This ended with another tragedy, the Great Depression. Fierce and destructive protectionism, tightly controlled capital movements and ultimately Fascism and Communism, Keynesianism and the New Deal divided up what little was left of the world’s product. Worse News Again tragedy intervened with a solution worse than the problem: World War II. Picking Up the Pieces Soon to be victors meet in New Hampshire at a ski resort in Bretton Woods. Representatives of Stalin’s USSR, Roosevelt’s USA, Churchill’s UK, DeGaulle’s France, Chiang Kai-Shek’s China, etc. meet to create a post-war international economic system. Better News Although the Bretton Woods system featured controls on capital movements, it restored support for free trade, a mechanism for pursuing it and a workable system of exchange rate management. Aspects of the plan proved dysfunctional by the early 1970s, but much of it is still with us. Driving forces Two forces are behind the recent increases in trade & international finance Technology: Communications, transport and computing. Liberalization: The GATT, reduced trade barriers and liberalized financial flows. But how deep are the changes? Trade in Goods & Services Measured as (Ex + Im)/GDP, only USA & Germany are significantly more open to trade now than in the 1910s. UK & France are slightly more open. Japan is significantly less open. Trade and Prices Trade is supposed to suppress price differentials between countries. Not enough trade to accomplish this goal. Most trade remains intra-national. On average, trade between a US state & a Canadian province is less than 5% of the trade between two US states or two Canadian provinces. Nevertheless, the US/Canadian trade is the largest of all. Recent Steel Protection Higher steel prices nationwide. Western steel makers mainly foreign owned (Brazil, Mexico, Korea); they are just as protected as if US owned. Import ingots from Asia under quota at low prices. Eastern steel makers mainly US owned. Disadvantage due to transport costs. Steel Protection Shipping ingots from Asia to California is cheap. Shipping ingots from California to the Midwest is expensive. Who wins? Western steel fabricators. Who loses? Eastern steel fabricators and all consumers. Financial Integration During 1885-1913, UK’s CA surplus (capital outflow to North America, Argentina & Australia) averaged 5 to 10% of GDP. Japan’s current surplus never made it above 3%. Foreign Direct Investment of the rich countries is now about 6% of total investment. In the 1910s it was close to 50%. Home Work Labor now is also less mobile than in the second half of the 19th Century. 60 million people migrated in those years. Even in the present European Community, in which free migration is completely legal, most people stay at home. So, is it really Globallony? Today, global mobility is open to many more countries and regions than earlier. Today, falling communication costs drive growing mobility; earlier it was falling transport costs. Today, although net financial flows are smaller, gross flows are much larger.