Globalization

Related Terms: Global Business; Tariffs

Viewed narrowly, globalization is a governmental policy favoring free trade, open borders, the free movement of capital and goods (but not always of people), elimination of tariffs and price controls (including artificial control of currency values), and the privatization of publicly-owned or controlled enterprises. Globalization is also a word used to describe all manner of phenomena associated with such a policy—both positive and negative. In the U.S., the positive consequences of globalization so far have been inexpensive imports and the ability of companies to more easily invest abroad; the negative consequences have been the loss of jobs to off-shored operations and outsourced functions, large trade deficits, and foreign ownership of domestic assets. Globalization is a polarizing issue generally favored by the right in the name of free markets and opposed by the left as a policy that favors "Big Capital" and hence a small corporate elite.

HISTORICAL CONTEXT

The International Monetary Fund, an organization of 184 countries, suggests in its definition that globalization is something of a natural process. Globalization, according to the IMF, is "a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization'¦."

Trade, of course, is as old as humanity. Anthropologists have traced enormous trade routes that Cro-Magnon man used all across Europe before the dawn of history. Trade over land and by ship became common, the principal trade goods being agricultural products like olives and grains. In pre-industrial times high dependence either on exports or imports tended to lead to war as countries tried either to secure their supplies or their markets. Rome became seriously dependent on grain imports from Egypt and eventually conquered its supplier. The British Empire evolved as a series of steps attempting to protect its far flung trading centers. In modern times oil and gas are the "must have" commodities and are producing wars and tensions. The relevant phrase in the IMF's definition therefore is "increasing integration." Integration implies mutual dependency and therefore the danger of being cut off in times of trouble.

Underlying trade is the uneven distribution of the world's resources. Some people have grain, others have timber. Some can raise animals on plains others can mine metal in mountains. We encounter a formulation of this argument in Adam Smith's The Wealth of Nations (18th century): "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." In the 19th century David Ricardo refined this concept and called it "comparative advantage." Ricardo factored in opportunity costs as well as direct costs. In any event, the value underlying free trade is that both sides benefit because of differential advantages.

Trade is the expression of economic power, but a more basic power underlies it: political power expressed as force. Trade-based policies in the past have been balanced by policies of autarky, a word Merriam-Webster defines to mean "national economic self-sufficiency; a policy of establishing independence of imports from other countries." No country is genuinely self-sufficient, but attempts to gain the optimum advantage by a mixture of trade and force tends to be practiced at all times. Thus the U.S. government, for instance, despite a broadly favorable view on globalization, still imposed a tariff on Brazilian ethanol imports in the mid-2000s. The relative power of a country, the relative importance of a commodity, and the relative influence of vital constituencies within that country combine to determine how much a country will rely on trade, how much on force, and in which categories particularly.

A fundamental reason for opposition to globalization arises from its chief feature, integration and therefore mutual dependence. In democratically organized countries political blocks can only hope to influence their own government—not that of scores of others. But unreachable foreign governments will influence the local economy. And narrow constituencies that benefit disproportionately from free trade may be able to control the government. The free trade philosophy, based on the vitality of competition, is also opposed by a socialist philosophy, based on the virtue of cooperation.

INSTITUTIONAL EXPRESSION

Globalization is taking place under international treaties to which a majorities of countries are signatories. Traditionally these treaties have been negotiated in so-called "rounds" and have resulted in "agreements." The last "round" was the Uruguay Round in which agreements were signed on April 24, 1994; they went into effect on January 1, 1995, and established the World Trade Organization (WTO). Several other agreements were annexed to the "WTO Agreement;" these include the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade and Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The first GATT was negotiated and signed in 1947. WTO is now the successor to all of these agreements.

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