Dickens Global Shift- Chapter 1- Questioning

Globalisation
Globalisation definition:
Stiglitz puts it as the closer integration of the countries and peoples
of the world which has been brought about by the enormous
reduction of costs of transportation and communication and the
breaking down of artificial barriers to the flows of goods, services,
capital, knowledge and (to a lesser extent) people across borders
p9

Conflicting perspectives on Globalisation

Neo-liberals (or pro-globalizers, political right):
Globalisation is an ideological project that will bring the
greatest benefit for the greatest number. Argue for free
markets
Argue for free markets in trade and finance
Believe that there is too little rather than too much
globalisation
Globalisation is the solution to the worlds economic problems
and inequalities
Hyper-globalizers (anti-globalizers, political left):
Globalisation is the problem not the solution
Free markets create inequalities; globalisation increases the
scale and extent of inequalities
Unregulated markets lead to a reduction in well-being for all
except a small minority in the world, also creates
environmental problems
Markets must be regulated

Geography of globalisation
Before 1914:
Shallow integration through arms length trade between
independent firms
Relatively simple direct investment
Today
Deep integration
Geographically extensive and complex global production
networks

Large increase in both intra-industry and intra-frim trade, both

of which are clear indicators of more functionally fragmented
and geographically dispersed production processes
Financial markets: money moving electronically around the
world at rapid speed

Different types of geographical spread/ functional

integration:
localizing processes: geographically concentrated economic
activities with varying degrees of functional integration

internationalizing processes: simple geographical spread

of economic activities across national boundaries with low
levels of functional integration

globalizing processes: both extensive geographical spread

and also a high degree of functional integration

regionalizing processes: the operation of globalizing

processes at a more geographically limited (but supranational)
scale, ranging from the highly integrated and expanding
European Union to much smaller regional economic
agreements.

Chapter 2- Shifting Contours of the Global Economy

Imprint of past geographies
1700-1945:

Global division of labour developed intensified with

industrialisation
Newly industrialised economies of the West (Britain, Western
European countries, later the US) became increasingly
dominant in a core-periphery configuration.
Core= production of manufactured goods
Periphery= source of raw materials and foodstuffs.

Post 1945 (WW2)

Global division of labour shattered by WW2
New technologies created and many industrial technologies
were refined and improved
US emerged from the war strengthened rather than
weakened- had economic and technological capacity and the
political power to lead the way in building a new world order

Today
Emergence of china into global market economy
Collapse of prevailing political systems in the Soviet Union and
its Eastern European satellites in 1989

Roller-coasters and interconnections

Two particularly important features have characterized the global
economy since 1950: the increased volatility of aggregate economic
growth; and the growing interconnectedness between different parts
of the world.
Aggregate trends in global economic activity

The path of economic growth certainly does not run smooth. Its a
roller-coaster. Sometimes the ride is gentle, with just minor ups and
downs; at other times, the ride is truly stomach-wrenching, with
steep upward surges separated by vertiginous
descents to what seem like bottomless depths.
Golden Age (1950-1970)
Figure 2.3 depicts this roller-coaster pattern for the period
since 1960.

The years immediately following the Second World War were

ones of basic reconstruction of war-damaged economies.

Rates of economic growth reached unprecedented levels; the

period between the early 1950s and the early 1970s became
known as the golden age.

In fact, it was only partly golden: it was more golden in some

places than others, and for some people than others.

But then, in the early 1970s, the sky fell in.The long boom
suddenly went bust; the golden age became tarnished.

Post Golden Age

Rates of growth again became extremely variable, ranging

from the negative growth rates of 1982 through to two years
(1984 and 1988) when growth of world merchandise trade
reached the levels of the 1960s once again.

But then, in the early 1990s, recession returned.

In 1994 and 1995, strong export growth reappeared.

A similarly volatile pattern characterized the final years of the

twentieth century.There was spectacular growth in world trade
in 1997, followed by far slower growth in 1998 and 1999
(partly related to the East Asian financial crisis and to its
contagious effects on other parts of the world).

Then, once again, there was spectacular acceleration in world

trade in 2000, followed by an equally spectacular bursting of
the growth bubble, a problem certainly exacerbated (though
not caused) by the 9/11 terrorist attacks on NewYork City and
by the crisis in the IT (dotcom) sector of the so-called new
economy.

High growth rates returned once again.

Then, in 2008, seemingly without warning, the deepest

recession since the late 1920s suddenly occurred.The rollercoaster was back with a vengeance.

Growing interconnectedness within the global economy

Interconnectedness has three major dimensions:

1. trade has grown faster than output;
2. foreign direct investment has grown faster than trade
3. serious structural imbalances in the world economy have
emerged.
1. Trade has grown faster than output
Figure 2.3 shows that exports have grown much faster than
output in virtually every year since 1960.

In the second half of the twentieth century, world

merchandise trade increased almost 20x while world
merchandise production increased just over 6x.

More and more production is being traded across national

boundaries.

Countries are becoming more tightly interconnected through

trade flows.This is reflected in the ratio of trade to GDP. The
higher the figure, the greater is the dependence on external
trade.

There is huge variation between countries in such trade

integration. For example, international trade is bound to be
more important for geographically small countries than for
large ones, the result of a simple size effect (contrast, say, the
US with Singapore).

However, in virtually all cases the importance of trade to

national GDP has increased significantly, as Table 2.1 shows.

Figure 2.4 maps the network of world merchandise trade. It

shows the strong tendency for countries to trade most with
their neighbours.

Europe is the worlds major trading region. However, almost

three-quarters of that trade is intra-regional, that is between
European countries themselves. Around 7% of Europes
exports go to North America and 7% to Asia (including Japan).

Asia is the second most significant trade region, with a little

under one-half of its trade conducted internally. Just under
one-fifth of Asias external trade goes to North America and a
further 18% to Europe.

North America also conducts around 50% of its trade

internally, with an especially large increase in trade involving
Mexico. Asia and Europe each account for almost 20% of
North Americas external trade and Latin America for 8%.

2. FDI has grown faster than trade

Figure 2.5 shows that during the 1970s and into the first half
of the 1980s the trend lines of both FDI and exports ran more
or less in parallel.

Then from 1985 the rate of growth of FDI and of exports

diverged rapidly. With some exceptions, FDI grew faster than
trade.

This divergence in growth trends between FDI and trade is

extremely significant. It suggests that the primary mechanism
of interconnectedness within the global economy has shifted
from trade to FDI. Of course, these trends in the growth of FDI
and trade are not independent of one another.

The common element is the transnational corporation

(TNC).The number of TNCs has grown exponentially over the
past three decades.

In 2009, according to UNCTAD, there were around 82,000

parent company TNCs controlling around 810,000 foreign
affiliates.

TNCs account for around two-thirds of world exports of goods

and services, of which a significant share is intra-firm trade. In
other words, it is trade within the boundaries of the firm
although across national boundaries as transactions
between different parts of the same firm.

The relative importance of FDI to national economies has

increased virtually across the board, a clear indication of
increased inter- connectedness within the global economy

3. Structural imbalances in the world economy

The flexing and fluxing global economic map is the outcome of the
major global shifts that have occurred over the past four decades or
so. It is made up of complex interconnections, most notably those
constituted through networks of trade and FDI. But such flows have
created huge structural imbalances within the global economy.
Figures 2.6 to 2.8 show the pattern of trade balances in
manufacturing, services and agriculture.The accumulated result of
these three sets of trade bal- ances creates a huge dilemma for the
global economy: the potential instability created by the fact that
some countries have huge trade and current account surpluses
whilst others have enormous deficits.

Countries with trade surpluses accumulated capital beyond

their capacity to absorb it.

Many ran large current account surpluses and accumulated

record reserves.

Countries with trade deficits financed their current account by

increased borrowing abroad ... Chinas current account surplus
rose from 2 per cent of GDP in 2000 to an average of 10 per
cent during 200507 ...

The largest deficits were in high-income countries, with the US

accounting for more than half the worlds current account
deficits. The US current account deficit increased from 4.3 per
cent of GDP in 2000 to an average of 6 per cent in 200507 ...

As the global imbalances between savings and investment

grew, countries with large deficits borrowed from countries
with surpluses, while fast-growing exporters depended on
expanding markets in deficit countries.

China and other surplus economies accumulated record

reserves ... and sent capital overseas.

The US and other deficit countries consumed more and

financed their deficits by issuing more debt and equity.

The changing contours of the global economic map: global

shifts in production, trade and FDI

Although the established developed economies continue to

dominate, their position has undoubtedly changed.

At the broadest level, for example, the developing countries

share of GDP, exports and inward FDI has increased
significantly.

Table 2.3 shows a small number of developing countries,

primarily in East Asia, together with the Russian Federation
and some of the Eastern European economies, have emerged
through rapid growth

Nevertheless, the geographies of production, trade and FDI

remain highly uneven and strongly concentrated.

Around three-quarters of global manufacturing and services

production, and almost four-fifths of world agricultural
production, are concentrated in just 15 countries.

Around one-fifth of world trade in goods, services and

agriculture is accounted for by the leading two countries in
each sector

The picture is similar in the case of FDI. More than 80 per cent
of outward FDI stock originates from 15 countries; the leading
two source countries the US and the UK account for almost
30 per cent of the world total.

Half of all the inward FDI in developing countries is

concentrated in just five host countries; almost 30 per cent is
concentrated in China and Hong Kong alone.

The US still dominates the global economy though less so

Although still the worlds leading economic power, its

dominance has been much reduced as other competitors have
emerged.

Between 19801990 and 19902003, US GDP grew at an

annual average rate of 3.6 and 3.3 per cent respectively,
slightly above the world growth rate of 3.3 and 2.8 per cent.

Between 2000 and 2007, its average annual rate of growth

was 2.7 per cent, below the world average of 3.2 per cent.The
2008 recession hit the US especially hard:the worst downturn
in post-war history.

US share of world merchandise exports has fallen from 17 per

cent in 1963 to less than 10 per cent.

Although US merchandise exports have grown at around 5 per

cent a year, imports have grown at between 8 and 9 per cent
a year.

As a result, as we have seen, the US has an enormous trade

deficit. In effect, it has become the importer of last resort for
the global economy.

China has become, in effect, Americas banker through its

huge holdings of US Treasury bonds.

In 1960, the US generated almost 50 per cent of all the

worlds FDI, compared with less than 20 per cent today. The
biggest change, however, has been in the countrys position
as a host for FDI. Although the US has attracted FDI for many
decades, such inward investment was always a tiny fraction of
the countrys outward FDI.

However, the US has become significantly more important as

an FDI destination. Inward and outward FDI are now much
more equal than in the past.
Europe is still a major player but its performance is uneven
Europe, as a region, is the worlds biggest trading area and
the primary focus of global FDI. However, despite being the
most politically integrated region in the world, the European
economy is actually very diverse, experiencing uneven rates
of economic growth over the past two decades, as well as
uneven rates of decline in the 2008 recession.

Germany is by far the biggest European economy in global

terms: it is the fourth largest manufacturing producer (after
the US, China and Japan), the largest manufacturing exporter (
just, but to be overtaken by China), the third largest
commercial services exporter, and the third most important
source of FDI.

But its growth in GDP has been below the world average for a
long period (only 1.1 per cent between 2000 and 2007), and it
still faces difficult problems in integrating the former East
Germany into the economy as a whole.

Europes second biggest economy, the UK, has experienced

the greatest long- term relative decline in so far as it once
dominated the world. However, it is still the worlds second
biggest source of FDI and second biggest exporter of
commercial services.

Between 2000 and 2007, the UK economy grew by 2.6 per

cent per year. However, the UK was hit harder by the 2008
recession largely because, like the US, its property bubble
burst, and it is also more highly exposed to the collapse in the
financial sector than most other European countries.

There are considerable differences in trade performance

between individual European countries. Whereas France, the
UK, Spain and Italy have merchandise trade deficits, Germany,
the Netherlands and Sweden have surpluses.

In contrast, in commercial services the UK has a big trade

surplus, France and Spain modest surpluses, while Germany
has a substantial deficit.

Europe remains a major magnet for inward investment as well

as the leading source of outward FDI.

For all the major European countries (excluding the UK), more
than half of their FDI outflows are to other European countries.
In most cases, this regional orientation has actually increased.

Re-emergence of china

China is having a dramatic effect on the world economy

because of two factors: not only does it have a huge, cheap
workforce, but its economy is also unusually open to trade.

Chinas development is not just a powerful driver of global

growth; its impact on other economies is also far more
pervasive ... Chinas growing influence stretches much deeper
than its exports of cheap goods: it is revolutionising the
relative prices of labour, capital, goods and assets in a way
that has never happened so quickly before.

Between 1980 and 2003, Chinas growth rate (of GDP as a

whole and of manu- facturing) was the highest in the world:
annual average rates were around 10 per cent.This
remarkably high rate continued through to 2007.

The 2008 global crisis inevitably had an effect and growth

slackened but it was still of the order of 8 per cent and, by
2009, it was even higher.

Its average annual rate of growth of merchandise exports was

13 per cent in the 1980s and 14 per cent between 1990 and
2003. Exports as a share of Chinas GDP increased from 38 per
cent in 2002 to 67 per cent in 2007.

As a result, China is now the worlds second largest manufacturing producer, the largest agricultural producer, the
second largest exporter of merchandise (about to be the first)
and the worlds third largest importer.

Overall, then, Chinas impact on the global economy is manifested

in the following ways:

Resource-intensive growth. By 2006, China already consumed

32 per cent of the worlds steel, 25 per cent of the worlds
aluminium, 23 per cent of the worlds copper, 30 per cent of
the worlds zinc and 18 per cent of the worlds nickel ... China
accounted for 31 per cent of the global incremental demand
for oil between 2000 and 2006.

Prices of manufactures and commodities. The initial impact of

Chinas entry into the global economy was to reduce the price
of manufactured goods, especially labour-intensive goods
which China could produce so cheaply and in such large
quantities. On the other hand, its voracious appetite for
resources has helped to increase world prices of commodities.

Exports of capital. Not only is China now a massive exporter of

goods, it is also an increasingly significant exporter of
capital.Chinas current account surplus has exploded upwards
in recent years, from ... 3.6 per cent of GDP as recently as
2004, to a recent forecast of ... 11.9 per cent of GDP. This year
[2007] its current account surplus will be much the biggest in

the world and as big as the surpluses of Germany and Japan

together.As a share of GDP,Chinas surplus is more than
double the largest surplus Japan has ever generated ... Chinas
[for- eign currency] reserves are now more than $500bn
bigger than those of Japan.