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23-globalizaton.pdf
W hat is Globalization?
the interconnection of national econom ies across the w
orld on issues such as trade, investm
ent, labor, banking and the m ovem
ent of people, goods and services
Econom ic narratives
• From
the m ercantile m
onopolies of 17 th
c em pires to the m
odern-day authority of the W
TO , IM
F, and W orld Bank, the nations of the w
orld have struggled to effectively harness globalization's prom
ise
• econom
ic narratives that underpinned these eras— th
e go
ld sta
n d
a rd, th
e
B re
tto n
W o
o d
s re g
im e, the "W
a sh
in gto
n C
o n
se n
su s"
Phase 1: The Early Voyages of Exploration &
Colonization (1492-
1800)
• exploration of new
lands -Com m
on m
ethod of travel w as by ship/trails,
lim iting ability to m
ove around •
m ost trade is local since trade routes exist
(Silk Road) but not abundant •
Establishm ent of transoceanic routes
• M
ass production of anything extrem ely
hard
Trans-A tlantic Slave Trade
• forcibly m
oved 12-15 m illion African m
en, w om
en, and children to other parts of the w
orld.→ largest forced
m ovem
ent of people in the history of the w orld
• carried slaves to the Am
ericas in exchange for sugar, cotton, and tobacco
• Vasco da Gam
a’s passage of the Cape of Good Hope in 1497-98 →
trade w ith India and Southeast Asia could
now bypass Venetian and M
uslim interm
ediaries •
com panies that m
ade this trade possible w ere m
ostly chartered trading m
onopolies ( ex. English East India Com
pany, Dutch East India Com pany)
The Age of Chartered Trading Com panies
• d
o m
in a
n t e
co n
o m
ic p h
ilo so
p h
y o f 1
7 th
c w a
s m e
rca n
tilism , w
h ich
a
d vo
cate d
a clo
se a
llia n
ce b
e tw
e e
n th
e so
ve re
ign a
n d
co m
m e
rcia l
in te
re sts
•m ercantilists’ narrative of capitalism
w as based on the view
that the state and com
m ercial enterprise ought to serve the needs of each
other •
Econom ics w
as a tool of politics, and vice versa. •International trade, in particular, had to be m
onopolized to exclude foreign pow
ers and to reserve the benefits for the hom e country.
East India Com pany
• m
ost fam ous am
ong them , the English East India Com
pany, chartered in 1600 as a joint stock com
pany, m onopoly covered trade w
ith the Indian subcontinent and China (including opium
trade);
• pow
ers extended considerably beyond trade & had a standing arm
y
• could m
ake w ar, enter into treaties,
• m
int its currency,
• adm
inister justice→ expanded its control over India through a series of arm
ed confrontations w
ith the M ughal Em
pire and alliances w ith local rulers
• abolished as a result of the Indian M
utiny of 1858, at w hich tim
e control of India passed directly to the British
Phase 2: 19 thc W
hat m ade this era of globalization possible?
Age of Transnational Integration •
Industrial revolution •
new technologies in the form
of steam ships, railroads,
canals, and the telegraph revolutionized international transport and com
m unications &
reduced trade costs starting in the early part of 19
thc •
Shift from handm
ade to m achine m
ade good •
econom ic narrative changed : ideas of free m
arket econom
ists like Adam Sm
ith and David Ricardo → international trade increased
• from
the 1870s on, the w idespread adoption of the
gold standard enabled capital to m ove internationally
O pen trade policy
• Britain is the only large econom
y that m aintained open trade policies→
Corn Law
s: 1846, “corn” w as synonym
ous w ith grains, and the tariffs in question
covered all food and cereal im ports. Landlords w
anted high tariffs that kept food prices high and raised their incom
es. U rban m
anufacturers w anted to abolish the
tariffs to reduce the cost of living.
• m
ajor Continental pow ers in Europe w
ere unhesitant converts to free trade only for a short period during the 1860s and 1870s.
• U
S put up very steep tariffs on m anufactured im
ports during the Civil W ar and
kept them high throughout the century.
Institution w as im
perialism
→ im
perialism w
as a m echanism
for im posing open trade rules
Im perialist policies deployed the political and m
ilitary pow er of the m
ajor countries to bring the rest of the w
orld into line w henever possible
→ provided an im
portant backstop to globalization being disrupted in the peripheral parts of the w
orld econom y —
Latin A m
erica, A sia, and the M
iddle
US w as a highly protectionist country during 19
thc
US-Trade policies fed directly into the m ost im
portant social and political cleavage in the country, betw
een South and North. •
slaveholding South w as organized around an export econom
y based on tobacco and cotton →
depended on international trade for its prosperity •
free states of the North relied on a m anufacturing base that lagged behind Britain in
productivity and struggled to com pete w
ith cheaper im ports→
w anted protection from
im
ports •
Civil W ar of 1861-66 w
as fought as m uch over the future of Am
erican trade policy as it w
as fought over slavery •
As soon as the w ar started, Abraham
Lincoln ↑ U.S. tariffs
• trade protection ↑
follow ing the North’s victory→
tariffs on m anufactured goods
averaged 45%
G old Standard: financial and m
onetary regim e that governed 19
thc globalization
gold standard rested on a few sim
ple rules: 1.
each national currency had its gold parity, w hich pegged its value rigidly to gold
2. central bank of each nation stood ready to convert national currencies to gold at these parities
3. exchange rates betw
een currencies w ere also irrevocably fixed
4. m
oney could flow freely across countries, and be exchanged at the fixed rates
determ ined by the gold parities
5. Interest rates in London, N
ew York, and the m
ajor financial centers of Europe
m oved as one
Capital flow ed freely and in huge quantities from
w here it w
as plentiful (Britain in particular) to w
here it w as scarce (the New
W orld in particular)
M aintenance of gold standard
• rules m
eant that changes in the dom estic supply of m
oney w ere tightly linked to
m ovem
ents in gold reserves. •
A country w ith a deficit on its foreign balance of paym
ents w ould lose gold to its trade
partners & experience a reduction in its m
oney supply→ gold flow
s w ould in turn trigger
corrections in econom ic conditions
• m
aintenance of the gold standard had absolute priority in the conduct of m onetary
policy for 2 reasons: 1.
the system cam
e to be view ed as the foundation of m
onetary stability 2.
there w ere no com
peting objectives — such as full em
ploym ent or econom
ic grow th
— in the conduct of m
onetary policy.
G old standard during &
after W W
I
• A
ll go ve
rn m
e n
ts in clu
d in
g B rita
in ’s su
sp e
n d
e d
go ld
co n
ve rtib
ility d
u rin
g W W
I & im
p o
se d
e xch
a n
ge co
n tro
ls
• Fo
llo w
in g th
e co
n clu
sio n
o f th
e w
a r, G
e rm
a n
y, A u
stria , P
o la
n d
, a n
d
H u
n ga
ry e xp
e rie
n ce
d h
yp e
rin flatio
n d
u rin
g th e
e a
rly 1 9
2 0
s
• O
fficia ls vie
w e
d a
re tu
rn to
go ld
a s in
e vita
b le
so m
e tim
e d
u rin
g th e
1
9 2
0 s, to
re -e
sta b
lish n
o rm
a lcy in
in te
rn atio
n a
l fin a
n ce
→ questions
rem ained about the tim
ing and about w hether the return should
take place at the prew arparity (£1 = $4.87) or at a m
ore devalued rate
O ff gold
argum ent for devaluing the pound w
as clear, Britain’s econom ic star had dim
m ed
and required a w eaker pound to go along w
ith it → but returned to the gold
standard at pre-w ar parity
• W
ages and prices rem ained too high for the British econom
y to regain its external com
petitiveness and correct its trade im balance→
Export oriented industries such as coal, steel, shipbuilding, and textiles w
ere hard hit, and unem ploym
ent eventually rose to 20%
→ 1931, Britain once again w
ent off gold.
• Roosevelt took the U
S off gold in 1933 to enable m onetary expansion
• France and the so-called “gold-block countries” follow
ed off gold in 1936
Tra d
e fe
ll d u
rin g
th e
W o
rld W
a rs &
ye a
rs o f th
e G
re a
t D e
p re
ssio n
( 1 9
2 9
-3 8
)
D o
u g
la s Irw
in , “
W o
rld T
ra d
e a
n d
P ro
d u
c tio
n : A
L o
n g
– ru
n V
ie w
,” 2
0 1
5
In The Global Trade Slow dow
n: A New Norm
al? VoxEU.org eBook, ed. by Bernard Hoekm an
(CEPR), June.
Keynes “The G eneral Theory of Em
ploym ent, Interest and M
oney”
• explaining w
hy the gold standard fails to operate sm oothly in m
odern econom ies
• W
orkers had becom e not only unionized; they now
had the vote. The gold standard narrative of a sm
oothly functioning, self-regulating system of global
finance ceased to be convincing in the face of the new political reality created by
dem ocracy.
• m
assive failure of international cooperation in trade, aggravated the G reat
D epression
Protectionism in the 1930s
• U
S im posing the highest tariffs in its history in 1930→
Sm oot-Haw
ley Tariff w as
a response to the fall in com m
odity prices and econom ic decline &
aim ed to
shelter industry behind high protective w alls
• U
.S. m ove acted as both excuse and trigger to European nations w
hich had sim
ilar econom ic reasons to resort to trade barriers
• H
itler cam e to pow
er in 1933 & used trade policies strategically to extract
m axim
um advantage from
G erm
any’s neighbors in southeastern Europe.
W orld W
ar II (1939- 1945) led to the creation of m
illions of jobs & m
any new
industries
Phase 3: The Bretton W oods M
odel
• international organizations w
ere created: the International M
onetary Fund, W orld Bank, GATT
• W
hite’s push for m ultilateralism
and non-discrim ination
targeted UK’s preferential arrangem ents w
ith colonies that ham
pered Am erican com
m ercial expansion&
Keynes resisted dism
antling these preferences, but in the end the US had the upper hand
M ultilateralism
-G ATT
• M
ultilateralism m
eant that rule enforcem ent w
ork through international institutions —
IM F, W
orld Bank, G ATT never becam
e truly autonom ous from
the U
S or m ajor econom
ic pow ers, but neither w
ere they purely an extension of these pow
ers.
• G
ATT de facto m ultilateral forum
overseeing global trade liberalization through successive rounds of m
ultilateral trade negotiations (eight in all betw een 1947
and 1995) m anaged to elim
inate a substantial part of the im port restrictions &
reduce tariffs from
their post-w ar heights
• M
ultilateralism gave sm
aller and poorer nations a voice and protected their interests
G ATT goal w
as freer trade in som e areas, but not in all
• Agriculture w
as kept out of GATT negotiations & m
ost services (insurance, banking, construction, utilities, and the like) escaped liberalization as w
ell.
• M
anufacturing sectors that w ere liberalized but began to face significant
com petitive threat from
low er-cost exporters →
received protection
• the textile and clothing industries of the developed countries w
ere sheltered from
1974 on by the M ulti-Fibre A
rrangem ent (M
FA ),
• 1980s w
itnessed the spread of voluntary export restrictions (V ERs),
arrangem ents w
hereby exporters of autos, steel, and som e other industrial
products undertook to keep their exports w ithin specific quotas
• volum
e of w orld trade grew
at an average annual rate of alm ost 7 %
betw een
1945 and 1990, considerably faster than anything experienced to date.
U nder Bretton W
oods, U .S. dollar becam
e effectively the “global currency”
• serving as the reserve asset of choice for central banks around the w
orld.
• dollar’s peg to gold, at a fixed value of $35 per ounce. Even though all other countries could in principle devalue their currencies, the system
relied on the U
nited States never doing so itself→ “dollar-exchange standard”
• w
hen U S began to run deficits due to the V
ietnam W
ar and rapid econom ic
grow th in Europe and A
sia, its external paym ents becam
e a m ajor issue→
In 1971, confronted w
ith grow ing dem
ands from foreign countries to convert their
dollar holdings to gold, N ixon threw
in a 10 percent surcharge on im ports for
goods to signal that they w ould not idly stand by and allow
other countries to take advantage of their com
petitive currencies and run large trade surpluses
• Fordism
(1913-1960): assem bly line production →
M anufacturing increases
• Econom
ies are dom inated by large m
ultinational com
panies •
Steam ship and rail netw
orks enables goods to be transported faster
• Passenger/Com
m ercial flights started
• Evolution of Telecom
m unication
G row
th in trade w
as rapid during m ost of the post-w
ar period
W orld Trade &
Real G D
P, 1980 – 2014 (2
0 1
0 =
1 0
0 )
Trade grew
about tw ice as rapidly as G
D P
.
Phase 4 W
ashington Consensus &
H
yper- globalization
W TO m
arks the pursuit of a new
kind of globalization : hyperglobalization
• 1980s w
ere the decade of the Reagan-Thatcher →
Free m arket
econom ics w
as in the ascendancy, producing W
ashington Consensus, m
arket fundam entalism
, or neoliberalism
• U
S & U
K w ere m
ajor financial centers and stood to gain from
global financial liberalization
• D
om estic econom
ic m anagem
ent w
as to becom e subservient to
international trade and finance
Bretton W oods regim
e w as superseded in the 1980s and 1990s by a m
ore am bitious
agenda of econom ic liberalization and deep integration —
an effort to establish hyperglobalization.
1. Trade agreem
ents now extended beyond their traditional focus on im
port restrictions and im
posed dom estic policies;
2. controls on international capital m
arkets w ere rem
oved;
3. developing nations cam
e under severe pressure to open their m arkets to
foreign trade and investm ent
4. econom
ic globalization becam e an end in itself→
result w as a series of
disappointm ents
5. Financial globalization ended up creating instability rather than higher investm
ent and m ore rapid grow
th
6. W
ithin countries, globalization generated inequality and insecurity
H y
p e
r g lo
b a
liza tio
n
1 . In
fo rm
a tio
n a
n d
co
m m
u n
ica tio
n
te ch
n o
lo g
y (IC
T )
re vo
lu tio
n
2 . A
cce le
ra tio
n in
re
d u
ctio n
o f tra
d e
co sts
a n
d tra
d e
b a
rrie rs
• G
lobalization becam e an im
perative, apparently requiring all nations to pursue a com
m on strategy of low
corporate taxation, tight fiscal policy, deregulation, &
reduction of the pow
er of unions.
slow dow
n in the 2000s
In The Global Trade Slow dow
n: A New Norm
al? A VoxEU.org eBook, edited by Bernard Hoekm an
(CEPR), June 2015
2 0
0 8
-0 9
co lla
p se
in g
lo b
a l tra
d e
w a
s b ig
ge r th
a n
co u
ld b
e
e xp
la in
e d
b y
th e
fa ll in
G D
P
2009
Bussière, Callegari, Ghironi, Sestieri& Yam
ano, 2013, "Estim
ating Trade Elasticities: Dem and Com
position and the Trade Collapse of 2008-2009."
W hy has trade
slow ed so m
uch?
• T
h re
e e
xp la
n a
tio n
s th a
t w e
re o
rig in
a lly
su g
ge ste
d n
o w
se e
m w
ro n
g :
1. Protectionism
? It hasn’t happened.
2. H
igh prices for oil and therefore for transport? N
o → O
il prices fell by half subsequently.
3. Trade credit froze up w
hen financial m
arkets did? Yes but credit availability w
as subsequently restored.
Trade Liberalization
Cases of success in the period
• C
h in
a a
n d
In d
ia w
h o
ch o
se to
p lay th
e glo
b a
lizatio n
ga m
e n
o t b
y th e
n
e w
ru le
s→ in
ste a
d o
f o p
e n
in g th
e m
se lve
s u n
co n
d itio
n a
lly to
in te
rn atio
n a
l tra d
e a
n d
fin a
n ce
, th e
y p u
rsu e
d m
ixe d
strate gie
s w ith
state
in te
rve n
tio n
to d
ive rsify th
e ir e
co n
o m
ie s
• co
u n
trie s th
at fo llo
w e
d th
e sta
n d
a rd
re cip
e s —
su ch
a s th
o se
in Latin
A
m e
rica —
su ffe
re d
Financial crises in 1980s & 1990s
• Latin A
m erican debt crisis of the 1980s produced a “lost decade” of econom
ic stagnation
• Europe under Single M
arket, by late 1980s, capital controls had been rem oved in
all of the m ajor European countries→
early 1990s, w hen currency traders in
Europe speculated against the central banks of several European countries→ financial m
arkets forced devaluations on them
• m
id-1990s saw another round of financial crises, the m
ost severe of w hich w
as the “tequila crisis” in M
exico (1994) brought on by a sudden reversal in capital flow
s
• A
sian financial crisis follow ed in 1997-98, w
hich w ould then spill over to Russia
(1998), Brazil (1999), A rgentina (2000), and eventually Turkey (2001)
financial tsunam i in A
sia
• Som
e of the m ost successful econom
ies of East and Southeast Asia w ere suddenly hit by
a financial tsunam i in 1996
• Indonesia, M
alaysia, the Philippines, South Korea, and Thailand had received net private capital inflow
s of $93 billion. In 1997, they experienced an outflow of $12 billion, a
turnaround of $105 billion in a single year, w hich am
ounted to m ore than 10 percent of
their com bined GDP.
• →
crisis eventually spilled over to countries in other regions •
Having borrow ed significant am
ounts on global financial m arkets, Russia (in 1998) and
Argentina (in 1999-2000) w ere hit.
Capital Flow s
• G
lo b
alizatio n
m ay n
o t h
ave cau
se d
th e
glo b
al fin an
cial crisis, b u
t it p
laye d
a p ivo
tal ro le
in th
e w
o rld
w id
e tran
sm issio
n o
f th is crisis.
• raise
d q
u e
stio n
s p e
rtin e
n t to
o u
r glo b
al fin an
cial syste m
, in clu
d in
g risk m
an age
m e
n t p
ractice s an
d th
e im
p ro
ve m
e n
t o f re
gu lato
ry/su p
e rviso
ry stan
d ard
s
• casted doubt on the future of globalization &
revealed som e of the
negative phenom ena associated w
ith financial globalism , in
clu d
in g
in cre
ase d
risk exp o
su re
, in cre
asin g e
co n
o m
ic in te
rd e
p e
n d
e n
ce , an
d
th e
gro w
in g fin
an cial im
b alan
ce s o
f w o
rld p
o w
e rs (d
e ficit gro
w th
in U
K
& U
S, su rp
lu s gro
w th
in C
h in
a an d
G e
rm an
y).
Financial liberalization experience of Turkey
• After it rem
oved controls on capital flow s in the late 1980s, the Turkish governm
ent found a ready source of cheap finance despite poor m
acroeconom ic m
anagem ent. Public
debt w as on an explosive path and inflation rem
ained high. •
dom estic com
m ercial banks w
ould borrow abroad and use the m
oney to buy governm
ent bonds, profiting from the interest m
argin. •
W hen the eventual correction cam
e, precipitated by a “sudden stop” in capital inflow s,
the econom y experienced its w
orst decline in decades. •
W ithout financial globalization, Turkey w
ould have been forced to put its fiscal house in order a lot sooner than in 2001, and it w
ould have cost the country m uch less.
im pact of globalization on dom
estic incom e distribution
• increase in inequality w
as undeniable→ Incom
e gaps w ere in part the result of
globalization but also technological advances → “skill-biased technological
change” — inform
ation and com m
unication technologies that raised the dem and
for educated and highly skilled w orkers w
hile reducing the dem and for less
educated
Globalization prom ised to give everyone access to m
arkets, capital, and technology, and foster good governance
• By the m
iddle of 20 th
c, w orld w
as divided betw een a sm
all group of w ealthy
countries and a large num ber of others struggling under varying degrees of
poverty.
• next six decades w
itnessed extraordinary grow th on a global scale→
except for a handful of countries, m
ostly in A sia, few
poor countries w ere able to close the
gap betw een them
and the advanced countries
Few Success cases: South Korea and Taiw
an
• late 1950s, neither of these econom
ies w as m
uch richer than the countries of sub- Saharan Africa
• South Korea w
as had virtually no industry, having lost w hatever it had to the m
ore developed North Korea
• Taiw
an predom inantly agricultural econom
y •
transform ation that the tw
o econom ies began in 1960s
a governm ent that w
as single-m indedly focused on econom
ic grow th
• Prior land reform
in both countries had established som e space for governm
ents to act independently from
landed elites. •
Both countries also possessed an overarching geopolitical m otive:
• A. South Korea needed to grow
so it could counter any possible threats from North Korea
• B. Taiw
an w anted to forestall any possible challenge from
the Com m
unists. governm
ents in South Korea and Taiw an understood that achieving their political and
m ilitary goals required rapid econom
ic grow th→
developing industrial capabilities and a strong m
anufactured exports base becam e the predom
inant objective of both governm
ents’ policies → w
as accom plished by unleashing the energies of private
business
G overnm
ent intervention
• both governm
ents invested heavily in public enterprises during the 1960s→ designed to
facilitate private enterprise by providing cheap inputs and rem oving the obstacles to
private investm ent that stifled m
any other low -incom
e countries: excessive taxation, red tape and bureaucratic corruption, inadequate infrastructure
• interventionist policies —
governm ent incentives designed to stim
ulate investm ents in
“priority sectors” •
Governm ent tw
isted arm s w
hen needed •
dom estic m
arket w as protected from
im port com
petition to enable the “infant” industries to m
ake sufficient profits
discouraged m ultinational enterprises
• South Korea discouraged M
NE from com
ing in, w hich allow
ed m axim
um room
for dom
estic firm s to engage in technological learning.
• W
hile they enjoyed protection from international com
petition, these infant industries w
ere goaded to export from day one→
achieved by a com bination of explicit export
subsidies and intense pressure from bureaucrats to ensure export targets w
ere m et
m isdiagnosis of the experience of ISI
• Brazil, M
exico, and Turkey, w hich had follow
ed m ore inw
ard-looking strategies, m
aintained highly restrictive trade regim es w
ell into the 1980s. •
“im port-substituting industrialization” (ISI) had becom
e the dom inant m
odel in Latin Am
erica, the M iddle East, Africa, and parts of Asia (especially India) since the 1930s
• strategy focused on replacing previously im
ported goods — initially sim
ple consum er
goods, but eventually m ore sophisticated capital goods by dom
estic production by im
port protection, credit subsidies, tax incentives, etc •
strategy placed little em phasis or confidence in the ability of dom
estic firm s to export
and com pete on w
orld m arkets
• Still, m
any developing nations in Latin Am erica, the M
iddle East, and Africa experienced faster rates of econom
ic grow th under ISI than at any other tim
e in their econom
ic history (ex. Latin Am
erica grew at an annual average rate exceeding 2.5
percent per capita betw een 1945 and the early 1980s)
W hy econom
ic globalization rests on unstable pillars?
U nlike national m
arkets, w hich tend to be supported by dom
estic regulatory and political institutions, global m
arkets are:
• w
eakly em bedded→
prone to instability & w
eak popular legitim acy
im balance betw
een the national scope of governm ents and the global nature of
m arkets form
s the soft underbelly of globalization → given too m
uch pow er to
governm ents, result is protectionism
and autarky/ given m arkets too m
uch freedom
, unstable w orld econom
y
Lessons to draw ??
1. m
arkets and governm ents are com
plem ents, not substitutes.
M a
rke ts w
o rk b
e st w
h e
re state
s a re
stro n
g.
1. capitalism
does not com e w
ith a unique m odel→
e co
n o
m ic
p ro
sp e
rity a n
d sta
b ility ca
n b
e a
ch ie
ve d
th ro
u gh
d iffe
re n
t co
m b
in atio
n s o
f in stitu
tio n
a l a
rra n
ge m
e n
ts in la
b o
r m
a rke
ts, fin
a n
ce , co
rp o
rate go
ve rn
a n
ce , so
cia l w
e lfa
re
Varieties of capitalism
US, Britain, France, Germ any, or Sw
eden w ere each m
arket-based econom ies, but the institutions
that underpin their m arkets differ substantially
• US
stood as the leading exem plar of the liberal m
arket econom y
• Germ
an m
odel of social m arket econom
y •
Scandinavian w elfare state
• French system
based on “indicative planning” and extensive regulations. •
Japan-a hypercom petitive export sector alongside a highly regulated and protected traditional
econom y
• Developing countries-national efforts w
ere directed at fostering industrialization and econom ic
grow th
3. Nations are entitled to m ake varying choices a
m o
n g
th e
se a
rra n
ge m
e n
ts d
e p
e n
d in
g o
n th
e ir n
e e
d s a
n d
va lu
e s.
m arket econom
y blends state and m arket, laissez-faire and intervention→
precise m
ix depends on each nation’s preferences, its international position, and its historical trajectory
Dem ocracies have the right to protect their social arrangem
ents, and w hen this
right clashes w ith the requirem
ents of the global econom y, w
ho should give w ay?
Trilem m
a: How do w
e m anage the tension betw
een national dem ocracy and global
m arkets?
fundam ental political trilem
m a of the w
orld econom y: w
e cannot have hyperglobalization, dem
ocracy, and national self-determ ination all at once→
have at m ost tw
o out of three •
If w e w
ant hyperglobalization and dem
ocracy, w e need to give up on the nation state.
• If w
e m ust keep the nation state and w
ant hyperglobalization , then forget about
dem ocracy. And if w
e w ant to com
bine dem ocracy w
ith the nation state, then forget deep globalization.
• There is actually a w
ay out. W e can drop nation states rather than dem
ocratic politics. This is the “global governance” option→
a form of global federalism
•
The European Union is a regional exam ple of this.
Is Global Governance Feasible/ desirable?
• global governance option is a dead end for the vast m
ajority of nations, neither practical nor even desirable
• need a different vision, one that safeguards the considerable benefits of a m
oderate globalization w hile explicitly recognizing the virtues of national
diversity and the centrality of national governance
Designing the new order?
A w orld w
ith a m oderate globalization
1. m arkets do not create, regulate, stabilize, or sustain them
selves •
the m arket on its ow
n w on’t provide the social protection,
• w
on’t ensure that globalization w orks for m
ost citizens,
→ M
a rke
ts m u
st b e
d e
e p
ly e
m b
e d
d e
d in
syste m
s o f go
ve rn
a n
ce
• m
arkets and governm ents are opposites only in the sense that they form
tw o
sides of the sam e coin.
• M
arkets require other social institutions to support them .→
legal arrangem ents
to enforce property rights & stabilizing functions &
countercyclical fiscal policy &
social insurance program s &
others
2. Dem ocratic governance and political com
m unities are organized largely w
ithin nation states, and are likely to rem
ain so for the im m
ediate future.
• pursuit of global governance leaves national policy m
akers w ith a false sense of
security about the strength and durability of global arrangem ents
• enhance both the efficiency and the legitim
acy of globalization by em pow
ering dem
ocratic procedures at hom e
3. There is no one w ay to prosperity &
Countries have the right to protect their ow
n social arrangem ents, regulations, and institutions.
Once w e acknow
ledge that the core institutional infrastructure of the global econom y
m ust be built at the national level, it frees up countries to develop the institutions that suit
them best.
Ex. Europeans w ould rather have greater incom
e security and less inequality than Am
ericans are used to living w ith, even if it com
es at the cost of higher taxation.
4. Trade and financial liberalization are m eans to an end, not an end in itself.
G lobalization should be an instrum
ent for achieving the goals that societies seek: prosperity, stability, freedom
, and quality of life.
U S
b
a ck
la sh
a ga
in st
g lo
b a
liza tio
n ?
• w
hether escalating protectionism
is tem porary?
• trade generates w
elfare gains, w
hy do so m any
people have m ixed feelings
about it? •
Distributive effects of trade? W
ill redistribution system s
can sufficiently com pensate
the losers from globalization?
5. Countries do not have the right to im pose their institutions on others.
U sing restrictions on cross-border trade or finance to uphold values and
regulations at hom e m
ust be sharply distinguished from using them
to im pose
these values and regulations on other countries.
N ations have a right to difference, not to im
pose convergence.
Laying dow n the traffic Rules
6. The purpose of international econom ic arrangem
ents m ust be to lay dow
n the traffic rules for m
anaging the interface am ong national institutions.
W e should strive to attain the m
axim um
globalization that is consistent w ith m
aintaining space for diversity in national institutional arrangem
ents. Provided the traffic rules are right, the w
orld econom y even w
ith diversified national institutional arrangem
ents w ill function w
ell w ith nation states in the
driving seats.
SQUID GAM
E
Squid G am
e” is survival dram a
• o
p e
n s b
y fo
llo w
in g
a d
o w
n -o
n -h
is -lu
c k c
h a
u ffe
u r a
n d
g a
m b
lin g
a d
d ic
t n a
m e
d S
e o
n g
G i-h
u n
w h
o ’s
s tru
g g
lin g
to m
a k e
e n
d s m
e e
t w h
ile a
ls o
try in
g to
fo rg
e a
re la
tio n
s h
ip w
ith h
is d
a u
g h
te r, w
h o
liv e
s w
ith h
is e
x -w
ife a
n d
h e
r n e
w h
u s b
a n
d . B
u t w
h e
n S
e o
n g
G i-h
u n
is c
o n
fro n
te d
b y a
s tra
n g
e b
u s in
e s s m
a n
w ith
a n
o d
d p
ro p
o s itio
n ,
h e
s u
d d
e n
ly fin
d s h
im s e
lf th ru
s t in
to a
g a
m e
a lo
n g
s id
e 4
5 5
o th
e r p
e o
p le
a s k e
d to
p la
y a
s e
rie s o
f k id
s ’
g a
m e
s lik
e “
R e
d L
ig h
t, G re
e n
L ig
h t.”
T h
e ru
le s a
re s
im p
le –
if y o
u lo
s e
, y o
u ’re
e lim
in a
te d
. W h
a t th
e g
u a
rd s
fa il to
te ll th
e s e
c o
n te
s ta
n ts
a t firs
t is th
a t e
lim in
a tio
n m
e a
n s d
e a
th , a
n d
fo r e
v e
ry c
o n
te s ta
n t w
h o
is
“ e
lim in
a te
d ” th
e c
a s h
p riz
e fo
r th e
u ltim
a te
w in
n e
r g ro
w s b
ig g
e r
• W
h o
e v e
r m a
k e
s it th
ro u
g h
a ll s
ix g
a m
e s a
liv e
w ill w
a lk
a w
a y w
ith m
o re
m o
n e
y th
a n
th e
y c
a n
im a
g in
e , b
u t to
g e
t th e
re th
e y m
u s t c
o m
p e
te a
g a
in s t o
n e
a n
o th
e r w
h e
re th
e s
ta k e
s a
re life
o r d
e a
th .
• O
s c a
r-w in
n in
g “
P a
ra s ite
,” th
is s
e rie
s ta
k e
s a
im a
t th e
g re
e d
o f c
a p
ita lis
m a
n d
p a
in ts
th e
le n
g th
s to
w h
ic h
p e
o p
le w
ill g o
fo r a
c h
a n
c e
to b
e c o
m e
in c re
d ib
ly ric
h , e
v e
n if it m
e a
n s h
a rm
in g
th e
ir fe llo
w m
a n
Squid Gam e-life of young ones in South Korea
• the econom
ic unevenness in w hich so m
any Koreans live
• H
ousehold debt in South Korea is over 100%
of the country's G D
P
• H
ousing is expensive
• Com
petition is ruthless for spots at the top universities
• secure jobs are scarce
• young people started referring to their country as
H e
ll C h
o su
n, a place w here
they sim ply couldn't get ahead
Squid Gam e
of globalization
• Squid Gam
e reflects a deeper anxiety about South Korea's place in the w
orld &
w hat it took to rise from
a poor Third W orld country to one of the top global
econom ies
• Korea broke the rules in sm
art w ays →
Instead of being content w ith supplying
the w orld w
ith raw m
aterials, the South Korean governm ent subsidized the
creation of new industries that w
ould becom e globally com
petitive
• the countries w
ho failed to play the gam e as successfully as South Korea, w
ere elim
inated from the com
petition→ people nevertheless died (hunger, disease) in
those countries
Learn from the m
istakes of the predecessors
• in one of the final gam
es in the show , contestants m
ust w alk across a set of tiles
that form a bridge across a chasm
→ only one of each pair of tiles is safe to stand
on, the first contestants have to guess their w ay across and, w
hen they inevitably m
ake a m istake, fall to their deaths
• those at the back of the line w
ait, observe, and increase their chances of success
• A
s a late industrializer, South Korea could learn from the m
istakes of its predecessors and, such as Japan, follow
its lead into the safety
creator, w riter, and
director,H w
ang Dong- hyuk: Squid Gam
e is a
rem inder that globalization is
just such a blood sport
• the audience for the gladiatorial contests in
Squid Gam
e are rich foreigners w
ho enjoy betting on their preferred frontrunners
• Paris Club or the Group of Seven??
• race to the top m
ight seem
like a children's gam e →
but all such gam
es create a class of elite w
inners and a vast underclass of losers
References
• https://cepr.org/sites/default/files/CEPR%
20April% 202021.pdf
• https://edisciplinas.usp.br/pluginfile.php/4126392/m
od_resource/c ontent/0/RO
DRIK% 20The%
20Globalization% 20Paradox.pdf
• https://w
w w.com
m ondream
s.org/view s/2021/10/28/squid-gam
e- reflects-deeper-m
eaning-about-globalization-and-inequality
