1. Globalisation

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1. Globalisation

• Globalisation and multinational enterprises

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Globalisation and multinational enterprises

• Contact details
• Crt Kostevc
• Office hours tuesday, 1000 v R-304
• crt.kostevc_at_ef.uni-lj.si
• course web site
• http//www.ef.uni-lj.si/predmeti32/_struktura/opre
  dmetu.asp?id196051lanslotippredmeta1

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Credit requirements

• option A
• seminar (individual)-70 of the grade
• participation and preparation of comments -30
• option B
• written exam-100

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Seminar

• 12-15 pages analyzing different aspects of the
  functioninh of multinationals and their role in
  globalisation
• Examples
• Effect of MNCs on wages in host countries
• Role of MNCs at knowledge transfer in host
  countries
• Importance of MNCs for developing countries
• MNC and the role of the state
• MNC and market structure
• The role of MNCs in the global economic crysis
• MNC and the convergence of consumer habits

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Seminar

• The seminar must follow the technical
  requirements of writting a masters thesis.
• In addition to the technical chapters,
  introduction, conclusions and references, the
  seminar must include a teoretical part
• Explaining the essence of the problem and its
  relation to the relevant literture
• and an empirical/statistical part
• Presenting empirical research, statistical
  findings,...
• At least 10 units of references!

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Structure of the course

• 1. lecture Globalisation
• 2. lecture Globalisation and inequality
• 3. lecture International trade and/or
  international production (substitutes or
  complements)
• 4. lecture FDI and multinational enterprises
• 5. lecture Modelling multinational firms
• 6. lecture Survey of empirical findings
• 7. lecture Presentation of seminars
• 8. lecture Comments to seminars

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Structure of the lecture

• Defining globalisation
• Description of the process of globalisation
• Causes of globalisation
• Supporters and antiglobalists
• Historic epochs of globalisation
• Consequences and dangers of globalisation
• Future of the globalisation process.

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Globalisation

• Google search engine returns 6.430.000 hits to
  globalisation
• foreign direct investment 12.200.000 hits
• multinational corporation 1.910.000
• transnational corporation only 225.000

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Globalisation

• ...globalisation, is ...simply the logical
  extension of the tendency towards specialisation
  and trade has been going on almost since mankind
  first walked on the surface of the earth
  (Eslake, 2000)
• In economic terms, globalisation refers to the
  growing economic integration of the world, as
  trade, investment and money increasingly cross
  international borders (which may or may not have
  political or cultural implications). (BBC,
  Globalisation shakes the world, 2007)

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Globalisation

• broad definition (Nye, 2009) increase in
  worldwide networks of interdependence
• not only economic globalisation
• Environmental smallpox epidemic originated in
  Egypt in 1350 BC. It reached China in 49 AD,
  Europe after 700, the Americas in 1520, and
  Australia in 1789. Bubonic plague, or the Black
  Death, originated in Asia, but its spread killed
  a quarter to a third of Europe's population in
  the 14th century. Avian flu, swine flu?
• Military consisting of networks of
  interdependence in which force, or the threat of
  force, is employed. The world wars of the 20th
  century are a case in point.

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Globalisation

• social globalization consists in the spread of
  peoples, cultures, images, and ideas. Migration
  is a concrete example. In the 19th century, some
  80 million people crossed oceans to new homes -
  far more than in the 20th century. At the
  beginning of the 21st century, 32 million US
  residents (11.5 percent of the population) were
  foreign-born. In addition, some 30 million
  visitors (students, businesspeople, tourists)
  enter the country each year.

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Globalisation

• Ever increasing integration of the world economy
  from the early 1950s in terms of trade,
  investment and production
• The process in not new, but has garnered markable
  attention of late
• Liberalisation of trade and finance has driven
  changes in functioning of the firms
• progress in transport and telecommunications.

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GlobalisationSource WTO, 2009
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GlobalisationSource Estevadeordal, Frantz,
Taylor (2002)
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GlobalisationSource Penn World Tables 6.2
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Globalisation
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Importance of transport costsSource Clark,
Dollar, Micco (2002)
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Importance of transport costs Source Jacks in
Pendakur (2007)
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Globalisation
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Globalisation
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Arguments for and against globalisation

• Globalisations critics
• against free trade
• effect of corporations on souvereign governments
• ecological standards
• rights of local communities
• Supporters of globalisation
• free trade
• world without borders
• end of national economies.

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Antiglobalisation movement

• A very heterogeneous group activists brought
  together by their fight against MNC hegemony and
  the might of trade agreements
• Accuse TNCs that, with the goal of maximizing
  profits, they neglect workers rights, eco
  standards and the role of national legislature
  and governments
• The only global integration they are willing to
  accept is one where democratic principles,
  advancement of human rights and increased
  equality are followed.

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Antiglobalizacijsko gibanje

• Critics of globalisation believe that the rulling
  elites garner all benefits of globalisation,
  leaving nothing for the people/workers
• Against neoliberalism
• turbo-capitalism (Edward Luttwak)
• market fundamentalism (George Soros)
• cazino-capitalism (Susan Strange)
• McWorld (Benjamin Barber).

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Antiglobalisation movement

• Heterogeneity
• anarchists
• socialists
• NGOs
• developed country unions
• rare 3rd world protesters
• environmentalists
• even some economists who oppose certain aspects
  of globalisation (Stiglitz, Rodrik)

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Criticism of antiglobalisation

• Critics argue that antiglobalists have no
  empirical evidence
• There has been a decrease in the absolute ane
  relative number of people living in absolute
  poverty (wage bellow 1 per day)
• Average income per capitain the period 2002-2007
  has experienced fastest growth in recorded
  history, but the benefits were not equaly
  distributed
• Life expectency in most of the world (except
  sub-Saharan Africa) has increased markably. In
  sub-Saharan Africa it stayed more or less equal.

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Criticism of antiglobalisation (poverty level)
Source Sachs (2005)
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Criticism of antiglobalisation

• Antiglobalist criticism is misdirected
• Farming sectors of the third world are mainly
  harmed by restrictions to developed countries
  markets and not free trade as antiglobalists tend
  to believe
• Third world workers have a choice between opitons
  on offer to them (take on a job at a TNC or get a
  job at a local plant)
• There is broad agreement amongst economists that
  greater transparency in the functioning of TNCs
  and capital flows is needed.

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Two epochs of globalisation

• 1492-1820 Anti-globalist (mercantilist)
  restrictions
• Discovery of America, sailable root to India,...
• Strong impact on commerce, growing share of trade
  in GDP
• Trade is NOT a consequence of falling trade
  restrictions and global integration
• There was, namely, no decrease in price
  differences between the export and import
  centers,
• Discoveries and the progress made in transport
  technology lead to trade monopoly markups,
  tariffs, non-tariff barriers, wars, pirates,...

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Two epochs of globalisation

• 1820-1913 first global century
• With the end of mercantilism, a period of
  relative peace (after the Napoleonic wars) and
  improving transport connections (pax Britannica)
• Convergence of prices (not only across the
  Atlantic), but primarily with Asia and Africa,
  where there was a strong presence of European
  colonial powers
• Integration of factor markets, global capital
  markets after 1913 were comparable to those of
  today in terms of global coverage
  (J.G.Williamson, 2002), labor migration reaches
  its climax (no restrictions)

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Two epochs of globalisation

• 1913-1950 antiglobalisation
• complete disintegration of the world economy
• formation of trade and migration barriers many of
  which are still in use today (share of
  foreign-born US citizens falls from 14.6 (1913)
  to 6.8 (1950))
• price differences across the Atlantic double and
  reach the 1870 level
• fall in investment into new technologies and a
  fall in foreign direct investment.

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Antiglobalisation

• From 1913 and especially after 1870 the world
  witnessed a period of accelerated globalisation
• This was brought on by the establishment of the
  gold standard and a reduction of transport costs
• Until 1929 antiglobalisation was driven by an
  increase in transport costs
• After 1930 the final step towards disintegration
  was made with the collaps of the gold standard.

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Transport costs Source Estevadeordal, Frantz,
Taylor (2002)
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Movement of tariff ratesSource Estevadeordal,
Frantz, Taylor (2002)
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Collapse of the gold standard Source
Estevadeordal, Frantz, Taylor (2002)
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Two epochs of globalisation

• 1950-2007 second global century
• in many aspects different from the first one,
• much smaller factor migrations,
• trade restrictions, on the other hand, are far
  smaller than they were in the first period of
  globalisation,
• indications of a substitution effect between
  trade and factor movement.

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First epoch and antiglobalisation
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Last globalisation phase
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Comparison of the two epochs

• Similar in terms of cumulative trade growth rate
  (400 in 471)
• Fall in trade costs greater in the 1st phase,
  therefore trade costs explain the majority of the
  first phase of globalisation, while only a third
  of the second phase
• In the collapse of the first globalisation epoch,
  trade costs play a crucial role. The
  contemporaneous growth of output at the time was
  namely 90.

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Consequences and dangers of globalisation

• Production
• Creation of global markets for primary and
  consumer products
• Centralisation of global production into a couple
  of production centres
• Disintegration of the production process into
  several phases which need not be performed at the
  same location (outsourcing, subsourcing,...)
• Consumption
• Convergence of global consumer habits

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Consequences and dangers of globalisation

• Finance
• Creation of global finance markets, easier access
  to credit
• Growth of financial markets, institutions and
  financial products (derivatives) surprised the
  national and global regulators, which ultimately
  lead to an unstable global financial system and
  the possibility of crysis spreading across the
  globe
• Politics
• Hegemony of the US, rise of China and India

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Consequences and dangers of globalisation

• Competition
• Competition in global markets or globalisation of
  local markets bring cheaper products for
  consumers, but also mean greater operating risk,
  higher probability of loss of jobs or their
  reallocation
• Technology
• Great advances in information technology fostered
  a fast pace development of globalisation, the
  appearance of global standards, greater
  availability of information and an increase of
  substandard information.

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Consequences and dangers of globalisation

• Ecology
• Global environmental issues and the need for
  global action on environmental issues
• Environmental issues are becoming more important
  in developing countries due to production moving
  to those countries
• Culture
• expansion of consumerism, global pop-culture
• increased turism, travel and migration
• Multiculturalism as a consequence of migration.

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Dangers of globalisation

• Increased operazing risk even in local markets,
  as strong global competition presents dangers for
  all firms and introduces added risks
• Global regulations cannot keep track of the
  revolutions in global production and the global
  financial system, which ultimately breeds
  instability
• Lack of global standards for consumer goods and
  environmental standards can promote hazardous
  products

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Dangers of globalisation

• Oligopolization and even monopolization of the
  world markets by large cartels or multinational
  enterprises,
• The remaining giants will be less responsive to
  their environment and less robust to changes in
  competition, consumer habits, etc.
• Growing differences between developed and
  developing countries will accentuate the
  political differences between them.

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The future of globalisation

• The end of the current global financial/production
  crisis will breed a new cycle of globalization
• Protectionism follows every cycle of
  globalization (beggar-thy-neighbour policies of
  the 1930s)
• The legacy of the crisis will be a stricter
  legislation, which will limit some of the more
  obvious wrongdoings
• A new cycle of protectionism is not completely
  impossible as the fast spread of the crisis has
  given more support for mercantilist measures.