Lecture 1: I. Introduction

1
Lecture 1 I. Introduction

• Defining globalization Whats new?
• Anti- vs. Pro-globalization
• Critics Reply
• What have we learned?

2
1. Globalization whats really new?

• Different cause World is more interdependent
  than ever

3
Figure 1 Declining Cost of Transportationand
Communication 1920-1990
(in 1996 dollars
a three-minute call) between New York and London
cost 250 in 1930. -- The Economist
4
Table 1
(a) average ocean freight and port charges per
ton (US)(b) average revenue per passenger mile
(US)(c) 3 minutes NY/London (US)(d) index,
1990100 Source IMF
5
Shape of the worlds economy is being changed by
globalization

• Declining costs of communication and control are
  enabling outsourcing/FDI
• fashion-conscious U.S. apparel producers to
  outsource production to Saipan and Shanghai
• U.S. software firms to outsource programming
  problems to Haifa and Bangalore.
• Prof. Barry Eichengreen, University of
  California, Berkeley

6
Shape of the worlds economy is being changed by
globalization

• Marketing,
• Branding,
• Advertising

Nike
?? ??

• Cost down
• Outsourcing

??
Dell
7
Globalization whats really new? New Trade and
Production Patterns

• New trade pattern developing countries
• don't just have to trade their raw materials to
  the West and get finished products in return
• can become big-time producers as well.
• New production pattern global product network
• companies can locate different parts of their
  production, research and marketing in different
  countries

8
Table 2 Growth of manufacturing production in
newly industrialising countries, 1963-2002
a 1994 b 1995 c 1996 d 1998 Source Dicken
(1998, Table 2.3 2003, Table 3.6) UNIDO
www.unido.org/geostat World Bank (2004) World
Development Indicators 04. The World Bank,
Washington, Table 4.1.
9
1. Globalization whats really new? New markets

• Growing global markets in services
• people can now offer and trade services globally
  -- from medical advice to software writing to
  data processing -- that could never really be
  traded before.

Tax calculation
W-2, W-4, 1099 bonuses stock statements
US Tax service company
India accountant
US tax payers
10
1. Globalization whats really new? New rules
and norms

• Market economic policies spreading around the
  world, with greater privatization and
  liberalization than in earlier decades.
• ex BRIC
• Widespread adoption of democracy as the choice of
  political regime.
• ex Mozambique in 1989, gave up Marxism, new
  Constitution with election

11
1. Globalization whats really new? New rules
and norms

• Multilateral agreements in trade, taking on such
  new agendas as environmental and social
  conditions.
• New multilateral agreements for services,
  intellectual property , communications more
  binding on national governments than any previous
  agreements.

12
Lecture 1 I. Introduction

• Defining globalization Whats new?
• Anti- vs. Pro-globalization
• Critics Reply
• What have we learned?

13
2. Anti-Globalization Movement

• Pre 1995 developed countries
• Competition from Japan (TOYOTA vs. GM)
• Imports from low wage countries effect on wages
  and unemployment of unskilled labor
• Post 1995 developing countries
• World trade harm workers
• Low wages
• Working conditions
• Enemy WTO, IMF, World Bank

14
2. Pro-Free Trade Economists in Early 1980s

• Distinguished economists showed compelling
  evidence that outward-oriented trade policies
  were far more likely than protectionism to lead
  to economic growth. (ex Jamaica and poor LA)
• The evidence was contained in two multi-country
  research projects at the
• Organization for Economic Cooperation and
  Development (OECD), led by Ian Little and others,
  
• National Bureau of Economic Research, directed by
  Jagdish Bhagwati and Anne Krueger-and in a series
  of studies at the World Bank.

15
2. Recent Advocates of Globalization

• Bhagwati In Defense of Globalization
• strikingly successful defense of open markets
• Martin Wolf Why Globalization Works
• weekly columns in the Financial Times
• world's most respected economic journalists.
• Arvind Panagariya The Miracles of
  Globalization A Review of Why Globalization
  Works, Foreign Affairs, September/October 2004

16
Lecture 1 I. Introduction

• Defining globalization Whats new?
• Anti- vs. Pro-globalization
• Critics Reply
• What have we learned?

17
3. Critics of Globalization I Trade

• Openness to trade during the 1980s and 1990s
  failed to deliver faster growth e.g., some Latin
  American countries
• Low wages (and bad working conditions) of workers
  in developing countries export industries
• ? Not helpful for workers

18
3. Reply to the Critics I

• Is the critique reasonable?
• Not in the economic sense
• Ricardian model comparative advantages
• Why do developing countries have cost advantages?
• Labor standards, environmental policy
• Wolf points to the contrary experiences of China
  and India.
• Both countries witnessed significant jumps in
  their growth rates as they opened up their
  economies to international trade and foreign
  investment.

19
Miracles of GlobalizationEmpirical Evidences
60s-90s
20
Is openness to trade sufficient for growth?

• Other obstacles for growth
• Business environment
• India's stifling industrial licensing system in
  the 1960s would nullify any benefits from opening
  up trade.
• Poor governance Poor performers have corrupt,
  predatory or brutal governments
• Infrastructures transport facilities,
• Foreign markets potential trading partners have
  closed their markets

21
Example Latin America

• Implementation of neoliberal reforms, including
  trade liberalization, but with disappointing
  results, why?
• Much of South America has borrowed too much and
  has therefore been particularly vulnerable to
  financial crises.
• This, in turn, has made it difficult for many
  countries in the region to reap gains from trade
  liberalization.

22
Unique Example Chile

• It has managed to grow at more than 5 percent for
  nearly two decades largely because
• reducing its trade barriers to OECD levels
• limiting its foreign borrowing to prudent levels
• maintaining macroeconomic stability

23
3. Critics of Globalization II Multinationals

• Multinational corporations exploit poor workers
  abroad and impoverish workers at home by moving
  capital overseas.
• Reply to the first charge if multinational jobs
  are so exploitative, why do workers in Bangalore,
  and even in predominantly Marxist Kolkata
  (Calcutta), line up to take them?
• Wolfs answer multinationals pay their workers
  more and treat them better than do local
  companies.
• A study of 20,000 plants in Indonesia shows that
  the average wage paid to workers in foreign-owned
  plants in 1996 was 50 percent higher than in
  private domestic plants.

24
3. Critics of Globalization II Multinationals

• Multinational corporations exploit poor workers
  abroad and impoverish workers at home by moving
  capital overseas.
• capital flows within multinational corporations
  have the effect of lowering wages in rich
  countries.
• Reply to the second charge In 2001, the amount
  of outward foreign investment from the United
  States was virtually equal to the inward flows,
  according to figures cited by Wolf. Net capital
  outflows, in other words, were negligible.

25
Lecture 1 I. Introduction

• Defining globalization Whats new?
• Anti- vs. Pro-globalization
• Critics Reply
• What have we learned?

26
4. What have we learned?

• New meaning of globalization make a case to show
  it
• Was your great-grandmother playing bridge or even
  Ma-jung with her relatives in Mainland China on
  the Internet in 1900? I don't think so.
• Globalization Blessing or curse? Why?
• To you who will graduate and need to find a job
  in one or two years threat and opportunity.
• To our country, which has experience dramatic
  restructuring in industry

27
Future Course Outline

• II. Globalization Blessing or curse?
• The Global Economy as a Movie BusinessWeek
• Workers Falling Behind in Mexico, by Mary
  Jordan, Washington Post
• Trade-growth relation
• Multinational corporations and wages
• Wages in developed/developing countries