Globalization I - Apuntes 1 PDF

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Apuntes tema 1 sobre la globalización...

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INTERNATIONAL FINANCES CHAPTER 1: GLOBALIZATION WHAT IS GLOBALIZATION?

1. 2. 3. 4. 5. 6. 7. 

Whole world interconnected: interdependence of all parts of world Intensification of worldwide phenomena Trans-national relations: erosion of national boundaries “Domino effects”: events have long-distance ramifications e.g. September 11 Alteration of space: distances shortened and technological changes Alteration of time: things happen quicker Sense of “globality” / Global consciousness: experience all places as interdependent; “the whole planet” and “the whole of humankind” Political, economic, social and cultural aspects

DEFINITIONS OF GLOBALIZATION “An immense enlargement of world communication and a world market” (Fredric Jameson) -

Updated Frankfurt School view Capitalist market spreads everywhere The negative consequences of capitalism spread globally

“The intensification of world-wide social relations” (Anthony Giddens) -

Communications and media technologies “Stretching” of social relations across the globe

“The compression of the world and the intensification of consciousness of the world as a whole” (Roland Robertson) -

World becomes “smaller” World is experienced as “one place”

Deterritorialization: “a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions - assessed in terms of their extensity, intensity, velocity and impact - generating transcontinental or interregional flows and networks of activity” (David Held) -

Processes across and beyond nation-states Processes across whole regions e.g. European Union HISTORY OF GLOBALIZATION

Last 30 years -

Electronic communications technology Cheap air travel Spread of capitalism after fall of Communism in 1989 and 1991 Development of a truly “global” capitalism

Since beginnings of capitalism (especially since mid-19th century) Marx and Engels, The Communist Manifesto (1848): “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. All old established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries; whose introduction becomes a life and death question for all civilized nations. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations.” Since Western “discovery” of Americas -

1492 – Christopher Columbus “Old World” (Europe, Asia, Africa) meets “New World” Literally “global” relations: trade, war, migration, etc.

Since beginnings of human history -

mankind spreads out from East Africa one million years ago humans reach every part of the planet reach southern tip of South America c. 10,000 BC GLOBALIZATION OF ECONOMY

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Spread of capitalism to most major parts of world: e.g. Russia, China Global division of labor: - All countries’ economies strongly interconnected with each other - Complex global web of interdependency - Global “organic solidarity”

Transnational mobility of: 1) money & wealth: through computer technology 2) jobs, goods & services 3) business-people: “Trans-national business class” (Leslie Sklair). A new global elite. Trans-national Corporations (TNCs): Coca-Cola, Nike, Gap, Apple, News International 

Investment in countries: cheap labor, low taxes Mobility of capital: pull out of one country and move elsewhere Free trade: no national barriers to trade

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Neo-liberal ideology: free markets = no State interference in economy = wealth for all.

International organizations: World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank. These organizations meant a reduction of a government’s control of its country’s economy. Right wing vision (e.g. Francis Fukuyama): -

free trade benefits all countries poorer countries’ economies develop, and citizens get richer capitalism brings with it the benefits of consumerism democracy human rights “Global Village”

Left wing vision (e.g. Noam Chomsky, Zygmunt Bauman): World united in some ways -

especially economically: world-wide capitalist market Habermas: world-wide capitalist system; colonizes local life-worlds

World divided in other ways -

increasing wealth in Developed World, increasing poverty in Developing World globalization works in Western interests

Immanuel Wallerstein: World-Systems Theory 1) Globalization = new form of imperialism 2) Not direct but indirect: Not political but economic control 3) Globalization based on rich “core” nations and poor “periphery” nations 4) Developing world debt 5) Job insecurity in core nations: -

Decline of manufacturing “off-shoring”

WHAT IS GLOBALIZATION FROM AN ECONOMIC POINT OF VIEW?  

The shift toward a more integrated and interdependent world economy Two components: globalization of markets and globalization of production

Globalization of production Vizio flat panel TV is: -

designed in a small office in California

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assembled in Mexico from: panels made in South Korea, electronic components made in China and microprocessors made in the U.S.

Globalization of production has historically been about manufacturing. Increasingly companies are using modern communications to outsource service activities to lowcost nations. Globalization of markets In the past, each country had its own companies in many industries and its own products. Today everyone knows Nintendo, Starbucks, Coca-Cola, Ikea, McDonalds and Samsung. But the most global markets are for standard goods: aluminum, wheat, microprocessors, aircrafts…For many consumer end-products, there are huge differences still exist among national markets (food, clothing, entertainment…). DRIVERS OF GLOBALIZATION Two factors underlie globalization: -

“Decline in barriers to the free flow of goods, services, and capital” that has occurred since the end of World War II Technological change

Declining Trade and Investment Barriers During the 1920s and ‘30s, many of nations erected formidable barriers to international trade and foreign direct investment. Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations. Average Tariff Rates on Manufactured Products

Effects on lowering tariff rates

The role of technology Lowering of trade barriers made globalization possible; technology has made it a transforming movement. Internet usage growth

THE EMERGENCE OF GLOBAL INSTITUTIONS Notable global institutions include: 

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the World Trade Organization (WTO) which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties. In 2008, 151 nations accounting for 97% of world trade were members of the WTO. the International Monetary Fund (IMF) which maintains order in the international monetary system. the World Bank which promotes economic development the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations.

THE CHANGING ROLES IN THE GLOBAL ECONOMY In the 1960s:   

the U.S. dominated the world economy and the world trade picture U.S. multinationals dominated the international business scene about half the world - the centrally planned economies of the communist world-was off limits to Western international business

Today, much of this has changed.    

In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output. By 2007, the U.S. accounted for only 20.7% Other developed nations experienced a similar decline Since the 1960s, there has been a rise in non-U.S. multinationals and there has been a rise in mini-multinationals THE GLOBALIZATION DEBATE

There is no question that globalization has been a good thing for many developing countries who now have access to our markets and can export cheap goods. Globalization has also been good for Multi-national corporations and Wall Street. But globalization has not been good for working people (blue or white collar) and has led to the continuing deindustrialization of America. Globalization is a complicated issue. It is necessary to evaluate the pros and cons before drawing any conclusions. Pros: Supporters of globalization argue that it has the potential to make this world a better place to live in and solve some of the deep-seated problems like unemployment and poverty. 1) Free trade is supposed to reduce barriers such as tariffs, value added taxes, subsidies, and other barriers between nations. This is not true. There are still many barriers to free trade. The Washington Post story says “the problem is that the big G20 countries added more than 1,200 restrictive export and import measures since 2008. 2) The proponents say globalization represents free trade which promotes global economic growth; creates jobs, makes companies more competitive, and lowers prices for consumers. 3) Competition between countries is supposed to drive prices down. In many cases this is not working because countries manipulate their currency to get a price advantage.

4) It also provides poor countries, through infusions of foreign capital and technology, with the chance to develop economically and by spreading prosperity, creates the conditions in which democracy and respect for human rights may flourish. This is an ethereal goal which hasn’t been achieved in most countries. 5) According to supporters globalization and democracy should go hand in hand. It should be pure business with no colonialist designs 6) There is now a worldwide market for companies and consumers who have access to products of different countries. True. 7) Gradually there is a world power that is being created instead of compartmentalized power sectors. Politics is merging and decisions that are being taken are beneficial for people all over the world. This is simply a romanticized view of what is happening. True. 8) There is more influx of information between two countries, which do not have anything in common between them. True 9) There is cultural intermingling and each country is learning more about other cultures. True. 10) Since we share financial interests, corporations and governments are trying to sort out ecological problems for each other. – True, they are talking more than trying. 11) Socially we have become more open and tolerant towards each other and people who live in the other part of the world are not considered aliens. True in many cases. 12) Most people see speedy travel, mass communications and quick dissemination of information through the Internet as benefits of globalization. True. 13) Labor can move from country to country to market their skills . True, but this can cause problems with the existing labor and downward pressure on wages. 14) Sharing technology with developing nations will help them progress . True for small countries but stealing our technologies and IP have become a big problem with our larger competitors like China. 15) Transnational companies investing in installing plants in other countries provide employment for the people in those countries often getting them out of poverty. True. 16) Globalization has given countries the ability to agree to free trade agreements like NAFTA, South Korea Korus, and the TPP. True but these agreements have cost the U.S. many jobs and always increase our trade deficit. Cons: 1) The general complaint about globalization is that it has made the rich richer while making the non-rich poorer. “It is wonderful for managers, owners and investors, but hell on workers and nature.” 2) Globalization is supposed to be about free trade where all barriers are eliminated but there are still many barriers. For instance, countries have value added taxes (VATs) on imports which are as high as 21.6% in Europe. The U.S. does not have VAT. 3) The biggest problem for developed countries is that jobs are lost and transferred to lower cost countries. According to conservative estimates by Robert Scott of the

Economic Policy Institute, granting China most favored nation status drained away 3.2 million jobs, including 2.4 million manufacturing jobs. He pegs the net losses due to our trade deficit with Japan ($78.3 billion in 2013) at 896,000 jobs, as well as an additional 682,900 jobs from the Mexico –U.S. trade-deficit run-up from 1994 through 2010.” 4) Workers in developed countries like the US face pay-cut demands from employers who threaten to export jobs. This has created a culture of fear for many middleclass workers who have little leverage in this global game 5) Large multi-national corporations can exploit tax havens in other countries to avoid paying taxes. 6) Multinational corporations are accused of social injustice, unfair working conditions (including slave labor wages, living and working conditions), as well as lack of concern for environment, mismanagement of natural resources, and ecological damage. 7) Multinational corporations, which were previously restricted to commercial activities, are increasingly influencing political decisions. Many think there is a threat of corporations ruling the world because they are gaining power, due to globalization. 8) Building products overseas in countries like China puts our technologies at risk of being copied or stolen, which is in fact happening rapidly 9) The anti-globalists also claim that globalization is not working for the majority of the world. “During the most recent period of rapid growth in global trade and investment, 1960 to 1998, inequality worsened both internationally and within countries. The UN Development Program reports that the richest 20 percent of the world’s population consume 86 percent of the world’s resources while the poorest 80 percent consume just 14 percent”. 10) Some experts think that globalization is also leading to the incursion of communicable diseases. Deadly diseases like HIV/AIDS are being spread by travelers to the remotest corners of the globe. 11) Globalization has led to exploitation of labor. Prisoners and child workers are used to work in inhumane conditions. Safety standards are ignored to produce cheap goods. There is also an increase in human trafficking. 12) Social welfare schemes or “safety nets” are under great pressure in developed countries because of deficits, job losses, and other economic ramifications of globalization. What is missing? 

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Leadership: We need politicians who are willing to confront the cheaters. One of our biggest problems is that 7 of our trading partners manipulate their currencies to gain unfair price advantage which increases their exports and decreases their imports. This is illegal under WTO rules so there is a sound legal basis to put tax on their exports until they quit cheating. Balanced Trade: Most of our trading partners can balance their trade budgets and even run a surplus. We have not made any effort to balance our trade budget and

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have run a deficit for more than 30 years resulting in an $11 trillion deficit. The trade deficit is the single biggest job killer in our economy, particularly manufacturing jobs. We need the government to develop a plan to begin to balance our trade deficit even though this is not a political priority in either party. Trade Agreements: Both the NAFTA and the South Korean Korus trade agreements might have been good for Wall Street and the multi-national corporations, but they eliminated jobs in America and expanded our trade deficit. The upcoming Trans Pacific Trade Agreement will do the same thing and Congress should not fast track this bad agreement for a dozen reasons. Enforcing the rules: China ignores trade rules and WTO laws with reckless abandon. Besides currency manipulation they subsidize their state-owned companies to target our markets and provide funding to their state-owned companies that dump their products in America. They also steal our technologies, sell counterfeit versions of our products, and impose tariffs and other barriers anytime they want – as we do nothing to stop them. China does not deserve to be on our most favored nation list and we need to tax their exports to us until they stop these illegal activities.

What is good for third world countries, like Kenya, or countries with tremendous growth, like China, has not been good for American workers. Globalization is deindustrializing America as we continue to outsource both manufacturing blue collar and white-collar jobs. Supporters of globalization have made the case that it is good because it has brought low priced imported goods, but they have not matched the decline of wages in the middle class and will not offset the loss of many family wage jobs Globalization is like being overwhelmed by a snow avalanche. You can’t stop it – you can only swim in the snow and hope to stay on top. I would like to make the argument that the US should try a lot harder to swim in the snow and stay on top. We can’t stop globalization but there are many policies and strategies we can use to make it more equitable. We can enforce the trade laws, force the competition to play by the same rules, and stop giving our competitors the tools (technology and R& D) to ultimately win the global war. MANAGING IN THE GLOBAL MARKETPLACE Much of this course is concerned with managing an international business (sales, sourcing or investment) but managing an international business is different:     

Countries are different International transactions involve converting money into different currencies Range of problems in an international business is wider and problems are more complex International business must cope with different, conflicting government rules and systems Different strategic approaches required

KEY TERMS

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An international business: any business with international sales, sourcing, or investment. A multinational business: any business with productive activities in 2 or more countries. A global business: a business that takes a global approach to production and sourcing (Coca-Cola, Intel) The multinational enterprise (MNE): a multinational enterprise (MNE) is defined as one that has operating subsidiaries, branches or affiliates located in foreign countries. The ownership of some MNEs is so dispersed internationally that they are known as transnational corporations. The transnationals are usually managed from a global perspective rather than from the perspective of any single country. Multinational business finance: while multinational business finance emphasizes MNEs, purely domestic firms also often have significant international activities:

GLOBALIZATION AND CREATING VALUE IN THE MULTINATIONAL

Global business, like any business, is the social science of managing people to organize, maintain and grow the collective productivity toward accomplishing productive goals, typically to generate profit and value for its owners and stakeholders. Reaching that goal requires combining three critical elements: -

An open marketplace High quality strategic management Access to capital

THE THEORY OF COMPARATIVE ADVANTAGE

The theory of comparative advantage provides a basis for explaining and justifying international trade in a model world assumed to enjoy: free trade; perfect competition; no uncertainty; costless information, and no government interference. The theory contains the following features:  

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