Lesson 1: What is globalization? PDF

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Tema 1 de la asignatura gobalization, profesora Aleksandra...

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GLOBALIZATION AND SOCIETY – INTRODUCTION ● Professor: Juan Diez Medrano ([email protected]) o Student hours: Wednesday, 17:00-18:00 ● Professor: Aleksandra Sojka ([email protected]) o Student hours: Monday, 17:00-18:00 ● Evaluation o Mid-term (multiple choice, lectures & readings): 25% o Final exam (multiple choice, lectures &readings): 40% o In-class presentation (seminar): 25% o Class participation (seminar): 10% This course is based on how globalization is changing society in different fields (values, identities, consumption…).

LESSON 1: WHAT IS GLOBALIZATION? Globalization has been defined in many different ways along History: we can describe it as a technological and institutional change. This process is related to the dramatic increase of goods, people and capital that took place in the 80’s. Considering the three waves of globalization that have taken place, the second wave is the most remarkable because there was a big expansion and by far surpasses in intensity what happened in the first wave. The process of globalization wouldn’t have happened if the two following factors hadn’t taken place at the same time: ● On the one hand, technological changes o Transportation revolution (less obvious). o Telecommunications revolution (Internet). ● On the other one, institutional changes. 1. TECHNOLOGICAL CHANGES 1.1. TRANSPORTATION REVOLUTION At first, we can think that transportation revolution is about faster and cheaper transportation. However, we can notice that it takes the same time to travel from one place to the other as before the revolution. The same happened with costs, as we have not observed a huge reduction in travelling prices, except within European boundaries. Therefore, the real transportation revolution can be summarized with one word: the

box, and especially the container, which are huge, big, rectangular boxes that can carry big amounts of products. The container was invented during the Vietnam War, in which American forces needed to transport heavy machinery in an efficient and fast way. Although a lot of machines have been built in order to facilitate the transportation of containers, they have generated many advantageous consequences, such as: ● They can easily be moved from one place to another, i.e. from a boat to a truck. ● They have cheapened transportation and made it faster. ● The main reason why the container has been revolutionary is the dramatic decrease it has produced in transportation costs: while those costs (packaging, moving…) represented the 12% of the total cost of the product before the invention of the container, now they have dropped down to almost zero. o This reduction in price has had revolutionary consequences on trade: nowadays, not only big, but also little and middle size companies are encouraged to export goods abroad (international trade). This results in an increase in competition. o Such increase in competition has influenced prices, which must be reduced for the companies to remain competitive; however, increase in competition has mostly benefitted consumers. Now, they can purchase a wider range of products at lower prices. ● Containers have contributed to an historical, unique transformation on the way companies produce. Before the container, the paradigmatic example of international companies were multinationals, like Coca Cola, which had invested money in creating replicas of their companies in other countries. But multinationals developed all the production process in those foreign countries. In contrast, the invention of containers has allowed the emergence of transnational corporations, which are similar to multinationals, but they have their different activities spread in different countries (head quartiers in one country, supply centers, in other, distribution plants in other). This is possible only because it is fast and cheap to shift goods from one country to another; at the same time, transnational corporations maximize the efficiency if the firms (they can set up their development plant in a country with good logistic skills, or their research plant in a country with good engineering). Despite all the mentioned advantages, we must remark two main downsides containers involve: ● Reduction of labor workforce (not so many workers were needed). ● Weakening of labor unions and movements, who only focused on worker’s benefits. For those who worry about the welfare of workers, the container can be seen from a negative perspective

1.2. TELECOMMUNICATIONS REVOLUTION Telecommunication revolution was originated in United States. The effort of students and military sector (especially defense department, which was the main mover) lead to the development of the Internet. Members of the defense department of the military were concerned about finding ways to share information through different means, because they counted on many different sources of information: computers, programs, telephone messages... Since all these sources of information were scattered in different ways, it was necessaire to produce a unit that could unify and connect all that information, a technology able to send that information from and to different sources. That technology also had to be safe, because there was a risk that enemies could steal that information. For almost two decades, three technological inventions were key to solve that problems: ● IMP (Interface Message Processer): Piece of hardware formed by intermediary machines that received the information and translated it into a legible language. ● Breaking down of information into packets (digitalization packets, formed by ones and zeros). Those packets ensured safety when transferring information: packets go in different directions without occupying the entire line all the time (just as if we send a letter cut in different pieces through different post offices). ● However, this process of splitting information in different pieces has a problem: how do we identify the origin of those pieces? We need a common element to identify their origin so that we can put it all together again. For this reason, TCP/IP was created. It is piece of software that allows us to put together pieces of information when they arrive to their destiny. When the War is over, there is little le use for the huge highway that had been developed, and here is when students take place. University students were the main actors of the flower power movement against the war. They had an anarchist approach towards society and nothing gave them more pleasure than big companies, that allowed them to keep conversations. They were ingenious enough to develop ways to have conversations for free using computers and sending messages. They just wanted to communicate for free. This is how Arpanet was created. It was used to communicate campus in different states, but as it was costly for them to keep that structure, the defense department agreed to make their highway available for university students to communicate. It allowed the internet to connect the united states. This was a revolutionary change, because this technology was free, although the first ones who suffered the impact were telephone companies, which could end up in bankrupt:

there were free ways to communicate instead of pain for a phone service and their prices dramatically dropped. Because of this, they try to enter the internet industry developing tools to modify it. Internet matters for globalization because it dropped to almost zero the cost of communicating across distance. 2. INSTITUTIONAL CHANGES If production today is global, it’s not only because of the invention of containers: there was as well an institutional revolution. The technology changes would not have been so important if they had not taken place after the Second World War, when the institutional changes happened. The main aspect of this institutional revolution was the liberalization of trade: this is the elimination of barriers for the movement of goods and capital. There are two types of barriers: ● Tariffs. They are taxes you pay when you buy goods from other countries, or what is the same, the tax a good pays when it enters another country. Tariffs are ways of eliminating outside competition by discouraging international trade: producers will rise the price of their goods to maximize profits, but later they will realize that they cannot compete with national producers, which are cheaper. For this reason, some producers practice dumping: they sell their products at a price lower than production costs to eliminate competitors from the market, and once they have attracted customers, they raise the prices. After the Second World War, many countries decided to reduce the tariffs because they thought that liberalization of trade would help to maintain political stability. This happened under the GATT (General Agreement on Tariffs and Trade), a round negotiation table that acted since the late 1940’s to 1993. It was a legal agreement between many countries whose overall purpose was to promote international trade by reducing or eliminating tariffs and trade barriers. It later turned into the WTO (World Trade Organization). As a result, now we live in a world in which tariffs have been lowered. ● Non-tariffs barriers do not take the form of a tax on goods: they are standards that certain goods must fulfill in order to be sold, given that safety standards deeply vary across countries. As a consequence of non-tariff barriers, it has not been possible, for instance, to sell cars internationally until very recent years. They suppose a limit to trade even bigger than tariffs.

WTO has tried to eliminate these barriers because they are hugely detrimental to trade: they force foreign producers to adapt their production, which increases costs. The European Union established policies to eliminate these barriers. They launched the common market in 1957 through the Treaty of Rome, in order to eliminate barriers between members of the European Community. By 1986, all EU members had eliminated their tariff barriers. However, non-tariff barriers remained, and they were finally dismantled with the creation of the Single Market in 1996. It was impossible for all countries to reach an agreement on standard requirements of health, environment, etc. and so they established an alternative that requires a big level of trust between members: the principle of mutual recognition, by which firms are willing to accept products with different standards (if you trust me, I trust you). This was one of the biggest achievements of the European Union. Another Step was the liberalization of capital flows. At first this was not thought to be important, as the dominant thinking was that capital controls were useful for the economy (after WWII, people were not sure that moving capitals from one place to another would be good for the economy). Since there were capital controls, they could not move their capitals to another countries. Those countries which did want to move capitals in a liberal way created bilateral agreements, that were made to circumvent those capital controls. Some examples of bilateral agreements were UK-US and Japan-Germany. It was obvious that countries in bilateral agreements were much richer, like France. For this reason, they started to think ways of generalizing processes of capital movement, in which all the countries must play with the same rules. France, as a major economic actor, proposed to extend liberalization worldwide. This originated the “ dotcom crisis” (1997-200, excessive movement of capital). IMF (International Monetary Fund) is the most important institution for the liberalization of capital. All these factors put together facilitated the emergence of global economy, with intense trade flows, transnational companies, common interests and common identity....