The history of globalisation

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The history of globalisation

History of Globalisation

The most recent wave of globalisation, which started in 1980, was spurred by a combination of advances in transport and communications technologies and by large developing countries who sought foreign investment by opening up to international trade.

This is actually the third wave of a phenomenon that started back in 1870.

The first wave lasted from 1870 to the start of World War I. Advances in transport and reductions in trade barriers and the level of exports to world income doubled to 8% as international trade boomed stimulated this.

It caused massive migration as people sought better jobs. About 10% of the world's population moved to new countries. Sixty million people migrated from Europe to North America and other parts of the New World. The same thing happened in densely populated China and India where people moved to less densely populated countries like Sri Lanka, Burma, Thailand, the Philippines and Vietnam.

The end of the First World War ushered in an era of protectionism. Trade barriers such as tariffs were erected. World economic growth stagnated and exports as a percentage of world income fell back to the 1870 level.

Following World War II, a second wave of globalisation emerged, lasting from about 1950 to 1980. It focused on integration between developed countries as Europe, North America and Japan restored trade relations through a series of multilateral trade liberalizations.

During this period there was a surge in the economies of the countries in the Organization for Co-Operation and Development that participated in this trading boom. But developing countries were largely isolated from this wave of integration, unable to trade beyond primary commodity exports.

A few numbers in favour of globalisation?

A few numbers tell the story of the world's march toward globalization:

  • Trade as a percentage of gross world product has risen from 15 percent in 1986 to nearly 27 percent today.

  • In the past two decades, the stock of foreign direct investment assets has nearly quadrupled as a percentage of gross world product.

  • More people than ever are crossing national borders - for business and pleasure. On average around the globe, countries received just one foreign visitor for every 100 people in 1950. By the mid-1980s there were six, and since then that number has doubled to 12.

  • Since 1991, international telephone traffic has more than tripled. The number of cell phone subscribers has grown from virtually zero to 1.8 billion - 30 percent of the world population - and Internet users will soon hit 1 billion.

The economic logic is straightforward. Competition brings benefits to the public sector the same way it does for the private sector. It makes government more accountable and forces them to be more transparent and democratic.
Firms continue to seek the best workers for the money, wherever they may be found, especially as advances in telecommunications, transportation and supply-chain management bring the world closer together. Labor's best option in a globalised world is to adapt, compete and get stronger
Today, money is probably the most mobile factor of production. In a nanosecond, it can scurry to any part of the world with a squeak of a computer mouse.

Another opinion – it’s getting confusing!

  • According to the World Bank (2007), the number of people living on $1 a day or less declined from 1.5 billion to 1.1 billion between 1990 and 2001.

  • The International Monetary Fund (2002) reported that per capita incomes have grown faster in globalising developing countries – 5 percent versus 2.2 percent in the 1990’s.

  • An article in World Trade Magazine (2008) reports that globalization has generated an increase in annual U.S. income of approximately $1 trillion, which equates to average annual income gains of $10,000 per household (Manzella).

This chart shows the relationship between trade openness and gross domestic product (GDP). As we become more open to trade, GDP increases.
Opening up to trade leads to more opportunity to export the products that we specialize in and import foreign products at lower costs, and, as a result, the GDP will increase.

A possible unknown benefit of globalisation

Becoming more global has given the developing parts of the world more access to water and has raised the health quality of poor nations.

Quotes on Globalisation

We cannot wait for governments to do it all. Globalization operates on Internet time. Governments tend to be slow moving by nature, because they have to build political support for every step. Kofi Annan. Former Secretary general of the United Nations

Globalization, as defined by rich people like us, is a very nice thing... you are talking about the Internet, you are talking about cell phones, and you are talking about computers. This doesn't affect two-thirds of the people of the world.Jimmy Carter, former US President

The great, unreported story in globalization is about power, not ideology. It's about how finance and business regularly, continuously insert their own self-interested deals and exceptions into rules and agreements that are then announced to the public as "free trade."Gerhard Schroeder, former Chancellor of Germany.

Contagion has become very much a phenomenon, and it's a phenomenon of globalization.

Lawrence Summers, former US Treasury Secretary

This is a basic requirement the meaning of globalization is that we should admit that the economy of each country is dependent on the economy of all the others.

Richard Grasso, US businessman.
Concerns About Globalization

Much has been written about the possible negative consequences of globalization. Some of the key concerns are summarised below.

Economic Leakage

Economic leakage refers to the movement of profit margins from primary, to secondary, to tertiary markets.

Primary markets are oriented mainly toward the production of raw commodities (e.g., food commodities, such as corn, wheat, soybeans; mined goods, such as raw ore and minerals). Secondary markets focus mainly upon the further processing of raw commodities (e.g., corn syrup, bread, soy-based oil products, steel, cut minerals). Tertiary markets specialize in facilitating production and trade by providing financing, access to markets, and access to information about markets (e.g., the Chicago Mercantile Exchange, the LSE, Citibank).

Typically, the profit margin increases as goods move from primary to secondary to tertiary markets. Thus, a nation whose economy focuses almost exclusively upon primary commodity production will experience "economic leakage" of potential profits to nations involved in secondary and tertiary markets because it is not involved in these more lucrative ventures. It depends on how and where the processing takes place as this adds value.

Perpetual Status

A concern expressed about the WTO and other organisations that govern international trade is that nations involved in primary commodity production will find it very difficult to develop secondary or tertiary markets. Suppose, for example, that Nation A, which is involved mainly in primary commodity production, wants to build an industry that can further develop its raw commodities. Such industrial development requires much investment of capital. Thus, Nation A might want to provide over the short run government subsidies to help the new industry bear the burden of start-up costs and operating losses until it can become efficient enough to compete in world markets. Such subsidies would be considered illegal under current and proposed WTO rules. Nations not yet developed enough to enjoy the increased profit margins of secondary and tertiary markets might never be able to do so under WTO regulation
Environmental Degradation

Another concern expressed about globalization is that nations wishing to establish laws to protect their environmental quality might not be able to do so under WTO regulations. Consider a case in 1996 when Venezuela brought a claim against the United States alleging that the U.S. Clean Air Act unfairly discriminated against Venezuela gas exports to the US because the act required foreign gasoline sold in the US to be no more contaminated than the average level of contaminants in US gas. The WTO ruled in favor of Venezuela. So, the US rewrote the Clean Air Act to allow both domestic and foreign gas producers to produce more contaminated gas. In another WTO ruling, Japan was forced to lift its import ban on certain fruits that might bear dangerous insects, even though to get rid of those insects Japan needed to use harmful pesticides.

Thus, in principle, any action taken by any country to protect its environment that might be perceived as restricting free trade can be overturned by the WTO

Some countries have profited from globalization.

  • China: Reform led to the largest poverty reduction in history. The number of rural poor fell from 250 million in 1978 to 34 million in 1999.

  • India: Cut its poverty rate in half in the past two decades.

  • Uganda: Poverty fell 40% during the 1990s and school enrollments doubled.

  • Vietnam: Surveys of the country's poorest households show 98% of people improved their living conditions in the 1990s. The government conducted a household survey at the beginning of reforms and went back 6 years later to the same households and found impressive reductions in poverty. People had more food to eat and children were attending secondary school. Trade liberalization was one factor among many that contributed to Vietnam's success. The country cut poverty in half in a decade. Economic integration raised the prices for the products of poor farmers—rice, fish, cashews—and also created large numbers of factory jobs in footwear and garments, jobs that paid a lot more than existing opportunities in Vietnam

But others have not.

  • Many countries in Africa have failed to share in the gains of globalization. Their exports have remained confined to a narrow range of primary commodities.

  • Some experts suggest poor policies and infrastructure, weak institutions and corrupt governance have marginalized some countries.

  • Other experts believe that geographical and climatic disadvantage have locked some countries out of global growth. For example, land-locked countries may find it hard to compete in global manufacturing and service markets.

Over the last few years, there have been protests about the effects of globalization in the United States and Europe. But in a lot of developing countries there is very strong support for different aspects of integration—especially trade and direct investment, according to a survey conducted by The Pew Center. In Sub-Saharan Africa, 75% of households said they thought it was a good thing that multinational corporations were investing in their countries.


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