by Gary Griffin
It has been said that arguing against globalization is like arguing against the laws of gravity.
Kofi Annan
THE CHANGING MODELS OF GLOBALIZATION
Generally, globalization describes the ongoing process whereby societies and cultures are integrated through a global network of communication and trade. Globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors. Although economists and social scientists began to widely use the term in the 1960s, it didn’t catch on in the mainstream press until the 1980s. When used in an economic context, globalization may be thought of as the removal of barriers between national borders that facilitates the flow of goods, capital, services, and labor.
Scholars disagree on the earliest known forms of globalization.144 However, most generally agree that globalization in its current form, modern globalization, began to emerge during the twentieth century. It was during this time that we saw World War I, the gold standard crisis, and the Great Depression of the late 1920s and 1930s. Some have argued that globalization was a financial force that created such events. In more modern times, globalization has been accused of being responsible for the deep recession in 2008 and 2009, and currently still in progress in America and around the world. Is it, or is this simply a misinterpretation of the events that coincide with globalization?
Since World War II, globalization has been the result of planning by politicians to break down borders hampering trade to increase prosperity and interdependence thereby decreasing the chance of future war. Their work led to the Bretton Woods conference, which led the world’s leaders of that time to create a framework for international commerce and finance that included several key international institutions to oversee the process of globalization.145 Most notably, these institutions include the International Bank for Reconstruction and Development (the World Bank) and the International Monetary Fund. The World Bank’s stated purpose is an international financial institution that provides leveraged loans to developing countries for capital programs as a means of reducing poverty around the world. The International Monetary Fund (IMF) was the second institution created during the Bretton Woods conference. It is the international organization that oversees the global financial system by following macroeconomic policies of member countries (originally 45 now 186 countries as of 2009), in particular those with an influence on exchange rates and the balance of payments. The original objective of IMF was to stabilize exchange rates and facilitate the reconstruction of the world’s international payment system. Realize that when the Bretton Woods conference was held was right after World War II, and the countries involved in the war were deep in debt as a result. The two key representing countries at the table during negotiation and formulation of these institutions were the United States and the United Kingdom—the winner, if a winner is appropriate to describe the outcome of World War II. The architect who represented the United Kingdom was John Maynard Keynes.146
The World Bank’s mission is to assist developing countries and their citizens to achieve development and the reduction of poverty, including the achievement of the Millennium Development Goals, by helping countries develop an environment for investment, jobs, and sustainable growth, thus promoting economic growth through investment and enabling the poor to share in the fruits of economic growth. The World Bank focuses on five key factors that they believe as necessary for economic growth. 1.) They build capacity by strengthening governments and educating officials. 2.) They help implement a legal and judicial system that encourages business and business development, and the protection of individual and property rights through the honoring of contracts. 3.) They assist in the development of a financial system that establishes a strong system capable of supporting financial ventures of all types and sizes. 4.) They support the countries’ efforts to combat corruption. 5.) They provide a platform for research on development issues, consulting, and conduct training programs to support participating countries.
Similarly, the role and goals of the International Monetary Fund has also changed from its original charter in 1944. The organization’s influence on the global economy has steadily increased as it accumulated more members, which is a reflection of the attainment of political independence by many developing countries, and more recently the collapse of the Soviet bloc. The changing world economy has forced the IMF to adapt to a variety of ways to continue to serve its purposes effectively. The primary mission of the IMF is to provide financial assistance to countries that experience serious financial and economic difficulties. When countries experience such distress, they request loans from IMF, and to get these loans, they are required to make certain reforms that have been dubbed the Washington Consensus. These reforms are beneficial to countries with fixed exchange rate policies where fiscal, monetary, and political practices often create the crises themselves. The structural adjustment programs run by IMF are intended to prevent financial crises rather than merely fund recklessness.
Although both the World Bank and IMF report significant positive effects on developing countries, there are many critics of both who portray the role and interference in other countries financial and economic development as detrimental. In the 1990s, the World Bank and IMF forged the Washington Consensus policies, which included deregulation and liberalization of markets, privatization, and the downscaling of government. Though the Washington Consensus was conceived as a policy that would best promote development, it was criticized for ignoring equity, employment, and how reforms like privatization were carried out. Many critics now agree that the Washington Consensus policies placed too much emphasis on GDP and not enough on the permanence of growth or whether growth contributed to living standards. Some analyses have shown that contrary to their stated goals, the World Bank and IMF have increased poverty and been detrimental to the environment, public health, and cultural diversity. Some critics further argue that the World Bank has pursued a neoliberal agenda that has imposed damaging and destructive policies on developing nations. Although controversial, there is also an abundance of criticism that the World Bank and IMF are used as a means to fulfill business and political interests of the main IMF donors, primarily the United States.
I suggest that the World Bank and IMF represent one form of globalization, but it is not the only form. As with all institutions, they take on a certain life of their own, and they act in ways that ensure their survival. The role and reasons that these institutions were created have played out long ago. The ideas and idealism of the men behind their creation are long gone. They too should’ve been gone long ago but continue to survive, even when their policies and actions aren’t helpful. One of the main problems can be found in the fact that the economics that set policies and directions for the institutions are based on the ideas of John Maynard Keynes and others. As I describe in the next chapter a healthy economy cannot be ascertained through the use of GDP. It is also an outdated model of macroeconomics, which came from none other than Dr. Keynes.
There are other models of globalization. One in particular is that globalization is flattening the world and will continue to have an effect on economic development and the world economy. As previously described, globalization is not new to the world of ideas, but the how and who of globalization has changed. In his book The World is Flat, Thomas L. Friedman identifies three different periods of globalization that he labels as Globalization 1.0, Globalization 2.0, and Globalization 3.0. Globalization 1.0 (1492–1800) was about brawn, and how much forcefulness a country had in breaking down walls that prevented entry into other countries in different parts of the planet. In this era, countries and governments led the way to global integration.
Globalization 2.0 (1800–2000) had as its driving force of change multinational companies. Spurred by the Industrial Revolution, these companies were searching for new markets and cheaper labor. The first part of this era was driven by ever cheaper transportation costs. The second half similar
ly was driven by cheaper telecommunication costs. Globalization 2.0 was the birthplace of a mature global economy with the free flow of goods and information across the entire planet. The question most often asked during this period of globalization was where I fit into the global economy, and how to take advantage of the opportunities created by this type of globalization.
Globalization 3.0 (2000–unknown) is different in that it is driven by “the force that gives it unique character is the newfound power for individuals to collaborate and complete globally. And the phenomenon that is enabling, empowering, and enjoining individuals and small groups to go global so easily and so seamlessly is what I call the flat-world platform.”147
Friedman correctly identifies what I outlined in chapter 1 as the three macro level trends that define an information society and a knowledge-based economy that are restated for convenience. These three macro-level trends are: 1.) the decentralization of production processes; 2.) the elimination of the need for time and space management; and 3.) individuals as the new owners of the means of production. These trends can only be supported in America through globalization.
In his description of globalization, Friedman details the convergence of the personal computer, the Internet, and software that allows individuals to begin realize that they had the power to go global as individuals; they began competing not only against people in the same city, state, or nation but all across the world. Global competition and global collaboration was possible for the first time for anyone with a personal computer and an Internet connection. In Globalization 3.0, individuals are empowered for the first time in human history to realize Descartes’ law of I think, therefore I am.148 The real key to the full realization of this type of globalization is only possible through an advanced infrastructure of computers and networks, as well as the social structures that support that type of society. America is not there, but we must get there. We don’t need shovel-ready projects in the twenty-first century, we need wireless-ready projects.149
Remember, the problems of today that brought about the recession that began in 2008 are the result of structural problems not cyclical issues. Globalization makes the new production system of a twenty-first-century America possible. Social policies that facilitate the structural changes around philosophical, social, political, and economic structures that make up American society make this new system of production practical and doable. Infrastructure that supports that type of society is critical.
BENEFITS OF GLOBALIZATION
Friedman in The World is Flat orders a new Dell laptop and decides to follow it along every step of the process through the global supply chain from the time he places the order using the company’s 800 number until the laptop is delivered to him.150 When the order was placed, and e-mail was sent out to the Dell notebook factory in Malaysia, where all the parts were ordered from global suppliers. The production of the notebook involved many people and many companies in many different countries across the world. They were connected by a sophisticated production system that was made possible through computers, networking, global communications, and the Internet.
His description highlights two important facts about the twenty-first century. First, his story demonstrates how advanced technology of the information society has been leveraged to build efficiencies and effectiveness into the production processes of manufacturing resulting in increased productivity in the industrial system of production. Second, this use of information technology and advanced telecommunications makes globalization possible through an advanced infrastructure that results in a finished product that would’ve taken years to produce in an agricultural society (if possible), months in an industrial society, and only days in an information society. It truly shows the benefits of globalization in establishing a new system of production.
While globalization has many benefits, most people do not view it so positively. If we examine economic globalization specifically, these benefits can be measured in different ways that consists of four main economic flows:
Goods and services, e.g., exports plus imports as a proportion of national income or per capita of population;
Labor/people, e.g., net migration rates; inward or outward migration flows, weighted by population;
Capital, e.g., inward or outward direct investment as a proportion of national income or per head of population; and 6.
Technology, e.g., international research and development flows; proportion of populations (and rates of change thereof) using particular inventions (especially factor-neutral technological advances such as the telephone, motorcar, and broadband).
Other benefits include the emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies, particularly movement of materials and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the fifty years since 1955. The emergence of worldwide financial markets and better access to external financing for borrowers have greatly expanded the financial capabilities. By the early part of the twenty-first century, more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment. The economic realization of a global common market, based on the freedom of exchange of goods and capital, and the interconnectedness of these markets, however meant that an economic collapse in any one given country could not be contained.
Some use the term globalization to mean the creation of a world government that regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy.
There has been a significant increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fiber-optic communications, satellites, and increased availability of telephone and Internet. Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition. Finally, the technical benefits have resulted in the development of a global information system, global telecommunications infrastructure, and greater data flow, using such technologies as the Internet, communication satellites, submarine fiber-optic cable, and wireless telephones.
Productivity in a knowledge-based economy can only come from a foundation of skills, know-how, and advanced technological infrastructure that support the way people perform their work. When that infrastructure and societal structures don’t exist to support the production processes, productivity bottoms. Capacity is the key component. We have to build that capacity. In the twenty-first century of America’s political economy, the infrastructure has already been built; we need but to continue to improve and utilize it. Computers, telecommunications, and the Internet represent that type of infrastructure. It provides the medium of exchange of information that supports a knowledge-based economy. This medium of exchange is comparable to the money of a capitalistic economic system.
The problem we are faced with is how to translate this medium of exchange into an economic growth system. Clearly, money represents a physical form that is unnecessary in the digital world of a knowledge-based economy. The digits on a computer system can as easily represent value in a digital form, rather than the physical paper form. How then do we translate a knowledge-based economy into value? How is it monetized?
If ideas are beliefs, and beliefs can be true or false, then clearly we cannot use a standard of measure of value as simply one where we exchange ideas. The Internet in its current form already provides that, but where does the value come from?
If we look at past economic theories of value, we can begin to find some clues. If we examine various economic schools of thought over the past 300 years s
tarting with Adam Smith and The Wealth of Nations, then we find various theories that have been proposed as theories of value. The classical economist thought that the value of a commodity was based on the labor required to produce it, and thus created the labor theory of value. This particular theory was again taken up and formed the basis of Karl Marx theorizing, and thereby extension Marxian economics.
The Austrian School of Economics created the subjective theory of value that theorized that the value of a commodity was subjective. The basic proposition here is that for an object to posses value it must be both useful and scarce. The value of a commodity, as based on this theory, is dependent on the ability of an object to satisfy the wants of any given individual. That want is then translated into a price. This theory served to provide the foundation of the marginal utility theory of value. Although not mainstream, this theory further establishes the marginal utility of a good or of a service as the basis of price. The utility of a given good or service would be abandoned in response to a given decrease.
All of these theories provide insight into how price is assigned to a commodity within a capitalistic economic system. In the twenty-first century America, within an information society with a knowledge-based economy, that economic system must be based on knowledge as a commodity and the knowledge theory of value must be firmly established with a common standard of knowledge that must become acceptable in order to establish the actual value of knowledge. It must be monetized in some form, even if that form is represented by only digits in a computer somewhere. I suggest that knowledge as a commodity must encompass all of these in order to have value. It must contain labor, a creation of the human mind; it must have an intrinsic value that can be subjective to the user of that knowledge, and it must be of some marginal utility in the production process.