Economic Globalization

By Christopher J. Kollmeyer, The University of Aberdeen

Abstract: The global economy is no longer just a network of intertwined national economies. It has grown into a single entity responsible for a variety of new forms of international cooperation, but also a new form of global imperialism. Despite widespread discussions about how economic globalization affects our daily lives, social scientists studying the topic disagree over whether it constitutes a historically unprecedented phenomenon. From Global Perspectives on the United States.

It has always been the case that the world’s dominant country—for example, Great Britain in the nineteenth century—disproportionately develops and enforces the rules for international trade and commerce.

Globalization can be defined as a far-reaching societal transformation that increasingly causes the world to function as a single integrated society rather than a mosaic of independent countries separated from one another by national borders. As a result of globalization, many forms of human interaction now extend well beyond the borders of individual countries or regional groupings of countries. Like many previous societal transformations, globalization both enhances and threatens our collective well-being. On one hand, it increasingly binds disparate social groups together, making them interdependent in numerous and complex ways, although this interdependency is not always obvious at the local level. This aspect of globalization clearly creates new opportunities for international cooperation and mutually beneficial interactions among diverse people. But, on the other hand, globalization can threaten our collective well-being as well. Since globalization extends the scope of human interactions beyond the regulatory control of individual countries, many social and economic processes now transpire without much government oversight. This aspect of globalization will likely produce serious problems for years to come, as countries around the world grapple with the inability to solve collective problems originating at the transnational level—problems such as global warming, environmental degradation, terrorism, economic crises, the spread of disease, and so forth. Because globalization is a complex and geographically dispersed process, it is not surprising that social scientists disagree on many of the issues surrounding it.

The Causes of Economic Globalization

Arguably, the confluence of four historical events, each occurring between the late 1960s and the early 1990s, produced the requisite conditions for our present-day movement toward the integration of national economies into a single world market, a process that social scientists typically call economic globalization. The first of these events, starting in the late 1960s and continuing well into the 1970s, was the occurrence of an usually harsh and prolonged economic downturn in many advanced industrial countries. Unlike other recessions, this one was exacerbated by soaring rates of inflation, triggered in part by a series of oil embargoes and the growing capacity of organized labor to negotiate wage increases. The resulting bout of stagflation—a period of slow economic growth coupled with high rates of inflation—considerably eroded the profitability of many corporations. Reacting to this situation, many corporations operating in the United States and other advanced industrial countries sought to reduce their labor costs by relocating their routine production jobs to low-wage regions of the world economy.

The second event, occurring along with this severe recession, was the advent of the information revolution, which began most notably with the invention of the microchip in 1972. The information revolution ushered in a new round of what the British geographer David Harvey calls “time-space compression”—the ability of technological advancements to reduce the amount of time required to transport people, physical goods, and information across geographical distances. For the average person, this made the world seem smaller, creating the much-lauded global village effect. For major corporations, the information revolution fulfilled a crucial requirement for economic globalization by enabling them to conduct business with overseas subsidiaries, subcontractors, and suppliers more easily.

Third, beginning in the early 1980s and continuing today, political leaders in many advanced industrial countries began implementing policies that facilitate economic globalization. Known as the Washington Consensus in the United States and neoliberalism elsewhere, this set of policies initially sought to overcome the slow economic growth of the 1970s by rolling back government social programs, reducing business regulations, privatizing government-controlled sectors of the economy, and lowering barriers to international trade and capital flows. The United States, arguably the country where these ideas enjoy the widest political support, significantly contributed to the spread of neoliberalism by encouraging other countries to embrace these policies and by influencing the standard practices of prominent international economic organizations. In the latter case, for example, U.S. policy makers and their academic advisers persuaded the International Monetary Fund and the World Bank to modify their lending policies. Since 1980s, these two international financial institutions have typically required borrowing countries to implement neoliberal reforms as a condition for loan eligibility. However, this practice has been controversial in many developing countries, primarily because it often increases poverty and income inequality over the short term. Overall, since neoliberalism creates a regulatory climate that facilitates cross-national flows of raw materials, capital, and finished goods, its growing prevalence has been an integral component of economic globalization.

Finally, with the end of the Cold War in 1991, capitalist markets began expanding into formerly socialist regions of the world economy. Before that time, nearly one-third of the world was essentially off limits to capitalist development. But this changed rapidly during the early 1990s, as policy makers in formerly socialist countries sought to improve their sagging economies by welcoming investments from foreign capitalists. It was at this time that the term globalization came into common usage, as it expressed the emergent reality that capitalism has become a truly global economic system. Clyde Prestowitz, a former Reagan administration trade official, points out that this process essentially created three billion new capitalists, many of whom are successfully competing for jobs formerly held by Americans.

Historical and Contemporary Economic Globalization

Despite widespread discussions about how economic globalization affects our daily lives, social scientists studying the topic disagree over whether it constitutes a historically unprecedented phenomenon. In a broad context, this debate yields two competing arguments. One argument maintains that, over the last two hundred years, the world economy has experienced several waves of economic globalization, and that the most recent wave, which is often called contemporary economic globalization, has not extensively reordered the centuries-old configuration of the world economy. The other argument, conversely, maintains that the current wave of economic globalization has indeed produced a qualitatively new and historically unprecedented economic system, one that for the first time in history closely approximates a truly global economy.

A small but growing number of social scientists, with the British social and political theorists Paul Hirst and Grahame Thompson being the most notable, see contemporary economic globalization as merely a high point in the ongoing ebb and flow of capitalist development. They assert that contemporary economic globalization simply represents an expansion and intensification of the production and exchange networks that have for centuries characterized the world economy. Their argument rests on two empirical facts. First, analyses of recent trade patterns indicate that, despite a recent upswing in international economic activity, most trade still occurs within and between three regional economic blocs, centered on East Asia, North America, and Western Europe. This finding implies that recent economic changes have not created a truly global economy. Rather it suggests that free-trade zones, such as North American Free Trade Agreement and the European Economic Union, have created vibrant regional economies, which are closely linked through trade flows. Second, analyses of historical trade patterns reveal three waves of economic globalization occurring since 1795, with each wave being followed by a period of contraction.

The similarities between past and present waves of economic globalization can be seen by examining certain historical texts. Writing 150 years ago about the consequences of the geographic expansion of capitalism, the German political philosophers Karl Marx and Friedrich Engels sounded much like present-day scholars describing the consequences of globalization. Capitalism’s expansion, Marx and Engels wrote, had “drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction become a life-and-death question for all civilized nations, by industries that no longer work up indigenous raw materials, but raw materials drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of old wants, satisfied by domestic production, we now find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations.” (Marx and Engels 1998, 39).

Overall, the findings mentioned above imply that recent economic changes merely return the world economy to the norms of the late nineteenth and early twentieth centuries, a time when national economies were deeply embedded within international economic flows. Perhaps more importantly, the findings also suggest that future events will likely reverse our current situation, creating a period in which national economies again become more independent of one another.

However, most social scientists believe that a qualitatively different economic system emerged over the last few decades, one that has subsumed many important national-level economic processes into a worldwide borderless economy. This perspective on economic globalization focuses on the qualitative transformations occurring in the international division of labor.