Viewed narrowly, globalization is a governmental policy favoring free trade, open borders, the free movement of capital and goods (but not always of people), elimination of tariffs and price controls (including artificial control of currency values), and the privatization of publicly-owned or controlled enterprises. Globalization is also a word used to describe all manner of phenomena associated with such a policy—both positive and negative. In the U.S., the positive consequences of globalization so far have been inexpensive imports and the ability of companies to more easily invest abroad; the negative consequences have been the loss of jobs to off-shored operations and outsourced functions, large trade deficits, and foreign ownership of domestic assets. Globalization is a polarizing issue generally favored by the right in the name of free markets and opposed by the left as a policy that favors “Big Capital” and hence a small corporate elite.
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The International Monetary Fund, an organization of 184 countries, suggests in its definition that globalization is something of a natural process. Globalization, according to the IMF, is “a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization… .”
Trade, of course, is as old as humanity.
Anthropologists have traced enormous trade routes that Cro-Magnon man used all across Europe before the dawn of history. Trade over land and by ship became common, the principal trade goods being agricultural products like olives and grains. In pre-industrial times high dependence either on exports or imports tended to lead to war as countries tried either to secure their supplies or their markets. Rome became seriously dependent on grain imports from Egypt and eventually conquered its supplier.
The British Empire evolved as a series of steps attempting to protect its far flung trading centers. In modern times oil and gas are the “must have” commodities and are producing wars and tensions. The relevant phrase in the IMF’s definition therefore is “increasing integration.” Integration implies mutual dependency and therefore the danger of being cut off in times of trouble.
Underlying trade is the uneven distribution of the world’s resources. Some people have grain, others have timber. Some can raise animals on plains others can mine metal in mountains. We encounter a formulation of this argument in Adam Smith’s The Wealth of Nations (18th century): “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” In the 19th century David Ricardo refined this concept and called it “comparative advantage.”
Ricardo factored in opportunity costs as well as direct costs. In any event, the value underlying free trade is that both sides benefit because of differential advantages.
Trade is the expression of economic power, but a more basic power underlies it: political power expressed as force. Trade-based policies in the past have been balanced by policies of autarky, a word Merriam-Webster defines to mean “national economic self-sufficiency; a policy of establishing independence of imports from other countries.” No country is genuinely self-sufficient, but attempts to gain the optimum advantage by a mixture of trade and force tends to be practiced at all times.
Thus the U.S. government, for instance, despite a broadly favorable view on globalization, still imposed a tariff on Brazilian ethanol imports in the mid-2000s. The relative power of a country, the relative importance of a commodity, and the relative influence of vital constituencies within that country combine to determine how much a country will rely on trade, how much on force, and in which categories particularly.
A fundamental reason for opposition to globalization arises from its chief feature, integration and therefore mutual dependence. In democratically organized countries political blocks can only hope to influence their own government—not that of scores of others. But unreachable foreign governments will influence the local economy. And narrow constituencies that benefit disproportionately from free trade may be able to control the government. The free trade philosophy, based on the vitality of competition, is also opposed by a socialist philosophy, based on the virtue of cooperation.
Globalization is taking place under international treaties to which a majorities of countries are signatories.
Traditionally these treaties have been negotiated in socalled “rounds” and have resulted in “agreements.” The last “round” was the Uruguay Round in which agreements were signed on April 24, 1994; they went into effect on January 1, 1995, and established the World Trade Organization (WTO). Several other agreements were annexed to the “WTO Agreement;” these include the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade and Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The first GATT was negotiated and signed in 1947. WTO is now the successor to all of these agreements.
The WTO is headquartered in Geneva, Switzerland, and had a membership (as of December 2005) of 145 countries. The organization describes itself as “the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.”
In the mid-2000s the WTO was engaged in the Doha Round of negotiations (based in Doha, Qatar and begun in 2001). The chief aims of the round, strongly backed by the U.S. government, were further liberalization of trade in agricultural goods and services.
The future of this round, and thus indirectly of the WTO, was murky at the time of writing (2006) because ratification of the new agreements was widely opposed and not certain to be ratified even by the U.S. Congress.
U.S. Treaties And Initiatives
Within the U.S. government, the institutional body managing trade activities is the Office of the United States Trade Representative (USTR), a 200-person organization that takes the lead in negotiating trade agreements. The legal basis of this governmental element was the Trade Expansion Act of 1962, modified by subsequent trade acts, most recently by the Trade and Development Act of 2000.
Official U.S. participation in the globalization movement takes the form of participation in the global agreements that formed the WTO. In addition, the U.S. is a party to three regional agreements and is a promoter of three regional initiatives.
The agreements include APEC (for Asia-Pacific Economic Cooperation, signed in 1989), NAFTA (North American Free Trade Agreement, which became effective in 1994), and CAFTA (Central American Free Trade Agreement, which became effective in 2005). CAFTA includes the Dominican Republic and all Central American States except Costa Rica which has thus far not ratified the treaty. The USTR lists CAFTA as a bilateral agreement although it includes a group of nations.
The U.S. is also active in pursuing several free trade initiatives. These include the FTAA Initiative (for Free Trade Area of the Americas, begun 1994), the ASEAN Initiative (for Association of Southeast Asian Nations, begun 2002), and the MEFTA Initiative (for Middle East Free Trade Area, begun 2003). The treatment of CAFTA as a bilateral agreement may be the consequence of difficulties in bringing the FTAA Initiative to an agreement in more than a decade of ministerial meetings.
With CAFTA removed, the U.S. also has 13 bilateral agreements with Australia, Bahrain, Chile, Columbia, Israel, Jordan, Malaysia, Morocco, Oman, Panama, Peru, Singapore, and the South African Customs Union.
Most Favored Nations Just to keep things straight, special trade agreements are not the same as the often-mentioned “most-favored-nation” designations. The Library of Congress Research Service provides the following definition for the phrase: “Under the provisions of the General Agreement on Tariffs and Trade (GATT), when one country accords another most-favored-nation status, it agrees to extend to that country the same trade concessions, such as lower tariffs or reduced nontariff barriers, that it grants to any other recipient having most-favored-nation status.”
Each country, therefore, has its own definition of “most favored nation.” All those so designated are treated alike.
But some countries may be treated more favorably still. In that case they will not bear the “most favored” label.
NAFTA members are an example. The phrasing is unfortunate because one is reminded of George Orvell’s Animal Farm. Many nations may be “most favored,” but some are more favored than others.
Costs And Benefits
The costs and benefits of globalization depend on who you are, where you are, and even on what you are doing at any one point in time. Are you shopping? Working? Looking for work? Do you work for a multinational? For a small business? From the U.S. perspective, globalization has resulted in massive imports of goods available at very attractive prices in major outlets like Wal-Mart. This has helped consumers but has brought hardship on many small-business retailers unable to purchase goods in high quantity in foreign markets at rock-bottom prices.
Globalization has not only made it possible to import low-priced goods but also to export well-paid jobs to low-wage regions of the world, thus causing job-losses domestically. Lost jobs may be replaced, but the general consequences of intense competition with lower-paid labor elsewhere is to depress income domestically.
The benefits of lower prices have sent U.S. consumers on a shopping spree. Robert Samuelson reported in Newsweek on this phenomenon, citing Sara Johnson of Global Insight: “From 1996 to 2005,” Samuelson wrote, “the United States generated almost 45 percent of global growth in consumer spending … That dwarfs the U.S.
share of the world economy, [which is] about 20 percent.” A consequence of this has been an increase in the U.S. trade deficit from $191 billion in 1996 to $784 billion in 2005. But trade deficits extend unbroken many decades back (to 1971—when it was only $4.9 billion), indicating that the U.S. consistently sells less abroad than it buys from others. This, in effect, represents a net loss of U.S. assets to foreign owners. In the case of the U.S., “increased integration” has produced rapidly growing “dependence”—which, unless righted by energetic corrective measures, can only be paid for, ultimately, by a decline in the standard of living.
The near term beneficiaries of globalization are consumers. And they need help because their incomes are stagnant or declining. The clearest beneficiaries are the stockholders of big multinational corporations that reap the rewards of greatly increased flexibilities in sourcing labor and raw materials while still retaining the large U.S.
market. The somewhat conflicting outcomes of globalization are typically justified by appeals to technological progress: The U.S. can afford to shed jobs and enjoy the benefits of lower prices because the country’s prowess in technology and innovation will generate whole new waves of much better employment. Thus goes the argument. But the argument is, to some extent, a “bird-inthe-bush” rather than a “bird-in-the-hand” argument.
For this reason energetic public opposition to globalization has emerged. If it finds political resonance, globalization may in time be slowed or curbed.