Garrett, G. 2005. Global Markets and National Politics: Collision Course or Virtuous Circle? International Organization 52, no. 04: 787-824.
"The nation-state is purportedly an outmoded and beleaguered institutional form, on a collision course with the ever more international scale of markets. Policy autonomy, if not de jure sovereignty, is considered the primary casualty. Governments competing for mobile economic resources are thought to have little choice but to engage in a policy race to the neoliberal bottom, imperiling the efficacy and legitimacy of the democratic process itself" (787-8).
"This article puts under the analytic microscope the proposition that global markets trump national politics as social forces. I focus on the relationships between three dimensions of integration into international markets-trade in goods and services, the multinationalization of production, and financial capital mobility-and the macroeconomic policy choices of the advanced industrial countries up until the mid-1990s" (788).
It is possible to look at globalization as the cause of constraints on domestic policy, especially in certain cases in regard to finance capitalism. However, it is not the case that domestic policies have been uniformly constrained.
"There are two basic reasons why globalization constraints on policy choice are weaker than much contemporary rhetoric suggests. First, market integration has not only increased the exit options of producers and investors; it has also heightened feelings of economic insecurity among broader segments of society...Second, although there are costs associated with interventionist government...numerous government programs generate economic benefits that are attractive to mobile finance and production" (788-9).
"It should be a central objective of globalization research to see how these two sets of dynamics-capital's exit threats versus popular demands for redistribution, and the economic costs and benefits of interventionist government-play out in different contexts. In this article I point to two sources of variation. The first concerns differences among various facets of market integration and aspects of government policy choice...The second source of variation concerns domestic political conditions. Countries in which the balance of political power is tilted to the left continue to be more responsive to redistributive demands than those dominated by center-right parties...In summary, I do not believe that 'collision course' is the correct metaphor to apply to the panoply of relationships between interventionist national economic policies and global markets. Peaceful coexistence is probably a better general image...One might go further to argue that, even in a world of capital mobility, there is still a virtuous circle between activist government and international openness. The government interventions emblematic of the modern welfare state provide buffers against the kinds of social and political backlashes that undermined openness in the first half of the twentieth century" (789).
"Market integration is thought to affect national policy autonomy through three basic mechanisms. These are trade competitiveness pressures, the multinationalization of production, and the integration of financial markets" (791). Governments stand in the way of efficient trade blocs, and thus are pressured to reduce their size to become more competitive. If governments spend, they must recoup that through taxes or borrowing, one of which harms firms' competitiveness and the other makes money more expensive through raising interest rates. The ability of firms to export production easily is another concern of globalization theorists. If companies can take their production and easily emigrate to another country who has a more favorable production environment, this will help to spurn on the race to the bottom. The third point in this discussion involves the integration of finance. This wave of money can move around the globe at the speed of light, threatening stability if governments do not meet their demands.
"In this section I have made two basic points. First, there are three different facets of globalization that many consider to constrain national autonomy...Second, contemporary arguments about these globalization pathways are nothing new. One could transplant much of the work published in IO in the 1970s on interdependence and dependency into the 1990s globalization literature without fearing for its rejection as outmoded. Indeed, with appropriate changes in lexicon, the same could be said for Adam Smith" (795-6).
"First, there are strong parallels between recent arguments about the constraining effects of globalization on national autonomy and those all the way back to the eighteenth century about the domestic effects of market integration...My second point is that, up until the mid-1990s, globalization has not prompted a pervasive policy race to the neoliberal bottom among OECD countries, nor have governments that have persisted with interventionist policies invariably been hamstrung by damaging capital flight...This is not to say, however, that no facet of globalization significantly constrains national policy options. In particular, the integration of financial markets is more constraining than either trade or the multinationalization of production. But even here, one must be very careful to differentiate among various potential causal mechanisms. Talk of lost monetary autonomy only makes sense if one believes that the integration of financial markets forces governments to peg their exchange rates to external anchors of stability. On recent evidence, the credibility gains of doing so are far from overwhelming; indeed, noncredible pegs...have promoted the most debilitating cases of financial speculation and instability. On the other hand, the costs of giving up the exchange rate as a tool of economic adjustment are great, and economies that allow their currencies to float freely seem to benefit as a result. Governments simply should not feel any compunction to give up monetary autonomy in the era of global financial markets" (823).
"My analysis is...considerably more bullish about the future of the embedded liberalism compromise than some of its earlier advocates suggest" (824).
Wednesday, January 14, 2009
Tuesday, January 13, 2009
Freeman: Single Peaked Vs. Diversified Capitalism
FREEMAN, RB. 2000. Single Peaked Vs. Diversified Capitalism: The Relation Between Economic Institutions and Outcomes. NBER Working Paper.
From the abstract: "Capitalist countries have historically had quite different labour market institutions and social policies. Do these differences produce sufficiently different economic outcomes to identify a single peak set of institutions? This paper shows that: 1. Labour market institutions have large effects on distribution, but modest hard-to-uncover effects on efficiency. 2. Institutional diversity is increasing among advanced countries, as measured by the percentage of workers covered by collective bargaining. 3. The case for the US having the institutions for peak economy status rests on its 1990s full employment experience, which arguably counter balances its high level of economic inequality. The historical pattern whereby some capitalist countries do better than others in some periods...then run into problems is more consonant with the view that capitalism permits national differences in institutions to persist than with the view that all economies must converge to a single institutional structure" (abstract).
"The labour market is potentially the most idiosyncratic market in advanced capitalism" (1).
The single peaked model of capitalism would argue that it would be possible for the US to achieve a full employment status with the right kind of labor market institution. A Diverse Capitalism approach would understand this to be problematic. In a diverse capitalism approach, "To move from one peak to a higher one or to the global optimum req1uires that the economy descend from the local peak before it ascends the higher one" (3). "The expense of changing institutions permits variety in the institutional environment" (3). There are a variety of different "landscapes", ie., the relationship between a kind of institutional labor market relationship and a certain kind of desired output. These provide an opportunity for comparative analysis. There is also a normative element to this analysis: it is possible to analyze the variety among countries by different metrics, with obviously different results.
There is then a various analysis of different forms in which a capitalist economy can form, as well as an exploration of whether or not the US represents a "Peak Economy".
The paper ends with three questions posed. As a summary:
Do different labor institutions and organization affect economic performance in different ways? Yes. Not in an absolute deterministic way, but yes.
Will distinct characteristics between institutions continue as the global economy becomes more integrated? Yes. Because institutions become embedded, because values differ and because different institutions do not preclude the same output.
Does the US represent a "peak economy"? No.
UPDATE:
There is a great variety in different capitalist countries in their institutional structure and consistency. From the US to Japan to Germany, three very successful capitalist countries operate with three very different kinds of institutional milieus. This study examines the claim that there is only one form of institutional structure and consistency that is agreeable to the interests of global finance and capital. This is identified as the single peaked verses diverse capitalist thesis.
The reason that there can be a multitude of structures within capitalist organization is that there are large costs associated with transitioning from one institutional structure to another.
If the single-peaked hypothesis was correct, it would be possible to note a few things: firstly, there would be one clear set of institutions that could be emulated; these should persist over time; countries who fall around the peak should be able to conform to these institutions and achieve gains in growth, and there should be long-term global convergence towards homogenous institutions of capitalism.
From the abstract: "Capitalist countries have historically had quite different labour market institutions and social policies. Do these differences produce sufficiently different economic outcomes to identify a single peak set of institutions? This paper shows that: 1. Labour market institutions have large effects on distribution, but modest hard-to-uncover effects on efficiency. 2. Institutional diversity is increasing among advanced countries, as measured by the percentage of workers covered by collective bargaining. 3. The case for the US having the institutions for peak economy status rests on its 1990s full employment experience, which arguably counter balances its high level of economic inequality. The historical pattern whereby some capitalist countries do better than others in some periods...then run into problems is more consonant with the view that capitalism permits national differences in institutions to persist than with the view that all economies must converge to a single institutional structure" (abstract).
"The labour market is potentially the most idiosyncratic market in advanced capitalism" (1).
The single peaked model of capitalism would argue that it would be possible for the US to achieve a full employment status with the right kind of labor market institution. A Diverse Capitalism approach would understand this to be problematic. In a diverse capitalism approach, "To move from one peak to a higher one or to the global optimum req1uires that the economy descend from the local peak before it ascends the higher one" (3). "The expense of changing institutions permits variety in the institutional environment" (3). There are a variety of different "landscapes", ie., the relationship between a kind of institutional labor market relationship and a certain kind of desired output. These provide an opportunity for comparative analysis. There is also a normative element to this analysis: it is possible to analyze the variety among countries by different metrics, with obviously different results.
There is then a various analysis of different forms in which a capitalist economy can form, as well as an exploration of whether or not the US represents a "Peak Economy".
The paper ends with three questions posed. As a summary:
Do different labor institutions and organization affect economic performance in different ways? Yes. Not in an absolute deterministic way, but yes.
Will distinct characteristics between institutions continue as the global economy becomes more integrated? Yes. Because institutions become embedded, because values differ and because different institutions do not preclude the same output.
Does the US represent a "peak economy"? No.
UPDATE:
There is a great variety in different capitalist countries in their institutional structure and consistency. From the US to Japan to Germany, three very successful capitalist countries operate with three very different kinds of institutional milieus. This study examines the claim that there is only one form of institutional structure and consistency that is agreeable to the interests of global finance and capital. This is identified as the single peaked verses diverse capitalist thesis.
The reason that there can be a multitude of structures within capitalist organization is that there are large costs associated with transitioning from one institutional structure to another.
If the single-peaked hypothesis was correct, it would be possible to note a few things: firstly, there would be one clear set of institutions that could be emulated; these should persist over time; countries who fall around the peak should be able to conform to these institutions and achieve gains in growth, and there should be long-term global convergence towards homogenous institutions of capitalism.
Tuesday, January 6, 2009
Jutila: Reconstructing Global Interconnectedness
Jutila, Matti. Reconstructing Global Interconnectedness: The Complementary Roles of Philosophy and Social Sciences: A conversation with Roy Bhaskar and Keikki Patomaki.
Critical Realism has a unique genealogy that can be traced back through the works of Bhakshar and Harre, among many others. "In short, the content of CR is understood with the help of three philosophical theses: ontological realism, epistemological relativism and judgmental rationalism. Ontological realism means that the world is not only real but it must also be differentiated, structured, layered and possess causal powers. This forms the basis for our knowledge of the different aspects of the world, but this knowledge is always socially produced, contextual and fallible...This interpretative pluralism does not mean that all knowledge claims are equally valid. According to judgmental rationalism, we can always compare various interpretations, explanations and models to make well-grounded and plausible judgments about their truth" (2).
The remainder of the piece is an interview with both Bhaskar and Patomaki regarding their positioning of critical theory within philosophy and social science.
Critical Realism has a unique genealogy that can be traced back through the works of Bhakshar and Harre, among many others. "In short, the content of CR is understood with the help of three philosophical theses: ontological realism, epistemological relativism and judgmental rationalism. Ontological realism means that the world is not only real but it must also be differentiated, structured, layered and possess causal powers. This forms the basis for our knowledge of the different aspects of the world, but this knowledge is always socially produced, contextual and fallible...This interpretative pluralism does not mean that all knowledge claims are equally valid. According to judgmental rationalism, we can always compare various interpretations, explanations and models to make well-grounded and plausible judgments about their truth" (2).
The remainder of the piece is an interview with both Bhaskar and Patomaki regarding their positioning of critical theory within philosophy and social science.
Patomaki: A Critical Realist Approach to Global Political Economy
Patomäki, H. 2003. A critical realist approach to global political economy. Critical realism (pp. 197Á220). London/New York: Routledge.
Cox wrote from a neo-Gramscian perspective about IPE. This derived from a critique of Wallenstein's approach to a global capitalist order, both as a critique and as an amendment. This was then built upon by Gill and Law. "...Gill and Law argued that a political economy analysis should not be narrowly limited to diplomatic relations between governments of modern nation-states, which are taken as given, and a few other actors such as NGOs and international organizations. The focus should not be on the actions of a few collective actors, particularly states, but rather on the underlying socio-economic processes and structures. Deeper and larger historical processes...determine, in part, forms of state and world orders. In contrast to Wallenstein, but in accordance with the rising literature on globalization, Gill and Law...also claimed that there is now a rather well integrated global political economy, 'whereas in the past, there was a less complex international political economy'" (2).
"GPE has opened a new perspective for fruitful studies of world politics and economy. It is the basic claim of this paper that critical realism can make a difference by enriching this approach in at least two crucial ways. Firstly, critical realism enables the building of bridges between heterodox economics and GEP...Secondly, CR can work as a philosophical 'underlabourer' for GPE by deepening basic ontological concepts such as causality, action, structure, power and open systems; by clarifying the epistemology of explanatory modeling and the role of explicitly hypotheses and empirical evidence; and by explicating the truly critical moment in social scientific explanations" (2-3).
"In the following, I make first an argument that the neo-Gramscian GPE fails to address the issues of economic theory and lacks adequate concepts of causality, explanation, hypothesis and empirical evidence. Second, I explain why the neo-classical orthodoxy in economics has become insulated from all other strands of social sciences, including political economy; and ask whether there are nay more open, pluralist and realist approaches in economics, which could enable the creation of bridges between GPE and economics. Third, in order to absent the absences of GPE, I introduce the critical realist notions of action, structure, causality and open systems; and the epistemological concepts of falsification, iconic model, existential and causal hypothesis, and evidence. I argue that these and related concepts provide a framework within which GPE can be made more systematic and open to falsification and revisions; and within which economics and political economy could be re-united. Fourth, by using explanations of the instability of global finance as an example, I take a few steps towards concretizing these suggestions in a pivotal contemporary context. Finally, I conclude by outlining briefly the relationship between causal explanations, social criticism, and transformative practice" (3-4).
Neo-classical economic theory has become separated from social science. The author traces the development of both neo-classical economic theory growth and the growth of heterodox approaches. A critical realist ontology also rejects the false method of looking at the world through closed systems in place of open systems.
Cox wrote from a neo-Gramscian perspective about IPE. This derived from a critique of Wallenstein's approach to a global capitalist order, both as a critique and as an amendment. This was then built upon by Gill and Law. "...Gill and Law argued that a political economy analysis should not be narrowly limited to diplomatic relations between governments of modern nation-states, which are taken as given, and a few other actors such as NGOs and international organizations. The focus should not be on the actions of a few collective actors, particularly states, but rather on the underlying socio-economic processes and structures. Deeper and larger historical processes...determine, in part, forms of state and world orders. In contrast to Wallenstein, but in accordance with the rising literature on globalization, Gill and Law...also claimed that there is now a rather well integrated global political economy, 'whereas in the past, there was a less complex international political economy'" (2).
"GPE has opened a new perspective for fruitful studies of world politics and economy. It is the basic claim of this paper that critical realism can make a difference by enriching this approach in at least two crucial ways. Firstly, critical realism enables the building of bridges between heterodox economics and GEP...Secondly, CR can work as a philosophical 'underlabourer' for GPE by deepening basic ontological concepts such as causality, action, structure, power and open systems; by clarifying the epistemology of explanatory modeling and the role of explicitly hypotheses and empirical evidence; and by explicating the truly critical moment in social scientific explanations" (2-3).
"In the following, I make first an argument that the neo-Gramscian GPE fails to address the issues of economic theory and lacks adequate concepts of causality, explanation, hypothesis and empirical evidence. Second, I explain why the neo-classical orthodoxy in economics has become insulated from all other strands of social sciences, including political economy; and ask whether there are nay more open, pluralist and realist approaches in economics, which could enable the creation of bridges between GPE and economics. Third, in order to absent the absences of GPE, I introduce the critical realist notions of action, structure, causality and open systems; and the epistemological concepts of falsification, iconic model, existential and causal hypothesis, and evidence. I argue that these and related concepts provide a framework within which GPE can be made more systematic and open to falsification and revisions; and within which economics and political economy could be re-united. Fourth, by using explanations of the instability of global finance as an example, I take a few steps towards concretizing these suggestions in a pivotal contemporary context. Finally, I conclude by outlining briefly the relationship between causal explanations, social criticism, and transformative practice" (3-4).
Neo-classical economic theory has become separated from social science. The author traces the development of both neo-classical economic theory growth and the growth of heterodox approaches. A critical realist ontology also rejects the false method of looking at the world through closed systems in place of open systems.
Friday, January 2, 2009
Khan: Making Globalization Work
Khan, H. 2008. Making Globalization Work: Towards Global Economic Justice.
"Globalization as a corporate-led process has come under much justifiable criticism. This paper attempts to give the term analytic content distinct from its more ideological formulations. It then focuses on a normative analysis of globalization from the capabilities perspective. A freedom-centered perspective such as the capabilities approach emphasizes policies and institutions that can enhance freedom globally and locally. A global governance structure based on transparent principles of both economic efficiency and social justice is shown to be a desirable state of affairs; however, the present fractured process of globalization is more likely to end up in a fragmenting regionalism or even national protectionism and rivalry. Multilateral cooperation on the basis of the framework advanced here is an urgent necessity. To this end the creation of international regimes of cooperation in areas ranging from trade and finance to ecological and women's and minorities rights issues must be put on the international and national social and political agendas" (1).
How is it possible to move towards regionalism if the overall stated goal of globalization is to increase international cooperation and openness? "The main argument offered is that there is a contradiction in the heart of the current US and the IFIs-led globalization that stems from their seeming refusal to understand the implications of unevenness in the real world. This also has led to their neglect of some vital principles of global justice" (2).
Globalization has become a term that is tossed about with abandon in certain circles; its meaning has become amorphous. The effects of increased international openness are not universally felt, for example, standard H-O models would claim that the global south should find itself increasing parity with the global north and less-skilled positions move in that direction while less skilled workers in the global north should expect to suffer. The empirical evidence of this is not at all clear. Some call this a fractured-globalism.
"In this paper globalization is conceptualized as asset of cross-cutting economic, technological, cultural and communicative processes that have grown enormously since the end of WWII. In simple terms globalization refers to the integration of the world economy in such a way that what is unfolding in one part of the world has clear, sustained and observable repercussions on the socioeconomic environment and lifestyles of individuals and communities elsewhere" (5).
In an earlier work, the author highlighted 5 areas where global justice can take root within the globalization debate: international trade and monetary regimes; international capital flows; international ecological considerations; asset redistribution and human development; and gender issues (6-7).
"Capabilities can be construed as general powers of human body and mind that can be acquired, maintained, nurtured and developed" (9). There is then a reproduction of Crocker's taxonomy of both Sen and Nussbaum's capabilities approach (9-10).
"Regarding the intense discussion on the effect of globalization on the welfare and economic growth of developing countries, the dominant view appears to be that closer economic integration will enhance the flow of goods and services as well as factors of production, and hence promote economic growth and the welfare of all people. It is believed that globalization will result in a better division of labor, allowing developing countries...to specialize in labor intensive commodities while permitting developing countries to use their workers in more productive ways...Others...reject this argument and contend that globalization and regionalization has largely benefited the powerful economic entities, thereby marginalizing weak regions and nations. It is argues that globalization, while increasing the importance of service industries and skilled labor, also reduces the importance of primary commodities and unskilled labor...Consequently, countries which were once considered wealthy, endowed with natural resources, are no more in the list of rich countries...In modern economy, technology, knowledge and skills stand as the only course of comparative advantage" (12-3).
The Asian Financial Crisis of the late 90s is explored as an example of the contradiction of globalization.
"Globalization has obviously had some positive impacts such as the transfer of technology, raising of productivity in specific sectors, and the improvement of the living standard of some people in developing and developed countries. However, current type of globalization generally, while benefiting certain regions or groups, is marginalizing and distressing the vulnerable and disadvantaged regions and people. This type of corporate-led globalization is also forging imbalances among different human needs by privileging the acquisition of material wealth over human and spiritual values, resulting in violence, alienation and despair" (18).
"Globalization as a corporate-led process has come under much justifiable criticism. This paper attempts to give the term analytic content distinct from its more ideological formulations. It then focuses on a normative analysis of globalization from the capabilities perspective. A freedom-centered perspective such as the capabilities approach emphasizes policies and institutions that can enhance freedom globally and locally. A global governance structure based on transparent principles of both economic efficiency and social justice is shown to be a desirable state of affairs; however, the present fractured process of globalization is more likely to end up in a fragmenting regionalism or even national protectionism and rivalry. Multilateral cooperation on the basis of the framework advanced here is an urgent necessity. To this end the creation of international regimes of cooperation in areas ranging from trade and finance to ecological and women's and minorities rights issues must be put on the international and national social and political agendas" (1).
How is it possible to move towards regionalism if the overall stated goal of globalization is to increase international cooperation and openness? "The main argument offered is that there is a contradiction in the heart of the current US and the IFIs-led globalization that stems from their seeming refusal to understand the implications of unevenness in the real world. This also has led to their neglect of some vital principles of global justice" (2).
Globalization has become a term that is tossed about with abandon in certain circles; its meaning has become amorphous. The effects of increased international openness are not universally felt, for example, standard H-O models would claim that the global south should find itself increasing parity with the global north and less-skilled positions move in that direction while less skilled workers in the global north should expect to suffer. The empirical evidence of this is not at all clear. Some call this a fractured-globalism.
"In this paper globalization is conceptualized as asset of cross-cutting economic, technological, cultural and communicative processes that have grown enormously since the end of WWII. In simple terms globalization refers to the integration of the world economy in such a way that what is unfolding in one part of the world has clear, sustained and observable repercussions on the socioeconomic environment and lifestyles of individuals and communities elsewhere" (5).
In an earlier work, the author highlighted 5 areas where global justice can take root within the globalization debate: international trade and monetary regimes; international capital flows; international ecological considerations; asset redistribution and human development; and gender issues (6-7).
"Capabilities can be construed as general powers of human body and mind that can be acquired, maintained, nurtured and developed" (9). There is then a reproduction of Crocker's taxonomy of both Sen and Nussbaum's capabilities approach (9-10).
"Regarding the intense discussion on the effect of globalization on the welfare and economic growth of developing countries, the dominant view appears to be that closer economic integration will enhance the flow of goods and services as well as factors of production, and hence promote economic growth and the welfare of all people. It is believed that globalization will result in a better division of labor, allowing developing countries...to specialize in labor intensive commodities while permitting developing countries to use their workers in more productive ways...Others...reject this argument and contend that globalization and regionalization has largely benefited the powerful economic entities, thereby marginalizing weak regions and nations. It is argues that globalization, while increasing the importance of service industries and skilled labor, also reduces the importance of primary commodities and unskilled labor...Consequently, countries which were once considered wealthy, endowed with natural resources, are no more in the list of rich countries...In modern economy, technology, knowledge and skills stand as the only course of comparative advantage" (12-3).
The Asian Financial Crisis of the late 90s is explored as an example of the contradiction of globalization.
"Globalization has obviously had some positive impacts such as the transfer of technology, raising of productivity in specific sectors, and the improvement of the living standard of some people in developing and developed countries. However, current type of globalization generally, while benefiting certain regions or groups, is marginalizing and distressing the vulnerable and disadvantaged regions and people. This type of corporate-led globalization is also forging imbalances among different human needs by privileging the acquisition of material wealth over human and spiritual values, resulting in violence, alienation and despair" (18).
Nayyar: Globalisation, History and Development
Nayyar, D. 2006. Globalisation, history and development: a tale of two centuries. CPES.
"This paper situates globalization in historical perspective to analyze its implications for development. IT sketches a picture of globalization during the late nineteenth and twentieth centuries. A comparison of these two epochs reveals striking parallels, unexpected similarities and important differences. It shows that globalization did not lead to rapid growth and economic convergence in the world, either then or now. Indeed, growth slowed down, and income levels diverged, while the gap between the industrialized and developing countries widened, in both epochs. The story of globalization, it turns out, does not conform to the fairy tale about convergence and development" (137).
The author notes that the word globalization is used in both a descriptive and a normative sense: one is more passively attempting to explore a deepening global integration and the other is prescribing a development method. It can be explained as increasingly intense economic transactions across national borders occurring through one of the following: international trade, investment or finance. "More precisely, it can be defined as a process associated with increasing economic openness, growing economic interdependence and deepening economic integration in the world economy" (137).
The history of globalization before 1914 is explored. Trade openness increased dramatically in the years leading up to the Great War, in fact, more substantively than global economic output. However, it was not the case that this openness was entirely voluntary: many countries were coerced to join the international trading regime through gunboat diplomacy.
In the latter half of the 20th century, international openness to economic exchange also experienced rapid growth. This is true when explored through the metric of international trade or international finance/investment.
The two periods are compared: "There are four similarities that are worth noting: the absence or the dismantling of barriers to international economic transactions; the development of enabling technologies; emerging forms of industrial organization; and political hegemony or dominance" (144). "There are, also, important differences between the two phases of globalization. It is important to highlight four such differences: in trade flows, in investment flows, in financial flows and most important, perhaps, in labour flows, across national boundaries" (146).
"This paper situates globalization in historical perspective to analyze its implications for development. IT sketches a picture of globalization during the late nineteenth and twentieth centuries. A comparison of these two epochs reveals striking parallels, unexpected similarities and important differences. It shows that globalization did not lead to rapid growth and economic convergence in the world, either then or now. Indeed, growth slowed down, and income levels diverged, while the gap between the industrialized and developing countries widened, in both epochs. The story of globalization, it turns out, does not conform to the fairy tale about convergence and development" (137).
The author notes that the word globalization is used in both a descriptive and a normative sense: one is more passively attempting to explore a deepening global integration and the other is prescribing a development method. It can be explained as increasingly intense economic transactions across national borders occurring through one of the following: international trade, investment or finance. "More precisely, it can be defined as a process associated with increasing economic openness, growing economic interdependence and deepening economic integration in the world economy" (137).
The history of globalization before 1914 is explored. Trade openness increased dramatically in the years leading up to the Great War, in fact, more substantively than global economic output. However, it was not the case that this openness was entirely voluntary: many countries were coerced to join the international trading regime through gunboat diplomacy.
In the latter half of the 20th century, international openness to economic exchange also experienced rapid growth. This is true when explored through the metric of international trade or international finance/investment.
The two periods are compared: "There are four similarities that are worth noting: the absence or the dismantling of barriers to international economic transactions; the development of enabling technologies; emerging forms of industrial organization; and political hegemony or dominance" (144). "There are, also, important differences between the two phases of globalization. It is important to highlight four such differences: in trade flows, in investment flows, in financial flows and most important, perhaps, in labour flows, across national boundaries" (146).
Thursday, January 1, 2009
Frieden: Will Global Capitalism Fail Again?
Frieden, J. 2006. Will Global Capitalism Fall Again? Presentation for BRUEGEL's Essay and Lecture Series. Brussels, June.
"Over the past thirty years, the world economy has become increasingly integrated. Despite continued conflict over globalization, most people--especially in the industrialized nations--appear to accept that an international system in which goods and capital can move quite freely among countries has become the normal state of affairs, and is likely to continue for the foreseeable future" (7).
However, while there is agreement that a certain kind of phenomena is occurring, there is no consensus as to whether or not this change is occurring for the better. Many look back to the most notable previous era of globalization, that occurring in the years previous to 1914, and note that the system produced stable economic growth, high degrees of convergence over a great many of years. Understanding if our current economic system will fail requires that we possibly explore how the previous system failed.
"Why could the first era of global capitalism not be restored? It was not for lack of trying. For twenty years after World War I ended, statesmen and diplomats engaged in round after round of conferences and consultations. The nations of the world signed treaties, created international organizations, and committed themselves to new obligations, in unprecedented measure. Yet nothing seemed to work" (11).
"The underlying sources of weakness in the international economic order after 1918 were political" (11).
"International political problems introduced great instability into the inter-war political economy, but I would focus attention on an even more important source of conflict: domestic politics. For in addition to international political conditions conducive to a functioning, integrated international economy, there are also domestic political requisites. And in my view, the principal problems that affected and infected the international economy in the inter-war period were domestic and political" (12).
"The classical international economy of the gold standard era rested upon a consensus among elites about the priority of international economic commitments. In virtually every country, for virtually all of this period, economic and political leaders agreed that governments needed to ensure that their economies would adjust quickly to changing international economic conditions, rather than the other way around. They agreed on requiring the domestic economy to pay the price necessary to realize the benefits of integration into the world economy. And what was that price? What did it mean for the national economy to, as they said, 'take the strain?' Typically it meant allowing, or forcing, prices, profits, and wages to drop in response to adverse terms of trade or other shocks" (12).
Domestic politics did not represent such a constraint on elites controlling the flexibility of prices, wages in the interest of global economic stability. This was mainly because countries were either only slightly democratic or not democratic, and that organized labor had yet to establish itself firmly.
"To summaries and generalize, the first age of globalization worked because it was economically and politically feasible for governments to do what was necessary to sustain their international economic commitments. IT was not restored after World War I because these enabling conditions were no longer present. Keynes drew his conclusions early on: it was, he said exceedingly dangerous 'to apply the principles of an economics, which was worked out on the hypothesis of laissez-faire and free competition, to a society which is rapidly abandoning these hypotheses'" (14).
"Despite the warnings from Keynes and others, when difficulties arose in the 1920s, and especially in the 1930s, there was initially little or no political viable response" (15).
"The lessons of history are rarely simple. But there are some things we can learn from the experiences of the past century, especially from how the first era of global capitalism fell and how it rose again. In the aftermath of the age of globalization that ended in 1914, attempts to restore and sustain the system led to a resounding failure and a terrible backlash. While that backlash may not have been justifiable, it was at least understandable" (30).
"Compromises between globalism and nationalism, and between social reforms and markets, permitted the Western economies to grow rapidly and stably after World War II...Today capitalism is at least as global as it was in the decades before 1914, which raises the specter of a return to the failures that ended that earlier episode of global capitalism. And so the central challenge of our portion of the twenty-first century will be to avoid a repetition of past tragedies, of both sorts...This will require a delicate balancing act...The first part of it is to build and sustain a functioning, integrated, international political and economic order...The second part of the balancing act is to create and sustain domestic political and economic conditions that allow enduring support for international commitments" (31).
"Over the past thirty years, the world economy has become increasingly integrated. Despite continued conflict over globalization, most people--especially in the industrialized nations--appear to accept that an international system in which goods and capital can move quite freely among countries has become the normal state of affairs, and is likely to continue for the foreseeable future" (7).
However, while there is agreement that a certain kind of phenomena is occurring, there is no consensus as to whether or not this change is occurring for the better. Many look back to the most notable previous era of globalization, that occurring in the years previous to 1914, and note that the system produced stable economic growth, high degrees of convergence over a great many of years. Understanding if our current economic system will fail requires that we possibly explore how the previous system failed.
"Why could the first era of global capitalism not be restored? It was not for lack of trying. For twenty years after World War I ended, statesmen and diplomats engaged in round after round of conferences and consultations. The nations of the world signed treaties, created international organizations, and committed themselves to new obligations, in unprecedented measure. Yet nothing seemed to work" (11).
"The underlying sources of weakness in the international economic order after 1918 were political" (11).
"International political problems introduced great instability into the inter-war political economy, but I would focus attention on an even more important source of conflict: domestic politics. For in addition to international political conditions conducive to a functioning, integrated international economy, there are also domestic political requisites. And in my view, the principal problems that affected and infected the international economy in the inter-war period were domestic and political" (12).
"The classical international economy of the gold standard era rested upon a consensus among elites about the priority of international economic commitments. In virtually every country, for virtually all of this period, economic and political leaders agreed that governments needed to ensure that their economies would adjust quickly to changing international economic conditions, rather than the other way around. They agreed on requiring the domestic economy to pay the price necessary to realize the benefits of integration into the world economy. And what was that price? What did it mean for the national economy to, as they said, 'take the strain?' Typically it meant allowing, or forcing, prices, profits, and wages to drop in response to adverse terms of trade or other shocks" (12).
Domestic politics did not represent such a constraint on elites controlling the flexibility of prices, wages in the interest of global economic stability. This was mainly because countries were either only slightly democratic or not democratic, and that organized labor had yet to establish itself firmly.
"To summaries and generalize, the first age of globalization worked because it was economically and politically feasible for governments to do what was necessary to sustain their international economic commitments. IT was not restored after World War I because these enabling conditions were no longer present. Keynes drew his conclusions early on: it was, he said exceedingly dangerous 'to apply the principles of an economics, which was worked out on the hypothesis of laissez-faire and free competition, to a society which is rapidly abandoning these hypotheses'" (14).
"Despite the warnings from Keynes and others, when difficulties arose in the 1920s, and especially in the 1930s, there was initially little or no political viable response" (15).
"The lessons of history are rarely simple. But there are some things we can learn from the experiences of the past century, especially from how the first era of global capitalism fell and how it rose again. In the aftermath of the age of globalization that ended in 1914, attempts to restore and sustain the system led to a resounding failure and a terrible backlash. While that backlash may not have been justifiable, it was at least understandable" (30).
"Compromises between globalism and nationalism, and between social reforms and markets, permitted the Western economies to grow rapidly and stably after World War II...Today capitalism is at least as global as it was in the decades before 1914, which raises the specter of a return to the failures that ended that earlier episode of global capitalism. And so the central challenge of our portion of the twenty-first century will be to avoid a repetition of past tragedies, of both sorts...This will require a delicate balancing act...The first part of it is to build and sustain a functioning, integrated, international political and economic order...The second part of the balancing act is to create and sustain domestic political and economic conditions that allow enduring support for international commitments" (31).
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