Economic Globalization

EconomicGlobalizationSociology2,Class5Copyright©2010byEvanSchoferDonotcopyordistributewithoutpermissionAnnouncements•Agenda•Today:EconomicGlobalizationEconomicGlobalization•Economicglobalization:•Simpledefinition:Wheneconomicactivitythatwasformallylocalornationalscalebecomesorganizedonaglobalscale–Spanningcountries,ratherthancontainedwithinthem•Examples:Globalizationof…•Production•Trade/exchange•Corporations•Labor•“Direct”Investment•Capital–I’lldefine&discusseach.Globalization:Trade•Trade:Theexchangeofgoods&services•Historically,tradewaslocal•But,thewordhasbecomesynonymouswith“internationaltrade”,whichisglobalbydefinition•History:–Globaltradewascommoninthelate19thcentury•Internationaltradeamountedto8%ofGDPby1913•But,tradecollapsedduringWWI,Depression,WWII–SinceWorldWarII,tradehasgrownrapidly•Tradesurpassed17%ofworldGDPinthe1990s•NOTE:tradeisconcentratedamongwealthynations.GlobalizationofProduction•Production:Creatingproductsandservices•Example:Buildingacar•Wheredotherawmaterialscomefrom?Wherearepartsmade?Whereisassemblydone?–Inthepast,autoproductionwasprimarilylocal•Ex:rawmaterialswereimported,butrestwaslocal–Now,itiscommonforautoproductiontospandozensofnations•Partsmadeinvariousplaces,assembledinvariousplaces…–Ex:PictureinKnox/Agnew/McCarthytext(onnextslide).Toyota’sGlobalProductionSystemGlobalizationofProduction•Globalsupplychains•A“supplychain”referstothestepsthroughwhichrawmaterialsaretransformedintocomponentsandfinallyintoafinalproduct•Cottonclothshirt•Becauseofdecreasedtransportationcosts,“Theold[mass]productionsystemcouldnowbefragmentedandparceledoutaroundtheworldtowhereverpiecescouldbedonebestormostcheaply.”–Reich,ch3p62.GlobalizationofProduction•Reich,inthebook“Supercapitalism”,makessomeimportantobservations:–Withglobalization,Americabegantoimportmuchofwhatitconsumes•BUT:AggregatetradestatisticshidethefactthatmuchofthetradewasWITHINAmericancompanies–Implication:Itisanoversimplificationtosaythatforeigncompaniesare‘outcompeting’USfirms•“RatherthanAmericancompanies‘losingtheircompetitiveness’…AmericastartedlosingsolelyAmericancompanies.”•ThesuccessofAmericancompaniesnolongerimpliedbetterwages&conditionsforUSworkers.ForeignDirectInvestment•ForeignDirectInvestment(FDI):•Definition:Investingassets(i.e.,money)fromonecountryintoorganizations,structure,andequipmentinanother•Example:building(orbuying)afactoryinanothercountry•FDIdoesnotinclude“intangible”investments,suchasbuyingstockorcurrencyinanothercountry•Note:Mostinvestmentisbetweenwealthy,industrializedcountriesEconGlobalization:Capital•CapitalFlows:Movementofassets(money)acrossnationalborderstopurchaseintangibleinvestments•Alsocalled:Financialflows,globalizationofcapitalmarkets•Example:Buyingstocks&bondsinanothercountry•Example:Buyingothercurrenciesforpurposesofspeculation(i.e.,profit)–UnlikeFDI,capitalinvestmentscanmovequickly…flowinginandoutofcountries•Causesmuchconcern…Elwoodmentions:“Pinballcapital”EconGlobalization:Labor•Labor:peoplewhoworkintheeconomy•Likecapitalorgoods,peoplecanmoveacrossnationalborders:Immigration–Historicalperspective:•Liketrade,immigrationwascommoninthelate19thcentury,butdroppedinthemid20thcentury•Duetoimmigrationlaws,migrationremainsconstrained–Migrantsrepresentasmallfractionoftheglobalpopulation–Moreover,laborflowstendtoberegional.EconGlobalization:Corporations•Corporationscanspannationalnations…•Called:Multi-nationalcorporations(MNCs);Multi-nationalEnterprises(MNEs);Trans-nationalcorporations(TNCs)–Firmscanvaryinextenttheyareglobal•Sometimesonly1or2factoriesoverseas•Or,theycanbespreadliterallyacrosstheglobe–Thevastmajorityofcompaniesarestilllocal–Andmanymultinationalsareconcentratedinafewcountries•But,multinationalshavegrowinnumberandsize–Somedwarftheeconomiccapacityofentirecountries…•Moreonthislater…Whatismostglobalized?•Somethingsaremoreglobalizedthanothers…HowGlobal?ExtremelyCapitalflowsVeryTradeModeratelyCorporations,FDI,ProductionNotsomuchLabor(workers)Video:CommandingHeights•Episode3,chapters3-6•Basicissuesregardingtrade,capitalflows•:Origins•Question:Whataresomebasicthingsthatareabsolutelyrequiredinordertohaveaglobaleconomy?–1.Inexpensivetransportation&communication–2.Internationalfinancial(money)system–3.Countriesthatarewillingtoparticipate•Absenceoflegalorregulatory“barriers”.Transportation•Historically,peopleonlytradedlightweight,valuableitems…spices,silk,ivory,etc…•Thingsthatcouldbeeasilycarriedlongdistances•Globaleconomicactivityrequirescost-effectivetransportationsystems•Otherwisemostbusinessactivityremainslocalized•Mostchangesareprettyobvious:increaseincars,trucks,planes,trains,ships…•But,onechangemattersmorethanothers:containerizedshippingTransportation•Containerizedshipping=ahugerevolutioninglobaltransportation•Startedinthe1970’s•Shippingcontainers:astandard40ftlongbox•Easytoloadandunloadontoships,trains,trucks•Drasticallyreducedcostofshipping•Hugeshipscanholdthousandsofcontainers!ContainerizedShipping:Pics•Shipscanhold