International Relations Globalization Has Become

International Relations

Globalization has become on of the polarizing issues of our times. Roughly, the camps can be viewed as those for globalization and those against. Each side believes that it reflects not only its own interests but the interests of myriad other groups. Those in favor globalization have, to a great extent, based their views on economic theory that began with David Ricardo's theory of competitive advantage (Krugman, 1996). The theory holds that nations gain from trade with one another in the goods in which they have a comparative, rather than absolute, advantage. The model shows that the total trade between the two nations grows as a result of this specialization.

Opponents of globalization point to its failures. Wealth distribution is unequal, resources are exploited, the world is becoming more culturally homogenous, and a litany of other complaints. The truth, naturally, lies somewhere in between. People who are poor in today's globalized world were not wealthy before -- they have always been poor. Resource devastation is far worse in the closed economies of the Soviet bloc and in Communist China than anywhere in the free world. Yet there are many market distortions that scuttle the effectiveness of free trade. The objective of raising total wealth has been achieved, especially in the nations that have actively embraced their role in globalization. But the distribution of that wealth remains poor in many parts of the world. The problem is less likely to be in globalization itself but in manner in which globalization is implemented in many countries. The drive to involve every nation was premature -- there are antecedents that need to be in place before globalization is truly able to lift people out of poverty.

II The Globalization Process

Trade between nations has been a staple of economic development since the days of the Silk Road. A more globalized form of trade emerged during the centuries of European expansion into Asia, America and Africa. Modern globalization began in the wake of the Second World War, with the abolition of the gold standard and the establishment of many of today's institutions of globalization.

The free trade era began with the signing of the Canada-U.S. Free Trade Agreement. That agreement was superceded by NAFTA, and since that point free trade agreements have flourished around the world. The World Trade Organization has conducted several rounds of talks in order to reach agreements concerning the conduct of world trade, and to set out dispute resolution frameworks to enforce international trade law.

The present state of globalization has relatively free flow of capital, some free flow of goods and limited free flow of people around the world. Financial flows allow wealthier nations to invest in less wealthy nations. The free flow of good allows for better use of comparative advantage among the world's nations. The free flow of people would allow individuals to follow the jobs and would facilitate even greater flow of wealth.

Through successive rounds of talks, the removal of trade barriers has made international investing easier, the result being greater influence of dominant nations over less dominant nations. Each step in the process is designed to move forward, lowering trade barriers over time. Globalization is also conducted at smaller levels, with groups of nations that may engage in regional or bilateral free trade agreements.

The globalization argument is being framed by the nations most dominant in the negotiations. These nations come to the negotiating table with formal and informal power and a set of desired outcomes. As such, it could be argued that globalization is a new twist on imperialism. In globalization, powerful nation-states dominate weaker ones; but large corporations dominate all nation-states, and ultimately would do away with them altogether (Baker, 2007).

While many feel that globalization as a force is the natural evolution of past trade patterns, others would argue that it is artificial. It was born of trade organizations and agreements, backed by banks that have benefited substantially from the agenda of globalization. Indeed, capital flows are much freer than other flows, which benefits banks more than it does other business interests. While nations are by no means compelled to sit at the negotiating table at GATT or the WTO, they have become convinced of the value of such negotiations. The issues in international trade are highly complex, however, such that the citizens of these nations have little hope of understanding the nuance of these agreements. However, the free flow of information would have increased globalization of trade even without the myriad trade agreements. It could be argued that globalization itself is inevitable. It is only that the pace and shape of globalization have been imposed upon the world's nations. As such, it can just as easily be reversed.

The Data

To measure the success of globalization, a series of metrics have been used. The most prominent is the Gross Domestic Product. The GDP measures the amount of economic activity in a nation. GDP is often measured in real terms, or an alternate way of equalizing GDP figures known as purchasing power parity. GDP does not distinguish between economic activity that has long-term positive outcomes and that which is destructive or a response to destruction (the rebuilding of New Orleans, for example).

Since GDP is a fairly amoral measure, globalization watchers have developed means to measure its other effects. The GINI coefficient, for example, was developed as a measure of relative poverty. It measures the income disparity in a nation from a scale of 0 to 1. The higher the number, the greater the inequality in a nation's wealth distribution (World Bank, 2009).

Sutcliffe and Glyn (1999) argued that the ways in which the impacts of globalization are measured are faulty and as a result the impacts of globalization are largely misunderstood, its benefits overstated and costs understated. There are many winners in globalization, including most Western nations, nations in the Persian Gulf and both eastern and Southeast Asia. Other nations, in particular those in Africa, have not seen nearly the same impacts of globalization.

Institutions

There are three main institutions of globalization -- the World Bank, the International Monetary Fund and the World Trade Organization. The World Bank was founded in 1944. It is comprised of two institutions that are owned by 186 nations collectively, the International Bank for Reconstruction and Development and the International Development Association. The World Bank has the objective of providing financial and technical assistance to developing countries. The World Bank provides low interest loans and interest-free credits and grants for investments in education, infrastructure, health, public administration, agriculture and private sector development (World Bank, 2009). Critics of the World Bank point to the institution's lack of transparency, its failure to promote universal health care access, and for its micromanaging of the money it gives. This micromanaging leads to the inability of company's to develop solutions that work best for their countries, and bogs down the development process (Bretton Woods Project, 2008).

The International Monetary Fund (IMF) was created alongside the World Bank. Its role is to "promote international monetary cooperation and exchange rate stability, facilitate the balanced growth of international trade and provide the resources to help members in balance of payments difficulties or to assist with poverty reduction (IMF, 2009). The IMF's approach, however, has been to promote the free flow of capital. This is not always welcomed by nations who may suffer the negative consequences of such free flows but without capturing their benefits. Multiple financial crises have been attributed -- rightly or wrongly -- in part to IMF policies (Stiglitz, 2004).

The World Trade Organization bills itself as the "only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible." (World Trade Organization, 2009). The WTO sets the framework for free trade negotiations between its member nations. These agreements are enforceable through the WTO's dispute settlement process and are ratified in the parliaments of the member nations. The WTO bases its support of free trade on a Ricardian interpretation of the benefits of trade, but its opponents point to its failure to manage the impacts of its initiatives, such as environmental damage on the part of one nation that has extraterritorial effects (Shaffer, 2001).

Capitalism, Imperialism and Corporate-led Globalization

Capitalism is the heir to imperialism and it is the doctrine that drives the current shape, pace and forms of globalization. Imperialism was a global economic system where a few wealthy, powerful nations dominated the many, and grew wealthy by extracting the resources from weaker lands and then trading them among themselves.

Capitalism broadens the scope. The playing field is leveled in that all economic actors are expected to have the same knowledge and power, and are therefore subject to the same rules. The WTO, IMF and World Bank all operate in this manner, seeking to remove barriers and create a level playing field. However, the playing field is not equal. While capitalism itself is amoral (Tabb, 2001) the level playing field gives inherent advantage to the strong. The framework for globalization is set by the stronger nations and their corporations. Even when weaker nations benefit from globalization, they may not be seeing as much benefit as they would have had they had equal bargaining power.

It has also been argued that while it is nation-states that implement globalization, they merely do so at the behest of their corporations. It is the corporations, then, that truly drive the globalization agenda. This occurs to the point where, ultimately, a truly globalized world will be one market, with the relevance of the nation-state greatly reduced (Baker, 2007).

While it is governments that promote globalization, it is corporations that must execute it. They trade the goods, move the money and hire the people. Ultimately, it is corporate interests that reap the benefits of globalization first. From there, the wealth needs to trickle down through the economy, in the form of wages, benefits and dividends, to improve the lives of the people in nations engaged in trade.

Corporate-led globalization, therefore, assumes that globalization will improve the conditions for the world's citizens. The assumption derives from the idea that wealth is distributed relatively evenly. This illustrates the imperialism that underlies the ways in which globalization has thus far been conducted. Wealthy, powerful nations tend to have low wealth distribution scores, as judged by the distribution of GINI Index scores (CIA World Factbook, 2009). Thus, an improvement in the GDP of a wealthy nation is likely to have such a trickle down effect. The rich may see their wealth increase at a faster rate than the poor, but the poor will see their wealth increase, either through greater availability of better jobs, increased public spending on health care and education, or through the social safety net.

In developing nations, where GINI scores tend to be substantially higher, the assumption that broad economic development will largely have positive consequences for the populace does not hold. With limited public spending on health and education, with few good jobs and with no social safety net or strong labor protections, the benefits of globalization may be enjoyed by a relatively small proportion of the populace or even by foreign multinationals who simply repatriate the bulk of the benefit.

Conclusions

The use of GDP and other broad-based measures is appropriate for the globalization process as currently constituted. These measures reflect the broad goals that the current institutions of globalization work towards. Increasing economic activity is also congruent with the theory of comparative advantage in its simplest form. However, what that theory fails to take into account is that the activity in Country A has comparative advantage is significantly less lucrative than that of Country B. Selling bananas is not equivalent to selling cars. The inequities of resource endowment, the differences in social norms, the relatively level of corruption in the public and private sectors of many nations all contribute to the inequities that flow from modern globalization.