geoffrey garrett: “the causes of globalization” presented by conrad haessler

Geoffrey Garrett: “The Causes of Globalization”

presented by Conrad Haessler

Summary

• Globalization is the international integration of markets in goods, services and capital narrow, economics-based definition

• Three determinants: 1) multinationalization of production, 2) trade taxes, 3) capital flows

• Four perspectives on Globalization: 1) Nothing new, 2) Technological Determinism, 3) Opportunity Cost of Closure, 4) Ideological Change

• Asymmetries in Globalization depend on: size development level domestic politics democracy (with qualifications)

• Supporting TheoryBhagwati, Jagdish (2004): “In Defense of Globalization”

• Opposing TheoryRodrik, Dani (1997): “Has Globalization gone too far?”

1) Is Globalization something essentially new?

Garrett

• YES• “…despite apparent similarities,

international market integration today is qualitatively different than it was 100 years ago.” (p. 954)

• “Trade in services was unheard of 100 years ago, but it is of considerable and rising importance these days. The nature of international capital movements also clearly differs.” (p. 955)

• “The uniqueness of contemporary international economy is nowhere more apparent than with respect to multinationalization of production.” (ibid.)

Bhagwati

• YES• “Many historians have noticed that the years

spanning the two world wars were an interruption of the upward trends in expansion of world trade and investment, and that it is possible to interpret the postwar liberalization […] as leading to a resumption of the trends set into motion prior to World War I. But all this misses the fact that there are fundamental differences that give globalization today a special, and at times sharp, edge.” (p. 11)

2) Are the effects of FDI generally positive?

Garrett

• YES• “Unlike the other two facets of market

integration [i.e. trade and capital mobility], there is little dispute in the economics community that the effects of FDI are unambiguously positive from the standpoint of economic growth […] Interestingly, the case does not need to rely on the notion that attracting foreign investors is beneficial to capital-poor countries. […] The evidence is that FDI is good for growth even in the wealthiest nations.” (p. 966)

Bhagwati

• YES• “Economists have noted a number of good

effects that multinationals can bring in their wake. Perhaps the chief good effect is what economists call spillovers. These refer to the fact that domestic firms learn productivity-enhancing techniques from multinationals with better technology and management practices”. (p. 180)

3) Is there an opportunity cost of closure in issues concerning free trade?

Garrett

• YES• “[…] Freer trade could increase innovation

by creating scale economies in export sectors that allow for higher research and development expenditures […] Thus, there is a good argument for the proposition that the trend toward trade liberalization around the world in recent decades is explicable in terms of the increased opportunity cost of closure.” (p. 963)

Bhagwati

• YES• “Economists today also appreciate that

there are scale economies in production that can be exploited when trade expands markets. For this reason, Tanzania, Uganda and Kenya, which had protected themselves with high tariffs against imports in the 1960s, found that the cost of their protection was excessively high. […] They decided in the 1970s therefore to have an East African Common Market…” (p. 62)

4) Has the control of capital flows become futile?

Garrett:

• YES• “Nowhere is globalization’s ballyhooed shrinkage of time and space more apparent than in

international finance. […] Financiers can literally operate wherever and whenever they like, cutting deals in whatever financial instrument they can dream up. It is the specter of truly footloose liquid capital that generates images of hapless governments seeking to regulate yesterday’s financial instruments within their borders.” (p. 956)

• “There were significant costs to offshore operations in the 1960s in terms of moving the relevant information halfway around the globe (e.g. a 3-minute telephone call New York – London cost more than $ 30) […] Today of course, even individual consumers pay less than 50 cents for the same international call. This is why the predicament of governments trying to regulate international capital flows seems even more parlous than was the case 30 years ago.” (p. 957)


AT&T Network History

• 1927: AT&T begins trans-Atlantic telephone service, initially between the United States and London. The conversations cross the Atlantic via radio. The initial capacity is one call at a time at a cost of $75 for the first three minutes

• 1988: AT&T lays and opens TAT-8, the first fiber-optic submarine telephone cable across the Atlantic. It has a capacity equivalent to 40,000 calls, 10 times that of the last copper cable. (Today’s cables have

capacities equivalent to over 1 million calls.) Source: AT&T http://www.att.com/history/nethistory/milestones.html

BOA - Countries with Local Offices

Source: Bank of America http://www.bankofamerica.com/facts/index.cfm?Menu_Sel=globalmap


Cable Name Date(s) Initial No. of channels Final No. of channels One End Other End

TAT-1 1956>1978 36 48 Scotland Newfoundland

TAT-2 1959>1982 48 72 France Newfoundland

TAT-3 1963>1986 138 276 England New Jersey

TAT-4 1965>1987 138 345 France New Jersey

TAT-5 1970>1993 845 2112 Rhode Island Spain

TAT-6 1976>1994 4,000 10,000 Rhode Island France

TAT-7 1978>1994 4,000 10,500 New Jersey England

TAT-8* 1988 40,000 - USA France

TAT-9 1992 80,000 - USA Spain

TAT-10 1992 2 x 565Mb/s - USA Germany

TAT-11 1993 2 x 565Mb/s - USA France

TAT-12/13 1996 2 x 5Gb/s -

TAT-14 2000 16 x 10Gb/s - USA England

Source: http://www.brainyencyclopedia.com/encyclopedia/t/tr/transatlantic_telephone_cable.html TAT = Transatlantic Telephone Cable

5) Are countries with higher union density more protectionist than others?

Garrett:

• YES• “…there is some evidence that traditional indicators of the balance of political power within

countries have affected their openness to the international economy. Countries with left-wing governments and powerful trade unions tend to be more closed.” (p. 977)

• “A country with 50% of its labor force unionized in 1985 is estimated to have had trade taxes that were almost 2.5 percentage points higher than a country with a union density of 10%.” (p. 974)


• Denmark rebuffing immigrants

In Copenhagen, headlines spoke of “a historic agreement” between the parties. Among the provisions were […] a longer waiting period for permanent residency (seven years instead of three), restriction of “family reunions” and foreign spouses unless both parties are at least 24 years old, and a higher threshold for Danish citizenship, including a nine-year waiting period and a Danish language and history exam, about which Politiken commented on (May 8): “There is a certain irony to the fact that so great a knowledge of Danish society will be demanded of naturalized Danes, more than what the public schools achieve in nine to ten years of schooling.”

Source: World Press Review Vol. 49 No. 8 August 2002 (http://www.worldpress.org/Europe/642.cfm)

Source: The Economist – June 5, 2003

6) Was the rise of the East Asian “tigers” based on education rather than trade?

Garrett:

• YES• “…trade had very little to do with the east Asian miracle. High savings rates and high level of

educational attainment mattered far more” (p. 962)


Source: Unesco Institut for Statistics

www.uis.unesco.org

7) Is Globalization something essentially new?

Garrett

• YES• “…despite apparent similarities,

international market integration today is qualitatively different than it was 100 years ago.” (p. 954)

• “Trade in services was unheard of 100 years ago, but it is of considerable and rising importance these days. The nature of international capital movements also clearly differs.” (p. 955)

• “The uniqueness of contemporary international economy is nowhere more apparent than with respect to multinationalization of production.” (ibid.)

Rodrik

• NO• “This is not the first time we have

experienced a truly global market. By many measures, the world economy was possibly even more integrated at the height of the gold standard in the late 19th century than it is now. In the United States and Europe, trade volumes peaked before World War I and then collapsed during the interwar years. Trade surged again after 1950, but none of the regions is significantly more open by this measure now than it was under the late gold standard.” (p. 7)

8) Are the effects of FDI generally positive?

Garrett

• YES• “Unlike the other two facets of market

integration [i.e. trade and capital mobility], there is little dispute in the economics community that the effects of FDI are unambiguously positive from the standpoint of economic growth […] Interestingly, the case does not need to rely on the notion that attracting foreign investors is beneficial to capital-poor countries. […] The evidence is that FDI is good for growth even in the wealthiest nations.” (p. 966)

Rodrik

• NO• “This chapter focuses on two channels

through which Globalization affects the labor markets in the North. […] The second channel has to do with the greater ease with which domestic workers can be substituted by other workers across national borders, either through trade (outsourcing) or foreign direct investment (FDI). Trade increases the degree to which employers can react to changes in prevailing wages by outsourcing or investing abroad. This can explain why life has become more precarious for vast segments of the working population.” (p. 13)

9) Is there an opportunity cost of closure in issues concerning free trade?

Garrett

• YES• ““[…] Freer trade could increase innovation

by creating scale economies in export sectors that allow for higher research and development expenditures […] Thus, there is a good argument for the proposition that the trend toward trade liberalization around the world in recent decades is explicable in terms of the increased opportunity cost of closure.” (p. 963)

Rodrik

• NO• “Economists may complain that

protectionism is mere snake oil and argue that the ailments require altogether different medicine. But intellectual arguments will not win hearts and minds unless there are concrete solutions on offer. Trade protection, for all its faults, has the benefit of concreteness.” (p. 69)


Garrett:

• YES• “Nowhere is globalization’s ballyhooed shrinkage of time and space more apparent than in

international finance. […] Financiers can literally operate wherever and whenever they like, cutting deals in whatever financial instrument they can dream up. It is the specter of truly footloose liquid capital that generates images of hapless governments seeking to regulate yesterday’s financial instruments within their borders.” (p. 956)

• “There were significant costs to offshore operations in the 1960s in terms of moving the relevant information halfway around the globe (e.g. a 3-minute telephone call New York – London cost more than $ 30) […] Today of course, even individual consumers pay less than 50 cents for the same international call. This is why the predicament of governments trying to regulate international capital flows seems even more parlous than was the case 30 years ago.” (p. 957)


Garrett:

• YES• “Finally, there is some evidence that traditional indicators of the balance of political power within

countries have affected their openness to the international economy. Countries with left-wing governments and powerful trade unions tend to be more closed.” (p. 977)

• “A country with 50% of its labor force unionized in 1985 is estimated to have had trade taxes that were almost 2.5 percentage points higher than a country with a union density of 10%.” (p. 974)


Union Membership, Coverage, Density, and Employment

Among All Wage and Salary Workers, 1973-2003

Year Sample Size Employment Members Covered %Mem

2003 180.830 122.357,9 15.776,0 17.448,4 12,9

© 2004 by Barry T. Hirsch and David A. Macpherson. The use of data requires citation.

Union Density in U.S.

Table 2. Trade union density, 1991-1998

Year Total union membership (millions)

No. of employees (millions)

Union density (%)

1991 13.749 33.887 40.6

1992 13.005 33.320 39.0

1993 12.208 32.722 37.3

1994 11.685 32.301 36.2

1995 11.242 32.230 34.9

1996 10.878 32.188 33.8

1997 10.532 31.917 33.0

1998 10.278 31.878 32.2

Source: Trade unions, Federal Statistical Office http://www.eiro.eurofound.eu.int/print/1999/08/feature/de9908113f.html


Union Density in Germany


Source: WTO http://www.wto.org/english/res_e/statis_e/its2003_e/its03_bysubject_e.htm


Garrett

• YES• “…trade had very little to do with the east Asian miracle. High savings rates and high level of

educational attainment mattered far more” (p. 962)

THE END

geoffrey garrett: “the causes of globalization” presented by conrad haessler

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