globalization chapter

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Thomas MoncriefMidterm 2

November 10, 2006

Globalization

I. Introduction

II. How Globalization Came About

III. Why Globalization Sustained

IV. Advantages and Disadvantages of Globalization

V. Conclusion

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Thomas MoncriefMidterm 2

November 10, 2006

What is globalization? If you were to Google globalization, you would find

several varying definitions, but nearly every single definition would contain

the words “integration” and “economies.” In its simplest form, globalization is the

integration of economies on a global scale. However, globalization is much more

complicated than that, and involves more than just economic variables. Global-

ization is a process of interaction and integration among the people, companies,

and governments of different nations, a process driven by international trade and

investment and aided by information technology (Globalization 101 2006).

As Thomas Friedman put it, globalization has undergone three stages:

Globalization 1.0, Globalization 2.0, and Globalization 3.0. During Globalization

1.0 (1492-1800) the new world was discovered and countries competed to accu-

mulate power. This era of globalization was driven by horsepower and steam

power. During Globalization 2.0 (1800-2000) multinational companies were be-

coming larger players. The first half of this era was driven by cheaper transporta-

tion (e.g. the steam engine and the railroad), and the second half by cheap

telecommunications. The Globalization 3.0 (2000-present) era has just recently

come to be, and is driven by the fusion of personal computers with fiber optics/

broadband internet with advanced software. These let individuals create, send,

and share data all over the globe. Never before have individuals been so con-

nected on a global scale (Friedman 2006).

How Globalization Came About

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Trade and Transportation

Trade is the exchanging of goods and services. Globalization is driven by

international trade or trade among nations. As far back as the Roman Empire

states have been participating in trade. Ancient empires used trade routes “…to

transport not only [incense] but also spices, gold, ivory, pearls, precious stones,

and textiles…” (Met Museum 2006). These were specialized goods that were

unique to their territories, and were desired by the aristocrats of the ancient em-

pires. They were luxury items that were traded for gold or other luxuries. Trade is

driven by transportation. As Dr. Jean-Paul Rodrigue writes:

Even if international trade has taken place centuries before the modern era, as ancient trade routes such as the Silk Road can testify, trade occurred at an ever increasing scale over the last 600 years to play an even more active part in the economic life of nations and regions. This process has been facilitated by significant technical changes in the transport sector. (Rodrigue 2006)

The cheaper the cost of transportation, the cheaper the overall cost of a good. If

one orders a good from a catalog for $15.00, and pays $5.00 for shipping. Then

the overall cost of that good is $20.00. The same formulation is true in interna-

tional trade.

Industrial Revolution

Friedman makes particular note to 1800, the start of Globalization 2.0, be-

cause this is the first watershed in globalization. In the late 18th century, James

Watt improved upon Thomas Newcomen’s steam engine design and spurred the

Industrial Revolution. The steam engine not only took the place of man power,

particularly in mining, but also gave way to cheaper, more efficient means of

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transportation (Wikipedia 2006). In 1829, George Stephenson built the first main-

line, steam powered locomotive (Wikipedia 2006c). In 1838, the SS Great West-

ern was the first steamship with the purpose of crossing the Atlantic Ocean, and

by 1870, new inventions in maritime travel, screw propeller and triple expansion

engine, had made trans-Atlantic travel a cheaper and quicker mode of travel

(Wikipedia 2006b). As John Hobson wrote in 1904, “The opening up of world

markets by modern facilities of transport has…transformed the character of inter-

national commerce” (Hobson 1904: 53).

With the Industrial Revolution came specialization, which is “…the divi-

sion of labor in which…parties specialize to make common or different prod-

ucts…” (Nau 2007: 185). Think of specialization in terms of an assembly line,

made popular by Henry Ford. Before specialization, there might be one or two

people responsible for assembling a car. Each person would have to be skilled in

every aspect of the car to assemble it properly. Now with the assembly line, each

person is only responsible for one part of that same car. Now each person only

has to be skilled in one area versus every area. One person puts on the doors;

one person installs the engine, and so on and so forth. Apply that to globaliza-

tion, and each person is a state who specializes in making a particular good or

providing a particular service. A state could make its goods internally, but it would

not be able to make certain goods as advantageously as other states. States

need each other to produce or provide a cheaper good or service, and this pro-

motes trade among states.

Why Globalization Has Sustained

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The Industrial Revolution may have jump started globalization, and

improved transportation (diesel engines, airplanes, etc.) may have helped it grow

through the first half of Globalization 2.0. However, the second half of Globaliza-

tion 2.0 has seen a new wave of technological advancements that have helped it

grow progressively. The age of the personal computer and telecommunications

(e.g. the internet and fiber optic cables) has catapulted globalization to epic num-

bers.

Personal Computer

The first personal computer was released by IBM in 1981, and the ever

popular Windows 3.0 equipped computers released in 1990 (Friedman 2006). In

fact, in 1990 16% of households had personal computers, and in 2001 that num-

ber had jumped to 56% (Hojjati and Battles 2005). As Friedman notes, “…the rise

of the Windows-enabled PC…eliminated…the limit on the amount of information

that a single individual could amass, author, manipulate, and diffuse” (Friedman

2006: 55). Now that people had a new way of authoring material, they needed a

new way to connect with other computers/people. This new way was telecommu-

nications.

Telecommunications

Telecommunications is the act of “[c]ommunicating information, including

data, text, pictures, voice and video over long distance” (TechWeb 2006).

Telecommunications has done in recent years what the Industrial Revolution did

for globalization in the 18th and 19th centuries. The first commercial use of the in-

ternet happened in 1991 (PBS 1999). This marked a new era in information tech-

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nology and data transfer. Now more than ever people could not only author their

own material, but they could also share it with other people.

At first the internet was originally designed for scientists to share research,

but was mainly used for e-mailing purposes, but as the world wide web grew,

more and more telecommunications were spending money to improve the inter-

net. Fiber optics was a hot new technology that could transfer much more infor-

mation much faster than copper wire, and from 1996-2001, telecommunication

companies invested about $1 trillion in an effort to spread fiber optics all around

the world (Friedman 2006). With this increase of information technology comes

job outsourcing, particularly in information technology. That is why India is a per-

fect example of the effect telecommunications has had on globalization.

In 1991, India’s finance minister Manmohan Singh opened India’s econ-

omy (Friedman 2006). In 1995, India’s gross domestic product (GDP), which is

the amount of goods and services produced in a country, was $327.4 billion, fif-

teenth in the world (IMD 1996: 348), but its gross domestic product per capita

(GDP per capita), which is the amount of goods services produced in a country

by each person, was $349, 46 in the world (IMD 1996: 349). Now 46th out of

more than 200 is not bad, but when you are one of the most populated states in

the world, that performance is not good. However, with more and more multina-

tional companies moving and investing in India, their GDP and GDP per capita

have risen drastically. In 2003 India’s GDP was $574.4 billion, and its GDP per

capita was $522 (IMD 2004: 250). Two years later, in 2005, India’s GDP was

$726.5 billion, and its GDP per capita was $656 (IMD 2006: 162). From 1996-

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2005 India’s GDP per capita rose 88%, and its GDP rose 122%. An even better

example of globalization in India is American tax returns. In 2004 112,500 tax re-

turns were outsourced to India, and an estimated 400,000 tax returns were out-

sourced in 2005 (Boomer 2004: 48). Accountants upload their clients’ previous

returns, excluding personal information, onto a server in California, and a trained

accountant in India does the number crunching.

The trade, transportation, and telecommunications have driven globaliza-

tion, and have seemingly made the world smaller. With such advancement come

advantages and disadvantages.

Advantages and Disadvantages of Globalization

Advantages

Although there are many that spur from globalization, such as increased

trade, investment, and many other aspects that all lead to economic growth, but

there are other, less aggregate advantages that come with globalization, like in-

terdependence, co-operation, and the spread of culture.

As El-Algraa noted, “Over the past three decades or so, the world has ex-

perienced a growing interdependence of its economies…” (El-Algraa 1989: 1). As

countries increase trade and funding in developing countries increases, states

become more and more dependent upon each other. Globalization, thus, drives

interdependence, and with interdependence comes co-operation. The more

states rely on each other, the more likely they are to co-operate. And the more

states co-operate, the less likely they are to go to war with the other.

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With multinationals (McDonald’s, Pizza Hut, Radio Shack, Starbucks,

etc.), particularly American multinationals, there is inevitably a spread of culture.

There are McDonald’s “…in more than 119 countries on six continents” (McDon-

ald’s 2006). McDonald’s is true blue Americana, and the success of McDonald’s

worldwide is an indicator of the acceptance of a foreign culture. This is one of the

best advantages of globalization. Not because it is primarily American culture

that is being spread, but because once other countries are as advanced as the

United States is, they will be spreading their culture worldwide. The more we

know about each other and what we have in common, the more we will co-oper-

ate. The first international McDonald’s was opened in 1967 (McDonald’s 2006b),

not until 1999 did two countries, which had McDonald’s, go to war since opening

their McDonald’s (Ritzer 2004). However, with every good, there is a bad, an al-

pha and omega.

Disadvantages

Interdependence does lead to co-operation, but constant interaction and

interdependence can lead to friction, like family. For example, one has a cousin

that he/she just cannot get along with, but they have to see each other every

birthday, Easter, Thanksgiving, and Christmas. The more time they spend

around each having to pretend, for everyone’s sake, that they like each other, the

more likely they are to battle.

Globalization does put states, companies, and individuals on an even

keel, but so far we have looked at the facts through an assumption that the tech-

nological advances of this century will only be used for good. Perhaps the least

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advantageous aspect of globalization is that any advancement can be used for

good or for evil. As Friedman notes, “My personal dread derived from the obvious

fact that…[globalization] draws in and superempowers a whole new group of an-

gry, frustrated, and humiliated men and women” (Friedman 2006).

Conclusion

In closing, countries have been trading goods since the Roman Empire.

Globalization, however, did not start until the new world was discovered, and the

European countries had colonized America. Then trade was truly global. Better

transportation helped countries cross the Atlantic quicker and more efficiently,

the steam engine spurred the Industrial Revolution, and specialization made in-

ternational trade almost a necessity. The advent of the personal computer and

the advancement of telecommunications have brought a new facet to globaliza-

tion, a development that seems to have an unlimited potential to shrink the world.

There is much to be gained from globalization, both economic and social,

but the economics will work itself out. The social gains, though, are immeasur-

able and as technology brings us closer, the spread and acceptance of culture

will ultimately bond us, and one day there will be a global society.

Glossary

globalization- a process of interaction and integration among the people, com-panies, and governments of different nations, a process driven by international trade and investment and aided by information technology

gross domestic product (GDP)- the amount of goods and services produced in a country

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gross domestic product per capita (GDP per capita)- the amount of good and services produced in a country by each person

specialization- the division of labor in which parties specialize to make common or different products

telecommunications- communicating information, including data, text, pictures, voice and video over long distance

trade- the exchanging of goods and services

Thought Questions

1) What do you think is the most important aspect of globalization? Why?

2) What will be the next technological breakthrough to further shrink the world?

3) Does globalization help prevent wars/conflicts?

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4) Will globalization lead to a global society with a global government?

5) Does globalization benefit the entire global community?

Reference List

Boomer, Gary. 2004. “Tax Outsourcing and the 2004 Results.” AccountingToday 18(10): 46,48.

El-Algraa, Ali M. 1989. International Trade. New York: St. Martin’s Press.

Friedman, Thomas L. 2006. The World is Flat: A Brief History of the Twenty-first

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Century, Updated and Expanded. New York: Farrar, Straus, and Giroux.

Hobson, John A. 1904. International Trade: An Application of Economic Theory.London: Methuen & Co.

Hojjati, Behjat and Stephanie J. Battles. 2005. “The Growth in Electricity Demandin US Households, 1981-2001: Implications for Carbon Emissions.” Energy Information Administration. http://www.eia.doe.gov/emeu/efficiency/2005_USAEE.pdf (November 8,2006).

Nau, Henry R. 2007. Perspectives on International Realations: Power, Institutions, and Ideas. Washington DC: CQ Press.

Ritzer, George. 2004. The McDonaldization of Society. Thousand Oaks, CA: Pine Forge Press.

Rodrigue, Jean-Paul. 2006. “Transportation, Globalization, and International Trade.” Hofstra University. October 4. http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/ch5c2en.html (November 8, 2006).

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“McDonald’s…The First 50 Years.” McDonald’s. http://www.mcdonalds.com/corp/news/media.RowPar.0005.ContentPar.0002.ColumnPar.0002.DownloadFiles.0001.File.tmp/Firsts-Fascinating_McFacts-RMHC_FINAL_4-7-05.doc (November 9, 2006).

“Steamship.” 2006. Wikipedia. November 7. http://en.wikipedia.org/wiki/Steamship (November, 8 2006).

“Stephenson’s Rocket.” 2006. Wikipedia. November 6. http://en.wikipedia.org/wiki/Stephenson%27s_Rocket (November 8, 2006).

“Telecommunications.” 2006. Tech Web: Tech Encyclopedia. http://www.techweb.com/encyclopedia/defineterm.jhtml;jsessionid=GKQBBH2NLMBFWQSNDLRSKH0CJUNN2JVN?term=telecommunications&x=0&y=0 (November 8, 2006).

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