Globalization

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Globalization

• Lectures 14 - 15

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Outline

• I. Introduction and Definition
• II. Globalization What is it?
• III. Liberalization of Capital Markets
• Asian Financial Crisis
• IV. Theories of Globalization
• V. Benefits and Drawbacks of Globalization
• VI. Political Implications of Globalization

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I. Introduction and Definition

• A. Post Modern Era and Globalization
• Two Definitions of Post-Modern
• Benjamin Barber Jihad vs. Macworld
• Jihad Identity Politics
• MacWorld Globalization
• Globalization - Post industrial/modern age
• Modern industrial economy needed state system
• Post modern Information Age Borderless world of
  capital/communication
• Challenge to the State/Sovereignty
• Global convergence/homogenization

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I. Introduction and Definition

• B. A Definition The social and economic process
  through which the borders of geography, national
  politics and culture are overcome by global flows
  of capital, technology, investment and trade at a
  highly accelerated rate.

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II. Globalization What is it?

• A. Historical Context (20th century)
• 1. Early 20th Century Interdependence
• Technology Telegraph, radio, telephone, shipping
• Development of interdependence
• 2. WWI Nationalism replaces interdependence
• 3. 1929 Wall St. Crash and Depression
• Global Economic System Crashes
• Two Theories on the Fix
• John Maynard Keynes The state
• Frederich Hayek The market

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II. Globalization What is it?

• 4. Post WWII -The Foundations for Globalization
• New period of interdependence
• Bretton Woods System
• 1. IMF - economic stability by regulating
  international monetary system based on
  convertible currencies
• 2. World Bank - development bank basic needs of
  developing countries
• 3. GATT/WTO - liberalization of trade
• Reduce Barriers to Trade (Tariffs and NTBs)

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II. Globalization What is it?

• 5. Post Cold War (1980s-1990s)
• Triumph of Capitalism and Liberal Democracy
• Neo-Liberal Global Focus
• First World Faces Fiscal Crisis
• Market Agenda in Second World
• IFIs push neoliberalism in Third World
• GATT/WTO (Free Trade in Goods and Services)
• Goods traded virtually tariff free (notable
  exceptions)

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II. Globalization What is it?

• 6. Globalization in Full Force (1990s - )
• New Rounds of WTO Global Free Trade
• Non tariff barriers (subsidies, dumping,
  regulations)
• Free trade in Services
• Challenge subsidies in Agriculture
• Regional Free Trade
• NAFTA, European Union
• Free Trade Zones
• Capital Market Liberalization
• Liberalization of capital flow (stocks/bonds/curre
  ncies)
• Historical Development (Baby Boomers)
• Large Capital Investment (Pension Funds)
• Search for New Places to Invest
• Emerging Market Managers

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II. Globalization What is it?

• 7. Last Phase Crises in Capital Markets
• 1990s Emerging Markets Faced with Rapid Cash
  Outflow
• e.g. Mexico 1994, Asian Financial Crisis
  (1997-98)
• 2008 Western Banks - International Credit Freeze
• 8. Financial Crises create political, economic
  and social issues

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II. Globalization What is it?

• B. Is Globalization Old or New?
• Globalization is both old and new
• Old
• 1. Interdependence movement across borders
• 2. Technology shrinking the world
• New
• 1. Technology creates borderless world
• 2. Rapidity and intensification and density of
  Information
• 3. Liberalization of Capital Flows

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III. Capital Market Liberalization

• Capital Market Liberalization (1990s)
• Opening up emerging markets to foreign investment
• Last barrier to globalization
• Factors leading to push for capital market
  liberalization
• Power of Market Managed Funds Trillions
• Growth of Different Funds (RRSPs)
• Search for new investment possibilities
• 1990s - Newly Emerging Economies
• 1990s - IT Bubble
• 2000s - Sub prime mortgage Bubble

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III. Capital Market Liberalization

• Capital Market Liberalization

• 1990s The Deal Open up US/western markets for
  goods from developing world in exchange for
  opening up financial markets in third world for
  investment from west.

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III. Capital Market Liberalization

• Capital Market Liberalization
• Benefits vs Risks
• Benefit Capitalize new economies
• Risk
• Too much debt
• Default on loans
• Currency unstable or weak
• Rapid withdrawal of capital
• Economic and social costs
• Across borders
• 1st Case Study Mexico 1994
• Default and Bail out by US
• Moral Hazard Problem
• Asian Financial Crisis

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III.Capital Market Liberalization

• 2nd Case Study Asian Financial Crisis
• Setting the Stage
• Thailand Capital Market Liberalization
• Enormous increase in foreign investment
• Debt overload
• Lack of domestic bank regulation
• Moral Hazard of Mexico

Thai Prime Minister Increase in Foreign
Investment
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III. Capital Market Liberalization

• Crisis Hits Thailand
• Hedge funds take run at currency
• Capital recedes en masse
• Flow of capital instantaneous and intense
• Thai Economy in Freefall
• Currency falls in value
• Stock Market Crashes
• Unemployment/ Cost of living goes up
• Unlike Mexico, US refuses bail out
• Impact on real lives is enormous
• Spreads to Asia - contagion
• Globalisation of economies - borderless world

Thailand Impact on real lives
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III. Capital Market Liberalization

• Spreading Financial Crisis (Contagion)
• Malaysia
• Indonesia
• Government Collapse
• Social Fabric Torn

Contagion Spreads
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III. Capital Market Liberalization

• IMF called in to bail out Asian economies
• 40 billion bail out
• IMF tied money to neo-liberal reforms
• Creating enormous pressure
• Asian Financial Crisis Ends (end of 1990s)
• Globalization survives first test
• Enormous cost to people

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IV. Theories of Globalization

• A. Globalization is good and all have benefited.
• Frances Fukuyama End of History and the Last Man
• Thomas Friedman, The Flat Earth, 2005
• Global players Nandan Nilekani (CEO, Infosys in
  India), Walmart, UPS etc.
• World is flat playing field and has shrunk in
  size due to communications/technology
• B. Globalization is the Victory of Corporate
  Power
• Globalization is generally bad
• David Korten When Corporations Rule the World,
  1995.
• Globalization has caused
• Poverty
• Social disintegration
• Environmental Destruction

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IV. Theories of Globalization

• C. Globalization is the end of the nation state
• Kenichi Ohmae The End of the Nation State The
  Rise of Regional Economics
• David Held, Democracy and Global Order
• D. Globalization benefits some more than others
• Joseph Stiglitz Globalization and Its
  Discontents 2001
• Capital market liberalization not the answer in
  all markets
• Globalization benefits certain parties
• Excessive reliance on market fundamentalism
• Critical of IMF, US Treasury
• Hypocrisy of West

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V. Benefits and Drawbacks of Globalization

• A. Benefits
• Increase in overall wealth b/w 1950 - 1995
• Global economic output from 6.4 trillion to
  35.5 trillion
• Trade went from .4 trillion to 5 trillion

• Ease of travel, communication, information
• Exchange of Cultures
• International Democratization

Vincente Fox President of Mexico Benefits of
NAFTA for Mexico
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V. Benefits and Drawbacks of Globalization

• B. Drawbacks
• Globalization benefits rich and does little for
  poor
• Growing Inequalities
• Despite increase in wealth persistent and
  enormous gap between rich and poor in world

• Gap between rich and poor
• Jeffrey Sachs
• Professor of Economics
• Columbia University
• Head, UN Millennium Development

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V. Benefits and Drawbacks of Globalization

• B. Drawbacks
• Growing Inequalities
• Despite increase in wealth persistent and
  enormous gap between rich and poor in world

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V. Benefits and Drawbacks of Globalization

• B. Drawbacks of Globalization
• Loss of Sovereignty
• International Instruments
• Regional Instruments
• Common currency
• Trading Agreements
• Neocolonialism?
• Case Study Malaysia
• Stanley Fish IMF
• sick patient
• PM Malathir of Malaysia
• West creates dependency/deliberately manipulate
  currency for their own profit
• Conditions of bail out neocolonialismm

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V. Benefits and Drawbacks of Globalization

• B. Drawbacks of Globalization
• Backlash against West rooted in anger
• Inequality and poverty
• Sense of rules not fair to all
• Violent Protest
• Terrorism
• Negative implications for environment?
• Globalized economy assumes perpetual growth
• Consumption of non-renewable resources
• Addiction to oil goes global
• Increase in waste products
• Global warming

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VI. Political Implications of Globalization

• A. Increased Growth/Wealth (Vincente Fox)
• B. Economic Inequality (75 of world is poor)
• C. Political Instability (Indonesia)
• C. Loss of Sovereignty (IMF in Asian Crisis)
• D. Pressures on Immigration and Borders (Mexican
  crisis - flood of economic immigrants)
• E. Environmental Impact of Growth Model (Resource
  Depletion, Pollution)
• F. Protests/Security - Backlash against the west

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ESSAYS - Key Points

• I. Bibliography done Correctly
• Listed by Last Name of Author Alphabetically
• Book Titles in Italics or Underlined
• Article Titles in Quotation Marks
• Websites List name, URL and Date Accessed
• II. Correct referencing
• Author, Date of Publication, Page if idea/quote
• Eg. (Jones, 1999, 22)
• Author, Date of Publication if whole book
• Eg. (Jones, 1999)

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ESSAYS - Key Points

• III. Academic vs. non-academic sources
• Academic sources are peer-reviewed
• Magazines, newspapers are not academic
• IV. Thesis statement at front
• V. Synthesis/Analysis of material
• VI. Paragraphing
• Each paragraph should tell a story in its own
  right watch too long or too short
• VII. Style
• Proofreading
• Spelling errors, colloquialisms, contractions