CHAPTER 1

INTRODUCTION TO GLOBALIZATION

DEFINING GLOBALIZATION

Learning objectives
At the end of the course the students should be able to:
- Differentiate the competing conceptions of globalization
- Identify the underlying philosophies of the varying definitions of
globalization
- Agree on a working definition of globalization for the course

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Globalization is the worldwide movement toward economic, financial, trade, and

communications integration. Globalization implies the opening of local and nationalistic
perspectives to a broader outlook of an interconnected and interdependent world with
free transfer of capital, goods, and services across national frontiers.
The newest buzzword in the popular business press is globalization, a word
that evokes images of a world in which goods, services, capital, and information
flow across seamless national borders. In this world, the choices over where to produce,
shop, invest, and save are no longer confined within national borders but have taken
on a decidedly global orientation. Some analysts speculate that globalization has
blurred the economic distinctions between countries, creating a “borderless world”
in which economic decisions are made without reference to national boundaries. For
instance, in describing the sphere in which the major industrial economies operate,
Kenichi Ohmae asserts that “national borders have effectively disappeared and,
along with them, the economic logic that made them useful lines of demarcation in the
first place.”
It certainly represents a mega phenomenon that is shaping today's trends. Its
influence is the most visible in the economic sphere. We should therefore consider
how globalization is perceived within the contemporary economic theory. There is no
unique view of this process in economic theory. Various schools of thought comprehend
this process in accordance with their ideological positions. Then, crucial empirical trends
of globalization should be taken into consideration. This should lead to some conclusions
about appropriateness of various schools of thought for analyzing this complex
phenomenon.
 Globalization is understood as a social process in which geographic obstacles
to social and cultural arrangements lose importance and where people are becoming
increasingly aware that they lose importance (Waters 1995). Another definition of
globalization, as intensification of worldwide social relations which link distant
localities in such a way that local happenings are shaped by events occurring many miles
away and vice versa, is well known (Giddens, 1990). Globalization is also defined as
compression of the world and intensification of consciousness of the world as a whole
(Robertson, 1992).
Globalization is a complex phenomenon with multiple effects, which makes it hard
to define. There are, in fact, three possibilities for defining globalization (Mittelman, 2006).
First, it can be defined as intensification of global flows of goods and production
factors, facilitated by modern transportation and communication means. Globalization
can also be defined as a compression of time and space in a way that events in one part
of the world have instantaneous effects on distant locations. The third approach is to
comprehend globalization as a historical structure of material power. Globalization
represents historical transformation in the economy, politics and culture (Mittelman,
2006). The driving force of globalization is certainly the progress of technology. It speeds
up the effects of globalization, and contributes to essential transformation of the
functioning of economic systems. ''International economy is no longer divided vertically
to separate national economies, but involves a number of different levels or types of
market activities, which spread horizontally over a wider area of virtual space - replacing
physical geography of national borders with quasi geography of market structures,
transaction costs and informational cyber space,'' (Jakšić, 1997).

Key Points Illustrating the Differences between the Three Theories of Globalization
The theory of globalization is a very propulsive area of research, but composed
of contributions from many authors. Therefore, it is necessary to systematize
sometimes quite heterogeneous understandings of globalization. Quite spread out, but,
for the purposes of further consideration, an entirely appropriate classification of
globalization theories differentiates three courses of analysis of this multidimensional
phenomenon (Held, McGraw, 2007):
 Figure 1. Image taken from https://www.researchgate.net/figure

The World-Economy Theory (or Hyperglobalisationism)

• Process by which capitalist world-system spreads across the entire
globe
• Global marketplace has become so advanced and integrated that the
nation-state is becoming obsolete
o Good thing: market is more rational than governments could
ever be
o Bad thing: corporate power is less compassionate then
governments (most of which are accountable to the
population through elections)
• Nearly reached geographical limit during the 1990s
• Completion of a process begun late in the 1400s and early 1500s by
European explorers
• World-economy comprises of a single world market, and a single,
mobile, labor force
• Core Countries: higher-skill, capital-intensive production, strong
armed forces, consume much of the profits (e.g. U.S., Britain,
France, Germany, Japan)
• Peripheral Countries: low-skill, labor-intensive production and
extraction of raw materials, weaker armed forces, weaker economy
(e.g. Canada, China, Australia)
• Semi-peripheral Countries: less dependent on the core than the
peripheral areas, more diversified economies, and stronger military
forces than the peripheral countries (e.g. poorer, recently
independent colonies)
The Regional Bloc Theory (or Global Scepticism)
• Disagree strongly with hyperglobalists
• Single world market exists
• The growing internationalization of trade and investment is really the
growth of regional economic blocs (e.g. European Union)
• Growth of regional trading blocs: benefited some countries (mainly
those within the blocs) and disadvantaged others
• It is not a reality, but a strategy to extend capitalism: violent protects
against globalization occur
• No single government or institution guiding the process
• Capitalism is a worthwhile framework of reference
• Unquestioning acceptance of capitalism: root of the problem
• Capitalism emphasizes competition and financial efficiency over care
for oppressed and disempowered people
The Third Way Theory (or Transformationalism)
• Seeks to find a relationship between economic processes occurring
at the global and local scales
 • Known as transformationalism view because it looks for ways of
transforming the powers of the nation-state to cope with pressures
of globalization
• Does not simplify focusing on the global forces that reduce the
powers of the nation-state
• Challenge existing institutions to reform/restructure, or encourage
greater local autonomy
• Linked to political agenda (especially Europe)
• Think globally, act locally
• Maintain diversity in the face of economic forces that encourage
uniformity

1. By hyperglobalists, globalization is viewed as a legitimate and irrepressible historical

process, which leads to a world order based on the market and supranational institutions.
Globalization presents a new era in the development of civilization, without precedent in
the course of human history. This process is referred to as progressive and socially
desirable. It is also stressed that the intensity and dynamics of current changes in the
economy lead to changes in core framework of social action (Held, McGraw, 2007).
Guided by the self-enforcing growth of global markets and technological
progress, globalization inexorably destroys all previously established hierarchical
structures. The role of the nation-state in this context is also significantly diminishing.
Multinational corporations concentrate vast resources, and become the main carriers
of economic activity on a global level. This creates a global civilization in which
the market is integrated on the world level, multinational companies are becoming
major actors in the economic process and international institutions substitute the
role of national states. Multinational companies have fundamental influence on the
economy and represent natural response to the “borderless” economy that is
characterized by homogenous consumer tastes. These companies crowd out national
models of economy as relevant units of economic activity (Ohmae, 1990).
Hyperglobalists conceive globalization as a process, in other words, all the
variety of heterogeneous cultures withdraws in front of the unique social pattern,
based on markets and institutions derived from the radically liberal cultural
framework. In this sense, a well-known assumption about the ''end of history'' is
generated, which implies that the modern, global capitalism with liberal democracy as the
political framework, represents the last word of socio-economic evolution (Fukuyama,
1992).

2. Transformationalists (Giddens, Scholte, Castells, Walerstein) are more moderate

in terms of emphasis of ubiquity and linearity of the globalization process, as well
as assessing of progressivism of its effects. But they do not accept skeptic thesis about
globalization either. For them, the indisputable fundamental changes in the organization
of society that globalization brings are the growing overall integration and acceleration of
socioeconomic dynamics through "compression" of space and time. However, their
approach is multidimensional, taking into account mechanisms of globalization other
than economic ones. In this sense, a sociologist of modernism, Anthony Giddens,
considers globalization as a phenomenon shaped by forces of "modern" capitalism:
politics, military power and industrialism (Giddens, 1990). These forces are the sources
of dimensions of globalization. Four basic dimensions of globalization are world
capitalist economy, system of national state, world military order and international
division of labor. The specified dimensions of modernity have enabled western
countries to become the leading force in the world. Spreading dimensions of
modernity, according to Giddens, to all countries in the world is identified as the process
of globalization.
Transformationalists take up much more moderate position in terms of
progressivity and outcomes of globalization, when compared to hyperglobalists.
Globalization is not linear-progressive in character, but represents a stream of
capitalistic development, subject to cycles and probabilism. The underlying influence
of globalization on socio-economic trends is not questioned, but its final effects are
considered uncertain. In this sense, such an understanding of globalization is not
deterministic.

3. The third group of theoreticians, who expressed skepticism with regard to ubiquity of
the process of globalization, is also characterized by the criticism towards
globalization. In that sense they emphasize that the level of integration and openness of
today's economy is not unprecedented. International trade and capital flows were more
important relative to GDP in the pre-1914 period (the first wave of globalization)
than in the contemporary economy (Hirst, Thompson, 2003). Also, instead of
a destructible character of globalization in relation to the hierarchy and the nation-
state, they emphasize the significant role of national economies in pursuing economic
liberalization and promotion of cross border activity. The creation of regional blocks as
the essential characteristic of the world economy offers argumentation that the world
economy is less integrated than it was in the late nineteenth century (Held, McGraw,
2007). Within this direction of thought, assessments of the non-sustainability of the
current unification of the world are also present, because it raises radical resistance
within individual cultures, which in the end can lead to a conflict of civilizations
(Huntington, 1999). In short, skepticism is expressed both in terms of impacts of
globalization and its ubiquity, as well as in terms of sustainability of unification influences
which it produces.
Another classification of globalization theories is also possible. It consists of three
theoretical orientations (Miletić, 2007):
Structural explanations perceive globalization as a lawful process, inherent
to socioeconomic dynamics. Globalization presents an understandable result of the
development of society, lead by the logic of technology and capital accumulation.
Determinism present in this kind of approach is evident.
Conjuctural explanation of globalization considers consequence of unification of
techno-economic tendencies with specific historical conditions and policies, which
determine its character. This approach deals with the cyclic character of globalization,
the causes of its acceleration or slowdown in certain periods.
Social constructivist explanations are more interested in the origin of ideas about
globalization, and the ways in which they became part of scientific and everyday
discourse. By setting appropriate tendencies in the world economy and their
classification under the concept of globalization, the process became socially and
ideologically constructed. In this way, the idea of globalization itself becomes in a certain
sense, through the influence on the awareness of actors, the initiator of the further
process of global integration (Miletić, 2007). It can be concluded that each of the previous
explanations can fit into one of the main directions of contemporary theories of
globalization - hyperglobalists, transformationalists or skeptics.

A borderless society.... Globalization has made national borders to become economically

insignificant. It has created a world where financial capital, production activities and labor
force can move to other territories that promise better opportunities. Globalization is a
mega trend which significantly shapes contemporary economy. As such, globalization
is subject to intensive theoretical debate in contemporary socio-economic theory.
Hyerglobalism comprehends globalization as a unique, lawful and progressive process of
unification of world economy. Transformationists view the process of globalization as
uneven and uncertain in terms of results, whereby insist on its multidimensionality.
Skeptics challenge effects, ubiquity and sustainability of globalization. The impacts of
economic globalization are reflected in the integration of world economy, through
trade, investment and financial flows. Also, globalization is characterized by a
tendency towards unification, replacement of the existing heterogeneous cultural patterns
with the unique framework eligible for the functioning of global markets. Registered
flows of globalization seemingly give support to neoclassical picture of atomistic
economy, based on the principles of individualism and maximizing behavior. Perfect
mobility of factors of production and a powerful information-communication potential
of modern technology, as well as the growing influence of individualistic ideology create
the impression of eligibility of neoclassical approach to economy. However, such a
conclusion is premature. Despite evident unification impacts of globalization, modern
economy continues to be a pretty stable and evolutionary system of hierarchy, in
which variability prevails at every level, as an essential condition for the survival
of the system as such. The variability of the world economy is represented through
the existence of various models of economic system. Among them, the most influential
are the Anglo-American, German and Japanese model of organizing economic activity.
Their institutional versatility ensures that evolutionary processes in the world economy
oppose the tendency towards homogenization as a crucial feature of the process of
globalization. Transformation of the existing successful models of capitalism in conditions
of globalization has gradualist character. Adjustment of successful models takes place
through a combination of various forms of institutional changes, which ensure the
coherence of the existing institutional order.
 CHAPTER 2
THE STRUCTURES OF GLOBALIZATION

THE GLOBAL ECONOMY

Learning objectives
At the end of the course the students should be able to:
-Define economic globalization
-Identify the actors that facilitate economic globalization
-Define the modern world system
-Articulate a stance on global economic integration

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Economic Globalization refers to the mobility of people, capital, technology, goods and
services internationally. It is also about how integrated countries are in the global
economy. It refers to how interdependent different countries and regions have become
across the world.
In the eighteen hundreds in the world economy generally, people and capital
crossed borders with ease, but not goods. In this century, people do not cross borders
easily, but technologies, capital and goods do. According to one of the most often cited
definitions, "economic globalization is a historical process, the result of human innovation
and technological progress. It refers to the increasing integration of economies around
the world, particularly through the movement of goods, services, and capital across
borders. The term sometimes also refers to the movement of people (labor) and
knowledge (technology) across international borders. (IMF, 2008)
The phenomenon can thus have several interconnected dimensions, such as (1)
the globalization of trade of goods and services; (2) the globalization of financial and
capital markets; (3) the globalization of technology and communication; and (4) the
globalization of production. What makes economic globalization distinct from
internationalization is that while the latter is about the extension of economic activities of
nation states across borders, the former is ‘functional integration between internationally
dispersed activities’ Dicken (2004). That is, economic globalization is rather a qualitative
transformation than just a quantitative change. If, however, globalization is indeed a
‘complex, indeterminate set of processes operating very unevenly in both time and space’
(Dicken, 2004), a more substantive definition for economic globalization is required than
the one offered by the IMF (2008). The definition provided by Szentes (2003) befits the
purposes of this particular chapter: ‘In economic terms globalization is nothing but a
process making the world economy an “organic system” by extending transnational
economic processes and economic relations to more and more countries and by
deepening the economic interdependencies among them.’
 When you buy a Toyota car, its
parts have probably been produced
in several different countries.
Toyota is one of hundreds of
companies with globalized
operations. The same with shirt
sold in France could have been
made from Chinese cotton by
workers in Thailand. Also, dozens
of Asian restaurants in a western
country and a fashion trend in
Europe can come all the way to
Pakistan.
Figure 1. Image taken from https://image.slidesharecdn.com

While becoming more integrated into the global economy tends to bring increased
wealth to a nation, globalization is commonly linked to greater inequality. According to the
United Nations: “Economic globalization refers to the increasing interdependence of world
economies as a result of the growing scale of cross-border trade of commodities and
services, flow of international capital and wide and rapid spread of technologies. It reflects
the continuing expansion and mutual integration of market frontiers, and is an irreversible
trend for the economic development in the whole world at the turn of the millennium.”
Economic development, apart from GDP growth, also includes improvements in
literacy, life expectancy, and people’s well-being.

The trend of economic globalization has some definite advantages to it, but there are
some disadvantages that must be considered as well so that as the world grows even
smaller, the economic opportunities continue to grow larger.

Advantages of economic globalization

1. It promotes local growth by stimulating overall growth. The theory of trickledown
economics works if it is implemented properly. That’s because it is all about spending.
Multinational businesses spend through national businesses. National businesses spend
through local businesses. Local businesses provide jobs and dollars to their community.
If a business hoards their cash, the whole system comes tumbling down, but the theory
is good on the whole.
2. It would create higher levels of mutual trust. The only way business opportunities
can grow is if different people are able to trust one another. Different corners of the world
have different opinions as to what equates to right or wrong. By working together and
learning from the different opinions that people have, the colonial aspects of a growing
business empire can be reduced because people will be working with other people to lift
each other up.
3. A global community requires a global economy. Goods and services are already
being purchased from a global perspective. A worldwide market exists online thanks to a
number of sites that allow individuals to market their goods or services to anyone who
has access to a computer or mobile device. This means that someone with a home
computer and a broadband hook-up can be just as competitive as the large multinational
corporation when it comes to the initial first impression.
4. It forces us all to share financial considerations. Instead of having segmented
pots of cash that are used for personal needs, economic globalization creates one big
pile of cash that can be used for the benefit of all. There will always be local spending
that happens, but the emphasis will shift to helping meet the world’s needs first instead
of meeting national needs first from a business perspective once true globalization
occurs.
5. It gives undeveloped countries a chance to join the developed world. Many
countries are struggling to keep pace with the global changes that are happening today.
Economic globalization would undoubtedly bring about a new wave of outsourcing,
bringing in new revenues to nations that could use a burst of cash to work on their
infrastructure and other internal needs. Over time, it could create a level of equality in
development that hasn’t been seen since the Roman Empire ruled over much of the
known world.
6. New innovations would create new technologies in a number of fields. If a global
audience needs to be reached for true business success, then many companies will need
to focus on investment and innovation to make that happen. Whenever innovation
happens, new technologies in a number of different fields happen as well. The end result
is a better standard of living for everyone involved with the development process.

Disadvantages of economic globalization

1. It gives businesses more power to influence civil government. As businesses
grow in wealth, they have the ability to better influence political elections. They can lobby
for laws that benefit their company because of their cash flow. In the past, foreign
companies were restricted from influencing domestic elections, but recent rulings from
the US Supreme Court and other legal entities have made it so businesses have more
power than ever before.
2. It removes the emphasis of local cultures. There is no doubt that the American
business revolution is taking over the lead role on economic globalization. There are other
multinational companies that exist in Europe, the APAC region, and the Middle East, but
are the US that dominates the business world. This means as globalization continues, the
emphasis on local culture will be extinguished. There will only be the 3 regions providing
influence from a business perspective instead.
3. It encourages the development and spreading of disease. Having a globalized
economy means that there will be more people traveling internationally than ever before.
As the 2014 ebola outbreak showed, an illness can spread quickly when people hop onto
airplanes and can travel anywhere in the world in 2 days or less. With more people doing
this, more diseases are going to spread into places of the world where they generally
aren’t seen today.
 4. Most of the world gets ignored in economic globalization. The richest 20% of the
world is believed to consume about 85% of the world’s total resources. That means as
the world grows smaller; the undeveloped world is just going to be left behind. Poor
nations when combined only get 15% of current resources as it is and as business
opportunities take on a global calling, that inequality is likely to continue growing over
time.
5. Worker exploitation would likely increase. Because economic globalization is
ultimately a quest for bigger profits, there will be a need to exploit the workers in
undeveloped nations who make nowhere near a livable wage. Why pay someone $20 per
hour to fabricate parts when a worker can be paid $0.25 per hour instead? Most of the
workers in the world today live on just $2 or less in daily wages. That will continue to
increase as this becomes a business world.
6. It would shift where unemployment and poverty happen to be. If jobs are being
outsourced in a global economy, then eventually a global maximum output is going to be
achieved. There will no longer be any room for growth. That means outsourced jobs will
create unemployment and possible poverty in developed nations, switching who holds
the power in the global economy. Businesses don’t care about borders. They care about
profits. The ideas of social welfare or benefit programs could completely cease to exist.

Aspects of Economic Globalization and International Relations

Globalization has played an important role in fostering economic relations among nations
across the world. In the era of globalization, countries have realized that economic co-
operation with other nations is strategically important for the growth of the economy. The
important aspects of globalization and international economic relations are:
1. Ensures easier movement of goods and services across nations. This is an
absolute necessity for fostering international economic relations.
2. Easier movement of people between countries has also been made possible by
globalization which is conductive to international economic relations. This also helps
people in one country to migrate to another for employment thereby addressing the
problem of unemployment in many countries.
3. Leads to free trade between countries. Since the early days of globalization
numerous bilateral trade agreements have been signed between countries.
4. Ensured easier and faster flow of information across geographical boundaries.
The success of economic relations is often dependant on information.
5. It has led to reduction in cultural barriers which has proved to be conductive for
economic co-operations among nations.
6. Movement of capital between countries due to globalization has also played an
important role in international economic relations.
7. It has given rise to several multi-national corporations who undertake economic
activity across geographical borders.
8. It has helped to address environmental issues which are strategic to
international economic relations.

The Impact of Globalization on Developing, Transitional & Developed Countries

 It should be clear that globalization affects
growth in different countries differently.
Indeed, as we have seen, some of the
channels by which developing countries are
adversely affected actually confer benefits
on the United States and other developed
countries. Developing countries are forced,
in effect, to hold large reserves in dollars or
Euros, providing low or zero interest loans
from developing countries to developed
countries. International financial
arrangements which increase risk, and
force the developing countries to bear risk
(e.g., associated with interest rate and
exchange rate changes) increase the
incomes of those who have a comparative
advantage in absorbing risk — the
developed countries — at the expense of
those
who have a comparative disadvantage —
the developing countries.
Figure 2: Image taken from https://image.slidesharecdn.com

1. Developing countries are nations with an underdeveloped industrial base where

people have lower life expectancy, less education, and less income. Examples of
developing countries are most of the countries in Africa and certain countries in East Asia.
2. Transitional countries are those emerging from a different type of economy
towards a market-based economy. Transitional economy refers to all countries that
attempt to change their basic constitutional elements towards market-style fundamentals.
The best examples of transitional countries are China and Russia.
3. Developed countries are countries with a lot of industrial activities and where
people generally have high incomes. They have post-industrial economies, meaning the
service sector provides more wealth than the industrial sector. The United States of
America, Australia, and most of the European countries are examples of developed
countries.
An economy can have sectors in both the developing and developed stages, but
cannot be transitional at the same time.

Economic globalization reaps social benefits in developing countries. Granted, it must

navigate a fine line in the course of its life, balancing between optimizing opportunities
and realizing potential, and creating its own enemies and thus becoming the architect of
its demise. The benefits of globalization are true for it has produced favorable results just
as often as it has caused ruin. It does lead to increased stability and internal security. It
does lead to better human welfare. And it does share the luxuries of the developed
countries. However, much of globalization is admittedly a waiting game; it is truly a time-
consuming process. The decision is whether the ends justify the means, whether it is
worth the wait, whether the long term benefit outweigh the short term detriment. Economic
globalization is, at its basic, an investment for the future.