Massimo De Angelis Eco 108 Lecture Notes 9

ECO 108

Introduction to Political Economy

Massimo De Angelis
(Spring 2000)

Lecture Notes 9

Globalisation

9.1. Introduction: some matters of definition. __________________________________ 1

9.2. Globalisation of finance, production and trade: some stylised trends. ___________ 2
9.2.1. Global finance. ____________________________________________________________ 2
9.2.2. Global Production _________________________________________________________ 3
9.2.3. Global Trade _____________________________________________________________ 4
9.3. Trade liberalisation, the WTO, and its critiques. ____________________________ 5
9.3.1. The World Trade Organization . . . ____________________________________________ 5
9.3.2. . . . and its critics (an example) _______________________________________________ 6
9.3.2. Some other critics: web resources.____________________________________________ 10

9.1. Introduction: some matters of definition.

Globalisation is one of the current buzzwords. It refers to the

process of increasing interdependence between networks located at multicontinental
distances. There are in this sense many form of globalisation: military, social and
cultural, environmental, and economic globalisation, all of which are interdependent and
strictly connected. Here we are talking about what is commonly understood as economic
globalisation (although, as we know by now, the

Whereas globalisation refers to a dynamic concept (increase in interdependence), the

associated concept of globalism defines a state of affair. Globalism is a type of
interdependence involving network of connections, not single linkages, which extend to
the global intercontinental level. Thus, globalisation could be redefined as the increase in
globalism (Keohane & Nye 2000).

There are three main aspects of economic globalisation (and therefore globalism):
globalisation of finance, production and trade. In section 9.2. I will briefly review some
stylised trends of the globalisation of the economy while in section 9.3. I will discuss
some of the forces that contributed to their formation. All these three aspects of
globalisation have been heavily promoted by neoliberal policies pursued by national
governments and international economic institutions. Neoliberal policies have de-
regulated international financial markets, reduced workers rights and de-regulated labour
Massimo De Angelis Eco 108 Lecture Notes 9

markets (that is made easier for companies to fire workers, and promoted competition
among unemployed people by cutting various forms of subsides), and promoted further
waves of trade liberalisation, which in turn increases competition.

9.2. Globalisation of finance, production and trade: some stylised trends.

9.2.1. Global finance.

Box 1: How tall is a trillion-

P erhaps the most evident aspect of

dollar?

modern economic globalisation is the "Measured as a stack of hundred-

exponential growth of global monetary and
financial markets. Estimates of the daily dollar notes, [a million dollar]
value of transactions on the foreign would be eight inches high. A
exchange markets in New York, London billion dollars  in other words, a
and Tokyo alone vary from $650 billion thousand million  would stand
(US Federal Reserve) up to a trillion
higher than St Paul's Cathedral. A
dollars (see Box 1 to appreciate how much
that is). The transactions are largely trillion dollars  a million million
composed of currency speculation aimed at  would be over 120 miles high,
making a profit from the movement 20 times higher than Mount
exchange rates or interest rates deviations. Everest"
Given the large sums involved in capital
movement, even small deviations in the
rate of interest or other factors can cause Anthony Giddens
huge flows of money which in turn affects
exchange rates and causes economic difficulties for the ‘victim’ government. These
problems are passed on in the form of hardship, spending cut, and other forms of
austerity policies onto population at large.

Speculation is not just a crazy activity, a mad game with no other purpose that to make
money in the global casino economy. Speculation, and especially the continuous
movement of financial capital upon which it is based, can be understood as a disciplinary
device to reduce to the minimum any room of manoeuvre to individual countries. Given
the daily busy-ness of international markets and the potential punitive effect of capital
flight upon national economies, continuing speculation allows to keep governments and
societies on their toes to meet global competitiveness requirements. Those governments
who have not made sufficient attempts to subjugate or co-opt workers or display any
weakness by bowing to pressure over controlling public finance and social expenditure
are punished. Those countries which have begun a ‘healthy restructuring’ program are
rewarded with currency stability and the loyalty of the speculators. For population at
large, neither one nor the other is a true alternative. What is not lost through austerity
measures is lost through unemployment and income-eroding inflation. Most people
Massimo De Angelis Eco 108 Lecture Notes 9

experience the economy (whether global, ‘national’ or local) not as a source of

opportunity but of constraint.

Capital mobility in the North therefore has the same function than Structural Adjustment
Policies imposed by the IMF to countries of the South strangled by debt. In either case, it
is the imposition of sacrifices on to the population in the name of "sound" economic
policies that promote markets and profit.

9.2.2. Global Production

T he process of restructuring in the North promoted by neo-liberal policies (through the

reduction in workers rights, the making easier for companies to fire workers, and
promoting competition among unemployed people by cutting various forms of subsides),
led to the movement of production facilities to the South where lower wages and a
greater intensity of work can be imposed. `Third World` government created `Export
processing Zones" (EPZ) in which investment by transnational companies were attracted
by guaranteeing freedom of profit repatriation; the provision of infrastructure, utility,
factory space and warehousing at subsidised rates; tax holidays usually extending for five
years or more; and an abundant and disciplined labour force, at very low wages and no or
little union rights. All throughout the 1980s and 1990s, EPZ continued to increase in size;
for example, total employment in Mexico’s Maquiladoras (along the two-thousands miles
border with the U.S.A.) has grown from 110,000 in 1980 to 500, 000 in 1992, in Asia
(South Korea, Taiwan, Malaysia etc.) about 700,000 are employed.

Social conflict and struggle also continues to increase (between 1989 and 1993 Malaysia
saw a 350% increase in the number of working days lost through official strikes alone),
with some enterprises already being forced to relocate within the ‘South’, for example
from South Korea to Indonesia. For the Asian textile industries this is particularly easy as
"the clothing industry uses little capital and is very mobile. All you need is a shed, some
sewing machines, and lots of cheap nimble fingers." (The Economist, 1987) The strategy
for creating an international division of labour, globally subdivided according to
comparative costs is ongoing. Labour-intensive production which requires relatively little
capital is destined for low wage areas, whilst production which requires sophisticated
technologies and services is located in those areas which offer a suitable structure and
environment (most often the North). The factory becomes the global factory.
Consequentially, to the extent that production is still based in transnational enterprises’
‘home countries’; the bargaining power of better-paid domestic workers becomes
threatened and disciplined.

In the context of this global factory, production is organised around Transnational

corporations. Unlike the old Multinational corporations, transnational corporations do not
simply replicates production in different countries (in order, for example, to gain access
to those countries's market). Instead, they tend to organise the production process at the
Massimo De Angelis Eco 108 Lecture Notes 9

global level, deciding which part of the overall production is better to locate in one
country or another, and which part of the total production to outsource to subcontractors.
These decisions of course depend on the nature of production itself (some part are more
labour intensive than others, and thus can be shifted to countries with low wages; other
parts are more capital intensive, and need good infrastructures; other rely on particular
skilled labour, and thus depends on the country's availability of the latter at the lowest
possible cost, etc.). But the general trend is that most of the end products we use on a
daily basis are produced within a global production chain distributed throughout the
world and the rational of this distribution is differential power relations.

9.2.3. Global Trade

T ogether with production and finance, also trade has received an upward push in the
last few decades. By 1994 total world exports were 14 times higher than in 1950s. This
compares with a world production that was about five times higher than in 1950s (Dicken
1998: 24). The fact that the rate of growth of global trade has increased at a higher rate
that global production indicates a more integrated global economy.

One important thing to point out about trade is its role within our global economy which
is aimed at profit making. When we think about trade, we think about a human activity
which main purpose is to redistribute scarce goods from places where they are produced
in surplus to places where they are needed. A large part of modern trade does not have
anything to do with this. We are in fact moving away even from North-South
complementarity and specialisation which saw the South specialising in cash crop and
raw materials and the North in manufacturing industries. In other words, our world is
moving from inter-product to intra-product trade, with a large proportion of world trade
being components and semi-processed manufacturers. Also, of increasing importance is
intra-firm trade, which is trading that is made within a particular transnational
corporation located throughout the world. According to UNCTAD data, in the 1970s,
intra-firm trade accounted about 20% world trade, it was 1/3 by early 1990s, excluding
intra-TNC trade in services.

While specialisation and complementarity in trade under imperial and colonial rule
enforced poverty and fostered dependence to the people of the South, this shift in the
pattern and composition of trade, this movement away from specialisation and
complementarity, is not a panacea for solving world's problem. On the contrary, intra-
product trade implies the enforcement of global standards of competitiveness, wages and
work on local producers everywhere, and implies that everywhere the market principle is
accepted as the only principle regulating our socio-economic interaction. In the US, 4%
of national production was exposed to global competition in early 1960s, while it is 70%
today.

Under global competition, it is our own awareness of the world that is deeply affected.
We are constantly reminded that others are more competitive than us, that other are more
Massimo De Angelis Eco 108 Lecture Notes 9

efficient or lower wages, and that if we do not conform they may take our jobs away, our
livelihood etc. This is true in any part of the world. In a system of global competition the
"other" is always there to haunt us. It is often enough for a company to threaten to set up
a plant abroad, to succeed in getting work and wages concessions from weak trade
unions. In other words, one of the main function of today's global trade and pattern of
trade liberalisation, is the enforcement of global competition, and the latter favours
capital accumulation by squeezing global wages and increasing intensity of work.

9.3. Trade liberalisation, the WTO, and its critiques.

9.3.1. The World Trade Organization . . .

T he expansion of trade is largely the result of policy intervention aimed at de-

regulating and reducing tariffs. Since 1995, a new institution was introduced to supervise
this process of trade liberalisation, which was before organised under GATT. This
institution is the World Trade Organization (WTO).

The WTO was created at the ‘Uruguay Round’ (1986-94) of GATT negotiations to
regulate international trade and settle disputes. One of the main requirements for
membership of the WTO (or being a signatory to NAFTA or part of the European Union)
is that any national laws or regulations (for example banning certain toxic products, or
environmental and labour legislation) which obstruct ‘free trade’ are open to legal
challenge by the disadvantaged party through the WTO and the possibility of sanctions or
fines being imposed as punishment if they are not removed.

This means essentially that unaccountable and unelected WTO bureaucrats can repeal
national and local legislation on a variety of social and environmental issues when the
latter is seen to discourage trade. Since the Uruguay Round, trade liberalisation has
occurred not only in manufacturing, but also in services and agriculture. Also TRIPs
agreements (Trade Related Intellectual Property Rights), allow multinational and
transnational corporations to take advantage of accumulated indigenous knowledge,
patent it, and use the know-how thus acquired to produce and sell specific commodities
(see next box).

Last November, the WTO attempted to launch the so-called millennium round of trade
negotiations, but it failed due to a massive international protest. You may have heard
about these events in Seattle. Some of the reasons for the protests are outlined below, in a
critical extract from Friends of the Earth outlining some major criticism about trade
liberalisation and WTO. You are urged to check some other environmental and labour
organisation positions. I list some web pages at the end of these notes.
Massimo De Angelis Eco 108 Lecture Notes 9

9.3.2. . . . and its critics (an example)

10 reasons why the world trade system is bad for people and the planet
From Friends of the Earth

The principles on which the trade system is based are fundamentally

flawed: The trade system pursues growth at all costs, through trade and
investment liberalization, and sees economic growth and increasing consumption
as ends in themselves. Key principles of free trade, such as comparative
advantage and export-led development, have been discredited. The trade system
ignores the fact that increasing consumption is depleting natural capital (the
environment) on which the global economy is based. Increased trade also means
more transport, leading to a loss of natural habitats and biodiversity and negative
impacts on local communities. The trade system pays no heed to equity and
distribution and does little to promote development and environmental protection.

The trade system is increasing economic instability: The deregulation of

financial markets and the revolution in information and communication
technology has stimulated massive growth in short-term capital flows,
undermining countries' economies during economic crises and increasing the
number of people in poverty. Trade and investment in least developed countries -
particularly in Africa - has been concentrated on primary commodities. Because
of fluctuating commodity prices in global markets this leads to increased
economic insecurity.

The trade system is increasing inequality between the 'haves' and 'have-
nots': The world trade system has increased the wealth of a narrow band of
society. The winners have been both the developed countries and the wealthiest
people, whilst poor countries and poor people have been increasingly
marginalized. The impact of trade liberalization has hit subsistence farmers
particularly hard. Trade liberalization does not benefit the majority of the world's
population.

The trade system does not respect the environment: Trade and
environmental policies have come into conflict at both the national and
international levels. Trade policies are almost always given priority and
environmental laws are frequently undermined as a result. The powerful
influence of trade concerns has also permeated important climate change
negotiations and blocked negotiations on a Biosafety Protocol to regulate the use
of and trade in genetically modified organisms under the Biodiversity Convention.
Massimo De Angelis Eco 108 Lecture Notes 9

The trade system is increasing inequality between the 'knows' and 'know-
nots': Knowledge - particularly information, communications and biotechnology -
is proving to be one of the key assets of a 'new' economy. This has marginalized
the 'know-nots' who have been kept out of the knowledge sector and excluded
those unable to share in the knowledge revolution due to difficulties relating to
cost, language and literacy. The trade system protects the intellectual property of
knowledge-rich companies rather than diffusing knowledge and transferring
technology.

The trade system is increasing employment insecurity: The expansion of

trade and the growth of incomes in OECD countries has not increased
employment in developed countries. The globalisation of the employment market
and the mobility of companies and capital has also increased instances of firms
moving to take advantage of lower wages and weaker labour laws. Threats to
relocate also allow companies to force reductions in environmental and social
standards around the world. Mergers, acquisitions and corporate restructuring
are also increasing employment insecurity.

The trade system is bad for your health and safety: Companies are moving or
expanding operations in developing counties where work force health and safety
regulations are lower. Occupational disease, injury and death have taken a
particularly heavy toll in developing countries due to globalisation. Health and
safety standards in industrialized countries have been successfully challenged
through the WTO. Increased trade is also responsible for increased air pollution.

The trade system pits the weak against the strong: Small companies are
expected to compete in the global economy along with the likes of Microsoft,
Monsanto and Mitsubishi even though there is a massive difference in both
wealth and economies of scale. The influence of transnational corporations in
global trade policy is immense and growing.

The trade system has not advanced human development: Because of

conflicts between trade and other policies and because Gross Domestic Product
(GDP) calculations regard factors such as environmental damage, ill health and
crime as positive contributions to the economy, the priority given by most
governments to trade, globalisation and the pursuit of growth in GDP is
contributing to declining quality of life for many people. For example, over the
past 25 years, there has been increasing job insecurity, growing global crime,
spread of diseases such as HIV, increasing civil unrest, greater traffic and
congestion and higher levels of climate changing gases in the air.

The trade system has not relieved poverty: As we reach the end of the
Millennium, more than a quarter of the developing world still live in poverty and
more than 100 million people in the developed world live below the income
poverty line. The trade system is exacerbating this situation, particularly by
marginalising the poorest and least influential communities around the world.
Massimo De Angelis Eco 108 Lecture Notes 9

10 reasons why the WTO - which administers the world trade system - is
also bad for people and the planet

The WTO is undemocratic: In spite of the one-country one-vote structure of the

WTO, powerful countries still wield enormous influence, often determining
negotiating agenda amongst themselves, and putting pressure on smaller, poorly
resourced countries to conform. The concerns of rich communities, rich people
and rich companies all appear to be heard more readily by the WTO than those
of the poor.

The WTO is untransparent and unaccountable: The WTO provides only very
limited access for parliamentarians and civil society at large. Dispute settlements
and the Appellate Body are conducted in closed sessions, with no public access
or external input. The WTO is exempt from conventions allowing greater public
access to information. In the past, there have been numerous reports of officials
being unable to access information about the activities of their own trade
negotiators.

The WTO is increasing inequality and food insecurity: WTO Agreements -

such as the Agreement on Agriculture (AOA), TRIPs and the Sanitary and
Phytosanitary Measures - are increasing global inequality and insecurity
(particularly because of their impact on food production and consumption) and
favour rich countries and big business.

WTO rules regard development and social issues as barriers to trade: For
example, the EU's preferential import regime for Caribbean banana farmers -
aimed at supporting small scale growers where costs are high because of steep
terrain, poor soils and climatic hazards - was deemed incompatible with WTO
rules. The long-standing Lome Convention between the European Union and
African, Pacific and Caribbean countries is also likely to disappear in the near
future, for exactly the same reason.

WTO rules regard environmental and health issues as barriers to trade:

WTO rules conflict with many national laws and practices intended to promote
sustainability and protect the environment. Most WTO agreements are based on
the premise of sound, scientific evidence which severely limits the application of
the precautionary principle. WTO rules have already been used to rule in favor of
free trade and against various measures, eg hormone-treated beef and shrimps
that are caught using turtle-excluder devices.

WTO rules regard labels and certification systems as potential barriers to

trade: The certification and labeling of environmental and socially acceptable
Massimo De Angelis Eco 108 Lecture Notes 9

goods (such as timber or paper from well-managed sources and fairly traded
products) and products that concern consumers (such as GM foods) could be
undermined by WTO rules.

The WTO is eroding cultural diversity: The WTO TRIPs Agreement [Trade
Related Intellectual Property Rights] allows companies to expropriate knowledge
from local peoples in developing countries who, in many cases, have been
cultivators, researchers and protectors of plants for thousands of years. The
Agreement permits (primarily Northern) transnational companies to claim
traditional plant varieties or plant uses as 'inventions' that must be respected the
world over. Culture could also be further eroded if issues surrounding the
entertainment business - for example, films, broadcasting, music and publishing -
are included in a new Round of trade negotiations.

The WTO could undermine multilateral environmental agreements:

Multilateral Environment Agreements that have trade components - such as
CITES, the Montreal Protocol and the Basel Convention on Trans-boundary
Movement of Hazardous Waste - could be challenged under WTO rules.

The 'all or nothing' approach of the WTO: The last Uruguay Round of
negotiations was dealt with as a 'single undertaking'. If the EU were to have its
way, the proposed Millennium Round would also be negotiated as a 'single
undertaking'. This means that many different sectoral negotiations would be
linked together and the results either accepted or rejected in their entirety. This
can put smaller countries, many of whom do not have the capacity or the
opportunity to participate in the full range of negotiations at a severe
disadvantage. Thus many developing countries who were opposed to the results
of the agriculture and TRIPs negotiations in the Uruguay Round were still forced
to accept them or risk being isolated in the global economy.

Influence at the WTO can be 'bought': Subsequent to a $500,000 company

donation to the US Democratic Party, the US Government lodged a dispute in the
WTO over the EU's banana import regime. Some of the world's largest
companies are paying hundreds of thousands of dollars in the hope of gaining
privileged access to key ministerial and other negotiators at the Seattle
Ministerial Conference through the Seattle Host Organization. They expect to be
able to attend receptions and dinners for heads of states, ministers and
delegates with preferential seating.
Massimo De Angelis Eco 108 Lecture Notes 9

9.3.2. Some other critics: web resources.

You find a list of web sites of WTO critiques in my web page under resources

http://www.uel.ac.uk/pers/M.DeAngelis/Sites.htm

then click on globalisation(s), scroll down and you will see a section on

~anti-WTO sites ~

where you can find some critical material on the WTO.

You are also urged to look at WTO web site itself (http://www.wto.org). Finally, for a
union perspective on trade, search the site by the International Confederation of Free
Trade Unions (http:// www.icftu.org) or the newly born militant American trade union
AFL-CIO (http://www.aflcio.org/home.htm) which has launched a very big campaign
against trade liberalisation, focussing on child labour and labour standards (highly
controversial issues)