Globalization and International Development: Critical Issues of the 21st Century

Ch 2 - Can Globalization Help?

5 2 Can Globalization Help? Ian Goldin Oxford University Kenneth A. Reinert George Mason University Globalization broadly refers to the expansion of worldwide linkages within and increasing interdependence of human activity in the economic, social, cultural, political, technological, and even biological spheres. The areas in which globalization operates can interact with one another. For instance, while HIV/AIDS is a biological phenomenon, it interacts with economic, social, cultural, political, and technological forces at global, regional, national, and community levels. The relationship between globalization and development is not well understood, and disagreement regarding this relationship abounds. Globalization is, to many, the best means of bringing prosperity to the greatest number of people all around the world. For others, it represents an important cause of global poverty. The five economic dimensions of globalization examined here are trade, finance, aid, migration, and ideas. Whereas trade is the exchange of goods and services among the countries of the world, capital flows involve the exchange of assets or financial instruments among these countries. Foreign aid involves the transfer of loans and grants among countries, as well as technical assistance or capacity building. Migration takes place when people move between countries, either temporarily or permanently, to seek education and employment or to escape adverse political environments. Ideas represent the broadest globalization phenomenon . They involve the generation and international transmission of intellectual constructs in areas such as technology, management, or governance. One can hope that these dimensions of economic globalization would contribute to development and poverty alleviation, and this is 6 Goldin and Reinert indeed often the case. In other instances, however, the link between globalization and development breaks down. As we will argue here, there are no statements regarding the relationship between globalization and development that are both simple and accurate. Rather, statements regarding this relationship are necessarily complex if they are to be accurate.1 A HIsTORICAL VIEW Economic historians date the modern era of globalization to approximately 1870. The period from 1870 to 1914 is often considered to be the birth of the modern world economy, which, by some measures, was as integrated as it is today. Historians have observed that, from the point of view of capital flows, the late 1800s were an extraordinary time.2 The global integration of capital markets was facilitated by advances in rail and ship transportation and in telegraph communication. European colonial systems were at their highest stages of development, and migration was at a historical high point in relation to the global population of the time. This first modern stage of globalization was followed by two additional stages, one from the late 1940s to the mid-1970s and another from the mid-1970s to the present. These, however, were preceded by World War I, the Great Depression, and World War II. During these events, many aspects of globalization were reversed as the world experienced increased conflict, nationalism, and patterns of economic autarky. To some extent, then, the second and third modern stages of globalization merely involved regaining lost levels of international integration. The second modern stage of globalization began at the end of World War II. It was accompanied by a global, economic regime developed by the Bretton Woods Conference of 1944 establishing the International Monetary Fund (IMF), what was to become the World Bank, and the General Agreement on Tariffs and Trade (GATT). This stage of globalization involved an increase in capital flows from the United States, as well as a U.S.-inspired production system that relied on exploiting economies of scale in manufacturing and the advance of U.S.-based multinational enterprises (MNEs). Can Globalization Help? 7 This second stage also involved some reduction of trade barriers under the auspices of GATT. Developing countries were not highly involved in this liberalization, however. In export products of interest to developing countries (agriculture, textiles, and clothing), a system of nontariff measures in rich countries evolved. Also, a set of key developing countries, especially those in Latin America, pursued import substitution industrialization with their own trade barriers.3 These developments , along with the Cold War, suppressed the integration of many developing countries into the world trading system. The third modern stage of globalization began in the late 1970s. This stage followed the demise of monetary relationships developed at the Bretton Woods Conference and involved the emergence of the newly industrialized countries of East Asia, especially Japan, Taiwan (China), and the Republic of Korea. Rapid technological...