ECONOMIC GLOBALIZATION: the historical experience, modernity and prospects

PLEKHANOV RUSSIAN ACADEMY OF ECONOMICS 
 
 

INTERNATIONAL BUSINESS SCHOOL 
 
 

COURSEWORK IN ECONOMIC HISTORY 
 
 

ECONOMIC GLOBALIZATION:

the historical experience, modernity and prospects. 
 
 
 
 
 

Student: Gulyaeva A.

Group: 5101 

Supervisor: Prof. Lisovskaya E.G.  
 
 
 
 
 

Moscow

2010 

Contents

                                                             Page 

     Introduction        3 

1. The essence of globalization                                       5 

         1.1. The notion of globalization                                    5

         1.2. Basis of economic globalization                             8

     2. Main problems of globalization                                      10 

           2.1. The background to principal problems                 10

         2.2. Differences between development levels

               of developed and developing countries                 11

         2.3. Problems of achieving equal

                competitive conditions                                          13                              
 

     3.  Estimation of globalization                                       16 

         3.1. Positive estimations of conditions and

              perspectives of globalization                                  16

         3.2. Negative estimations of conditions and

               perspectives of globalization                                  17                                   

Conclusion                 18 

Bibliography        20 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Introduction. 
 

     People around the world are more connected to each other than ever before. Information and money flow quicker than ever. It is much easier for people to travel, communicate and do business internationally. This whole phenomenon has been called globalization. Spurred on in the past by merchants, explorers, colonialists and internationalists, globalization has in more recent times been increasing rapidly due to improvements in communications, information and transport technology. It has also been encouraged by trade liberalization and financial market deregulation.  

     It is difficult to find a theme which will be more urgent and controversial then the theme of globalization. The problems of globalization are discussed today by everyone: scientists and politicians, journalists and businessmen, people from all over the world. This global phenomenon has its own origins and its own genesis. It has been defining life of humanity for the last 30-40 years.  

     Globalization is not only a spatial term, but a temporal one: it has a definite past, the complex present and a vague future. Spatio-temporal context of globalization, its evolutional and at the same time revolutional nature caused the variety of points of view on this process. It was analyzed in terms of philosophical, historical, economical, politological and other traditional disciplines.

Being the object of both scientific and mass consciousness, it is estimated from absolutely different opinions: from passionate apologetics to categorical disapproval of this phenomenon, from strong arguments for globalization to weighty evidences of its negative consequences, from seeing the highest level of human socialization in this phenomenon to seeing the source of worldwide problems in it. But the truth is somewhere in the middle as usual. And we have to remember that this is the objective reality, practical and theoretical phenomenon which needs to be seriously analyzed.  

     In an age of globalization, it is still a hot debate of whether globalization is an advantage or disadvantage to our society. Every day you hear it on the news, you read it in the newspapers and you hear people talking about it and in every single instance the word globalization seems to have a different meaning.  

     Globalization influences basic spheres of human life and transforms public and state institutes. It causes serious world-wide problems of modern times such as growth of social inequality, demographical problems, ecological problems, terrorism. But at the same time globalization offers a higher standard of living for people in rich countries and is the only realistic route out of poverty for the world’s poor, spreads technological knowledge, and increases political liberation. Pro-globalization groups e.g. World Trade Organization and the United Nations believe that globalization helps to reduce poverty and increase living standards as well as encourage a better cultural understanding. Also, due to globalization, there can be international co-operation to solve environmental and social problems.  
 

     I would like to express my own opinion in this subject, trying to show the manifestation of globalization, to analyze positive and negative effects of this phenomenon and to shape the strategy of developing in terms of quickly globalized world. 

 

      

1. The essence of globalization.
1. The notion of globalization.

 

     The notion of ‘globalization’ (from the English word globe) emphasizes a planetary nature of this phenomenon.

     The notion itself appeared in the first half of the 80-s. It is thought that ‘globalization’ was first mentioned by T.Levitt in 1983 in the magazine ‘Harward Business Review’ and then in his book “The globalization of markets” (1983). With the help of this neologism T.Levitt characterized the process of merging markets of different goods made by multinational corporations. He emphasized that such processes lead to the fact that markets are not grasped as separate units anymore, but they appear as the united global market.¹ 

     The active usage of the word ‘globalization’ began in 1996 after the 25^th session of World Economic Forum in Davos, Switzerland, where the discussion on ‘Globalization of the basic processes on the planet’ was organized.

In 1997 the Moscow magazine “Expert” wrote: ‘Globalization is a universal hit of this year which is rehashed in all languages..’.² This phrase refers to the fact that globalization is an extremely broad phenomenon that can be described in a multitude of definitions; however the most common is that globalization is the dynamic process by which nations and economies around the world become more interdependent. It can also be described as ‘…a widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritual’.³ This means that globalization is not strictly an economic phenomenon: social, cultural and political convergence, such as the formation of international institutions (i.e., the World Bank or United Nations), has played an important role in fostering global interdependence. 

     Nevertheless, if we combine numerous opinions about globalization, we can discover some typical traits of globalization, and the main will be:

• growing interrelationship and interdependency of countries and nations in different spheres of human life
• formation of the worldwide financial and economic space, formation of      the market which spreads in a planetary scale, merge of separate economies into a global system with common rules for everyone
• informational revolution which resulted in creation of the world wide web, global television set, the Internet etc.
• change of functions of the government, growing role of the spheres of activities of suprastate organizations and transnational associations
• formation of the more universal world, spreading of the system of liberal-democratic values, which were accumulated by the euroatlantic civilization
• spreading of the ideology and policy of globalization

 

Observing these traits, it is obvious that there are objective foundations of this process and subjective factors as well.  

The essence of globalization and the main tendency of its development is a formation of an integral world, a global human community, a new type of civilization.

An integral world means:

• establishment of the international connections in all spheres of human life
• harmonization of relations in a system ‘human – society – nature’
• development of global structures in different spheres of human life
• institutionalization of globalization

A global human community characterizes by:

• consolidation of people with common destiny in the ‘common planetary house’
• people’s realization of belonging to a common human race, which has common aims (the main is to preserve Homo Sapiens and life on the planet)
• formation of the global ethnos in the end

A new type of civilization presupposes:

• transformation of the local civilizations into the planetary civilization
• usage of more valuable things in cultural heritage of nations
• formation of a number of new basic values
• creation of a global world-view and admittance of universal ethics

 

     Modern life is complicated, conflicts ‘shake’ the world and relations between people are far from harmony, but without an ideal and a vision of perspectives it is impossible to define the final directivity of this phenomenon.

In this case globalization is aimed to change the modern society and world order, to implement the ancient idea of integrity of the world, unity of human community, saving its original components.

I can agree with professor V.B. Kuvaldin, who mentions that practically scientists are talking about creation of a ‘megasociety’. And the process of its formation has just started. Megasociety is created under the influence of the information revolution and undergoes: “… deep transformation of the spatial and time organization of social links and relations. Private and public life gain the third dimension that changes the old coordinates system. This meta-space becomes both a specific environment for the interaction of the new communities and a universal domain for the usual geographical spaces ”.⁴ 

     For a long period of time globalization has been spanning basic spheres of human life:

• political (when tribes transformed into nations; governments, regional communities, supranational operating controls were formed)
• religious (when world religions replaced heathenism)
• geographical and geopolitical (when the great migration of peoples took place, new land was discovered, new empires were created)
• ideological (when different social ideas were spread to various nations and countries)
• informational (when speech , written language, mass media, Internet were created)
• economic (when great trade ways were laid ,transnational organizations, world economy and world finances were formed)

 

I would like to analyze the last aspect which was mentioned, because economic life of lots of countries is greatly influenced by the globalization ideology. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2. Basis of economic globalization.

 

Economics has always played an important role in the human life.

And with the help of globalization world economy occurs.

Today’s stage of economic globalization differs from all other stages of internationalization and integration.

The current stage of economic globalization has its own distinctive features. The main are that:

• the process of ‘completing’ the global economy, universal liberalization of market relations takes place;
• free and immediate capital flow comes to be a reality
• a principal role of a human capital changes⁵
• every-day economic life changes (the same goods, which are supplied to the world market,  are in demand of everybody, new standards of behaviour, communication, etiquette, entertainment, which are not connected to national and cultural attributes, are formed⁶)

 

Moreover, economic globalization takes many forms. It may involve trade between individuals or businesses in one country with individuals or businesses of another. Globalization of this sort is rather old. Ancient tribes traded with others, each gaining prized goods. Today, we take for granted the fact that much of what we consume or use originated somewhere else. Or businesses may decide to produce their products not only at home but also in other countries, either to evade the tariffs or quotas of countries where they wish to sell their products or to cut their costs of production by hiring cheaper labour for example. Then globalization involves the bundling together of financial capital, technology and other strategic inputs in order to transfer them as direct foreign investment in another country.

The activities of transnational corporations are a form of globalization. They coordinate their activities with many entities throughout the world, producing in many places with complex networks of production and finance. This form of globalization has recently been named "alliance capitalism," in order to stress the growing importance of strategic alliances between business entities, as businesses search for ways to protect their competitive advantages and global market positions.

Governments also compete for economic advantage globally. They often support private research and development activities, finance worker retraining, protect the environment, and promote inter-firm alliances. When governments decide it is in their interest to cooperate rather than compete, they may form supranational organizations, like the International Monetary Fund (IMF) and the World Trade Organization (WTO), or less formal ones, in order to achieve shared objectives, for example stable macroeconomic conditions, more growth through trade, or "market-friendly" economies.

Also, there are several globalization trends. I will describe the main trends. The first one is a rapid growth of trade. Since the Second World War, trade between nations has grown much faster than world economic output primarily for three reasons. First, rapid improvements in transportation and communications made it easier and cheaper to reach new markets. Second, successive rounds of tariff negotiations have virtually eliminated border barriers among developed countries and many less developed countries have unilaterally reduced their tariffs and quotas. Third, processing trade (trade that involves goods whose components cross borders more than once before reaching final buyers) expanded rapidly. Trade is widespread for almost all nations and its importance is rising everywhere. Trade between nations also has been transformed in recent years, from transactions over which national governments exercise significant control to a form of globalized trade engineered and managed by large, dominant transnational corporations - transnational trade.

And the second trend is a growth of foreign direct investment. There are at least 39,000 transnational corporations owning production facilities outside their country. Direct investments by these large firms, which are growing more than twice as fast as trade, are probably the best indicators of the growth of deep cross-border economic integration. In fact, worldwide sales of the foreign subsidiaries of transnational enterprises now exceed the value of all internationally traded goods.

Most direct investment decision-makers are in the leading industrial countries, but at the same time investment decisions by firms in developing countries like South Korea and Brazil are increasing rather rapidly. The largest 100 transnational corporations are evaluated to control about one-third of the assets which are held by transnational corporations abroad.

There is no doubt that the expansion of international trade and direct investments have benefited many people. Changes in policies and technological advances provided a strong basis for economic growth. And with globalization, capital can be shifted to any country which offers the most productive investment opportunities.

But globalization also has its costs, and we have to remember this in order to assess its true consequences.

 
 
 
 
 

2. Main problems of globalization.

2.1. The background to principal problems.                  

Global problems of modernity refer to interest s of the all humanity in contrast to local or regional problems.

There is a number of problems, which are connected with the process of globalization:

• Problem of prevention war and maintenance peace
• Problem of non-proliferation of nuclear weapons
• Problem of providing ecological balance
• Problem of providing global energetic security
• Problem of eradication illiteracy
• Problem of elimination the universal terrorism

 

This is not a full list of global problems.  As the universal community continues to develop, new problems can appear. 

As for problems connected with economic globalization, they are:

• Problem of overcoming the gap between developed and developing countries
• Problem of elimination transnational criminals
• Problem of achieving equal competitive conditions
• Problem of controlling demographic processes
• Problem of distribution human resources

 

I would like to mention that there is a special science which studies global threats for the humanity – globalistics. The researcher of globalization problems A.Chumakov emphasizes that globalistics has quite clear and already formed delineations. It represents a sphere of scientific researches, which are directed to define the essence of processes of globalization, reasons of their manifestation and tendencies of their development. Moreover, it is directed to analyze global problems, to find effective solutions.⁷ 

I will dwell on two problems which are caused by economic globalization: differences between development levels of developed and developing countries and problems of achieving equal competitive conditions.

 

2.2. Differences between development levels of developed and developing countries. 

One of the most critical problems of global development is the problem of a big gap between developed and developing countries (or between wealthy North and poor South).

Nowadays 20% of popularity of the northern hemisphere consumes about 90% of all good produced, about 60% of produced energy.  

Fast development of technology and technical science (scientific and technological revolution) has created conditions for a more effective use of resources and energy. The gap in per capita income between the countries with the richest fifth of the world’s people and those with the poorest fifth widened from 30:1 in 1960, to 60:1 in 1990 and to 74:1 in 1995. ⁸

UNCTAD's evaluation shows clearly that globalization has not involved an increase in the standards of living for the most of the world. ⁹

Regardless of transfers of capital and technologies from developed countries to countries with less developed economies, no remarkable change for the better can be observed or even expected in these countries. Besides poverty and lack of development, many developing countries are suffering from the very large debts to rich countries, which leave no hope for an improvement in their welfare.

Such a situation creates domestic and foreign policy tensions both in developing and in industrial countries, including the migration from poorer countries to the richer ones. Furthermore, prospects for development are undermined by the outflow of better-qualified labour force. However, tensions are also growing in the labour market and social system of industrial states.

In today’s globalizing and merging world differences in the development of countries is becoming a common. Regardless of the efforts of the United Nations Organization (UNO), the World Bank (WB) and other international institutions, differences in the level of development of different countries have constantly been growing over the past decades.

The analysis of tendencies in average per capita rates of Gross Domestic Product (GDR) shows the increasing tendency of differentiation of incomes and correspondingly of the increasing inequality. Another rate in comparing economies of different countries is the one, which was suggested by the United Nations Development Programme (UNDP) and is called the Human Development Index (HDI). It consists of three components: education, income and health (life span which is expected at birth).

Here is a table of HDI for 2010 (table 1) 
 
 

Table 1

 
 

During the process of globalization not only inequality between wealthy and poor countries increases, but inside popularity of these countries too. The biggest part of the poor popularity concentrates in developing countries.

Globalization opens wide opportunities to all members of universal community; however, the consumption of its welfare goes on unevenly and disproportionately.  
 
 
 
 
 
 
 

2.3 Problems of achieving equal competitive conditions.           

Another global problem which is resulted from the previous one is a problem of achieving equal competitive conditions.

                               

Developing countries have the opportunity to shape their development, occupy an appropriate position in the worldwide economy and actually do something about their economies only under equal competition conditions of economic policy.

Ending the discrimination in international trade, balancing the relations between huge multinational concerns and economically least developed countries, drafting programs of development in environmental protection, energy and water supply and solving other vital problems of the global economy are the preconditions for shaping a more stable global society.  

It is certainly impossible for the industrial countries to give up the protection of their markets in a short time, because that would mean bankruptcy for many companies and millions of people would lose their jobs.

It would be necessary to develop a program that would gradually open markets. The program should include mechanisms of solving social problems and how to pay developing countries debts caused by protectionism. 

The level of productivity in enterprises of developing countries is low. Due to low productivity the wage level is also low in developing countries. In addition to the wage level, the competitiveness of developing countries’ production in the world market considerably depends on social, environmental and other duties imposed on enterprises. 

The precondition for solving the problem of unequal conditions of competition is the ability to find such compromise criteria that would equalize the level of competitive pressure on enterprises of different countries rather than the requirement of equalizing the absolute level of conditions of competition.  

Instead of the requirement that developing countries should reach the level of social security, health care, environmental protection of industrial countries, one should agree upon reaching the share of those expenditures in GNP equal to the average share of industrial countries. This would mean a major breakthrough in the policy of developed countries with respect to developing countries. 

For the moment, the commercial policy of industrial countries has mainly been aimed at the creation of better than average competition conditions for their own enterprises. At the same time the developing countries should consider that competitiveness, achieved at the cost of working conditions that might put people’s life and health in danger together with an inhuman social environment, is not acceptable in a civilized society. 

But when we look at the table of a degree of gap between rich and poor (table 2), we realize that the United States is the dubious front runner with the highest income inequality among 20 wealthy nations. In 2000 the United States’ inequality stood well above all other rich nations. At the other end of the scale the Nordic countries plus the Netherlands had very low inequality ratios. Most Western European nations, as well as Australia and Canada fell in between. 
 

                                                                       Table 2

These data come from the Luxembourg Income Study, the most rigorous data source for cross-national income and wealth. The chart’s income gap indicator in each country is the disposable (after tax) annual income of the top 10% divided by the disposable income of the bottom 10%. In other words, the income gap is the ratio of the 10% of persons with the highest income to the 10% with the lowest.

For instance, in the USA the income of the top-earning 10% was 5.5 times that of the bottom 10%.

This problem is rather complicated, so scientists from all over the world try to find a perfect solution. But still there is no any universal method how to achieve the equality between developed and developing countries and how to make equal competitive conditions. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3. Estimation of globalization

         3.1 Positive estimations of conditions and perspectives of globalization.    

Positive attitude to globalization is based on understanding it as a global integrative process. In fact, the humanity during its historical development creates different social forms of unification, integration.

The development of the economic sphere of the society with its basic foundation logically leads to creation of artels, syndicates, trusts and transnational companies.

And all these is and objective process, which can’t be denied by antiglobalists. 

There are three dominant features of globalization. The first one is that the global community transforms from the messy totality of more or less connected countries to an integral economic system, where national society is an element of a common global economic organism.

This is determined mostly by the global division of labour. 

The second dominant feature is that national and global relations switch the roles of each other.

Functioning of economy of any country more and more depends on external factors: not only on export and import of goods and services, but on the inflow and outflow of capital. 

And the third qualitative feature is the depreciation of regulative functions of national government, which can’t protect national economy from undesirable external economic influence anymore.

International economic processes grow from the more or less effectively ones regulated by the national government to global, mostly irreducible government regulation.

On the principle that in some works there is an opinion that national governments should either fully or partially give in their sovereignty to transnational institutes, tendencies and values.¹⁰ 

The whole world moves to the side of the rising its degree in economical, scientific and technological integrity with a perspective of transformation in the common social and economical organism.The most positive sides of economic globalization are: an aspiration of governments to liberalize trade, markets of capital, strengthening of the global character of production, the strategy of production’s distribution, fast and wide spreading of new technologies etc.

But we have to observe and analyze not just positive sides, but the negative ones as well, because globalization is a contradictory objective social pgenomenon.

3.2. Negative estimations of conditions and perspectives of globalization. 

It is rather natural to hear negative rates of globalization. There even exists a special group of people who are against this phenomenon and called themselves antiglobalists. 

Professor S.Sokolov formulates the following four negative tendencies of globalization:

• Deepen civilizational inequality of nations and countries
• Aspiration of these nations to follow the European way, which will worsen the ecological crisis
• Aspiration of Western countries to use ‘victories’ in the cold war for worsen the ecological crisis
• Danger of intercivilizational conflict with Islamic world etc.¹¹

 

Some scientists say that the negative side of globalization is seen in the process of the so called ‘americanization’.

This term means that the influence of the United States on the popular culture, technology, business practices, political techniques or language, of other countries is quite big.

Such a rate is given by Russian researcher A. Shvechikov, who said that globalization is not an idea of saving the humanity through the interested, equal in rights collaboration in all spheres of life with the aim of achieving a more just and fair llife of the humanity, but this is ‘a wild misanthropic ideology, which should be prosecuted by the law and should be forbidden as a hostile to principles and standards of human society’.¹²  

The researchers of globalization mention that a new, spontaneously appeared and growing phenomenon of antiglobalization resists the globalization. This dynamics involves about 50 countries and 30 million people already.

One of the basic directions of antiglobalists is an opposition to the economic diktat of the financial “seven”.

 

Conclusion. 
 

In conclusion, I would like to say, that it was paid much attention to this relatively new phenomenon called globalization. Scientists expressed their different points of view on this topic.

There is still no definite answer, whether globalization is good or not. 

In the past centuries economic globalization has developed quickly and flows of capital and goods that move between countries have increased.

The globalization process has also involved developing countries. Foreign direct investments made in developing countries show a particularly rapid rate of growth. At the same time, the outflow of foreign direct investments from developing countries has also increased remarkably.

 Industrial countries' international relations generate national development. At the same time, globalization does not show positive results in developing countries. Foreign investments and inflow of loans to developing countries have not brought the expected results.  

Differences between industrial and developing countries' development have grown remarkably during the past decades. The reason for this is the industrial countries' market protection policy which ensures that competitive products cannot enter their market.

Unfair trade and competition, caused by subsidies, have also an important role.

The current organization of the global economy does not meet the requirements of the constantly globalizing and merging world.

The organization of the global economy needs a rapid and radical change towards greater openness of markets and ensuring equal competition conditions for countries with different levels of development. It is a complex and complicated task.

I have shown both positive and negative sides  

I believe that constructive globalization, which integrates all humanity and is an alternative of its modern destructive “proamerican” development, is possible in the global scale.           

 

  Bibliography 

1. Agadzanova V. “Globalizaciya: PRO-spectiva nestabil’nosti”//Rossiya i problemy globalizacii. N. Novgorod: NKI, 2002.

 

2. Azroyanz E. Globalizaciya kak nauchnaya problema//Polignozis, 2000, № 4.

 

3. Beck U. What is globalization? M., 2001.

 

4. Bowman Z. Globalization. M., 2004

 

5. Bledsoe W., “Globalization and Comparative Civilizations: Looking Backward to See The Future”, 2001

 

6. Brevdo T., Volkov G., Mironova O. Globalizaciya mirovoy economiki. Rostov-na-Dony, 2008

 

7. Buyanova V., Michailova V. Globalizaciya. M.2008

 

8. Vladimirov A., Zelenov L., Stepanov E. Sovremennaya globalizaciya: sostoyanie i perspektivi, M., 2000

 

9. Douglas G. Globalization of economic life

 

(http://www.warc.ch/pc/01.html#txt3) 

10. Panarin A. Iskushenie globalizmom. M.: Russlii nacional’niy fond, 2000

 

11. Robertson R., Globalisation: social theory and global culture, Sage, London , 1992

 

12. Turaev V. Global’nie problemy sovremennosti. M.: Logos, 2001