Resolved: On balance, economic globalization benefits worldwide poverty reduction 3
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- Globalization creates massive inequality
History of GlobalizationHistory of globalizationRaphael Kaplinsky, Professor of International Development, 2005, Globalization, Poverty, and Inequality: Between a Rock and a Hard Place, page number at end of card Although the dynamism of globalized production and trade speeded up in the 1980s and 1990s, the seeds to this outward surge in the global economy were planted in 1944 at a meeting in Bretton Woods in the USA. The Bretton Woods conference involved representatives from the USA and the UK and anticipated the end of the Second World War a year later. It was explicitly tasked with establishing a stable and appropriate institutional architecture to back global economic progress. This resulted, inter alia, in a system of controls over capital flows, the establishment of stable exchange rates between currencies, and the creation of global financial institutions such as the IMF, the World Bank and the General Agreement on Tariffs and Trade (GATT). During the course of the second half of the twentieth century, the GATT and its successor, the World Trade Organization (WTO), orchestrated a concerted programme of trade liberalization. This led to the elimination of most of the quantitative controls which had governed much of global trade. It also reduced many of the tariffs on cross-border trade. Many formerly protected low-income countries were dragged to this policy table unwillingly and, in the context of growing external debt, were subject to great pressure from the global financial institutions and aid-giving governments to liberalize their trade regimes. But, as the twentieth century wore on, much of this resistance crumbled, and the idea that trade should not be restricted is now widely accepted in policy circles. Figure 1.2 evidences the extent and significance of this pervasive trend towards tariff reduction; bear in mind, though, that perhaps even more important than tariff reduction was the abolition of quantitative controls in most countries and in many sectors. By the turn of the millennium, although South Asia in particular and many other regions maintained tariffs over imports, the level of this protection had declined significantly from the early 1980s. The revival of post-Cancun WTO trade talks is designed to sustain this momentum of tariff reduction in the twenty-first century and to provide a framework for the continued globalization of production and trade. The consequence of this generalized reform of trade policy was a very significant expansion of global trade during the latter half of the twentieth century. By 2002, while the value of global exports had grown by 125 times when compared to 1950, that of overall economic output (gross domestic product, GDP) rose by only a factor of seven (figure 1.3). In the first three post-war decades, the primary impetus to trade growth was the minerals sector, but in the last two decades the driving force for the expansion of global trade lay in manufacturing. The value of manufactured exports in 2002 was more than four times that of 1980, whereas the value of agricultural exports was only 20 per cent higher and that of mineral exports 40 per cent higher. By contrast, when comparing 1980 to 1950, it was the minerals sector which saw particularly rapid trade expansion – in this earlier period, the growth in its value was roughly twice that of manufactures and four times that of agricultural products. The overall result of this rapid growth in trade was a developing openness of almost all economies, reflected in the ratio of their trade to overall economic activity. Table 1.1 shows the trade– GDP ratios for a number of high- and low-income economies. With the singular exception of India, the degree of openness grew significantly over the period – by a factor of three for the global economy in aggregate, and especially rapidly in some economies such as Korea, the Netherlands and Germany. As a general rule, it is evident that low-income (and large) economies appear to be less open than high-income (and small) economies. Driving this globalization of trade, as we have seen, was the dynamism of trade in manufactures. A key factor in this was the growing importance of footloose investment, searching for the site of most profitable production. As figure 1.4 shows, the growth in the value of foreign direct investment (FDI) was particularly rapid during the 1990s. Roughly one-third of this went to low-income economies. During the 1990s, this FDI was complemented by flows of portfolio investment into low-income and emerging-economy stock markets, allowing domestic firms to draw on external funds to finance their expansion of manufacturing production and exports. It was not just the dynamism of manufacturing that was so significant, but also its changing character. This is reflected in the changing character of FDI during the latter part of the twentieth century. During the early post-war decades, most foreign investment was destined to increase production for domestic markets in recipient countries. This is often referred to as ‘tariff-jumping FDI’, attracted by the protection offered to domestically located producers and induced by the awareness that, without local plants, they would not be able to sell into these markets. As the decades rolled on, however, an increasing proportion of this FDI became outward oriented. As we will see in chapters 4 and 5, TNCs began to use low-cost overseas production sites to service global markets. Moreover, increasingly, much of this sourcing was not of finished products (for example, computers and clothing), but of components (printed circuit boards and integrated circuits; clothing accessories and clothing assembly). The growth in this trade in sub-products has been very significant. It can be measured by computing the ratio between trade and value added: the greater the thinning out of production into these subcomponents of manufacturing, the larger this ratio. Table 1.2 shows the trends in a series of industrial economies, in Asia and in Latin America. What is so striking is the extent to which the Asian economies in general, and the newly industrializing economies in particular, engage in this form of disarticulated trade. 6 It is also significant how rapidly the ratio has grown in Mexico as a result of the increasingly prominent role played by its maquiladora export-processing zones in producing for the US market. Also significant is the rapid growth in the ratio for China, albeit from a low base. It should not be thought that all of this growth in trade in manufactures was due to the overseas production sites of TNCs, for there were other factors at work driving the globalization of sales. A critical role was played, as we will see in chapters 4 and 5, by global buying-houses. They were less concerned with who produced what they sourced abroad than with the price, the delivery reliability and the capacity of distant suppliers to deliver the volumes they required to meet the needs of their global customers. To some extent these traded products were sourced from the subsidiaries of TNCs, but, particularly in Asia, increasing use was made of locally owned or regionally coordinated production networks. Much of the investment utilized for this expanded production capability was provided by capital inflows from abroad. Following the abolition of fixed exchange rates in 1971, these capital flows were lubricated by a series of policy interventions by the Bretton Woods financial institutions designed to liberalize and force open capital markets in low-income economies. For example, in many economies, controls on foreign exchange were abolished, not just on remittances of profits and limited personal savings but also to allow for the inflow and repatriation of large tranches of capital and hot money. 7 To summarize, therefore, the globalization of the latter half of the twentieth century was focused distinctively on the cross-border flow of products, increasingly of semi-manufactured components. This was facilitated by the globalization of capital, in the form of both foreign direct investment and portfolio funds. Underlying this was a globally coordinated architecture designed to facilitate trade growth (under the aegis of the WTO) and to promote capital flows (under the aegis of the IMF). Kaplinsky, Raphael (2013-04-29). Globalization, Poverty and Inequality: Between a Rock and a Hard Place (Kindle Locations 578-580). Wiley. Kindle Edition. Globalization creates massive inequalityJohn Hillary, 2013, Journalist, The Poverty of Capitalism, page number at end of card Despite the truly historic development this represents, such an emergence is in no way the common experience of most countries from the global South: inequality between and within countries is now running at record levels, so that polarisation between rich and poor remains the defining characteristic of corporate globalisation in the twenty-first century. While the rise of the BRICS (Brazil, Russia, India, China, South Africa) has introduced new forces into the global political economy, it has strengthened the dominance of capitalism as their governments seek to promote the interests of their own ‘national champions’ around the world. This rise of new imperialisms in turn raises broader questions as to whether the North-South framing of the global political economy that has dominated since the publication of the Brandt Report in 1980 is still fit for purpose. With business representatives from the global South now joining forces with their Northern counterparts in the elite forums of the transnational capitalist class, it may be necessary to reframe the battle lines of globalisation in contemporary rather than historical terms. Hilary, John (2013-10-09). The Poverty of Capitalism: Economic Meltdown and the Struggle for What Comes Next (Kindle Locations 283-289). Pluto Press. Kindle Edition. 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