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GLOBALIZATION Globalization, integration and democratization of the world’s culture, economy, and infrastructure through global investment, rapid increase of communication and information technologies, and the impacts of free-market forces on local, regional and national economies.

1. Seeds of Globalization The term "globalization" refers to the increasing interconnectedness of nations and peoples around the world through trade, investment, travel, popular culture, and other forms of interaction. Many historians have identified globalization as a 20th-century phenomenon connected to the rise of the Western-dominated international economy. However, extensive interaction between widespread peoples, as well as travel over vast distances across regions of the world, has existed for many centuries. By 1000, the seeds of globalization had already taken root in the eastern hemisphere, particularly in the lands bordering the Indian Ocean and South China Sea. These were the most dynamic regions in the world at that time, and their interactions were extensive. To understand how globalization first took root between 1000 and 1500, one must focus on contact between distant peoples in Asia, especially contact carried on through long-distance trade. Interregional trade has been a major force throughout world history because it fosters other forms of exchange, including the spread of religions, cultures, and technologies. For many centuries, the most outstanding example of overland interaction was the Silk Road, a trade route through Central Asia. Maritime trade flourished as well; the Indian Ocean became the heart of the most extensive seagoing trade network in the pre-modern world. Islamic merchants dominated this network, spreading their religion far and wide. Islamic expansion established a huge cultural region that stretched across the entire eastern hemisphere. Trading ports such as Melaka in Malaya became vibrant, globalized centers of international commerce and culture. Chinese ships would later follow this trading network in undertaking the greatest oceanic explorations in world history to that point. This exploration confirmed the crucial role played by this Afro-Eurasian maritime commerce and the dynamism of some Asian civilizations. The exchanges across Asia at this time, including the spread of Islam, were

significant enough that we can speak of a globalized economy and culture.

1.1 Trade and Interregional Contact

One characteristic of globalization in the modern age has been expanding commerce between countries around the world. The roots of this phenomenon reach far back in history. Long-distance trade routes grew out of the transportation systems that developed out of the need to move resources by land and sea. In turn, trade and expansion led to increased contact between different civilizations and societies. This contact enabled Indian influence, including that of Buddhism, to spread over the land and sea trading routes into Central Asia, Tibet, China, Japan, and Southeast Asia between 200 B.C and A.D. 1500.From around 200 B.C to around ad 1000, the most significant example of interaction and long-distance trade was the Silk Road, which stretched across central and southwest Asia, linking China to India, western Asia, and the Mediterranean. Along the Silk Road, goods, people, and ideas traveled thousands of miles between China, India, and Europe. Silk, porcelain, and bamboo from China were carried west across the deserts, mountains, and grasslands to Baghdad and the eastern Mediterranean ports, and then shipped by sea to Rome. The maritime system established on the Indian Ocean grew more important between 1000 and 1500, eventually surpassing overland trade. The oceanic routes between Southeast Asia and the Middle East greatly expanded. Traders from Arabia, Persia, and India visited the East African coast, and many Asians and Africans enjoyed a long period of lucrative and relatively free seagoing trade.

1.2 The Silk Road and the Mongol Empire Between 1250 and 1350, the Mongols established and controlled the largest land empire in world history. This empire stretched from Korea to Vienna, placing a huge bloc of the world's population under Mongol control. The Mongols brutally conquered Siberia, Tibet, Korea, and Russia, much of Eastern Europe, Afghanistan, Persia, Turkey, and parts of Arab civilization in the Middle East. Western Europeans were too remote and underdeveloped to give reason for conquest and thus did not suffer the ravages experienced by other peoples. In 1279, China, a more formidable foe and tempting prize than Western Europe, was added to the Mongol-ruled realm. One cannot underestimate the importance of the Mongol era to world history or its role in establishing an early form of globalization. In the 20th century, globalization enabled Western technology to reach other parts of the world. Some historians consider the Mongols the great equalizers of history because during their rule, they permitted the transfer of technology from the more developed East Asia to the more backward Western Europe. They did this by reopening and protecting the Silk Road, however briefly. During the Mongol era, Chinese inventions such as gunpowder, printing, the blast furnace, silk machinery, paper money, and playing cards found their way to Europe, as did many medical discoveries and such domesticated fruits as the orange and lemon. The Mongols paved the way for greater global communication, opening China's doors to the world. One Chinese monk, a Nestorian Christian, became the first eastern Asian visitor to Rome, England, and France. In addition, some Chinese people settled in Persia, Iraq, and Russia. This movement was possible because travel from one end of Eurasia to the other was easier than ever before. Furthermore, the Mongols unwittingly set in motion changes that would later allow Europe to catch up with and eventually surpass China. Some of these changes were based on European improvement of such Chinese inventions as printing, gunpowder, the stern-post rudder, and the magnetic compass. For example, in about 1050, the Chinese invented movable type. The Europeans later developed a better technology, and in the 1450s Johannes Gutenberg used movable type to produce multiple printings of the Bible. Likewise, the Chinese invented the first flamethrower. By the 13th century the flamethrower had evolved into a primitive gun—one major reason the Mongols took so much longer to conquer China than other civilizations. As these weapons were transported to Europe during the Mongol Era, and then improved, late medieval European warfare became far deadlier than it had been before.

Today's globalize world has been characterized by a brain drain, or exodus of talented people from various continents to Europe and North America. The world in the 14th century witnessed the same phenomenon; however, the flow moved the other way, from west to east. In China, the Mongol administration relied on a large number of foreigners who came to serve in what was effectively an international civil service. These included many Muslims from West and Central Asia as well as a few Europeans who found themselves drawn to the fabled Cathay, as they called it. One such person was the Italian traveler and author, Marco Polo. Polo claimed to have spent seventeen years in China, mostly in government service. Eventually he returned home to tell unbelieving Europeans of the wonders he encountered or heard about from other travelers. Polo’s reports seemed incredible because at that time China was well ahead of other Eurasian civilizations in many fields. For these reasons, the Mongol Empire was one of the most important land empires in history. Yet in spite of the success of Mongol civilization during the 1200s, their empire would prove short-lived. Unlike other empires, the Mongols never took advantage of the maritime commerce developing at the time.

1.3 The Globalization of Islam and the Indian Ocean Maritime Trade System

Between the 8th and 15th centuries, Islam ventured out of its Arabian heartland in the Middle East to become the dominant religion in many parts of Africa and Asia and in Iberia. Muslim groups emerged in such different and geographically distant locations as China and the Balkans. In the process, an interlinked Islamic world called dar al-Islam (the Abode of Islam) emerged, a world that was joined by both a common faith and trade connections. The dar al-Islam stretched from Morocco to Indonesia. This global Islamization spread Arab names, words, alphabet, architecture, social attitudes, and cultural values to peoples around the world. The great 14th-century Moroccan traveler Ibn Battūtah spent decades touring the extensive dar al-Islam. He traveled from Mali in Africa and Spain in the west to Southeast Asia and the coastal ports of China in the east. Whereas the Christian Marco Polo was always a stranger in his travels, everywhere Ibn Battūtah went, he encountered people who shared his general worldview and social values.

Muslim-dominated trade routes, which ultimately reached from the Sahara to Spain to the South China Sea, fostered travel. The key to their success was a more complex and increasingly integrated maritime trade throughout the Indian Ocean. This trade network linked China, Japan, Vietnam, and Cambodia in the east through Malaya and the Indonesian archipelago. From there it crossed into India and Sri Lanka, and then moved westward to Persia, Arabia, the East African coast as far south as Mozambique, and the eastern Mediterranean, finally connecting to Venice and Genoa. The Strait of Hormuz on the Persian Gulf and the Strait of Melaka in Southeast Asia were the major pillars of what became the most important mercantile system of the pre-modern world. It was through this mercantile system that the spices of Indonesia and East Africa; the gold and tin of Malaya; the batik and carpets of Java; the textiles of India; the gold of Zimbabwe; and the silks, porcelain, and tea of China made their way to distant markets. When many of these products reached Europe, people there yearned to find their sources in the East, sparking the European age of exploration. Maritime trade flourished, especially in the 14th century after the Mongol empire ended and the spread of the Black Death, the bubonic plague, throughout Eurasia disrupted overland trade. The maritime network reached its height in the 1400s and 1500s, when Muslim political power was reduced but its economic and cultural power remained strong.

1.4 Islam and the Rise of Melaka Various states around the Indian Ocean and South China Sea were closely linked to maritime trade. For example, East African city-states such as Mombassa and Kilwa, with their mixed African-Arab Swahili culture, thrived for many centuries. Merchants in India, including many Jews and Arabs, maintained close ties to Western Asia, North and East Africa, Southeast Asia and China. No political power was dominant along the maritime trading route. Its vigor depended on cosmopolitan port cities such as Hormuz on the Persian coast, Cam bay in northwest India, Calicut on India's southwest coast, and Melaka near the southern tip of Malaya. Of all the cities, historians probably know the most about Melaka, and this city well illustrates pre-modern patterns of globalization. Southeast Asia had long been a cosmopolitan region where peoples, ideas, and products met. Some rulers of coastal states in the Malay Peninsula and Indonesian archipelago, anxious to attract the Muslim traders who dominated interregional maritime commerce

and attracted by the universality of Islam, adopted the faith. The arrival of Islam in Southeast Asia coincided with the rise of Melaka, which became the region's political and economic power. Melaka became the main base for the expansion of Islam in the archipelago, as well as the last stop on the eastern end of the Indian Ocean trading network. Melaka's pivotal role in world trade was confirmed by an early 16th-century Portuguese visitor, who wrote that it had "no equal in the world" and proclaimed its importance to peoples and trade patterns as far away as Western Europe. "Melaka is a city that was made for merchandise, fitter than any other in the world…” he wrote. “Commerce between different nations for a thousand leagues on every hand must come to Melaka. Whoever is lord of Melaka has his hands on the throat of Venice.” During the 1400s, Melaka was a flourishing trading port attracting merchants from many lands in Asia and Africa. More ships dropped anchor in Melaka’s harbor than in any other port in the world; seagoing merchants were attracted by its stable government and free trade policy. Among Melaka's population of 100,000 to 200,000 people were about 15,000 foreign traders, among them Arabs, Egyptians, Persians, Turks, Jews, Armenians, Ethiopians, East Africans, Burmese, Vietnamese, Javanese, Filipinos, Chinese, Japanese, and Indians from all over the subcontinent. On the city's streets, some 84 languages were spoken. Melaka had a special connection to the Gujarat port of Cam bay, which was nearly 3,000 miles away, because merchants from Gujarat in northwest India were Melaka’s most influential foreign community. Every year trading ships from around the Middle East and South Asia would gather at Cam bay and Calicut to make the long voyage to Melaka. The ships carried grain, woolens, arms, copperware, textiles, and opium for exchange. Melaka had become one of the major trading cities in the world, a multiethnic center of globalized culture and commerce, much like New York, Los Angeles, or Hong Kong are today.

.5 Ming China and the World The extent of globalization by the early 15th century is suggested by the great Chinese voyages of discovery. The emperor of the Ming dynasty, Yonglo (or Yung-lo), dispatched a series of grand maritime expeditions to southern Asia and beyond, expeditions that were the greatest the world had ever seen. Admiral Zheng He (or Cheng Ho), a Muslim whose father had visited Arabia, commanded seven voyages between 1405 and 1433. These voyages were huge undertakings, with the largest fleet including 62 vessels carrying nearly 28,000 men. (By contrast, a few decades later, Christopher Columbus would sail forth from Spain in three small vessels crewed by a hundred men.) The massive Chinese junks were far superior to any other ships of the time. In fact, the world had never before seen such a large-scale feat of seamanship. During these extraordinary voyages, ships carrying the Chinese flag followed the maritime trade routes through Southeast Asia to India, the Persian Gulf and Red Sea, Arabia, and down the East African coast as far as Kilwa in Tanzania. Melaka became their southern base, and Melaka’s rulers made occasional trips to China to cement the alliance. Had the Chinese ships continued, they would have had the capability of sailing around Africa to Europe; however, Europe offered few products the Chinese valued. The Chinese expeditions expressed the exuberance of an era of great vitality. Although the Chinese traveled mostly in peace and fought only a few military actions, some 36 countries, including a few in western Asia, acknowledged allegiance to China. In this period, China was the greatest power in a globalizing hemisphere. Historians still debate the reasons for Zheng He's great voyages. Some see diplomacy as the primary goal, with the recognition by so many foreign countries reaffirming the emperor's position. Others point to commercial motives, since the voyages came at the time Chinese merchants were becoming more active in Southeast Asia. In the early Ming period, China remained the most advanced civilization in the world. Commercially vibrant and outward-looking, Ming China could have opened greater communication between the continents and become the dominant world power well beyond eastern Asia. However, it never did. The grand voyages to the west and the commercial thrust in Southeast Asia came to a sudden halt when the Ming emperor ordered a return to isolationism and recalled all Chinese people living outside the empire. How can we account for this stunning reversal that, in the perspective of later history, seemed so counterproductive? Perhaps the voyages were too expensive even for the wealthy Ming government. The voyages were not cost-effective because the ships returned chiefly

with exotic goods, such as African giraffes for the imperial zoo, rather than mineral resources and other valuable items. It seems that the full possibilities of globalization were not apparent to Chinese leaders. Furthermore, in the Chinese social system, merchants lacked status. And unlike Christian Europe, China had little interest in spreading its religion and culture. The Mongols were regrouping in Central Asia, and the Ming court was forced to shift its resources to defend the northern borders. As a result, the oceans were left open to the Western Europeans, who improved upon Chinese and Arab naval and military technology and soon challenged Arabs, Indians, and Southeast Asians for supremacy in the Indian Ocean trading system.

The End of the First Globalized System

By the end of the 1400s, the reputation of such cities as Melaka, Canton, Calicut, and Hormuz as treasure troves of Asian luxuries had reached Europe. Anxious to gain direct access to Asian trade, the Portuguese finally made their way to India in 1498 and Melaka in 1509, inaugurating a new era of European activity in Asian history. Indeed, the Portuguese seized Melaka in 1511. Despite Portugal’s superiority in ships and weaponry, its standard of living was probably inferior to that of people in the more developed societies of Asia. This no doubt contributed to the tendency of Europeans to use armed force to obtain their commercial and political goals. This tendency ensured that the globalization of the world over the next five centuries would be under the auspices of Western Christians rather than the Muslims, Indians, and Chinese who established the basic framework between 1000 and 1500.

TAKE THE WORLD IN YOUR HAND!!!

2. The Roots of Our Global Economy

Demonstrations in Seattle and Prague, passage of NAFTA and GATT, talk of multinational businesses and multinational markets—the third millennium opened as the era of globalization. Growing in popular use during the 1990s, this term describes a world with porous borders. Today money, goods, and services readily cross national boundaries. Instantaneous messages and enormous libraries of information flash across the Internet. Television, telephones, and wireless communications link people everywhere. Political, economic, and environmental developments have planetary impact: Global warming exemplifies this situation both as an effect and as a name. Unique as the modern world seems to be, globalization has been developing for a long time. The pace of trade, travel, and communication is much faster now, but people have always spread out, always dealt with others outside their own societies. Such interactions have been critical to history. Only the speed of change has changed.

2.1 Globalization Begins: Out of Africa

The first and perhaps most crucial globalizing process was the migration of human beings from the birthplace of the species to other continents. For several million years, humans stayed in Africa, their original homeland. About 1.5 million years ago, Homo erectus, an ancestor of modern human beings, walked out of Africa and established communities throughout much of the Eastern Hemisphere. About 100,000 years ago, Homo sapiens, our own species, also left Africa. By about 10,000 B.C Homo sapiens was present throughout virtually the entire habitable world.

2.2 Shipping and Shopping in Ancient Times

Soon after people settled down to work the land, they began to trade with other societies, nearby and far away. The wheel and sailing vessels, both invented about 3500 B.C, sped travel throughout the Eastern Hemisphere. By 100 B.C heavily traveled trade routes such as the famous Silk Road carried goods and ideas between China and the Roman Empire.

2.3 Food for Mind and Body Profits on trade in luxury goods justified the costs and risks of long-distance shipping in the ancient world. In addition to Chinese silk, merchants exchanged African gold, Roman glassware, and spices from Southeast Asia and India. Awareness of these desirable commodities increased demand and so multiplied the traffic. And the goods carried information: regional clothing and cooking styles and techniques of metalwork and decoration reached people on the other side of the globe from their points of origin. New food crops providing improved nutrition for everyone followed along the roads and sea-lanes that served privileged classes. After the 8th century ad, plants such as sugarcane, eggplants, artichokes, melons, and oranges spread from India and Southeast Asia to the Mediterranean region and North Africa, where they enhanced diets and led to rapid world population growth.

2.4 Death and Religion Material well-being was not the only cargo carried by caravans and caravels. Early traders and travelers transmitted diseases such as measles, which came from China to the Roman Empire as early as the 3rd century ad. In the 14th century plague spread throughout the Eastern Hemisphere. With these new fears came new consolations. Buddhism, Christianity, and Islam all spread from their points of origins and attracted converts in foreign lands. Missionaries and scholars found protection among commercial voyagers and a welcome for strangers in the centers of exchange.

2.5 Exploration, Exploitation? As means of transport improved, the hope of gain opened new trading and migration routes. After Vasco da Gama led Portuguese vessels around the Cape of Good Hope, Atlantic ports could trade with the Indian Ocean directly. Following the voyages of Christopher Columbus and Ferdinand Magellan, Spanish treasure galleons crossed the Atlantic and Pacific oceans on regular schedules. On islands from New Zealand to Hawaii, Europeans encountered the descendants of daring mariners who had colonized this region centuries earlier. The rapid discovery of so many new opportunities led to aggressive forms of competition. Armies and navies battled to defend monopolies claimed by monarchs and their favorites, and by such new business organizations as the East India Companies. In the Western Hemisphere, the Aztec and Inca empires fell to Spanish invaders. France and Britain contested control of North America until American colonists took much of it for themselves. Waged always with an eye on commercial advantage, conflicts between these three European Atlantic powers—Spain, France, and Britain—were the first true world wars. Still closer to our own time, the interests of trade led to the Opium Wars in China and to the arrival of Matthew Perry’s U.S. gunboats in Tokyo Bay. Though these conflicts were terribly destructive, they were part of the process that has brought about modern society. Trade, travel, and communication take place at a much faster rate today than in times past, but contemporary interactions emerged directly out of cross-cultural contacts and exchanges with deep historical roots

THE DEVELOPMENT OF GLOBAL CULTURE

Rapid changes in technology in the last several decades have changed the nature of culture and cultural exchange. People around the world can make economic transactions and transmit information to each other almost instantaneously through the use of computers and satellite communications. Governments and corporations have gained vast amounts of political power through military might and economic influence. Corporations have also created a form of global culture based on worldwide commercial markets. Local culture and social structure are now shaped by large and powerful commercial interests in ways that earlier anthropologists could not have imagined. Early anthropologists thought of societies and their cultures as fully independent systems. But today, many nations are multicultural societies, composed of numerous smaller subcultures. Cultures also cross national boundaries. For instance, people around the world now know a variety of English words and have contact with American cultural exports such as brand-name clothing and technological products, films and music, and mass-produced foods. The economy of the United States, as well as that of most developed nations, operates according to the principles of the free market. This differs from the economies of Socialist or Communist countries, where governments play a strong role in deciding what goods and services will be produced, how they will be distributed, and how much they will cost. Businesses in free-market economies benefit from certain fundamental rights or freedoms. All people in free-market societies have the right to own, use, buy, sell, or give away property, thus permitting them to own and operate their own businesses as private, profit-seeking enterprises. Business owners in free markets may choose to run their businesses however they like, within the limits of other, mostly non-business-oriented laws. This right gives businesses the authority to hire and fire employees, invest money, purchase machinery and equipment, and choose the markets where they want to operate. In doing so, however, they may not violate or infringe on the rights of other businesses and people. Free-market businesses also have the right to keep or reinvest their profits.

All free-market economies, however, keep the rights of businesses in check to some degree through laws and regulations that monitor business activities. Such laws vary from country to country, but they generally encourage competition by protecting small businesses and consumers from being hurt by more powerful, large enterprises. For example, in the United States the Sherman Antitrust Act, enacted in 1890, and the Clayton Antitrust Act of 1914 forbid business agreements that impede interstate and most international commerce. The Clayton Antitrust Act also protects against unfair business practices aimed at creating monopolies and guarantees the rights of labor to challenge management practices perceived as unfair. The U.S. Federal Trade Commission Act of 1914 prohibits businesses from attempting to control the prices of its products or services, among other provisions. Other laws prohibit mergers that decrease competition within an industry and require large merging companies to notify the Federal Trade Commission (FTC) for approval.

3. LIFE IN THE GLOBAL MARKETPLACE

The everyday things that we take for granted often connect us to faraway people and places. Consider, for example, the morning routine of an office worker in California. After waking and showering, she puts on a designer sweater and a pair of khaki pants. She brews and drinks a cup of coffee and eats a banana before heading off to work. Each of these products followed a complex path from a different part of the world to take its place in this woman’s morning routine. Let's start with the sweater. Its story begins with sheep grazing on the plains of Australia. There, farm workers sheared the sheep's wool. At an Australian factory, workers spun the wool into yarn and dyed it. The yarn traveled to another factory in Portugal, where workers knitted and sewed the sweater according to a pattern produced by an Italian fashion designer. From Portugal, the sweater traveled to a warehouse in New Jersey, then to the mall in California where this woman bought it. The khaki pants began as cotton in a field in Pakistan. The cotton was harvested and ginned in a nearby town and then transported to Karachi, where workers at a factory spun, wove, and finished the khaki cloth. In an Indonesian factory operating under contract with an American retailer, a woman sewed this cloth into pants, which then traveled first to the retailer’s Los Angeles warehouse and then to another store at the mall, where they caught this woman’s eye. The coffee beans grew on a plant in the mountains of Kenya. Kenyan farm workers harvested the coffee “cherries” and then dried and hulled them to produce raw coffee beans for shipment to the warehouse of an importer in Virginia. From there they traveled to a plant in California, where workers roasted the beans and packed them for delivery to the café from which this woman bought them. The banana that this woman purchased in her local supermarket grew on a tree in Ecuador. Ecuadorian workers harvested the banana as part of a bunch and packed it for shipment to a Los Angeles wholesale market. From there it was sent to the supermarket’s warehouse and finally to the supermarket itself. Before she has even left her house, this woman has used products that tie her to hundreds of workers on six different continents. Although she may not be aware of it, the car that she drives and her activities at work during the day will link her to hundreds of other people working in different parts of the world—people she may never meet but whose lives are tied to her own in the complex web that is our global economy

3.1GLOBALIZATION AND DEVELOPMENT The developing countries of Central and South America, Africa, and Asia once merely exported raw materials and cash crops (crops produced for sale overseas) in return for manufactured goods. The people in these countries provided for most of their own needs through subsistence agriculture and small-scale crafts. In time, though, people in these countries grew increasingly dependent on the global economy, because local crafts could not compete with the inexpensive, factory-made exports of the economically developed countries (western European nations, the United States, Canada, Australia, New Zealand, and Japan). To decrease their dependence, many developing countries sought to strengthen their economies by building factories, modern dams, and roads during the 1960s and 1970s. Some countries also imposed tariffs and other barriers to trade in an attempt to protect developing local industries from competition with imported manufactured goods. Governments frequently made poor financial choices, however. Infrastructure projects such as dams and highways were often too massive for local needs. Choices about industry were sometimes based on the financial interest of government leaders rather than on the best interests of the country, and protection from competition frequently resulted in inferior goods. As a result, products could not compete on the global market with the higher-quality goods from the industrialized countries. Many developing countries then had little income to pay off debts incurred during their expansion. A few developing economies succeeded in building prosperity through industrialization during the 20th century. The most notable of these were South Korea, Taiwan, Singapore, and Hong Kong S.A.R. Like Japan during the 19th century, they established tariffs and other barriers to protect local products from foreign competition and invested local wealth in industrial development. Also like Japan, they focused on selling the products they manufactured to foreign consumers in order to bring wealth into the country. By the end of the 20th century some experts considered these economies to be developed, rather than developing, although many of South Korea’s economic successes were reversed in the financial crisis of 1997. Following a similar path, China advanced economically through a rapid expansion of manufactured exports during the late 20th century. Meanwhile, multinationals based in the economically developed world set up low-wage manufacturing facilities in some developing countries, particularly in Southeast Asia and in Central and South America. These factories typically generated few long-term benefits for the local economy. The profits flowed outside the country to the shareholders of

the foreign multinational. Also, the developing countries were forced to participate in a “race to the bottom” to attract multinational investment. If a developing country or its people sought higher wages or enforced labor or environmental protections, multinationals often simply relocated production to a country with lower costs. At the end of the 20th century many developing countries, especially in Africa, still lacked a strong industrial sector. These countries continued to rely on money earned from exports of cash crops and raw materials to buy manufactured goods and service their debts. An emphasis on the export of cash crops and raw materials leads to increases in production. As transportation became more efficient, countries began to compete to sell the same goods and more goods and increased competition drove down prices. This cycle perpetuated poverty. Facing an inability to attract further investment or pay for imports, many debtor nations turned to the World Bank and the IMF during the 1980s and 1990s for relief in the form of extended credit and new loans. In exchange for this relief, debtor countries had to present a plan of reforms to the lending institutions. These reforms often included privatization plans and reductions in government expenditures. The measures were intended to ensure that these countries could repay their loans, but reforms were often painful.

3.2 THE FATE OF THE STATE SOCIALIST ECONOMIES During the early 20th century the Union of Soviet Socialist Republics (USSR) created a state-owned economy shielded from the competitive pressures of the global market. The state also imposed severe limits on citizens’ personal freedom. This system, known as state socialism, initially raised living standards, and after the Soviet victory in World War II this economic model was introduced in Eastern Europe and other parts of the world. Insulation from market competition and lack of intellectual freedom caused state socialist countries to fall behind the economically developed countries technologically, however. The USSR and eastern European governments channeled scarce resources into an arms race with the United States and other wealthy countries. Living standards stagnated and economies faltered. In the late 1980s citizens of these countries demanded an end to state socialism, and the countries reentered the global market economy.

After half a century of insulation from competition, the industries in the former state socialist countries generally could not compete on the global market. Only countries that had maintained some forms of private ownership, had well-developed infrastructures, and had post-Communist governments that regulated economic reforms—such as Poland and Hungary—seemed likely to join the ranks of the economically developed countries. Others, particularly the Central Asian countries, seemed more likely to follow the pattern of the developing nations.

3.3 THE GLOBALIZATION OF AGRICULTURE With the development of refrigeration and cheap long-distance transportation in the late 20th century, increasing numbers of farmers competed in the global market. Baker purchasing flour, for example, did not care whether the flour was made from wheat grown in North America, South America, Europe, or Australia, as long as the quality was good and the price was low. With tractors and other forms of mechanization, a single farm worker could do the work of dozens of manual laborers. This made it possible for mechanized farmers in North America, Europe, and Australia, where labor costs were high, to outsell small-scale producers from the developing countries on the global market, even though these countries had much lower labor costs. In addition, economically developed countries, particularly the United States, shipped agricultural surpluses—especially wheat, which does not grow well in most tropical climates—to developing countries in Africa and elsewhere at heavily subsidized prices or even for free, as food aid. Locally grown food crops could not compete with these inexpensive imported foods. Small-scale farmers in many developing countries were unable to make a living and had to sell their lands to larger producers who could afford to mechanize. Farmers in developing countries also tended to shift from local food crops to more lucrative cash crops, especially crops such as bananas, coffee, cacao, and sugarcane that cannot grow in the colder climates of the wealthy, industrialized countries. Thus many developing countries, especially in Africa, became dependent on imported foods.

3.4 THE GLOBALIZATION OF MANUFACTURING AND SERVICES

By the end of the 20th century a firm’s research, development, marketing, and financial management no longer needed to occur in the same place, or even in the same country, as its manufacturing operations. Increasingly, service activities dominated the economies of wealthy countries, while manufacturing declined in relative importance. To cut costs, companies relocated some kinds of manufacturing to developing countries, where wages are lower. Such activities included garment production and the assembly of simple parts. Other activities remained in the economically developed countries because they required a highly skilled workforce or proximity to wealthy consumers. Examples are advanced health care, financial services, retail, engineering, and software development, all considered service activities. The service sector grew in importance in the developed economies of North America, Europe, Australia, New Zealand, and Japan, while manufacturing in some developing countries expanded rapidly. The kinds of manufacturing that remained in the wealthier countries included construction, food processing, and skilled activities such as machine tooling and some kinds of chemical production. Many of the economically developed countries banded together in large trading blocs, or economic unions, to promote mutual prosperity. Examples include the European Union (EU) and the free-trade zone established by the North American Free Trade Agreement (NAFTA). These trading blocs expanded the market areas within which companies could operate without facing customs duties or other kinds of barriers.

3.5 ONE WORLD Events in one country may have serious consequences for ordinary people in another part of the world. In the late 1990s, for example, a long economic recession in Japan spread to Southeast Asia. The countries of Southeast Asia had relied on Japanese banks for money to build their economies and on Japanese consumers to buy their products. The recession prompted Japanese banks to curtail their investments and purchases, causing many other Asian economies to falter. Eventually other foreign investors panicked and pulled their money out of Southeast Asia, and thousands of Thais, Indonesians, and others lost their jobs as these countries’ economies shrank. Meanwhile, the economy in the United States grew steadily. As the Asian economies soured, their currencies dropped in value relative to the U.S. dollar, and Asian exports became cheaper. Many Asian companies sought to improve their fortunes by exporting goods to the United States, and during the late 1990s U.S. consumers bought many inexpensive Asian goods. Temporarily, at least, this was good news for Asian workers and investors, who hoped a strong U.S. market, would lift their sagging economies. Indeed, in 1999 the long Japanese recession showed signs of ending. This apparent good news had a dark side, however. The growing Japanese economy attracted foreign investors, who bid up the dollar price of the Japanese yen and thus the price of Japanese goods in international markets. The rising yen posed two dangers. First, it threatened to make Japanese exports too expensive, possibly leading to a drop in sales of Japanese goods and a renewed recession in Japan. Second, as Japanese goods rose in price in dollars, the danger of inflation grew in the United States. Rising inflation in the United States brings the danger of a rise in interest rates and a drop in stock prices that could bring the U.S. economic boom to a halt. If the U.S. economy were to falter, investors and exporters all over the world could suffer. Throughout the world, both rich and poor countries have grown ever more dependent on one another economically. They face problems that are increasingly global in scale. The ultimate example of a global challenge is the ecological one. Both high rates of consumption and economic desperation have led to environmental strains such as the depletion of resources, the generation of pollution, and the conversion of natural habitats for economic uses. In the long term, the success of globalization may depend on its ability to bring economic well-being to all of the world’s peoples without causing further environmental damage.

BUSINESS IN

GLOBALIZATION

4. BUSINESS IN GLOBALIZATION The economy of the United States, as well as that of most developed nations, operates according to the principles of the free market. This differs from the economies of Socialist or Communist countries, where governments play a strong role in deciding what goods and services will be produced, how they will be distributed, and how much they will cost. Businesses in free-market economies benefit from certain fundamental rights or freedoms. All people in free-market societies have the right to own, use, buy, sell, or give away property, thus permitting them to own and operate their own businesses as private, profit-seeking enterprises. Business owners in free markets may choose to run their businesses however they like, within the limits of other, mostly non-business-oriented laws. This right gives businesses the authority to hire and fire employees, invest money, purchase machinery and equipment, and choose the markets where they want to operate. In doing so, however, they may not violate or infringe on the rights of other businesses and people. Free-market businesses also have the right to keep or reinvest their profits. All free-market economies, however, keep the rights of businesses in check to some degree through laws and regulations that monitor business activities. Such laws vary from country to country, but they generally encourage competition by protecting small businesses and consumers from being hurt by more powerful, large enterprises. For example, in the United States the Sherman Antitrust Act, enacted in 1890, and the Clayton Antitrust Act of 1914 forbid business agreements that impede interstate and most international commerce. The Clayton Antitrust Act also protects against unfair business practices aimed at creating monopolies and guarantees the rights of labor to challenge management practices perceived as unfair. The U.S. Federal Trade Commission Act of 1914 prohibits businesses from attempting to control the prices of its products or services, among other provisions. Other laws prohibit mergers that decrease competition within an industry and require large merging companies to notify the Federal Trade Commission (FTC) for approval

4.1 CURRENT TRENDS

Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. Many U.S. firms, for example, attempt to tap emerging markets by pursuing business in China, India, Brazil, and Russia and other Eastern European countries. Multinational corporations (MNCs), which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. Production jobs requiring only basic or repetitive skills—such as sewing or etching computer chips—are usually the first to be moved abroad. MNCs can pay these workers a fraction of what they would have to pay in a domestic division, and often work them longer and harder. Most U.S. multinational businesses keep the majority of their upper-level management, marketing, finance, and human resources divisions within the United States. They employ some lower-level managers and a vast number of their production workers in offices, factories, and warehouses in developing countries. MNCs based in the United States have moved many of their production operations to countries in Central and South America, China, India, and nations of Southeast Asia. Mergers and acquisitions are also becoming more common than in the past. In the United States, for example, America Online, Inc. (AOL) and Time Warner merged in 2000 to form AOL Time Warner, Inc., a massive corporation that brought together AOL’s Internet franchises, technology and infrastructure, and e-commerce capabilities with Time Warner’s vast array of media, entertainment, and news products. Internationally, a growing number of mergers and acquisitions have been taking place, including Daimler Benz’s acquisition of Chrysler to form DaimlerChrysler AG and Ford Motor Company’s acquisition of Volvo’s automobile line. With large mergers and the development of new free markets around the world, major corporations now wield more economic and political power than the governments under which they operate. In response, public pressure has increased for businesses to take on more social responsibility and operate according to higher levels of ethics. Firms in developed nations now promote—and are often required by law to observe—nondiscriminatory policies for the hiring, treatment, and pay of all employees. Some companies are also now more aware of the economic and social benefits of being active in local communities by sponsoring events and encouraging employees to serve on civic committees. Businesses will continue to adjust their operations according to the competing goals of earning profits and responding to public pressures for them to behave in ways that benefit society.

4.2 Explaining the Global Economy Globalization is a catchall term for many processes that are at the heart of the global economy: the spread of instant global communications; the rapid growth of international trade, global capital markets (markets in which national currencies are traded), and foreign investment; and the emergence of a new breed of global corporation. The global economy is the product of all these things, and more than the sum of them. It is a revolution that enables any entrepreneur to raise money anywhere in the world and, with that money, to use technology, communications, management, and labor located anywhere the entrepreneur finds them, to produce goods or services that can be sold anywhere there are customers. The global economy has been building for 25 years, since the early 1970s. But it burst into public view only in the 1990s, when the end of the Cold War (the post-1945 struggle between the USSR and its allies and the United States and its allies) fundamentally challenged the claims of Communism, diluted the draw of socialism, and enabled supporters of open markets to proclaim the superiority of capitalism. Many nations that formerly followed the theories of German social philosopher Karl Marx abruptly abandoned that philosophy, bringing virtually the entire globe into the orbit of the market. The global economy is different than the preceding international economy, which took much of its present form in the 17th and 18th centuries with the establishment of nation-states. For hundreds of years nations promoted foreign trade to increase their wealth and power, but rarely hesitated to limit such trade when it was perceived as harmful. The new global economic order is unique in its sheer scope, size, and speed—its ability to leap borders, to treat the world as one market and the nation-state as though it does not exist.

4.3 Globalizing Trends Most analysts believe the global economy is the result of several reinforcing trends, which have only recently come fully into view. Taken together, these trends are creating increasingly open and unfettered markets that stretch around the globe. One trend is the emergence of instant global communications, made possible by technological breakthroughs such as the semiconductor and the communications satellite. The ability to send messages around the world in a split second enables corporations to manage far-flung operations and currency traders to make their trades anywhere, anytime. Communications technology literally makes the global corporation and global markets possible. A second trend is the wave of deregulation, which began in the late 1970s and weakened the control of national governments over economic activity. Governments once controlled the flow of currencies, held corporations to stern labor laws, and limited imports through tariffs and quotas. Most of these rules and regulations, and many others, have now been dismantled or weakened to enable markets to function more freely. A third trend is the growth of enormous global capital markets, the first of which emerged in the early 1970s when the Bretton Woods system of fixed currencies collapsed. After the Bretton Woods Conference in 1944, all national currencies were assigned a fixed exchange rate against the United States dollar, which was backed by gold. When the Bretton Woods system broke down in 1973, currencies began to “float” against each other: in other words, they were worth only what the market said they were worth at any given moment. Suddenly, there were vast profits to be made by speculating on the market value of currencies, and so the great global capital markets—linked by instantaneous global communications—were born. The global economy is far from complete. It is still much easier to do business between Illinois and California, for example, than between the United States and Poland or between the United States and Japan. All countries have some limits on trade and foreign investment. If jobs can move from country to country, people seldom do. Even in this mobile age, only about 2 percent of the world's population lives outside its own country, and most of these people are refugees, not workers chasing jobs.

4.4 The Expanding Grasp of Global Markets But if the global economy is not yet complete, it is becoming more intertwined and integrated every day. International trade is growing by 8 percent per year, more than double the rate at which the world's total economic output is growing. Foreign investment (investing in the ownership of foreign businesses) has been growing by 12 percent per year and is now more valuable than trade: The annual economic output of foreign-owned businesses exceeds the value of all foreign trade combined. Of all the parts of the global economy, the most developed are the capital markets that trade national currencies. These markets operate virtually unregulated and trade no less than $1.5 trillion every day, or $400 trillion per year. About 15 percent of this vast sum is vital, because it pays for the world's trade and investment, and because it pays for the hedging that makes this trade and investment possible. Through this hedging, businesses and investors buy foreign currencies to protect themselves against potentially costly swings in currency exchange rates. For example, if the value of a country's currency rises rapidly, businesses that hold a reserve of that currency can continue to make purchases and pay debts in the same country without first purchasing the currency at its new, higher price. Without such hedging, many companies probably would be reluctant to trade or invest abroad. But apart from this useful hedging, all the rest is speculation, as traders operating around the globe and around the clock buy and sell currencies, looking for quick profits of as little as 0.05 to 1 percent or less. This is not idle speculation. Large capital markets are conduits for potent and relentless waves of money, constantly seeking the best price, a momentary edge. As nations in Asia recently discovered, these markets can confer wealth, jobs, industrialization, and riches on societies they favor. As the Asians and, later, the Russians found out, the markets can also pull these benefits out virtually overnight and, in the process, undermine entire societies. With the smell of fear in their nostrils, traders can cast instant judgments on other vulnerable economies, sending the panic careening around the globe, from Asia to Brazil to Russia and, finally, to Wall Street, which is what happened in 1998.This tight linkage between global capital markets and national economies is something new. After World War II (1939-1945), the victorious powers set up systems of nation-based safety nets, rules, regulations, and other barriers to assure the safety of their currencies and economies from panic elsewhere. The global economy, powered by technology and deregulation, has eroded this system of safeguards. A prominent objective of deregulation, for example, has been to

dismantle capital controls limiting the speed and size of currency movements in and out of countries. These controls have been removed in all but a few nations. National and international policy makers are now pondering how to create a new set of global rules and regulations to replace the old web of national regulations. Their goal is to hem in the power of the global economy and restore some confidence and stability to global markets and the nations where they operate. One important target of these new rules and regulations is likely to be the powerful global corporation.

4.5 The Global Corporation The preceding 20 years have witnessed a widespread restructuring of the corporate landscape. An estimated 50,000 corporations now have operations that are primarily global in scope. Their predecessors were multinational corporations (MNCs), with sales and manufacturing branches abroad, but with all major functions, including the international branches, run from headquarters back home. The new global corporation typically has a tight, lean headquarters staff, but scatters its other functions—research and development, accounting, procurement, and sales—wherever the people are the best and the costs lowest. This corporation seldom has an international department, because the entire corporation is international. Multinational corporations that have evolved into global corporations include Ford Motor Company, General Motors Corporation, Royal Dutch/Shell Group, BP Amoco PLC, Siemens AG, Nestlé S.A., and Zenith Electronics Corporation, among many others. Global corporations, in turn, are reshaping the political and social landscape. During the last 50 years, major corporations in the United States and other industrialized nations struck a social compact with their employees and communities, through a web of labor agreements, environmental and tax laws, charitable giving, and other obligations, voluntary or imposed. The global corporation is now mobile enough to escape these obligations and break the social compact. Companies that once competed domestically with other companies sharing the same social obligations now compete with firms halfway around the globe, where environmental laws may not exist and pay scales are a fraction of Western wages. In the United States, for example, hundreds of corporations—from automakers to electronics manufacturers—have moved jobs from high-wage U.S. facilities to low-wage plants in Mexico and other Latin American nations. In response to this trend, policy makers in the United States have reduced corporate taxes in an effort to keep at least some business operations at home. United

States federal tax receipts tell part of the story: Corporations that once paid a full 30 percent of total federal taxes have seen their tax share fall to 12 percent. Throughout much of the industrialized world, declining corporate taxes mean less money for welfare, unemployment, and other social programs that were initially established to help economically vulnerable workers. In the future, political debates will likely focus on efforts by governments and citizens’ groups to force corporations to resume their economic and social obligations—in a sense, to declare their corporate citizenship—when they no longer are geographically bound to any particular location .

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EXPANSION OF

INTERNATIONAL TRADE The reduction of trade barriers and the continued expansion of international commerce are two of the notable achievements of the postwar era. Tariff reductions have been accomplished through the General Agreement on Tariffs and Trade (GATT) and by the creation of customs unions, such as the European Union. Although world exports more than doubled in volume and increased in value by a factor of eight between 1954 and 1974, not all countries shared equally in this growth. In the 1950s exports from the industrialized nations of North America and Western Europe expanded rapidly, while exports from the developing countries fell behind. In contrast, after 1965 the exports of the developing nations grew most rapidly, in part because of the rising value of oil exports from petroleum-producing countries. The share of world trade held by Japan and the European Union rose, but that of the former Soviet republics and Eastern Europe declined. For the world as a whole, the value of international commerce (exports plus imports) rose from $643 billion in 1970 to more than $11.4 trillion in 1999—despite the efforts of some countries to impose import quotas and negotiate voluntary export restraints. The outlook for commerce across national borders was improved in the early 1990s as member nations of GATT signed a major new treaty that struck down many barriers to free trade and established the World Trade Organization (WTO). In addition, regional treaties such as the North American Free Trade Agreement (NAFTA) went into effect.

Reining in the Global Economy The crises left behind not only vast wreckage but also a growth industry in ideas on how to cope with a global market so powerful that it could rapidly turn once-prosperous nations into virtual paupers. Scholars, officials, corporate executives, and traders suggested some form of new global financial authority to regulate the markets. Analysts who once saw the free flow of currency as the key to global prosperity suddenly agreed that emerging nations might be justified in imposing capital controls, at least in the short run. Malaysia did so in September 1998 and suffered little of the international criticism that such a move would have invited just one year earlier. Suggestions blossomed for slowing down the speculative trading on capital markets. One idea, first proposed by Nobel Prize-winning economist James Tobin, would impose a tiny tax—less than 0.5 percent on each currency transaction—on grounds that most speculative currency trades involve margins no bigger than that. Another suggestion, pioneered by Chile, would penalize short-term investments that do not stay in a country long enough to do some real good. The Group of Eight, an informal organization that includes the world's seven leading industrialized nations and Russia, announced in October 1998 plans to “create a strengthened financial architecture for the global marketplace of the next millennium,” a phrase vague enough to permit almost any reform that the nations choose. Some critics want to do away with the IMF and World Bank altogether; some others want to hold an international conference to create new institutions to fit the new global era. Still others argue that the IMF and World Bank, plus others such as the BIS, are established institutions with experienced staffs that need only new marching orders to be effective. Virtually everyone now agrees that emerging countries should not open themselves to global markets until they have a structure of laws and regulations ready to cope with the markets' power.

The Future of Global Capitalism

The unquestioning euphoria that surrounded global markets just a year or two ago has vanished. But utter condemnation of these markets is little accepted. Organized labor in the United States is likely to continue to oppose trade agreements such as NAFTA, and opinion polls show that nearly half of all Americans support some tariffs. But Buchanan's call for a “new economic nationalism,” imposing tight limits on trade and immigration, does not appear to have much of a future. Even analysts who think Buchanan is asking the right questions about trade and investment feel that the imposition of new national barriers would not solve the problem, but only insulate the United States from the real benefits that the global economy can bestow. More global economic shocks like the Asian financial crisis are likely to come, if only because the markets that produced them still exist and the global and national regulations necessary to prevent the shocks are not yet in place. The work ahead is as much political as it is economic. The new rule makers will have to balance the need for social stability and broad prosperity with the efficiency and profit demanded by free markets. In all successful market democracies in the past, struggles over these issues have resulted in compromise, involving something less than totally free markets and something short of complete regulation. Market reforms, no matter how necessary, may limit the ability of the global economy to spread wealth to developing nations. Some analysts believe that the creation of global safety nets—to protect stricken countries and prevent crushing depressions—may only provide a cushion that encourages the speculation and risk-taking that caused the problem in the first place. Others point to the need to reach solutions to global economic problems within a democratic framework. Global rule making, like global markets, takes place now in an arena that democracy and the vote cannot reach. Making the global economy responsive to the people who live within it may be the great challenge of the coming century.