Globalization Part 2May 03, 2018 · History of Globalization Three phases of globalization 1. Phase 1: 1492- 1850 a) Early exploration, colonization and industrialization b) Mercantilism

Globalization Part 2

Spring 2018

Questions, Comments and Sharing

The last 20 minutes of today’s class are set aside for members of the audience to speak. A microphone will be available so everyone can hear.

Please withhold questions and comments until this time.

2

Review

Globalization is about the movement of products, services, people, money and information across borders.Globalization began about 500 years ago.Driven by technology and innovation.Overall the world benefits but there are winners and losers.

3

Globalization is opportunity

.

4

Digital Nomads

History of GlobalizationThree phases of globalization

1. Phase 1: 1492- 1850a) Early exploration, colonization and industrializationb) Mercantilism

2. Phase 2: 1850 – 1914a) Intensive internationalismb) Shift to trade among nations

3. Phase 3: 1945 – Presenta) Economic expansion and reforms

5

The Dark Side of Globalization

Job Loss

Income inequality

Weakening of nation states

Today’s Topics

• History of globalization Part 3: 1945 to 2000• History of globalization Part 4: 2000 to Present• The benefits and disadvantages of

globalization• How globalization can be managed so the

world, nations and all individuals can benefit• Questions, comments and sharing

7

History of GlobalizationPhase 3: 1945 - 2000

As the world emerged from the great depression and WWII the US and world leaders realized a new world economic structure was needed.

8


1. Countries would need assistance to rebuild.2. Lasting peace required international economic order.3. Unrestricted global trade was a way to bring all nations together.

9


1944 Bretton Woods Conference Bretton Woods, New Hampshire July 1 – 22, 1944

44 Allied nations 730 delegates

10


Bretton Woods ConferenceThree international financial institutions were established

1. World Bank to reduce poverty2. The gold standard for currency values.3. The International Monetary Fund

(IMF) to stabilize exchange rates

11


• World Bank• Originally named the International Bank for

Reconstruction and Development (IBRD) • Provide loans to rebuild Europe after WWII• Today

– Work to end extreme poverty– Promote prosperity for bottom 40% for every

country


International Monetary Fund (IMF) goals1. Oversee exchange rates and facilitate

growth of international trade.2. Make it easy to convert one currency to

another.3. Serve as an emergency lender to countries

with short term cash flow problems.

13


In 1947 23 nations reached agreement on tariff reductions.

General Agreement on Tariffs and Trade (GATT).

45,000 tariff concessions covering over $10 billion in trade.

14


GATTOver next seven years 100 more nations joined and new negotiations called rounds were held.

More tariff reductions, trade policies like anti-dumping were added.

15


GATTAverage tariffs were 4.7%.Between 1950 and 1960 8% growth in trade.

16

History of GlobalizationPhase 3: 1945 - 2000In 1947 representatives of 50 nations met to create another institution, the International Trade Organization (ITO).

Develop policies on labor and employment, investment, business practices and commodity agreements.


In 1950 the ITO charter was approved subject to ratification by the member nations.

The US Congress opposed many of the policies and the ITO failed to win US approval. Without US support the charter was dropped by other nations.


Golden Age of Capitalism 1945 – 1970sEconomic expansionClose cooperation between nationsRegulation of capital flowPolitical control of bankingExpansion of welfare state to protect vulnerable

19


Criticism of the IMF and World Bank• Interest rates on loans are high.• Typically countries receiving loans must open

up to:– Foreign investment– Convert government services to the private sector– Cut government spending


Criticism of the IMF and World Bank• Foreign companies were accused of exploiting

underdeveloped countries– Setting low local wages – Inefficient use of natural resources– Pollution

Critics claim the mission of the IMF is purely financial and ignores social programs.


By the end of the 1970s there were many economic problems.Recession and InflationFactories closedUnemploymentOil embargo

22


The US went off the gold standard.The world wide exchange system broke down. Countries now determined their own exchange rates independently.

23


1980s Ronald Reagan initiated policies to stimulate the economy.

Deregulation of the corporate and financial sectors.Privatization of public enterprises.Tax reduction for businesses.Limits on labor organizations.

24


As a result of these policies.US corporations became competitive in the global market.Inflation rate decreased.Consumers benefited

more choicelower prices

25


ConsequencesCorporations moved to countries with low wages, cheap land, untapped resources and less environmental restrictions.

26


Consequences of these policies.

Facilitated a massive reduction in taxes paid by corporations and the wealthy.

27


28


Consequences: Power of labor unions declined as did wages.

29


World was moving to a truly global economy. How could this be managed?

GATT lacked enforcement power.

30


1986 – 1994 Uruguay Rounds of GATT created the World Trade Organization (WTO).

31


World Trade Organization (WTO) 1995It is designed to:1. Encourage trade and keep tariffs low2. Review member’s trade policies3. Increase trade opportunities for

developing nations

32


World Trade Organization (WTO) 1995162 member nations as of 2015.

33


World Trade Organization (WTO) 1995Two major improvements over GATT1. Includes rules of trade on services in

addition to goods. Intellectual property rights are protected.

2. Enforcement authority.

34


World Trade Organization (WTO) 1995Member nations agreed to give the WTO great powers.WTO rules take precedence over individual nations domestic laws and regulations if they discriminate against products produced in other member nations.

35


WTO Enforcement1981 EU imposed restrictions on beef

imports with growth hormones.

No clear scientific evidence of a health threat. Law seen as a “social” statement.

36


37

WTO allowed US to retaliate by imposing a 100% tariff on imported EU products.


WTO Enforcement1998 Canada requested review of the ban

on products containing asbestos.WTO three year scientific review of the health effects of asbestos.

2001 Ruled against Canada citing clear scientific evidence of asbestos dangers.

38


Criticism of the World Trade OrganizationSocial activist groups accuse the WTO, IMF and

World Bank of being run by and for the richest nations and most powerful multinationals.

39


Criticism of the World Trade OrganizationFailed to enact trade agreements specific

to agriculture and textiles by developed nations.

agricultural subsidiestextile import restrictions

40


Winners• Large corporations• Business• Financial sector• Europe• Nations of the world• Beneficiaries of safety nets• Consumers

Losers• Labor unions• Poor countries• Some workers• Beginning of the shrinking

middle class• Beginning of less

government money for safety nets.

History of Globalization2000 – Present

Rise of the Rest

History of GlobalizationPhase 4: 2000 – Present Rise of the Rest

Economic emergence of Non-Western nations of Asia and parts of the Middle East, Africa and Latin America.

Rise of multinational corporations and NGOs as nation states become weaker.

Improvements in transportation, technology and communication.

History of Globalization Phase 3: 1945 – 2000 Rise of the Rest

Improved communicationsInternetComputer and mobile phone technology

TransportationMultinational CorporationsNGOs

44

Transportation


Ocean shipping is the most energy efficient long distance transport.90% of world trade is moved by ships

52,000 merchant ships 11,000 are bulk carriers


Container Ship

Holds 18,000 containers



OOCL Hong Kong1,312 feet long (400m)

Crew of about 30

Carry enough containers to fill75 120 car trains


These ships burn bunker fuel. 16 of the world’s largest ships produce as much sulfur pollution as all of the world’s cars.


Bunker fuel• Toxic to crustaceans and shellfish and aquatic

plants • Left stagnant in storage tanks, deadly

hydrogen sulphide gas can form.


• Vapors are harmful if inhaled, exposure can cause eye or skin irritation.

• May cause organ damage through prolonged exposure.


James Corbett from the University of Delaware, an expert on ship emissions estimates:

64,000 people die each year as a result of emissions from these ships. 87,000 by 2012.

International Maritime Organization reports deaths could reach 200,000 by 2020

History of GlobalizationPhase 4: 2000 – Present Rise of the RestThe International Maritime Organization (IMO) just voted to require all ships to use only low sulfur fuels by January 1, 2020.


Discharges from ballast tanks. Results in the spreading of invasive species.

Damage to ecosystems and fishing industries.


Ship Breaking1,250 ships were broken down and the steel recycled in 2012.


Ship BreakingIndia, Bangladesh, China and Pakistan are global centers of ship breaking.

There are fewer environmental and labor regulations.






• CLIA–Manage waste according to sound

environmental principles and are in compliance with all regulatory requirement.• Do not discharge untreated sewage


• CLIA“The advanced wastewater treatment systems used on many ships can produce cleaner water than most wastewater treatment facilities in US coastal cities.”

Rise of Multinational Corporations

Multinational Corporations

“A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries.”

Also called worldwide enterprises, multinational enterprises, transnational corporations, stateless corporations . . .


Many multinational corporations feel no loyalty to a particular nation state.

“ There is no mindset that puts this country first.” Colgate executive


We’re in the business to make money for our shareholders even if we have to put jobs and technology in other countries.

“The US trade deficit is not the most important thing in my life. . . running a effective business is.”


Multinationals are frequently criticized for lacking ethical standards in how they avoid laws, avoid taxes, and leverage their business agenda with capital especially in underdeveloped countries.


Multinational corporations are vital in today’s global market. Their products and services are an integral part of the world’s economy.


Growth of Multinational Corporations

1970 7,000Today 60,000 – 80,000

Multinationals can rival nations in economic power.


Multinationals have exerted their power and influence to get around labor laws, environmental regulations and paying taxes.


Since 2000, hundreds of foreign investors have sued more than half of the world’s countries, claiming damages for a wide range of government actions that they say have threatened their profits.

75


77

In 2010 Philip Morris International sued Uruguay in international court for $25 million for excessive regulation.


78


79

Philip Morris International net worth is twice that of Uruguay. Uruguay won in 2016.

Israel, Australia, New Zealand,and Finland have also been sued.

“This is a law suit that should never have been allowed. The millions of dollars that El Salvador has spent in legal costs could have been used to strengthen badly needed social programmes in our country.”


Illegal fishing in Somali waters by foreign vessels from Europe, Asia and Africa costs Somalis 30% of their tuna and shrimp catch.

The Somali coast has been used by European companies as a dumping ground for toxic waste

radioactive waste, heavy metalshospital and chemical waste


Tax Havens and Tax Avoidance

The world is losing about $500 billion in tax avoidance.

Corporate tax is a vital source of government revenue across the globe.

83

As a percentage of GDP


Global Tax EvasionAccording to the Tax Justice Network corporations in US pay well below the stated tax rate. The effective tax rate over the last 5 years (2013) was

GE 18% FedX 20%Amazon 6.6% Ford 4.2%


Global Tax Evasion

In 2012 corporations paid half of what they did in 1970 as a percent of GDP. 1.6 vs. 3.2

Individuals during this time paid 7%.


Organisation for Economic Co-operation and Development (OECD)

More than 100 countries and jurisdictions are currently working together to tackle base erosion and profit shifting .

1949 - 1988

US Office of Budget and Management


The nation state has lost power to global markets, cultural products and multinational corporations.

This has led to the rise of NGOs.


NGOs are Non-governmental organizations They are usually

– non-profit and independent of governments

– are active in humanitarian, educational, health care, public policy, social, human rights, environmental, and other areas

96


NGOs arose as a response to the limitations of nations and international institutions to address global issues such as:

human rightshealth carehumanitarian aid Environmental issues

97


Emergence of NGOs

1919 1, 083 NGOs

2015 10,000,000 NGOs

98


• Individual private donors comprise a significant portion of NGO funding.

• Some of these donations come from wealthy individuals

• Warren Buffett's pledged 10 million Berkshire-Hathaway shares to the Bill and Melinda Gates Foundation

100

101

History of GlobalizationPhase 3: 1945 – 2000

Winners

102

Joseph E. Stiglitz

Nobel Memorial Prize in Economics

Former chief economist of the World Bank

103

Globalization’s Winners

Stiglitz points out:Second half of 20th century better than the first half which had two world wars, a global depression and major epidemics.

The improved second half is due, in part, to the global economic order instituted after WW2.


Stiglitz points out:

The world benefited enormously from the post WWII global economic order.

Fastest rate of economic growth ever.

Hundreds of millions of people moved out of poverty.


Life expectancy increased world wideImproved efforts to improve the environmentMore social safety netsMore products availableCheaper prices


Global conflicts (wars) greatly reduced.

Global diseases attacked- HIV/AIDS, avian flu, Ebola


• Millionaires and billionaires in the advanced countries and the middle class in India and China.

• Top 1% are doing well.

• Top 0.1% are doing the best.

History of GlobalizationPhase 3: 1945 – 2000

Losers

109

Joseph E. Stiglitz

In the last 30 years all is not well in advanced nations.

110

Globalization’s Losers

Opponents of globalization from developing nations are now being joined by middle and lower classes of developed nations.

Income in the US has been stagnant for most Americans in the last 30 years.


Middle class life of job security, home ownership, decent wages and being able to send kids to college is moving out of reach for many people.


Income and wealth inequality has risen in most of the world’s economies.

In US the wealth of the richest 1% has doubled since 1980.

World wide 4/5 of all world wealth goes to the top 1%.


Life expectancy in US is declining.

Mortality rate of American white males is increasing.

Populism increasing in US and Europe.


Globalization has not been good to developing countries.

Poor farmers in India and Africa are doing the worst.


Stiglitz says the nature of globalization has changed in the last 20 years to the detriment of the global community.


President Trump took advantage of “worst trade deals” ever.

Ironic because US and advanced nations wrote the rules of international trade and run the international organizations.

Globalization 2018

According to Stiglitz, who participated in trade negotiations the US got most of what it wanted:

Corporations got cheap labor without environmental and labor protections.

Joseph E. StiglitzNobel Memorial Prize in EconomicsFormer Chief economist of the World Bank

“Anyone who has watched these trade negotiations, as I have for years, would view Trump’s charges [bad trade deals]as laughable.”

America got exactly what it wanted. The problem is that they wanted the wrong thing.

119

Globalization in 2018

Stiglitz asks:1. To what extent are these problems and

trends caused by globalization?2. Are these trends inevitable?3. If they are caused by globalization is it

because the rules of trade are poorly designed?

Managing the Effects of Globalization


If globalization is managed correctly it is good for the world, for nations, and for a large majority of the world’s population.

122


123

If globalization is not managed correctly it benefits rich nations, multinational corporations , and wealthy individuals at the expense of developing nations and the working classes.


Adam Smith, in The Wealth of Nations, argued that:

a government’s job was to take care of its people.

124


• How do we do this?


Principles of Reform1. Globalization is a means to improve

the living standards of people in all countries.

2. Rules are needed at cross border externalities to avoid “Race to the Bottom.”


Principles of Reform3. Global action will become more and

more interdependent.4. Large economies are different than

small economies.


Principles of Reform5. One size fits all policies don’t work.6. Change of rules results in winners and

losers. Governments must be mindful of the needs of the losers.


Principles of Reform7. The economic consequences of reforms must be evaluated using models that reflect economic realities.


What Can Be Done?1. Progressive taxation2. Tax credits for those at the bottom so

they can have a livable wage.3. Corporations and high income

individuals should pay fair share- not have loopholes.


What Can Be Done?4. The government need to play a larger

role in the transition from manufacturing to a service economy-education and health care sectors.

5. Provide social protection


What Can Be Done?6. Increase estate taxes and provide universal access to education from pre school through college to offset limited upward mobility.

The American Dream is supposed to mean that through hard work and perseverance, even the poorest people can make it to middle class or above. But it's actually harder to move up in America than it is in most other advanced nations.

Managing the Effects of Globalization• Competition must be strengthened in industry

and finance to check the growth of monopolies.

• Access to quality education and training must be greatly improved.

• Labor market policies and social protection systems must be adapted.

Managing the Effects of Globalization• Restore public investment programs in

research, development and infrastructure.• Reforms at the international level must

include rules fair to all nations.

Managing the Effects of GlobalizationWorld wants students to have a liberalarts education.

US is shifting to more technicaltraining to the detriment of American students.

Students of the future need to be well rounded, think critically , curious and creative.

Managing the Effects of GlobalizationMiddlebury Institute of InternationalStudies slogan: Be the Solution

Real world problems are multidimensional and not solved with simple policy.

For every complex problem there is an answer that is clear, simple, and wrong. H. L. Mencken

Managing the Effects of GlobalizationMiddlebury Institute of InternationalStudies

Pragmatic Idealism: practical approach to problems that involves systematic analysis, planning and implementation. Right brain intuition with left brain logic.

Managing the Effects of GlobalizationGovernment needs to adequately fund research and development.

iPhone depends on GPS, multi-touchScreen, LCD displays, lithium-ion batteries and cellular networksNone made by Apple. All came from government sponsored research.

Managing the Effects of Globalization“If we can deliver to our students an ability to ‘really understand’ the world around them, ‘see patterns and make connections’ and make it possible for them to have ‘hope’- that they can indeed continue to go out and change the world…” then we have done our job.

Conclusion

Globalization has been around for over 500 years and it is not going away.

Globalization is brought about by technologycommunicationproductsRise of multinational corporations Rise of NGOs

Conclusion

There will be winners and losers.

Globalization is opportunity.

Survival doesn’t go to the fittest but to those who change and adapt.

Questions and Comments

Documents

Globalization Part 2May 03, 2018 · History of Globalization Three phases of globalization 1. Phase 1: 1492- 1850 a) Early exploration, colonization and industrialization b) Mercantilism