Economic Globalization
Sociology 2, Class 9
Copyright © 2010 by Evan Schofer
Do not copy or distribute without
permission
Announcements
• Announcements
– Midterm in one week: Feb 9
• Midterm review sheet handed out previously
– Available on the course website
– NO SECTION during week of midterm!!!
• No section meetings Feb 8-12
– One week 5 reading won’t be on the exam:
• Brawley, Mark R. 2003. “Globalization and Domestic
Politics” Pp. 107-130 (Chapter 5) in The Politics of
Globalization. Toronto, Ontario: Broadview.
• Agenda
• Today: Taking stock: Consequences of globalization
• Thursday: governance & more midterm review.
Midterm Info
• Topic coverage:
– All class lecture material
• Lecture notes on course website
– All readings up through Week 5
– Commanding Heights video, Episodes 1 & 3
• Available via course web page…
– Exam Format:
• Closed book / closed notes
• Mix of short answer/multiple choice, medium length,
and perhaps one short essay question.
Review: Barriers to Trade
• Strategies for protectionism
• 1. Tariffs – taxes on imported goods and
services
• 2. Quotas – a government-imposed numeric
limit on imports
• 3. “Non-tariff” barriers – A government
regulation that indirectly limits trade or
makes it more expensive
• Example: Agricultural subsidies.
Review: Barriers to Investment
• Strategies for protectionism (continued)
• 4. “Foreign ownership” laws – laws that
limit the ability of foreigners to buy companies
• Example: US government could require owners of
corporations to be US citizens
• 5. “Capital controls” – laws designed to
prevent the rapid withdrawal of
capital/investment
• Example: Law requiring invested capital to remain in
the country for one year
– Thus, preventing rapid flows in and out.
Review: Problems With Trade
Agreements
• Rich/powerful countries have numerous
advantages in negotiating trade agreements
– See: Stiglitz, Chapter 3
• Some points to consider:
• 1. Advantages of rich/powerful countries are
biggest in bi-lateral trade negotiations
• Example: US vs. a small Latin American country
• US can bully, bring great pressure…
• Often, those turn out worse for poor countries than large
multilateral agreements.
Review: Problems With Trade
Agreements
• 2. Rich/powerful countries disproportionately
control the agenda of agreements
• Topics addressed by FTAs benefit rich countries
– Ex: focus has been on removing barriers for high-value goods
& investment, not farm products or low-tech stuff
• 3. Government trade negotiators are often
influenced by powerful groups
• Rather than negotiating for terms that will benefit
everyone in a country, negotiators may cater to big
corporations.
Stiglitz: Making Trade Fair
• Stiglitz, Chapter 3: Recommendations
– 1. Developing countries should be treated
differently from wealthy countries
• Previously, most trade agreements focused on equal
treatment, but poor countries can’t really compete…
– 1. A. So, rich countries should simply open their
economies to the poorest countries
– This would have a much bigger effect than providing direct aid
– NOTE: Europe has started moving in this direction
– 1. B. Poor countries should be allowed to use
subsidies to support “infant industries”
• Rich countries have little to lose… but benefits are big.
Stiglitz: Recommendations:
• 2. Rich countries should stop MASSIVE
agricultural subsidies
– Rich countries give huge amounts of money to
(mainly) industrial farms
– Norway: two-thirds of farm income is from subsidies
– EU spends 80 billion US$; US spends
– Consequences:
• Farmers in rich countries can sell food at LOW prices
and still make a profit
– Often below the cost of farmers in poor countries
• Farmers in poor countries can’t compete… go broke.
Stiglitz: Recommendations
• 3. Escalating tariffs should be ended
• Escalating tariffs: taxing manufactured products at
higher rates than raw materials
– Ex: Having no tariffs on raw agricultural goods, but high tariffs
on higher-value processed goods
– No tax on apples; high tax on applesauce
• Issue: This prevents poor countries from industrializing
– They are stuck farming
– While rich countries have cheap source of produce for their
high-value industries.
Stiglitz: Recommendations
• 4. Remove barriers to unskilled services &
migration
• Rich countries have pushed to remove barriers for hightech services (banking, accounting, software)
• Barriers remain in low-skill services
– Example: Shipping/trucking. Foreign companies aren’t
allowed
• This is one area that poor countries could actually
compete…
• Also, allowing more labor flows would provide a huge
benefit to poor countries.
Stiglitz: Recommendations
• 5. Restrict the use of non-tariff barriers
• There are legitimate reasons for having them…
• BUT, more often they are used by rich countries to
protect their own markets
– Despite claims of supporting free trade
• 6. Restrict bi-lateral agreements
• They are rarely advantageous to poor countries
– Due to asymmetry in power between negotiators
• And, they tend to undermine multilateral agreements
Stiglitz: Recommendations
• 7. Reform governance
• Change the rules of organizations like the WTO
• Issues (p. 97):
–
–
–
–
How decisions get made
What gets put on the agenda
How disagreements are resolved
How rules are enforced
• Currently, rules sometimes favor rich countries
• System should be more open/transparent, more
democratic, with better enforcement for small countries.
Globalization: Consequences
• Taking stock… what are the consequences of
economic globalization?
• Overview: Greico and Ikenberry: Economic
Globalization and Political Backlash
•
•
•
•
•
For peace
For the economy
For economic inequality
For governments
For cultures / cultural autonomy.
Globalization: Consequences
• 1. Economic globalization and world peace?
• Several views… no definitive consensus
– A. Globalization as a source of peace
• Globalization = interdependence
• Argument: The more interdependent we are, the more
we have to lose by fighting…
• Example: War between the US and China = disastrous
– B. Contrasting view: a source of conflict
• Globalization creates potential for new disagreements
– Ex: over trade, currencies, etc
– C. Globalization is a source of peace, but only for
democracies… which are accountable
• Totalitarian rulers may not be deterred…
Globalization: Consequences
• 2. Economic globalization and national
economic welfare
– Argument: Economic globalization increases the
risk of “external shocks”
• Complexity of global markets creates possibility for
unforeseen disasters
• Interconnectedness of global economy means that
problems in one place may spread across the system
• Example: Crisis in Asia due to rapid capital flows and
“contagion”
• Example: Collapse of LTCM (a Hedge fund) in the US
due to economic crises in Russia and other places.
Globalization: Consequences
• 3. Economic and Economic Independence
– A. Globalization may worsen inequality
• Trade may reduce demand for low-skilled workers
• Ex: Imports from low-wage countries wiped out
manufacturing jobs in the US.
– B. The “Golden Straightjacket” (friedman)
• Governments can’t pursue Keynesian policies… for fear
that companies & investors will flee
– C. The “Race to the Bottom”
• An extension of the prior argument
• Countries may compete to cut social services or
environmental protections to attract foreign companies.
Globalization: Consequences
• 4. Economic and cultural autonomy
– A. American / Western domination of the global
economy has prompted concerns
• In short: American/global culture may be erasing local
cultures
• We’ll explore this more in future weeks.
Globalization and Governance
• Issue: Can we do anything about the
negative consequences of globalization
• As Stiglitz recommends we “reform governance”
• What does he mean?
• Governance: Ruling, governing, or
managing
• Sovereignty: Supreme power over a body
politic; freedom from external control
(Webster)
• Related term: autonomy
Video: Commanding Heights
• Issue: Who “writes the rules” of global
governance?
• Episode 3, Chapters 15-17 (13 minutes)
Governance: Definitions
• Treaty: An agreement among nations to follow
certain rules
• Ex: GATT: “General Agreement on Tariffs and Trade”
– Set rules for global trade, prior to the WTO
• Ex: Montreal Protocol on CFC emissions
– An environmental treaty, in which countries agreed to ban the
use of chemicals that damaged the Ozone layer.
Governance: Definitions
• IGO: Inter-governmental Organization: An
organization whose members are governments
– Again, purpose is usually to negotiate or enforce agreements
among governments
• Ex: The World Trade Organization (WTO)
– Members created it as a forum to manage world trade
• Ex: The World Bank
– Governments created it to reduce poverty and encourage
development via loans and projects
• Ex: European Union
– An supra-national government that coordinates (and in some
cases has the power to set) economic & trade policies for
member countries
• Ex: UNEP: The United Nations Environment Program
– Branch of the UN; urges nations to address environmental issues
Governance: Global Civil Society
• Issue: States and corporations are not the
only players in global governance
• Civil society: citizen activity in the public
sphere that is not part of the state or
business sector
• Includes things like: Citizen participation in
organizations, protest activities
• Social movements: Sustained efforts by
members of civil society to challenge existing
governance and produce social change.
Governance: Definitions
• Some components of civil society:
• NGO: Non-governmental Organization
• A domestic association
– Clean Water Action; The Nature Conservancy
• Also sometimes called “non-profits” or “associations”
• INGO: International non-governmental
organization
• An association that is international in membership and
(typically) scope
• Ex: Greenpeace, WWF
Key Players in Global Governance
Video: Commanding Heights
• Wrap up: Inequality, governance, and the
future of globalization
• Episode 3, Chapters 17-end (28 minutes)
– If time allows…