Nottingham University
Nottingham
17 th February 2005

2
Future of Globalisation
• Five Big Themes of the Book
– Technology and the market revolution
– Role of states
– Development record of the “second age of globalisation”
– Threats to globalisation
– Exploiting the opportunities of globalisation

3
Theme 1 – Centrality of markets
• Globalisation is integration of economies through markets across frontiers
• It is enabled by technology and by liberalisation
• The 1980s and 1990s were a liberalisation revolution
• Globalisation followed

4
Theme 1 – Centrality of markets
FALLING COST OF TRANSPORT AND COMMUNICATIONS
120
100
80
60
40
20
0
1920 1930 1940
Ocean freight
1950
Air
1969
Transatlantic phone
1970
Satellite
1980 1990

5
Theme 1 – Centrality of markets
AVERAGE TARIFF RATES
20
15
30
25
10
5
0
France Germany Italy UK
1950 Pre-Uruguay Round Post-Uruguay Round
EU US

Theme 1 – Centrality of markets
6
WEIGHTED AVERAGE TARIFFS IN CHINA
(per cent)
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1992 1993 1994 1995 1996 1997 1998 2001 2002

Theme 1 – Centrality of markets
THE GROWTH OF WORLD TRADE AND OUTPUT 1970-2002
(volume with 1970=100)
1000.0
7
100.0
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
Merchandise Exports Manufactured exports Merchandise production Manufactured output

8
Theme 1 – Centrality of markets
RATIO OF TRADE IN GOODS TO GOODS GDP
(per cent)
250.0%
200.0%
150.0%
100.0%
50.0%
0.0%
Thailand Germany Mexico UK
1990 2002
Turkey China US Japan

Theme 1 – Centrality of markets
9
RISE OF GLOBAL ECONOMIC INTEGRATION IN THE 1980s and 1990s
(per cent of global GDP)
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
FDI inward stock Gross product of foreign affiliates
Export of foreign affiliates
1982 1990 2003
Export of goods and non-factor services
Sales of foreign affiliates

Theme 2 – Markets and States
• Markets need supportive states
• They need to be both strong and constrained
• The creation of such a state is difficult and the achievement is rare
• Far more common are predatory, weak or even failing states
• Good states are created by external regulatory competition, constitutional change and moral reform
• The difference in quality of states is the world’s biggest challenge
10

Theme 3 – Record
• In many ways, there is too little globalisation, not too much.
• Labour markets are less integrated than in the late 19 th century
• Capital markets are less good at moving capital to less developed economies, because of monetary disorder and poor property rights
• But trade and production are more integrated than ever before, because of technology and liberalisation
11

Theme 3 – Record
• Where globalisation has worked, predominantly in
Asia, it has been remarkably good.
12

13
Theme 3 – Record

Theme 3 – Record
ASIA'S SHARE IN WORLD GDP
(at PPP)
14
50
40
30
70
60
20
10
0
33
1820
Sour ce: Maddison
17
1870
9
5
1950 1913
China India Japan Other Asia
5
1973
12
2001

Theme 3 – Record
GROWTH IN GDP PER HEAD 1820-1998
(annual average compound growth rates, per cent)
Region 1820-
1870
1870-
1913
1913-50 1950-73 1973-98
Western
Europe
Western
Offshoots
Japan
Eastern
Europe and former
USSR
Latin
America
Asia
(excluding
Japan)
Africa
World
0.95
1.42
0.19
0.64
0.1
-0.11
0.12
0.53
1.32
1.81
1.48
1.15
1.81
0.38
0.64
1.3
0.76
1.55
0.89
1.5
1.42
-0.02
1.02
0.91
4.08
2.44
8.05
3.49
2.52
2.92
2.07
2.93
1.78
1.94
2.34
-1.1
0.99
3.54
0.01
1.33
15

Theme 3 – Record
16
DECOM POSIT ION OF WORLD INCOM E INEQUALIT Y
(mean logarithmic deviation)
0.900
0.800
0.700
0.600
0.500
0.400
0.300
0.200
0.100
Source: Bourguignon and Morrison
0.000
1820 1850 1870 1890 1910 1929 1950 1960 1970 1980 1992
Inequality within country groups
Inequality between country groups
Total inequality

Theme 3 – Record
INEQUALITY AMONG HOUSEHOLDS IN THE AGE
OF GLOBALISATION
(Mean logarithmic deviation)
0.920
0.900
0.880
0.860
0.840
0.820
0.800
0.780
0.760
0.740
Source: Sala-I-Martin
0.720
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998
17

Theme 3 – Record
1,500
EXTREME POVERTY IN THE LONG RUN
(less than a dollar a day at PPP, in 1985 prices, millions and world population share)
90%
1,400
1,300
80%
70%
1,200
1,100
1,000
900
800
700
60%
50%
40%
30%
20%
10%
0% 600
18
20
18
50
18
70
18
90
19
10
19
29
19
50
19
60
19
70
19
80
19
92
Number Rate
18

Theme 3 – Record
Regions
East Asia & Pacific
(Excluding China)
China
Europe and Central Asia
People living on less than $1.08 a day at
1981 1990 2001
767
161
472
95
284
72
606
1
36
377
2
49
212
18
50 Latin America and
Caribbean
Middle East and North
Africa
South Asia
Sub-Saharan Africa
Total
Total, excluding China
9
475
164
1,451
845
6
462
227
1,219
841
Sources: World Bank, World Development Indicators 2004
7
428
314
1,101
888
19

Theme 3 – Record
Share of people living on less than $1.08 a day at
1993 PPP, in regional populations
Regions
East Asia &
1981
55.6%
1990
29.6%
Pacific
China 61.0% 33.0%
Europe and Central
Asia
Latin America and
0.3%
9.7%
0.5%
11.3%
2001
15.6%
16.6%
3.7%
9.5%
Caribbean
Middle East and
North Africa
South Asia
Sub-Saharan
Africa
5.1%
51.5%
41.6%
2.3%
41.3%
44.6%
2.4%
31.1%
46.5%
Total
Total, excluding
China
39.5%
31.5%
27.9%
26.2%
21.3%
22.8%
Sources: World Bank, World Development Indicators
20

Theme 4 – Threats ahead
• Insecurity
• Instability
• Interests
• Ideas
21

Theme 4 – Threats ahead
• Insecurity
– Then: huge conflicts among the great powers, leading to two world wars
– Today: fear of terrorism, but the great powers are on the same side, at least for the moment
– Risks ahead: rise of China, mega-terrorism and resource wars
– Assessment: risks manageable
22

Theme 4 – Threats ahead
• The consensus is that oil supply can increase in the years ahead
• But we still do not know what will replace it in the long run
• The resource needs of Asian industrialisation are enormous: half of global incremental demand for oil is now from Asia, with China a bigger factor than the US
23

Theme 4 – Threats ahead
24
UPS AND DOWNS OF OIL PRICES
(nominal and real price of oil)
120
100
80
60
40
20
0
Ja n-7
0
Ja n-7
1
Ja n-7
2
Ja n-7
3
Ja n-7
4
Ja n-7
5
Ja n-7
6
Ja n-7
7
Ja n-7
8
Ja n-7
9
Ja n-8
0
Ja n-8
1
Ja n-8
2
Ja n-8
3
Ja n-8
4
Ja n-8
5
Ja n-8
6
Ja n-8
7
Ja n-8
8
Ja n-8
9
Ja n-9
0
Ja n-9
1
Ja n-9
2
Ja n-9
3
Ja n-9
4
Ja n-9
5
Ja n-9
6
Ja n-9
7
Ja n-9
8
Ja n-9
9
Ja n-0
0
Ja n-0
1
Ja n-0
2
Ja n-0
3
Ja n-0
4
Nominal Real (at 2004 prices, deflated by US CPI)

Theme 4 – Threats ahead
• Instability
– Then: the Great Depression
– Today: financial crises in emerging market economies, asset price bubbles and global imbalances
– Risks ahead: dollar crisis and asset price crashes
– Assessment: risks manageable
25

Theme 4 – Threats ahead
• Interests
– Then: national companies with the same interests as their work force and no World Trade Organisation
– Today: multinational companies with internationally integrated operations and interests at odds with their national work forces and also the WTO
– Risks ahead: middle class anxiety as services become more internationally tradable
– Assessment: risks manageable
26

Theme 4 – Threats ahead
• Ideas
– Then: belief in socialism, planning and import substitution
– Today: collapse of socialism and worldwide move towards the market and discordant group of anti-globalisation protesters
– Risks ahead: loss of faith in market, particularly if financial system continues to be unstable
– Assessment: risks manageable
27

Theme 5 – How to exploit opportunities
• I have no blueprint for a new world. I think these are a waste of time. But here are ten “commandments” that bring together my main conclusions
– The market economy is the only arrangement capable of generating sustained increases in prosperity
– Individual states remain the locus of political debate and legitimacy. Supranational institutions gain their legitimacy from the states that belong to them
– It is in the interest of states and their peoples to participate in international treaty-based regimes that deliver global public goods
28

Theme 5 – How to exploit opportunities
29
– Such regimes need to be specific, focused and enforceable
– The WTO has strayed too far from its primary focus on trade liberalisation
– The case for regimes covering investment and competition is strong. But such regimes do not need to be global
– It is in the long-run interest of countries to integrate into financial markets, but they should do so carefully
– It is necessary to accept renegotiation of sovereign debt as a normal feature of the world economy
– Official development assistance need to increase
– Countries need to learn from their own mistakes, but also we need the ability to rescue failed states