Other Views on Globalization (updated Dec. 2001; asterisk * denotes PDF format):
 

Journal of World Systems Research, Special Issue on Globalization, edited by Susan Manning

Imperialism and Globalization by Samir Amin

The Global Market by Giovanni Arrighi

The Language of Globalization by Peter Marcuse

Globalization: A Primer by Mark Weisbrot

Globalization: A World Systems Perspective by Christopher Chase-Dunn

"Globalization" and "Neoliberalism" by J. Bradford DeLong

* Globalization and Redistribution: Feasible Egalitarianism in a Competitive World by Sam Bowles

The Trilateral Commission ( 1996) Niels Thygesen, Yutaka Kosai and Robert Z. Lawrence, Globalization and Trilateral Labor Markets

Globalization and its Implications for Antitrust Cooperation and Enforcement, USA House of Representatives

American Prospect Globalization Segment

A Quick Guide to the World History of Globalization

More Form than Substance: Press Coverage of the WTO Protests in Seattle by William S. Solomon

Capitalist Globalization and the Transnationalization of the State by William I. Robinson
 
 
 
 
 

Commanding Heights: The Battle for the World Economy (A PBS Broadband Website)
 
 
 
 
 
Other online works:

Dreaming in Malaysia (web novel)

Crossing the Boundary (web novel)

Ambiguous Capital: The Success of China's New Capitalists in the Township and Village Enterprises and Their Impact on the State Sector (part of the China essay series)

Fiscal & Monetary Policy in 1998 China: Riding the Crisis Tiger (part of the China essay series)

Class Analysis of the Iranian Revolution of 1979 (web essay)

For more web essays: Online Papers.
 
 
 
 

 

 

 

Other Views on Globalization (updated Dec. 2001; asterisk * denotes PDF format):
 

Journal of World Systems Research, Special Issue on Globalization, edited by Susan Manning

Imperialism and Globalization by Samir Amin

The Global Market by Giovanni Arrighi

The Language of Globalization by Peter Marcuse

Globalization: A Primer by Mark Weisbrot

Globalization: A World Systems Perspective by Christopher Chase-Dunn

"Globalization" and "Neoliberalism" by J. Bradford DeLong

* Globalization and Redistribution: Feasible Egalitarianism in a Competitive World by Sam Bowles

The Trilateral Commission ( 1996) Niels Thygesen, Yutaka Kosai and Robert Z. Lawrence, Globalization and Trilateral Labor Markets

Globalization and its Implications for Antitrust Cooperation and Enforcement, USA House of Representatives

American Prospect Globalization Segment

A Quick Guide to the World History of Globalization

More Form than Substance: Press Coverage of the WTO Protests in Seattle by William S. Solomon

Capitalist Globalization and the Transnationalization of the State by William I. Robinson
 
 
 
 
 

Commanding Heights: The Battle for the World Economy (A PBS Broadband Website)
 
 
 
 
 
Other online works:

Dreaming in Malaysia (web novel)

Crossing the Boundary (web novel)

Ambiguous Capital: The Success of China's New Capitalists in the Township and Village Enterprises and Their Impact on the State Sector (part of the China essay series)

Fiscal & Monetary Policy in 1998 China: Riding the Crisis Tiger (part of the China essay series)

Class Analysis of the Iranian Revolution of 1979 (web essay)

For more web essays: Online Papers.
 
 
 
 

 

 

 

Other Views on Globalization (updated Dec. 2001; asterisk * denotes PDF format):
 

Journal of World Systems Research, Special Issue on Globalization, edited by Susan Manning

Imperialism and Globalization by Samir Amin

The Global Market by Giovanni Arrighi

The Language of Globalization by Peter Marcuse

Globalization: A Primer by Mark Weisbrot

Globalization: A World Systems Perspective by Christopher Chase-Dunn

"Globalization" and "Neoliberalism" by J. Bradford DeLong

* Globalization and Redistribution: Feasible Egalitarianism in a Competitive World by Sam Bowles

The Trilateral Commission ( 1996) Niels Thygesen, Yutaka Kosai and Robert Z. Lawrence, Globalization and Trilateral Labor Markets

Globalization and its Implications for Antitrust Cooperation and Enforcement, USA House of Representatives

American Prospect Globalization Segment

A Quick Guide to the World History of Globalization

More Form than Substance: Press Coverage of the WTO Protests in Seattle by William S. Solomon

Capitalist Globalization and the Transnationalization of the State by William I. Robinson
 
 
 
 
 

Commanding Heights: The Battle for the World Economy (A PBS Broadband Website)
 
 
 
 
 
Other online works:

Dreaming in Malaysia (web novel)

Crossing the Boundary (web novel)

Ambiguous Capital: The Success of China's New Capitalists in the Township and Village Enterprises and Their Impact on the State Sector (part of the China essay series)

Fiscal & Monetary Policy in 1998 China: Riding the Crisis Tiger (part of the China essay series)

Class Analysis of the Iranian Revolution of 1979 (web essay)

For more web essays: Online Papers.
 
 
 
 

 

 

By now most of us have figured out that there's nothing all that new about the "New Economy" and "globalization."   Thomas Frank in Harper's Magazine, Oct. 1999
 
 

Globalization:
A Corporate Finance Perspective

by Satya J. Gabriel

December 20, 2000

Globalization is all the talk these days.  I have no doubt that Thomas Frank is correct, most of us have figured out that it isn't new.  If globalization refers to the process of expanding economic relationships and integrating economic fortunes across narrowly defined political borders, then it dates back to a time long before Europe existed. (See A Quick Guide to the World History of Globalization.)   Indeed, the creation of a concept of Europe was the product of an earlier version of globalization. The African-European slave trade, a process that gave concrete manifestation to notions of both Africa and Europe, was nothing if not a global enterprise that provided the seed capital for the industrialization of Britain and the United States, as well as for the first iteration of what would be called the core and periphery of the so-called world capitalist system.  The processes of conquering the local, in the forms of slavery, colonialism, and "primitive accumulation," make up key aspects of the zeitgeist that is today described as globalization.

Financial capital, in particular, has long had a global dimension.  From the Dutch East India Company to the complex partnerships formed to finance the slave trade and all the flourishing 19th century British trading companies that provided central arteries for value redistribution came the building blocks for the structures that are today called multinational or transnational corporations and are the leading forces behind the process called globalization.  Despite the tendency in the economics literature to separate economic relationships from the political, these structures were always political creations and entities where political processes were just as important to achieving their missions as economic processes. Indeed, these were also structures that always blurred the boundaries between corporate bodies and nation-states. Was the British East India Company purely a private corporate body, serving its joint stock owners, or was it, at least in part, an extension of the British nation-state, serving a larger British elite? These corporate bodies (as politico-economic institutions with both direct and indirect linkages to nation-states) are structures of wealth creation and redistribution through the linking of financing, marketing, military and police coercion, unequal trading relationships, and the exploitation of relatively cheap and vulnerable laborers. Of course, what has changed, in the contemporary world of multinational/transnational corporations, is that short term debt and portfolio investments have become such powerful elements of this structure. The "liquid" nature of control over value flows (governed by commoditized contracts) and the assets associated with such value flows is such a central economic aspect of most economies (particularly since the rapid and, arguably, OPEC triggered expansion of international capital markets in the inflationary 1970s) that a slight shift in preferences of financial institutions (withdrawing liquidity from market A and shifting it to market B, for example) can generate wide scale economic crises. 

The potential to generate such crises can give transnational financial institutions, including the so-called multilateral institutions, such as the International Monetary Fund (IMF), enormous clout in political decision making at both national and multi-national levels.  Indeed, one distinct difference between the globalization of the present period and similar processes in the past is the rise of these supra-national institutions (transnational firms are not a new phenomenon). These supra-national institutions have often used that influence to shape public policies, particularly with regard to  interest and exchange rate determination, financial regulations and the restructuring of financial institutions, but also taxation and spending decisions.  Such changes in the regulatory and policy making environment can open more markets to transnational firms, make existing transnational financial relationships more profitable, and stimulate even more globalization. Nevertheless, can we really conclude that the rise of these supra-national institutions represents a new paradigm of globalization?  If these institutions are simply serving the interests of the financial center of so-called Western industrial capitalism --- geographically represented by Manhattan and London, and to a lesser extent the other financial centers in Europe and Japan, and all linked by a web of electronic communications networks --- then the answer is no. 

Instead of something new (or "epochal" or "sublime"), we are simply witnessing an updated version  of globalization, more powerful and efficient in part because the tools (electronic, military, transport-oriented, ideological) of globalization are vastly improved.  Indeed, this process of increasing efficiency is also not new. History simply is not quite as Hegelian as implied by those (modernization thinkers) who use such phrases as "the era of globalization" but is instead a maelstrom of continual transformation, including changes in the means for transmitting ideas (and commands), moving products and people, and delivering weapons of micro or mass destruction to targets. Yes, things are changing, but there is no line of demarcation separating this moment in time from all previous moments (or a series of such lines of demarcation, other than in our imaginations). The institutions that produce globalization do so to satisfy certain objectives and they do so with technologies that are both available and fit their perceived needs. Such has always been the case. As "better" tools (from faxes to Internet to cruise missiles) come available, they tend to get utilized, which can result in expansion and/or deepening of the activities of these institutions, if the political, cultural, and economic context permits.

And it was not simply financial capital that expanded in the 1970s.  Increased financial flows between countries facilitated the growth in trade and foreign direct investment.  Thus, the international operations and reach of industrial and merchant capital also expanded dramatically during the period.  In particular, this period saw the restoration of trade levels (in comparison to overall output) that had prevailed prior to the protectionism of the last Depression-era (which began in Britain in 1926).

Again, it is not so much that this process was something new.  Marx talked about some of the processes that we describe as globalization over a century and a half ago and he made clear that the dynamics of competitive versions of capitalism were such that there was an endless drive to expansion by capitalist firms, both in terms of domestic and foreign operations.  When we look at the world of the 19th and early 20th century, we see continuous and widescale growth in international economic transactions and relationships.  Although the rate of expansion was greatly constrained by technological barriers, e.g. relatively slow and cumbersome means of transportation, inadequate means of communication over long distances, etc., a process of pre-depression-era globalization was unmistakable.  And the process of globalization that prevailed in this pre-depression-era was far more brutal than anything we have witnessed in the current period.  After all, this was the period that included slavery and colonialism as significant, if not primary, institutional arrangements by which globalization was pursued. However, the internationalization of economic arrangements slowed considerably after the economic collapse of the depression-era and the devastation of World War II (and despite the development, during that period, of two of the key instruments of globalization --- the IMF and the World Bank).  The relative economic success of an autarchic Soviet Union in the period of the 1940s and 1950s also fostered the growth in protectionism.  Globalization went into hibernation until relatively recently.[1]

But if Marx was correct about the endless drive to capital accumulation and the constant downward pressure on profitability in mature capitalist markets, then globalization could not be forever held in check.  Under this logic, capitalism required the breaking down of national barriers to capital movement, trade, and productive investment (the greatest of these barriers in recent times was the so-called Iron Curtain, which is now on the scrap heap).  Let's look at this last issue, cross-border productive investments, since one of the most controversial aspects of globalization has been the increase in foreign direct investments (and indirect investments, such as in subcontractors) by transnational corporations.

Capitalist firms expand geographically for a wide range of reasons.  For example, such firms may build facilities in a foreign country in order to tap into low cost inputs.  The exploitation of labor in poor countries has been of particular concern to politically progressive activists because it is understood that these firms may use existing authoritarian political arrangements as a tool for guaranteeing cheap and compliant labor.  In many countries workers are not allowed to organize into independent unions, risk physical harm for speaking out against unfair labor practices, and may be forced to work under feudal bondage conditions.  Thus, what may be in the labor-cost-minimizing interests of the transnational firm may not be consistent with widely supported ideals of human rights and equity.  Labor unions based in the United States and other more industrialized nations have complained about these problems, in part, because firms often shift existing production and wage labor jobs out of higher cost areas to lower cost areas.  This trend is not simply a transnational issue.  In the USA, thousands of jobs were shifted from the higher cost Northern states to lower cost Southern states.  Now the Southern states are losing jobs to the cheaper capitalist sectors of so-called Third World countries.

In addition to reducing labor costs, other reasons for the transnational firms to expand overseas operations include but are not limited to i) accessing subsidies or other special benefits provided by a foreign government, ii) improving access to the market in a specific foreign country or related trading bloc partner countries, iii) reducing exchange rate risks, iv) reducing total tax costs, and v) reducing risk of disruption to operations due to country specific political risks, including labor disputes.  The globalization of the production process (creating a "factory" that is decentered in geographic space) weakens the power of labor to organize itself and of sovereign states to police production practices, strengthening the control of management over this decentered production process.

Transnational corporations can invest in foreign countries either directly or indirectly.  Sometimes firms build their own facilities, which are operated as integral parts of the parent company.  In other cases, firms enter into joint ventures or subcontract with external firms, although often these subcontractors are nothing more than loosely affiliated subsidiaries of the parent company.  Joint venture agreements with external firms sometimes embody relationships with state-run (or state-owned) enterprises, as is often the case with foreign direct investment in China. These joint venture relationships create bonds of mutual obligation that influence the political and economic objectives of all parties involved.

Using subcontractors often shields the parent company from accusations of abuse of workers or other offenses related to the behavior of the subcontractor. However, it is becoming increasingly difficult for transnationals to shield themselves in this way.  Critics of globalization are rather savvy about uncovering the close links between parent transnationals and their subcontractors. Nevertheless, it is not only in the public relations interest of transnationals to subcontract, but often the best choice from a net present value standpoint.  Subcontractors may be able to produce at much lower average cost than would be the case if the transnational built its own facility.  There might be a number of reasons for this, including better knowledge of local labor and materials markets, close links to local or national political leaders who can facilitate contracts or other necessary arrangements for doing business, the ability to obtain subsidies not available to foreign entities, the ability to get production up and running more expeditiously than would be the case for a facility directly owned by the transnational, and so on.  By using subcontractors the transnational firms avoid having to manage inventory, equipment, and inputs.  It is likely that locally owned subcontracting firms will be in a better position to extract more gross and net profits per worker than a directly owned facility because of the already alluded to differences in management practices.  Subcontractors may be able to pay less, force direct producers to work longer hours, and even threaten the workers or their families for failing to meet quotas or satisfy other work requirements.  It might be very difficult for directly owned foreign subsidiaries or manufacturing facilities to engage in similar practices.

As you can see, capital budgeting decisions in transnational corporations would typically involve consideration of geographical location for new investments, as well as whether or not to subcontract or directly own facilities.  Managers responsible for capital budgeting must evaluate all projects in the context of alternative economic, political, cultural and environmental conditions in different countries.  If managers behaved the way corporate finance texts indicate they should, their final choice would be based on maximizing the net present value of the investments.  However, the relative weights to political, cultural and environmental conditions, coupled with agency costs, may frequently result in less than optimal choices (from the net present value maximization standpoint).  For example, managers may prefer to open a new facility in France because of a personal preference for French employees, French cuisine, and/or French government policies unrelated to reducing firm-specific costs, even if locating the facility in France has a lower net present value than locating it in India.  And sometimes decisions that seem to be sub optimal from the standpoint of net present value maximization are more ambiguous when viewed in the light of intangible and incalculable benefits. For example, a plant may be located in China in order for managers to gain stronger ties to Chinese political and corporate leaders on the hope that such ties would result in future business opportunities. There may be no reasonable way to calculate the probability that relationships with Chinese officials in the present will work out as hoped in the future and it is therefore not possible to put a value on such ties. Nevertheless, since capital budgeting decisions are not easily reversible once implemented, then sub optimal foreign direct investment projects tend to breed further sub optimal investments:  if operations need to be expanded, the facility in France or China may be targeted for such expansion, rather than opening a new facility in India, because of the earlier decision to locate operations in France and/or China.

It should be clear from the above that the decision to expand operations globally is not a simple decision for any transnational corporation. Every such decision is complicated by a wide range of tangible and intangible costs and benefits. Every such decision is both economic and political.  And sometimes it is impossible to completely separate the one aspect from the other. Indeed, decisions to expand globally are also very much cultural decisions. The mathematical calculations of net present value are rife with cultural assumptions that determine the values attached to future cash flows. Prejudices can hardly be set aside in a rational calculus of net present value. Perceptions that Koreans are harder working than Kenyans could tip the decision to build a new facility in the direction of South Korea, even in the absence of supportive historical accounting data from facilities in the two countries.  Alternatively, an aversion to the culturally constructed racial category "Asians" and preference for "Europeans" (another biologically fictitious but culturally constructed, and therefore powerful, racial category) might result in a new plant being located in Portugal, rather than in the Philippines.

The location of foreign controlled facilities in a country also results in the transporting of new ideas to the country where the foreign direct investment is located. Indeed, another of the aspects of globalization that has come under attack is the way such economic activity has brought, in its wake, dramatic changes in indigenous cultures. American television programs, movies, and fast food restaurants, along with the required transformation in the behavior and attitudes of foreign managers and workers employed by the transnational have all been cited as negatives. Of course, capitalism has always been about imposing cultural transformation. One of the most powerful aspects of the capitalist labor market is the way it creates incentives for individuals to change their behavior to fit with the requirements of getting a job. Since it is the responsibility of each individual to carry out this self transformation, then capitalism does not appear to be as coercive as, say, slavery, where workers were forcibly transformed (broken) to fit the requirements of work. Introduce foreign firms into the labor market (or if foreign firms create or expand the existing labor market) and you simply add a new dynamic element to the capitalist cultural transformation machine. In other words, those who criticize the way globalization is eroding domestic cultural norms may be missing the point. Capitalism, whether driven by foreign or domestic firms, requires cultural change, just as all economic systems require changes that make such systems function more effectively.

Critics of globalization also tend to look at the cultural impact in only one direction: the way the transnational brings "Western" culture into the environment where its facilities are located. However, when transnational firms expand to new environments, the choice of location influences the future culture of the transnational. Ex-pat managers will be changed by their experiences in the country where facilities are located. The culture of the company will be influenced by the interaction of management with officials and others in the countries where such facilities are located. Foreign managers and workers will bring their own ideas into the corporation. Indeed, this is a powerful intangible benefit to transnational corporations (and potentially to their home countries). These effects are likely to be all the stronger if the transnational acquires an existing firm in another country.  Cross border mergers and acquisitions are becoming more frequent.  This is another outcome of the speed-up of globalization.  In any event, creating more cultural diversity expands the range of ideas possible within the firm, making it more likely the firm can compete effectively in a global market place.  Recent research by the American Management Association has found a strong correlation between diversity (different demographic characteristics) of top management at corporations and corporate performance (as measured by profitability, productivity, and shareholder value creation).  The study of 1000 firms provides support for the concept that cultural diversity among top management can improve corporate results and give genuinely multi-national firms an edge in competition with more culturally homogeneous firms.

Some of the other arguments against globalization have included arguments that transnationals: i) typically wield greater political power than the governments of countries where they locate facilities, reducing the degree to which such governments can act independently of the wishes of the transnationals; ii) use their extraordinary economic and political power to super exploit local environmental resources and the labor of local people, resulting in environmental destruction and a decline in the quality of life for the local population; and, iii) come to dominate the local economies where they locate facilities, resulting in greater vulnerability of the local economy to shifts in transnational investment strategies. Point number (iii) is, of course, relevant to point number (i). The ability of transnationals to pull out their investment (or, alternatively, to expand such investments) can have a decisive impact on policy decisions by foreign political leaders. It is clearly in the interest of transnationals to wield as much influence as possible on the policies of governments in areas where they build facilities or carry out operations. Such influence satisfies both the desire to maximize net present value (in the context of already made decisions about where to invest) and the desire of corporate managers to wield greater social and political power.

The hegemony of transnationals over many national governments is facilitated, and perhaps dramatically expanded, by international trade agreements, such as the World Trade Organization, which severely constrain national sovereignty and guarantee a more favorable environment for trade and foreign direct investment.  It is, in fact, the rapid expansion of the scope and reach of these international agreements that has sparked both an explosion in international trade and economic relationships, more generally, and the increased opposition to globalization.  Indeed, WTO has become a prime target for opponents of globalization.  This takes us back to the first point made in this essay, that globalization is not new.  What is new, however, at least in recent historical memory, is the absence of any significant opposition to globalization by national governments.  The fall of Soviet hegemony in Eastern Europe, the subsequent collapse in the Soviet Union itself, and the relentless opening of the Chinese economy to foreign participation are key political factors necessary to understanding why globalization has speeded up and become such a controversial issue.  Economic factors, such as pervasive air transportation (which has been advancing steadily and is, therefore, not the catalyst for a sudden change in the global environment) and the development of high speed data transmission, satellites and the internet are tools for globalization, but the changed global political context is critical to the manner in which those tools are deployed. As it is, even the remaining "communist" nations, such as Cuba, Vietnam, North Korea, and especially China are becoming or are already integral parts of the process of globalization.

It has, therefore, been left to grassroots organizations, primarily in the more developed nations, to take up the opposition to globalization.  In this David against Goliath battle, the opponents of globalization argue that globalization is having severe negative consequences in both the more industrialized and less industrialized world, from damage to the environment to lost jobs in the so-called North, and substandard wages and working conditions in the so-called South.  However, supporters of globalization counter with the argument that the increased integration of national economies through the investment activities of transnational corporations and the increased flow of global portfolio investments to domestic firms is a key catalyst for more rapid economic growth in the less industrialized world, as well as in the more developed economies.  Indeed, it is argued that globalization improves global equity because, in an open economic environment, more investment will flow to the less industrialized economies (due to diminishing marginal returns to investment) sparking rapid rates of economic growth.  And the accelerated growth in less industrialized economies creates expanded markets for the output of the more industrialized nations. Everyone is better off, the argument goes, if global trading, manufacturing, and financial relationships expand.

The problem with the above argument is that the evidence doesn't support it.  Growth in the less industrialized world has been rather spotty and largely concentrated in a few countries.  The supposed wonderful opportunities for high rates of return in the poorest countries are either non-existent or largely unexploited, despite increasingly favorable rules for foreign direct investment in many of these countries.  Some of the supporters of globalization have even thrown in the towel on the idea that open economies is sufficient to generate the necessary growth in less industrialized countries.  They have come to recognize that more industrialized countries may, indeed, have advantages that are reproduced over time.  Richer countries have better infrastructures (roads, rail, airports, seaports, telecommunications, etc.), more educated and healthy citizens, and a generally more favorable living environment than the poorer countries, attracting the lion's share of foreign direct investment, particularly the most sophisticated forms of such investment (and the talents of many of the best educated citizens born in the less industrialized world -- the so-called brain drain).  Is Intel likely to build its new manufacturing plant in Mali or in Malaysia?  Perhaps labor would be much cheaper in Mali, but Malaysia already has the necessary infrastructure to support Intel's plant.  On the other hand, it would be incorrect to assume that more advanced existing infrastructure is the determinant of locational choices for new investments.  These decisions, even when predominantly based on a net present value decision, are functions of a wide range of economic, political, cultural, and environmental factors.  Other supporters of globalization (including Jeffrey Sachs, arguably the leading intellectual voice in favor of globalization) have argued that the evidence in favor of more rapid growth rates in the poorer countries ("convergence") is much stronger than has been recognized.  They argue that the less industrialized economies with poor growth records are those with the greatest impediments to open trade.  In other words, globalization works when it is allowed to work.[2]Or so the argument goes. The problem is that it is almost impossible to refute such arguments, since the proponents of neoliberalism/globalization tend to shift allegiances so quickly. When the Asian "tiger, dragon, and mini-dragon" economies were among the fastest growing in the world, then the neoliberal (neoclassical-conservative) crowd pointed to these economies as evidence of the effectiveness of relatively "laissez-faire" policies.  These were the "miracle" economies and the "miracle" was supposed to be the byproduct of unrestrained "free enterprise."  But when the tigers and dragons went into an economic funk in the period from 1996 to 1998, the neoliberals changed their minds and decided that the affected governments had, in fact, not  really followed "laissez-faire," but were, instead, too involved in their economies and too corrupt.  Indeed, the former darlings of the neoliberal dogma seemed to morph into some sort of proto socialist economies over night.  In other words, the neoliberal logic seemed to be that any economy experiencing rapid economic growth was doing so because of having adopted appropriate neoliberal policies and any economy that was experiencing problems was deemed to be overburdened with heavy government interference in the economy.

As I've already indicated, the governments in most nations have rather limited scope for intervention and that scope grows less as globalization intensifies.  The tendency of social analysts, whether neoliberals or Marxian theorists or institutionalists, to focus so much attention on the government as the sole subject of the economic growth/economic development story is missing the complexity of the environment within which economic activities are now taking place.  Transnational firms, financial and industrial, grow in political, economic, and cultural influence every day.  Multilateral institutions play an increasing role in directing public policy, both through direct interventions (albeit triggered by national government's coming to them with hat in hand) and through jaw boning.  The ability of local governments (including national governments --- local in the global sense) to act independently is seriously constrained within this environment.

Indeed, the reproduction of the political powers of nation states may conflict with the aims of transnational corporations (which are themselves distinct political sovereignties).  On the one hand, governments can defend and protect transnationals operating under their flag.  But, on the other hand, the power of governments to regulate the activities of transnationals can threaten the sovereignty of the transnational and the flexibility of the management of such entities to pursue their own objectives.  It is a delicate balancing act, particularly in societies where citizens have democratic rights to determine the composition of the government and/or the laws that guide government activities.  However, the power of transnationals to create economic crises can severely constrain the activities of these governments, even in democracies.  Perhaps it is this power that makes it unnecessary for the nation-state to completely wither away.  As long as transnational firms can gain and defend the right to engage in cross-border economic transactions, to retain usufructuary rights to both physical and intellectual property, and to enforcement of contracts then that may be sufficient for the expansion of markets for both inputs and outputs such that necessary growth in profits can be secured.

In addition, the international monetary system will, no doubt, continue to evolve in a direction that reduces currency risks and transaction costs to transnational firms.  The processes for clearing and settling cross-border transactions are complicated by the existence of a multitude of national currencies.  In addition, currency crises have been implicated in just about every large-scale economic crisis of the last 100 years, indicating that the complex processes by which the various national currencies are valued against one another (and the underlying real goods and services that such currencies buy) adds to the systemic risk faced by all capitalist firms (not only those involved in transnational business).  Capitalism on a global scale, i.e. globalization as we know it, demands the diminution of the monetary Tower of Babel that not only makes cross-border transactions less efficient but also generates systemic risks to the economic system as a whole.  Thus, one should expect to see a gradual reduction in the number of national currencies, with the trend being in favor of systems such as the European Monetary System, which has resulted in the widespread use (at least within Europe) of a single currency.  Although the trend towards fewer currencies may have a negative impact on currency arbitragers and place severe restrictions on the autonomy of national monetary policies, it should make cross-border economic relationships easier and more lucrative for most transnational firms.  Ultimately, globalization requires that the boundaries of national sovereignty be diminished in favor of multinational concords, such as WTO.  Again, this will continue to provide fodder for the critics of globalization, who see this process of diminishing national sovereignty as also a diminution in democratic control over policy making.

Nevertheless, if capitalist firms are to enjoy the growth rates that portfolio investors (rentiers) desire, then it is crucial that the process of globalization continue.  Neither domestic markets, nor the markets of the more industrialized nations, taken as a whole, are sufficient to generate the requisite long-term growth[3].  Transnational firms and financial investors must seek opportunities beyond their borders, particularly in the less industrialized economies.  For example, shareholders in companies like Cisco Systems have come to expect unusually large rates of growth in revenue and earnings.  If Cisco is unable to find new markets for its internet equipment (e.g. routers, hubs, and switches) to generate growth rates at least roughly comparable to its relatively large price-to-earnings ratio then can it sustain the high stock prices?  And if Cisco and other such "high technology" firms are unable to generate the expected growth, what will happen to the pricing of financial securities?  It should be clear from the recent collapse in technology stock prices that there is a direct link between growth rates, stock prices, and the ability of new firms to raise funds in the financial markets.  The tech slump has dried up both funds available from venture capitalists and the ability to raise funds in initial public offerings.  So-called "old economy" stocks have the same problem.  Gillette and Coca-Cola, for instance, depend upon growth in sales in foreign markets, particularly in the less industrialized world (as well as in so-called transitional economies).  Thus, globalization is absolutely essential to the health of the capitalist economies of the more developed nations.

Ironically, the greater the extent of the globalization of private capitalism, the greater the pressure to extend and deepen the globalization process. One reason for this is that as capital markets become increasingly globalized, the opportunity set over which shareholders and lenders compare returns will expand. For example, Citibank can compare the returns it can generate lending to capitalist firms based in the United States with returns it can generate lending to capitalist firms (state and private owned versions, as well as joint venture capitalist firms) based in China. If the risk-adjusted return expected from investing in the Chinese firm is relatively higher than that expected from the American firm, because the Chinese firm enjoys a disciplined, relatively low-wage work force capable of generating more surplus value per hour of work (and working more hours, as well!) than the American firm's work force, then the pressure on the American firm to find ways to generate even higher rates of surplus value per hour will intensify, perhaps leading to the American firm locating more of its operations outside of the United States. In other words, unless governments block the process of globalization, it is likely to continue unabated until the global capitalist economy becomes so well-integrated that it will be virtually impossible to determine where a transnational firm begins and ends. And given that this process of globalization is weakening the power of national governments (who are vulnerable to capital strikes or worse if they oppose globalization), it seems unlikely that the process can be stopped. It might, therefore, make more sense for those progressives who oppose globalization because of negative impacts on the quality of life of average workers or the natural environment, for instance, to refocus their energies on forcing a change in international trade agreements to include provisions addressing their concerns. Rather than fighting globalize, perhaps they would be better off embracing it and trying to globalize worker rights, environmental protection, and so on. On the other hand, I could be wrong. Globalization could be just a short-term fad. It's possible, but I wouldn't bet on it.

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NOTES

[1] From the narrow perspective of the United States, this post-World-War-II period could be seen as the hey-day of globalization.  While international relationships were slowing or contracting for the old colonial powers, like Britain and France, U.S. transnational corporations were enjoying an extraordinary expansion in economic reach.  Indeed, the global economic arrangements following upon the war facilitated the global expansion of American capitalism.  U.S. firms were able to move into territory formerly dominated by the colonial powers, Europe was opened up to American economic expansion by the Marshall Plan, and the U.S. dollar was made (formally via the Bretton Woods agreement) the international currency.  Thus, while the period from 1926 to the 1970s was, in general terms, one of relatively slow globalization, for U.S. capitalism it was a period of rapid globalization.

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[2] Globalization is always a complex combination of political, economic, and cultural processes. The cultural processes supporting globalization typically include some form of ideology designed to justify the political and economic, as well as other cultural, processes necessary for globalization to proceed. Both Christianity and Islam have, at various times, played this cultural role. In the present period, neoliberalism (and the underlying neoclassical economic theory) has played this role. For an interesting and provocative discussion of neoliberalism, see Pierre Bourdieu's "The Essence of Neoliberalism" (in translation)

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[3] The value of any asset, including a portfolio of assets within a corporation, is the discounted present value of the future cash flows that the asset generates.  The growth rate of these cash flows is a critical component in the valuation process. One popular way of calculating intrinsic equity value is to divide the incremental cash flow accruing to portfolio investors by the difference between the rate of return that portfolio investors require and the growth rate of these cash flows.  The larger the growth rate, all other things being equal, the greater the intrinsic value of the firm (which should be reflected in the long term trend of the firm's stock price).   It is a commonplace that the returns from more mature markets lag significantly behind those from relatively new or untapped markets.  Thus, investment in an asset that depends solely on mature markets to generate returns is likely to lag behind one that generates returns in less developed markets (or both mature and less developed markets) where incremental sales increases are easier to generate and competitive pressures are likely to be milder.  It is easier to generate 40 percent growth in a market with current sales of $1 million than in a market with current sales of $1 billion, all else being equal (such as potential market size).  It is also less likely that firms will find the same level of competition in these new markets as in more mature markets.  For example, Cisco Systems may find it far more difficult to maintain historical growth rates in sales in North America, where routers, hubs and switches are already being sold to a wide range of customers and the number of competitors is relatively large, than to generate such growth in Latin America where the market for such equipment is still relatively underdeveloped and there are fewer competitors. Thus, the growth rate required to maintain Cisco's stock valuation at current lofty levels (or even levels slightly below but still close to current levels)  may require very rapid expansion into these new markets for Cisco equipment.

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Go to course page for International Monetary Theory
See BBC article on globalization
Alan Greenspan on globalization
IMF Brief: Globalization: Threat or Opportunity
World Bank Report on Global Economic Prospects and the Developing Countries 2001



Copyright © 2000, Satya Gabriel, Mount Holyoke College.