Coping with Globalization
A Conference Organized by Aseem Prakash and Jeffrey A. Hart in Alexandria, Virginia, on July 31 and August 1, 1998.
Globalization Convergence Race to the Bottom Governance
Economic globalization is a set of processes leading to the integration of economic activity in factor, intermediate, and final goods and services markets across geographical boundaries and the increased salience of cross-border value chains in international economic flows. Source: Introduction to Globalization
and Governance by Hart and Prakash
Deterritorialization Convergence The selling of the idea/myth of “globalization”
Appadurai is more interested in deterritorialization than we are, but the greater the degree of economic globalization, the greater the likelihood that firms and money will lack a clear territorial home.
Race to the Bottom
Tendency of political units to reduce regulations/taxes/standards in order to match the reductions of others as part of a competition for the location of value-added activities in their territory. Seen as a possible major negative consequence of globalization. May be prevented by governance from the top if properly designed.
Source: Paper by Deb Spar and David Yoffie.
Examples of Possible Races to the Bottom
Corporate taxes Environmental regulations Wages and other labor practices Internet-related:
– pornography – gambling – hate groups
Organization of the Conference
First Day: Issues
– money – environment
Second Day: Countries
– Russia – China – Korea – Japan, etc.
There will be two volumes based on the papers presented, also organized in this way.
Summary of Major Controversies
Technonationalism vs. Ethnonationalism Is “globalization of the mind” a prerequisite for further economic globalization? Does globalization mean convergence toward “Anglo-Saxon” institutions?
More Major Issues
Convergence vs. harmonization or “interoperability” What is the residual role of nationalism in a globalized world economy? The deterritorialization of currencies, e.g.:
– dollars in Russia – DMs in E. Europe
First Day of Conference
Currency, Taxes, Financial Services, MNCs, the WTO, and US Federalism
Benjamin J. Cohen’s Currency Coping Strategies
Market Leadership – aggressive unilateralism Market Alliance – cartels sharing monetary sovereignty Market Preservation – status quo policy to defend a previously acquired market position Market Followership – subordinating monetary sovereignty to a stronger foreign currency
Currency Subissues Discussed
The likely impact of the switch to the Euro in Western Europe The ability of Central Banks to maintain a focus on domestic policy as opposed to competitive implications of changes in the money supply and currency exchange rates
Paper by Alan Rugman and Alain Verbeke on MNCs and Environment
Multiple levels of environmental regulations faced by MNCs. “Pollution haven” as rough equivalent to “tax haven” and example of race to the bottom vs. Michael Porter’s idea that environmental regulations can form the basis for new competitive advantages. Conclude that Porter’s argument is a special case.
Paper by Bob Kudrle on Taxes
Impact of globalization on taxation policies is likely to be low There is not likely to be a race to the bottom in taxation
– corporations need public services that are paid for with taxes
If that occurred, states would be unable to continue to redistribute income and wealth
More on Kudrle
Tax havens and transfer prices are the target of recent OECD negotiations (governance vs. “race to the bottom”) Green taxes can be a problem because of lack of harmonization, but possibility of “double dividend” (higher revenues, better environment) makes them attractive Problem of taxing electronic commerce (locating where the transaction took place -deterritorialized transactions)
Reba Carruth’s paper on governance in the insurance sector Competition between the IMF and the Bank for International Settlements (BIS) IMF seen as US-dominated, BIS seen as more acceptable to Europeans Underlying problem is the blurring of boundaries between financial industries
Open Discussion of Cohen, Kudrle, and Carruth
Transfer pricing by MNCs
– Tolchin says new regs are good – Daniels says new regs are wasteful because MNCS spend too much time justifying intrafirm pricing and end up overreporting profits on both ends
New financial products such as derivatives are not regulated by Central Banks in any way Similarly, cybercommerce is not yet regulated Who is going to make the rules in these areas?
Paper by Sylvia Ostry on Preventing an Antiglobalization Backlash
NGOs are a rallying point for the backlash Tokyo and Uruguay Rounds were much more intrusive than earlier trade rounds The Uruguay Round produced WTO institutions with many unintended consequences Will have to strengthen the WTO to deal with the above
Ostry on MNCs in the 3rd World
Uruguay Round showed willingness of LDCs to reduce barriers to trade Evidence of a shift in development strategies Now LDCs are adjusting to MNCs rather than vice versa
– want to add resources (capital) – consistent with export-led growth – decline in faith in state enterprises
Discussion centered on the question of whether this was voluntary or imposed.
Paper by Alfred Aman on Federalism in the US
Federalism as interpreted by the current Supreme Court introduces inflexibilities that prevent the U.S. government from responding adequately to the challenges of globalization Main criticism:
– wanted more comparisons with non-US federalist systems
Coping with Globalization in the US, Europe, Japan, Russia, China, the Yugoslavia, Bulgaria, Australia, Latin America, the Middle East, South Africa
Paper on Flat Panel Displays in the US by Jeff Hart, Stefanie Lenway and Tom Murtha
Theme of techno-nationalism vs. postnationalism. US failures attributed to inappropriateness of techno-nationalist policies in industries undergoing globalization. Recommend postnationalism as an alternative to techno-nationalism.
Paper on European Capital Market by Steve Weber
Only outline, no paper prepared for meeting. Stressed need for unification of capital markets in the face of monetary integration. Suggested that there has to be a political solution to competition among equity markets of London, Paris, and Frankfurt. Argued that Europe will not converge to Anglo-Saxon institutions and that doing so is not necessary.
Paper on Japan by Marie Anchordoguy
Focused on software industry as example of industry where Japan has not succeeded. Argued that Japanese business and government have decided to stop fighting Microsoft and Intel in PCs. However, Japanese government (MITI) still tries to provide “administrative guidance” and won’t give up on its idea of challenging US intellectual property laws.
Paper on China by Daly Yang and Fubing Su
PRC is becoming a “status quo power” because of its increased stake in the global economy. Globalization accelerated PRC internal reforms and modernization of industries. Data on large inflows of foreign direct investment (FDI) into China. Specific industries: aerospace, energy, telecoms, photographic film, and soft drinks.
Paper on Russia by Steven Solnick
Dismantling of social safety nets in Russia in face of integration into global markets (without adequate internal market reforms) has been a disaster. The highly decentralized nature of the Russian political system and its experiments with electoral democracy have hindered efforts to reform the economy. Inward FDI is minimal, the Russian state is too weak, failure to collect taxes is chronic.
Paper on Yugoslavia and Bulgaria by Beverly Crawford
Key innovation: integration into the world economy can exacerbate regional and ethnic cleavages and thereby “trigger” social conflict. Differences in political institutions in Yugoslavia and Bulgaria help to explain differences in levels of social conflict. Pre-1989 federalism in Yugoslavia exacerbated post-1989 ethnic tensions.
Paper on Australia by John Ravenhill
Australia pursued import substitution policies through early 1980s, then switched to a neoliberal approach which has only been partially successful. Trade and budget deficits have led to cutbacks in social safety nets. The retreat of the state seems to be “unravel[ling] the social fabric.”
Paper on Latin America by Fernando Robles
Focuses on impact of regional integration on Latin American MNCs. Suggests that regional integration has given LA MNCs more room for maneuver in competing with extraregional MNCs. General tone: optimism, especially if LA MNCs continue to become stronger.
Paper on Middle East by Nazli Choucri
Actually an outline for a paper, Choucri unable to attend. Focused on defining globalization in a manner appropriate to Middle East.
Paper on South Africa by Phil Morgan
Until 1980s, S. Africa pursued import substitution policies. Continued under post-Apartheid government, but in 1996 switch to neoliberal policies. Trade and inward FDI are declining. Rise of “Black Chip” corporations. Government is still looking for a coherent approach.
Themes in Discussion of Country Papers
Lack of Subsaharan African paper. Role of regionalism and regional integration. Role of decentralization of authority and federalism within countries. Role of diasporic groups, such as Overseas Chinese, in globalization processes. Rise of technotribes -- e.g. mobility of people of the various Silicon Valleys of the world.