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The era of globalization 1970s – 2000s some facts

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									GLOBALISATION
Perspectives from Berend,
 Kenwood & Logugheed



         H Jörgensen 2008   1
                  Globalisation
Globalisation in the light many parallel processes.
   The break-down of Bretton Woods
   The Supply shocks: OPEC I & II
   Keynesian decline & Monetarist de-regulations
   New modes of production/structural adaptation
   Regional integration - Altered positions
   The decline/fall of the Soviet planned ec system
   The long-term changes since the 1870s



                       H Jörgensen 2008                2
    Globalisation – what’s in a word?
1870s-1914: Integrated commodity and factor markets
1914-45: Interrupted globalisation
1945 onwards: Regionalisation & De-regulations and
  Globalisation (especially since 1970s) ……”Free” capital
  flows
O-Rourke & Williamson 1992..
•   Increased economic interactions
•   Trade, migration, capital portfolio investments,
    subsidiaries (a business entity controlled by another
    entity) → new division of labour
•   International agreements, protectionism, multilateral
    trade
•   Deregulations and global capital flows

                           H Jörgensen 2008                 3
            The experiences
Late 1800s – 1914: gold standard/trade
1914-1945: Interrupted globalisation
A new Post-War wave 1945 on
- Bretton-Woods
- Cheaper transportations & communications
- Export boom. European FDI!
- Foreign exchange transactions increasing eighty
  times between 1973-95 (ten times after 1979)
- International bank loans
- MNCs
 Catch-up in Europe 1950-1990 = from 50% to
  90 % of the U.S. labour productivity
                     H Jörgensen 2008               4
           Globalisation implies
   Integration of international commodity
    markets, which are dependent on tariffs
    and transportation costs
   Only non-competing goods before 1800
   Convergence of international commodity
    prices with effects on domestic markets
    and production (Trade theory)
   According to economic theory, this means
    levelling out of factor costs….but do we
    have equal opportunities World-Wide?

                    H Jörgensen 2008           5
    Big companies – big business
   Vertical integration of firms: Chandler (1890s
    on) minimise cost and dependence on others
-   Backward linkage: incorporating raw-material
    extraction & output = extreme Soviet model
-   Forward linkage: incorporation of transports
    and distribution networks.. retail and services =
    Merger-mania in the U.S. 1890-1917.
   Changes in ownership structure: Family
    business → Corporations → centralised
    administration = Widening the skills embedded
    in a specific company = competitiveness
   Emphasis on: human capital, capital, technology
                       H Jörgensen 2008                 6
The new business structure “Three-pronged
    (steps) investments”, (Chandler)
BIG FIRMS developing by buying,
  organising and preparing:

1.   Production facilities to exploit the
     advantages of scale and scope
2.   Marketing and distribution networks: to
     keep up the pace with mass production
3.   Management to govern the enlarged
     complex business activities: Managerial
     hierarchies and technological skills

                     H Jörgensen 2008          7
     Big Firms: the outcome
= Giant, complex, multi-divisional firms
 → maximisation of scale and scope to
 backward and forward linkages,
 integration → geographical extension
 = the rise of Multinationals - a post-
 war phenomenon
Worlds 100 largest MNCs around 2000:
 German, Japanese, American (75)
 British (11)

                 H Jörgensen 2008      8
  Interlude: The role of
regional trade and GATT
 General Agreement on
    Tariffs and Trade
     Kenwood & Lougheed



           H Jörgensen 2008   9
     Organised trade after 1947
   GATT (outcome of Bretton-Woods 1947)
   From 23….. to 70 countries until 1960
   A forum for conciliation and discussion
   Aiming at solving commercial disputes
   Slow process with regards to ending
    quantitative trade restrictions
   National exceptions as the rule
   Regional trading blocs increase in strength

                     H Jörgensen 2008         10
        GATT and World trade
   International agreements for promoting
    Post-war trade: declining costs for
    transportation and communication
   Multilateral and non-discriminatory trade
   Protectionism back 1970s and 1980s
   Tokyo Round 1979….
   Uruguay Round 1986……..
   Punta del Este Declaration → WTO 1995
                     H Jörgensen 2008           11
    The role of regional trading blocs
  Small customs unions: inherited from WW II
 European integration the new trend
 ECSE 1951 - Rome 1957 = EEC

- Common market, harmonizing ec, policies
   ..promoting ec, activities, ..stability and
   acceleration
 Free movement: people, services and capital
 Unexpected growth - EEC




                     H Jörgensen 2008            12
            Issues to be solved?
  Grievance attitudes: the position of developing countries
 Exporting primary producers: GATT as a rich man’s club

 UN – UNCTAD 1964… A new International Economic
   Order 1972
 The problem: the actual trade relations

- undermining GATT’s principles on non-discrimination
   since the 1950s
 The EEC and CAP: agricultural protection

 EC/EU enlargement 1973, 1981, 1986..1995

 EFTA 1960 – the attached waiting room

 1988…The Single Market




                         H Jörgensen 2008                  13
      Other regional trading blocs
   CMEA 1949-
   LAFTA 1961..1968 The Andean Pact
   CACM 1967..disintegrated in the 1970s
   ASEAN 1967…AFTA 1992

Out of LAFTA emerged MERCOSUR 1991
  (Brazil, Argentina, Paraguay, Uruguay)
Interstate charter – relatively successful!

                    H Jörgensen 2008          14
    French initiatives - poor countries
   Yahoundé Convention: association status to EEC for
    former colonies to Fra, Bel, It in Africa.
   Preferential treatment for X to EEC + access to the new
    European Development Fund → grievance/hostility
    among others
   GSP (General system of Preferences) exemption from
    GATT’s MFN clause.
   Lowering tariffs for the least developed nations
    developing out of UNCTAD in the 1960s – a mixed
    success…
   US excluded communist countries, terrorist countries
   General: GSP have not fully covered all products –
    especially labour intensive production…
   EEC – CAP: Agricultural protectionism!


                          H Jörgensen 2008                    15
    Problems concerning the EEC as a trading
              bloc up to the 1990s
   Britain in EEC: 1975 the Lomé Convention –
    preferential trade for previous British colonies:
    ACP = Africa+Caribbean+Pacific countries
   Further expansion of trade agreements with
    Mediterranean countries and S-Am.
   Free entry of non-agricultural goods after 1972..
    Weakness of GATT
   EEC problems – lip service to GATT but in reality
    using MFN principles
   The US: NAFTA build-up - reactions to
    discriminatory trade

                       H Jörgensen 2008             16
     Problems of agricultural protectionism
   Post-War Europe’s situation
   CAP 1960s - income equality – restrictions on
    imports - elements of planning
   Surplus production – dumping
   Britain's access 1973 – renewed trade treaties
    for former colonies (compare E-C-E 1991-2004)
   Failures of the Uruguay round 1986 on to solve
    CAP-related issues
   Multi-lateral trade: more theory than practice!
   Exemptions, restrictions, other trade hindrances
   GATT only successful in reducing tariffs on
    manufactured goods!
   GATT becomes WTO in 1995 – better prospects
                       H Jörgensen 2008                17
       Globalization and laissez–faire:
              1970s and 1980s
   Neo-liberal economics in the aftermath of
    Keynesian decline…
   Market fundamentalism?
   Globalised free trade and capital flows
   Fiscal policy questioned
   Friedman – Hayek:
   Individualism – free market – free competition =
    non-interventionism and de-regulations +
    optimal taxes/tax expenditures (radical tax cuts)
   Non-commodity trade expansion: Capital flows

                       H Jörgensen 2008             18
    Europe and the world in the 1970-80s?
   New international competition: NIC:s
    advancing from the 1960s (Taiwan, South
    Korea, Singapore & Malaysia)
   The end for dictatorships in Europe and
    European colonisation: Portugal (1974),
    Spain (1975), Greece (1974)
   Changes in Euro-communism and among
    Euro-Communists → Political turmoil in
    the East

                   H Jörgensen 2008           19
Laffer and Philips
     Curves
 Two issues in the 1970s




         H Jörgensen 2008   20
      What is a sound tax level?
   When is the marginal tax high enough to
    prevent people from working?
   Where is the optimum for tax exemption?
   At which point/level does a government
    reach most tax revenues
   Consider the different views in e.g. the
    U.S. Britain and Scandinavia!


                    H Jörgensen 2008           21
H Jörgensen 2008   22
               Philips curve
   Stagflation: high/increasing inflation and
    unemployment levels at the same time
   Arguments for non interventionist ec.
    policies: Government back-off: M.
    Friedman
   The Philips curve questioned
   Also NAIRU questioned: US in the 1990s =
    low unemployment (less than 4 % and
    modest inflation)
                    H Jörgensen 2008         23
H Jörgensen 2008   24
    Due to stagflation after Bretton-
          Woods and OPEC

       Policy changes - deregulations of markets
       Beginning of the ”information society”
       EC expansion - new members
       Post-Fordism - Toyotaism
   The trend: Regional economies seemed to
    become more important and
    decentralization of production became a
    means to meet competition

                        H Jörgensen 2008            25
      The signs of globalisation I
   International trade’s share of global GDP
    increased tremendously 1950s-
   The volume of FDI more than doubled
    1980-1995
   Investments in information and
    communication – Europe was far behind
    the U.S in 1950 but .
   Convergence of factor prices, commodity
    prices, living standards and productivity

                     H Jörgensen 2008           26
     The signs of globalisation II
   New rules for governments, business and
    markets (de-regulation)
   Possible convergence of economic policy
    and business structures (formal
    institutional changes)
   Convergence of cultural patterns,
    preferences etc = Informal institutional
    changes

                    H Jörgensen 2008           27
                  Production:
           Fordism and Post-Fordism
   Energy intensive             Information intensive
   Standardized                 Customer adaptation
    production                   Horizontal
                                  organizations
   Hierarchies
                                 Multi based
   Specialization                competence
   Individual firms             Networks
   Production units             Integrated org.
   Production with              Service with
    service                       production

                       H Jörgensen 2008                   28
            Up to the 1970s
1. Mass production in vertically organized
   bureaucratic firms with standardized
   products based on specialized workers
   and machines
2. Formal economic regulations in each
   country




                   H Jörgensen 2008          29
                 Late 1970s
3.   A crisis for the Ford-Keynes model:
     The nation state and the capitalists forces were
        united until 1970s.

4.   Towards a new production regime?
    A historic transformation from formalised state
    capitalism (“organized” capitalism”) towards a
    flexible small scale production regime.
- Based on new financial instruments and the high speed
    of global capital movement. Keywords: ”adaptation
    and flexible specialization”.

                       H Jörgensen 2008                 30

								
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