; The era of globalization 1970s – 2000s some facts
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The era of globalization 1970s – 2000s some facts


  • pg 1
Perspectives from Berend,
 Kenwood & Logugheed

         H Jörgensen 2008   1
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
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
•   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
 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
   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
 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.
   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
   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

                    H Jörgensen 2008           27
           Fordism and Post-Fordism
   Energy intensive             Information intensive
   Standardized                 Customer adaptation
    production                   Horizontal
   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

                   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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