Globalisation and trade
Class 9 Lecture notes
Social implications of globalisation
Jože P. Damijan
University of Ljubljana
Usual critics of globalisation
Benefits of globalization are unevenly distributed
Globalization causes dislocation of jobs
Wages for unskilled labor are declining
Manufacturing moves offshore to avoid workplace safety
and health regulations
Global companies fail to protect the environment
Power shifts to multinational corporations and
supranational organizations; nations loose sovereignty
Concentration of power by multinational corporations
leads to monopoly
International financial markets are inherently unstable
Globalization results in loss of national cultural values
Jože P. Damijan 2
Social implications of globalisation to:
Jože P. Damijan 3
Globalisation and democracy
Does globalisation pacify international relations?
(Philippe Martin Thierry Mayer Mathias Thoenig)
” Using a large dataset of military conflicts, trade
created by regional trade agreements is shown
to be pacifying, but greater overall openness has
the opposite effect. Logically, this means that
bilateral trade pacifies bilateral relations, but
raises the chance of conflict with third countries”
Jože P. Damijan 4
A positive example of EU
European integration was, from its origins, a project of
peace, shaped by the destruction and suffering brought
by the two World Wars.
Economic integration, it was believed, would lead to
increased economic interdependence and better
understanding, both generated by trade flows.
The philosophers Kant and Montesquieu held the view
that trade between nations is a pacifying force -
Montesquieu (1758): “The natural effect of trade is to
bring about peace. Two nations which trade together
render themselves reciprocally dependent.”
Jože P. Damijan 5
…was created in 1991 in part to curtail the military power
in Argentina and Brazil, then two recent and fragile
democracies with ongoing disputes over natural
resources and borders.
These disputes are still present but have not escalated
into military conflicts, which can, at least partly, be
interpreted as a consequence of MERCOSUR.
Jože P. Damijan 6
The End of History?
After the end of the Cold War, some commentators went
further and interpreted the forces of globalisation as
putting an end to centuries of inter-state conflicts, some
going to the point of predicting “the end of history”.
If indeed, trade between countries promotes peace, as
suggested by the European example, then it seems
logical that the dramatic increase of trade flows at the
global level should lower the number of violent interstate
Jože P. Damijan 7
Jože P. Damijan 8
What went wrong?
Why is it that trade liberalisation at the global level, has
not lived up to its promise of decreasing the prevalence
of violent interstate conflicts?
The relation between trade openness and war is nothing
The first era of globalisation, at the end of the 19th century, was
a period of rising trade openness and of multiple military
conflicts, culminating with World War I.
Then, the interwar period was characterised by a simultaneous
collapse of world trade and of conflicts.
After World War II, world trade increased rapidly while the
number of conflicts decreased.
But again, since 1970 global trade as a percentage of world
GDP has more than doubled, but there is no evidence of a lower
prevalence of military conflicts – even taking into account the
increase in the number of sovereign states.
Jože P. Damijan 9
The intuition that trade is good for peace is
only partially true.
The part that is true is that two countries that trade more
bilaterally indeed have a lower probability of a bilateral
The intuition is that bilateral trade generates economic
gains that are put into danger if a dispute between two
countries escalates into a military conflict.
The destruction of bilateral trade following bilateral
conflicts is large and persists for twenty years.
Hence, higher bilateral trade flows are a measure of the
opportunity cost of such a conflict and create an
incentive to accept concessions to avoid military
escalation. Jože P. Damijan 10
two countries that trade more with each other pacify their
bilateral relations but make it more likely that a conflict
will arise with a third country.
The interpretation of this seemingly provocative result is
that when two countries are very open to trade, the
bilateral economic dependence and therefore the
opportunity cost of a bilateral conflict are lowered.
The incentive to make concessions in order to avert
escalation is weakened when globalisation provides
economic insurance during bilateral conflicts by
diversifying trade partners.
Jože P. Damijan 11
The implications of how far the regional trade
agreements should extend in the case of the EU:
The entry of Turkey in the EU would indeed pacify its
relations with EU countries (especially Greece and
Cyprus), but also increase the probability of a conflict
between Turkey and its non-EU neighbours.
However, in this case, the first effect may dominate the
second by a large margin.
Jože P. Damijan 12
Does globalisation erode national
The Retreat of the State (The Diffusion of Power in the World
Who really governs the world economy?
Telecoms - the control of communication?
Organised crime - the Mafias?
Insurance business - the risk managers?
The Big Six accountants?
Cartels and private protectionism?
International organisations - the econocrats?
Jože P. Damijan 13
The loss of autonomy…
(The International Development Research Center (IDRC))
No state by itself can protect its people from conflict or
climate change or the incendiary pressures of population
growth, not even a superpower. The loss of autonomy is
By the intrusive intensity of global trade, communications, and
By the widening extent and variety of these interconnections
across every aspect of life;
By the sheer velocity of action and reaction, now calibrated at
the speed of laser through fibre-optic cable; and
By the effects of all these connections, felt deep inside
economies, societies, and even psyches.
Jože P. Damijan 14
…a need for global public goods…
You cannot protect your security, your prosperity, or the
air you breathe or the water you drink without the
cooperation of others. Nobody, not even the superpower,
can go it alone.
Hence the need for global public goods:
preventing conflicts and economic crises (peace & security and
meeting the needs of youth on a crowded planet and managing
the demographic change
managing climate change (economics and the environment).
Jože P. Damijan 15
…and governance failure
the production or distribution of global public goods
cannot be left to that powerful engine of globalization,
If the market cannot deliver the goods, institutions must.
But today's institutions aren't. Three categories of failure:
A jurisdictional gap -- Policy issues are global, but policy-making
is still primarily national in focus and reach.
A participation gap -- We live now in a multi-actor world. But,
despite the pace of change, international cooperation is still too
An incentive gap -- Cooperation works only if it promises a clear
and fair deal to all parties, but today's cooperative attempts are
often stymied in quarrels over distributions of costs and benefits.
A better global governance – a collaborative action
Jože P. Damijan 16
Globalization, women and child labor,
and labor standards
Hidden Face of Globalization
=related Jože P. Damijan 17
Globalization and Low-Wage Labor
Trade and Wages Revisited
Activists argue that globalization makes workers
in developing-country export industries worse
Example: Wages in Mexico’s maquiladoras were
below $5 per day, and conditions were appalling by
Economists argue that despite the low wages
earned by workers in developing countries,
those workers are better off than they would be if
globalization had not taken place.
Jože P. Damijan 18
Globalization and Mexico real wages
Table 11-5: Real Wages
Jože P. Damijan 19
Labor Standards and Trade
International trade agreements can improve
wages and working conditions in poor countries
A system that monitors wages and working conditions
and makes the results of this monitoring available to
Formal labor standards
• They are conditions that export industries are supposed to
meet as part of trade agreements.
• They have considerable political support in advanced
• They are strongly opposed by most developing countries.
Jože P. Damijan 20
Globalisation and Environment
Jože P. Damijan 21
Globalisation and Environment
Environmental standards in developing-country
export industries are much lower than in
The incorporation of environmental standards in
trade agreements can cause:
Improvements in the environment
Potential export industries in poor countries to shut
Jože P. Damijan 22
Globalisation and Cultural Issues
Globalization has led to a homogenization of
cultures around the world
Example: McDonald’s and Coca Cola are now found
Consumerism and Globalization another
Naomi Klein: No Logo: Brands, Globalization &
lated Jože P. Damijan 23
However, beyond the Coca Cola…
“I think that there is a global consumer culture that is
spread by companies like McDonald's and Coca-Cola.
However, if you look beneath the surface and ask people
in different countries where their loyalties lie, how they
regard their families, and how they regard authority,
there will be enormous differences. When people
examine a culture, they pay too much attention to
aspects like the kinds of consumer goods that people
buy. That's the most superficial aspect of culture. A
culture really consists of deeper moral norms that affect
how people link together.”
»– Francis Fukuyama
Jože P. Damijan 24