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Slide 1 - Globalization


									State vs. Market – in theory
 Mainstream economic thinking has been a
  battle between 2 paradigms, their relative
  influence shifting over time
   paradigms: philosophical or theoretical frameworks

 Crises spark “paradigm shifts”                (Kuhn 1962)
   Wall Street Crash & Great Depression (1929-late 30s)
   Energy Crisis of the 1970s (1973 - late 1970s)
   Global Financial Crisis of 2008?
      Nature and extent of the “paradigm shift” still unclear

State vs. Market – in policy
 Wall Street Crash & Great Depression (1929 - late 30s):
  stock market crash sparks bank runs & collapse of banking
  system, with worldwide ramifications, e.g., a global downturn
    Prompts gov’t intervention & regulation to protect workers &
    Shift to the STATE: 1940s – 1970s

 Energy Crisis of the 1970s (1973 – late 70s): oil embargo
  of the Organization of Arab Petroleum Exporting Countries
  leads to 1973-74 stock market fall and sharply falling profits
  in manufacturing in US and other advanced industrialized
  countries, e.g., Germany & Japan
     Prompts deregulation, de-unionization, retreat of the gov’t
      from economy
     Shift to the MARKET: 1980s - present

Shift to the STATE: 1940s-70s
 Keynes = philosophical forefather
 Postwar advanced industrialized
  economies featured government
  intervention, subsidies to key industries,
  protection of labor rights, expansion of
  public spending (in education,
  infrastructure, etc.) trade protectionism
   Associated with postwar boom (1945 – late 1960s) , a long
    period of growth in GDP and real median income

Shift to the STATE: 1940s-70s
  The most successful newly industrializing
   economies in Asia and Latin America
   also had considerable gov’t intervention
    South Korea subsidized & protected “infant industries”
    Brazil followed ISI (import-substitution industrialization) to
     reduce foreign dependency, erecting trade barriers against
     cheap foreign imports while subsidizing the local production of
     industrialized products

Shift to the MARKET:1980s-present
  Hayek = philosophical/theoretical
  “Reagan revolution” in US begins 30-yr
   wave of deregulation, proclaims faith in
   free markets & mistrust of gov’t
    Labeled “market fundamentalism” by Stiglitz
  Neoliberalism, Washington Consensus,
   reigns supreme globally

Shift to the MARKET:1980s-present

  Growth in the most advanced economies
   increasingly based on financialization
  In the US:
      income & wealth inequality increases
      real median household income declines
      household debt increases
      financial leverage (debt) overrides capital
       (equity) in the corporate sector
Income inequality in the US
(US Census Bureau data)

        an economic system or process that attempts to reduce all
         value that is exchanged (whether tangible, intangible, future or
         present promises, etc.) either into a financial instrument or a
         derivative of a financial instrument
           original intent is to reduce any work-product or service to an
            exchangeable financial instrument, like currency, and thus make it
            easier for people to trade these financial instruments
           workers, through a financial instrument such as a mortgage, could
            trade their promise of future work/wages for a home
        financialization of risk-sharing makes all insurance possible
        financialization of the US govt's promises (bonds) makes all
         deficit spending possible
        financialization also makes economic rents possible

          financial leverage tends to override capital (equity) and
         financial markets tended to dominate over the traditional
         industrial economy

  The Political Trilemma of the World Economy
                                            (Dani Rodrik, 2010)


Golden                                               Global Governance

   National                                        Democracy
                 Bretton Woods Compromise

What is democracy?
  Democracy is a certain class of relations
   between states and citizens
  A regime is democratic to the degree that
   political relations between the state and its
   citizens feature broad, equal, protected and
   mutually binding consultation
  Democratization means net movement toward
   broader, more equal, more protected, and
   more binding consultation
    De-democratization is movement in the reverse
                                (Tilly, Democracy, 2007)

"Has Globalization Gone
Too Far?,"
Dani Rodrik, Ch. 28, pp. 241-246 (Excerpted
from Rodrik, “Has Globalization Gone Too
Far?,” in Has Globalization Gone Too Far?,
Institute for International Economics, pp. 2,
4-7, 77-81.)

 GL is exposing deep fault lines b/w
           social groups
 Those who have the skills & mobility to flourish
  in global markets
 Those who don't have these advantages or
  perceive expansion of unregulated markets as
  a threat to social stability & deeply help norms
      tension between the market and social
     groups such as workers, pensioners, and
     environmentalists, w/ governments in the
Sources of tension between the
global market & social stability
 1) Reduced barriers to trade/investment
    increase asymmetry b/w groups that
    can cross borders & those that can't
 2) GL makes it difficult for gov’ts to provide
    social insurance
 3) GL engenders conflicts within and b/w
    nations over domestic norms and the
    social institutions that embody them
1: Reduced barriers to trade & investment
increase asymmetry b/w groups that can
cross borders (directly or indirectly via
outsourcing) and those that can't
   Those who can: owners of capital, highly
    skilled workers, professionals free to take their
    resources where they are most in demand
   Those who can't: many unskilled & semiskilled
    workers and most middle managers
      their labor is elastic, substitutable, i.e., they are more easily
       substituted by services of other ppl across national boundaries
      most GL research has focused on the downward shift in
       demand for unskilled workers rather than the increase in the
       elasticity of demand
GL enables “substitutability,” transforms
the employment relationship
  Postwar “social bargain” b/w workers & employers (i.e.,
   steady increase in wages and benefits in exchange for
   labor peace) has been undermined
  Substitutability has concrete consequences:
     Workers now have to pay a larger share of the cost of
      improvements in work conditions and benefits (i.e., bear
      greater incidence of nonwage costs)
     They have to incur greater instability in earnings and hours
      worked in response to shocks in labor demand or labor
      productivity (i.e., volatility and insecurity increase)
     Their bargaining power erodes, so they receive lower wages
      and benefits whenever bargaining is an element in setting the
      terms of employment

2: GL makes it difficult for gov’ts to
provide social insurance
   social insurance is a central gov’t
    function, which has helped maintain
    social cohesion & domestic political
    support for liberalization over postwar pd
   Gov’ts have used fiscal powers to
    insulate domestic groups from excessive
    market risks, especially when they're
    foreign in origin, but gov’t has been
    downsizing, reducing social obligations 17
3: GL engenders conflicts within and
b/w nations over domestic norms &
social institutions that embody them
  With international diffusion of technology, nations with
   different values, norms, institutions, begin to compete
   head on in mkts for similar goods
     presents opportunities for trade among countries at very
      different levels of development
  Trade becomes contentious when it unleashes forces
   that undermine domestic norms
     e.g., plant closed in South Carolina for child labor in Honduras
      or French pensions cut in favor of Maastricht
  Trade policy has redistributive consequences, among
   sectors, income groups, and individuals
The Role of National Governments
     Policymakers must respond to these tensions
      without sheltering groups from foreign
      competition through protectionism:
     1) Strike a balance b/w openness and
         domestic needs
     2) Do not neglect social insurance
     3) Do not use "competitiveness" as an excuse
         for domestic reform
     4) Do not abuse fairness claims in trade


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