Slide 1 - Globalization

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Slide 1 - Globalization Powered By Docstoc
					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



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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 &
     economy
    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

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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


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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




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Shift to the MARKET:1980s-present
  Hayek = philosophical/theoretical
   forefather
  “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

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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
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Income inequality in the US
(US Census Bureau data)




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8
financialization
        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

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




                     Hyper-globalization

Golden                                               Global Governance
Straightjacket




   National                                        Democracy
                 Bretton Woods Compromise
   Sovereignty



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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)

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"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.)

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 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
     middle
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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
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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
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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

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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
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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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