Class Concepts
During the course of our semester globalization has been a prevalent topic. Gerber stresses that imports and exports is only one way to gauge the status of our international economy. It is also important to remember that economies are also linked to the movement of labor and capital. This is especially important in developing countries whose economic status is very volatile.
Today people feel global institutions make decisions without being accountable for them. The main reason for this has been global manager’s inability to be open to the public’s participation in key global decisions that will affect billions.
Reaction
I feel that the article was very insightful because it showed the relationship between major historical events and the affect it had on globalization. It was interesting to see how much the world’s economy relies on the US for its well being. This especially holds true when the Cold War had ended and many of those countries felt as if American ideas (free markets and democracy) would revolutionize their world.
It could be said that in some ways our world has changed since the Cold War had ended and become more global. But, like all things time is the most important factor to gauge the effects of a particular incident. I feel as if the effects of war with Iraq will not be fully felt by America and the world until later down the line when all things can be taken into account and analyzed completely.
Article Text
Will Globalization Survive War?
By ROBERT J. SAMUELSON
The Washington Post
WASHINGTON -- What may ultimately be said of a war with Iraq, assuming it occurs, is that it made the world safe for globalization -- or that it proved the world unfit for globalization. Wars produce surprises, for good and ill. No one expected that World War I would doom the existing global economic system or, more optimistically, that World War II would herald history's greatest prosperity. The question now is whether a war in Iraq, even though much smaller, might also trigger momentous side effects.
Only a few years ago globalization seemed irrepressible. We were all advancing (it was said) on flood tides of international trade and investment. After World War II, countries were mainly self-contained economies, with trade concentrated in raw materials (food, fuels, minerals) and some advanced industrial products.
This world no longer exists. In 2000, exports equaled 23% of global economic output (gross domestic product), says the World Bank. That was almost double the 1960 level (12.5% of GDP). Cross-border investing is routine. The International Monetary Fund reports that foreign ownership of stocks and bonds totaled $12.5 trillion in 2001: Americans held $2.2 trillion in foreign securities; Japanese, $1.3 trillion, and Germans, $792 billion.
Globalization already faces problems unrelated to Iraq: Overdependence on the U.S. economy (it accounted for 64% of world economic growth from 1995 to 2002, says Stephen Roach of Morgan Stanley); stagnation in Europe and Japan; over-indebted developing countries (Argentina, Brazil); the threat in deflation (declining prices), caused by cheap goods from China and Asia; hostility from some labor and environmental groups. Still, the presumption has been that globalization is unstoppable. Freer trade and cheap transportation and communications make it so.
Perhaps. But history suggests caution. Globalization also flourished in the 19th century -- and then faltered. Railroads and steamships, submarine telegraph cables (the first in 1851, under the English Channel) and the Suez Canal (1869) all encouraged a huge expansion of trade, global investment and migration. "By 1914, there was hardly a village or town anywhere on the globe whose prices were not influenced by distant foreign markets, whose infrastructure was not financed by foreign capital, whose engineering, manufacturing, and even business skills were not imported from abroad," write economists Jeffrey Williamson of Harvard and Kevin O'Rourke of Trinity College (Dublin) in "Globalization and History."
Even before World War I, a backlash against imports among farmers and industrial workers inspired higher tariffs. World War I and the Great Depression (1929- 1939) were fatal. Trade and global investment declined. Protectionism rose. By 1950, trade (as a share of global GDP) was lower than in 1870.
The good news now is that history need not repeat itself. One plausible outcome of a war is that globalization gains. America's victory is swift. Civilian casualties are low. Iraqis generally celebrate their liberation. Oil supplies aren't disrupted. Economic and political modernization advance in the Middle East. The climate for radicalism fades.
The bad news is that globalization could go into reverse, damaging countries that depend on trade and international investment. There's an eerie parallel with 1913, says Stephan Richter of The Globalist Research Center, when hardly anyone imagined the world economy might unravel. The danger now is that "major economic players are divided by noneconomic issues -- and have lost the ability to trust one another," he warns. Proving Richter right, newspaper reports last week said that European corporate leaders are worried that the diplomatic split between the United States and Germany and France will widen into commercial disputes. German companies already report a backlash from U.S. customers, said the reports. Some American investors balked at buying French bonds.
Businesses can usually strike bargains based on financial calculations. War and terrorism create new uncertainties that confound ordinary calculations and may deter global commitments. It might make sense to invest in a South Korean company. But how risky is it to bet on a company next door to a nuclear megalomaniac?
Commerce flourishes when there is economic confidence and political stability. The reconstruction of the world economy after World War II occurred because the United States provided both. It created a military umbrella for Europe and Japan. It led the writing of rules for global trade. American economic vitality aided the rest of the world. The gospel of globalization presumed that the end of the Cold War meant more of these good things. American ideas (democracy, free markets) would spread and foster political consensus. Growing global trade and investment would build economic confidence.
It isn't so simple. Contradictions abound. American leadership seems strong -- and countries everywhere assail it. Economic pressures draw nations together -- and cultural and political differences pull them apart. Some technologies favor global commerce -- and others abet terrorism. The logic for cohesion resists the power of fragmentation. This looming war may help determine which prevails.
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