Is Economic Globalisation a new phenomenon?

Authors Avatar

An Introduction to International Political Economy        

(POI 3050).

*Is Economic Globalisation a new phenomenon?

In this essay I am going to explain firstly what economic globalisation is, looking at its diversity and change through many years to illustrate that economic globalisation is not a new phenomenon. Then to conclude with some thoughts on the future of economic globalisation and what can be done about it.

Economic globalisation is, in a sense, the strengthening of the position of capitalism as the prevailing structure of production in contemporary history.

Economic globalisation has involved huge expansions of supraterritorial money and finance, as well as the creation of thousands of transborder companies and strategic alliances, as well as the appearance of innumerable transworld products, and the emergence of major additional sectors of accumulation in the information and communications industries.

Economic globalisation is not a new phenomenon. The world has experienced periods of extensive economic and political integration in past centuries; some have been more pronounced. The early 16th century or late 19th century were, most notable, two golden “golden eras” of commerce, characterised by open markets and extensive international trade. Yet the current globalisation process is fundamentally different in it’s scope, depth, and institutional characteristics. The current process of integration is truly global; as well as multidimensional It is market-based, driven by powerful economic forces, and accelerated by a technological revolution. It is also supported and shaped by an extensive and ever-growing web of international organisations and rules, formal and informal, public and private.

The last 50 years have seen unprecedented economic growth, with considerable impacts on societies around the world. Global gross domestic product (GDP) multiplied more than six times in real terms between 1950 and 2000, while per capita GDP expanded almost three times. During the same period, international trade multiplied more than 14 times. In 1998, international trade represented 14% of the world GDP, compared to only 6% in 1950. In the decade from 1987 to 1997, the share of trade in global gross domestic product jumped from 10% to 15%. This trend was dampened only in 1998 by the onset of the Asian crisis (which will be discussed later on).

Trade currently represents 19% of the GDP of OECD countries and 40% of Canada’s, the smallest G7/8 member. In the United States, the G7/8’s largest member, exports accounted for more than a quarter of economic growth and the creation of 20 million jobs in the ten years leading up to 1999.The stakes in maintaining a rules- based, predictable, multilateral, open-trade regime for Canada and many other G7/8 and OECD countries are thus simply overwhelming.

While international trade is often perceived as the engine of economic growth, it is not necessarily synonymous with development. For example, sub-Saharan countries export 30% of their combined GDP, yet this brings few benefits as debt-servicing costs absorbs all these hard currency revenues. As a result, these countries continued to be among the worlds poorest. Trade can definitely be one engine of economic growth, but other factors are necessary to translate this economic activity into development.

A second economic driver of globalisation is the world-wide explosion of financial flows. In 1970, US$10 to $20 billion were exchanged every day in the world’s currency market. Today, more than US$1,500 billion changes hands daily1..

Financial markets are characterised by the anonymity and the non-accountability of many actors involved in these massive flows and almost unlimited instantaneous transactions; many financial actors can elude state control by using powerful technologies. The new situation has considerable influence on the both national and global governance as financial markets have become more and more difficult to regulate.

Join now!

The increasing volume and speed of transactions have also increased the volatility of capital flows in the international financial system. The Asian financial crisis I referred to earlier, demonstrated the devastating impact of this volatility on world trade and domestic economies. In 1996, net capital flows into Indonesia, Korea, Malaysia, and the Philippines, and Thailand totalled US$93 billion. Yet, in 1997, these countries faced a net outflow of US$12 billion. This swing in financial flows of US$105 billion represents 11% of their combined GDP. As a result, real wages fell by 40% to 60% and 13 million people lost their ...

This is a preview of the whole essay