THE "GLOBALIZATION" PHENOMENON and Africa

Arch Ritter

ECON 3510 June 10, 2010

Outline:

1. DEFINITION AND CHARACTERISTICS2. HISTORICAL PRECEDENTS? 3. CAUSAL FORCES UNDERLYING THE PROCESS4. GENERAL CONSEQUENCES5. POLICY RESPONSES TO GLOBALIZATION 6. THE FUTURE7. GLOBALIZATION AND AFRICA

DEFINITION AND CHARACTERISTICS

- the increasing economic, social and

cultural integration of the peoples and nations of the world?

II. HISTORICAL PRECEDENTS? Earlier periods of integration have occurred

Early Empires: Alexander the Great; Pax Romana?Inca and Aztecs, Chinese and Mogul EmpiresBritish Empire; Spanish Empire; Napoleonic France; Russian Empire? Spviet Empire?1870 - 1914 economic integration of much of the

world?Growing economic interaction from 1945 to 1995.

But the process more recently has accelerated; – New technological innovations have changed

the character of the process;

– New institutions are involved (MNEs, WTO, Regional integration schemes, new NGOs, for example)

– New rules and policy approaches are in place

– Old problems have intensified and some newer ones have been generated.

3. CAUSAL FORCES UNDERLYING THE PROCESS

A. Technological Changes:– declining international communication and

transportation costs;– extreme reductions in information processing costs;

B. Intensified Global Economic Governance:– establishment of WTO and role of IFIs– Multilateral and regional Integration Agreements to

diminishing trade barriers of many sorts;– diminishing barriers to international flows of capital

and enterprise;– Increasing international migration despite

maintenance of barriers

C. Global Shift in Conventional Wisdom towards economic “apertura” and expanded role for market forces?

Disputed by anti-globalizersNow debatable again with world recession

D. Consumer Sovereignty drives process almost everywhere?

E. End of most of the “Cold War

and in consequence:

• rapid expansion of international trade globally, among developing countries, and between developed and developing countries;

• -even more rapid increases in international capital

movements, including equity, bank credit, currency trading, and foreign direct investment;

• rapid learning and transfer of technology through trade in

capital goods, direct foreign investment, education and research and development;

• continuing international migration flows, from developing

to developed countries but also among developing countries;

4. GENERAL CONSEQUENCES

• Restructuring of the International Division of Labour:–migration of labour-intensive industries to

developing countries, – the development of more advanced clusters

of export-oriented economic activities in some developing countries–Major job-loss in labour-intensive tradable

industries in DMEs–Major job-creation in such industries in

developing countries, and upward pressure on real wage and income levels, in time?

• Greater Fluidity of International Capital Flows: savings and investment patterns become transnational

• Accelerated International Migration

• Greater Fluidity of International Movements of Technology (Trade in machinery and equipment; DFI)

• Greater Power for Multinational Enterprise.

Possible Positive Developmental Implications

Possible Positive Developmental Implications

1. Acceleration of economic growth;2. Stimulation of employment generation in

successful manufactures-exporting countries;

3. Productivity gains promote higher real incomes;

4. Reductions of poverty with growing economies;

5. Higher national incomes permit higher taxes, higher social expenditures and improved human development;

6. Higher income levels permit investments to improve the environment??

7. Strengthened national economies may permit stronger defences of national culture and language????

Possible Negative Consequences

Possible Negative Consequences 1. Cosmopolitanization and simultaneous

homogenization of cultures in many countries? “Westernization?” Commercial Consumerism implanted everywhere?

2. Loss of indigenous cultures, languages and ways of life?

3. Accumulation of economic power by large corporations?

4. Reduced national capabilities for economic policy-making? (monetary and exchange rate policy?)

5. Widening International Income Disparities?

6. Greater macroeconomic and employment insecurity and instability due to of contagion and financial volatility?

7. Accelerated international transmission of human, plant and animal disease?

8. Possible intensification of some environmental problems e.g. natural resource stripping for exportation

POLICY RESPONSES TO GLOBALIZATION

1.Promote Human Development

2.Improve management of international economic destabilization and volatility

3. Stronger action supporting security (re crime, environment, natural disaster, and disease.)

4. Reverse the marginalization of small poor countries

5. Promote technological innovation and diffusion in support of poor people and countries

6. Improve and democratize global governance.

6. THE FUTURE?The Nation State:

delegation upwards and downwards of functions, to regional and global governments.

Where does that leave the nation state?

Communications:

the 500-channel universe + video/camcorder = computer technology: cultural and linguistic homogenization or renewed diversity?

Global "factor price equalization" and "convergence" of living standards throughout the world ??

Ultimately, with rising energy prices and rising transport costs, will renewed localization of economic activity be stimulated ??

But when ??

7. Africa’s Participation in the Globalization Phenomenon

Africa has been part of the globalization process historically (recall Class #1)

• In Post WWII period, not as intensely as other regions (Asia, EU, N. America, BRIC)

• In 2000-2010, Intensifying integration in international system

Implications of participating in the process:– Increased trade, capital flows, migration, DFI

With Positive effects, and Problematic effects

Africa’s Interaction with International System:1. Trade2. Technological transfer3. Capital flows and Direct foreign

investment4. Migration and Remittances5. Information and Communications

Technology

1. Trade

2. Technological Transfer

How is Technology “Transferred”?–Trade in capital and consumer goods that

embody technologies of various sorts–Direct Foreign Investment– Licensing arrangements– Education abroad and return–Books, communications media

3. Capital Flows and DFI

Significant capital flows in 2000sAll categories: Direct Foreign Investment (DFI),

Loans, Portfolio investmentConcentrated in resource rich countriesDebt burden has been declining due to write-

offs, increases in exports and GDP, lower interest rates

Banking system remained independent and relatively insulated

“Outsourcing's Third Wave“: Land Acquisitions

4. Migration and Remittances

5. Information and Communications Technology

Implications of participating in Globalization Process

Positive effects: What are they?

Implications of participating in Globalization Process

Positive effects:Intensified technological transfer

Capital goods and consumer goodsPromotion of economic growth.Rising incomes overall,

reversing 25 years of economic contractionbut still lagging

Some reductions of poverty but not enough» “A rising tide lifts all boats?”

Implications of participating in Globalization Process, cont’d

Positive effects:Increased tax revenues accompanying economic

growth and thence ….. Increased public expenditures in health,

education, water, infrastructureIntensified learning from international sourcesGeneral improvements in many socio-economic

indicators, despite AIDS - but not enough

Implications of Participating in Globalization Process, cont’d

Negative or Problematic effects?

Implications of Participating in Globalization Process

Negative or Problematic effects:1. Vulnerability to world economic downswings, via

export volumes and prices• But perhaps no more than previously• Note insulation of banking system from contagion

2. Loss of sovereignty to international institutions (IMF, WB, WTO)?• But economic strengthening also improves the

capabilities of governments, domestically and internationally

3. Countries become more vulnerable to actions of high income trading partners

• But protectionism has been falling• WTO-sponsored trade liberalization would

obstruct attempts at protectionism

4. Do increased trade and foreign investment simply exploit African workers?

• Common claim from the left• Counter-arguments are powerful

5. African countries lack negotiating skills and experience to defend their interests in the WB, IMF, WTO.

• Improve capabilities• Collaborate with neighbours and African

Regional institutions in negotiating• Not a good argument against

participating in the international system