Globalization mechanism

Looking at the generic mechanism which stands behind the described above process, it can be seen as the following scheme (pic. 6):

Pic. 6

Here, TFP as a measure of an economy’s long-term technological change or technological dynamism ensured economic development via international trade according to comparative advantages, increase in production efficiency, informational flows spread etc. These facts occurred rather inevitably becoming the prerequisites of globalization and this way, in terms of fundamental evolution, it can be considered as driven by interaction between technology and economy. In the course of time increasing interrelatedness of countries revealed treats for the governments and enforced them to intervene – political drivers appeared.

i. At the beginning of the process named treat was the fear to lose opportunity for the development and to stay backward on the global economic arena, what motivated countries (advanced mostly at the beginning) to provide liberalization, open their borders in the process of dividing the common “pie”. These actions were aimed on involvement of particular countries and as was conducted differently to different extent by them created asymmetry on the market. The latter is considered by many authors as the globalization drawback for the developing countries, who that time did not face the realistic option of full economic integration with their rich trade partners.

From this point comes that the solid political reforms without any economic and technological prerequisites could not artificially stimulate the globalization in some developing countries which proves the statement about fundamental economic drivers. The example of Vietnam and El Salvador support the position. After a long period of civil wars both countries started their reformation on the way to globalization. El Salvador did not have sufficiently prepared economy but quickly eliminated all quantitative barriers to imports, slashed tariffs, established convertibility on the capital account, and dollarized its economy. It became an open economy in both trade and financial senses of the term. It also became the recipient of large amounts of remittances from its expatriates in the United States. Vietnam, meanwhile, was concentrated on its internal economy development mostly, based on gradual external liberalization, pragmatism, and a concerted effort to diversify the economy through public encouragement and investment where needed. Vietnam did not rush into the WTO. Nevertheless El Salvador policies seems to be “market” and global oriented in their best sense, it performed worse than Vietnam, which achieved phenomenal success in terms of both growth and poverty reduction[5] (see pic. 7a,b). One another example is Washington consensus in Argentina. Therefore it can be concluded that in order to get involved in globalization in the full context and benefit from it country cannot just skip the prerequisites and start it voluntary by politics.

Pic. 7 a) El Salvador GDP growth b) Vietnam GDP growth

ii. Near the middle of the 20^th century, after war experience, countries recognized that in order to protect themselves they need to consolidate and create some global regulation, thus different international initiatives were promoted.

Through GATT (1947) and later WTO (1995) monetary and non-monetary trade barriers were reduced. These liberalizations were a result of international negotiations and this way globalization was driven politically. The need for the contracts can be explained by the game theory, prisoner's dilemma of international cooperation: mutual cooperation yields highest outcomes for both players together; but if one player cooperates and the other doesn't, the cooperating player loses most and the non-cooperating players wins most, thus „rational“ players always vote for non-cooperation, thus, each state will always decide for protectionism as long as it cannot be sure, what the other state will do, thus no international cooperation or reducement of trade barriers and other protectionist measures, the world as a whole is worse off, than in the case of mutual cooperation, i.e. no trade barriers. Following this logic, international treaties help this situation as they reduce the incentives for „cheating“.

G20 forum of finance ministers and central bank governors was created "as a new mechanism for informal dialogue in the framework of the Bretton Woods institutional system, to broaden the dialogue on key economic and financial policy issues among systemically significant economies and to promote cooperation to achieve stable and sustainable world growth that benefits all.^[6]"

The EU was created to make war unthinkable and materially impossible and reinforce democracy enunciated by Robert Schuman and other leaders in the Europe Declaration^[7]. Even though in the beginning of EU it main purpose was “no more wars”, European harmonization and integration led also to lower transaction costs in the international market and thus helped trade.

However, all this actions can be also regarded as instruments applied in economic reasons - countries recognized that in order to obtain “market power” in conditions of global market economy they need to consolidate. Therefore appeared that time international organizations can be seen not only as the political steps for preventing the war, economic policy mistakes and so forth but the creating of oligopolistic power in some sense. The EU foundation this way could serve as the counterbalance to the power of US and actively gathering strength in the market Russia. Named political actions pursuing hegemony facilitate regional integration, not the globalization and therefore act as “brakes” not drivers of the latter.

The similar constraining effect of state intervention can be applied to the treat of multinational enterprises, which nowadays are supposed to be even more influential then governments.

iii. One more threat defined political influence on the globalization is related to instability which was brought by the globalization and its market nature, such as crisis. From this point political actions are seen as attempts to restrict the globalization and even resist it. G20 used to be one of the big uniting forces for global markets, but as the financial crises of 2008 has shown even this force could not save the countries from separation. The major players of G20 are occupied with the problems within their own countries, US lacks the resources to continue as the main provider of global public goods, Europe is too busy with attempts to save eurozone, Japan is tied down with complex economic and political problems at home. None of these countries is able or willing to boost international economy. Emerging powers of Brazil, India and China are also needed, but all of those countries are too busy with domestic development. As it was stated by Ian Bremmer and Neuriel Roubini article, “we are now leaving in a G-Zero world, in which no single country or bloc of countries has the political and domestic leverage, or the will, to drive a truly international agenda^[8]. Thus we can conclude that no paper or international political treaties can be a guarantee of non-protectionist behavior.

The crises of 2008 and resulting economic meltdown has affected politicians attitude toward globalization in general and some of its drawbacks in particular. A new term, which can be interpreted as a form of political resistance of the situation, came to use - deglobalization ^[9]. The scale and the spread of the economic recession are raising doubts concerning general global aspirations towards integration of worlds markets. The ones, who agree with this position, are appealing to the evidence of at least big problems with the delivering many of advertised benefits of globalization, especially to the poor ones. The downturn has been most crucial for the countries which opened up for the world trade. For example, the Singapore’s exports volume makes up for 186% GDP, in the last three month of 2008 its economy shrank at 17% annual rate^[10]. Small countries which depended on business developed in globalization wave, are also suffering. The biggest emerging countries are another story. Since their GDPs are not so correlated with the export levels, they are doing not that bad and their economies are still slowly but growing. All of this raised a lot of questions about the extent to which countries should be open and interrelated.

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