What Are the Benefits and Drawbacks of Globalization? -

W e have all had this experience at some point: We pull up in our car at a fast-food restaurant, place an order at the speaker, and then drive on to the window to pick up our food. The person at the window greets us with a smile;

she asks us if we would like to add anything to our order and then hands us our bag of food. Usually, we peer into the bag to make sure she got everything we asked for—“Did you remember to add extra ketchup?” She assures that she did, we smile back, and then drive away.

Sounds simple, right? Not any longer. Here is what is happen- ing in many of your local fast-food drive-throughs. You drive up and place your order—but the person listening to you and taking the order is not the one who greets you as you drive up to the win- dow. Your order goes to a worker wearing a headset and sitting in front of a computer hundreds of miles away. That worker then types your order into the computer and it appears on the screen of the cashier whom you meet at the drive-through window. What used to be a simple exchange between you and an attendant a few feet away has turned into a three-part transaction between people hundreds of miles from one another but completed in the same amount of time. It is as if distance just doesn’t matter anymore.

We have all heard that globalization is breaking apart produc- tion processes. Products that used to be made under one roof are now produced in separate sites thousands of miles apart, and as- sembled by workers in many different locations before they reach us. Could that happen with services too? It used to be taken for granted that while the manufacture of goods can be broken up and dispersed across distant locations, a service has to be pro- vided on site. It would never occur to most of us that something as personal as taking an order at a restaurant could also be out- sourced, just like the manufacture of a car.

Just how far has globalization gone? What is driving it, and what are its limits? These are the questions that we tackle in this chapter.

Globalization 20

b y V i V e k C h i b b e r

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My Sociological iMagination

By Vivek chibber

I came to sociology largely by accident. When I graduated from college, I knew I wanted to go to graduate school to study the political economy of capitalism – how it works,

where it come from, and why people put up with it. But issues like these were rapidly receding from the research agenda of most disciplines. I had no particular interest in sociology. But as it happened, there was a good group of people at the University of Wisconsin sociology department who focused on just this subject. So I decided to do my PhD there, mainly because I thought I would get what I wanted – and become a sociologist in the process. My research interests are still largely the same, though with a focus on the developing world.

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How far-reaching is globalization? What is driving it and what are its limits? These are questions we will explore in this chapter.

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T h e B i g Q u e s T i o n sT h e B i g Q u e s T i o n s In this chapter we examine the basic facts about the process of globalization—what it is, when it started, what its driving forces are, and what its effects have been. Of course, we are examining a process that is still very much underway and that is constantly evolving.

What are the origins of globalization? It is hard to come across any discussion of economic policy without a reference to the idea of globalization. What does it mean, and how can sociology make sense of it? In this section we ex- amine globalization and its origins.

What drives globalization? In this section we explore how recent phenomena such as outsourcing, global value chains, and regional trade agreements have become important components of globalization. We also examine China’s explosive economic growth and the human costs that sometimes accompany globalization.

How far-reaching is globalization? To evaluate how far-reaching the process of globalization has been, we examine two issues. First, we need to know to what extent countries are participating in international trade and invest- ment. Second, do countries integrate equally with different parts of the world?

What are the benefits and drawbacks of globalization? Has globalization lived up to its promise? Here we assess whether globalization has been good for economic growth. 4

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Globalization and Its Origins 567

What Are the Origins of Globalization? GlobalIzaTIoN aND ITS orIGINS

lobalization is not a carefully defined scientific concept. It has become part of sociological re- search, but it was adopted by social scientists be- cause it was already in common currency in the

media and popular discourse by the 1980s. Like any popular concept, it is often used in different ways by different people, and this ambiguity has even been imported into some social science discussions. But one thing most of its usages have in common is that they refer to the process through which national economies are becoming linked with one another. For this chapter, we define globalization as the integration of economic activities across national borders.

To get a sense of what this means, imagine a world in which every country is a self-contained economic unit. Ev- erything that is consumed by its population is made within the country, whether it is clothing, food, electronics, home construction, or other goods; and everything that is produced gets consumed within the national borders. There is no trade, and there is also no immigration. This would be a perfectly deglobalized world. By deglobalized, we mean a world in which every country consume only what it produces for it- self—there is no trade. But now suppose that over time, some countries began to interact with one another economically. Perhaps they began to trade some of their products, with some selling their agricultural products to their neighbors and others selling electronic goods. This would begin a pro- cess of trade in which countries would begin to export—that is, sell their goods to other countries—and import—that is, buy goods produced in other countries. Or entrepreneurs in one country could keep selling to their own home markets,

G but they could decide to move their production to another country, perhaps for cheap labor. This would begin a process of foreign investment, in which it is not goods that leave a country but investments. Or it could also turn out that some people decide that there are better jobs to be had in a neigh- boring country and begin a process of emigration, the pro- cess of traveling from their home to another economy. All of these decisions would be part of a process of globalization, of moving from a condition of economic isolation to one in which economies are linked to each other in various ways.

As the example above showed, economic integration can be carried out in a number of ways. Perhaps the most common is through international trade. This is a process in which people in one country sell products or services to customers in another country. But integration can also be carried out through the movement of factors of produc- tion—capital and labor (land is also a factor, but land can’t travel across borders!). Firms in one country can invest in another one, either by moving their facilities to another country or by buying up existing plants and equipment in the target country. Finally, people can also move between countries, bringing about a flow of labor that adds to the pool of workers in one country while reducing it in another. All of these activities are dimensions of globalization.

□ The Beginnings of Globalization When did globalization begin? Has the world always been globalized, or is it a recent phenomenon—and if so, how recent? The answer to that question depends on which of

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568 C H a P T e r 2 0 Globalization In transportation, two changes around the middle of the

nineteenth century were truly revolutionary. First, the ex- pansion of railways across the giant land masses of Europe, Asia, and Latin America were critical to allowing goods produced in the interior of the country to be brought out to the coasts and made available for import. Before the advent of the railway, economic production and consumption had to be largely local, or confined to a small geographical area. The long journey from one region to another meant that perishable goods had to be consumed locally or they would rot in transit. Between 1820 and 1914 in the United States alone, more than 250,000 miles of railroad lines were laid down (Hurd 1975). But the United States was not alone. In Western Europe, Russia, India, and Australia, railway con- struction boomed, connecting inland markets that had so far been isolated through hundreds of thousands of miles of new lines.

The second great advance was in the advent of the steamship. Railways could transport goods across national

borders only within the same land mass. For interconti- nental trade to take off, there also had to be a revolution in oceanic travel. Steamships were available for transport

in the early nineteenth century, but they were too expensive for anything but occasional use. Until the 1850s, they were mostly utilized for transporting high-cost luxury items, pri- marily on inland rivers. A series of technological advances made steamships more efficient and lowered their costs around the middle of the century. By the 1870s, they were becoming the major source of transoceanic transportation (O’Rourke and Williamson 2000:33–35).

While the railroad and steamship were important in lowering transportation costs, the invention of the telegraph

the different dimensions of globalization we are interested in. Depending on our focus, the answer is different. For ex- ample, if we equate globalization with the spread of interna- tional trade, we get a very different answer than if we equate it with one country investing in another.

International trade has existed for centuries, even mil- lennia. It is possible to trace it back to the most ancient soci- eties, stretching back thousands of years. So, not surprisingly, those sociologists who equate globalization with trade have announced that the world began to globalize as far back as 5,000 years ago. If we accept this definition, there is noth- ing special about the last few centuries; all that has changed over the past 5,000 years is the degree of economic integra- tion. But most social scientists reject this definition and also the idea that globalization has proceeded more or less evenly over millennia. Clearly, something has changed in the re- cent past. To most people who study the subject, the 1870s marked a turning point in global economic integration. This shows up in a large number of indicators—the degree of trade, the flows of investment, and most of all, the conver- gence of international prices. Price convergence is simply when the price of a good sold in different places tends to- ward the same level, for instance, when a car in Mexico City sells at the same price as it would in Atlanta. It seems safe to say that there appears to have been a dramatic uptick in globalization in the past couple of centuries, especially since the 1850s.

Why did globalization not start earlier? Two important changes had to occur before globalization could really take off. One was change in infrastructure—especially in trans- portation and communication. The second was a transfor- mation in society’s economic systems.

Infrastructural Transformation The most obvious reason that globalization did not take off earlier is that the means to bring it about were still somewhat primitive. The integration of national economies requires considerable advances in communication and transportation. On this score, the really revolutionary changes in the modern era occurred after the 1850s.

What are the two key changes responsible for globalization taking off?

A mid-nineteenth century steam engine transporting goods across the United States. The American railway lines created a national market for many con- sumer goods, and also played a crucial role in making them available for export to Europe.

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Globalization and Its Origins 569

to work their own plots with their own labor. Once this hap- pened, they had little choice but to work for a wage—either in the city in factories or small shops, or in some other kind of employment. Or they could stay in the countryside. Per- haps they could find work as rural wage laborers, or maybe they could lease out some land and farm it for a rent.

This process, through which peasants gradually lost ac- cess to land and the ability to produce their own necessities without having to buy them, is known as the rise of a capital- ist economy. Capitalist economic systems are distinguished by the fact that almost everyone has to buy on the market whatever they consume. Onetime peasants now had to pur- chase the wheat or rice that they once grew on their own plots. They had to buy clothes that they spun in their own homesteads. In other words, they became market dependent. The fact that so many people had to turn to the market for goods meant that demand for goods expanded enormously in the second half of the nineteenth century. This growing de- mand provided the real basis for the uptick in globalization.

The growing demand for goods was one of the reasons that states expended so much energy on expanding trans- portation infrastructure. As people in distant rural areas turned to the market for purchase of goods, the state felt considerable pressure to improve material infrastructure so goods produced in one part of the country could be de- livered to other parts where they were in demand. In fact, much of the transportation was used not just for internal consumption but for export markets. For example, starting in the 1880s, the United States became a major source of wheat for Western Europe. This export of wheat from Mid- western America across the Atlantic was a major component of nineteenth-century globalization. It is an example of how the change in social structure combined with improvements in material infrastructure and technology to create the first real explosion in globalization.

The Course of Globalization: From the Nineteenth Century to Today

Globalization had become a very powerful force by the early 1900s. So can we assume that, once the necessary precon- ditions were in place, it proceeded smoothly through the course of the twentieth century? For many analysts, there is a sense that globalization is something like a tidal wave, an unstoppable process against which governments are more or less helpless. We have seen that it took some very pro- found changes for it to take off—there was certainly noth- ing automatic about globalization before 1850. But once these changes had in fact taken place, once capitalism spread across Europe and much of the world, did the integration of economies become unstoppable? In fact, it did not. As Figure 20.1 shows, after 1913, the world actually underwent a process of deglobalization for more than 50 years. By

brought about a revolution in communication. It is hard to imagine today, but the telegraph probably had a greater im- pact on economic activity than either the telephone or the computer in the twentieth century.

Social Structural Transformation While the great leaps in technology and transportation were critical for globalization to take off, their effectiveness would have been limited had it not been for another transformation. This was a change in the way that people related to markets. The fact is that up until the mid-nineteenth century, markets played a relatively minor role in the lives of most people in the world. The vast majority of humanity lived in the countryside as peasants, or agricultural producers who predominately produced goods for their own consumption rather than to sell on the market. It was only as this class of peasants was integrated into market production that the pace of globalization could pick up speed.

Globalization is a process through which the sale of goods and services spreads across national borders, expand- ing across the world. But for this to happen, there has to be an expansion of the market for those goods and services— people have to want to buy them. But even in the nineteenth century, most people in the world mostly consumed what they produced for themselves on their farms and in their lo- cality. This meant that they only went to markets periodi- cally for those things they couldn’t produce at home. And this, in turn, meant that the demand for goods and services in the market always remained limited. The only group that was a reliable source of demand for consumption goods was people living in cities because they didn’t have their own land like peasants did. But cities in the nineteenth century only accounted for a small proportion of the global popula- tion. Most of humanity was still located in the countryside, and this part of the population was geared toward self-sub- sistence, or living off the land. The economic system in most areas was still precapitalist in that the place for market-pro- duced goods was still very limited.

This is why globalization remained limited well into the nineteenth century. As long as most of the world economy was still precapitalist, consisting of peasants who toiled on their own plots of land, producing for themselves much of what they consumed, the market for goods and services re- mained very small. For globalization to take off, the scope of markets would have to expand, so people would want to buy the goods coming from distant parts of the world. The demand for market-produced goods would have to increase. For this to happen, peasants had to be induced or forced to become dependent on the market for their survival. This could happen in two ways. Either wealthy landlords or farm- ers could offer to buy up their land, or they could be pushed off the land by various means—sometimes they lost the land because they fell into debt, or they had to sell bits of it off to pay taxes. Either way, peasants would find themselves sud- denly without their traditional means of survival—the ability

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570 C H a P T e r 2 0 Globalization to be something more to the story in these decades if glo- balization didn’t manage to reach the levels of 1914 until the very end of the century. Might there have been something else that created obstacles to reglobalization? In fact, there was—the power of the state. State action, a set of policies that enabled governments to assert greater control over their national economies, played a major role during this period of deglobalization.

The most important factor that worked against the re- sumption of a globalized world was that, after the Great Depression, governments all over the world passed measures

to insulate their economies from excessive vulnerability to global economic shocks and to gain more control over the flow of economic activity. After the wrenching experience of two

world wars and the Great Depression, governments resolved to achieve greater control over the own national economies. They wanted to have greater influence over the goods that entered and exited their countries as well as the flow of capital into and out of national production. Toward this end, they implemented a number of measures designed to put brakes on the free flow of goods and services. Two instruments crucial for this were tar- iffs and capital controls.

A tariff is a tax that is imposed on imports or exports. It adds to the price of the traded good, thereby making it more expensive. It raises revenue for the government, but it also makes the good less attractive to customers because it is now more expensive than its rivals. This has the pre- dictable effect of reducing the flow of this good into the market. Everything else being equal, it is a trade-depressing measure. Capital controls are restrictions imposed by the government on the movement of investment out of, or into, the country. An example would be a case where a shoe man- ufacturer wanted to sell his factory and open up a new one in another country. In order to transfer his funds to a bank in that country, he would first have to get permission from his own government. In this way, his government would exert some control over the movement of funds out of its borders. These capital controls are designed to give govern- ment greater sway over the flow of investment, allowing it to increase or decrease the quantity of investment as a re- sponse to changing economic conditions. The government can make it harder for investors to “take their money and run” out of the country; it can also make it harder for in- vestors to enter the country if the state feels that some in- vestors are hurting national interests. Together, tariffs and capital controls act as brakes on the free flow of capital and goods. The decades between 1930 and 1970 were marked by a very wide use of both of these measures as well as a host of other instruments designed to allow states more control over economies. This was what turned the temporary shock of 1929 into a more enduring era of deglobalization.

de-globalization, we mean a process in which international economic integration decreases over time.

Figure 20.1 shows a commonly used measure of global economic integration, which is trade as a proportion of gross domestic product (GDP), or the value of all goods and services sold on the market within a defined period. The intuition behind this measure is that globalization can- not get very far unless countries are trading with one an- other. The extent to which a country is involved in trade is therefore a good rough indicator of how deeply connected it is to other economies. For many advanced economies, trade as a proportion of to- tal economic activity actually went down between 1914 and the 1970s. This means that their economies become less integrated with the rest of the world in these years in spite of the fact that they had become more capitalist and despite the dramatic improve- ments in transportation and communication. These econo- mies became more globalized from 1850 to 1914 and then deglobalized between 1914 and 1970.

The process of deglobalization began with World War I. The years of military conflict caused enormous disruption in normal patterns of trade and investment, which de- railed the process of economic integration that had begun in preceding decades. Once the war ended, governments tried to put trade and investment back on track. But then, just a little more than 10 years later in 1929, the global economy was hit by what has come to be known as the Great Depression. The Depression also caused enormous disruption to international trade and investment because as economies all over the world collapsed, exporters found that the markets for their goods disappeared almost over- night. This was another powerful shock to the whole pro- cess of globalization.

The war and the Great Depression certainly derailed the economic integration that had begun after 1850. But shocks are temporary phenomena. Economies recover and trade and investment resumes its normal course. There had

Has globalization expanded steadily since the nineteenth century?

F i G u r e 2 0 . 1 r aT I o o F M e r C H a N D I S e T r a D e T o G D P, C U r r e N T P r I C e S ( I M P o r T S a N D e x P o r T S C o M b I N e D )

1913 1950 1973 1995 2005 0

120

150 France Germany Japan

Netherlands UK USA

Source: Based on data from Hirst, Thompson, and Bromley (2009).

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Globalization’s Reach 571

centuries-old limits. Just as importantly, even after capitalism spread across much of the world, globalization still did not be- come an unstoppable force. After the first 50 years of increasing integration of production across national borders, the world ex- perienced 50 years of deglobalization. This was made possible by state action. It wasn’t until states turned to a more market- oriented strategy that globalization resumed its course. This tells us that the ebb and flow of globalization since 1900 has been governed mainly by political factors and that globalization has depended upon a suitable political environment. States may very well have the power to begin a new era of deglobalization if citizens demand it (Gindin and Panitch 2012).

Another way of putting this is that globalization has al- ways been politically driven—the main forces controlling the degree and the pace of globalization have been governments and their policies, not technology. This is an important point to keep in mind because it is common to hear in the media and in political debates that we cannot stand in the way of globalization. This makes it seem as though it is an inexorable force. But we have seen in this section that it is not. It is made possible by political decisions taken by governments, and it has been scaled back, also as a result of governmental decisions.

The fact that it was state policies that triggered a process of deglobalization helps us understand why reglobalization ensued in the 1970s after a decades-long hiatus. Starting in the 1970s, and then increasingly from the 1980s onward, states moved to remove many of the controls and restrictions they had placed on trade and capital flows. This was part of the turn to more market- based policies that governments across the world have en- acted since the 1970s. As states changed course and began to allow more mobility to goods and money, the process of economic integration resumed its course, much as it had in the early twentieth century. It is this second phase of globalization that we have lived through for the past quarter-century and that seems so often to be a force out of our control.

What conclusions can we draw from this past century? The big lesson is that there is nothing natural or inevitable about globalization. Even though trade and migration have been around for thousands of years, all economies remained localized and quite limited in their degree of international inte- gration until quite recently. It took some very dramatic changes in underlying conditions for globalization to expand beyond its

GlobalIzaTIoN’S reaCH

How Far-Reaching Is Globalization?2

e now know something about the origins of glo- balization. The next question is, just how far-reach- ing has this process been? There are two issues that we have to examine. First, how far-reaching

has been the resumption of international trade and investment? We need to know to what extent countries are participating in

international trade and investment. Second, do countries inte- grate equally with different parts of the world? Sometimes we get the impression that in today’s world every corner of the world is more or less equally connected to the others. But is this true? Or is it the case that countries tend to group together with their neighbors in what is called regionalization?

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572 C H a P T e r 2 0 Globalization 10 to 20 percent (Sutcliffe and Glyn 2010:87–88). Another way of putting this is that more than 80 percent of global investment today is carried out within national borders, usually more. This tells us that factories and firms are not as footloose as some of the popular images might have us believe. Almost all investors stay within their own national border.

□ The importance of regions Now let us turn to the second question, which is whether, even if globalization is increasing, it is bringing together the parts of the world into a seamless whole. Or does economic

integration c luster around small regions?

A good place to start is to see how far goods actu- ally travel. In a nonglobalized world, goods tend to stay in

small geographical zones. They do not travel very far because their consumption is carried out close to the regions where they were produced. If globalization was a process in which countries transmitted goods to all corners of the world, we would expect to find that as it takes hold the distance trav- eled by goods also increases. However, for most countries, with the United States as a major exception due to its trade relations with China, there has not been a very significant change in the average distance for imports and exports in this period. However, there is variation in trend in the 1965– 2000 period. During this time, 77 countries experienced a decline in the distance of their exports and imports and 39 countries had an increase in their trading distance (Carrere and Schiff 2004).

This regional bias for trade is further confirmed by the increase in the regional share in total trade over the last few decades. The trade intensity index, which is the ratio of in- traregional trade share relative to the region’s share in global trade, is used to obtain a measure of regional bias. All re- gions demonstrate this bias, with Latin America (except for Mexico) showing the strongest regional bias (UNCTAD 2007). In other words, we can see that the share of intra- regional trade is increasing for a number of blocs, such as the European Union. Explore the Infographic on page 574 for a closer look at regional trade.

Another good indicator of the importance of region- alization over globalization is the role of the transnational corporation (TNC). A TNC is a corporation that sells products in more than one country. Most trade and for- eign investment is actually carried out by TNCs, not by small firms. In 2006, there were 77,000 TNCs in the global economy, employing 62 million workers and with assets of over $4.5 trillion. Examining the trading activities of these giant corporations is a good window into the dynamics of

□ The Degree of Globalization So far we have focused on the fact that globalization re- ceded in the middle parts of the twentieth century before it resumed course in the 1970s. But Figure 20.1 (on page 570) also showed us another important fact—that even in the first decade of the twenty-first century the degree of globalization was not much more than it had been in the early twentieth century. In fact, some countries—like Japan and England—have still not caught up with their levels of globalization 100 years ago. Japan traded 31 percent of its domestic production in 1914, compared to only 24.7 per- cent in 2005, and England slid from just under 45 percent in 1914 to 40 percent in 2005. So even while trade and ex- port dependence has increased in the past 30 years, it is not entirely new. How could this be so? How could trade de- pendence have been as great then as it is now for so many countries? One reason is that in 1914, the countries with the more advanced economies were also colonial powers. Eng- land and France were both very deeply integrated with their colonial empires. This opened up markets for their goods. Firms selling in the colonies of their home country had real advantages over their rivals from other countries because they had better knowledge of the conditions and often had better access to sales and marketing networks. This created a powerful drive for colonial exporters to expand into the markets in the lands their governments ruled. This kind of trade integration was not usually very beneficial to entrepre- neurs in the colonized countries. But it did create a very glo- balized world, even if its benefits were weighted toward the rich West.

Now let’s see if trends in international investment show a greater level of integration than simple trade. When firms from one country make investments in another, it is known as foreign direct investment (FDI). So as international investment increases in size and scope, it shows up in in- ternational statistics as an increase in the flow of FDI. For international production to become more integrated, the share of FDI should be increasing over time. This means that more of what is produced across the world comes from international investment as opposed to investment by lo- cal firms. If we look at the data, the result is not what we might expect. In 2010, the gross fixed capital investment in the world economy was almost $14 trillion. Of this, total FDI, calculated as the sum of inward and outward-oriented FDI, amounted to $2.57 trillion. This means that foreign investment never accounted for more than one-fifth of total global investment (UNCTAD 2011:24, table 1.5). Flows of FDI tend to be quite volatile, rising and falling from year to year. But since the 1990s, the range has remained around

How extensive is international trade and investment?

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Globalization’s Reach 573

per year between 1990 and 2000. However, a closer look at migration statistics reveals that the top migration cor- ridors are between neighboring countries. As of 2010, the

top migration corridor was United States–Mexico, fol- lowed by cross-border flows between Ukraine and Russia. Other prominent corridors are India– Bangladesh, India–

United Arab Emirates, and Turkey–Germany (World Bank 2011; World Bank 2009; UN Wall Chart 2009).

Hence, what appears to be happening is not a flattening out of the world as a whole. Globalization is not creating a seamless web of links between all corners of the world but rather is promoting the growth of regional blocs—economic ties that are most densely woven between neighboring countries and that get much thinner between countries lo- cated farther away. The three main blocs are around North America, Europe, and East Asia. The economies of these

globalization. Two facts stand out about TNCs. First, most of them locate their branches and affiliates in other coun- tries. So 65 percent of TNC affiliates are located abroad. This tells us that they are in fact organizing their trading activities across national borders, as one would expect in a process of globalization. But how far do they actually go?

This is where the second interesting fact comes in. It turns out that most of the trading and investment activity of TNCs is in neighboring or nearby countries, not in far-flung regions. The world’s largest firms are concentrated in the triad of the European Union, North America, and Japan. In a very careful analysis of 380 of the Fortune 500 companies in 2001, economist Alan Rugman has shown that, on aver- age, sales in their home region were 71.9 percent of the to- tal sales. As little as 2.4 percent of the 380 companies could be classified as global, that is, they generated their revenue across the three largest regions of North America, Europe, and Asia and the Pacific and had headquarters in all of these regions. An example of such a firm would be IBM, which is an American company with 43.5 percent of its sales in its home region. The rest of its sales come from Asia (20 per- cent) and Europe, the Middle East, and Africa (28 percent). Only 6.6 percent of the 380 companies were biregional, that is, had at least 20 percent of their sales from at least two regions but less than 50 percent in their home region. For example, BP, which is a British company, had 36.3 percent of its revenues from the European market and 48.3 percent from the American market. Three percent were host-region oriented, that is, more than 50 percent of their sales came from a single region that was not their own. DaimlerChrys- ler was the largest in this group. This Europe-based company had 60 percent of its sales in North America. However, an overwhelming majority were home-market oriented. That is, 320 out of the 380 had a majority of their sales in their home region. For example, Walmart, which is the number-one firm on the Fortune 500, had 94 percent of its sales in North America. On average, the sales in the home regions of such firms are 80 percent. More- over, very few of these firms have a significant presence outside of these three regions, such as in Latin America or the Indian subcontinent. Of the 500 largest TNCs, only 9 are truly global, that is, derive at least 20 percent of their business from each of the follow- ing regions: Asia, North America, and Europe. For the vast majority of the TNCs, over 80 percent of their sales are done within the geographical region in which they are located. So here, too, regionalization dominates over globalization (Rug- man 2005).

We see the same pattern with labor flows. The stock of international migrants has increased from 65 million in 1965 to 165 million in 2000 at an average rate of 1.3 percent

Why does economic integration cluster around regions?

IBM is one of the oldest and largest transnational corporations in the world.

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44% To North America

ARROWS REPRESENT PERCENTAGE OF SALES BY REGION

HOME REGION

28%20% To EuropeTo Asia

30%

20%33%

44%

14%26%

37%

8%49%

94%

5%<1%

67%

22%N.A.

59%

19%9%

11%

12%72%

30%

57%8%

20%

68%5%

he �ow of trade, investment, and population across national

borders has swelled, but the origins and destinations of these �ows are not usually on opposite ends of the globe. Instead, they are likely to be relatively near each other. In this way, what is often called globalization is in large part actually an increase in regional trade, investment, and migration. Since the bulk of world trade is carried out by large transnational corporations (TNCs), their trading activity provides a good window into the dynamics of globalization. It is remarkable the extent to which the sales of the largest corporations, even those that have the largest portion of their sales outside of their home countries, are concentrated in their home regions. Corporations headquartered in the United States are most likely to sell products in North America, those of Europe within the European Union within Europe, and those of Japan within the Asia-Paci�c region.

Globalization or Regionalization?

Source: Based on data from Rugman (1995).

Truly global transnational corporations As of 2001, less than 2% of the 500 largest corporations in the world fell into this category

Bi-regional This category represented 5 percent of the 500 largest corporations in 2001

Predominately domestic

Some of the very biggest corporations in the U.S. and Japan still sell mostly in their home regions

Predominantly European

Some of the most thoroughly internationalized companies in Europe still sell mostly to other European countries

IBM SONY

MOTOROLA TOYOTA

WALMART FORD

GE FUJITSU

BMW VOLKSWAGON

■ Think About It Why is it that cross-border trade so often stays close to home?

■ Inspire Your Sociological Imagination Could you make a case that the geography of sales might underestimate globalization?

Explore the Data on Globalization or Regionalization in MySocLab and then . . .

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Globalization’s Driving Forces 575

while the world is more integrated than it was 40 years ago, the degree is still rather limited, and it is certainly not un- precedented. Furthermore, what is being integrated is not the world as a whole but smaller regions within that world. Three such regions really stand out: one around North America, the other in Europe and North Africa, and the third in East Asia and now spreading into South Asia as well. Economic activity tends to flow within these regions, and less so between them.

regions are getting more tightly integrated around produc- tion and finance. How this is happening is the subject of our next section.

Taken together, the information on trade and invest- ment has some important implications. It means that even with all the deepening of economic integration over the past quarter century, global production and exchange still primarily revolves around the national economy. Further- more, the degree of integration is not even very new. Even though globalization is a singularly modern phenomenon, as we saw earlier in this chapter, the trends of the last 20 years or so are not unprecedented. The world has been through a comparable degree of globalization before and even managed to reverse it through state action. So even

Read the Document Arnold Schwarzenegger, Ally McBeal and Arranged Marriages: Globalization on the Ground in India in

MySocLab.

GlobalIzaTIoN’S DrIvING ForCeS

What Drives Globalization?3

e now know some of the basic facts about glo- balization—what it means, when it started, and how far it has gone. We have encoun- tered some surprising findings. The world has

not moved in a steady path from less globalized to more globalized. And in fact, what seems to be emerging is a world comprised of economic regions, not a seamless web of economic integration. What are some of the key forces driving globalization?

□ Outsourcing and Global Value Chains Most people know that a common phenomenon in recent years has been the practice of outsourcing, when producers take activities that they once did in-house and farm them out to other firms in remote locations. Outsourcing is part of a larger process that is called the creation of global value chains, which are sets of linked operations that organize the production of any particular product. This is an important

Watch the Big Question Video in MySocLab

M20_MANZ3823_01_SE_C20.indd 575 30/08/12 6:14 PM

576 C H a P T e r 2 0 Globalization assembly step, now typically take place in different places. A lot of the spinning and weaving that goes into garments is still done in the United States, but since the 1980s, the more labor-intensive part of the value chain has moved to Mexico and the Caribbean. Garment producers set up assembly operations in these low-wage countries in areas that are set up as export processing zones. These are locations

where the governments give foreign manufacturers spe- cial privileges and tax breaks in return for setting up op-

erations there. The TNCs get low-cost operations, and the host country gets more jobs for its labor force. The garment producer sets up operation, and brings in cloth woven in the United States. This is then further processed and as- sembled in the export processing zone and reexported into the United States. A chain of operations that was once lo- cated within the same plant has now been dispersed across nations. But its dispersal hasn’t sent those operations all the way across the globe. Typically, it has been spread out over neighboring countries, or countries that are near each other.

What has this meant for the countries that are par- ticipating in regional integration? We can ask this question from a bottom-up perspective or a top-down one. From the bottom-up perspective, we look at what the implica- tions have been for labor—for the people actually doing the work in the export processing zones or the TNCs. From the top-down angle we look at what it has meant for overall economic growth—has it sped up development and indus- trialization? Has it meant faster growth for the global South (the poorer developed countries in the world)? There is no better place to look than China as a hothouse for what glo- balization has meant on the ground.

concept to understand because much of what we know as globalization has been driven by the creation of global value chains.

Take the production of an automobile. This involves a long set of activities, starting with the manufacture of steel and rubber, their transportation to an auto plant, the manufacture of mechanical parts, their assembly into a car frame, painting, installation of upholster y, and so forth. All these activities are linked together in a chain of opera- tions. In the era of deglobalization, it was common for many of these processes to be carried out in-house, under one roof. This means that the value chain was compact and geograph- ically contained. But in recent years, as transportation and communication costs have declined and as a means of locat- ing cheaper labor, companies have turned to breaking apart various components of the value chain in their operations and moving the various operations to remote locations. Ac- tivities that were once carried out under one roof now take place hundreds of miles away. But they don’t typically move across the world. Instead, they tend to move to neighboring regions.

Consider the process of producing clothing. The pro- duction of clothing involves three primary steps: the spin- ning of thread, the weaving of fabric, and the final assembly of the clothing. These three steps have important differ- ences. Spinning, especially of synthetic fibers, is immensely capital intensive, which means it involves high-technology machinery usually operating on a very large scale. The weaving of fibers into cloth is somewhat less capital inten- sive and involves a lower level of technical sophistication. The final assembly of clothing is very different: It involves a lot of manual labor, with relatively little use of automated machinery. In addition, it can be split up into many small-scale factories (Dicken 2011:308). Together, these three steps make up the value chain of clothing production.

W h a t h a s h a p p e n e d i s t h a t these three steps, especially the final

What role do global value chains play in globalization?

Workers at a clothing factory in Guadalajara, Mexico making garments for Walmart. It is very common for firms to hire mostly women, because employers believe that they are a more manageable labor force than men. Not surpris- ingly, sexual harassment complaints from work- ers in these factories are very high.

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Globalization’s Driving Forces 577

the fact that the life of a worker in China’s export assem- bly factories is grueling. In fact, this is no small part of the appeal for the multinational corporations that locate manufacturing in China. Consider this story, told by a for- mer Apple executive to a reporter for The New York Times. A few weeks before the iPhone was to be released, Apple rede- signed the screen but was intent on keeping to the original deadline. So, on the very day the redesigned screens began to arrive around midnight at the assembly factory in China, a foreman went over to the workers sleeping in the company’s

dormitory and roused them from their sleep. They were each given a biscuit and a cup of tea. They were then told to go to their workstations, at which point they began a

12-hour shift assembling the iPhones. The result? Within four days, the plant was producing 10,000 units a day.

In the executive’s words, “The speed and flexibility is breathtaking. There’s no American plant that can match that” (Duhigg and Bradsher 2012). This speed and flex- ibility comes from the fact that Chinese workers have to work far longer and harder than employees in any American factory. On paper, workers in China—as in the

□ China’s export Zones: A Case Study

China’s explosive economic growth of the past few dec- ades has been a striking example of a country attempting to take advantage of the changing geography of global pro- duction. China has become a center of manufacturing as part of fragmented global supply chains. A truly immense quantity of goods sold in the United States is labeled “made in China”—over $399 billion worth in 2011 (Department of Commerce 2012). Yet China has established itself in a very particular position in the global value chain. Instead of designing products or produc- ing the more sophisticated components like computer processors, Chinese factories most often assemble components produced elsewhere into final products, which are then reexported to consumer mar- kets like the United States. For instance, in 2006, 80 per- cent of the value of exported consumer electronics simply represented the value of the imported components, not any work actually done in China.1 The final assembly step that is performed in China is often one of the simplest in the pro- duction process. Instead of advanced technology or highly skilled labor, it requires above all a large, willing, and low-cost labor force. This is what China offers to the multinational corporations that build factories or hire contractors there.

The supposed promise of this kind of manufacturing is that by hooking into the global economy, it will stimu- late the growth of other, more advanced industries. Indeed, China’s exports have played a central role in its astonishing economic success of the past three decades and have meant real benefits for ordinary workers in China. Wage levels and working conditions are not worse in factories producing for exports than in other jobs in China.2 Young people in rural China migrate in massive numbers to the coastal regions where export manufactur- ing has blossomed because it offers them an opportunity to improve their families’ livelihoods that is simply not available in agriculture.

Nonetheless, the benefits of economic growth do not change

Women working in an electronics plant in Guangdong, China. These plants have become notorious for their long hours and very weak protections for their employees.

1For electronics, a full 80 percent of value-added is produced outside of China (Koopman, Wang, and Wei 2009). 2For instance, in the 10 large electronics assembly firms in southern China investigated by China Labor Watch in 2010 and 2011 (employing around 250,000 workers in total), the typical production-line employee made well above the local government’s minimum wage, usually about 1.5 to 2 times China Labor Watch’s own estimate of the minimum cost of living (China Labor Watch 2011:126–33).

What are the benefits and costs of China’s export zones?

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578 C H a P T e r 2 0 Globalization just for the cheaper labor there but also because they have fewer protections and less recourse against employers’ de- mands for greater flexibility and responsiveness from their employees. But there are potential costs on the other side as well, to the workers of the country from which the firms are exiting. In a careful study carried out for the U.S. Trade Deficit Review Commission, Cornell University economist Kate Bronfenbrenner found that employers in the United States used the threat of exit as a means of gaining advan- tage over employees, especially in union-organizing drives. Two facts stand out about this tactic. First, the threats were effective more often than not. The study found that when employers warned of the likelihood of plant shutdowns and flight to other locations, more than two-thirds of organizing drives failed. The second interesting fact is that managers actually followed through with plant closings in less than 3 percent of the cases where they issued the threats. In other words, in most of the cases, managers were using workers’ fears about globalization against them. Even though the chance of capital flight was very low, workers believed that the threat was real (Bronfenbrenner et al. 2000).

How representative are these studies? It is not easy to say because teasing out the actual effects of globalization on wages and working conditions is no simple task. Workers’ pay, their conditions of work, and their hours are affected by many factors, of which globalization is just one. Isolat- ing globalization’s effect is hard to do because none of the changes occur in an experimental setting. What we can say is that the increase in global capital flows and trade has not brought clear-cut benefits to labor. What the effects are, whether they are positive or negative, depends on how glo- balization interacts with other factors—such as the level and quality of democracy, trade union strength, and economic growth.

United States—have a 40-hour week, but in reality work- ers have no choice but to put in extensive overtime, even if it is sometimes labeled “voluntary”—after all, workers could “choose” to lose their jobs instead of “voluntarily” working overtime. The actual working day is 10 to 14 hours long, of- ten with only a 10-minute break. During peak seasons of heavy output, employees in some factories work seven days a week. Including overtime, workers typically earn between $350 and $450 a month, compared to minimal living ex- penses of $200 to $300 a month. Because employees are often migrants, it is common for them to live in company dormitories, where they are bunked 6 to10 people per room (China Labor Watch 2011). In all, working at one of these factories is almost more than a job: It encompasses the en- tirety of the workers’ lives.

In addition, Chinese workers lack the kinds of institu- tional protections long taken for granted in advanced econ- omies like the United States. Chinese factories usually do have unions, but they do nothing to represent workers’ inter- ests to their employers. In interviews conducted by a human rights group, China Labor Watch, employees who went to the so-called worker care centers at every factory said they were offered only “psychological consolation” instead of real help solving problems in their jobs; in many firms, workers were unaware there was a formal union organization at all. Employers also seek to skirt what protections do exist. For instance, they try to keep their workers in the dark about provisions for compensation for work-related injuries guar- anteed by labor law or their contracts. Other companies uti- lize external “labor dispatch agencies” that free the company of any contractual relationship with—and thus legal respon- sibility for—their workers at all. Lacking these basic protec- tions and mechanisms for addressing grievances, it should be no surprise that working conditions are often unsafe: There are many reports of workers being exposed to dangerous chemicals and of being injured or killed in workplace acci- dents (China Labor Watch 2011; Duhigg and Barboza 2012).

The Chinese example shows that while the spread of global value chains has indeed provided some benefits to la- bor in host countries, this has come with a cost. Firms often go to these areas not

Shown here, workers outside a Goodyear Tire plant are protesting management’s threats to move pro- duction to Indonesia unless the union accepts their demands. This is an example of how employers often use the threat of exit to extract concessions from unionized employees.

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The Effects of Globalization 579

economic Policies in Developing Countries: 1930s to 1980s

From the 1930s to the 1980s, most countries in the devel- oping world oversaw very ambitious periods of rapid indus- trialization. These were years in which these nations—in Latin America, Asia, the Middle East, and Africa—tried to change their economies from agriculture to industry. To do this, they relied a great deal on the involvement of the

state—to regulate markets, provide protection to firms, control prices, and protect local industr y from global

competition. This model has come to be known as state-led development, but its more technical designation is import- substituting industrialization (ISI). In economic literature, ISI has become associated with the kind of development policies poor countries used in the middle of the twentieth century. But in fact it has been used by every country that has tried to industrialize since the eighteenth century. It was used by England to ward off competition from Dutch en- trepreneurs, then by the United States in the early 1800s to catch up with England, then by European countries in the middle of the nineteenth century, and then by the develop- ing countries during the twentieth century (Chang 2002).

At the heart of ISI was a commitment to nurture na- tional industry in the face of international competition.

What Are the Benefits and Drawbacks of Globalization?

THe eFFeCTS oF GlobalIzaTIoN

ake a minute to review A Sociological Perspec- tive on page 580. As you can see, the process of globalization is also occurring in the cultural domain. We often associate globalization with

material goods. Food is one such item, and there is no more iconic restaurant in American culture than McDonald’s. But it is also taking place in the entertainment industry. In both spheres, it has been a two-way street. The main prom- ise of globalization has been that, by freeing up opportuni- ties for trade and investment, it should give a boost to eco- nomic growth. Globalization is, in this sense, part of the turn to more market-based economic policies that have been promoted by governments all over the world since the 1980s. You might wonder what models of development were in place before the 1980s, when trade and investment flows really took off again. In this section we will first take a brief look at the kinds of economic policies that were practiced by developing countries in the years of deglobali- zation—the 1930s to 1980—in order to better appreciate what changed in recent years. We will then take a look at the empirical record of these past years and compare it to the record of the earlier decades to get a sense of how the two compare. This will allow us to draw some conclusions about the relative merits of globalization as a model of eco- nomic development.

Watch the Big Question Video in MySocLab

is globalization good for economic growth?

M20_MANZ3823_01_SE_C20.indd 579 30/08/12 6:15 PM

A soCioLogiCAL PeRsPeCTive Are there cultural aspects of globalization ?

■ Think About It Movies are just one example of cultural products that have been exported through globalization. Can you think of others?

■ Inspire Your Sociological Imagination one way to appreciate the infl uence of globalization is by thinking of products in our life that are not globalized. Most of what we eat is grown or produced in places thousands of miles away. Can you think of food in our diet that is entirely locally produced?

Explore A Sociological Perspective in MySocLab and then . . .

One of the most visible ways in which culture is being globalized is through the entertainment industry. The United States exports not just manufactured goods, but also movies and television shows to almost every continent in the world. But Hollywood is not the only globalizer when it comes to entertainment. The movie industry in Mumbai, India – known as Bollywood – is also a major exporter of movies, mainly to the Middle East and Africa, but also to the West.

Another very visible aspect of cultural globalization is the spread of certain cuisines – like American fast food res- taurants or Starbucks coffee shops. But here too, the � ux has been in both directions. While it is possible to observe American fast food in Beijing, it is also common to � nd Chi- nese cuisine in American cities, big and small. In England, Indian cuisine is now so much a part of national culture that it is jokingly referred to as England’s “of� cial cuisine.”

Is the impact of cultural globalization always positive? What are some possible drawbacks?

The infl uence of Asian fi lm on Hollywood is not new. Can you think of examples where an Asian infl uence is obvious?

International artists are also subject to globalizing infl uences. Where classic movies and television cast American actors to portray international characters, today’s market allows actors from around the world to work in their chosen fi elds in many countries. How has this shift infl uenced our perception of other cultures?

580

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The Effects of Globalization 581

the fewer controls over financial flows. The two dimensions of economic policy acted together, and separating the effects of one from the other is not always possible. The North Ameri- can Free Trade Agreement of 1994 is a good example of how integration and deregulation go together.

□ NAFTA: A Case Study The North American Free Trade Agreement (NAFTA) has been one of the most widely studied instances of globalization in recent years, and it has also attracted its share of scholarly debate (Feller 2008). In the debates that preceded its ratifica- tion, supporters of NAFTA, including then president Clin- ton, argued that it would result in rising incomes for everyone and lead to the creation of tens of thousands of jobs in the United States (Hufbauer and Schott 1993; Clinton 1993). Opponents decried the lack of effective labor and environ- mental protections in the treaty and worried that it would exert a downward pressure on wages and living standards, as companies would be able to move their operations in order to take advantage of lower wage and production costs abroad without losing access to domestic markets (Franklin 1993).

Assessing NAF TA’s consequences nearly two decades after it came into force on January 1, 1994 is tricky because it is hard to disentangle the effects of the free trade agreement

from other factors that shape social and economic outcomes. Notably in Mexico, NAFTA’s implementation was quickly

followed by a massive financial crisis in 1994 and 1995 (also known as the “Mexican peso crisis”), which may or may not have been linked to the agreement. Everyone agrees that NAF TA produced a significant increase in cross-border

When countries try to industrialize, their entrepreneurs face some considerable disadvantages. Usually, they have to pro- duce for markets in which goods are already being sold by more experienced firms from richer countries. Take the case of textiles, where a new firm might try to enter a developing country. If a new manufacturer decides to set up a textile fac- tory, she has to face the fact that the shirts she produces will compete against shirts being sold by other firms, usually from richer countries, but certainly by firms with more experience and more money than she has. How can she break into the market? To help her in this venture, her government might implement measures to make things easier. It could impose tariffs on shirts imported from other countries to raise their price; it could provide her with cheap credit to lower costs; it could also help her acquire the latest technology. All these measures are part of a strategy to give her some help against imported goods that she has to compete against. If successful, she will be able to push the imported shirts out of the mar- ket and become the dominant seller in the local market—she will have substituted her own goods for the imports. This is why the strategy is called import substitution.

For ISI to work, it takes extensive state intervention in markets, as we just described. During the decades stretch- ing from the Great Depression to the 1980s, this meant that states were enabling their national firms to succeed in lo- cal markets and push out foreign producers. So, for example, as Brazilian textile produc- ers grew in their own experi- ence and power, they pushed Amer ic an textile produc – ers out of the market. This is why ISI and deglobalization in some products went together. When globalization took off in the 1980s, it was part of a larger shift toward more market-friendly policies associated with neoliberalism. In the developing world, neoliberalism came in the form of a policy package known as the Washington Consensus. This was a term coined by economist John Williamson, and it describes the main components of a policy package that re- placed ISI in the developing world during the 1980s.

The policies that were implemented under the Wash- ington Consensus were broadly oriented to opening up the domestic economy to international finance and capital, to lowering trade barriers and liberalizing the domestic economy. This is also why they are associated with recent globalization— because they aimed to open up emerging economies to goods and capital from the advanced world and also to encourage more exports from the former to the latter. Hence, just as the middle decades of the twentieth century were a time in which state controls and deglobalization went together, so at the end of the century, liberalization and globalization went together. This is important to keep in mind when we try to assess the impact of globalization on economic growth. It is not very easy to separate the effects of economic integration from the effects of deregulation, less state intervention in the economy, and

One consequence of economic globalization since the 1980s has been an increase in the frequency of financial crises. In most of these instances, the result has been a cut-back in social programs and an increase in unemploy- ment. Here we see protestors in Mexico City hurling rocks at government offices in the wake of the peso crisis of 1994.

What are the consequences of naFta?

M20_MANZ3823_01_SE_C20.indd 581 30/08/12 6:15 PM

582 C H a P T e r 2 0 Globalization 1980—with growth rates in the decades of rapid globalization. Two facts stand out. The first is that economic growth was better during the ISI era throughout the developing world. We see that in all four of regions covered—East Asia, Latin Amer- ica, Africa, and the Middle East—growth slowed down after the end of ISI. Second, we see that some regions did better than others. East Asia managed to sustain decent growth, even though it was lower than in the earlier years. But Latin Amer- ica and the Middle East witnessed a more dramatic slowdown. This tells us that even though globalization did not deliver as promised, the disappointment with its results was greater in some regions than in others. In fact, the slowdown in growth inside the developing world was part of a global decrease in growth rates after 1980. The advanced countries witnessed a deceleration of their own. This is a bracing discovery. We have seen in other chapters that inequality within countries has increased over the past 30 years, in some cases dramatically. When we combine that with the finding that growth rates have also slowed down, it tells us that economic conditions for the poor and very poor have become much worse. It means that income growth has been very meager in national econo- mies, and on top of that, what little income growth there has been has flowed mainly into the bank accounts of the very rich. This is true in the developed and in the underdeveloped world.

In sum, the impact of glo- balization on the economic performance of low-income countries has been mixed at best. To begin with, globaliza- tion has failed to reduce the gap between wealthy and poor

countries. In fact, global inequality has been accentuated as Northern industrialized countries are now further ahead than they were in the postwar years, before open markets and transnational production took hold. Besides growing world inequality, globalization has not only reinforced polarization between wealthy countries and less developed countries, it has also generated sharp disparities within the global South.

trade and financial flows, and its defenders, including many business groups, think tanks, and politicians, claim that this contributed to economic growth (Abramowitz 2008; Of- fice of the United State Trade Representative 2008). Critics of NAF TA, however, insist its positive benefits have been largely limited to already economically advantaged groups, and they blame it for contributing to elevated levels of in- come inequality and stagnating wages and living standards for workers and other non-elite groups (Public Citizen 2008). Economist Robert Scott, for instance, has found that the subsequent explosion in the United States’ trade deficit with Mexico engendered a net loss of over 680,000 jobs north of the border, with more than 60 percent of such “job displace- ment” occurring in the manufacturing sector (Scott 2011). Declining industrial employment had particularly harmful consequences for the job prospects of unskilled workers and weakened labor’s bargaining position with employers; thus, NAFTA fed escalating pay and income disparities as well as a growing gap between median wage levels and productivity growth (Bernstein and Mishel 2007).

Meanwhile, the substantial rise in FDI into Mexico re- sulted in only minimal employment gains while intensifying various forms of inequality (Audley et al 2003). In part, that is because many of the newly created jobs by NAFTA were in the informal sector or did not provide standard benefits (such as paid vacations or social secu- rity). Nearly all of the growth in manufacturing employment was due to greater work op- portunities in the low-wage and highly exploitative maquiladoras, which are mostly foreign- owned export assembly plants that comprise a significant, and rapidly growing, segment of Mexico’s industrial sector. Further- more, expanded employment in manufacturing was largely out- weighed by losses suffered in Mexico’s agricultural producers as a result of the influx of cheaper, sometimes heavily subsidized U.S. farm imports (Henriques and Patel 2004). The result was a massive migration out of the Mexican countryside (Bacon 2012). Improved access to Mexican markets benefited large U.S. agricultural producers but did not prevent the elimination of hundreds of thousands of smaller family farms during the NAFTA era. These sorts of considerations have led some one- time supporters of NAFTA to conclude that it failed to provide the boost to living standards they expected while exacerbating a wide array of socioeconomic problems (DeLong 2006).

Has Globalization Lived up to its Promise?

One of the most direct ways to assess whether globalization has fulfilled its promise is by looking at growth rates. And here the evidence seems pretty clear. Figure 20.2 compares the rate of growth in GDP during the ISI era—that is, 1950 to

Workers in a maquiladora plant in Tehuacan, Mexico. Notice the crowded and dusty conditions.

What is the impact of globalization on the economic performance of low-income countries?

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The Effects of Globalization 583

to now. In the early twentieth century, it prob- ably seemed like market integration was an unstoppable force which all governments and all economies were powerless to stop. Yet by 1950 it already seemed like a thing of the past. The world during the years after World War II was one in which there was still plenty of trade and international investment, but it was sub- ordinated to production and exchange within national borders. The reglobalization that has occurred since the 1980s has again been driven by state policies—such as the lowering of tar- iffs, the opening up of capital markets, and the deregulation of markets. Taken together, all these points show that globalization has been

the product of social and political initiatives. And this means— crucially—that there is nothing natural about it. It can be mod- ified, and even significantly changed, by state policy.

The second point is that even while globalization is a real- ity, we should not exaggerate its extent. We are often told by the media and political leaders that we are in an era of unprec- edented economic integration. The New York Times columnist Thomas Friedman famously announced in his best-selling book that, with globalization, the world had become flat—meaning that every part of the world was becoming woven into the same seamless fabric (Friedman 2005). But as we have seen, there are two caveats to this observation. First, in historical terms, the extent of real economic integration today is probably no more than it was in 1912. So it is not accurate to say that we are in a new world. Rather, we are now catching up to a world from a century ago. Second, whatever integration exists is more closely structured around regions than it is around the globe. This means that things like distance, culture, history—all the things that sociologists study—still matter a great deal in economic dynamics.

Third, we have seen that globalization is not a panacea. In fact, on most counts, the years of increased economic inte- gration have witnessed worse economic outcomes than earlier years. This does not mean that we should push for a new era of deglobalization, as there are also benefits that come with eco- nomic integration. And as we pointed out earlier, it is not easy to disentangle the effects of globalization itself from the effects of neoliberalism and the deregulation of markets more specifi- cally. It could very well be that globalization accompanied by a more active state, more redistribution, and more regulation of market outcomes could yield better results than would a new era of deglobalization. But while some kind of globalizing economy might be desirable, we can probably conclude that the kind we have actually had has not lived up to expectations. But how do we modify it if it is an unstoppable force? The point is that it is not. Now that we know that globalization has always been governed by political forces, that it has relied on state sup- port and state indulgence, we can also have some confidence that if we are unhappy with its results, there is something that an activated citizenry can do about it.

Whereas the few East Asian industrializers were able to sus- tain robust pre-1980 growth rates—and even fewer countries, namely China and India, were able to take off in the era of open world markets—most low to middle-income countries which benefited notably during the decades of state-led development and regulated markets saw their growth, produc- tivity, and investment stagnate with the turn to globalization.

CONCLuSiON GLOBALiZATiON iN reTrOSPeCT AND PrOSPeCT There are three big ideas that you should take from this chapter. The first is that globalization is and always has been a politically driven phenomenon. In other words, it is not the result of una- voidable economic forces sweeping away all that comes before them. We have seen that it took very specific political and social conditions to bring it about. The first of these was the spread of capitalism as a specific economic system. Capitalism makes everyone within the economy market dependent—everyone has to fully participate in buying and selling in order to survive. Until this happened, there were very tight limits on how far globalization could proceed. And for the change to come about, it took massive efforts by states. The turn to capitalism was not automatic. It was brought about by long and arduous policy directives from governments, either enticing peasants to give up their plots of land or coercing them into it. Even after the turn to capitalism, massive investments in transportation and communication technology were still needed for globalization to take off. These also required a governmental action because infrastructure investments did not promise immediate profits for private investors. Railroads, for example, were either built within the public sector or needed large subsidies to attract private investors. When globalization took off in the 1870s, it seemed like it was driven by purely economic forces, but behind it was the heavy and ever-present hand of the state.

The importance of the state is also evident in the way economic integration ebbed and flowed in the twentieth cen- tury. It is important to remember that the onset of globaliza- tion has not been in the form of a steady growth from 1870

F i G u r e 2 0 . 2 r e G I o N a l e C o N o M I C G r o W T H r aT e S , 1 9 5 0 – 2 0 0 8

Source: Based on data from Maddison Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD

0% 1950–1959 1960–1969 1970–1979 1950–1979 1980–1989

Year 1990–1999 1980–20082000–2008

R eg

io na

l A ve

ra ge

G D

G ro

w th

R at

10%

*Excludes China.

East Asia* Latin America

Middle East Africa

M20_MANZ3823_01_SE_C20.indd 583 30/08/12 6:15 PM

T h e B I G Q U e S T I O N S R e V I S I T e D

584

20T h e B i g Q u e s T i o n s R e v i s i T e d Study and Review in MySocLab Watch the Video Inspiring Your Sociological Imagination in MySocLab

What Are the Origins of Globalization? (p. 567)

How Far-Reaching Is Globalization? (p. 571)

Key TermS

globalization (p. 567) export (p. 567) import (p. 567) foreign investment (p. 567) emigration (p. 567) factors of production (p. 567) peasant (p. 569) precapitalist (p. 569) capitalist economy (p. 569) deglobalization (p. 569) gross domestic product

(GDP) (p. 570) tariff (p. 570) capital controls (p. 570)

Key TermS

foreign direct investment (FDI) (p. 572)

transnational corporation (TNC) (p. 572)

Watch the Big Question Video in MySocLab to review the key concepts for this section.

What does globalization mean, and how can sociology make sense of it? In this section we examined globalization and its origins.

GLOBALIZATION AND ITS ORIGINS (p. 567)

The Beginnings of Globalization (p. 567)

• What are the two key changes responsible for globalization taking off?

The Course of Globalization: From the Nineteenth Century to Today (p. 569)

• Has globalization expanded steadily since the nineteenth century?

To evaluate how far-reaching the process of globalization has been, we examined two is- sues in this section: First, to what extent are countries participating in international trade and investment? Second, do countries integrate equally with different parts of the world?

GLOBALIZATION’S REACH (p. 571)

The Degree of Globalization (p. 572)

• How extensive is international trade and investment? The Importance of Regions (p. 572)

• Why does economic integration cluster around regions? Explore the Data on Globalization or Regionalization? in MySocLab

Read the Document Arnold Schwarzenegger, Ally McBeal and Arranged Marriages: Globalization on the Ground in India by Steve Derné in MySocLab. This reading exam- ines the impact of globalization on the lives of affluent and middle-class Indian society.

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C H a P T e r 2 0 T h e B i g Q u e s t i o n s R e v i s i t e d 585

What Drives Globalization? (p. 575) Key TermS outsourcing (p. 575) global value chains (p. 575)

Watch the Big Question Video in MySocLab to review the key concepts for this section.

In this section we explored how recent phenomena such as outsourcing, global value chains, and regional trade agreements have become important components of globalization. We also examined China’s explosive economic growth and the human costs that sometimes accompany globalization.

GLOBALIZATION’S DRIVING FORCES (p. 575)

Outsourcing and Global Value Chains (p. 575)

• What role do global value chains play in globalization? China’s Export Zones: A Case Study (p. 577)

• What are the benefits and costs of China’s export zones?

What Are the Benefits and Drawbacks of Globalization? (p. 579)

Key TermS

import-substituting industrialization (ISI) (p. 579)

Washington Consensus (p. 581)

Watch the Big Question Video in MySocLab to review the key concepts for this section.

Has globalization lived up to its promise? In this last section, we assessed whether globaliza- tion has been good for economic growth.

THE EFFECTS OF GLOBALIZATION (p. 579)

Explore A Sociological Perspective: Are there cultural aspects of globalization? in MySocLab

Economic Policies in Developing Countries: 1930s to 1980s (p. 579)

• Is globalization good for economic growth? NAFTA: A Case Study (p. 581)

• What are the consequences of NAFTA? Has Globalization Lived Up to Its Promise? (p. 582)

• What is the impact of globalization on the economic performance of low-income countries?

Watch the Video Applying Your Sociological Imagination in MySocLab to see these concepts at work in the real world

What Are the Benefits and Drawbacks of Globalization?

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