Unit 1 A Historical Perspective on Globalization

Over many years of human history globalization has been taking place through travel and trade, through the migration of peoples from one part of the world to another, and through the travel of ideas (including scientific, political and religious ideas) from one region to another. Before the Renaissance, the direction of globalization was from East to West, as Arab traders carried important ideas and scarce goods from China and India into Greece and thus to Europe. In his book, The Wealth and Poverty of Nations, the historian David Landes (1998) points out that a thousand years ago China and the Arab world were at the forefront of technological developments just as the Western world is today. The western world borrowed heavily from these civilizations. This position is reversed today and the reversal happened through a mixture of effective competition, adoption of technologies in the Western world, and the development of institutions of global economic power to perpetuate such growth and development. Since the middle of the nineteenth century globalization has tended to centre more on the West and the movement of goods, services and technology from Western nations to the Eastern and Southern regions of the world. The current debate about globalization has its intellectual origins in the early nineteenth century. David Ricardo, writing in England in 1817, clearly saw the advantages of free trade and developed the theory of comparative advantage. [] free trade was an important component of the ideology of laissez-faire that dominated British policies from the middle of the nineteenth century. Britain saw a cheapening of food prices in her own economy after liberalizing trade, and this helped to keep wages down in the economy. The economic historians Lindert and Williamson (2001) argue that liberalization of trade by Britain was quite egalitarian in its impact. It saw gains for everyone except the land-owning aristocracy in England, whose main source of income, rent from land, fell as cheaper food imports flooded the country. Food exporters in the New World and some Scandinavian countries prospered, as did English labourers and English factory owners. The historian Eric Hobsbawn (1982) has pointed out that the popularity of the laissezfaire policies in Britain occurred at a time when it was the first industrial nation with an unrivalled competitive advantage in manufacturing. The world looked very different from Germany, which was trying to catch up with Britain who led in the race to industrialize. Not surprisingly the first and most important treatise on the need for protection came from Germany. Soon after David Ricardo wrote about comparative advantage and the gains from trade, Fredric List penned his piece on the benefits of

protection for infant industries. He argued that Germany needed to shield its infant industries from foreign competition, in order to give them a chance to learn and grow. In time this protection would allow high-cost domestic industry to learn and thereby lower the costs of production. Many of the industries that Germany wanted to protect, such as steel and chemicals, were in fact increasingreturns industries. Thus, in the nineteenth century, Germany wanted the right to protect its infant industries while Britain wanted free trade. Lindert and Williamson (2001) tell us that there is at least one other period of history that saw a similar process of globalization to the contemporary one the period between 1870 and 1914. For about 45 years following 1870, falling transport costs led to sharp increases in world trade relative to world income. The traded commodities were mainly primary products and global integration took place around this trade. The stock of foreign capital in the then low income countries, including in 1870 the US and Australia, rose from 9 per cent of their income in 1870 to 32 per cent in 1914. About 60 million individuals migrated from Europe to the New World. North-South migrations were a small trickle as people from the poorer periphery were kept out of the new labour markets by restrictive immigration policies, much as they are now. Worldwide inequality rose, much of the increase being accounted for by within-country inequality,

which was related to the degree of protection afforded to land rents. Then, as now, there were exceptions. In Britain inequality fell, as did the fortunes of much of the aristocracy. There was a limited decrease in between-country inequality as the US, Australia and the rest of Europe caught up with Britain and France. This was also a period of growing divergence between the incomes of colonies and those of the imperial powers. After the long boom of 1870 to 1914 came a series of retreats from globalization to nationalism that lasted until 1950. The first retreat was on the checks put on emigration that had helped so many poor from Europe flee to better lives in the New World. The second came with the great Depression, which persuaded some countries, led by the US, to impose protectionist tariffs. The third retreat came in the form of retaliatory tariffs by other countries. It is a sobering thought that the world took so long to recover from the consequences of the end of the rapid globalization of 1870-1914. Thus, throughout history globalization has divided governments and nations all over the world and today one can hear many modern echoes of this old debate. For example, the recent opposition to the liberalization of trade in services and disagreements concerning the scope of intellectual property laws has divided high income countries, almost crippling the World Trade Organization in the process. Against this background, the question that still

arises is: why do we find protests against increased globalization when most of what we have learnt so far suggests that more WORDS FOR STUDY

international trade and production is good for all economies? (slightly adapted and abridged from Macroeconomics)

egalitarianism = a belief in or a philosophy advocating social, political and economic equality among human beings. free trade = international trade left to its natural course without tariffs, quotas or other restrictions. globalization = making of a company, business, social trend, etc. international or worldwide in scope or application. It is an umbrella term which contains several disparate concepts: the rapid growth of international trade in finished goods and services; the extension of free international markets in private capital able to flow across borders; growth of large, multinational enterprises organizing production across national boundaries; and the slow convergence of consumer tastes in different countries around certain global standards. laissez-faire = doctrine of minimal government interference or abstention from interference in the workings of the free market liberalization = removal or loosening of restrictions on economic or political systems protection, protectionism = 1. a political attitude or policy intended to inhibit or prohibit the import of foreign goods and services; 2. the shielding of a country from foreign competition by import tariffs theory of comparative advantage = a theory that everyone gains if each nation specializes in the production of those goods that it produces relatively most efficiently and imports those goods that other countries produce relatively most efficiently.

A. READING COMPREHENSION 1. TRUE/FALSE: Decide whether the following statements are true or false: 1. Before the period of the Renaissance, the direction of globalization was from West to East, from Greece to China. TRUE FALSE 2. David Landes points out that a millennium ago China and the Arab world were the most technologically developed regions in the world. TRUE FALSE

3. Starting with the middle of the nineteenth century, globalization displayed a tendency of centering more on the West. TRUE FALSE 4. Around the same time, the movement of goods, services and technology started from Western nations to Northern and Southern regions of the world. TRUE FALSE 5. David Ricardo, who wrote in 1817, saw advantages of free trade and developed the theory of comparative advantage. TRUE FALSE 6. Economic historians Lindert and Williamson argued that liberalization of trade by Britain had an egalitarian impact. TRUE FALSE 7. Britain was trying to catch up with Germany who led in the race to industrialize. TRUE FALSE 8. Nineteenth century saw the battle between Germany that wanted protection for its emerging industries and Britain that wanted free trade. TRUE FALSE 9. In 1914, the traded commodities were mainly primary products. TRUE FALSE 10. The period between 1870 and 1914 represented a period of long boom and it was followed by a series of retreats from globalization to nationalism. TRUE FALSE 2. MULTIPLE CHOICE: Fill in the blanks with the most appropriate word or phrase from the text: 1. The travel of ideas, the migration of peoples from one part of the world to another and trade have been the basis of in human history. a) globalization b) liberalization c) deregulation d) consumption 2. A thousand years ago, China and the Arab world were at the of technological developments. a) background b) foreground c) forefront d) front 3. The current debate about globalization has its intellectual in the early 19th century. a) roots b) origins c) stems d) bases 4. Britain saw a cheapening of food prices in her own economy after liberalizing trade, and this helped to keep wages in the economy. a) up b) steady c) off d) down 5. Food exporters in the New World and some Scandinavian countries prospered, as did English labourers and English factory . a) owners b) importers c) traders d) suppliers 6. Many of the industries that Germany wanted to , such as steel and chemicals, were in fact increasing-returns industries. a) defend b) conceal c) protect d) fund

7. The traded commodities were mainly products and global integration took place around this trade. a) secondary b) tertiary c) primary d) by 8. North-South migrations were a small as people from the poorer periphery were kept out of the new labour markets by restrictive immigration policies. a) drop b) trickle c) gush d) flow 9. The first retreat was on the checks put on emigration that had helped so many poor from Europe to better lives in the New World. a) flee b) run c) dash d) hasten 10. The recent opposition to the liberalization of trade in services and disagreements concerning the of intellectual property laws has divided high income countries, almost crippling the World Trade Organization in the process. a) purpose b) scope c) area d) domain 3. Paraphrase the following phrases from the text in your own words: increasing-returns industries, protectionist tariff, retaliatory tariff B. VOCABULARY STUDY 1. Fill in the blanks with the most appropriate word or phrase: 1. The board believed they could their own policy without consulting the trade unions. a) establish b) impose c) introduce d) enforce 2. The company was about to from a year of constant losses when due to a downward trend on the stock exchange it went bankrupt. a) regain b) repossess c) recover d) restore 3. The governments intention to its infant industry from foreign competition was all part of its protectionist policies. a) shield b) protect c) defend d) save 4. After carefully taking into account all the offers, the management realized that they could not acquisition of the new technology. a) allow b) permit c) grant d) afford 5. In order to the firms revenues, the chief financial officer decided to change strategies. a) augment b) boost c) enhance d) increase 6. It is widely believed that due to the current recession all investors will emerging economies and place their money into safer projects. a) run away b) flee c) desert d) forsake 7. Unable to the company the managing director handed in his resignation. a) come back b) recover c) revive d) revitalize 8. The companys strong desire to and increase its profits was reflected by its ambitious policies. a) advance b) boom c) prosper d) progress

9. The stock market was with unexpected bids for that particular sector of the industry. a) flooded b) inundated c) submerged d) drowned 10. It never to the developer to ask for more details about the location. a) arose b) occurred c) came about d) eventuated 2. COLLOCATIONS. a) Match each word on the left with an appropriate on the right to form the correct collocation. Use each word once only. 1. free 2. laissez-faire 3. land-owning 4. competitive 5. infant 6. primary 7. transport 8. sharp 9. growing 10. trade 1 2 3 4 5 6 a. industries b. advantage c. costs d. trade e. liberalization f. increases g. policies h. divergence i. aristocracy j. products 7 8 9 10

b) Now complete each sentence using a suitable collocation from above: 1. One of the reasons for protecting is to stimulate the learning effects that will improve productive efficiency. 2. The effect of on trade is exacerbated by distance, not only from import markets but also from a port. 3. It is imperative that we stop blaming for our problems, and recognize the real causes of this crisis. 4. Following a UN report, further in global food prices are likely. 5. Agricultural would most likely increase the real wages of both skilled and unskilled workers 6. Slowly, the old was beginning to lose ground to the abstract forces of money. 7. respects the sanctity of individuals to decide how and with whom to transact while protectionism coerces individuals to make particular decisions to the benefit of chosen parties. 8. The primary sector of the economy involves changing natural resources into . 9. A exists when a firm has a product or service that is perceived by its target market customers as better than that of its competitors. 10. The economic slowdown reveals a in credit quality among Gulf Banks.

c) GLOBAL. Fill in with the appropriate word so that you make an appropriate collocation with the word global. 1. Better transportation links and modern communications are bringing people closer, but instead of becoming more alike, they are more eager than ever to assert their differences, and marketers at least those who want to create global ignore this at their peril. 2. Global is a term that was invented in order to emphasize that the globalization of a product is more likely to succeed when the product or service is adapted specifically to each locality or culture it is marketed in. 3. A commercial product, such as Coca Cola, which is marketed throughout the world under the same brand name is called a global . 4. The world regarded as having become a single community by the effects of mass media, rapid travel, etc. is also called a global . 5. A quota set by a nation on the total imports of a product from all countries is known as global . 6. Bonds that can be offered within the euromarket and several other markets simultaneously are also called global . 7. Processing cross-border securities trades, keeping financial assets safe and servicing the associated portfolios is an umbrella term for global . 3. CONFUSING WORDS. Choose the correct word for each sentence: 1. They could have just as well tried to avoid the financial difficulties that lay ahead but the reverse / reserve is also true. 2. The situation was quite desperate and he needed to lend / borrow a large amount of money to keep his business afloat. 3. The policy of redundancies is no effective / efficient means of fighting that kind of unemployment rate. 4. The current policy / politics of the company is not at one with the workers demands for better wages and working conditions. 5. There is an entire treaty / treatise on how to be successful in any business endeavour. 6. The current wave of immigration / emigration from that country was due to the lack of jobs in their own. 7. The current rise / raise of prices is going to affect the level of inflation that was targeted by the central bank at the beginning of the year. 8. The government is due to enforce new economic / economical reforms in that sector of the industry, which was long plagued by corruption. 9. The countrys economics / economy is booming due to the new implemented measures. 10. At one point or another any country feels the need to protect its child / infant industries by means of protectionist tariffs.

4. PREPOSITIONS. Fill in with the appropriate preposition: 1. The next issue on the agenda is not related the topic of todays debate. 2. The current survey of the data cannot account the discrepancies between wholesale and retail prices. 3. Since the country was freed from the evil dictatorship, it has to catch its more economically advanced neighbours. 4. Try as he might, his company was unable to get that tight corner it had been in for more than a year. 5. The new trade agreement complies the countrys new legislation regarding trade. 6. Their strong dependence governmental aid caused all other investors to withdraw their financial support. 7. Reaching for help would have been the salvation of that firm but its managing director was too self-confident to acknowledge the fact that it was his faulty policy that had led the firm to that outcome in the first place. 8. What he was not able to understand was why he had to argue that particular type of intervention. 9. It all amounted them agreeing to the plan. 10. They were unaware of what they were coming so they plunged in head forward. 5. Fill in the blanks with one of the following words. Each word may be used once only: production, acceleration, peoples, measured, catalysts, integration, turn, aspects, capital, influence Globalization is thought of as the increased (1) of the world economy through international trade and international flows of (2) , which together expand the international (3) of world output. There are, however, broader (4) of globalization as a process, involving as it does the movement of (5) and of ideas. While the jury is still out on the role and (6) of these upon growth, it may well (7) out that they are the two most important (8) in the process of growth and change. [] The late 1980s and the 1990s saw a remarkable (9) of international economic flows as (10) by increased international trade and flows of capital. (adapted and abridged from Macroeconomics) C. TRANSLATION PRACTICE 1. Translate the following texts into English: a) Este cineva surprins c o companie din India ptrunde pe piaa american ndelung dominat de branduri cu reputaie precum Deere & Co.? Ei bine, e timpul s ne uitm cum globalizarea a ajuns s inverseze lucrurile cu care

eram obinuii. O nou specie de multinaionale i face apariia pe scena internaional, fenomen care genereaz deopotriv provocri i oportuniti pentru juctorii globali consacrai. Noile companii provin, aparent, din cele mai neateptate locuri: ri n curs de dezvoltare precum Brazilia, China, India, Rusia i chiar Egipt i Africa de Sud zdruncin deja din temelii industrii ntregi, de la echipamente agricole, la sisteme de ngheare i servicii aeriene de telecomunicaii, schimbnd regulile competiiei globale. (adaptat din Giganii emergeni Business Week, nr. 14/8 august 2006) b) Dup ce ani de zile firmele chineze au fost asociate n ntreaga lume cu produse ieftine i de o calitate slab, o serie de companii din China au luat prin surprindere piaa internaional reuind s-i impun brandurile. Avnd n vedere c Romnia este o pia de desfacere pentru produsele chinezeti, situaia nu putea rmne fr efecte locale. Spre exemplu, Romnia a reprezentat pentru cei de la Huawei capul de pod pentru Europa Central i de Est. Timp de doi ani, compania a coordonat de la Bucureti activitile a 19 reprezentane din regiune, Londra prelund apoi aceast sarcin. (adaptat din i China atac Business Week, nr. 14/8 august 2006) c) O schimbare radical n structura actualei economii mondiale este un fenomen rar. Dar s nu ne amgim. Apariia unor companii de talie mondial din ri n curs de dezvoltare este un fenomen care schimb practic faa ntregului joc global. De ceva vreme deja, economiile emergente nu mai nseamn doar externalizare i conectarea la pieele globale. Asistm la un val de juctori globali care provin din ri n curs de dezvoltare i care au avantaje clare n industria n care activeaz. n locul concurenei dintre trei-patru state care mult vreme au dominat comerul global, iat c au intrat acum ntr-o etap n care jocul evolueaz permanent i angreneaz geografii multiple. Mutaia seismic a nceput cam acum un deceniu, declanat fiind de trei fore: mobilitatea talentelor, mobilitatea capitalului i mobilitatea cunotinelor graie n mare parte internetului. Drept urmare, oricine de oriunde, cu sufiecient motivare, poate ajunge s restructureze o industrie global. [] Oamenii de afaceri din cele mai dezvoltate economii ale lumii trebuie s fie de acord c, n statele n curs de dezvoltare, antreprenorii locali au acces la talente de vrf, de aceea trebuie s se atepte la o concuren serioas din partea nou-veniilor, att n rile lor, ct i la nivel global. [] Este motivul pentru care noii gigani nu sunt doar o mod trectoare. Fie c este pregtit sau nu, lumea ntreag va deveni ceva mai mic. (adaptat din De ce lumea este, n definitiv, mai mic Business Week, nr. 14/8 august 2006) d) Din vremuri strvechi s-au dus lupte acerbe pentru a stpni o regiune sau chiar lumea ntreag. Istoria consemneaz multiple rzboaie, fierbini sau

reci, ntre Roma i Cartagina, ntre greci i peri, ntre Imperiul Britanic i cel Spaniol, ntre SUA i Uniunea Sovietic etc. Actorii principali s-au schimbat, ns totdeauna fora militar a fost puternic corelat cu economia i tehnologia. Ce naiuni sau organizaii vor domina lumea de mine? Previziunile experilor sunt descurajante pentru occidentali. Contrar fanteziilor politicienilor europeni, UE nu prea are anse s devin lider economic mondial. Se va vorbi tot mai puin i despre miracolul japonez. Dac vrei s v adaptai de pe acum la lumea de mine, probabil c cel mai bun sfat este s v nvai copiii, dar mai ales nepoii, chinezete. Occidentul mai are la dispoziie cel mult 50 de ani ca s-i impun cultura, altfel conflictele pentru supremaia global sunt inevitabile. [] (adaptat din Supremaia mondial calc pe muchie de cuit eFinance, nr. 70 iunie 2006) e) Pe parcursul ultimelor decenii, configuraia marilor puteri economice a suferit o serie de modificri. Cele mai importante schimbri au fost legate de explozia economic spectaculoas a Japoniei (urmat de diminuarea la fel de spectaculoas, din ultimii 10 ani a influenei sale), de destrmarea Uniunii Sovietice, de reducerea treptat a influenei multor economii vest-europene n detrimentul rilor din estul continentului european i din sud-estul Asiei. ns toate aceste schimbri sunt doar un preludiu la ceea ce urmeaz... Dup toate semnele, viitorul va modifica total polii de putere att economic ct i politic. n 2020, Occidentul nc va domina lumea, ns puterea relativ a economiilor asiatice va fi mult mai mare dect astzi. Iar apoi va urma, probabil, chiar o rsturnare de situaie, influena Occidentului cednd n detrimentul marilor economii emergente (Brazilia, Rusia, India i China, care au cptat mpreun denumirea de rile BRIC). (adaptat din Supremaia mondial calc pe muchie de cuit eFinance, nr. 70 iunie 2006) 2. Translate the following texts into Romanian: a) Air France is in advanced negotiations with KLM Royal Dutch Airlines with a view to intensive co-operation, although critical points were still under discussion, the two airlines confirmed on September 17th. Shares of KLM have been soaring in expectation of the two carriers announcing some sort of marriage. Most countries ban cross-border airline mergers. International traffic rights are tied to designated domestically-owned carriers under bilateral government deals. So a full merger is hard to do. Ideally, the carriers would form a jointly-owned company with the KLM brand kept alive as a Dutch subsidiary exercising the international traffic rights from the Netherlands. KLM will join the global SkyTeam alliance of airlines, based around Air France and Americas Delta Air Lines. Under that umbrella, KLM and Air France will pool flights, coordinating schedules and prices as much as is

allowed by the European Union competition authorities. There may even be symbolic exchanges of equity stakes. (abridged from The Economist 20th September 2003 Global Pattern) b) KLM Royal Dutch Airlines aim is to offer more flights to more destinations. Being a member of SkyTeam, an alliance of ten airlines, encompassing more than 15,000 daily flights to around 700 destinations in over 133 countries, is a guarantee that it can achieve this. SkyTeam includes among its members AIR FRANCE, with whom KLM has merged to create AIR FRANCE-KLM, Europes largest airline group, and Northwest Airlines, KLMs longstanding US partner. The SkyTeam provides a wealth of advantages and benefits for its passengers, such as Miles-earning and spending options within Flying Blue (the worlds first fully integrated frequent-flyer program), AIR FRANCE/KLMs joint frequent flyer program. Together with other carefully selected airlines and train operators it guarantees a perfectly integrated network that will satisfy all travel needs. (adapted from Holland Herald, KLM in-flight magazine, May 2006) c) Its a victory for US trade officials but one that stirs discomfort in some quarters. For years Washington has fought to open up foreign markets to American cigarette makers even as the US surgeon general tries to curb smoking at home. Now a special panel of the general Agreement on Tariffs and Trade has ruled that Thailands ban on foreign cigarettes is illegal opening up a $150 million-a-year market for US tobacco companies. The finding will almost certainly be ratified by the full GATT Council and Bangkok will have no choice but to respect it. We will fully abide by whatever decision is made, vows Thailands secretary of Commerce. But those who want to keep foreign cigarettes out of Thailand havent thrown in the towel. An unlikely alliance health groups and the Thai Tobacco Monopoly has pledged to fight on. In doing so they still have one weapon at hand. Though the GATT panel made up of investigators from Sweden, Finland and New Zealand said that Thailand must open its borders to foreign smokes, it ruled that Bangkoks ban on cigarette advertising was perfectly legal so long as it applied to domestic and foreign tobacco companies alike. Nevertheless, given the almost universal name recognition enjoyed by some American brands, it probably wont be long before many Thai smokers move to Marlboro country. (adapted from Newsweek, October 15th, 1990) d) Much of the frequently acrimonious debate among economists about global poverty and inequality turns out to revolve a single technical issue: is it better to measure consumption (and hence living standards) using data drawn from national accounts or data drawn from household surveys? The two sources ought to marry up. In fact they differ systematically, and by a wide margin. Worse, growth in consumption, not merely levels of consumption, differs persistently according to which source is used. National-accounts data tend

nearly always to give a much more optimistic view of trends in poverty than do household-survey data. [] The discrepancy draws attention to the danger of focusing too much on the dollar-a-day threshold. That is a crowded part of the global income distribution. For this reason alone, switching from one data source to another, or moving the official poverty line from one level to another, is apt to have a large effect on the figures. Still, the question remains, why are the differences so big? Several factors are at work. The World Bank attempts to measure consumption poverty, as opposed to income poverty. To the extent that poor people manage to save, their consumption will be less than their income, and so there will be more poor people on the Banks definition. [] By contrast, India and China are showing how great the benefits of international economic integration can be. Neither country is an exemplar of free-market capitalism far from it. But it is undeniable that both countries have consciously chosen to seize the opportunities afforded by the global economy, through both trade and foreign investment. As incomes surge, while the living standards of the poorest improve more modestly, if at all, inequality within both countries may well be rising. (adapted from The Economist, March 13th, 2004 Global Economic Inequality)