Globalisation: Part 2 – Changing Economic Interrelationships

The first dimension of globalisation we can outline and examine is the changing nature of economic relationships, based around the idea of trade; this involves the production, distribution and exchange of goods and services focused around manufacturing, financial instruments and, increasingly, knowledge industries.

In the context of globalisation, a key idea here is the concept of mobility, something that has two main dimensions:

a. capital mobility, whereby companies and investments move into and out of different countries as profitability and economic policy dictates.

b. labour mobility, where workers can move with relative freedom between nation states.

Such mobility – with the emphasis predominantly on the former – reflects the increasingly global nature of stock markets and trading blocs. These, in turn, have a number of key features:

1. TransNational Corporations (TNCs)

TNCs are companies that, while based in a specific territory (such as Britain or the USA), operate in a range of countries and markets across national borders.  Although TNCs are a feature of modern society (first established in countries like the USA in the 19th century), Smith and Doyle (2002) suggest globalisation has increased their power and status in world economic terms.

2. Economic Trading Blocs

Trading blocs, such as the European Union or the North and South American Trading Alliance, represent a further example of the economic interconnections between societies. In these instances, nation states develop political agreements and alliances that involve things like preferential trading privileges for member nations.

3. Virtual Trading Communities

More-recently, the development of the internet has further complicated the nature of economic interrelationships in the sense that an increasing amount of economic activity takes place in virtual space – communities that have no physical contact, as such, but which are connected in cyberspace. These economic networks involve the distribution and exchange of both physical products (such as books and electrical goods in the case of Amazon, the world’s largest online company) and, increasingly, financial products, services and knowledge. The implications for the future development of virtual trading communities are enormous, given the ability for companies (both large and small) to tap into a potentially global audience and market for their goods and services.

In particular, one implication is the breakdown (through the types of globalizing processes we have already noted – distanciation, compression, disembedding and deterritorialisation) of distinctions between the local, national, international and global. Disembedding, for example, is both encouraged and accelerated by globalisation in areas like economic exchange (the development of credit cards, smart cards and the like). This process also occurs in terms of economic production and distribution.

In highly developed countries such as the UK and USA there has been a progressive decline in manufacturing – both primary industrial production (the extraction of raw materials like coal) and secondary production (things like car manufacture and shipbuilding), a consequent rise in service industries (such as finance and banking) and, in recent times, knowledge industries (such as computing). The production of goods hasn’t stopped, of course (people still want to buy these things); rather, manufacturing has shifted to less developed countries.

Global Commodity Chains

We can apply these ideas to an understanding of globalisation and changing economic interrelationships by initially noting Sporer’s (2000) argument that ‘Globalisation is the latest stage in the permanent process of social change that started as industrialization and modernisation in Europe but now is spreading globally’, and that, in economic terms, it ‘involves the process of converting separate national economies into an integrated world economy’. This involves, according to McMichael (2004), the development of global commodity chains.

The basic idea here is that in an increasingly globalised economic system, networks of production, distribution and exchange are linked across national boundaries, such that individual producers and consumers are locked into a global chain of economic events. The significance of this idea is not simply the various linkages involved (since trade across national boundaries can hardly be considered new), but the network of economic relationships that creates:

1. Hierarchies – whereby highly developed countries sit atop the global commodity chain, exploiting the fact that clothes or electrical goods can be manufactured using relatively cheap labour in developing countries.
2. Dependencies: Unequal economic relationships create a network of dependencies that is difficult to break; developing countries become a source of relatively cheap production whereas developed countries come to depend, in some respects, on the flow of (cheap) goods to maintain certain living standards.

As McMichael argues, the nature of global networks, complexities and dependencies can be illustrated in the following terms: ‘The Japanese eat poultry fattened in Thailand with American corn, using chopsticks made with wood from Indonesian or Chilean forests. Canadians eat strawberries grown in Mexico with American fertiliser…The British and French eat green beans from Kenya, and cocoa from Ghana finds its way into Swiss chocolate’.

In this respect, Held et al. (1999) pinpoint three areas of economic globalisation and interrelationships:

1. Global trade

This involves the ‘globalization of production’, whereby products can be sourced from different places and assembled in whatever country is able or willing to offer the most advantageous political and/or economic incentives.

2. Global finance

The flow of global production and distribution requires an extensive network of financial arrangements whereby capital can be moved around the world quickly and easily. The development of global financial institutions (such as banks) is, like international trade, not a particularly new phenomenon, but the ease and speed by which money can be moved, tracked and managed have been increased by the development of computer technology and global networks. In addition, money has itself become a commodity traded on global markets as investors (and speculators) execute deals across global networks.

3. Global products

The opening up of global marketplaces means companies best positioned to take advantage of such developments (TNCs in particular) can sell products on a world stage. Corporations not only have access to markets and populations in different countries, they can also, as Yip (1995) argues, sell the same product (such as a car, computer game or film) across the globe with little or no alteration to the basic product.

Globalised Capitalism

Although Corporations have operated around the world since at least the 19th century, Castells (1997) argues the way they operate ‘in a global context’ has changed. A new form of capitalism has developed, one related to older forms, but sufficiently different to be considered in its own right. He argues globalised capitalism has two key features:

1. Information and knowledge

Whereas older forms of capitalism focused on the production of things, newer forms focus on knowledge, information and systems. This isn’t to say companies no longer produce things (like cars) or that information wasn’t significant in the past; rather, what we are seeing is a process of:

2. Reordering

In terms of economic production within globalised capitalism information is now the primary product – something made possible by computer networks that traverse the globe (‘connectivity’). As Smith and Doyle (2002) put it, for developed societies ‘the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining living standards…Today’s most technologically advanced economies are truly knowledge-based’.

Evaluation

Although there’s a general agreement that something is changing in terms of global economic inter-relationships, not everyone agrees about what these changes involve. In basic terms, therefore, we can note three general positions in relation to economic globalisation:

1. Full involves the changes we’ve just outlined, with globalisation considered the motor for a new phase of capitalist economic production, distribution and exchange – one with major consequences for the way economic interrelationships are formed and maintained.
2. Partial or regional globalisation. The world, according to Thompson (2000), is divided into three major regional economic blocs (North and Central America, Europe and Asia), within which the processes we’ve described may be taking place. However, each of these regional blocs is effectively closed to competition from the other. Apart from a handful of global companies (although Veseth (1998) argues that Nike was the only truly global corporation in the 20th century), most TNCs and nations trade predominantly and substantially within each bloc.
3. Mythical: Rugman and Hodgetts (2000) note economic globalisation is often defined by ‘the production and distribution of products and services of a homogeneous type and quality on a worldwide basis’. This, they argue, sees globalisation portrayed as encouraging the ‘dominance of international business by giant, multinational enterprises (MNEs) selling uniform products from Cairo, Illinois to Cairo, Egypt and from Lima, Ohio to Lima, Peru’. Rugman (2001), however, argues that such economic globalisation is ‘misunderstood – it does not, and has never, existed in terms of a single world market with free trade’. This argument, backed by a range of empirical data relating to where and how businesses conduct international trade, both reinforces Thompson’s argument and expands it by arguing that attempting to trade in ‘globalised markets’ does not make economic sense even for transnational corporations. Counter to this, perhaps, is the argument that over the past 10 -15 years we’ve seen a significant development in terms of globalised knowledge and services (epitomised by globe-spanning gigantic corporations such as Amazon, Facebook and Apple). This involves both the lucrative trade in personal data and the development of “globalised products” – from mobile phones to media subscription services – that have become new and hugely-valuable global commodities.

A second dimension of globalisation we can now examine is the changing nature of political relationships.