Globalization in the Historic Context

Globalization, unemployment and government policy

Tony Blair argued in 1996 the notion of the nation state becomes more diffuse and Technological change is reducing the power of the nation state

• Is this true and what are the implications?
• What should be the response of Government?
• Is there clarity over what Globalization means?

To the extent that there is Globalization and nation states are becoming powerless most commentators have exaggeratd the phenomenon

Has Technology 'taken' power from nation states or have countries 'transferred' power to MNC's and global financial markets.

Trends and patterns in globalization

During 1870 -1913 almost continual increase in trade and world output. After the war and Great Depression there was a movement towards a closed world economy. Post second world war with the Bretton Woods agreement there was significant rise in the openness of the world economy but it still took until 1968 to reach pre WW1 levels. The stability (and instability) was based around semi-fixed exchange rated pegged to the dollar (in turn pegged to gold). This cemented US monetary hegemony but also meant it needed to run surplussed to avoid devaluation. Over time the US domestic ecomony became less aligned with the needs of the Global economy, expensive wars and declining economic supremacy put further pressure on the mechanism .

The collapse of the system ushered in a period of slower growth. The oil shocks of the 1970's and power shifting from industrialized nations towards energy producers.

Other patterns that were noted include

• 'regionalism' ASEAN, EU etc.
• Competitive devalutions and
• Technological globalization
  • National exploitation of innovations in global markets. Trade and patents flows have increased across borders
  • Collaboration across nations to exchange know-how
  • Generation of innovations across companies driven by MNC's. MNC's more inclined to seen this as home-based strategic asset and there is a fear that less developed nations can exploit techology at a lower cost.(Hisense, Foxconn, Lenovo)

Far from technological forces sweeping away nation states the need for active governments (nationally locally and globally) is more important.

Trade and economic performance

Common wisdom is that as globalization increases nations should focus on convergence and stability through interest rates, exchange rates and fiscal balances (like ERM). However increased integration could increase the need for economic arguments to target growth and employment

Implications for economic policy

There is a need for international initiatives to target stability and growth and prevention of volatility in financial markets to create financial crises. Authors argue that the BoE focus on interest rates to control inflation does not target growth and employment. An effective industrial and technology policy that embodies ntrainig, innovation, R&D and cultural factors and the ability for developing nations to increase social capability. This requires

• Incentives to attract companies to innovative activities
• Infrastructures to support this.

The evidence shows that there is little evidence towards converging economic policies. There is a bigger divergence between high and lower govt expenditure to GDP. Also the free movement of capital for speculative purposes can destabilize and contrain expansion due to volatility, and large movements in price (oil price doubling in 2008?)

Even 150 years ago economists argued that globailization was constraining national response. So the response should be for nations to work colloboratively at an international level and that globalisation can be controlled by nations.