Arthur MacEwan is professor emeritus of economics at the University of Massachusetts Boston and a co-founder and associate of Dollars & Sense magazine. This is the first part of a three-part series on the era of economic globalization, the distribution of power worldwide, and the current crisis. It was originally published in the January/February issue of Dollars & Sense, commencing the magazine’s year-long “Costs of Empire” project.
How We Got Here and Where We Need to Go
Globalization has run into a backlash.
There has long been opposition to the efforts of governments and large corporations in the high-income countries—especially the United States—to establish new rules of global commerce. This opposition appeared in the protests against the North American Free Trade Agreement (NAFTA) in the early 1990s and against the World Trade Organization (WTO) in the later 1990s. Remember the Zapatistas in 1994 and Seattle in 1999?
In 2016, however, the backlash against globalization became especially formidable. It emerged as a dominant theme in Donald Trump’s ascendency to the U.S. presidency, and also was a major factor in Sen. Bernie Sanders’ strong campaign for the Democratic nomination. In the United Kingdom, the Brexit vote to take the country out of the European Union was also in part a reaction against globalization, as has been the growing strength of right-wing politicians elsewhere in Europe. Globalization has become the focal point for the reaction of many to a wide range of social and economic ills, a reaction that has also been fueled by latent—and not so latent—xenophobia and racism.
Whatever other factors are involved, the backlash against globalization is based on the very real damage
that has been done to economic equality, security, and the overall well-being of many people by the way
international commerce has been organized. How did we get here—what’s the history of our current situation?
Could international commerce be organized differently? Are there alternatives?
Not a New Phenomenon
At least since people began walking out of Africa tens of thousands of years ago, humans have been expanding the geographic realm of their economic, political, social, and cultural contacts. In this broad sense, globalization is nothing new, and it might reasonably be viewed as an inexorable process. To oppose it would be little different than trying to stop the ocean tides.
Globalization, however, is not one, well-defined phenomenon. It has taken different forms in different periods and has been connected to political power in different ways. It will certainly take new and different forms in the future. Colonialism, for example, has been a predominant form of globalization for thousands of years, and only disappeared—well, not entirely (consider Puerto Rico)—in the second half of the 20th century. Neo-colonialism, a system in which major powers exercise de facto control over the policies of lesser powers but without the formal, de jure controls of colonialism, often came into force as colonialism waned. From the 16th through the 18th century, under the ideology of mercantilism, European powers explicitly regulated their own countries’ foreign commerce through import restrictions and export promotion. Mercantilism often went along with colonialism, and colonial powers also put economic restrictions on the countries they controlled. In the second half of the 20th century, the increasing integration of countries in Western Europe, leading to the formation of the European Union and creation of a common currency, is still another example of the varied forms of globalization.
Virtually everywhere among the now high income countries—the United Kingdom and the United States are prime cases—early industrialization was accomplished with high levels of government protection for manufacturing. At the same time, these countries’ governments used their power to extend their global economic engagement, to seek resources or markets or both. For example, Britain developed a far-flung empire, and also employed its powerful navy to assure that, in regions outside the empire, markets and resources were available for British commerce—for the sale of textiles in Latin America, opium in China, etc. The United States, late to the era of colonialism, extended its realm of control, over land and other resources, by expanding westward across the continent. But the United States became a colonial power at the end of the 19th century, taking Puerto Rico, the Philippines, Hawaii, and Guam (and Cuba for a two and a half year period). At the same time, this country increasingly became a neo-colonial power, using military strength especially in the Caribbean and Central American to protect U.S. financial and other interests.
Interruption and Reassertion
Globalization was severely interrupted in the first half of the 20th century by two world wars and the Great Depression. Furthermore, after the wars, two major areas of the world—the Soviet Union and its “satellite” countries, as well as China—were largely outside of the international capitalist system. In this context, the United States—with only 6% of the world’s population, but some 27% of the world’s output, became the undisputed leader of the “free world.” With this economic prowess, its extreme military strength, and the relative devastation of other economically advanced countries—was virtually able to dictate the terms, the rules of operation, in the international economic system.
The goal of the U.S. government in this regard was that U.S. firms would have access—indeed, they should have the right of access—to resources and markets throughout the international system. As one step toward accomplishing this end, the United States, with the acquiescence of other countries, established the dollar as the central currency of international commerce. Both directly and through its influence over international institutions (the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade), the U.S. government pushed for the minimization of countries’ barriers to foreign trade and investment—that is, “free trade.” Trade barriers were, however, slow to come down as other advanced countries sought to rebuild their industries after the war and many lower-income countries sought to protect their nascent industries. Nonetheless, governments and business interests in these other countries also wanted foreign investment, resulting in the great expansion of U.S.-based multinational firms from the 1950s onward.
But trade barriers would eventually come down. The United States, which had built its own industrial capacity behind tariff walls in the 19th century, now insisted in the latter half of the 20th century that low-income countries abandon similar walls. Having reached the top, the United States was pulling the ladder up. The International Monetary Fund (IMF) played a major role in pushing low income countries to lower their import restrictions. When these countries turned to the IMF for financial assistance (especially during the debt crisis of the 1980s), the condition for that assistance was “structural adjustment,” which included lowering import restrictions.
The efforts of the U.S. government began to achieve notable success in the 1990s, with NAFTA, which removed many trade barriers among the United States, Mexico, and Canada (and did a good deal more, as discussed below). Then it promoted the formation of the World Trade Organization (WTO), which, according to its own website, “is the only global international organization dealing with the rules of trade between nations.” (The U.S. government, however, failed in its effort to establish the Free Trade of the Americas Agreement (FTAA)— about which negotiations took place through the 1990s and which would have included virtually all countries in the Western Hemisphere.)
The U.S. government has established either bilateral or small group (e.g., NAFTA) “free trade” agreements with 20 countries, most put into effect since 2000. Even without such agreements, access to the U.S. market and U.S. access to foreign markets have expanded considerably. There are still regions of the world, China and Russia for example, where significant restrictions on foreign trade and investment still apply and with which the United States has no general trade agreements. Yet U.S. firms are nonetheless heavily involved in these countries as well. Compared to the situation after World War II, to say nothing of the 19th century, tariffs and other trade restrictions are now quite low.
The changes are illustrated, in Table 1, with data from the world’s twelve largest economies. It is not simply tariff changes, however, that have brought about a burgeoning of international commerce. Other sorts of restrictions on trade (e.g., quantitative import restrictions, or “import quotas”) have come down. And major advances in transportation and communications technology have also played a role. All in all, the rising role of international trade and investment has been huge—making the current age truly an era of economic globalization (at least in the broad sense).
In the decade of the 1960s, world exports averaged 12% of world GDP, but in the recent ten-year span of 2006-2015, the figure was 30%. The international trade of the U.S. economy also grew over the same period, though at a much lower level. (Larger countries tend to have lower imports and exports, relative to the size of their economies, than small countries.) Foreign direct investment (FDI) has grown especially rapidly in recent decades, with annual net inflows of FDI in the world rising 100 fold between the 1970s, when the average was $21 billion, and the period 2006-2015, with an average of over $2.1 trillion. (FDI includes investment that establishes control or substantial influence over the decisions of a foreign business—such as a wholly owned subsidiary—plus purchases of foreign real assets such as land and buildings.)
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