The Main Forces Promoting Globalization Economics Essay

Karl Marx wrote in the 1848 in the Manifest der Kommunistischen Partei (The Communist Manifesto) that „in place of the old local and national seclusion and self sufficiency we have exchanges in every direction, leading to the universal interdependence of nations”. Therefore, we can conclude that globalization as a force for economic, political and social change is not a new phenomenon. In this essay I will extract what were the driving forces of globalization at the end of the 20th and 19th century and compare them to reach a conclusion of whether these two centuries experienced the same type of globalization.

To start with, there are disputes amongst academics on what globalization really is. Globalization is a historically complex term and itself it could be a huge topic of global discussion and many articles. However, I will firstly give two definitions of this phenomenon in order to make it clearer to understand how important is the subject of this essay. Therefore, globalization is….

“The inexorable integration of markets, nation-states, and technologies to a degree never witnessed before-in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before . . . . the spread of free-market capitalism to virtually every country in the world ” (T.L. Friedman, (1990) The Lexus and the Olive Tree, p. 7-8).

And…

“The historical transformation constituted by the sum of particular forms and instances of . . . . making or being made global (i) by the active dissemination of practices, values, technology and other human products throughout the globe (ii) when global practices and so on exercise an increasing influence over people’s lives (iii) when the globe serves as a focus for, or a premise in shaping, human activities” (M. Albrow, (1996) The Global Age, p. 88).

As we have now acquired the formal definition of globalization, lets outline what were the sources of globalization in the late 20th century. One of the main causes behind globalization in the 20th century was technological innovation. Quickly changing technologies used in transport and communications continued to disband the barriers of time and distance that were making long range relationships between countries more difficult. In the 20th century, the most important technological innovations that changed international relations were the jet-plane, satellites and the World Wide Web. For example, this means that between 1930 to 1990, average air transport revenue per passenger mile fell from $0.68 to $0.11 (in 1990 dollars) and the cost of 3-minutes call from New York to London fell from $244.65 to $3.32 (and the total volume of international telephone calls more than doubled in just six years during the 1990s, from 33 billion minutes in 1990 to 70 billion minutes in 1996).

Next factor of globalization at the end of the 20th century were decreasing trade barriers, lower tariffs and fewer non-tariff trade barriers. For example, by 2000, the average tariffs of developed countries were 3.8%, while developing countries’ average tariffs were 12.3%. Moreover, a rising population in less-developed and prosperous areas frequently has triggered emigration to areas of economic prospect and the need for energy and industrial raw materials to help developed economies also affected the globalization process by promoting greater flow of goods (and therefore enhanced the interdependence of international economies). Finally, leadership has also contributed to the movement of globalization in the late 20th century. Had the United States (as the world’s leading economic and military power in the 20th century) not committed its public policy to promote an open international economic system, it is probable that the globalization process would have taken a different course and not necessarily an advantageous one.

What is more, the end of the 20th century experienced the rise of new markets that set off globalization which led to the international trade in goods and services figuring up to more than $7 trillion – this represents more than $1000 per person which is an astounding figure. But, what was really new was the spectacular rise of a global capital market. This made it relatively easy for anyone with capital to trade anytime and everyday with almost every country of the world. For instance, in 1998, around $1.5 trillion exchanged hands on the world’s currency markets every day.

Furthermore, by analysing the 19th century globalization, O’Rourke and Williamson highlighted the outcomes of the fall in transportation costs. In their opinion, the major fall in transportation costs (firstly lowered by the steamboat, and then lowered even more by the railroads) was the main factor in interconnecting distant markets; the decline in international transport costs after the middle of the century was enormous. When academics analyse this period, they tend to ignore the decline in transportation costs and focus instead on tariffs and international trade. However, tariffs in the world economy did not fall until World War I and therefore the globalization that appeared in the late 19th century cannot be qualified as a consequence of a more liberal trade policy. As a result, the decline in transport costs alone contributed greatly to commodity market integration across the Atlantic economies.

What is more, the reasoning above seems controversial to the advocates of the argument that the primary factor driving market integration during the late 19th century was trade policy. Still, although the result of England’s move to free trade did contribute to a more closer market integration, by the end of the 19th century, only few European economies stood firmly in the free trade camp. The commodity prices continued to reduce across distant Atlantic economies during these years and this further shows the relative importance of falling transport costs. Just as the decrease in transport costs expanded commodity market integration, according to Jeffrey Williamson mass migrations also helped to bring about greater wage convergence in the Atlantic economies in the late 19th century. Immigration led to the movement from the labour-full countries of the Old Europe to the labour-limited countries of the New World, and this adjusted wages accordingly (high wages in the New World began to decrease and the low wages in the European countries began to increase). The convergence was everywhere in the late 19th century Atlantic economy, as wages and living standards in Europe began to catch up with the wages in the New World countries. In addition, we can also talk about the involvement of technology (e.g. the telegraph), financial institutions (the gold standard), and politics (the relative international political and economic harmony) which have led to capital integration.

Lastly, capitalism has been another influence on globalization. In the late 1850s, Karl Marx estimated in 1859 in his Grundrisse der Kritik der Politischen Ekonomie (A Contribution to the Critique of Political Economy) that „capital by its nature drives beyond every spatial barrier to conquer the whole Earth for its market”. Global markets of the 19th century offered opportunity to increase profits through higher volumes of sale. In addition, larger production supplied global markets with the assurance of increased profits as a result of the economies of scale. Capitalists admired globalization because it allowed production facilities to be located in places where costs are lowest and earnings greatest.

As we can now comprehend, both globalization of the 19th century and the 20th century are rather similar. The main factor behind this phenomenon in these periods was the fall in transport costs. In the 19th century it were the steamboat and rail whereas in the late 20th century it were the plane, satellites and the Internet that reduced the costs of transportation and communication, leading to global interconnection. Also, migration has been a major factor leading to globalization when wages around the world were adjusted. Capitalism has proved to promote the globalization phenomenon in the 19th century as an innovative economic system and in the 20th century, by being a world wide theory of wealth it has done it again. What seems to be the only major difference between the processes of globalization in both centuries is the protective practices of the 19th century countries with only few of them promoting free trade and the late 20th century interdependent world trade market. However, in the former case, protectionism has proved to be counter-globalizing whereas free-trade policy in the latter case was seen as one of the reasons for globalization. Therefore, although today’s globalization that stated in the 20th century differs from the one of the 1800s, the driving forces were more or less the same in both cases.