Article 1: Globalization: what it is and who benefits (Johnson, 2002)
Abstract
Globalization is far more than the international movement of goods and investment. The flow of
ideas from one part of the world to another has increased enormously in the past two centuries.
Globalization is also blamed for the rising inequality of income.
What made globalization possible and effective?
Five developments have had a major role in making globalization both possible and effective
improving the well-being of the majority of the people of the world:
1. Knowledge: increase in knowledge since 1750.
2. Faster and cheaper transportation: have changed relationships among the continents.
3. Faster and cheaper communication: the flow of ideas has increased enormously within the last
150 years.
4. The growth of income that permitted the expansion of trade: trade in goods is an important
component.
5. Reduction of barriers to trade: especially after WWII.
Why the world is different now: knowledge
What makes the world so different now is knowledge. We have a far better understanding of the
laws of nature, of how to use resources, human and natural, more effectively than ever before. The
growth of knowledge was made possible by the improvements in agricultural productivity, which
permitted releasing labour from food productions for other activities and for cities to grow.
Institutions were created that made it possible for people to specialize in the production of
knowledge.
Sources of benefits of globalization
All companies that opened their economies to trade have gained significantly. The advantage of
trade to small countries can be enormous. No country is large enough or diverse enough to not gain
from trade. There is far more to globalization than trade and investment. Four aspects merit
emphasis:
1. The flow of ideas: with rapid communication, an important new idea originating anywhere in the
world can be known everywhere very quickly.
2. The flow of capabilities: ideas must be transformed into either a product or a process, or both.
(vaccinations through the world).
3. The spread of literacy and education: had been a major consequence of globalization. Literacy
and education have moved from high to middle to low income countries.
4. The flow of institutions and policies required for sustained economic growth. The increase in
inequality has not been because the poor have gotten poorer but because the rich have gotten
richer.
Have the poor benefited?
Yes they have benefited. The benefits of globalization are:
Life expectancy increased: has globalization been effective in increasing life expectancy among
the poorer nations of the world? From the least developed countries life expectancy increased by
almost 23 years. The increase in life expectancy in the developing countries in less than 40 years
equalled India’s life expectancy in 1900. Primary source of the increase in life expectancy is the
decline in infant and child mortality. Child mortality is the rate of death for children under five
years and changes for developing countries over the past 40 years. There can be no doubt that
the benefits of globalization have become available to the poorer countries. The increase in life
expectancy in the developing countries has been due primarily to the increased availability of
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, clean water, improves sanitation etc. Hardly any of these benefits would have been available to
the poorer people of the world without globalization, the spread of ideas and capabilities.
Increased agricultural productivity: the increase in grain yields occurred first in the developed
countries. The higher yield in the developing countries are largely the consequence of
globalization. It was primarily through globalization that the new varieties and methods of
production spread throughout the world. A major factor in higher yields has been the availability
of low cost nitrogen fertilizer. This process was transferred from the developed to the developing
world. The gain to poor people due to the enormous increase in productivity and the decline in
real prices was very great. (figure 3,4)
Immunization: a further positive benefit of globalization is the large percentage of the children in
developing countries who receive immunization shots. Immunizations have been important in
reducing child mortality. Without globalization very few of these children would now be
protected against major childhood diseases.
Knowledge: globalization has made it possible for knowledge created in one part of the world to
become available everywhere due to the low cost and speed of communication and the spread
of literacy and education. Much of the knowledge, though not all, has been discovered in the
industrial world. Knowledge requires transformations into product and services before the
knowledge impacts our lives.
Where markets have not been permitted to function
One of the complaints about globalization is that it has resulted in an increase in the inequality of
income. The rich gave gotten richer but the poor gave not gotten poorer. There are three reasons
why there is such a high ratio urban per capita to rural consumption in China:
1. Migration from rural to urban areas.
2. Investment in China has been biased in favour of urban areas.
3. Discrimination in the provision of education
China’s experience indicated that restraints on the market increase inequality rather than reduces it.
Markets are the major avenue for reducing regional and urban-rural disparities in the returns to
labour. If the market had been permitted to function in the allocation of labour and investment and if
the same education had been available to all, the urban-rural per capita consumption difference
would now be far less than it is.
Concluding comment
I should not leave the impression that all of the effects of globalization are positive for all people all
the time. The dislocations are primarily the result of growth not globalization except that the greater
the degree of integration of an economy into the world economy, the greater will be the rate of
growth and the greater the need for change and adjustment. Economic growth requires change,
perhaps the most striking is the adjustment of labour employed in agriculture.
I hope it is clear that globalization involves far more than trade and investment. As important as
these are in the improvement of the condition of life, the spread of ideas throughout the world has
been at least as important in affecting the lives of ordinary people. Ideas have had an enormous
impact on the lives of everyone. The enormous advances in communication that have occurred over
the last century and a half have greatly facilitated the spread of ideas and increased their positive
impact upon the poorest of the poor. The benefits of globalization have been widely distributed.
While much remains to be accomplished, much of what has been accomplished as a result of
globalization has been enormous and largely unrecognized.
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,Article 2: Making Globalisation Work – The 2006 Geary Lecture
(Stiglitz, 2008)
What are the legitimate complaints about globalisation?
The view that everybody would be better off as a result of globalization: they found that a lot of
people were worse off, and many of them were worse off as a result of globalization. The result
of that agreement was just as everybody had expected: the richest countries of the world got the
lion’s share of the gains, but what they did not expect was that the poorest countries would
actually be worse off. So, while the advanced industrial countries feel good about giving aid, the
damage they are doing through trade at the same time is far greater than the aid that they give.
The global financial system is not working the way it ought to. Money has been going from the
poor countries to the rich – the net flow of funds is going in the opposite direction of the way it
should.
For the emerging markets and developing countries, it is more unusual not to have had a crisis,
than to have had a crisis. The reality is that there are dozens of countries facing the problem of
high levels of debt, which is crushing them.
Developing counties around the world that achieved what they were supposed to were not
receiving the benefits they were promised.
In much of the world there is a process of diverging rather than converging. Natural resource
curse: countries with more natural resources that one would have expected to grow faster are in
fact growing more slowly.
Are things getting better or worse
What is true is that there have been enormous changes in the global landscape. In India and China,
some 2.5 billion people who had previously been excluded from the global trading system and
consequently the global economy are now becoming integrated, partially as a result of globalisation.
These changes underline the successes based on education and technology. To engage in the modern
world you need access to resources, technology, and high level of education, which these huge
countries can undertake, but too many of the poor countries cannot (divergence Africa).
Policy changes have also made things worse. There are some new global monopolies, like Microsoft,
which make entry into certain areas even more difficult. We have become more aware of some of
the problems of globalisation. Capital market liberalization, opening up markets to the free flow of
speculative capital that moves into and out of a country overnight, cannot be the basis of economic
growth. IMF had tried to push all the poor countries to liberalize their markets too quickly, before
they were prepared. Conclusion survey: at least for many of the poorest of the world, integration
through capital market liberalization had not led to more growth and had actually not even led to
more stability. The IMF has recognized that there are problems with governance. The IMF is now
proposing that only four countries should have an increase in their voting rights, and US is very
adamant about keeping the veto.
Why globalization has not lived up to its potential
Three underlying core problems: trade, financial markets and resources. Set of problems with the
global economic system:
1. Economic globalization had outpaced political globalization in terms of the change of mind-set:
greater inter-dependence means that we have to act together, but we do not have the
institutions, and in particular the democratic institutions, or the mind-set, to do this effectively.
2. There was tense competition between Communism and Western Capitalism for the hearts and
minds of the developing countries: this competition also extended to their resources, and so we
spent an enormous amount of energy on their resources and worried about the consequences
for the developing countries.
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, 3. Pollyanna view of globalization: a number of people genuinely believed that globalization would
bring prosperity to everybody and that it would do so automatically. Yes, there may be some
problems, but, in the long run, everybody would be better off. This Pollyannaish view meant that
they were unable to face up to the real problems that globalization was presenting.
Full economic integration implies the following: it would mean that we have one global economy. If
the models of the advocates of economic integration were true, that is to say, models of perfect
information, there would be well functioning markets. One of the essential and obvious
consequences of this is that wages of unskilled working everywhere in the world would be the same,
as would wages of skilled working, and return of capital would be the same. That is what you mean
by full integration.
Economic theory also says that globalization results in winners and that the winners can compensate
the losers. The country as a whole can gain. However, this is not always happen, and lots off
assumptions go with that. At least in the standard economic models without uncertainty, the country
as a whole is better off and the winners can compensate the losers. However, economic theory does
not say that the winners will compensate the losers, and that has not been happening. The winners
have been winning more. We have weakened the safety net and made the tax system less
progressive, so rather than shifting money from the winners to the losers, we have actually been
shifting money in effect from the losers to the winners.
Make globalization better work: example the Scandinavian countries invest more in education
and research, strengthen safety net, and have a more progressive tax system.
There is a whole set of specific problems: intellectual property, trade, global financial markets,
natural resources and the environment. Two of them are discussed below:
1. Intellectual property rights: by strengthening international property rights, we actually provided
less access to life-saving medicines. Everybody in general believes in the importance of
incentives, and those who produce intellectual property need an incentive to become involved.
Those who engage in research need a return, and intellectual property is designed to provide
those incentives. There are many dimensions to the intellectual property regime (why and when
do you get a patent, also when you are not the first with the idea). Intellectual property gives you
a monopoly power, but that does not mean that you have the right to abuse monopoly power in
the way that Microsoft has. What we try to do is balance out the inefficiency that results from
monopoly rights with the innovations that come from incentives. In a balanced intellectual
property regime, we look at these principles, weigh them, and design them to try to get the
maximum dynamic gains with minimal losses. In general, a badly designed monopoly does not
have as much incentive to be innovative as in a competitive market, so by creating excessive
monopoly power you can undermine incentives to innovate.
a. Alternative: a prize system: a set of prizes would be offered to innovators, to those who
make discoveries that reflect the relative importance of various kinds of contributions.
Then, any generic manufacturer is permitted to produce these drugs at marginal cost so
that developing countries would provide better dynamic incentives that the patent
systems, and there would be less static inefficiency and less distortion than with the
current system.
2. Global warming: reason why to talk about:
a. The failures in global warming are emblematic of the failures of global governance.
b. Globalization as an economic issue will not matter if we are all frying, if everything falls
apart as a result of global warming, and it is a real threat.
There is absolutely no doubt that we can reduce our emissions enormously without sacrificing
our standard of living, without even having provided the incentives for trying to develop new
technologies that would reduce emissions. If we had the right prize system to provide the right
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