The Globalization of Economic Relations In the past 30 years, the term ‘globalization has eamed considerable credit in the social sc- ‘ences and has also gone into common use in public debates. Nevertheless, there is hardly any consensus on either its precise meaning, or its determining forces or consequences. Held et al. (1999) offer a convenient starting point for any discussion on globalization by claiming that it ‘may be thought of initially as the widen- ing, deepening and speeding up of worldwide interconnectediness in all aspects of contempo- rary social life’ (11999: 2). ‘Aspects’ can refer to ‘political, technical and cultural, as well as ‘economic’ features (Giddens, 1999: 10), imply- ing that globalization is best thought of as a multidimensional ‘phenomenon. ‘Consequently, approaching globalization from a purely economic perspective is * ... a categorical mistake. That said, few discus- sions of globalization can, or do, ignore its ‘economic foundations’ (McGrew, 2008: 280). This chapter has been written within the spirit of such an approach. Without doubt, eco- nomic globalization docs not constitute the whole story of contemporary globalization, 1 tiki es on Istvan Benczes but in order to fully understand its meaning and implication, the economic dimension, as cone of the major driving forces of the process of globalization, requires special attention. Following a short introduction, the first section is dedicated to the clarification of the definition, origin and consequences of eco- nomic globalization. As the two main fields of economic globalization have been finance and trade, the second section discusses the evolu- and the multitateral regime of the post-World War Il era. WHAT IS ECONOMIC GLOBALIZATION? According to one of the most often cited definitions,2/18 134 ‘THE SAGE HANDBOOK OF GLOBALIZATION {elconomic globalization isa historical process, the result of human innovation and technological pro- gress. It refers to the increasing integration of ‘economies around the world, particularly through the mavement of goods, services, and capital across borders. The term sometimes ako refers to the movernent of people (labor) and knowledge (tech- nology) across international borders. (IMF, 2008) ‘The phenomenon can thus have several inter- connected dimensions, such as (a) the glo- balization of trade of goods and services; (2) the globalization of financial and capital ‘markets; (3) the globalization of technology and communication; and (4) the globaliza- tion of production, ‘What makes economic globalization distinct from internationalization i that while the latter is about the extension of economic activities of nation states across borders, the former is “functional integration between intemationally Aispersed activities’ Dicken (2004: 12). That is, ‘economic globalization is rather a qualitative transformation than just a quantitative change. If, however, globalization is indeed a ‘complex, indeterminate set of processes operating very unevenly in both time and space’ (Dicken, 2004: xv), a more substantive definition for ‘economic globalization is required than the one offered by the IMF (2008). The definition pro- vided by Szentes (2003: 69) befits the purposes of this particular chapter: “In economic terms globalisation is nothing but a process making the world economy an “organic system” by extending transnational economic processes and economic relations to more and more coun- tries and by deepening the economic interde- pendencies among them.” ‘The main advantage of the above defini- tion is that although it does not deny the rel- evance of the ‘international’, ‘regional’ or ‘national’ levels, it refuses the assumption that the nation (state) is the only unit of analysis and that current trends in the world economy are simply the redesign of the extemal relations of interacting. nations. Instead, it claims that economic activities and processes (production in particular) can be interpreted only in a global context, ic. in an integrated world economy. Dee Bier dh one To what extent is the nation state still arel- evant (actor is a major topic of current debates. For hyperglobalists such as Ohmae (1995), states ceased to exist as primary eco- nomic organization units in the wake of a global market. People are consuming highly standardized global products and services pro- duced by global corporations in a borderless world. Globalization transforms the national economy into a global one where ‘there will be no national products or technologies, no national corporations, no national industries’ (Reich, 1991: 3), On a more balanced account, Boyer and Drache admit that “[g}lobalization is redefin- ing the role of the nation state as an effective manager of the national economy’ (1996: 1), but refuse the hypothesis of uniform state policies and conceive the state as the main shelter from the perverse effects of a free market economy. It is, therefore, misleading to assume that globalization has relegated the nation state and its policies to an obsolete or irrelevant status; governments instead ‘are acting as the midwives of globalization’ (Brodie, 1996: 386). Even liberals recognize that economic openness has increased vulner- ability, also admitting that states (national economic policies and the structure of domes- tic institutions) are not influenced uniformly by globalization (Milner and Keohane, 1996). ‘As new actors appear on the stage of politi- cal and cultural globalization (such as the United Nations (UN) or non-governmental organizations (NGOs)), economic globaliza- tion produces its own new entrants as well. In all probability the major players of present- day global economy are the transnational cor- porations (TNCs). For some, contemporary globalization is equated primarily with TNCs, the main driving forces of economic globali- zation of the last 100 years, accounting for roughly two-thirds of world export (Gereffi, 2005).' On the other hand, for realists, TNCs still represent national interest (Gilpin, 2001), while others (such as representatives of the dependency school) are liable to identify ‘TNCs with the means through which the rich can exploit the poor. What is important to note aneuese meapee see, 1‘THE GLOBALIZATION OF ECONOMIC RELATIONS as is that TNCs are constantly evolving: as eco- ‘nomic integration is becoming more intensive, production disintegrates as a result of the outsourcing activity of multinationals (Feenstra, 1998). This move induced Gereffi (1999) to develop the concept of global com- ‘modity chains, an idea that reflects upon the increasing importance of global buyers in a world of dispersed production. IS ECONOMIC GLOBALIZATION A. NEW PHENOMENON? Just as there is no single definition of globali- zation, there is no consensus on its origin, cither. Yet, if we accept that economic glo- balization is a process that creates an “organic system’ of the world economy, it seems rea- sonable to look beyond the Last 30 years or so. The question necessarily arises how far we should look back. Gills and Thompson (2006: 1) very wittily suggest that globalization pro- cesses ‘have been ongoing ever since Homo sapiens began migrating from the African continent ultimately to populate the rest of the world. Minimally, they have been ongoing since the sixteen-century’s connection of the ‘Americas to Afro-Eurasia’ Frank and Gills (1993: 3) also call for a broader outlook, and located the origin of glo- balization in the (very) distant past: ‘the exist- ‘ence of the same world system in which we live stretches back at least 5,000 years’. The best known example of archaic globalization is the Silk Road, which connected Asia, Africa and Europe. Adopting Femand Braudel’s innovative concept of ‘long duration’, i. a slow-moving, ‘almost imperceptible’ (1973: 22) framework for historical analysis, world-systems analysts identify the origins of modemity and globaliza- tion with the birth of sixteenth century long- distance trade. When Adam Smith wrote his magnum ‘opus, An inquiry into the nature and causes of the wealth of nations (1776), he consid- cred the discovery of America by Christopher ‘Columbus in 1492 and the discovery of the direct sea route to India by Vasco de Gama in 1498 as the two greatest achievements in human history. In the course of a couple of decades these remarkable achievements were overshadowed by the breathtaking technological advances ar ion methods ofthe BritishIndus 3/18 1? From the carly 1800s, the Napoleonic wars, the industrial revolution spread to Continental Europe and North America, too! ‘The economic nationalism of the seven- teenth and eighteenth centuries, coupled with monopolized trade (such as the first multina- tional corporations, the British and the Dutch East India Companies, established in 1600 and 1602, respectively) did not favour, how- ver, international economic integration. The total number of ships sailing to Asia from major European countries rose remarkably between 1500 and 1800 (in numbers: 770 in the sixteenth, 3,161 in the seventeenth and 6,661 in the eighteenth century; Maddison, 2001), but world export to world GDP did not reach more than 1 to 2 per cent in that period (Held et al., 1999). If global economy did exist in this period, then it was only in the sense of ‘trade and exchange, rather than production’ (Gereffi, 2005: 161). Countries ‘were mostly self-sufficient and autarkic, the UK and the Netherlands being the only exceptions (though long-distance trade con- centrated mostly on luxury goods). The real break-through came only in the nineteenth century. The annual average com- pound growth rate of world trade saw a dra- ‘matic increase of 4.2 per cent between 1820 and 1870, and was still relatively high, at 3.4 per cent between 1870 and 1913 (Maddison, 2001). By 1913, trade equalled to 16-17 per cent of world income, thanks to the transport revolution: steamships and railroads reduced transaction costs and bolstered both intemal and international exchange (Held et al., 1999). The relatively short period before World War I (that is, 1870 to 1913) is often referred to as the “golden age’ of globalization, character- ized by relative peace, free trade and financial and economic stability (O'Rourke and Williamson, 1999).ne 136 ‘THE SAGE HANDBOOK OF GLOBALIZATION The structural transformation of the Wester world was, therefore, both a cause and an effect of intensified economic integra- tion. By the second half of the nineteenth century, the division of labour entwined modern world economy. Consequently, scep- tics of globalization, such as Hirst and Thompson (2002), recognize the origin of globalization in this particular era and argue that in some respects (especially with regard to labour mobility), nineteenth century world ‘economy was even more integrated than the present. 9 CONVERGENCE VERSUS DIVERGENCE ‘Contemporary globalization is, however, considered to be a myth (Bairoch, 1993) not just because it is not without precedents. More concems have been raised with regard to its impact on the worldwide distribution of income. Those in support of economic glo- balization emphasize its ability to foster uni- versal economic growth and development. Dollar and Kraay (2002) argue that only non-globalizer countries failed to reduce absolute and relative poverty in the last few decades. On the other hand, countries that have embraced globalization (proxied by trade openness) have benefited from open- ness considerably.’ Consequently, “the prob- lem [...] is not that there is too much globalization, but that there is far too little” (Wolf, 2004; xvii). On a more balanced account, the World Bank (2002) claims that globalization can indeed reduce poverty but it definitely does not benefit all nations. Sub- Saharan Africa, where roughly half of the population lives on less than USS1.25 (in purchasing power parity) a day, has been especially marginalized by globalization. Nevertheless, whereas at the beginning of the nineteenth century countries were more- ‘r-less homogenous (i.e. poor and agrarian), by the start of contemporary globalization ‘countries became highly stratified (Baldwin and Martin, 1999), The ratio of the richest tequeedChAhinns 16 region's GDP per capita to that of the poorest ‘was only 1.1 in 1000, 2 in 1500 and still only 3 in 1820. It widened to $ in 1871 and stood at 9 at the outbreak of World War I. In 190 it climbed to 15 and peaked at 18 at the turn of the new millennium (Maddison 7003),* Why are less developed re ° catch up with developed one 4/18 4 by standard economic theorie_ ne neoclassical Solow growth model? Bairoch (1993) argues that while in the developed part of the world, industrial revolution and intensified international relations reinforced growth and development on an unprece- dented scale (as compared to the previous era), the rest of the world did not manage to capitalize on these processes. Reflecting upon the division of labour between developed and developing countries inthe nineteenth cen- tury, Bairoch claimed that ‘the industrialisa- tionoffthe formerled to the de-industrialisation of the latter" (1998: 11). The structural deficiencies of the world economy are heavily emphasized by the so- called structuralists. Structuralism is a “clus- ter of theories which emerged iin the 1950s, 1960s and 1970s ... fand] share the idea that North and South are in a structural relation ship one to another; that is that both areas are part of a structure that determines the pattern ‘of relationships that emerges’ (Brown, 2001: 197), The best known critical approach to the prevailing social division of labour and global inequalities is offered by world- systems analysis, which claims that capitalism under globalization reinforces the structural patterns of unequal change. According 10 Wallerstein, capitalism, ‘a historical social system’ (1983: 13), created the dramatically diverging historical level of wages in the eco- nomic arena of the world system. Thus, grow- ing inequality, along with economic and political dependence, are not independent at all from economic globalization. Accordingly, underdevelopment (i.c. a persistent lack of economic growth and development, together with impoverish- ‘ment and even malnutrition) isnot the ini- tial stage of a historical and evolutionary