The Issue of Globalization An Overview

The Issue of Globalization An Overview

Order Code RL30955
CRS Report for Congress
Received through the CRS Web
The Issue of Globalization–An Overview
May 3, 2001
Gary J. Wells
Visiting Fellow
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

The Issue of Globalization–An Overview
Summary
In the 1990s, globalization gained widespread usage as a term with many
interpretations. Globalism is employed in this report to describe networks of
interdependence functioning at multi-continental distances. Globalization is an
increase in globalism and de-globalization a reduction. In providing an introductory
view of these networks, with an emphasis on contemporary economic factors, a goal
of this report is to illustrate how policy consequences, sometimes unintended, may be
dispersed via globalized networks. As networks expand and become more intricate
there is an opportunity for feedback along previously non-existent linkages.
The rapid economic globalization we are witnessing influences, is influenced by
and oftentimes becomes inseparable from multi-continental networks that take many
forms including political, cultural, technological, financial, national security, and
environmental. Several factors play a role in today’s rapid formation of networks.
They include globalization-friendly technological advancements, governmental
polices, and management techniques. If government does not institute policies that
inhibit/prevent globalization, multi-continental networks will form within the limits of
available technology and management. And there is a compounding effect as
enhanced competition encourages further advancements. Hence, globalization feeds
upon itself. Today's web-based technology is tailor-made for globalization. It builds
on an impressive round of politico-economic globalization that began early in the 19th
century and lasted until the beginning of World War I. To spark this globalization
governments adopted polices encouraging international activity, and enterprising
individuals took advantage of emerging transportation and communication
technologies to build sophisticated global networks of trade, communications, and
investment. To a large extent these networks were dismantled between 1914 and the
end of World War II. Governmental policies were responsible for this
de-globalization. In addition to the effects of war, nations pursued protectionist
policies in an attempt to avoid cyclical downturns punctuated by the Great
Depression. As this period indicates, governments can shield their citizens from
globalization pressures in the short-run, but the economic costs can be significant.
Globalization allows economies to specialize in producing items for which they have
an advantage and in trading for items others produce. Resulting gains are lost when
an economy shields itself from foreign competition. North Korea stands as an
example of an economy sheltered for political reasons.
While globalization gains can be substantial for the general population, some may
suffer potentially severe economic losses. Included are owners and workers in
industries pressured by more efficient foreign firms and governments coping with new
realities in a globalized environment. Some individuals also become distressed as their
cultural environment changes. While many see globalization as an irreversible
process, those adversely impacted by globalization put pressure on their governments
to slow or stop it. Resulting policies may protect some of the victims of globalization,
but they may also curb the potential for long-term economic growth.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Why Globalization and Why Now? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Incentives to Globalize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Why Today’s Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
What Globalization Accomplishes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Capital Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Quality and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Government/Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Opponents of Economic Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Rapid Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Employment, Wages, Poverty, and Working Conditions . . . . . . . . . . . . . . 17
The Environment and Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Role of Non-Governmental Organizations . . . . . . . . . . . . . . . . . . . . . 22
Prospects for Backtracking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
List of Tables
Table 1. Population living below US$1 per day in developing countries 1990 and
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

The Issue of Globalization–An Overview
Introduction
Globalization is a process inherent to life, from the creation of life’s self-
sustaining envelope aeons ago to the trans-migration of primitive humans that
ultimately encompassed the entire planet. It is characterized by continual flux and
adjustment. Beginning in the 1990s, human globalization entered an accelerative
phase in which the process gained widespread usage as an international term with
many interpretations. Perhaps because of its wide usage, there is no universally
accepted definition of the term. This report will provide an overview of
globalization–including a sampling of definitions. Although emphasis will be placed
on economic globalization and its impacts, attention will be paid to linking the
relevance of the term to policymaking as a whole. In particular, the special role
government plays in allowing or prohibiting globalization’s spread within a country
will be discussed. The possibility of unintended consequences also is considered.
In the introduction, definitions are provided followed by a brief history.
Subsequent sections discuss the factors driving today’s globalization, its
accomplishments, and its opposition.
Definitions
The Executive Summary of the final report of the Defense Science Board Task
Force on Globalization and Security sums up globalization as follows:
Globalization–the integration of the political, economic and cultural activities of
geographically and/or nationally separated peoples–is not a discernible event or
challenge, is not new, but is accelerating. More importantly, globalization is
largely irresistible. Thus, globalization is not a policy option, but a fact to which
policymakers must adapt.
Globalization has accelerated as a result of many positive factors, the most notable
of which include: the collapse of communism and the end of the Cold War; the
spread of capitalism and free trade; more rapid and global capital flows and more
liberal financial markets; the liberalization of communications; international
academic and scientific collaboration; and faster and more efficient forms of
transportation. At the core of accelerated global integration–at once its principal
cause and consequence–is the information revolution, which is knocking down
once-formidable barriers of physical distance, blurring national boundaries and
creating cross-border communities of all types.1
1Final Report of the Defense Science Board Task Force on Globalization and Security.
(continued...)

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A scholarly definition of globalization in its current usage has been offered by
Harvard professors Robert Keohane and Joseph Nye. They make a distinction
between globalism, globalization, and de-globalization. Globalism “is a state of the
world involving networks of interdependence at multi-continental distances. These
networks can be linked through flows and influences of capital and goods, information
and ideas, people and force, as well as environmentally and biologically relevant
substances (such as acid rain or pathogens).” Globalization and de-globalization
represent an increase and decrease in globalism, respectively.2 Globalization results
in deeper and/or geographically more complete globalism. A deeper globalism means
more points of connection and the resulting fuller integration. Most common usages
of globalization probably encompass Keohane and Nye’s globalism and globalization.
Although providing a less scholarly definition, Thomas Friedman, New York
Times Foreign Correspondent, in his best selling book The Lexus and the Olive Tree:
Understanding Globalization also defines globalization in broad terms. He states,
“Globalization is not a phenomenon. It is not just some passing trend. Today it is the
overarching international system shaping the domestic politics and foreign relations
of virtually every country, and we need to understand it as such.”3 To Friedman,
globalization is driven by free market capitalism. It is the system that replaced the
Cold War. Friedman’s globalization has six dimensions–politics, culture, technology,
finance (and trade), national security, and ecology; and via globalization the
boundaries between these dimensions are disappearing. Putting Friedman’s definition
in the context of the Keohane-Nye definition, deeper globalism means that it becomes
more difficult to deal with one of Friedman’s six dimensions in isolation. This is
because through globalization the boundaries are blurred allowing feedback
relationships which prevent isolation. That is, a web of connections forms to link
activities at multiple levels. This could manifest itself in an increasing number of
unintended consequences from policies designed to address a single problem.
If globalization is given a more narrow definition, then typically it can be viewed
as a subset of the Keohane-Nye definition applied to a limited dimension such as
economic globalization or globalization’s impact on labor and the environment.4
1(...continued)
Office of the Under Secretary of Defense for Acquisition and Technology. December 1999.
2See Keohane, Robert O. and Joseph S. Nye Jr. “Introduction.” In Nye, Joseph S. and John
D. Donahue, eds. Governance in a Globalizing World. Washington, D.C., The Brookings
Institution, 2000. pp. 1-41.
3See Friedman, Thomas L. The Lexus and the Olive Tree: Understanding Globalization.
New York, Farrar, Straus and Giroux, 1999. p. 7. (An updated version is available in
paperback.)
4For example, a World Bank publication describes economic globalization as follows “...the
most common or core sense of economic globalization...surely refers to the observation that
in recent years a quickly rising share of economic activity in the world seems to be taking
place between people who live in different countries...” The World Bank groups economic
activity into international trade, foreign direct investment, and capital market flows. See the
World Bank Briefing Paper entitled “Assessing Globalization” at
[http://www.worldbank.org/html/extdr/pb/globaliztion/paper1.htm.]

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Sometimes two dimensions such as the interaction of information technology and the
global economy are included.
Oftentimes, globalization is used in a positive context with emphasis on the
opportunities expanded networks offer for information sharing and access to
resources, products, jobs, and technology. In other uses, as Keohane and Nye noted,
it can connote the spread of human and environmental plagues, as it were, such as the
AIDs pandemic and acid rain. If globalization is used in a highly negative politico-
economic sense, the user’s definition might fall into the “globalization-is-hegemony”
school of thought. In these cases, globalization is viewed as a “societal plague.”5 A
typical hegemonic view is the Americanization of the world. Terms such as
McGlobalization illustrate this view.
History
All definitions, whether broad, targeted, optimistic, or pointing to a societal
plague, include phenomena that are increasing in importance within several regions
of the world and/or encompassing a growing part of the globe. But the question
arises, what historical events qualify as globalization? Opinions vary widely. Of
course, much depends on the type of globalism that is being discussed. For example,
environmental influences are inherently multi-continental. Human influences may
change their character through deforestation or green-house gas emissions, but the
scope has always been inter-continental.
From an economic point-of-view, some historians point to the voyages of
Christopher Colombus in 1492 and Vasco da Gama in 1498 (which opened the spice
trade to competition) as globalization’s “big bang,” but good arguments can be made
that economic globalization began even earlier (e.g., the earlier spice trade or the
Greek and Roman Empires). Empirical evidence has not produced a consensus on
globalization’s impact for any of these early events, but historians universally agree
and the data support that in modern times there was significant economic
globalization beginning in the 19th century and lasting until 1914, the beginning of
World War I.6
By 1900, the basic tools of creating modern multi-continental networks were
already in place. These included the railroad, steamship, telegraph, and refrigeration.
During the pre-World War I period goods, investment capital, and people were able
to move between countries, for the most part, unimpeded by governmental
interference. That is, government-imposed trade barriers on goods were relatively
low (although they gradually increased during the period), investment funds were
allowed to move from one country to another, and passports for travel within Europe
were not required. In 1919 John Maynard Keynes, the noted British economist,
described pre-1914 globalization in a manner relevant to the globalization we are
experiencing today. He wrote:
5Doran, Charles F. “Globalization and Statecraft.” SAISPHERE. 2000. p. 6.
6See O’Rourke, Kevin H. and Jeffrey G. Williamson. “When Did Globalization Begin?”
National Bureau of Economic Research Working Paper 7632. April 2000.

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“What an extraordinary episode in the economic progress of man that age was
which came to an end in August, 1914.... The inhabitant of London could order by
telephone, sipping his morning tea in bed, the various products of the whole earth,
in such quantity as he might see fit, and reasonably expect their early delivery
upon his doorstep; he could at the same moment and by the same means adventure
his wealth in the natural resources and new enterprises of any quarter of the world,
and share, without exertion or even trouble, in their prospective fruits and
advantages; or he could decide to couple the security of his fortunes with the good
faith of the townspeople of any substantial municipality in any continent that fancy
or information might recommend.... Most important of all, he regarded this state
of affairs as normal, certain, and permanent, except in the direction of further
improvement, and any deviation from it as aberrant, scandalous, and avoidable.
The projects and politics of militarism and imperialism, of racial and cultural
rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent
to this paradise, were little more than the amusements of his daily newspaper, and
appeared to exercise almost no influence at all on the ordinary course of social and
economic life, the internationalization of which was nearly complete in practice.”7
Keynes’ description eloquently captures two of the three aspects of pre-1914
globalism–free flow of goods and investment capital.8 Trade barriers, while present
and growing, were relatively small. Furthermore, international flows of investment
capital were smoothed by the gold standard.9 Beyond Keynes’ quote, people could,
for the most part, also move relatively freely during this globalization period. For
example, during much of this period the United States allowed access to all but
prostitutes, convicts, the mentally ill, and, after 1882, Chinese.10
7 Reported in Future Perfect: The Challenge and Hidden Promise of Globalization by John
Mickelthwait and Adrian Wooldridge, Crown Publishers, New York, 2000 p. 7 from The
Economic Consequences of Peace by John Maynard Keynes
8It is beyond the scope of this overview to compare in detail the 19th century and 20th century
periods of globalization, but Michael D. Bordo, Barry Eichengreen, and Douglas A. Irwin in
“Is Globalization Today Really Different Than Globalization a Hundred Years Ago?”
(National Bureau of Economic Research Working Paper 7195, June 1999) concluded, “that
our world is different: commercial and financial integration before World War I was more
limited. Globalization today raises new issues of governance not just because it is conjoined
with a political system which gives a louder voice to special interests, but because the
economic phenomenon itself is different: integration is deeper and broader than a hundred
years ago.” (pp. 3-4) For financial integration they found for 19th century globalization that,
“Long-term capital flows...were large in volume but–just as in the case of trade–limited to
narrow sectors of the economy, while short-term flows remained very much lower relative to
the size of the world economy.” (p. 4) Nonetheless, few deny that globalization was impressive
during the 19th century.
9During the gold standard period (1870-1914) the values of national currencies were pegged
to gold. The result was stable currency values. For example, the number of British pounds
a dollar could purchase remained stable, varying only by the cost of shipping gold.
Unfortunately, this system does not allow for the pressure put on currencies as national
economies grow at different rates.
10The Chinese Exclusion Act of 1882 suspended immigration of Chinese laborers to the United
States for ten years. This was followed by the 1892 Act to Prohibit the Coming of Chinese
(continued...)

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From 1914 to 1944 the world could best be described as in a period of rapid
economic de-globalization. The period began and ended with world war, interspersed
with a world-wide wave of anti-trade protectionism (with the U.S. Smoot-Hawley
Tariff Bill of 1930 which raised tariffs by an average 53% as a prominent example).
The protectionism was aimed at sheltering nations from wide cyclical economic
swings. While The Great Depression represented the most severe example, Britain
experienced an earlier depression between 1920 and 1922. Many economists,
including Keynes, believed that national governments could better control the impacts
of unemployment with a more constrained interaction with the outside world.
Keynes’ famous prescription to dig out of the Great Depression was to increase
government spending. This is the prescription the Roosevelt Administration followed,
but without restricting the openness of the economy the full impact would have been
diluted as private investment funds would have fled to avoid competition with public
funds and immigrants would have flooded in to avoid even worse conditions
elsewhere. Hence, the United States and other governments in similar situations
began to take steps that restricted interaction between their nations and others. For
example, in response to tighter policies U.S. immigration fell from 10.4 immigrants
per 1,000 residents in the 1901 to 1910 period to 0.4 per 1,000 between 1931 and
1940.11 The United State was not the only country turning inward.
“Between 1929 and 1938, for example, the ratio of foreign trade to domestic
production declined by 10 percent in Britain, by nearly 20 percent in Canada, and
by 25 to 40 percent in Japan, Germany, and Italy. In the six years between 1927
and 1933, international lending dropped by over 90 percent.”12
Unfortunately, closing a nation to the rest of the world to avoid cyclical
downturns comes at a price. The competitive zeal that accompanies globalization is
blunted. In the short-run the cyclical downturn may be avoided, but over the longer
term the innovation which globalization fosters and the resulting growth potential is
also avoided. Until recent years, when it began to open its economy, India’s poverty
stood as an example of the costs of autarkic policies, present on a long-term basis
rather than being restricted to periods of crisis.
As World War II drew to a close, 730 delegates representing more than 40
countries met at Bretton Woods, New Hampshire, to map out a strategy for
international economic interaction following the war. A major purpose of the Bretton
Woods meeting was to recapture some of the pre-World War I globalization. Keynes,
as Britain’s head of delegation, played a pivotal role in this meeting. In fact, it was
held at Bretton Woods, an isolated resort area, partly in deference to Keynes’
declining health. It was felt the mild climate would suit his medical needs. As a result
of this conference, the World Bank and the International Monetary Fund (IMF)
subsequently emerged. The World Bank’s first mission was to help rebuild war torn
economies. Later the focus shifted to less developed countries. The IMF embodied
10(...continued)
Persons into the United States.
11U.S. Census Bureau, Statistical Abstract of the United States. Washington: U.S.
Department of Commerce.
12Micklethwait and Wooldridge, p. 12.

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the financial architecture upon which worldwide economic reintegration began. IMF
purposes include promoting international monetary cooperation, exchange stability,
and orderly exchange arrangements. The intention was to follow the IMF and World
Bank with an International Trade Organization (ITO) with broad powers to regulate
trade. The first step in the process of creating the ITO was the General Agreement
on Tariffs and Trade (GATT) which resulted in 45,000 tariff concessions affecting
about $10 billion in trade. The GATT also included some provisional rules that were
to be part of the ITO. GATT’s purposes included providing a forum for members to
discuss trade issues and fostering a rules-based trading system. In the end, the ITO
was not adopted and the GATT stood as a provisional agreement for almost 50 years
until the World Trade Organization (WTO) was formed in 1995. The IMF and
GATT, in particular, set the stage for the tremendous burst of economic globalization
we have witnessed since 1990. Similar to 19th century globalization, the agreements
creating the IMF and GATT were based on open trade; but unlike the 19th century,
international portfolio investment flows were restricted, and while not a part of these
agreements, immigration was also restricted. Restrictions on investment flows only
began to fall in the 1970s, and much of the pressure behind this fall came from private
firms and individuals finding ways around foreign investment restrictions.
Nonetheless, movement of people remains comparatively regulated. For example, in
the United States, although many feel we are currently experiencing an accelerated
rate of immigration, the annual rate was 3.6 immigrants per 1,000 residents between
1991 to 1998, compared to the 10.4 per 1,000 cited earlier for the 1901 to 1910
period.
Also, during the period from 1944 to the 1970s, many national governments
intervened heavily in the economic activity of their respective nations. Oftentimes,
basic industries such as coal and steel were nationalized. These actions were based
on the thought that government could correct for market failure. As the result of
poor performance by nationalized industries, the 1980s saw a reevaluation of this
thinking. As a result, the Reagan and Thatcher Administrations led the way in
promoting market liberalization. Actions during their administrations accelerated the
economic globalization that began with Bretton Woods and resulted in our current
level of globalism.
While this places the current spirit of globalism in context, it is also worth noting
that globalization still has a long way to go. For example, if economic globalization
were complete, then national borders would not influence trade, investment, wage
patterns, and immigration anymore than the borders between two states within the
United States. But as the significant wage difference between Mexico and the U.S.
reveals, international borders do matter. One way to measure border effects on trade
is to ask figuratively “how wide is the border?” The width of a border can be found
by converting the cost of taking goods across the border (i.e., tariffs and non-tariff
barriers) into the equivalent miles of transportation those costs would allow. One
report found that the U.S.-Canadian border, one of the least restrictive, to be 1,780
miles wide.13 Another report found that if globalization were complete, U.S. trade
13Reported in Janet Ceglowski’s “Has Globalization Created a Borderless World?” Business
Review. Federal Reserve Bank of Philadelphia, March/April 1998.

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relative to gross domestic product would have to be six fold larger.14 And for
investment flows, if borders did not matter, then cross-border investment flows would
rival within country flows, but they do not even approach this level. Nonetheless,
proponents and opponents of globalization are likely to agree that the rate of
globalization we witnessed as the 20th century drew to a close was striking. Why we
currently are seeing such rapid globalization is the question next addressed.
Why Globalization and Why Now?
The two most often cited driving forces of globalization are technological
advancements that are conducive to increased international activity and a reduction
of government induced barriers to international activity. A third factor pointed to by
some is the advancement and growing uniformity of management techniques. Each
of these will be discussed in turn, but first an overarching economic stimulant will be
presented–the incentive to globalize. It has always been present, but has taken time
to become reality.
Incentives to Globalize
If one accepts that resource holders attempt to use their resources in the wisest
manner they can discover, then economic factors have always pushed for economic
globalization. Arguably the single most powerful concept in economics is
“comparative advantage.” Simply, it states that resource holders use their resources
wisely by concentrating efforts on what they can produce best, and trading for other
desired items. As specialization spreads, the result is increased output (i.e., through
using resources in a less wasteful manner). In short, there are benefits from
specialization and trade, and networks facilitate this specialization and the resulting
trade. Networks that come into play include trade (i.e., marketing channels),
communication, and management. They allow the producers of one product to find
the producers of another product so that they can trade with each other.
Networks, however, have costs, and as networks become more sophisticated or
more dispersed one would expect the costs to rise. These costs eat into the gains
from specialization. Hence, trading networks develop so long as they do not consume
all the specialization gains. Over the years technological advancements have reduced
the costs of trading networks. Innovations have included sail boats, trains,
steamships, airplanes, and refrigeration. As the costs of trading networks have fallen,
the networks have become more sophisticated, deeper, and more geographically
dispersed. Somewhere in the process the networks became multi-continental and
began to fit into the Keohane-Nye definition.15
14Frankel, Jeffery. Globalization of the Economy. In Governance in a Globalizing World.
Joseph S. Nye and John D. Donahue, eds. pp. 45-71.
15This paragraph views costs in two different settings. The first involves expanding the use
of networks within the existing technology base. Here costs increase with use. The second
involves technological advancements in networking capability. Here costs of all levels of
(continued...)

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Comparable arguments can be made for the expansion of political, financial, and
military networks. Why these networks have now accelerated is the question next
addressed.
Why Today’s Acceleration
As stated above, depending on the analyst, two or three factors are given in
answer to why now. First, advancements in network friendly technologies have
reduced the cost of deepening and expanding these networks. These advancements,
for the most part, are computer centered, and they span numerous areas. For
example, banking has benefitted greatly from computerization going back several
decades. Production and inventory management and control have similarly benefitted.
Of course, telecommunication technologies are the most notable example of
advancement. Naturally, the computer technologies that have driven advancements
in banking, production, and inventorying also rely on telecommunications. After the
information is processed it has to be moved to the appropriate places. So the
technological advancements complement each other. Moore’s Law (named after
Gordon Moore, cofounder of Intel) states that the information processing capacity of
microprocessors doubles every eighteen months and at the same time the cost falls at
a similar speed. Moore’s law, as a general rule of thumb, reflects what we have
witnessed.
The culmination of advancing communication abilities thus far is the Internet
which has been made possible by digital technology. Costs are so low in this area that
distance has become irrelevant. Internet access fees are charged by the unit time (e.g.,
hour or month) regardless of how many distant sites are visited. With the use of
digital technology transmitting a song, picture, voice or written word is done the same
way using essentially the same equipment. This is the first time the lines dividing
communication modes have been so completely removed. The end result is that the
cost to send verbal, pictorial, or written documents next door or across the world is
the same–near zero. The cost of live voice calls has also fallen, although not as
rapidly, unless you are willing to make a call via the Internet which is still somewhat
cumbersome.
While substantially lagging telecommunication cost declines, the costs of moving
people and goods via certain modes have also fallen.16 Some of the advancements
15(...continued)
networking shift downward allowing more networking for each dollar spent.
16William A. Ward, Madhusudan Bhattarai, and Pei Huang in “The New Economics of
Distance: Long Term Trends in Indexes of Spatial Friction.” (Working Paper WP020299,
Feb. 2, 1999 [http://cherokee.agecon.clemson.edu/wp110499.pdf]} grouped transfer cost
patterns between 1960 and 1996 into three groups–rapid, moderate, and small/zero declines.
Rapid declines include computing and telecommunications (90+% declines each). Moderate
declines (the 40 to 60% range) include passenger travel by air, domestic railway freight, port
charges, domestic waterborne freight, and containerized general cargo (anecdotal information
only). Small/zero declines include non-air modes for moving people, ocean bulk freight, and
(continued...)

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driving these declines are computer related, while others such as containerized
shipping, are more traditional. Nonetheless, the end result has been the substantial
technologically-driven opportunity to deepen and extend networks, and these
networks encompass at least five of Friedman’s six dimensions–politics, culture,
technology, finance, and national security, and they have influenced, sometimes in
controversial ways, the sixth–ecology.
Perhaps the most important factor in answering the question why now, is
government. Government actions switch on- and switch off- the agencies of
globalization. Thus, the formation of the General Agreement on Tariff and Trade
(GATT) and the International Monetary Fund (IMF) signaled a desire by national
governments to open their economies to greater global activity. The reductions in
trade barriers that resulted from GATT negotiations accomplished results similar to
the technological advancements discussed above. That is to say, they reduced the
friction of economic networking on a global scale. The source of the first friction was
technical and the source of the friction GATT addressed was administrative/political.
The international financial system, symbolized by the IMF, reduced another friction
of dealing internationally–accomplishing payment for traded goods. The subsequent
removal of curbs to foreign investment added another friction-reducing dimension.
Much of the governmental involvement that facilitated these activities was
accomplished through supranational institutions such as the GATT and IMF.
Nonetheless, national governments, particularly the United States, played a critical
role.
While the GATT and its successor the World Trade Organization (WTO) work
on a multilateral level, regional trade agreements link countries in a different way.
Features of GATT/WTO include taking decisions by consensus and expecting trade
barrier reductions by one country to be met by reciprocal reductions by its trading
partners. As a result, reducing trade barriers has been an incremental process. In the
eight rounds of multilateral trade negotiations, tariffs on manufactured goods have
fallen from an average of 40% in 1947 to under 4% today. However, as more and
more countries become WTO members (currently 140) the difficulty in taking
decisions by consensus grows. Regional trade agreements, by limiting membership
to countries with similar trading goals, have accomplished greater liberalization
among their members.17 The European Union and the North American Free Trade
Agreement stand as two of the prime examples of regional trade agreements. They
do not precisely fit the Keohane-Nye definition of globalism or globalization because
they are not multi-continental; they would probably qualify for Friedman’s less
location-bound definition. Subsequent action by the EU, however, does qualify under
the Keohane-Nye definition. EU members have reached out to non-member countries
in Europe, Africa, and the Americas to form trade alliances.
16(...continued)
domestic inter-city motor carriers.
17This result is also fostered by Section 24 of the GATT which permits regional trade
agreements but requires they reduce or eliminate trade barriers on substantially all traded
items between members while not violating GATT-negotiated trade liberalization agreements
for non-members.

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Creating strong and uniform management networks across the globe is the third
factor often cited when considering why we are seeing rapid globalization now.
Technological advancements and governments allowing their economies to be more
open, paved the way for development of geographically dispersed enterprises, but
these operations could not come into their own without management practices that
enabled decision makers to maintain control. In addition to the within-firm
improvement in management practices, consulting firms have spread these practices
around the globe. Now, more and more firms are organized and operated using the
same management and accounting practices. Again, the spread of management
practices is supported by technological advancements.
The above three factors provide an over-arching framework for the accelerated
globalization during the 1990s that continues today. Recall that the Defense Science
Board Task Force report (cited in the definitions section) provided a list of factors
driving globalization that differ from the factors presented here. The factors the
Board cited were: “the collapse of communism and the end of the Cold War; the
spread of capitalism and free trade; more rapid and global capital flows and more
liberal financial markets; the liberalization of communications; international academic
and scientific collaboration; and faster and more efficient forms of transportation.”18
While more detailed, each of these can be placed under one or more of the three
overarching factors presented here. For example, the collapse of communism and the
end of the Cold War fits under the government/governance factor.
The next section offers a sampling of the accomplishments of recent
globalization. It will first concentrate on the bright side of globalization, and then the
darker side of globalization will be addressed.
What Globalization Accomplishes
Globalization shares the spotlight with the “information age,” an equally popular
phrase. Many predict that the 21st century will be driven by information. Information
and our increasingly networked world go hand-in-hand and many consider them to
be in large measure overlapping. Today one can sit alone in front of a computer and
access information from worldwide sources and on a host of different topics. The
major challenges in that regard are sorting out useful information from noise, sorting
out accurate information from inaccurate information, protecting individuals from
overly intrusive information gathering, and effectively processing the useful, accurate
information available. The breadth of information is a major benefit of our globalizing
environment, but perhaps just as important is its accessibility. Much of it is available
to anyone with Internet access.
Choice
One of the most fundamental accomplishments of globalization is an expanding
range of economic choice. As a result of the expanded trade ties globalization
18Final Report of the Defense Science Board Task Force on Globalization and Security.
Office of the Under Secretary of Defense for Acquisition and Technology. December, 1999.

CRS-11
affords, consumers have an increased availability of new and different products. The
Keynes quote at the beginning of this report is true now more than ever. And what
is true for consumers is also true for producers. With globalized trading networks,
producers have a larger pool of potential customers, and as users of inputs, they have
a wider selection of suppliers. Additionally, globalized trading networks allow for the
rapid dispersion of technology. Firms are not only able to acquire inputs from a
diversity of sources, they are also able to acquire state-of-the-art production methods.
Additionally, multinational firms spread their technology throughout the network they
manage.
Investment Capital Flows
With open, globalized financial markets, entrepreneurs also have greater access
to financing. Today foreign exchange transactions eclipse international trade flows
by a factor of 50, and world financial markets are becoming increasingly
interdependent.19 News in one part of the world (good or bad) may impact asset
values around the world as investors move funds to take advantage of or flee the
latest news. These investment capital flows offer enhanced growth opportunities to
countries that are skilled enough to attract them.20
Private investment flows fall into one of two forms–portfolio (e.g., stocks and
bonds) or foreign direct investment (FDI) (includes controlling interest stock
purchases). Record of these items is kept in the capital account of the balance of
payments.21 International capital flows, in part, help fund the technology flows
described above. For example, multinational companies, through foreign direct
investment, spread technology worldwide and portfolio investments allow local firms
to acquire technology from around the world.
Of course, as witnessed by the Asian financial crisis, the enhanced investment
capital flows that globalization facilitates, also introduce the possibility of volatility.
Alan Greenspan attributes this volatility to investor fear. He states:
“With the new more sophisticated financial markets punishing errant government
policy behavior far more expeditiously than in the past, vicious cycles are
19(name re dacted) points out that even with the current level of integration that “asset market
integration still falls well short of creating one world market in assets.” See “Global Capital
Market Integration: Implications for U.S. Economic Performance.” Congressional Research
Service Report RL30514. Summary. January 12, 2001.
20For a recent analysis of international capital flows see “Global Markets: Evaluating Some
Risks the U.S. May Face.” by (name re dacted). Congressional Research Service Report
RL30891, February 11, 2001.
21The Balance of Payments, a record of international transactions, is divided into two
parts–the current and capital accounts. Flows into and out of a country of goods, services,
gifts, and repatriated earnings are recorded in the current account. The capital account
captures flows of wealth in the sense that holders retain ownership rights. Examples include
purchases of stocks and bonds and the opening of bank accounts. A deficit in either of the
accounts must be offset by a surplus in the other account. This is the nature of the balance
of payments.

CRS-12
evidently emerging more often. Once they are triggered, damage control is
difficult. Once the web of confidence, which supports the financial system, is
breached, it is difficult to restore quickly. The loss of confidence can trigger rapid
and disruptive changes in the patterns of finance, which, in turn, feeds back on
exchange rates and asset prices. Moreover, investor concerns that weaknesses
revealed in one economy may be present in others that are similarly situated means
that the loss of confidence can quickly spread to other countries.”22
The last part of Greenspan’s quote raises another concern of financial
globalization–herd mentality. The demise of confidence in one market quickly spreads
to other markets, and government leaders feel there is little they can do to stop it.
Transparent and fundamentally sound financial systems, in place well before the crisis
begins, may be the strongest defense against this type of attack.
Quality and Prices
More intertwined trade and financial markets have two additional impacts
favorable to consumers. First, not only is there a more expansive choice of products,
there is also a likelihood that product quality will increase. The increased number of
producers international trade introduces heightens competition in the marketplace.
Firms are under pressure to innovate or risk falling by the wayside. The concept of
creative destruction has been employed by one prominent economist to describe the
situation.23 Consumers can expect that old products will be swept away and replaced
with “new and improved” versions through a process of continual improvement. This
environment is good for consumers and innovating firms, but not so good for the
firms that produced the displaced product. Second, the increased level of competition
puts downward pressure on prices. Firms survive by creating new products and
finding better (less expensive) ways to produce them. That is, firms as resource
holders are encouraged by globalization pressures to redouble their efforts to use their
resources wisely. Again the consumer is the beneficiary. The result is that
globalization networks spread technology and encourage creation of new technology.
Government/Governance
The accomplishments of globalization discussed thus far are commercial, but the
list extends much further. For example, the spread of commerce also spreads new
ideas, not just technology. Globalization allows residents around the world to see
how the “other half lives.” Stories are now common of someone visiting a remote
part of the world only to find a satellite dish serving a small village. This introduces
individuals to new possibilities and they may pressure their governments to open the
doors to these possibilities.
Domestic firms feeling the weight of globalization also pressure their
governments. As these firms face increased competition they demand governmental
22From a speech at the Annual Convention of the Independent Bankers Association of America
in Honolulu March 3, 1998. Reported in The Quotations of Chairman Greenspan by Larry
Kahaner. Adams Media Corp. Holbrook, MA. 2000, p. 105.
23Schumpeter, Joseph. Capitalism, Socialism, and Democracy. New York: Harper, 1942.

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relief. This relief ranges from protection from foreign competitors to reducing the
regulatory and tax burden government places upon them. The former slows or stops
commercial globalization (and may even foster de-globalization) while the latter
encourages governments to remove administrative burdens, thereby stimulating
globalization. However, slowing or stopping globalization has the unintended
consequence of slowing the overall growth of the economy. Countries that close their
borders to globalizing forces are cut off from the benefits of international
specialization. North Korea stands as an example. On the other hand, embracing
globalization reduces government’s ability to collect taxes. With enhanced mobility,
firms can avoid what can be the significant costs of taxation.24
There is not only pressure for governments to be domestic-firm friendly, but
foreign firms (multinationals) through the threat of taking their foreign direct
investment elsewhere or withdrawing previous investments pressure governments in
a fashion similar to “domestic” firms.
For multinationals contemplating entering a new country, this pressure especially
applies to economic and financial matters (e.g., property rights, laws governing
bankruptcy, securities transactions, banking, trade, and other commercial activities),
but policies that impact personal security and quality-of-life for their employees (e.g.,
human rights, crime, immigration, safety, environmental quality, and voting) are also
of concern to multinational firms.25 Multinationals have to factor in the governmental
environment when choosing locations. Much of what multinationals want from
government is consistent with the institutions of free market democracy. Hence,
favorable response by governments will likely foster such institutions.26
This is not to say that a country cannot enjoy some of globalization’s benefits
unless it is democratic. Singapore, Hong Kong and others stand as significant counter
examples. For nondemocratic countries to participate in globalization to a significant
24Milton Friedman, Nobel laureate, stressed this point during a PBS Think Tank interview
aired March 3, 2001.
25Frederick Schauer in “Legal Transplantation.” from Governance in a Globalizing World.
Joseph S. Nye and John D. Donahue, eds. pp. 253-268 hypothesizes and provides anecdotal
evidence that nations are more willing to shape economic and commercial laws to external
norms than constitutional issues and laws relating to human rights, immigration and voting.
He argues the latter group poses more sovereignty concerns. One of the economic/financial
areas listed as an example above is property rights. Schauer does not address this area. The
sovereignty issues may, however, prompt governments to treat property rights more as a core
area that helps define the essence of the country. Hence, in such cases policymakers may be
reluctant to allow international norms to overshadow local desires regardless of the
international economic consequences. Anne-Marie Slaughter in “The Real New World
Order,” Foreign Affairs September/October 1997 (Vol 76 No. 5, pp. 183-197) concludes,
“The state is not disappearing, it is disaggregating into its separate, functionally distinct parts.
These parts–courts, regulatory agencies, executives, and even legislatures–are networking
with their counterparts abroad, creating a dense web of relations that constitutes a new,
transgovernmental order.” p. 184
26At the same time firms seek democratic settings they have the incentive to subvert the system
by seeking less-than-democratic special treatment for themselves.

CRS-14
degree they must have some other advantages that compensate. In addition to the
business-friendly atmosphere created by authoritarian governments such as Singapore
other countries may prosper in an undemocratic environment. China and Saudi
Arabia are examples. China has a huge, fast-growing market and Saudi Arabia has
oil. Even so, democratic pressures are present. They come from residents
experiencing via CNN and the Internet how residents in democratic countries live.
Also, external investors and entrepreneurs are more likely to move cautiously through
fear of losing their investments to the whims of an authoritarian government.
In short, globalization nudges governments as well as firms to be more openly
competitive. For a nation’s firms to be successful in a globalizing environment,
relevant governments (e.g., national and local) must provide key services without
being a stumbling block through excessive taxation, burdensome regulations, or
impenetrable bureaucracy. That is, domestic businesses cannot hope to succeed
against efficient foreign competition if inadequacies of their governments unduly hold
them back. Governments are expected to provide an effective, efficient legal and
regulatory system that offers a business-friendly environment. In response, many
governments have undertaken so-called e-government projects. The anticipated result
is a reformulated, transparent government where citizens can receive one-stop
shopping. Citizens can access governmental information, pay fees, and provide input
all at the same point of contact.
Just as they are doing with business, international management firms are playing
a role in the formation of e-government.27 They are offering their services worldwide
to incorporate e-government techniques. A natural consequence is a tendency toward
uniformity in the approach governments take toward adapting their operations to the
information era. This drive to uniformity is being further enhanced by governments
directly. They are carefully monitoring each other’s activities. For example, a March
2000 U.K. interim report on modernizing government describes their efforts to
evaluate other programs through bench marking. The report states, “the government
will be able to learn continuously and take account of what works elsewhere when
designing and implementing new ways to serve the public.”28
While the above puts pressure on governments to change–in the view of some
critics, to homogenize their cultures–globalization also puts pressure for national
governments to push appropriate responsibilities down to sub-national levels (i.e.,
devolution). Having governmental responsibilities as close to the impacted parties as
possible is, in some cases, viewed as desirable and part of the business-friendly
atmosphere internationally competitive firms seek. In many cases, state and local
governments are in a better position to deal one-on-one with multinationals and others
touching the local community via globalization. However, national governments may
27As an example see Deloitte Research. “At the Dawn of e-Government: The Citizen as
Customer” [http://www.us.deloitte.com/PUB/egovt/egovt.htm.]
28Of bench marking the report states, “Put simply, benchmarking is a tool to enable
comparison and to prompt innovation. It is a way of seeing how one approach measures up
to another and identifying elements of a successful approach that could be used in another
context. It is a very important tool in enabling organisations to improve themselves.” (p. 3)
See “Modenerising Government: Interim Report” March 2000.

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find it difficult to give up power. On the other hand, in industrialized countries, large
companies often seek nationally/internationally mandated standards to improve
efficiency rather than sometime conflicting local regulations that sometimes reflect
distinctive local needs.
In addition, to facilitate international activity national governments have found
it necessary to create supranational institutions such as the IMF, WTO, and World
Bank. Globalization encourages these institutions to become stronger sometimes at
the expense of national governments. For example, the GATT, as a provisional
institution, was not generally viewed as a threat to national sovereignty, but without
effective dispute resolution mechanisms it was also viewed as weak and oftentimes
ineffective. Supplanting GATT with the World Trade Organization put in place a
dispute settlement process that the accused country could not block (accused nations
could block proceedings within the GATT). However, some view this as giving up
national sovereignty and cultural identity.29
Opponents of Economic Globalization
Opposition to economic globalization emanates from many sources. This section
will provide a few of the more common. Ernst Ulrich von Weizsäcker, member of the
German parliament and chair of the Enquête Commission on Economic Globalization,
points out that globalization benefits most countries and most citizens in those
countries, but he goes on to point out that if there were only benefits there would be
no basis for the recent protests we have witnessed in Seattle, Washington, D.C., and
Prague.30 Jay Mazur, President of the Union of Needletrades, Industrial, and Textile
Employees and Chair of the AFL-CIO International Affairs Committee, asserts: “The
forces behind global economic change–which exalt deregulation, cater to
corporations, undermine social structure, and ignore popular concerns–cannot be
sustained. Globalization is leaving perilous instability and rising inequality in its wake.
It is hurting too many people and helping too few.”31 Ralph Nader states: “The
essence of globalization is a subordination of human rights, consumer, environmental
rights, [and] democracy rights to the imperatives of global trade and investment.”32
29It should be pointed out that the WTO does not have the ability to enforce any mandates that
may result from the dispute settlement process. The sole remedy when countries do not
submit to dispute settlement findings is retaliation via trade barriers by the aggrieved party.
30Remarks given at a dialogue session between the Enquête Commission on Economic
Globalization of the German Bundestag and U.S. NGOs February 27, 2001 at the Paul H.
Nitze School of Advanced International Studies, Washington, DC.
31Mazur, Jay. “Labor’s New Internationalism.” Foreign Affairs. January/February 2000,
pp. 79-93.
32PBS. “Globalization and Human Rights.” Transcript The International Center for Global
Communications. 1998. [http://www.pbs.org/globalization/]

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Rapid Change
A factor in the backlash to current globalization with its high free market
economy component, concerns the rapidity of change. Hence, on adjustment grounds
alone, opposition may arise. The historian Arthur Schlesinger, Jr. writes:
“The Computer Revolution offers wondrous new possibilities for creative
destruction. One goal of capitalist creativity is the globalized economy.
One–unplanned–candidate for capitalist destruction is the nation-state, the
traditional site of democracy. The computer turns the untrammeled market into
a global juggernaut crashing across frontiers, enfeebling national powers of
taxation and regulation, undercutting national management of interest rates and
exchange rates, widening disparities of wealth both within and between nations,
dragging down labor standards, degrading the environment, denying nations the
shaping of their own economic destiny, accountable to no one, creating a world
economy without world polity. Cyberspace is beyond national control. No
authorities exist to provide international control. Where is democracy now?”33
Culture
The pressure economic globalization puts on cultural norms is a major source
of opposition to globalization. Many throughout the world view globalization,
particularly in its economic form, as synonymous with Americanization. To them
globalization represents replacing traditional cultures with a materialistic American-
centered culture. For example, many Frenchmen feel McDonald’s is replacing French
cuisine. José Bové, the French farmer who destroyed a French McDonald’s under
construction, has become a prominent anti-globalization figure in France. That
McDonald’s restaurants in France are locally owned and use predominately locally
produced items does not matter in this context. These Frenchmen feel Americans are
attempting to create an American hegemony by forcing American culture on them via
movies, books, and superstores.34
The theme running through many similar arguments from many different parts
of the world against economic globalization is that it is an assault on cultural diversity.
Foes argue that it is important to maintain cultural diversity and cultural identity.
They argue that fast-paced globalization destroys individual cultures and replaces
them with a monolithic culture based on consumption (i.e., based on the American
model). Those who welcome globalization suggest that it allows the rapid spread of
the best a culture has to offer. They contend that modern communication
technologies have the power to preserve cultural diversity, e.g., via the Internet
dispersed ethnic groups are able to keep in touch with their roots and keep their
33Schlesinger, Arthur. “Has Democracy a Future?” Foreign Affairs. September/October
1997, p. 8.
34While some French charge that our movies adversely impact their society, U.S. film makers
are also impacted by the lure of foreign markets. Tyler Cowen in a draft to the first chapter
of “The Promise of Global Culture” points out that action films are easiest to export. Hence,
the incentive is to produce more action films than a purely domestic market would suggest.
[See http://www.gmu.edu/jbc/Tyler/index.html]

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cultures alive. They point to the United States as a culturally diverse place that via
globalization is very rapidly becoming more diverse. However, globalization
opponents argue that American culture is the lowest common denominator of the
cultural influences migrants brought with them.
Employment, Wages, Poverty, and Working Conditions
Several labor-related issues are identified as troubling consequences of
globalization. They include: jobs lost due to trade, reduced incomes, increased wage
disparity, increased poverty in developing countries, and locking many developing
country workers into slave-like working conditions. The United States has
maintained a strong labor market overall while playing a leading role in globalization.
On the other hand, wage growth adjusted for inflation in the United States was
negative from 1973 to 1992 and barely managed a positive growth rate from 1992 to
1996. Additionally, between 1973 and 1996 the ratio of top earners wages to bottom
earners (i.e., the top quintile divided by the bottom) widened from 7 to 11.35
Opponents blame the latter on globalization. They point to the rapid growth in trade
between the United States and developing countries as the driving force. The charge
is that this growing trade with low-wage countries has hurt U.S. unskilled workers
resulting in these adverse wage trends. Economic theory does not dispute this
assertion. In short, globalization may cause a “race to the bottom.”
However, empirical analysis suggests that the trade component of globalization
is a small factor in observed adverse wage trends. A Congressional Research Service
review of the literature identified additional factors influencing this growing wage
disparity. They are: productivity changes, rates of investment in capital and labor
(education), technology, immigration, demographic trends, and the effective
bargaining power of unions. The consensus estimate of international trade’s impact
on the United States’s increasing wage inequality ranges from only 10% to 20%. This
relatively modest impact is partly explained by the labor requirements of the goods
involved. Goods from low-wage countries compete with goods made by only 2% of
the U.S. work force.36 While trade’s impact on wage disparity is modest, opponents
can point to the list of influencing factors compiled in the Congressional Research
Service report and claim that the items themselves are products of globalization.
Hence, in this sense globalization (not just trade) is responsible for the growing wage
disparities.
Some globalization critics claim that the income gains developed countries have
made are at the expense of a subset of developing countries—a zero-sum argument.
Table 1 lists the populations living below $1 per day in developing countries for 1990
and 1998. South Asia, Sub-Saharan Africa, Latin America, and Europe and Central
Asia experienced increases in this most extreme poverty indicator. However,
significant reductions in East Asia were enough to offset these increases. But was
globalization in general, and trade in particular, the culprit in regions where poverty
35Burtless, Gary, Robert Z. Lawrence, Robert E. Litan and Robert J. Shapiro. Globaphobia.
Brookings Institution. 1998. p. 3.
36For an analysis of this aspect see Horbeck, J. F. “Trade with Developing Countries: Effects
on U.S. Workers.” CRS Report 98-742 E. September 2, 1998.

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increased? Studies by the World Bank, IMF and others cast doubt on blaming trade.
These studies reported that the income of the poorest 20% increases at approximately
a one-for-one ratio with the growth of overall per-capita income in a country.37 The
World Bank study also reported on a study that found a one-percent increase in the
ratio of trade to gross domestic product results in an income increase from between
one half to two percent. That is, as trade's proportion of income grows there is a
resulting increase in income. The IMF stresses “the importance of creating conditions
that are conducive to long-run per capita income growth. Economic stability,
institution building, and structural reform are at least as important for long-term
development as financial transfers, important as they are. What matters is the whole
package of policies, financial and technical assistance and debt relief if necessary.”
The IMF goes on to list components of an anti-poverty package. They are:
! Macroeconomic stability to create the right conditions for investment and
saving;
! Outward oriented policies to promote efficiency through increased trade and
investment;
! Structural reform to encourage domestic competition;
! Strong institutions and an effective government to foster good governance;
! Education, training, and research and development to promote productivity;
! External debt management to ensure adequate resources for sustainable
development.38
37See the World Bank Briefing Paper entitled "Assessing Globalization: Does More
International Trade Openness Increase World Poverty?" 2000.
http://www.worldbank.org/html/extdr/pb/globalization/paper2.htm and
The IMF Issues Brief entitled "Globalization: Threat or Opportunity?" April 12, 2000.
http://www.imf.org/external/np/exr/ib/2000/041200.htm
38Ibid. p. 8.

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Table 1. Population living below US$1 per day in developing
countries 1990 and 1998
Number of people below US$1 a day (millions)
1990
1998 (estimate)
East Asia
452.4
278.3
Excluding China
92.0
65.1
South Asia
495.1
522.0
Sub-Saharan Africa
242.3
290.9
Latin America
73.8
78.2
Middle East/N. Africa
5.7
5.5
Europe & Central Asia
7.1
24.0
Total
1276.4
1198.9
Source: World Bank Briefing Paper entitled "Assessing Globalization: Does More
International Trade Openness Increase World Poverty?" 2000.
[http://www.worldbank.org/html/extdr/pb/globalization/paper2.htm]
Another employment issue involves working conditions in developing countries.
The argument is that the competitive pressures of globalization encourage
multinationals to seek out countries that are willing to tolerate abysmal working
conditions for their citizens. In this sense, globalization is said to foster slavery, child
labor and sub-human working conditions not only in poor countries, but also in rich
countries. The remedy called for is “core labor standards” that address the human
rights of workers in developing countries. An MIT economist counters this
conclusion with an argument that follows along the line of “bad jobs at bad wages are
better than no jobs at all.” He writes: “After all, global poverty is not something
recently invented for the benefit of multinational corporations. ... Wherever the new
export industries have grown, there has been measurable improvement in the lives of
ordinary people.”39
Those that favor adoption of core labor standards argue that globalization
facilitates spreading poor labor standards in one country to other countries. For
example, labor leader Jay Mazur wrote: “(P)itting American workers against their
counterparts abroad, who are forced to live at the very margins of human existence,
gradually made itself apparent in lowered wages and standards at home. The dismal
working conditions in Asia and Central America set the standards for the notorious
sweatshop discovered in El Monte, California, in 1995.”40
Harvard Professor Dani Rodrik argues that importing items produced using labor
standards vastly lower than those prevailing in the United States is little different
39See Krugman, Paul. “In Praise of Cheap Labor.” Slate Magazine. March 20, 1997.
40Mazur, Jay

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morally from producing the product in the United States with the same lower
standards. He gives as an example using child labor in a Honduran sweatshop to
produce footwear. By moving the facility and the children to the United States and
producing the footwear with the same sweatshop process nothing has changed except
that the production is now against U.S. law.41
The Environment and Health and Safety
Many environmental interactions such as weather patterns are inherently global.
That is, they fit the Keohane-Nye definition of globalism. However, environmental
interactions likely do not fit their definition of globalization in that they are not
becoming increasingly global; they were global before humans arrived on the scene.
At the same time, the rapid globalization of human civilization we are witnessing (e.g.,
economic growth and international trade) may have significant environmental impacts.
For example, the so-called ozone hole was a product of human civilization. Some
opponents of rapid globalization contend that human actions such as the burning of
fossil fuels may result in global warming, and they further contend that the
consequences of these changes may be significant.42 They conclude that this potential
warrants taking steps to slow rapid economic globalization.
A line of reasoning similar to the one used on behalf of labor is sometimes also
used for the natural environment. Many globalization opponents see rapid
globalization as causing a “race to the bottom” as multinational firms are encouraged
by cost considerations to locate in countries with lax environmental laws and/or lax
enforcement of existing laws.43 An Institute for International Economics study
reports that there is theoretical support for this position as it applies to environmental
aspects, but “evidence remains mixed and scarce.”44
Much of the debate over globalization’s impact on the environment and health
and safety has focused on international organizations and multinational corporations
(whose actions, detractors claim, are condoned/encouraged by the WTO and IMF).
41See Has Globalization Gone Too Far? By Dani Rodrik. Institute for International
Economics. Washington, DC 1997, p. 33.
42 For information on the current status of the global climate change debate see the CRS
“Global Climate Change Briefing Book” at
[http://www.congress.gov/brbk/html/ebgcc1.html.]
43 Globalization’s possible impact on the environment is complicated. For example, when
looking at trade at least three impacts can be identified. They are: the composition effect (do
traded items contribute more or less to environmental problems than the domestically
produced items they replace), the scale effect (increasing economic activity may result in
added environmental problems) and the technique effect (as trade increases income the
income-induced incentive to reduce adverse environmental impacts may come into play). See
“The Millennium Round: An Economic Appraisal” by Nigel Nagarajan. Economic Paper
Number 139, November 1999. Page 43. Available on the European Union web site at
[http://europa.eu.int/comm/economy_finance/document/ecopap/ecp139en.pdf]
44See “Regulatory Standards in the WTO Comparing Intellectual Property Rights with
Competition Policy, Environmental Protection, and Core Labor Standards” by Keith E.
Maskus. Working Paper 00-1, January 2000. Institute for International Economics.

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For example, many claim that the World Trade Organization, by its very nature, puts
trade ahead of the environment. They point to cases such as the U.S. attempt to
protect sea turtles. Article 609 of P.L. 101-162 banned import of shrimp harvested
in a manner harmful to endangered species of sea turtles. It also allowed waiving the
ban if countries could establish that their fishing methods are not harmful to sea
turtles. A complaint lodged within the WTO by India, Malaysia, Pakistan, and
Thailand claimed the U.S. ban to be discriminatory. The WTO upheld the complaint.
However, the WTO did find that the U.S.’s general environmental motive was valid.45
WTO actions in situations such as the sea turtle case have served to coalesce
groups suspicions of current globalization trends. While not motivated only by
environmental concerns, the demonstrations at WTO’s Seattle meeting and the
subsequent IMF and World Bank meetings in Washington, DC, and Prague highlight,
in an extreme fashion, the concern some public groups have with possible adverse
impacts of rapid globalization. The following two quotes from Friends of the Earth
captures this line of criticism.
“In the five years since its creation, the World Trade Organization (WTO) has
been used to undermine environmental regulations. The WTO has challenged and
weakened laws like the Clean Air Act and Endangered Species Act. What's worse,
it has done so behind closed doors and with no input from environmentalists or the
public. Friends of the Earth is working to prevent the WTO from overruling
hard-won environmental laws, and to make it more open and democratic.”46
Imagine how you’d feel if your organization managed to convince your city
council, state legislature, or Congress to enact a decent law, then a foreign
government or corporation challenged the law as illegal under international trade
rules. The next thing you know, a special trade court closed to the public could
decide that the law should be eliminated or weakened. It can happen. It has
happened. It’s called the World Trade Organization.”47
Concerns over rapid, uncontrolled globalization also extend to health and safety
issues. Opponents fear that globalization left unchecked may cause substantial health
and safety problems. As a result, they contend that concerns over health and safety
matters should trump the rapid economic globalization we are currently experiencing.
On the other hand, trade proponents counter that health and safety concerns are
oftentimes employed as a pretext for protectionism. The U.S. position has been that
health and safety issues need to be examined under the light of “sound science.”48
While WTO member nations agree that these should be the bases of evaluation,
interpretation of results vary widely. The different perspectives are illustrated by the
dispute over hormone-treated beef. The European Union, on food safety grounds,
45For information on the World Trade Organization (including this environmental aspect) see
“The World Trade Organization: The Debate in the United States” by Arlene Wilson. CRS
Report RL30521. April 12, 2000.
46See Friends of the Earth Web Site [http://www.foe.org/international/wto/]
47See Friends of the Earth. “The World Trade Organization and the Environment: A Citizen
Action Guide.” [http://www.foe.org/international/wto/]
48 Op cit. Arlene Wilson.

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banned the domestic production or import of hormone-treated beef. The United
States and Canada complained to the WTO that this ban violated trade rules agreed
to by member countries. In essence, they complained that the ban was not the result
of sound science (broadly defined). A WTO dispute settlement panel agreed. The
EU was subsequently ordered to allow importation of hormone-treated beef. While
the United States and the WTO looked at the results of risk assessments and
concluded the EU ban was not warranted under WTO rules, the EU looked at the risk
assessments and concluded the opposite. The EU’s Consumer Policy Commissioner
stated, “The scientific evidence is of enormous importance to European consumers
as it demonstrates that the Commission (of the EU) was right to strenuously defend
the ban on hormones. We now have a scientific basis to defend our position.”49 It
should be pointed out that while the WTO ordered the EU to allow importation of
hormone-treated beef, the EU refused. In such situations, if the parties cannot reach
an agreement on compensation for not lifting the ban, the only recourse available is
retaliatory trade barriers on imports in an amount determined via a WTO procedure
from the country found in violation. Both the United States and Canada have
imposed retaliatory tariffs.
The Role of Non-Governmental Organizations
World Trade Organization leaders were surprised by the intensity and impact of
the 1999 anti-WTO demonstrations in Seattle. Non-governmental organizations
(NGOs) played an important role in ensuring the “success” of the demonstrations.
Subsequent demonstrations against the IMF and World Bank have convinced leaders
of these supranational organizations of the need to seek enhanced interaction with
non-governmental organizations (NGOs) as a way to understand, counter and/or
address criticism. As a result, NGOs have been able to influence the agendas of these
international institutions to a greater extent than ever before. For example, one
outcome of World Bank-NGO interaction has been a growing number of Bank
sponsored projects that involve participation of NGOs or other civil society
components–70 percent in 1999. This is up from 50 percent five years earlier.50
Although created in the 1980s the NGO-World Bank Committee is now playing a
much greater role in Bank activities than before. As an additional level of
cooperation, the WTO and World Bank have web pages tailored to NGO
participation.
Prospects for Backtracking
Like all of the aspects of globalization already discussed, there is no consensus
on the possibility of stopping or reversing globalization. One reason for this is the
diversity of what globalization encompasses. For example, Nicholas Stern, Chief
49 Statement by EU Consumer Policy Commissioner Emma Bonino. Available on the EU web
site at
[http://europa.eu.int/comm/dgs/health_consumer/library/press/press23_en.html].
50See World Bank Issue Brief “The World Bank, NGOs and Civil Society.”
[http://www.worldbank.org/html/extdr/pb/pbngos.htm]

CRS-23
Economist of the World Bank, stated that, "Whilst many of these fears and anxieties
are understandable, we must recognize that key aspects of globalization are essentially
irreversible, particularly those associated with information, ideas, and
communications. This irreversibility, together with the magnitude of the potential
benefits, surely tell us that the central questions concern how to manage and gain from
the process, and not how to reject it."51
A major reason many feel globalization is irreversible is the depth of its
networks. With production and financial networks so intertwined the cost of stepping
back could be immense. This is the case because disentangling the networks that have
formed would necessitate restructuring many of the industrial linkages that have
formed over the last few decades. The unintended consequences of breaking linkages
are likely to be significant.
Nonetheless, many are concerned that a normally occurring economic downturn
will result in calls for protectionism thereby putting pressure on the trade and
investment aspects of globalization.52 In a speech before the 1999 Dallas
Ambassador’s Forum Alan Greenspan stated:
“Yet the protectionist propensity to thwart the process of the competitive flow of
capital, from failing technologies to the more productive, is unwise and surely
self-defeating. History tells us that not only is it unwise to try to hold back
innovations, it is also not possible over the longer run. Generation after generation
has experienced episodes in which the technologically obsolescent endeavored to
undermine progress, often appealing to the very real short-term costs of adjusting
to a changing economic environment. From the Luddites to the Smoots and the
Hawleys, competitive forces were under attack. In the end they did not prevail and
long-term advances in standards of living resumed.
Nonetheless, the campaign to expand free trade is never won. It is a continuing
battle. While tariffs in industrial countries have come down sharply over the past
half century, other barriers have become more prevalent. Administrative protection
in the form of antidumping suits and countervailing duties is a case in point. While
these forms of protection have often been imposed under the label of promoting
"fair trade," oftentimes they are just simple guises for inhibiting competition.”53
Mr. Greenspan fears that such efforts at backtracking will spark an economic
downturn. In part, this would be the case because increased protectionism would
necessitate undoing some of the networks that would no longer make sense in light
of the higher cost of doing business that the protection would impose.
51 From a speech given at the University of Indonesia by Nicholas Stern, Chief Economist of
the World Bank, entitled "Globalization and Poverty." December 15, 2000.
52The recent slowing in U.S. economic growth is a mild example of a souring economy, but
the problem does not have to originate in the United States. The Asian currency crisis is an
example. Fortunately, the United States was able to avoid much of the adverse effects of that
crisis. For an analysis see “Global Markets: Evaluating Some Risks the U.S. May Face.” by
(name redacted). CRS Report RL30891, February 11, 2001.
53Presented April 16, 1999 in Dallas, Texas.
See [http://www.federalreserve.gov/boarddocs/speeches/1999/19990416.htm]

CRS-24
Domestic firms pressuring governments for protection from foreign competition
tend to become particularly persistent as growth either stalls or falls. It is likely that
non-tariff instruments such as anti-dumping measures and countervailing duties would
be the protection vehicle of choice.54 As the first period of globalization came to an
end early in the 20th century, tariffs were used, but with governments having made
commitments to reduce tariffs via the GATT they are likely to choose less transparent
means of protection in the future.55
While government action is the most likely way globalization can be slowed,
stopped or reversed, there are other extreme scenarios that can be envisioned. For
example, one of the unintended consequences of globalization is the spread of disease.
With so much international interaction spread of disease is inevitable. The mad cow
(bovine spongiform encephalopathy or BSE) and foot and mouth sweeping Europe
are examples. The economic impact of these two diseases has been tremendous. Of
course, the loss of human life with new-variant Creutzfeldt-Jakob Disease, the human
equivalent of BSE, intensifies that concern. Other human diseases that have been
transmitted via our inter-linked travel networks include the West Nile virus, and there
has been continual concern over transmission of truly frightening diseases such as
Ebola.
Additionally, it may be merely a matter of time before a truly vicious computer
virus is unleashed around the world. Such a virus could grind much of the interlinked
network to a halt. Witness the impact of relatively benign viruses such as the “I Love
You” bug. Of course, computer viruses raise the national security specter of using
globalized networks as terrorist weapons.56 And the threat extends beyond computer
networks. Globalization also increases the threat of the use of nuclear, biological, and
chemical agents by rogue nations or global terrorist organizations, whose anti-
globalism activities are often facilitated by the worldwide Internet.
54Dumping is defined as selling exported products at below “fair market value.” This
translates into selling below the cost of production or below the price charged in the
originating market. Anti-dumping measures are duties that may be placed on dumped items
found to be threatening a U.S. industry or preventing a U.S. industry from developing.
Countervailing duties may be levied to offset foreign government subsidies. For more
information see “Antidumping and countervailing duties” by (name redacted)
in the Trade
Briefing Book. (CRS. Last Updated January 14, 2001) at
[http://www.congress.gov/brbk/html/ebtra67.html]
55 The Wall Street Journal reports that Rowe & Maw, a London-based law firm, in its “2000
Global Trade Protection” report concluded that in 2000 trade protection was at its second
highest level since WTO formation in 1995. Rowe & Maw concluded that, “Global use of
trade protection measures such as anti-dumping, anti-subsidy and safeguards remains on a
clear upward trend.” See “Trade-Protection Measures Reach Record Levels Despite Liberal
Rules” by Grainne Hehir in Wall Street Journal Interactive Edition. April 24, 2001.
56It is likely that a computer virus intended to inflict serious damage to the Internet would
target servers and routers (i.e., the backbone of the system).

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Conclusion
The accelerating and increasingly complex and intertwined development of
global networks facilitate specialization by individuals as well as nations in those
things for which they are best suited while allowing them to trade for other items. As
the networks become more intertwined and far flung they eventually break the multi-
continental barrier and enter the realm of globalism. Several factors facilitate today’s
globalization. They include: rapid technological advancement, favorable
governmental policies, and sophisticated management techniques. Government
facilitation plays a key role in this process.
Without economic globalization today’s world would be substantially different.
It has offered unprecedented choice of consumer goods, producer inputs, financing
sources, and technology. It has also helped to make the capital available to be able
to take advantage of these choices, and the competitive pressures have increased the
quality and reduced the price of the choices available. At the same time globalization
altered available consumption choices, it has also pressured governments to change.
Pressures have been created for governments to adopt internationally uniform
procedures, to become more transparent, and more democratic. There is also the
incentive for governments to improve their services. Finally, national governments
are encouraged to push responsibilities down to sub-national levels and up to
supranational levels.
Globalization is also controversial. One group sees the above accomplishments
and declares them good while another group looks at the same list and declares them
bad. Some members of the latter group see globalization as a threat to their cultures,
while others see it as a threat to employment and wages with the potential to drive
people into poverty and force them to work in inhuman working conditions. Still
others see globalization as a threat to the environment and our health and safety. At
the same time members of the former group see globalization as the best available
solution to all of these problems.
While there is little chance of completely backtracking, globalization opponents
seek to ameliorate its impacts. For example, non-governmental organizations have
been vocal in opposing numerous facets of globalization. Businesses seeking
protection from international competition also, to the extent they are successful, slow
globalization. There is also the possibility of globalization being affected by
globalization-related crises such as multi-continental transmission of disease.
There are two important lessons for policy makers. First, government policies
play a key role in starting, allowing to continue, or stopping globalization. Second,
globalization as well as efforts to combat its effects can produce unintended
consequences. Hence, in the interconnected world that globalization fosters, it is
becoming increasingly important to incorporate the big picture into efforts to “fix” its
components.

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