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Carlos A. P.

Machado
University of Minho, School of Economics and Business
4709 Braga Codex, Portugal
Phone # 351-53-604567 (direct) or 604100, Fax # 676375 or 679919
email pascoa@eeg.uminho.pt
homepage www.eeg.uminho.pt

PA R A D OX E S O F

G L O BA L I Z AT I O N

Prepared for the 1st Anglo-Korean Economic


Institute (AKEI) Conference, Royal Holloway,
University of London,
June 12, 1999
P ARADOXES OF G LOBALIZATION C ARLOS A. P. M ACHADO

PA R A D OX E S O F
G L O BA L I Z AT I O N
S OME PROVOCATIVE THOUGHTS ON A MUCH ABUSED CONCEPT

W H A T A R E W E TA L K I N G A B O U T ?

“La mondialisation est un auberge espagnole: chacun y trouve ce qu’il y apporte.” (Monnier
1997, p.145)
“Globalization means different things to different people” (Nayyar 1997, p.13)

The quantity of literature being published recently on globalization is overwhelming. A quick


search in the Books in Print data base resulted in 67 titles or subtitles including the G word for
1998, 58 in 1997 and 46 in the year before. UMI Dissertations search results amounted to 512 hits
with the word globalization/globalisation in their titles or abstracts.
My relatively modest university library boasted 65 items showing globalization or globalisation in
their titles or subtitles, some 15 books with their Portuguese equivalent (globalização), and the same
number with their French cousin (mondialisation) on the title. In all three languages they amounted to
23 titles in 1997, 17 published in 1996, and so on.1
The Economist (1997) dedicated to it a series of articles a couple of years ago, and similar
publications keep publishing on it all over the world.
As we do not wish to add a lot of words to it, and after a quick review of received definitions,
main causes and effects of this process, we proceed to describe some paradoxes, that keep coming
up and could provoke some useful thoughts, and hopefully actions, on our way ahead.
Some praise it, others brandish it as the bogeyman of the millennium and talk of a “global
disenchantment” (Pintado 1999). As an adjective it excels conveying a strong feeling when
qualifying some otherwise common concepts, like in ‘global crime’, ‘global corruption’, etc.
As Hirst & Thompson (1996, p.1) note, “(g)lobalization has become a fashionable concept in
the social sciences, a core dictum in the prescriptions of management gurus, and a catch phrase for
journalists and politicians of every stripe”. True “pop internationalism”, to use a happy expression
coined by Paul Krugman (1996).
However, “(t)he acceptance of the concept of globalization by an increasing number of people is
not due to fashion alone. It expresses the need for understanding processes that have lost meaning
in terms of the more traditional concepts.” (Petrella 1996, p. 64)
This is one of those concepts everybody uses and abuses, but whose definition is difficult to
find. It first appeared in Webster’s Dictionary in 1961, as reported by Kilminster (1997, p.257), who
refers to it as “the worldwide connectedness of social events and relationships.” “In contemporary
discussions, the extending interdependency chains between nations have been variously referred to
as the ‘global human circumstance’, ‘the transnational scene’, ‘the compression of the world’, ‘the
global ecumene’ or simply as the world ‘becoming a single place’. (ibidem)
Kilminster (1997) cites Albrow (1992) as offering following “sociological definition”: “This is
the process whereby the population of the world is increasingly bonded into a single society.” On a
more economic tone the OECD (1996) in a recent report states: “globalisation of industry refers to
an evolving pattern of cross-border activities of firms involving international investment, trade and
collaboration for purposes of product development, production and sourcing, and marketing. These
international activities enable firms to enter new markets, exploit their technological and
organisational advantages, and reduce business costs and risks. Underlying the international
expansion of firms, and in part driven by it, are technological advances, the liberalisation of markets

1 The 12 books published in 1998 were not mentioned above because a lot of 1998 publications were still coming in.

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and increased mobility of production factors.”


Some mention even a “globalization theory”, as Poppi (1997), who introduces it as a correlate of
‘postmodernism theory’, whatever that may be, and who describes the process of globalization as
“one of articulation of hitherto unrelated life-worlds.”
“By globalization the political economist means the coincidental effects of three major changes:
the accelerated internationalization of production; the sharply increased mobility of capital; and the
greater mobility of knowledge or information, from communication of messages to the transfer of
technology.” (Strange 1997) For short: “Globalization means a closer international integration of
production and markets.” (Gundlach & Nunnenkamp 1998,p.153)

Most of us would probably agree on following equation:


Globalization = Free markets + Free and increased trade + technological innovation and
increasingly cheap and swift transport/communication of goods, people and
information/knowledge + mobility of production factors (except for land?) + standardization
of tastes, products and markets

“The critical question is whether globalization defines a change in degree or in kind – an extension
of the modern international world economy into somewhat unfamiliar territory or a systemic
transformation which entails both changes in quantity (breadth and depth) and quality,
defining new structures and new modes of functioning.”2 “I shall argue…that globalization does have
substantive meaning, that we are in the midst of a qualitative transformation of the international
world economy. My argument is based on three related propositions. First, dramatic increases in the
scale of technology in many industries – in its costs, risk, and complexity – have rendered even the
largest national markets too small to be meaningful economic units; they are no longer the ‘principal
entities’ of the world economy. National markets are fused transnationally rather than linked across
borders. Secondly, the recent explosion of transnational strategic alliances is a manifestation of a
fundamental change in the mode of organization of international economic transactions from
markets and/or hierarchies (i.e. trade and MNEs) to postmodern global networks. Last, and related to
the second point, the emerging global economy is integrated through information systems and
information technology rather than hierarchical organizational structures.” (Kobrin 1997)
Globalization is thus defined in terms of scale of technology and geography (world versus nations
or states), mode of organization (networks versus hierarchies and markets) and means of integration
(information versus hierarchical organizational structures). “I assert that globalization compromises
the basic symmetry of political and economic organization, of nation states and national markets,
characteristic of the present century.”
The late 19th century experienced also a remarkable process of globalization, which gathered
momentum until the outbreak of World War I , with more or less obvious similarities and
differences with late 20th century’s one (Nayyar 1997).
According to Kobrin (1997), however, “late-twentieth-century world economy differs
significantly from that of a century ago in many respects. First, it is broader in terms of the number
of national markets encompassed (albeit to varying degrees) as constituent units. Secondly, it is
deeper in terms of the density and velocity of interaction, of flows of trade and investment, than it
was prior to 1914. Thirdly, and perhaps most important, the dominant mode of organization of
international economic transactions has changed…from the market (trade and portfolio investment)
to hierarchy or the internationalization of production through the MNE” (Multinational
Enterprise).

2 The quantitative differences may also be slightly exagerated and one author states even that “the extent of these changes
in international production is not unprecedented; …on a world scale the stock of FDI has not yet passed the high point
of 1914”, when measured as % of world output.” (Kozul-Wright 1995, p.157 and Table 6.9, p.158)

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W H A T K I N D O F F O RC E S D R I V E T H I S P RO C E S S ?

Quoting “The Great Transformation” of Karl Polanyi (1944), Altvater & Mahnkopf (1997)
describe the industrial revolution as tantamount to a ‘societal monstrosity’, which had become the
‘previously harmless market pattern’, converted by the “labour market, gold standard and free
trade.” “For Polanyi, the core truth is that markets can deliver good outcomes when they are
restricted to typical products but collapse when their influence is extended to more basic elements
of economic life, labour, land and money – that is, when markets are no longer an ‘accessory feature
of an institutional setting controlled and regulated…by social authority’.” (Boyer & Drache 1996,
p.9)
“The tendency of the market to separate from its social bonds and to neglect the nature of
planet earth in the course of fierce economic globalization is nothing new. It was already a subject
of the analytical part of the Marx and Engels Communist Manifesto.”… “Thus the historical process of
‘disembedding’ is indeed a ‘great transformation’ from traditional to modern relations. In place of
the exchange of products, which has a very long history, all areas of human communication are
taken over by forms of commodity exchange.” (Altvater & Mahnkopf 1997)
The second most important single cause of globalization was probably technological change, and
“two important contributory causes are the dramatical revival of the market economy in erstwhile
communist regions, and the changes in the development strategies on the part of most of the
developing nations from being inward-looking, import-substituting, foreign-investment-hostile to
being outward-looking, export-promoting, foreign-investment-welcoming.” (Lipsey 1997)
Amin & Thrift (1994, p.2-5) point to (1) the “increasing centrality of the financial structure”, and
“the resulting increase in the power of finance over production, (2) to the increasing importance of
the ‘knowledge structure’ or ‘expert systems’, (3) to the “transnationalization of technology, coupled
with an enormous increase in the rapidity of redundancy of given technologies, (4) “the rise of
global oligopolies”, (5) “the rise of transnational economic diplomacy and the globalization of state
power, (6) “the rise of global cultural flows and ‘deterritorialized’ signs, meanings, and identities”,
and (finally) “the results of the processes described above is the rise of new global geographies.”
As more prosaic causes can be singled out economies of scale, scope and experience, both at the
firm and the establishment levels.
According to a OECD (1996, p.20-1) study “(g)lobalisation is the result of the innovative
response of firms as they exploit opportunities and adapt to changes in their technological and
institutional environment, and partly steer these changes. The factors shaping globalisation can be
grouped into four general categories, many of which are inter-linked:
• Firm behaviour:
− strategic: pre-emptive and imitative behaviour;
− exploitation of competitive advantages: use of superior technology, organisation,
production or marketing;
− consolidation of competitive advantages: gain access to highly trained and skilled
people, advanced technological and commercial infrastructure, lower labour costs, and
to raw materials;
− organizational changes: adoption of ‘lean’ production methods and more horizontal
internal and external organisational structures, including greater local and international
outsourcing.
• Technology-related factors:
− declining computing, communication, co-ordination and transport costs;
− increasing importance of R&D, coupled with rising R&D costs;
− shortening product lives;
− shortening imitation time-lags;
− rapid growth of knowledge-intensive industries;
− increasing customisation of both intermediate and finished goods;
− increasing importance of customer-oriented services.

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• Macroeconomic factors:
− availability of key production factors;
− productivity differentials;
− fluctuations in exchange rates;
− differences in the business cycle;
− ‘catching-up’ by lagging economies.
• Government policies:
− liberalisation of international trade and capital movements;
− promotion of regional integration;
− inward investment incentives;
− R&D, technology, small firms and related industry policies;
− intellectual property rights and effective patent life;
− competition policies”, which get internationalised and bundled with industrial, trade
and other policies.

WHAT ARE THE CONSEQUENCES?

For some the effects of globalization are terrible, for others they are terrific.
Of course, you have a lot to worry about:
Hirata & Le Doaré (1998) and Choudhry (1997) worry about women, Rist and coauthors (1997)
ask what is in it for the folks, that are not allowed to migrate3; others would like to know what’s in it
for the regions and localities (Amin & Thrift 1994, Rhodes 1996), or for the media industry (Robins
& Cornford 1994). What will happen to marxism and socialism/capitalism is what Samir Amin
(1996) worries about, while Moran & Wood (1996) stick to health care policy, Humphreys &
Simpson (1996) to European telecommunications and Gummett (1996) to European defence
industry. Hossein-zadeh (1997) and Adamson & Partridge (1997) care about organized labour.
As it would be impossible to tackle all implications, we will focus on some more interesting to
us.

• The costs and benefits of globalization

Main costs and benefits to be expected from globalization are synthesised by Dunning (1997b,
p.20) as the ‘yin’ and ‘yang’ of closer economic interdependence and the liberalisation of markets.
On the positive side he includes “undisputedly raising average living standards, offering new job
opportunities, popularizing new technologies and skills, widening consumer choice, and, in a whole
variety of ways, improving the lifestyles of large numbers of people”.
On the down-side, “globalization is no less dramatically portrayed in terms of disturbingly high
levels of unemployment – particularly among the younger unskilled workers; a personal sense of
insecurity and foreboding associated with rapid technological change; the division of societies into
new islands of conflicting economic interests; the breakdown of traditional social conventions; the
resurgence of ethnic conflicts; and, not least, the easier cross-border movement of tangible or
intangible disbenefits e.g. organized crime, drug trafficking, international terrorism and unacceptable
patterns of behaviour.”

• Stronger movements of industrial restructuring, including massive layoffs, abrasive


relocations and sudden divestments.

• Concentration of industries/firms and other private and non-profit institutions.

3 “Le paradoxe de la mondialisation consiste à célébrer les vertus de la circulation des capitaux, des marchandises et des
informations, tout en assignant les gens à résidence et en interdisant la migration des personnes.”

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Firms become ever larger, due not only to internal growth, but also to vertical integration,
horizontal expansion and diversification.
European and other securities exchanges are merging.
US-style superleague comes to European football (Hoehn & Szymanski 1999).

• Globalisation of market segments, homogenisation of tastes and consumer


preferences (Kustin 1994).

Some believe this more (Levitt 1983) than others (Buzzel 1968, Douglas & Wind 1995). The
consumer ceases to be king, after a period of intensive customization, where the marketing people
catered to the diversified needs of the multitude of consumers or consumer groups. Lower classes
get access to same cosmopolitan values, goods and services as upper classes.

• Same democratic (American?) way of life and liberal way of thinking everywhere.

Or else you can be bombed into it and get your political leaders ousted from power.4 La pensée
unique s’installe. However, what was more unifying than the Communist Manifesto?

• Information becomes more evenly shared by governments, corporations and


citizens, than ever before.

Inter, extra and intra-nets, management information systems and Freedom of Information Act(s) come
to mind. Information overflow is also a problem.

• Public policies get internationalized. ‘Internationalization of the state’.

The “prioritization of the interests of globally mobile capital over those of nationally based
economic and social groupings” was in progress. According to Baker (1999), this already happened
to HM Treasury and the Bank of England. A former associate of George Soros runs Brazilian
central bank.
Dollarisation of some economies is officially considered as a potential problem and/or
opportunity by American administration. Europe gets one unified currency. The Federal Reserve
has recently (1998) officially decided to include data on the foreign economic situation as criteria
for its monetary policy decision making process. Other decisions regarding, for instance,
environment protection or pollution control, public health and competition policies have more and
more international implications 5.
Some, as social policy, social protection and income policies, acquire perhaps unexpectedly the
properties of a prisoner’s dilemma at the international level, as Rayp (1999) pointed out. In order to
be effective in all countries, without harming some countries’ competitive position in favour of
others’, “it means that constraints may be alleviated by a co-operative policy, consisting of
multilateral initiatives in social matters, which recognise and respect the relative positions of the
countries and induces them to choose collectively for a higher social protection.” (Rayp 1999, p.23)

• Scientific disciplines get sacked or merged.

Intrafirm trade gains vis-a-vis interfirm trade, with implications in what concerns relevant
theoretical approach, trade theory or theory of the firm.
The theory of multinational enterprise, and partly the ‘old’ eclectic paradigm, get updated in

4 In my home country, Portugal, the change of political regime, which took place 25 years ago, was recently “explained”
to the kids, as having made possible, what was forbidden before, namely to purchase and drink Coca-Cola!
5Measures against aircraft noise, genetically modified food and hormone fed beef, and on individual data protection have
all been contested at the WTO.

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order to take globalisation into consideration. (Dunning 1999)


International relations have become so important that they tend to vanish, for lack of specificity.
The “end of the nation state” (Ohmae 1995) and the rise of interregional economies, in a
process that could culminate in the rebirth of Interregional/Geography/Location Economics.
In terms of scientific approaches we have been watching a trend towards an increasing
interaction and tentative fusion between disciplines. The need for a greater interdisciplinarity is felt
across the board.
International and industrial economics tend to merge, while some time ago “in industrial
organization theory, we had firms without trade and international trade had the opposite, trade
without firms.” (Silber 1983)
“Institutional and technological changes that have taken place in the last thirty years, now
require that the analyst replace the theory of international trade6 and conceive of a theory of
‘international economic involvement’. This theory must allow for the fact that trade conducted
between independent arm’s-length parties remains important but is no longer the unique identifiable
component of international economic interaction. The theory must recognize the existence of
MNCs and foreign direct investment (FDI) which amounts, in practice, to a refutation of the
essential assumption of the received doctrine - that (all) factors of production are internationally
immobile.” (Gray 1999)

• Corporations change their ways, and become the ‘global actor no.1’ (Petrella 1996),
social and even ‘virtual’ (Davidow & Malone 1993) entities.

The firm has emerged as the key global actor, mainly for three reasons:
1. “It is the only organization that has transformed itself to become a ‘global’ player. It
operates at the real decision-making level.
2. Our society has given top priority to technology and to the growth of tools. Firms are the
producers of tools.
3. Firms are considered to be key actors that produce wealth, ensure employment and,
therefore, individual and collective well-being.” (Petrella 1996, p.74)

“’Going global’ has been far easier for firms than for governments, parliaments, trade unions or
universities, which are not sufficiently flexible institutions ready to adapt easily or quickly to
changing conditions.” (Petrella 1996, p.73) “As far as ‘global’ society is concerned, the enterprise
lays claim to a kind of historical legitimacy based on the fact that it has become globalized. It makes
this claim implicitly in that it presents itself as the only organization able to assure the optimal
worldwide management of available material and non-material resources.” (Petrella 1996, p.76)
Unethical behaviour is out; politically correct behaviour is in. No bribes are allowed and never
corruption.
Multinational or transnational firms become global corporations (Levitt 1983). These develop a
more integrated or centralized management style (Perlmutter 1969, Bartlett & Ghoshal 1989) and
now they are even becoming “knowledge creating” (Nonaka & Takeuchi 1995) and “knowledge
orchestrating” “Metanational” corporations7 (Doz et al 1997). International marketing became
“global” and corporate strategy becomes global (Lazar 1996) too, or even “Total Global Strategy” (Yip
1995)
From a Canadian rather interventionist point of view this sounds like Lazar (1996, p.282):
“Thus, we must conclude that a global strategy has become essential for competitiveness and
success in the contests for achieving a competitive advantage. A global strategy provides more
options and greater flexibility than a domestic strategy and so must be more valuable for a firm.”
Not considered by this author as a substitute for the three generic Porter strategies (low-cost,
differentiation and focus) a global strategy is supposed to be “a crucial complement to each.”

6 I would add international investment.


7Defined by these authors as corporations that “simultaneously access, meld, and leverage locally-bound and context-
dependent knowledge from around the world.” (Doz et al 1997, p.28)

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• Degradation of human (moral) values. ‘Economicism’. “Market fundamentalism”.


Pseudo-paradox: market values versus social values.

I believe this consequence to be more apparent than real. If there is in fact a loss of
human/moral values, this is only too often abusively attributed to globalization, defined as above.
“Unsure of what they stand for, people increasingly rely on money as the criterion of value.
…The cult of success has replaced a belief in principles. Society has lost its anchor.” (Soros 1997)
Free markets threaten family values, as some want us to believe (viz. Kuttner 1999 and Soros
1997) as much or less than any ideology, personality type or state of mind. It is abusive to aver that
“capitalism decrees that almost anything goes as long as it sells.”(Ibiden) Capitalism does not justify
murder (Coker 1999), as much or as less as it does not justify war, prostitution, drug dealing, bank
robbing, and so on, however profitable and widespread any of these activities may be.

• Separation (‘disembedding’) of the economy (market) from the society (Polanyi


1944).

Wood (1997, p.555) states that “the ‘disembedding’ of the ‘economy’ from society is, of course,
not – or not only – the separation of the economy from society but also, and above all, the
subordination of social relations to the disembedded economy, or the subsumption of society by
the economic logic of capitalism.”
Birchfield (1999) even offers a “critique of neoliberal globalization from the vantage point of
democratic theory, exposing how this form of market ideology is inherently antithetical to
democratic principles.”8
To accept this would be tantamount to denying the right of economic science to exist as an
autonomous science; as a matter of fact of any (social) science. Quite to the contrary you could aver
that the economy, even today, is subject to all kinds of influences and interventions from the other
spheres of human and natural life.

W H A T PA R A D OX E S A R E T H E R E ?

• Wage inequalities increase between developed and developing countries and within
developed countries

According to the received international trade theory, it is relatively scarce unskilled labour in
high salary countries that should feel the punch of globalization. And indeed it is, all across the rich
countries and not only in the more exposed to international competition mature industries, but also
in the high-tech sectors, like aerospace. (Garten 1999)
Wage inequality is apparently also rising within developed countries, mainly in the United States
of America and Great Britain. “In 1979, the richest 10% of male Americans in full-time
employment earned 3.6 times as much as the poorest 10%. By 1996, they were earning five times as
much.” (The Economist 1999, p.5) “Economists offer two main explanations for the growing
inequality in American pay. The first, and less convincing, is globalisation. The rise in foreign
imports, the argument goes, is forcing some Americans to accept lower pay to remain competitive
with, say, Mexican and Chinese workers. The trouble with this story is that foreign trade is a much
larger part of Europe’s economies than America’s, so Europe should feel the effect much more.
Besides, argues Canice Pendergast, an economist at the University of Chicago graduate business
school, of the 13% or so of GNP that America trades, most is with Canada, Japan and Europe.
Only about two-fifths of that total is with developing countries - and over 20 years that share has

8 Soros (1998) argues along similar lines.

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risen by only one percentage point of GNP. In Britain, where pay inequality has risen even faster,
trade with developing countries has grown more slowly. The second explanation depends on
technology, and especially on the way it has increased the demand for skilled, rather than unskilled,
workers.” (Ibiden)
This conclusion seems to be shared by Murshed (1997), who states that “(i)t is not trade with the
South, per se, which hurts unskilled labor in the North, but the nature of labor market imperfections
and the process of technical change.”
Some call our attention to what could be considered specific extreme effects of this rising
inequality: “Of all the issues that globalisation raises, none is as tricky as the vast gulf between the
pay of most of the world’s chief executives and the stock options of America’s bosses.” (The
Economist 1999, p.16)
However, imports into developed nations are reputedly not only displacing labour, but also
generating employment in skill intensive downstream handling activities. (Tombazos 1999)
Within developed countries less skilled and paid labour, especially of the immigrant sort, would
suffer more than highly skilled and paid people (Wood 1998, Burda & Dluhosch 1998) would. This
could be happening not only because of falling barriers to trade, to capital flows, to migration and
knowledge spillovers, and because of corporate organisational changes and erosion of trade-union
power, but also due to the reduction of what Tang & Wood (1999) call ‘co-operation costs’. This
mechanism is described as “the dramatic decline in the cost of international business travel and
communication, which has made it much easier for highly-skilled workers who live in developed
countries to co-operate in production with less-skilled workers in developing countries, through a
mixture of frequent short visits and telecommunication.” (Ibiden)
The wages of highly skilled northern workers would be raising by widening markets for their
services. We see here traces of what others called “the winner-take-all society” or “the society of
superstars”. “Inequality between Southern and Northern less-skilled workers thus declines, but
inequality in the North between highly-skilled and less-skilled workers rises.” (Tang & Wood 1999,
p.2)
This “mechanism is also related to direct foreign investment, since transnational companies are
suppliers not just of finance but of expertise … : they are channels through which highly-skilled
Northern workers contribute to production in the South, and the spread and increasing
sophistication of such companies has been both a cause and a consequence of falling co-operation
costs. However, much - indeed, probably most – co-operation occurs through channels other than
transnational ownership: many Northern importers assist their Southern suppliers with design,
production and packaging, as well as marketing; and Southern firms buy the services of Northern
experts, either as individuals or through consulting firms.” (Tang & Wood 1999, p.3)
In this context, “it is important to ask why highly-skilled workers do not migrate to the South,
where their greater scarcity offers the prospect of higher earnings. The reason appears to be
externalities – economies of clustering of highly-skilled workers – of two sorts. One is that frequent
contact among such workers, face-to-face as well as by telecommunication, is vital for the
acquisition and maintenance of their skills. The other is that many amenities of Northern life valued
by highly-skilled workers and their families can be supplied only by clusters of highly-skilled
workers.” (Tang & Wood 1999, p.4)
Economic liberalization, in trade and finance, “should normally raise the relative wage of low-
skilled workers and reduce wage inequality in low wage countries. However, the more recent
experience of a number of developing countries – especially those in Latin America – shows, in
addition to rising unemployment (7.4% in 1997), a trend of rising wage inequalities in the aftermath
of liberalization. Liberalization appears to have disproportionately benefited skilled workers in
several Latin American countries.” (Hansenne 1999, p.8-9)
Among the possible explanations for this unexpected fact, Hansenne (1999, p.9) lists (1) labour
market deregulation, (2) the more rapid diffusion of skill-intensive technologies embodied in
foreign direct investment and imported capital equipment, that (3) middle-income countries would
be comparatively better endowed with skilled labour, and (4) secular decline in the terms of trade of
labour-intensive exports from large low-wage countries, indirectly depressing the wages of low-

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skilled workers in all developing countries.9


We get often warned that from this rising gap between those able to ride the wave of
globalization because they are knowledge and communications oriented, and those left behind,
could develop a “mounting backlash against globalization”. (Schwab & Smadja 1996, as quoted by
Dunning 1997b, p.20)

• International relations become so important that they tend to vanish.

As cross-border barriers fall, so international specificities disappear: currencies, tastes, and


immobile factors of production, comparative advantage (chapter xx in introductory economics
textbooks).

• Increased, or at least persistent, instability/volatility10 of some economic,


financial11 and other variables, in spite of less segmented more homogenous
markets.

Three basic deficiencies appear to underlie the increased instability: (1) Major function of
financial markets would have shifted from intermediation to speculation; (2) macroeconomic
policies would overemphasise monetary instruments and financial deregulation, in detriment of
fiscal/budget and price/income policies; (3) absence of effective multilateral constraints and
obligations. (Akyüz 1995)
In this case it appears as if an interaction between technological innovation, in the form of
automated computer software, telecommunications, and the like, and financial market integration,
with new scope for arbitration between markets, has contributed to increased volatility.

• Convergence, standardization, and homogenisation versus divergence of life


styles, of consumer preferences, differentiation of products and customization,
growing heterogeneity, income inequalities, unemployment, social exclusion,
ethnical conflict, proliferation of ethnic mass media (Mowlana 1998) and
polarisation.

“Market forces and competition work in favor of convergence12, but institutions outside the
market work against it.” (Unger 1997, p.99)

• Calls for tax harmonisation and for multinational co-operation in the control of
activities and behaviour by multinationals go hand in hand with a “race to the
bottom” for state subsidies/incentives to the firms, reflected also in the erosion
of regulatory standards (Lazar 1996) and with the use of transfer prices by those
firms.

• “The Paradox of Relationships” (Dunning 1997b).

Cooperation versus Competition (“Co-opetition” Nalebuff & Brandenburger 1996). The ‘yang’
and the ‘yin’ of globalization. Corporate internal transactions versus arms’ length adversarial

9 According to the Stolper-Samuelson theorem, the falling relative wages of unskilled workers in the North would have to
imply a decline in the relative price of unskilled labor intensive goods.
10 World output and trade would however show decreasing rates of volatility (Kitson & Michie 1995, Table 1.2, p.8).
11“For example, volatility of exchange rates, asset prices, and interest rates tends to shorten time horizons for investment
decisions, to raise transaction costs, and to increase firms’ incentives to maintain higher mark-ups and greater financial
reserves. Moreover volatility blurs the signals which the exchange rate should give for resource allocation." (Akyüz &
Cornford 1995, p.172)
12 Convergence has been defined in social sciences as “the tendency of societies to grow more alike, to develop similarities
in structures, processes, and performances” (Kerr 1983, p.3, as quoted by Unger 1997, p.101)

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transactions. Neither Markets nor Hierarchies, however flat/horizontal: Networks (Thorelli 1986),
Alliance Capitalism (Dunning 1997) or Heterarchies (Hedlund 1986).
Globalization would be “forcing both private and public institutions to reappraise their
organizational structures.” … “In its contemporary philosophy, the job of top management is less
to control and take decisions, and more to orchestrate strategic vision, set performance standards,
nurture organizational values and encourage down-the-line entrepreneurship.” (Dunning 1997b,
p.19)
In a recent move Boeing is trying to bring the market inside the firm, in as much as it’s
management is going to allow the unions to bid against outside contractors. (Garten 1999)

• Globalization versus regionalization, international economic integration or


formation of regional blocks of countries (supranational public bodies) (LeClair
1997) and of subnational or transnational competitive regional agglomerations
(Ohmae 1995, Tanzi 1998).

(G)lobalization is leading to a decentralization of some the traditional tasks of national


governments to sub-national, i.e. regional or district authorities; while others, e.g. the management
of trade, foreign direct investment and competition policies, and the variety of technical and
environmental standardization of harmonization of norms are increasingly becoming the
responsibility of regional or supra-national regimes.” (Dunning 1997b, p.20)
Subsidiarity “is gaining widespread acceptance at all levels of governance; and the role of sub-
national economic entities is becoming more, rather than less, influential.”(Dunning 1997b, p.13)

• ‘Americanization’ (Guéhenno 1999), ‘Triadization’ (Petrella 1996), and not so


much Globalization.

The American people would be the only one not to feel the contradiction between their
nationalism/patriotism and globalization. Globalization would reinforce and confirm American
identity and fundamental convictions, as the only “communauté de choix”, also called
“communauté de contrat”. All the others, the so called “communautés de mémoire”, would feel
aggressed by globalization. (Guéhenno 1999)
“Today’s globalization is a truncated globalization: ‘triadization’ is a more correct definition of
the current situation. By ‘triadization’ is meant the fact that the process of technological, economic
and socio-cultural integration amongst the three most developed regions of the world (Japan plus
the NICs from South-East Asia, Western Europe and North America) is more diffused, intensive
and significant than ‘integration’ between these three regions and the less-developed countries, or
between the less-developed themselves.” (Petrella 1996, p.77)
“If the target is to win, only a few will be winners. The losers will be excluded and abandoned to
their situation. The winners will continues to remain together, and increasingly integrate with one
other….De-linking is the process through which some countries and regions are gradually losing
their connections with the most economically developed and growing countries and regions of the
world.” (Petrella 1996, p.78)

• Concentration of national economies in customs unions and free trade areas


versus fragmentation and proliferation of ethnic conflicts.

“The paradox of regional economic integration – albeit it is often market driven – is that it
introduces an economic uniformity or universality into people’s lives, which they frequently wish to
offset by emphasizing other, and more distinctive, characteristics of their individuality. In some
cases – although we would hesitate to suggest this has been caused by the emergence of the global
economy, however much it may facilitate it, - it leads to ethnic and ideological schisms and to
political disintegration and fragmentation.” (Dunning 1997b, p.13)

• Increased competition in a larger market accompanied by the predominance of


global corporations/monopolies/cartels and the “renaissance of small to

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P ARADOXES OF G LOBALIZATION C ARLOS A. P. M ACHADO

medium size firms” (Dunning 1997b, p.9).

• Markets become more important, but so does their regulation.

“…disembedded markets which follow an ‘asocial’ and ‘nonnatural’ logic and can conform to
economic rationality require social regulation.” (Altvater & Mahnkopf 1997, p.320)
Globalization and economic change would, according to Dunning (1997b, p.17), be “leading to a
greater coincidence of interest between governments and the private sector in market economies.”
“Hence, the paradox that a free market needs strong and effective government.”

• The paradox of ‘less yet more’, and that of ‘centralization vs. decentralization’
(Dunning 1997b, p.15)

The generalized call for less state and more market since the eighties was not followed by the
equivalent drop of public spending as percentage of national product. Dunning (1997b, p.16)
describes “a blurring of the boundaries of the role of the private and public sector in capitalist
economies…. On the one hand, … the interventionist role of governments has lessened. On the
other, as the economic prosperity of firms and nations has become more dependent on the
continual upgrading of indigenous created assets – notably intellectual capital and physical and
commercial infrastructure -, then, insofar as it has the power to influence, e.g. by its educational and
technology policies, the role of the state has become more critical.”

• Decline of the role of the state/government, at the least in what concerns


macroeconomic policy (“hollowing out of the state”), but cross-border
externalities/spillovers and “global public goods” (Kaul & others 1999)
reinforce the case for relevant international agencies and supranational
governments (One World, One Government).

Some still believe, with the European Community in mind, however that “in spite of economic
internationalization, the nation-state has not only survived but continues to monopolize sovereignty
and public power.” While conceding that “it is well possible that the system of international
economic governance that is emerging from the defence of the national monopoly on public power
will be both: the only one on offer, and far less than what would be needed to make a global
economy viable socially as well as, perhaps, economically.” (Streeck 1996, p.314)
Beware: Retrenchment to microeconomic policies could imply large perverse effects, as failures
of the state can be larger than market failures. In the words of Dunning (1997b, p.17) “the costs
and benefits of non-market intervention are extremely difficult to measure.” Accordingly, the
interaction between national government and markets can lead as easily to a virtuous as to a vicious
circle.

• Competitive advantage of nations (and firms) remains dependent of local


clusters/agglomerations (Porter 1990) of “national” (Sally 1996) “local
embeddedness of transnational corporations” (Dicken, Forsgren & Malmberg
1994), or of industrial districts.

However, according to Mann (1997, p.472) “the expansion of global networks seems to weaken
local interaction networks more than national ones.”

• Nations tend to be run like corporations (Hollywood, and the call for managers

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P ARADOXES OF G LOBALIZATION 18-02-05 C ARLOS A. P. M ACHADO

to run public agencies13) and corporations like nations (social responsibility,


ethical behaviour, workers’ participation, etc.).

• A “growing incongruity between the economic and the social space of


organization creates a major challenge to economic, political, and social
stability.” (Sengenberger & Wilkinson 1995, p. 111)

This mismatch would reflect among others on the contrast between the transnational activities
of firms and the national or sub-national level at which labour institutions and labour market
regulation remain, where pay, employment rules, working conditions, occupational health and
safety, and social security are determined.14 (Sengenberger & Wilkinson 1995, p.111)

• U.S. Federal Reserve included in 1998 the foreign economic situation in the
determinants of their decisions, but hesitates to serve as the central bank for
non-US dollarised economies.

• The Paradox of Space. (Dunning 1997b)

GO GLOCAL. Think globally, (but) act locally or glocalize (Gustavsson 1994). ‘Subsidiarity’ at the
governmental level.

• Irreversible, in spite of never attainable.

“…barring natural or man-made catastrophes or a major reconfiguration of social values, the


globalization of economic activity is largely irreversible”(Dunning 1997b), yet “(g)lobalism is never
attainable” (Altvater & Mahnkopf 1997).
Mann (1997, p.489) writes of an ‘impure’ globalism, “a combination of both the transnational
and the inter-national. The potential universalism of the former is undercut by the particularisms of
nation-states – and indeed also by the particularisms of human social practices at large.”

• George Soros (1997 and 1998) complaining about global capitalism.

In his own words: “I contend that an open society may also be threatened from the opposite [in
relation to the power of the state] direction – from excessive individualism. Too much competition
and too little cooperation can cause intolerable inequities and instability” (Soros 1997)

WHAT ARE THE CONCLUSIONS?

Kemp & Shimomura (1999) offer three alternative definitions of globalization in terms of (i) an
enlargement of the set of trading countries, (ii) an enlargement of the set of traded commodities, or
(iii) the international sharing of technology. “It is shown that if each country adopts a Paretian
scheme of internal compensation then internationalization in each sense leaves at least one country
better off, and that if international compensation is admitted then internationalization in each sense
makes every country better off.”
The G-word means neither Apocalypse nor Shangri-La; it’s another word to say future, and the
future, as they say, is already here, at least in part.
On the other hand, we are dealing here with an exaggerated simplification, but which has the

13 The practice of ministers and other senior officials leaving office to go directly to private enterprise is widespread.
Increasingly popular seems to be the recruitment of such officials from the private sector. Latest case in point that has
called my attention is the new Brazilian Central Bank president. In my home country the ministry of the economy
promotes itself as being the ministry of corporations.
14 See the problem of alleged ‘social dumping’ and the corresponding remedy ‘social clause’. “The purpose of a social
clause is to restrict imports of products originating in countries, industries, or firms where labour standards are inferior to
certain minimum standards.” (Sengenberger & Wilkinson 1995, p.115)

12
P ARADOXES OF G LOBALIZATION C ARLOS A. P. M ACHADO

virtue of calling our attention to some paradigm shifts that may be called for.

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