Production, Trade and Globalization
Questions to answer:
How has corporate power changed throughout the nineteenth and twentieth centuries?
What are the key historical junctures in the evolution of MNCs?
What are the domestic, decisional, distributional, and structural impacts of the globalization of business?
Is corporate power eviscerating state power?
Lowering wages and exporting jobs?
Exporting human rights?
What are the key historical junctures in the evolution of the global trading system?
How have states become enmeshed in the global trading system?
According to Irwin, what are the arguments in favor of free trade? For protectionism?
Are global trade relations eviscerating state sovereignty?
What is fair trade?
Does Hamilton make a fair case?
How have fair trade strategies been implemented?
Is it a viable strategy for LDC development or is it radical chic?
It is liberal chic because it doesn’t do anything. There is no enforcement. And there is disruption at the local level if the fair trade fails because the fair trade brings in more money, and then fails. Also, it can make a place susceptible to takeover because it seems more prosperous for the neighbors to take because of the influx of fair trade market. The number of fair trade is also so small and doesn’t affect anything to do with the government and state-owned industries.
i. 4 factors Held will use throughout to determine if globalization is happening:
ii. With production, how does extensity change from the first wave of globalization to post 1944 (or 1944-89 and 1989 and after):
1. Increased in extensity in post-WWII era
a. FDI is moving to E.Asian LDC’s because of surplus labor (late 60’s – mid 70’s).
b. 1944-60: US largest FDI exporter, exporting to W.Europre/Canada
i. FDR had the Marshall Plan
ii. FDR wanted FDI to be invested “Greenfield” – physical plant machinery that cannot be easily moved
iii. FDR did not want “Portfolio” investment – which was financial investment, stocks and bonds, not investing in manufacturing.
1. When Keynes is making his case for regulation of FDI, he wants restrictions on portfolio investment and limits on it, but wants almost unlimited ability to invest in Greenfield investments. Keynes wants people to invest in actual production
iv. After 1989 mergers and acquisitions are going to be huge in FDI.
v. After 1989 – FDI moves around the world, not just Europe.
c. The contemporary period differs because it is more extensive, wider spread, than past FDI periods.
2. Increased intensity in the post-war period as well. Look at GDP and the growth
3. Emergance of MNC
a. Skeptic: MNCs are driven by national agendas and are driven by national agendas and rules – they still serve the interests of their country and their country can put restrictions on them
i. Countries can control MNC by
1. Tax policy
a. So a skeptic would say that the MNCs are simply serving their own interests – same as they were in the earlier time periods.
b. Transformationalist: The MNCs are forming trade and production networks and can evade state control. A new global economy.
i. The networks make more and more transactions outside of the market (Held says)
1. They want monopolies and oligopolies
2. Vertical integration
3. Horizontal integration
4. Intra-firm pricing/Transfer pricing
a. 2 companies are owned by the same corporation so you don’t have the market interfering.
b. Market forces don’t determine price, the corporations do.
c. Why do MNCs like this?
i. Get away from taxes
ii. Funnel resources to places based on tax rates rather than where production is taking place
5. Intra-industry collaboration
a. A few firms in a particular industry will collaborate and agree.
ii. Not that the state has lost complete control; but the state cannot control the activity as much as they want to.
c. Hyperglobalist: The nation state doesn’t have any power anymore, MNCs go wherever labor is cheapest and do what they want – MNCs run the show. Corporations are stronger than the states themselves.
iii. Aspect of production that is essential for the 21st century which wasn’t important before:
a. Distributes power in the international political economy
i. Allows SME (small-medium enterprises) to have more power because they can subcontract, or be subcontractors
2. United Colors of Beneton
3. Louis Viutton
b. Distributes risk
c. Makes this period in globalization unique compared to all prior periods.
b. Impacts (Held Chapters)
1. Skeptics: No difference states still retain control
2. Transformationalist: States still have some control, but some of their control has been taken away
3. Hyperglobalist: States have no control
4. How does this affect state policy?
a. Demand management no longer works b/c of changes in production
i. Makes it harder for sates to follow a Keynesian economy
ii. Cannot support the national champions (France) as well because their influence has been reduced
1. Strategic trade policy
b. Unemployment policies have become harder to manage
c. Cost-benefit analysis are harder b/c the cross boarders
4. Labor looses as production shifts to lower paying countries
a. Sweden is the only place where labor can still win
5. Production shifts to having different levels of production/different parts of the production of the whole – located in different countries
6. Increased demand for skilled workers
7. Unskilled labor has been hurt the most because that type of labor can move to a different place where labor is cheaper.
iii. Institutional (International Political Economy)
4. More competition will be taken place
a. Particularly within the sub-contractor area
4. State v. market
a. Held sees a shift to the market and corporate power
5. Performance of MNCs have become decoupled from national economic performance
a. This is another piece of evidence Held could use to show that the skeptics underestimate this trend of globalization
i. Frobel “New Int’l Division of Labor”
1. One of the first to document “deindustrialization”
a. Deindustrialization: moving industrial jobs from the industrial world to the developing nations
b. Uses German textile industry as a statistical and empirical example
2. During this period (1970s) you have:
b. Rising inflation
c. Rising unemployment
d. Low growth levels
e. Wages fall
f. Collapse of Keynesian economics
i. Clear by 1977 that they couldn’t resurrect Keynesian economics
g. FDI is going to LDCs
3. Shift of productive capacity from the developed world to the developing world
ii. Arrighi “Industrial Convergence”
1. They are responding to claim that the hierarchy has changed but there is still a hierarchy (Transformationalist perspective)
2. There has not been a convergence and there is still significant stratification and the stratification is still clear cut – North/South
3. They call into question whether development/industrialization is really good for LDCs
a. b/c it can overlook important details
b. Questioning development paradigms
4. Deindustrialization argument is a specific political choice made by developing countries – specifically the US
a. They needed to find another area they could control b/c they lost hegemonic power in the industrialization area
b. This has the affect of undermining development
c. And it was intentional in order for the US to regain hegemonic power in an area
d. Create increased competition for finance capital
5. Not explicitly clear about the competition among development paradigms
a. Chile/Argentina/Brazil/Uruguay/Mexico: all of these made significant progress in 1960s with rises in living standards, public education, GDP doubled – this suggest that they might have come up with a persuasive form of developmentatlism or neo-Keynesianism.
i. So the Nixon administration and others tried to dismantle the paradigm and stop this by redirecting flow of capital back into the US
6. When they draw the distinction between market capital and development capital – the US and others have written the rules so that the developing countries can never become developed countries (updating List and Kicking Away the Ladder)
7. Comment: application of applied theory to the issue - they use Schumpeter (creative destruction) to apply capitalism to the analysis they do.
a. Creative Destruction: You have to destroy the part of the economy that is hindering creativity in order to become creative and innovative
iii. Hirst/Thompson “Globalization, a Necessary Myth?”
1. Best known SKEPTICS
2. Why do they think production and its consequences are fundamentally unchanged from the golden era of globalization:
a. Investment is still in the FDI
b. The networks are still regional, not global
i. Reactors are fewer and thy will be more restricted in their geographical scope
c. They say that a real globalization market has never happened
i. Held says that if you can see that foreign competitors are competing with local producers/national producers within a certain industry – you see globalization
d. MNCs don’t exist
i. Look at where HQ and R&D are taking place
1. If a company is truly transnational, it wouldn’t matter where these things take place
2. However, since there are no MNC’s – this does matter, and HQ/R&D take place in their home nations.
iv. Dicken “A New Geo-economy”
1. Uses production chains to show there is a movement towards globalization
2. Shows the tension between state regulation (state hasn’t been eviscerated) but MNCs are growing in their power
a. This puts him in a Transformationalist perspective
v. Spar “Spotlight and Bottom Line.”
1. Is she too optimistic about how companies can control human rights?
2. Is she giving too much credit to MNCs watching human rights?
a. Puts a lot of emphasis on the public spotlight
b. Wanting the public glare to take care of being a conscience for the MNCs
c. But the problem is that this is more interest groups related than MNC related
3. Codes of conduct/Glare of spotlight
4. No regulatory agency for the MNCs to answer to for the human rights violations
a. She overlooks that the “fair-trade” movement might have gone as far as it can
5. She’s suggesting that under certain conditions the interests of the MNC will overlap with the human rights interest to create movement towards better human rights.
6. Is she a Transformationalist?
a. She has Transformationalist tendencies
b. She’s identifying the origins of the regulatory regime that would have to exist for MNCs to care about human rights.
i. Accd to Held – why is this period different from earlier periods?
1. Technology has changed, so barriers to trade have changed
a. What are the institutions most responsible for reducing barriers to trade?
i. GATT: post-WWII/1947 – a treaty not an organization
1. Establishes the principles for a free trade system
2. By 1979 with the Tokyo agreement you reach the lowest tariffs on manufactured products
3. What were the limitations of GAAT?
a. Limited enforcement mechanisms
b. Issues GAAT did not address:
ii. What did GAAT come up with in the early 1960’s to try and appease developing countries with agriculture?
iii. GSP – generalized system of preferences: would give preferred status to some of their exports to industrial countries (India and textiles was the first one)
ii. WTO: 1995
1. Stronger enforcement mechanism
2. Still doesn’t address agriculture
b. When we reach the contemporary globalization period; tariffs are at their lowers point every
ii. Extensively: More countries than ever are involved in international trade
iii. Intensity: No longer just raw materials and final luxury products being traded international – the types and numbers of goods being traded are going to increase/services are added to trade
1. How does this affect US in terms of manufacturing?
a. Reducing for low capital gods, but they are being traded more
2. Number of goods being manufactured in US have declined, but those industries still producing are producing more and being competitive
3. Country’s GDP related to international trade is increasing
a. In US – 12% relating to exports
b. In Germany – almost double what US is
1. Cannot be protectionist in policy (because of WTO rules)
2. Attitudes about free trade have shifted – ideological shift
3. Everything becomes more sector specific and less class based on who is benefiting and losing from trade – becomes more difficult to build and sustain coalitions
a. Example: Labor unions in Oakland (Longhsoremen/docks)
i. They should be opposed to globalization because it reduces demand for their labor, but it has increased demand for their services at the Port, so they are okay with it.
1. Who benefits: Skilled workers
2. Who loses: Unskilled workers
a. The “retraining” argument cannot hold when white collar jobs get traded out to another country (engineering, computers etc)
b. But not those whose services (plumbers et al) whose services have to be local
1. How this has affected changes in the international economy – how they have affected different actors
a. Welfare state: the welfare state/demand management policies become more difficult with an open trading system
i. But Netherlands, Sweden, Germany have open trading and welfare states
1. Biggest impact on states: demand management policies
a. National autonomy is declining over economic policies
b. What needs to be developed to make states respond to trade issues: human capital, retraining
i. Options of states have been reduced to this level
ii. TAA (1962) Trade Adjustment Assistance Act (Kennedy and Congress) – if one could prove that the job had been lost to international competition, then you could get extended benefits – and retraining.
i. Rodrick “Advice to …”
1. What advice would he give to a developing country in terms of trade policy?
b. Comes out of a centrist tradition; not associated with the left
c. Critical of some of the major aspects of neoliberalism
ii. Leclair ‘Fair Trade”
1. Two things that can help developing countries
a. GSP: from the GAAT – helps developing countries who can export certain goods
b. STABEX: European stabilization fund
i. Developed by the European Community (Africa and the Carribean)
ii. Whenever the primary product the country exported, whenever the price of the product fell below a certain level, the country could take out $$ from the stabilization fund.
iii. By time get to 1980’s/1990’s – will rule that the GSP violates international trade standards.
iv. The EU decides to discontinue STABEX
c. The policies of the EU to the developing world has been equally as stern/exploitative as the US
2. How can fair trade address the dismantling of the 2 institutions
a. Fair trade
i. Tries to get a fair price for the producers of products
1. Not individually owned farms/corporation owned farms
2. But use cooperative; the people who live on the cooperative must have a say in how the profits are going to be used.
a. Tries to get cooperatives to make their own decisions for education and medical institutions – with the profits from the fair-trade agreements
ii. Gets a lot of the product from the producers and sells at a higher market in the developing world – brings that money back to the developing country and keep it in the country
iii. Gets a guaranteed price above the standard market price for that product (based on the C-market in NY)