Globalization is an overused term that can be given a wide variety of meanings. For the purposes of the present discussion, I take it to mean the development of global financial markets and their increasing domination over national economies. Most of the problems that people associate with globalization can be attributed to this development.
The globalization of financial markets is a relatively recent development that distinguishes the present day from 50 or even 25 years ago, although a similar epoch of global financial markets prevailed prior to World War One. At the end of World War Two, most countries strictly controlled international capital transactions. The Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank were designed to facilitate international trade and investment in an environment of restricted private capital flows. Controls on capital movements were gradually removed. Offshore financial markets expanded rapidly under the impetus of the oil crisis in 1973. Capital was liberated from internal and external restrictions in the United States under Ronald Reagan and in the United Kingdom under Margaret Thatcher in the early 1980s. Financial markets became truly global in the early 1990s after the collapse of the Soviet empire.
This is not the first occasion when international financial markets play such a dominant role; similar conditions prevailed prior to World War One. International capital movements were disrupted first by World War One and then by the Great Depression of the 1930s. Clearly, the process is not irreversible.
The salient feature of globalized financial markets is that they allow financial capital to move around freely. By contrast, the movement of people remains heavily regulated. Since capital is an essential ingredient of production, individual countries must compete to attract it; this inhibits their ability to tax it and regulate it. Under the influence of globalization, the character of our economic and social arrangements have undergone a radical transformation. The ability of capital to go elsewhere undermines the ability of the state to provide social services; the Welfare State in the form which it took after World War Two became unsustainable. At the same time, there has been no increase in the capacity of our international institutions to make up for the deficiency.
This outcome is not accidental. It was the objective of the Reagan and Thatcher governments to reduce the ability of the state to interfere in the economy and globalization served their purpose.
The transformation that has occurred since the 1980s is not well understood. It is not even acknowledged. Capital has always been eager to avoid taxation and regulation; so it is easy to interpret the current situation as merely the manifestation of universally and timelessly valid economic laws. That is, in fact, the dominant view at least in the English speaking world. I have called it market fundamentalism. It holds that the allocation of resources is best left to the market mechanism and any interference with that mechanism reduces the efficiency of the economy. Judged by the criteria of market fundamentalism, globalization has been a highly successful project.
Pub date: 02/15/02
Price: $20.00/29.95 Canada
5-3/16 X 7-5/8
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Business, Current Events
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