'Economic Globalisation'

'Economic Globalisation'

Abstract: The objective of this essay is to examine the growth of economic globalisation In particular it will focus upon the role of American Multinational and Transnational Corporations in the post-war period. It then explores the breakdown of the post-war social democratic consensus and the rise of free market neo-liberalism. The communications revolution of the 121y2421b 1980s provided the technological changes that facilitated the creation of a non-stop, 24 hour a day global financial market. I will present evidence that suggests the enormous power of the 'market' is now having a fundamental effect upon the macro and micro-policy making agendas of democratically elected governments.

1:1 - Multinational Corporations & Transnational Corporations

While acknowledging the contemporary nature of the 'globalisation' phenomenon and its undoubted intensification over the past twenty-five years, the history of the internationalisation of business can in fact be traced back over several centuries. The emergence from the seventeenth century onwards of global trading companies such as the Dutch & British East India Company and the Hudson Bay Trading Company illustrate that global trading is not necessarily a recent event. The post-war ascendancy of Multinational Companies (MNCs) was fundamental in the establishment of the newly emergent Liberal International Economic Order (LIEO), as well as influencing the shaping of specific US policies regarding trade and taxation. The phenomenal growth of MNC activity in the post-war period paralleled the worldwide economic boom.  

The pursuit of Third World 'development' was an integral part of post-war LIEO expansionism. MNCs were viewed as 'engines of growth' within these underdeveloped economies. Alternatively, 'dependency' theorists view the costs associated with MNCs as excessive.

'The capital, jobs and other benefits they bring to developing economies are recognised, but the terms on which these benefits come, are seen as unfair and exploitive'

Increasingly MNCs shift their capital investment and production sites around the world to wherever labour is skilled or cheap, as appropriate. Top footwear brands such as Nike (American) and Adidas (French), widely available in the western world, are manufactured in Newly Industrialising Countries (NICs) such as Korea and Taiwan. Corporate activity such as this, moving manufacturing industry from developed economies to NICs or Third World countries, is a primary characteristic of the 'globalisation' process and a contributing factor to the 'deindustrialisation' of many western economies. Today the world's largest companies have expanded far beyond their original home markets, have no strong allegiance to any state, and treat the world as a single global market place. Such is the phenomenal size and reach of these companies that by 'the early 1990s it was estimated that about 37,000 MNCs worldwide controlled assets in two or more countries and that these corporations were responsible for marketing roughly 90 percent of the developed countries' trade'  

As a measure of the relative economic power of these companies a comparison of their financial values with the Gross Domestic Product (GDP) of several of the world's sovereign states is revealing. The implication of this situation is that these massive corporations are well on the way to becoming the strongest agents within the global economy.

1:2 - Financial Globalisation:

The phenomenal growth of the world's financial markets during the 1980s accelerated the process of economic globalisation, whose stimulus could be traced back to the capitalist crisis of the early 1970s that had witnessed the scrapping of the Bretton Woods fixed rate exchange system and the 'gradual almost worldwide transition .to a resurgence of economic liberalism'. In addition, the most important of the changes behind recent global financial evolution is technological change. 'Underlying the revolution in global finance is a revolution in communications and information processing'. The three factors of deregulation, innovation and new technology combined to bring about a truly astonishing transformation. The neo-liberal revival within the Anglo-Saxon countries, perpetuated in the United Kingdom from 1979 under the Conservative government of Margaret Thatcher, and in the United States from 1980 by the Reagan administration, witnessed an ideological commitment to 'free markets' accompanied by the relaxation of financial controls and the deregulation of markets.

The fiscal policies of the US during the early part of the 1980s witnessed a renaissance in the dollar's fortunes, perpetuated by the policies of high interest rates, renewed economic growth and reduced inflation. The effects of the neo-liberal experiment in the UK were similar, the deindustrialisation process resulting in very high levels of unemployment during the early part of the 1980s. This escalating crisis of confidence was addressed by a confidential meeting in New York in 1985 between the US, UK, France, Japan and West Germany. The Group of Five (G5) countries, 'despite the intellectual preference for free exchange rates, ... were forced to reassess the practical consequences of benign neglect", attempting to co-ordinate economic policy with the ambition of driving down the value of the dollar'

This multilateral agreement became known as the Plaza Communiqué and was formalised at the Tokyo Economic Summit in 1986, expanded to include Canada and Italy and becoming known as the Group of Seven countries (G7). A further meeting of the G7 countries, the Louvre Accord held in Paris, February 1987, discussed international monetary management, its failure to successfully coordinate policy being a contributing factor in the collapse of the international equity markets in October of the same year. Since 1988 stock exchanges have become international markets in which business is conducted 24 hours a day. Trading between London, New York and Tokyo is continuous; the global markets never close, money is traded and moved around the world at all times of the day and night. An unwelcome consequence of market liberalisation has been the volatility of financial markets introducing 'an unparalleled degree of uncertainty and unpredictability into international monetary affairs', amply illustrated by the above mentioned stock-market 'crash' of 1987.

The continuing pre-eminence of the dollar within the global economy is now facing a challenge from the European Union (EU) through its implementation of the European Monetary System (EMS). This is a concerted attempt to stabilise currency values among its member states against the dollar, the eventual objective of the EU being European Monetary Union (EMU) achieved through a Central European Bank and the introduction of the Single European Currency (ECU).

1:3 - The Democratic Deficit:

The revolution that has taken place within the fields of global production and finance has had far reaching effects upon the autonomy of the individual nation state. What this has produced is 'a disjuncture between the formal authority of the state and the spatial reach of contemporary systems of production, distribution and exchange which often function to limit the competence and effectiveness of national economic policies'

A concentration of global corporations now controls the levers of power within both the internationalisation of production and the globalisation of financial transactions. What this has resulted in is the intensification of the degree of interdependence between nation states and the transformation of the limits in which their respective national economic strategies are able to function. Within the framework of a competitive global economy the policy instruments available to governments have been constrained in fundamentally new ways. The implications of interdependence are effectively undermining governmental 'autonomy to pursue independent macroeconomic strategies'.

The latest victims of market volatility are the countries of the Far East. During the latter part of 1997 and early 1998 the once mighty 'Asian Tigers' 'have succumbed to global market forces - their currencies and stock markets collapsing in the face of enormous selling'.   Such are the levels of interdependence in today's global economy that the far-eastern collapse has had a direct knock-on effect upon British banks and pension funds who invested heavily within these developing countries.

Further confirmation of a change in the attitudes of the leading industrial economies came from the meeting of the G7 finance ministers in London, in late February 1998. This was specifically to address the problems of rising unemployment in the industrialised world and the discussion of measures to tackle it. All sides called for the reform of tax and benefits systems that would foster work incentives particularly amongst lone parents, the young and long term unemployed. The recent actions of the G7 countries, both in the rebuilding of the global financial architecture in the wake of the Asian financial crisis, and the concentration upon addressing the social problems caused by unemployment, is belated recognition, 'that globalisation does not just mean surfing the Net and leaner production, but unemployment, poverty, crime and social exclusion'.

Many Governments are now having to acknowledge that not all of the consequences of economic globalisation have been beneficial. The laissez-faire landslide of the 1980s produced not only winners, but losers as well. In a world of finite resources the co-operational control of financial markets is once again being re-examined as a credible alternative. This, along with an internationally enforceable code of conduct to control the activities of MNCs, is increasingly being acknowledged as a necessary counter balance to the erosionary effects of MNCs upon the rights of citizens in democracies all around the world. The changes that enabled the revolution of financial markets during the 1980s also facilitated the creation of a global mass media, whose vastly increased power and influence was extended across both cultural and political spectrums to an unprecedented degree.