The historical origins of globalization (also known as historical globalization) are the subject of ongoing debate. Though many scholars situate the origins of globalization in the modern era (around the 19th century), others regard it as a phenomenon with a long history, dating back thousands of years (a concept known as archaic globalization). The period in the history of globalization roughly spanning the years between 1600 and 1800 is in turn known as the proto-globalization.
Thomas L. Friedman divides the history of globalization into three periods: Globalization 1.0 (1492–1800), Globalization 2.0 (1800–2000) and Globalization 3.0 (2000–present). He states that Globalization 1.0 involved the globalization of countries, Globalization 2.0 involved the globalization of companies and Globalization 3.0 involves the globalization of individuals. [1]
Klaus Schwab, founder and Executive Chairman of the World Economic Forum, Richard Baldwin and Philippe Martin have divided the history of globalization into four eras: Globalization 1.0 was before World War I, Globalization 2.0 was after World War II "when trade in goods was combined with complementary Globalization 3.0, for which other terms in use have included "New Globalization", hyperglobalization, the "global value chain revolution", and the period of offshoring, refers to a more recent period of change in global economic relationships, and Globalization 4.0 to current (2018 onwards) changes affecting services in particular. [2] [3]
Perhaps the extreme proponent of a deep historical origin for globalization was Andre Gunder Frank, an economist associated with dependency theory. Frank argued that a form of globalization has been in existence since the rise of trade links between Sumer and the Indus Valley civilization in the third millennium BC. [4] Critics of this idea contend that it rests upon an over-broad definition of globalization.
Even as early as the Prehistoric period, the roots of modern globalization could be found. Territorial expansion by our ancestors to all five continents was a critical component in establishing globalization. The development of agriculture furthered globalization by converting the vast majority of the world's population into a settled lifestyle. However, globalization failed to accelerate due to lack of long-distance interaction and technology. [5] The contemporary process of globalization likely occurred around the middle of the 19th century as increased capital and labor mobility coupled with decreased transport costs led to a smaller world. [6]
An early form of globalized economics and culture, known as archaic globalization, existed during the Hellenistic Age, when commercialized urban centers were focused around the axis of Greek culture over a wide range that stretched from India to Spain, with such cities as Alexandria, Athens, and Antioch at its center. Trade was widespread during that period, and it is the first time the idea of a cosmopolitan culture (from Greek "Cosmopolis", meaning "world city") emerged. Others have perceived an early form of globalization in the trade links between the Roman Empire, the Parthian Empire, and the Han Dynasty. The increasing articulation of commercial links between these powers inspired the development of the Silk Road, which started in western China, reached the boundaries of the Parthian empire, and continued onwards towards Rome. [7]
The Islamic Golden Age was also an important early stage of globalization, when Jewish and Muslim traders and explorers established a sustained economy across the Old World resulting in a globalization of crops, trade, knowledge and technology. Globally significant crops such as sugar and cotton became widely cultivated across the Muslim world in this period, while the necessity of learning Arabic and completing the Hajj created a cosmopolitan culture. [8]
The advent of the Mongol Empire, though destabilizing to the commercial centers of the Middle East and China, greatly facilitated travel along the Silk Road. This permitted travelers and missionaries such as Marco Polo to journey successfully (and profitably) from one end of Eurasia to the other. The Pax Mongolica of the thirteenth century had several other notable globalizing effects. It witnessed the creation of the first international postal service, as well as the rapid transmission of epidemic diseases such as bubonic plague across the newly unified regions of Central Asia. [9] These pre-modern phases of global or hemispheric exchange are sometimes known as archaic globalization. Up to the sixteenth century, however, even the largest systems of international exchange were limited to the Old World.
That phase is known as proto-globalization. It was characterized by the rise of maritime European empires, in the 15th, 16th and 17th centuries, first the Portuguese and Spanish Empires, and later the Dutch and British Empires. In the 17th century, globalization became also a private business phenomenon when chartered companies like British East India Company (founded in 1600), often described as the first multinational corporation, as well as the Dutch East India Company (founded in 1602) were established.
The Age of Discovery brought a broad change in globalization, being the first period in which Eurasia and Africa engaged in substantial cultural, material and biologic exchange with the New World. It began in the late 15th century, when the two Kingdoms of the Iberian Peninsula – Portugal and Castile – sent the first exploratory voyages around the Cape of Good Hope and to the Americas, "discovered" in 1492 by Christopher Columbus. Shortly before the turn of the 16th century, Portuguese started establishing trading posts (factories) from Africa to Asia and Brazil, to deal with the trade of local products like slaves, gold, spices and timber, introducing an international business center under a royal monopoly, the House of India. [10]
Global integration continued with the European colonization of the Americas initiating the Columbian Exchange, [11] the enormous widespread exchange of plants, animals, foods, human populations (including slaves), communicable diseases, and culture between the Eastern and Western hemispheres. It was one of the most significant global events concerning ecology, agriculture, and culture in history. New crops that had come from the Americas via the European seafarers in the 16th century significantly contributed to the world's population growth. [12]
The 19th century witnessed the advent of globalization approaching its modern form. Industrialization allowed cheap production of household items using economies of scale,[ citation needed ] while rapid population growth created sustained demand for commodities. Globalization in this period was decisively shaped by nineteenth-century imperialism. After the First and Second Opium Wars, which opened up China to foreign trade, and the completion of the British conquest of India, the vast populations of these regions became ready consumers of European exports. It was in this period that areas of sub-Saharan Africa and the Pacific islands were incorporated into the world system. Meanwhile, the conquest of parts of the globe, notably sub-Saharan Africa, by Europeans yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies, and the United States. [13]
The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.
Between the globalization in the 19th and 20th centuries, there are significant differences. There are two main points on which the differences can be seen. One point is the global trade in these centuries as well as the capital, investment and the economy.
The global trade in the 20th century shows a higher share of trade in merchant production, a growth of the trade in services and the rise of production and trade by multinational firms. The production of merchant goods in the 20th century largely decreased from the levels seen in the 19th century. However, the amount of merchant goods that were produced for the merchandise trade grew. The trade in services also grew more important in the 20th compared to the 19th century. The last point that distinguishes the global trade in the 19th century compared to the global trade in the 20th century, is the extent of multinational cooperation. In the 20th century, you can see a "quantum leap" in multinational cooperation compared to the 19th century. Before the 20th century began, there were just Portfolio investment, but no trade-related or production-relation Direct investment.
Commercial integration has improved since the last century, barriers that inhibit trade are lower and transport costs have decreased. Multinational trade contracts and agreements have been signed, like the General Agreement on Tariffs and Trade (GATT), North American Free Trade Agreement (NAFTA), the European Union (EU) has been hugely involved in eliminating tariffs between member states, and the World Trade Organization. From 1890 and up to World War I instability in trade was a problem, but in the post war period there has mostly been economic expansion which leads to stability. Nations have to take care of their own products; they have to make sure that foreign goods do not suffocate their domestic products causing unemployment and maybe social instability. Technological changes have caused lower transporting costs; it takes just a few hours to transport goods between continents to-day, instead of weeks or even months in the nineteenth century.
By considering financial crises, one key difference is the monetary regime. In the 19th century it occurred under the fixed exchange rates of the gold standard. But in the 20th century it took place in a regime of managed flexibility. Furthermore, in the 19th century countries had developed effective lenders of last resort, but the same was not true at the periphery and countries there suffered the consequences. A century later there was a domestic safety net in most emerging countries so that banking panics were changed into situations where the debts of an insolvent banking system were taken over by the government. The recovery from banking crisis is another key difference. It has tended to begin earlier in the recent period than in the typical crisis episode a hundred years ago. In the 19th century there were no international rescue packages available to emerging economies. But in the recent period such rescues were a typical component of the financial landscape all over the world.
The flows information were an important downside in 19th century. Prior to the Transatlantic cable and the Radiotelephone, it used to take very long for information to go from one place to another. So this means that it was very difficult to analyze the information. For instance, it was not so easy to distinguish good and bad credits. Therefore, the information asymmetry played a very important role in international investments. The railway bonds serve as a great example. There was also many contracting problems. It was very difficult for companies working overseas to manage their operations in other parts of the world, so this was clearly a big barrier to investment. Several macroeconomic factors such as exchange risks and uncertain monetary policies were a big barrier for international investments as well. The accounting standards in the U.S. were relatively underdeveloped in the 19th century. The British investors played a very important role in transferring their accounting practices to the new emerging markets. [14]
The first phase of "modern globalization" began to break down at the beginning of the 20th century, with World War I. The European-dominated networks were increasingly confronted with images and stories of 'others', thus, they took it upon themselves to take the role of world's guardians of universal law and morality. Racist and unequal practices became also part of their practices in search of materials and resources that came from other regions of the world. The increase of world trade before, beginning in 1850 til right before World War I broke out in 1914, incentivized bases of direct colonial rule in the global South. Since other European currencies were becoming quite largely circulated, the need to own resource bases became imperative. [15] The novelist VM Yeates criticised the financial forces of globalization as a factor in creating World War I. [16] Financial forces as a factor for creating World War 1 seem to be partly responsible. An example of this would be France's colonial rule over most of Africa during the 20th century. Before World War I broke out, there were no specific aims for the wars in Africa from the French, which left Africans in a “lost” state. The military potential of Africa was emphasized over its economic potential, at first. France's interest in the military potential of French Africa took a while to be accepted. Africans in the French army were treated with feelings of inferiority from the French. The economic incentive for colonial rule came in 1917, when France was faced with a crisis of food supply. This coming after the outbreak of the war which had left France without the ability to support itself agriculturally since France had a shortage of fertilizers and machinery in 1917. [17]
Globalization, since World War II, is partly the result of planning by politicians to break down borders hampering trade. Their work led to the Bretton Woods conference, an agreement by the world's leading politicians to lay down the framework for international commerce and finance, and the founding of several international institutions intended to oversee the processes of globalization. Globalization was also driven by the global expansion of multinational corporations based in the United States and Europe, and worldwide exchange of new developments in science, technology and products, with most significant inventions of this time having their origins in the Western world according to Encyclopædia Britannica. [18] Worldwide export of western culture went through the new mass media: film, radio and television and recorded music. Development and growth of international transport and telecommunication played a decisive role in modern globalization.
These institutions include the International Bank for Reconstruction and Development (the World Bank), and the International Monetary Fund. Globalization has been facilitated by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT), which led to a series of agreements to remove restrictions on free trade.
Since World War II, barriers to international trade have been considerably lowered through international agreements – GATT. Particular initiatives carried out as a result of GATT and the World Trade Organization (WTO), for which GATT is the foundation, have included:
Cultural globalization, driven by communication technology and the worldwide marketing of Western cultural industries, was understood at first as a process of homogenization, as the global domination of American culture at the expense of traditional diversity. However, a contrasting trend soon became evident in the emergence of movements protesting against globalization and giving new momentum to the defense of local uniqueness, individuality, and identity. [19]
The Uruguay Round (1986 to 1994) [20] led to a treaty to create the WTO to mediate trade disputes and set up a uniform platform of trading. Other bilateral and multilateral trade agreements, including sections of Europe's Maastricht Treaty and the North American Free Trade Agreement (NAFTA) have also been signed in pursuit of the goal of reducing tariffs and barriers to trade.
World exports rose from 8.5% in 1970, to 16.2% of total gross world product in 2001. [21]
In the 1990s, the growth of low cost communication networks allowed work done using a computer to be moved to low wage locations for many job types. This included accounting, software development, and engineering design.[ citation needed ] In late 2000s, much of the industrialized world entered into a deep recession. [22] Some analysts said in 2009 the world was going through a period of deglobalization after years of increasing economic integration. [23] [24] The 21st century melting of the Arctic will affect global trade, as it is paving the way for shorter trade routes. [25] China has[ when? ] become the world's largest exporter surpassing Germany. [26]
A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.
The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."
Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
The World Trade Organization (WTO) is an intergovernmental organization headquartered in Geneva, Switzerland that regulates and facilitates international trade. Governments use the organization to establish, revise, and enforce the rules that govern international trade in cooperation with the United Nations System. The WTO is the world's largest international economic organization, with 166 members representing over 98% of global trade and global GDP.
Commerce is the organized system of activities, functions, procedures and institutions that directly or indirectly contribute to the smooth, unhindered large-scale distribution and transfer of goods and services at the right time, place, quantity, quality and price through various channels among the original producers and the final consumers within local, regional, national or international economies. The diversity in the distribution of natural resources, differences of human needs and wants, and division of labour along with comparative advantage are the principal factors that give rise to commercial exchanges.
Globalization or globalisation is the process of increasing interdependence and integration among the economies, markets, societies, and cultures of different countries worldwide. This is made possible by the reduction of barriers to international trade, the liberalization of capital movements, the development of transportation, and the advancement of information and communication technologies. The term globalization first appeared in the early 20th century, developed its current meaning sometime in the second half of the 20th century, and came into popular use in the 1990s to describe the unprecedented international connectivity of the post–Cold War world. Its origins can be traced back to 18th and 19th centuries due to advances in transportation and communications technology. This increase in global interactions has caused a growth in international trade and the exchange of ideas, beliefs, and culture. Globalization is primarily an economic process of interaction and integration that is associated with social and cultural aspects. However, disputes and international diplomacy are also large parts of the history of globalization, and of modern globalization.
Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist and left-wing political parties generally support protectionism, the opposite of free trade.
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents argue that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors and raise government revenue. Opponents argue that protectionist policies reduce trade, and adversely affect consumers in general as well as the producers and workers in export sectors, both in the country implementing protectionist policies and in the countries against which the protections are implemented.
A multi-national corporation is a corporate organization that owns and controls the production of goods or services in at least one country other than its home country. Control is considered an important aspect of an MNC to distinguish it from international portfolio investment organizations, such as some international mutual funds that invest in corporations abroad solely to diversify financial risks. Black's Law Dictionary suggests that a company or group should be considered a multi-national corporation "if it derives 25% or more of its revenue from out-of-home-country operations".
The global financial system is the worldwide framework of legal agreements, institutions, and both formal and informal economic action that together facilitate international flows of financial capital for purposes of investment and trade financing. Since emerging in the late 19th century during the first modern wave of economic globalization, its evolution is marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets. In the late 1800s, world migration and communication technology facilitated unprecedented growth in international trade and investment. At the onset of World War I, trade contracted as foreign exchange markets became paralyzed by money market illiquidity. Countries sought to defend against external shocks with protectionist policies and trade virtually halted by 1933, worsening the effects of the global Great Depression until a series of reciprocal trade agreements slowly reduced tariffs worldwide. Efforts to revamp the international monetary system after World War II improved exchange rate stability, fostering record growth in global finance.
This is a list of international trade topics.
A trade war is an economic conflict often resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. If tariffs are the exclusive mechanism, then such conflicts are known as customs wars, toll wars, or tariff wars; as a reprisal, the latter state may also increase the tariffs. Trade war arises only if the competitive protection between states is of the same type and it is not valid in case of dumping exports. Increased protection causes both nations' output compositions to move towards their autarky position. Minor trade disagreements are often called trade disputes when the war metaphor is hyperbolic.
Non-tariff barriers to trade are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. Such barriers are subject to controversy and debate, as they may comply with international rules on trade yet serve protectionist purposes.
In world systems theory, the core countries are the industrialized capitalist or imperialist countries, which depend on appropriation from peripheral countries and semi-peripheral countries. Core countries control and benefit from the global market. They are usually recognized as wealthy states with a wide variety of resources and are in a favorable location compared to other states. They have strong state institutions, a powerful military and powerful global political alliances.
International business refers to the trade of goods and service goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale. It includes all commercial activities that promote the transfer of goods, services and values globally. It may also refer to a commercial entity that operates in different countries.
Cultural exception is a political concept introduced by France in General Agreement on Tariffs and Trade (GATT) negotiations in 1993 to treat culture differently from other commercial products. In other words, its purpose is to consider cultural goods and services as exceptions in international treaties and agreements especially with the World Trade Organization (WTO). Its goals are to point out that States are sovereign as far as limitation of culture free trade is concerned in order to protect and promote their artists and other elements of their culture. Concretely, it can be seen through protectionist measures limiting the diffusion of foreign artistic work (quotas) or through subsidies distributed according to the country's cultural policy.
Archaic globalization is a phase in the history of globalization, and conventionally refers to globalizing events and developments from the time of the earliest civilizations until roughly 1600. Archaic globalization describes the relationships between communities and states and how they were created by the geographical spread of ideas and social norms at both local and regional levels.
Proto-globalization or early modern globalization is a period of the history of globalization roughly spanning the years between 1500 and 1800, following the period of archaic globalization. First introduced by historians A. G. Hopkins and Christopher Bayly, the term describes the phase of increasing trade links and cultural exchange that characterized the period immediately preceding the advent of so-called "modern globalization" in the 19th century.
Raymond Vernon was an American economist. He was a member of the group that developed the Marshall Plan after World War II and later played a role in the development of the International Monetary Fund and the General Agreement on Tariffs and Trade. He was the Clarence Dillon Professor of International Affairs at Harvard Kennedy School, becoming emeritus on his retirement. His formulation of the Product life-cycle theory of US exports, first published in 1966, in turn influenced the behavior of companies.
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