"Economic Globalization and Its Discontents"
Chapter 6 of State Power and World Markets
Joseph M. Grieco G. John Ikenberry
Globalization refers to the growing integration since World War II of the national economies of most of the advanced-industrialized countries of the world, and an increasing number of developing nations, to the degree that we may be witnessing the emergence and operation of a single worldwide economy. This enhanced integration of world economic activity consists of increased cross-national flows of a greater variety of goods and services, more extensive cross-border flows of short-term and long-term capital, and an increasingly dense and complex network of transnational production networks involving multinational enterprises as well as independent supplier companies.
Globalization brings into sharp relief many of the key issues at the heart of the modern study of international political economy. As we shall see in the discussion below, it raises directly the question of whether and to what extent individuals and countries are living in a new political-economic environment, and if so, what has brought about that new environment into being. In addition, globalization requires that national communities address the question of what sort of balance they wish to strike between their interest in enjoying the benefits of economic integration and their concern that international economic integration requires that they learn to live with new risks—for example, an increased risk of externally induced economic shocks, a loss of political-economic autonomy, and a need to learn to live with differences in cross-national cultures.
II. Globalization: Characteristics and Sources
We will begin our discussion of globalization by describing below the key trends in international economic activity--that is, developments in trade, finance, and foreign direct investment--that underpin the view that the world is experiencing a new and perhaps novel level of international economic integration. We will also identify and discuss some of the main technological and political sources or drivers of globalization in the contemporary world economy. Throughout the section we will also address one of the most interesting questions regarding economic globalization today, a question that concerns the degree of novelty of contemporary globalization: are we living during a period of uniquely intense economic integration, or are we simply returning to previously attained levels of international economic interconnectedness?
Globalization of Trade
Close analysis by a number of economists suggests that the general level of global integration today marks a return to the level that was attained prior to World War I and a recovery from a collapse in such integration that took place between 1913 and 1950. For example, as Paul Krugman reports, between 1850 and 1913, world merchandise exports rose from about 5% to about 12% of world domestic product; it then shrank to about 7% of world domestic product in 1950, and then recovered to about 12% only in the early 1970s and reached about 17% in the early 1990s. Krugman points out that if there has been a new phase in higher in world trade integration, it has basically only been since the 1970s. This general trend, of growth of world economic integration up to 1914, then collapse in the face of World War I, the Great Depression, and World War II, and then recovery and possibly a trend toward a new level of economic integration, can be observed very clearly in the American experience. For example, U.S. exports and imports as a percentage of American gross national product exceeded 20% just after World War I; it then fell to about 8% during the early years of the Great Depression; and it has returned to and exceeded its original high point only in the mid-1990s.
Overall trade integration today may not be much greater than it was prior to World War I. However, economists have highlighted at least five attributes of contemporary trading relationships that suggest that present-day international economic integration does mark a more intense level of cross-national integration than was in operation prior to 1914.
First, economists point out that the fastest growing sectors of the economies of the advanced countries have been services, which until quite recently have not been highly integrated into world trade. Instead, until recently, most trade has consisted of exchanges of merchandise--manufactured goods, mining products, and agricultural goods. If by consequence we compare merchandise trade to overall merchandise production, we find that trade has become a more prominent for a number of major countries, including the United States, even when compared to the pre-World War I period. For example, Robert Feenstra reports that while American exports and imports of merchandise trade constituted between 13% and a bit more than 14% of the total value-added in agriculture, mining, and manufacturing in the United States in the years between 1890 and 1913, and was less than 10% of such value-added in these sectors in 1960, the ratio of merchandise trade to total merchandise value-added recovered to pre-World War I levels by 1970, and by 1990 it had reached almost 36%--that is, almost three times the pre-World War I level. He reports further that while the ratio of merchandise trade to total merchandise production in Britain and Japan was lower in 1990 than it was in 1913, the ratio was much higher for France, German, and Italy in the more recent period compared to the earlier era of globalization.
Second, it should be noted that trade in services has been growing very rapidly in the current period of globalization: in the case of the United States, for example, exports of services constituted about 29% of all U.S. exports in 1998, compared to 17% in 1960 and only 2% in 1900. Hence, it is not just in the goods-producing sector that we are observing enhanced globalization, but also increasingly in the faster growing services sector as well.
A third important new feature of contemporary trade, economists suggests, is that of intra-industry trade: rather that the exchanges of shoes for computers, we often see exchanges across borders of similar goods. Fourth, and related to the rise of intra-industry trade and very important for our discussion below of the consequences of globalization, trade at present often consists of transfers of goods between subsidiaries of a given corporation, or it consists of transfers between different firms of intermediate goods that will serve as inputs for a final product. Both activities represent what Krugman calls "slicing up the value-added chain": firms increasingly draw upon suppliers on a world-wide basis for manufactured inputs and components. Overall, as Feenstra reports, while imported inputs made up about 6% of all intermediate-goods purchases in the United States in 1972, this rose to about 14% in 1990. More specifically, by the late-1990s, about 60% of the value of the hardware of personal computers consisted of imported components.
Finally, and again very important for our discussion below, a group of fast-growing newly industrializing developing countries (such as South Korea, Taiwan, Malaysia, and, more recently, China) are key exporters of both intermediate and finished manufactured goods to the advanced countries: while manufactured exports from these countries to the industrial countries were equal to only about one-quarter of one percent of the GDP of the industrial nations in 1970, there were equal to about 1.61% of advanced-country GPP in 1990. Such emerging-market countries were the source of about 22% of all manufactured goods imported by the United States by the late-1990s, up from about 10% at the outset of the 1970s.
Capital Flows: Portfolio and Foreign Direct Investment
The second major form of economic activity in which globalization can be observed in the contemporary world system is that of capital market integration. Capital can move across borders, we discussed in chapter 2, through a variety of general vehicles. Firms and individuals can undertake short-term portfolio investments by purchasing or selling short-term, highly liquid financial assets: for example, they might establish interest-bearing checking accounts in a bank in a foreign country. They might also undertake longer-term portfolio investments by buying longer-term bonds issued by foreign firms or governments, or by acquiring a non-controlling equity interest in a foreign firm (that is, less than 10% of the outstanding shares of the firm). And finally, they might undertake foreign direct investments: that is, they might purchase a controlling interest in a foreign firm or establish a majority or wholly-owned subsidiary in a foreign market.
All three forms of investments--short-term and longer-term portfolio investments, and foreign direct investments--have increased greatly since 1950, and particularly during the past decade. For example, the volume of foreign exchange transactions, typically for the purposes of very short-term investments, totaled about $1.5 trillion per day during April 1998, up from about $600 billion per day during April 1989. As the U.S. Council of Economic Advisors points out, foreign exchange transactions for the purposes of capital markets activities now dwarf such transactions for the purposes of international trade in goods and services. The Council reports that, compared to the $1.5 trillion per day in foreign exchange transactions during April 1998 for all purposes, the daily volume of exports of goods and services during 1997 was about $25 million per trading day.
Although recent capital markets integration has been dramatic, the overall extensiveness of such capital market integration marks more of a movement toward prior highs in, rather than the attainment of a entirely new level of, international capital integration. Economists often employ as a measure of the importance of international capital flows for a country the ratio of the absolute value of its current account balance to its gross domestic product. The rationale for this measure is that if a country experiences a current account surplus, this is accommodated by the acquisition by the country’s nationals of foreign financial assets and therefore the outflow of capital, and if the country experiences a current account deficit, this is accommodated through the sale by the country’s nationals of financial assets to foreigners and therefore the inflow of foreign capital. Hence, the absolute value of a country's current account balance provides some insight into its participation in international capital markets either as a source or a recipient of such capital. Moreover, the level of inflows or outflows can be compared to overall national economic activity, permitting both cross-national and cross-temporal comparisons of the country’s participation in international capital markets.
Using this measure, Maurice Obstfeld reports that for a sample of twelve important countries, the average absolute value of current account balances as a percentage of GDP was about 3.3% prior to World War I; it then fell to 1.2% during the Great Depression years of 1932-1939, and between 1990 and 1996 it attained the level of 2.3%. It would appear then that contemporary international capital market still has some way to go to reach the level attained prior to World War I. However, by using an alternative measure, Obstfeld and other analysts point out that we may already be experiencing a return to pre-World War I levels of international capital markets integration. That is, if one looks at the degree of cross-national dispersion of rates of return (i.e., interest rates) of a given financial asset (specifically, the rate of return on British-sterling assets bought in London and New York), the level of dispersion in returns in the early 1900s was about one-half of one percent; it then rose to 3.5 percentage points during the 1930s and 1940s; and by the early 1990s it had declined and had almost reached the dispersion level that obtained in the early 1900s. This would suggest that there has in fact been a marked tightening of capital markets, almost reaching the levels attained in the first period of intense globalization.
Thus, capital markets integration in general has been increasing in recent years, and may entail a level of world financial interconnectedness that is beginning to approximate the level that occurred prior to the catastrophes of World War I and the Great Depression. Finally, it is certainly the case that cross-border capital flows are leading to a tightening of the linkages between the American economy with that of the rest of the world. As the U.S. Council of Economic Advisors reports, cross-border capital inflows and outflows (both portfolio and foreign direct investment) equaled about 2% of U.S. gross national product during the 1960s, but they equaled about 14% of U.S. GNP during the mid-to-late 1990s. A particularly important and growing form of American financial participation abroad has been that of foreign direct investment: while the value of U.S. foreign direct investment abroad was equal to about 6 and 7 percent of U.S. GNP from 1914 to 1960, the value of such investments by the mid-1990s was equal to 20% of U.S. GNP. In 1997, the U.S. Council of Economic Advisors reports, "the trade associated with U.S. MNCs accounted for about 63% of U.S. goods exports and 40% of U.S. goods imports."
In sum, international integration of national economies in both trade and finance has markedly increased during the past forty years, and especially during the past two decades. Such integration of capital markets may have been greater in the pre-World War I era, but the world's major economies at present are fast attaining even that very substantial level of integration. While trade integration at present is not much greater than it was prior to World War I when we compare such trade to overall world economic activity, it appears to be even greater today than it was during the first period of globalization when we look more closely at trade in relationship to tradeable goods production. Moreover, the marked rise of transnational production, undertaken both by multinational corporations and by cross-national networks of independent suppliers, as well as the coming to the fore of a new cluster of emerging-country manufacturers, suggest that the contemporary character of international trade integration may in fact mark a new level of intensity of cross-national economic integration.
Sources of Globalization: Technology and Politics
What is driving contemporary globalization? Close observers have focused on a range of technological and political factors.
Technology, the state of knowledge for production, is clearly an important part of the story of increased globalization of the world economy. We can identify at least three types of technological change that are facilitating tightening of linkages across national economies. First, there have been continuing improvements in transportation technology, which in turn has reduced the costs of international exchanges of goods, services, capital, and technology itself. In the first era of globalization the most important advances in transportation centered around sea transport, which reduced transportation costs for goods by perhaps as much as 50% between 1870 and 1913. It appears that ocean-shipping costs continued to decrease during the early years after World War II, but then leveled off by the early 1960s. However, tremendous advances in air transport technology have powerfully reduced airfreight costs, by perhaps as much as 80% between the mid-1950s and the late-1990s. By consequence, while about 9% of all U.S. imports arrived by air in 1974, about 19% did so in 1996.
Perhaps even more important than cost-cutting improvements in transportation technology, advances in communications and computing technology have created new opportunities in the contemporary period both for trade and cross-national financial transactions. For example, while a three-minute call in 1930 cost $293 in 1998 dollars, by 1998 it might cost only 36 cents. Computers have become vastly more powerful and less expensive throughout the computer era.
Third, firms have learned how to employ the advances in transportation, communications, and computing technologies in such a way as to become more active in the world economy. Managers in multinational firms have learned how to employ cheaper telecommunications and increasingly powerful computers and, during the past decade, the internet, to coordinate the operations of their subsidiaries and their independent suppliers across national borders and even across the continents. Moreover, financial firms have learned to employ the new telecommunications and computing technologies to develop, price, and trade new international financial products such as currency options, and to identify and monitor new and profitable investment opportunities in foreign markets. Thus, it is the interaction between improved communications and computing technology, and advances in knowledge regarding management and investment, that may be the most important technical driver of modern globalization.
Technological advances have created new opportunities for international economic integration in recent decades. However, sophisticated students of globalization have emphasized that these technological advances by themselves have not been sufficient to bring about the movement toward globalization, but instead they have facilitated such integration because national and international political conditions have created an environmental that permits them to operate in favor of greater international economic interconnections. Paul Krugman, for example, while noting that much popular discussion of globalization emphasized its technological underpinnings, observes further that technical economists "tend to stress political factors to at least an equal extent," and he goes on to suggest that "The correspondence between the time profile of trade policy and that of trade shares is prima facie evidence that political factors have played a major, perhaps dominant role in the growth of world trade since 1950."
We can identify at least four political conditions that together form the foundation for economic globalization. First, national governments have undertaken multilateral (and, in some cases, unilateral) steps to reduce tariffs and other barriers to trade. For example, as a result of successive rounds of multilateral negotiations under the auspices of the General Agreement on Tariffs and Trade, now the World Trade Organization, the average tariff on industrial products that is charged by the advanced countries has dropped from 40% to 4%. Similarly, in recent years the industrial nations and an increasing number of emerging-market developing countries and former socialist, transitional-economy countries have removed capital controls, thus permitting enhanced cross-border flows of capital for investment purposes. Second, when trade conflicts do develop and financial crises do erupt, governments have worked together through the GATT/WTO, the International Monetary Fund (IMF), and the more informal Group of Seven process linking the major industrialized countries to contain and manage the possible harmful effects of such conflicts and crises. All of these factors have helped to prevent serious retreats from economic integration, and they have contributed to the general trend toward a more open world economy.
Third, while governments of the advanced countries have taken the lead in global liberalization, they have also constructed international agreements facilitating trade and financial integration in such a way as to permit temporary departures from such integration, and they have put into place national systems of social insurance that essentially limit the risks and actual economic losses that individuals and groups must bear as a result of such liberalization. This combination of foreign and domestic policies on the part of the main industrial countries since World War II of pursuing managed and progressive liberalization with domestic social insurance has been termed by John Ruggie as the "embedded liberalism" compromise. At its core is a national political commitment by governments to economic liberalization abroad, but with a commitment as well by governments to compensate those at home who have been left behind or positively harmed by such liberalization.
Fourth, and finally, just as embedded liberalism has been the domestic political foundation for national economic liberalization by the advanced countries and hence global economic integration, American political-military power had played a key role in permitting both international and national commitments to such liberalization. American power has provided military security to Japan and the Western European nations, and thus has allayed security fears of those countries and permitted them greater leeway in their efforts to work together and others toward globalization. American power has also been the foundation of the GATT/WTO and IMF regimes, and it has been the United States that has been the major exponent of liberalization in those regimes and in efforts by them to manage the conflicts and crises that have developed as a result of the liberalization brought about by those regimes.
At least two conclusions may be derived from the discussion above regarding contemporary trends toward the development of a more globalized world economy. First, whatever we may think about the level and character of globalization today compared to that before World War I, the evidence is unambiguous that there has been an intensification of international economic integration since World War II. Second, while the overall level of globalization today may not exceed that attained prior to World War I, many important features of globalization today--in particular, the rise of multinational enterprises, their construction of truly worldwide integrated business operations, the development of an increasingly dense network of transnational independent outsourcing manufacturing suppliers, and the emergence of a number of developing countries that possess a comparative advantage in manufacturing industries--suggest that the intensity of international interconnectedness associated with economic globalization today is at least as great, if not greater, than that attained in the first great era of globalization. It is quite likely that such a new level of intensified international economic integration is having a wide range of consequences for politics and economics and indeed society both within and across nations, and it is to such consequences of globalization that we now turn our attention.
III. Consequences of Globalization
In recent years, students of contemporary economic globalization have investigated at least four different classes of possible effects of economic globalization. We offer a brief discussion of each area of research and debate.
Economic Globalization, International Interdependence, and World Peace
In a thoughtful and provocative recent book, The Lexus and the Olive Tree, Thomas Friedman, New York Times foreign affairs columnist, puts forward what he terms "The Golden Arches Theory of Conflict Prevention." Friedman observes that no two countries that had become hosts to McDonald's restaurants had gone to war with each other since they each had come to so host a McDonalds, and he therefore suggests that countries with McDonalds are much less interested in war than they are in material comforts. He uses this humorous observation to make a very serious proposition: "today's globalization system significantly raises the costs of countries using war as a means to pursue honor, react to fears or advance their interests." Friedman is careful to point out that he does not believe that contemporary economic globalization absolutely ends the risk of war, and he recognizes that commentators in early periods had mistakenly believed that international economic integration had obviated the danger of war. However, he does emphasize that he thinks that contemporary globalization is different at least in degree to that of earlier periods, and therefore "the bottom line is this: If in the previous era of globalization nations in the system thought twice before trying to solve problems through warfare, in this era of globalization they will think about the three times."
Thus, one possible consequence of increases in economic globalization might be decreases in the danger of war. The argument in favor of this proposition begins with the point that as economic interconnections between two countries increase, each achieves greater welfare, and therefore each country develops a progressively a greater stake in the continuation and intensification of interconnections with its partner. The second step in the argument is that because war would lead to a breakage of their mutually profitable and beneficial economic contacts, partners have a progressively stronger incentive not to permit any particular political or diplomatic disagreement to escalate to military conflict. In general, then, as economic interdependence between two countries goes up, each nation's incentives to manage and resolve disputes short of war also go up, with the result being a lower overall danger of war as the world experiences intensified economic globalization.
There is, however, an alternative view about the general effects of growing economic interdependence on the prospects for war and peace, namely, that it increases the points of contact and therefore of potential disagreements between nations, and thereby actually increases the risk that conflicts might develop between countries. In addition, countries can grow faster through participation in the international economy, and they can attain through such participation a wider range of goods that have a direct or indirect bearing on their military power (they may buy weapons or the technology on which moderns weapons are bases). Therefore, with such participation states may acquire greater power and thereby become more confident that they can settle disputes with others through the use of military force (Barbieri, 2000 ISA presentation). Thus, according to this second perspective, the general effect of growing economic interdependence is to increase, not decrease, the risk of war between nations.
Finally, a third perspective on economic interdependence and war is that growing economic interdependence may reduce an already low risk of war between democracies, but it may have no depressive effect, and it may even have an exacerbating effect, on the risk of war between two non-democracies or between democratic and authoritarian states. According to this perspective, two key assumptions of the interdependence-peace thesis are that governments are responsive to the desire of their home publics for the economic benefits generated by globalization and interdependence, and that they will be held accountable to those home publics if they become involved in foreign adventures and thus put those economic benefits in jeopardy. Such responsiveness and accountability may be true of governments in democracies, but not in authoritarian states. Indeed, authoritarian states, knowing that democratic governments fear the loss of the benefits of economic interdependence, might react to growing interdependence with democracies by becoming more and not less aggressive toward them in the belief that the democracies might be willing to make concessions rather than to forego the benefits of economic contacts. This, according to a study by Paul Papayoanou, is what occurred in the relationship between authoritarian Germany and democratic Britain in the years prior to World War I. According to Papayoanou, German policy officials believed that the British government would be loath to see a breakdown of German-British trade, and therefore they expected Britain not to react strongly against German aggression against Britain's allies, France and Belgium. Thus, the result of growing economic interdependence in the early 1900s was to make Germany more risk-acceptant and bellicose toward Britain and its allies rather than less so.
The Issue of Vulnerability: Emerging-Market Financial Crises and Contagion
In the discussion above, we discussed the manner in which economic globalization might affect relationships between countries; now we to turn our attention to the ways in which globalization might be affecting relationships within nations. In very general terms, economic globalization is introducing new and profoundly powerful sources of change in the economies, societies, and perhaps even the cultures of nations. One key result seems to be a growing sense of anxiety on the part of many individuals and even national communities so affected that they cannot comprehend, let alone participate in the management of, these new motors of change. As Thomas Friedman suggests, "the defining anxiety in globalization is fear of rapid change from an enemy you can't see, touch or feel-a sense that your job, community or workplace can be changed at any moment by anonymous economic and technological forces that are anything but stable."
This conjunction of rapid economic globalization, externally-induced shocks and change, and anxiety about the capacity of the former to bring about the latter is illustrated perhaps most dramatically in the area of international finance, and specifically the problem of short-term capital flows, financial crises, and the cross-national spread of such crises among what are often previously very successful emerging-market economies. The 1990s witnessed a number of cases of financial crisis contagion. One or more countries, usually but not always newly industrializing emerging-market economies, after enjoying large inflows of short-term foreign capital, would experience a sharp outflow and a speculative attack on the value of their currencies as a result of rapid shifts in investor sentiment about the sustainability of those countries' domestic economic policies or business conditions. Suddenly, other countries, which may or may not have been following the same policies or might or might not have had similar business conditions, would also experience rapid runs on their currencies.
An example of financial crisis contagion occurred in 1994-1995, when a collapse of the Mexican peso was followed by reductions in external capital flows to a number of Latin American countries, and a sharp contraction in economic activity in that region (for example, Argentina's GDP contracted by 5 percent during 1995). However, the world witnessed its most extensive, sustained cross-national spread of financial crises between 1997 and 1999. A drop in Thailand's foreign exchange and equity markets led to an official devaluation of the Thai currency in July 1997; similar crises began to erupt in Indonesia, Malaysia, and the Philippines; and Singapore and Taiwan, even though they had much stronger economies, soon also experienced runs on their currencies and declines in their stock markets. In October, the contagion spread to a Hong Kong, and then to Korea during the winter of 1997-1998. As foreign credits ceased to be available to the East and Southeast Asian countries, and as they increased interest rates in an attempt to defend their currencies, their economies contracted sharply, and thus their demand for raw-material imports was curtailed. By consequence, Russia, a major oil exporter, became a target of speculative currency sales, and by mid-August 1998 the ruble collapsed and the Russian government effectively defaulted on its short-term official debts to both domestic and foreign creditors. This, in turn, led to a sharp decline in investor confidence in all emerging markets, including in Latin America, even though governments in that region had been following vastly more prudent economic policies than had Russia: by January 1999, the Brazilian government was forced to announce an austerity program and an official devaluation of the Brazilian real.
Thus, during 1997-1999, important emerging-market economies, after enjoying several years of tremendous capital inflows and rapid economic growth, experienced equally rapid capital outflows, currency crises, and wrenching national economic contractions. The resulting social and economic costs were very grave. For example, Argentina’s unemployment in the wake of the Mexican financial crisis increased from about 11% in 1994 to almost 18% in 1995 and 1996. In South Korea, unemployment rose from about 3% or less in 1996 and 1997 to over 6% in 1998 and 1999. And, in Indonesia, the percentage of the population living in poverty jumped from about 11% in 1997 to almost 20% in 1998.
And it was not just the emerging-market economies that showed themselves to be vulnerable to financial turbulence in the wake of the Asian-Russian financial crisis. As confidence in emerging-markets collapsed during 1998, international investors generally decided to undertake a “flight to quality.” That is, they began to favor only the safest of investments issued by the most credit-worthy of issuers, such as notes and bonds issued by the German and U.S. governments. However, a number of unregulated investment enterprises—so called “hedge funds”—had earlier made investments that assumed that less credit-worthy financial instruments, such as Italian government bonds, would experience greater demand and thereby go up in price, and that demand for traditionally more credit-worthy instruments, like German bonds, would remain stable or even decline, with an associated drop in price, as the Europeans coalesced around a single interest rate structure with their entry into formal Economic and Monetary Union, scheduled for January 1, 1999. For one hedge fund, Long-Term Capital Management (LTCM), the result was catastrophic investment losses: its total capital base contracted from about $4.1 at the beginning of August 1998 to about $600 million toward the end of September. The problem was that a number of U.S. and European banks had invested in LTCM, and combined with other losses sustained as a result of investing in emerging markets there was a real possibility that these banks would sharply curtail their national and international lending, and thereby exacerbate the sharp declines in financial markets that by then had spread from the emerging to the developed-country stock markets.
To prevent such a credit squeeze and the potential for a serious additional shock to world financial markets, the Federal Reserve Bank of New York began an effort on September 18 to organize a financial rescue of LTCM, an effort which resulted in an injection of $3.5 billion in new capital in LTCM by fourteen large U.S. banks and other financial institutions. In the aftermath of the crisis, U.S. Federal Reserve chair Alan Greenspan said it had been necessary to coordinate the LTCM rescue because, in a reference to the Asian and Russian financial crises, “Financial market participants were already unsettled by recent global events," and "Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved in the firm, and could have been potentially impaired the economies of many nations, including our own." The Federal Reserve had prevented this outcome, but, among the many lessons to be learned, one that is clearly important for U.S. students of international political economy is that financial crises in seemingly far-off countries can eventually come home to America.
By the end of the 1990s, most of the emerging-market countries that had experienced the great financial crises of the second half of that decade were experiencing strong recoveries of their national economies, and the United States appeared not to have suffered any serious problems as a result of the LTCM episode. Still, for many in these countries as well as for many who are concerned about the problem of development, these crises left in their wake a sense of bewilderment and shock and new levels of anxiety about the utility of financial globalization. The central problem is that foreign investors--who appeared to compose, in Thomas Friedman's words, an uncoordinated, uncontrollable "electronic herd" running about the world--might suddenly and inexplicably turn against an otherwise seemingly healthy emerging economy and thereby induce a national economic contraction not in response to what the country had been doing in terms of policy but by virtue of its belonging to a category of countries about which investor sentiment was increasingly volatile and unpredictable. Moreover, the publics and governments in countries such as Thailand, Indonesia, Korea, and Brazil, compelled as they were to undertake rapid and extensive domestic economic reforms as a condition for receiving external assistance in the form of loans from the International Monetary Fund, may have exited the period of crisis with the conviction that not only did globalization mean that they could be subjected at any moment to vastly powerful external shocks, but that in the face of such shocks they would have little to say independently about how they would need to respond or adjust to those shocks.
Globalization and New Constraints on the Advanced Industrial Countries
During the past twenty years, the discussion above suggests, it has been the emerging-market and transitional economies of Latin America, East Asia, and Eurasia, through the mechanism of currency crises and financial contagion, that have mostly (but not exclusively) experienced the risks associated with enhanced world financial globalization. The advanced industrial countries, we shall now see, have also faced new challenges as a result of globalization, and in particular in response to enhanced globalization of trade and the enhanced internationalization of production afforded by the operations of multinational firms and transnational production networks.
The problem for the advanced industrial countries is that while trade, and financial integration that facilitates trade, are doubtlessly increasing the overall welfare of the populations of these countries, it may also be creating big divisions between those individuals and groups of individuals who can take advantage of the new opportunities afforded by globalization (specifically, skilled workers and capital owners) and those who are less able to do so (in particular, unskilled workers). At the same time, globalization may be constraining the capacity of the governments of these countries to intervene so as to offset or to mitigate to some degree the gaps between the winners and losers. Moreover, globalization may not just constrain the capacity of governments in the advanced countries to mitigate income inequality, but it may also constrain the capacity of those governments to pursue other social policies preferred by their national communities, such as improved worker conditions or a cleaner environment.
Globalization appears to be bringing about social dislocations in the advanced countries in two, distinct patterns: high employment but growing income inequality in the United States (and to some degree Great Britain), and greater unemployment but avoidance of increases in income inequality in Western Europe. Regarding income inequality in America, between the early 1970s and the early 1990s, while globalization of the American economy was gathering force, the real wages of U.S. workers without a high school degree declined by almost 25%, and the ratio of wages of more highly paid U.S. workers (those in the 90th percentile of the distribution) to lesser paid workers (those in the 10th percentile) also increased by about 25% between 1970 and 1992. At the same time, while the U.S. unemployment rate fell to about 4% at the end of the 1990s, unemployment rates in Western Europe remained stubbornly high at above 10% by the end of that decade.
Critics of trade liberalization suggest that trade, and in particular trade with low-wage emerging economies such as Mexico or China or Thailand, by itself directly causes reductions in the demand for labor in the industrialized countries. They suggest that trade, in a manner suggested by the Stolper-Samuelson theorum discussed in chapter 2, brings about income inequality in the United States, for there wages and other labor conditions are less controlled by government, and so a trade-induced decrease in demand for unskilled labor translates into lower wages for such workers, not lower employment among them. At the same time, a trade-induced reduction for unskilled labor produces higher unemployment in Europe, for there governments impose a number of fixed labor costs on employers and restrictions on firings of workers already employed, and therefore a decrease in demand for labor generates a reduction not in wages offered but by a curtailment of demand for new labor.
Economists emphasize that this one-to-one association between trade integration by the advanced countries with emerging markets and labor market stress does not hold; instead, they suggest that the bulk of the downward shift in demand for unskilled labor is due to advances in technology that substitutes skilled for unskilled labor. They suggest that the direct impact of trade may account for only about 10%, or at the very most 20%, of the reduction in the demand for labor during the past two decades, and its associated deterioration in the relative earnings of unskilled labor. However, some economists suggest that increases in foreign competition through trade integration might be an important spur for companies to undertake technological innovation, and thus trade might be having an important indirect effect on the reduction of demand for unskilled labor by way of its contribution to technological innovation in the advanced countries. Moreover, as Robert Feenstra suggests, technological innovations in the advanced countries such as faster and cheaper communications permits international outsourcing, which in turn may reduce the demand for labor in those countries.
Further, even if trade integration does not by itself account for the full reduction in the demand for unskilled workers, such integration might be contributing in part to other deleterious trends for those workers. Dani Rodrik points out that one such effect is that the increased ease of international outsourcing by U.S. firms of inputs may be increasing the degree to which a small change in labor costs at home will cause U.S. firms to elect to substitute foreign for local suppliers of intermediate products. Given that American unskilled workers recognize that increases in their wages will lead to an increasingly severe reduction in demand for their services, Rodrik suggests, such workers will be less able to press for better wages, they will need to pay for a larger share of their benefits, and they will experience greater volatility in their earnings.
Hence, increases in trade integration may play a substantial direct and indirect role in eroding the real earnings of unskilled workers located in the industrial countries. But globalization may do more than that: it might also place what Friedmans calls a "golden straightjacket" on governments whereby in order to enjoy the benefits of globalization they are constrained in their freedom to use fiscal or monetary or social policy to ameliorate the problems faced by unskilled workers. For example, if a government seeks to increase corporate taxes levied for the purpose of providing supplementary income to unskilled workers hurt by foreign competition, firms might simply shift a greater proportion of their corporate activities and reported revenues to lower-tax, more business-friendly countries. Indeed, governments might not just be prevented from raising taxes or pursuing other policies aimed at compensating lowers from globalization, they might actually be compelled to reduce taxes and expenditures and relax policies aimed at improving the condition of labor out of a fear that corporations will exit their country in the search of more business-friendly production sites.
Thus, the fear is sometimes expressed that economic globalization may force the advanced countries to abandon their commitment to the compromise of embedded liberalism, and instead to undertake a "race to the bottom" with respect to their policies that directly affect the welfare of workers and even the broader national community. Gone might be the national consensus in the advanced countries that their governments will liberalize foreign access to their markets, but will in turn design tax and spending policies aimed at ensuring that dislocated workers will enjoy gradual increases in their real standard of living as a result of better wages and government benefits, and will not face high levels of insecurity as to their health or retirement because they will be covered by government social insurance programs. Instead, such workers might be faced with a reduced real wages, higher insecurity about future earnings, and fewer policy safeguards in areas such as government-mandated worker safety standards and conditions.
Perhaps Americans and Europeans who have acquired marketable skills might take the view that those that did not must now pay for the consequences of their poor choices and performance. Yet, there are at least two reasons why indifference on the part of the winners from economic globalization to the dislocations suffered by the losers is not sustainable. First, the losers from globalization are not without options to voice their discontent: they can turn to economic nationalists, or worse, and seek through them a reduction of the globalization that appears to them to be unremittingly unforgiving. Second, the process of a "race to the bottom" that is falling on the backs of the unskilled workers today might come to erode the standard of living even of the seeming winners in the new global economy. Globalization may be constraining governments in the industrial countries from providing social and economic protection to workers today; tomorrow it might constrain them from being active in protecting the natural environment of those countries, or perhaps even of developing stronger regulations in the field of consumer health and safety. It that were to occur, it might generate harmful effects that would not discriminate so finely between the current winners and losers in the face of economic globalization.
The Issue of Economic Globalization and American Culture
Thomas Friedman and other close observers highlight a third major challenge to countries that are participating in the process of closer world economic integration, namely, striking a balance between their interest in enjoying the benefits derived from their greater integration with the world, and their desire to retain their own languages, their own literatures, their own modern media, and other characteristics of a way of life, that is, their own cultures. The problem for many countries, both developed and developing, is that it is the American culture that appears to be the basis for the emerging new global culture that is being generated by globalization. As Friedman reports, "globalization has a distinctly American face: It wears Mickey Mouse ears, it eats Big Macs, it drinks Coke or Pepsi and it does its computing on an IBM or Apple laptop, using Windows 98, with an Intel Pentium II processor and a network link from Cisco Systems. Therefore, while the distinction between what is globalization and what is Americanization may be clear to most Americans, it is not to many others around the world. In most societies people cannot distinguish any more between American power, American exports, American cultural assaults, American cultural exports and plain vanilla globalization. They are now all wrapped into one."
We can observe both the growing importance of American culture through economic globalization, and the backlash against it even by other advanced societies, in the case of France and its deep-seated concerns about American films. During the late 1990s, U.S. films attracted between 70% and 80% of total box-office receipts in the Europe Union countries; in France itself American films won about 60% of the theatre-going market. As we shall discuss in the section below on national reactions to globalization, the French government has responded to what it sees as U.S. dominance of world film-making and the European film market with a highly developed policy of protection against U.S. film imports and of promotion of French film makers. Moreover, the French have succeeded in enlisting the support of their European Union partners in pursuing the goal of limiting U.S. domination of the European film and television industries.
However, before we examine France's policies together with those of its EU partners, it may be useful to consider the rationale for those policies. The French government has argued that American market dominance in cultural products such as films and television shows is, in the first place, the result not of superior American film-making or television production, but of unfair and predatory American business practices. In particular, the French have argued that America's near-monopoly in world media arises from the fact that American film and television studios are able to use the earnings they derive from the huge U.S. market as a basis for the production of flashy films and shows and, perhaps more important, as the basis for out-advertising all other competitors in foreign markets. Thus, many members of the French political and cultural elite argue, U.S. audiovisual producers have come to dominate foreign markets even if American media products lack artistic or cultural or moral value.
A second French argument is that, whatever might be the sources of American success in the film and TV industry, the French government has the right and indeed the duty to intervene and limit the exposure of its population to U.S.-origin media products that have a significant cultural component. There are two grounds for this view. First, American films and TV (and, indeed, pop music), for many members of the French cultural elite in and out of government, are often not just artistically without value, they are intrinsically bad from a cultural and moral viewpoint: they are trite in their materialism and they are corrupting in their glorification of violence. Second, even if U.S. films and other media are not intrinsically bad, exposure to them by the French population may in the long term undermine the authenticity of the French culture and its bedrock, the French language. As the Economist noted in a report on France's Ministry of Culture in 1998, "the ministry's officials are convinced that a rising tide of American popular culture is swamping France," and for the officials in the ministry and for the French cultural elite the issue is not just a matter of who watches which films, but rather "it is that Hollywood is a Trojan horse bringing with it Disneyland Paris, fast-food chains and free advertising for American products from clothes to rock music." Hence, according to this view, in order to preserve a key public good (for both France and the world), namely, the French culture, the French government has an obligation to support the French film arts and to limit France's exposure to U.S. films and TV shows even if many French people want to see them and even if these U.S. media products have no immediate negative impact on the French population. The alternative, in this line of thinking, is to witness the slow, inexorable contamination of French language with Americanisms, and the steady, inevitable Americanized corruption of French, and indeed European, culture.
Americans might react to French concerns and arguments about the dangers posed by America's special economic and cultural role in contemporary globalization by suggesting that they simply reflect France's dissatisfaction with its status as a former Great Power. Yet, we observe the expression of similar concerns in other countries with very different histories from that of France. In Canada, for example, about 95% of all films that are shown are foreign, and most of these are American, and 80% of the magazines are also foreign, and again most of these originate in the United States. There has thus been a long-standing national conversation in Canada about the problems and indeed possible threats that close economic integration with the United States pose for the development and maintenance of a unique (English-) Canadian cultural identity. As we shall see below, Canada has sought to protect Canada's cultural industries even as it has sought to integrate more closely with the overall American economy, even to the point of becoming embroiled in an international legal dispute with the United States. In sum, concerns are widespread and may be growing that the Americanization of national cultures around the world may be an unwelcome consequence, and indeed an integral part, of the intensified globalization of the world economy.
IV. National Reactions to Economic Globalization
In this final section of the chapter, we will discuss some of the ways in which countries are living with and are adjusting to the new circumstances in which they find themselves as a result of economic globalization. We find that, to date, nations have mostly pursued unilateral responses to their enhanced integration with the world economy, and for they most part these policies are directed toward exploitation of the new opportunities afforded, and adaptation to the new constraints imposed, by such participation in the economic globalization. In some instances, however, we observe efforts by countries to impose unilateral constraints on external linkages, or to install temporary pauses on further integration by them with the world economy. In addition, in a number of areas, countries have sought to formulate collaborative responses to the challenges posed by economic globalization. Some of these cooperative endeavors among countries, as we shall see, aim at limiting the manner in which they relate to the larger global economy. Other collaborative responses seek not to limit economic globalization, but rather to shape it in such a way as to be somewhat less turbulent and less impervious to the social, economic, and political conditions and preferences of the countries that are participating in the globalization process.
For the most part, countries have accepted that in order to achieve the great benefits afforded by enhanced integration with the world economy, they need to adapt to the constraints that such integration imposes on their freedom of choice. For example, Argentina, which had unilaterally reduced trade barriers in the early 1990s, eliminated restrictions on capital movements, and established a currency board so as to fight inflation and assure foreign investors of the stability of the Argentine currency, did not reverse course when it was hit by the “tequila” crisis emanating from the Mexican financial collapse of 1994-1995. Instead, it continued on with its policy of liberalization and integration, including maintenance of the lynchpin of this policy, the currency board's commitment to keeping the Argentine peso tied to the dollar, even though this caused Argentina to suffer a serious temporary contraction in economic growth. We see equally dramatic adherence to the requirements of globalization in the case of such Asian countries as South Korea, Thailand, the Philippines, and to some degree Indonesia. In the midst of their most serious economic crises during 1997-1998, they did not turn to closure of their economies to the world system. Instead, they remained open to the global economy and, to do that in the face of a serious lack of international confidence in their national currencies and indeed their national financial systems, they accepted the need to pursue very harsh recovery programs that were proposed to them by the International Monetary Fund not just in terms of tight monetary and fiscal policies, but of radical reforms of their national banking industries. Finally, we also observe general acceptance of the requirements of the new global economy in most of the European Union countries, which by the late 1990s were not just highly committed to fiscal and monetary self-discipline by virtue of their construction of Economic and Monetary Union (EMU), but were also increasingly talking about the need to find some way to introduce greater flexibility into their labor markets so that European and other firms would elect to invest in their economies.
Thus, for the most past, and at least to date, countries have reacted to increased economic globalization by seeking to adapt their countries so as to participate more fully in the integrative process, even when this has required the occasional acceptance of serious economic costs and the need to re-examine long standing ways of conducting their economic and business affairs.
We can, however, identify some important instances in which countries that otherwise have been huge beneficiaries of global economic integration have nevertheless elected to undertake policies to limit (to a very moderate degree) their exposure to certain elements of economic globalization. For example, Chile, worried that it was attracting short-term capital inflows of such magnitudes that these might be potentially destabilizing, decided to prevent such a development by imposing partial capital controls in 1991. In a more reactive manner, Malaysia, in the midst of the 1997-1998 Asian financial crisis, undertook most of the policy adjustments that were being pursued by its neighbors, but in one area it cut against the general integrationist commitment of governments in the region: it imposed emergency capital controls in September 1998, and partially de-linked the country from international capital markets.
We also see controlled de-linkage from the full operation of the global economy in the reaction of France and Canada to their concerns about imports of American cultural products: American magazines in the case of Canada, and, as noted above, audio-visual products in the case of France. France has responded to its worries about American domination of the French movie and TV markets with a range of unilateral measures (and, as we will see below, collaborative strategies). For example, the French government imposes a quota on the import of U.S. films into France; it prevents some American cable channels--one if the Cartoon Network!!--from being carried by French cable providers; and it requires that radio stations that broadcast popular music ensure that 40% of that music be French. The French government also imposes a special tax on gross movie theatre receipts (producing a yield of about $150 million per year during the mid-1990s), which are used together with other government fiscal programs to subsidize the French film industry.
In the same vein, the Canadian government has sought to protect the Canadian magazine industry against its American competitors as a matter of cultural security. Canada in 1995 sought to impose a special excise tax, at the level of 80%, on advertising that was being placed on “split-run” magazines—foreign-origin magazines with local Canadian content added to them. At the time the tax was imposed, there was one such “split-run” magazine, Time-Warner’s Sports Illustrated. Canada's purpose in imposing the tax was to offset a structural advantage that would be enjoyed by American magazine producers who might undertake such split-run Canadian editions. The rationale for the tax was that U.S.-based magazines, because they largely if not entirely cover their production costs by virtue of their huge American runs, would be able to sell space to Canadian advertisers for their Canadian runs at very low rates, and thereby would be able to attract a lot of Canadian advertisers who otherwise might have chosen to buy (more expensive) spaces in Canadian magazines. The result would be a reduction in support for Canadian magazines of all kinds, and thereby greater pressure on the maintenance of a unique Canadian culture. The United States challenged Canada’s split-run tax (and related measures) under the auspices of the WTO dispute settlement procedures, and won its case in July 1997: Canada agreed to remove the split-run tax, but continued to express concerns that this might seriously harm Canada’s independent magazine industry and thus the Canadian culture.
Finally, elements of U.S. trade politics are suggestive of what might be termed "globalization fatigue" and a collective American decision to pursue a temporary pause to some degree in the pursuit of globalization. For example, the decision of the U.S. Congress in 1997 not to grant the president the authority to negotiate the incorporation of Chile into the North American Free Trade Agreement may have been driven by a number of purely domestic political circumstances, but there also appeared to be a general wariness in the Congress about the political utility of further American trade liberalization in the wake of congressional passage of NAFTA in 1993 and the WTO accord of 1994. Similarly, when a range of labor and environmental groups raised doubts in 1998 about the proposed Multilateral Agreement on Investment (MAI), then in its final stages of negotiation by the advanced-country members of the Organization for Economic Cooperation and Development, the U.S. government decided to let the negotiations and the agreement atrophy rather than pursue it. By the end of 1999 and the beginning of 2000, the U.S. Congress (specifically, the House of Representatives) it was not even possible to pass legislation to permit, as a matter of foreign assistance, duty-free importation into the United States of a very small volume of African manufactures, and the U.S. Executive was reluctant to pursue a plan proposed by its industrial-country partners in the World Bank to have a more general, and very modest, preferential relaxation of advanced-country tariffs so as to help the most indebted poor countries earn additional foreign revenues. Finally, European official concerns and reluctance at the end of the 1990s about further liberalization of agricultural products under the auspices of the WTO, including genetically modified products, may be indicative of a political calculation by the European governments that their respective home publics are not just worried about the health and safety issues surrounding the issue, but are uneasy at present at the prospect of undertaking a big new push toward further trade liberalization and economic globalization. This fatigue regarding liberalization at the global level might be especially worrisome for the Western Europeans in light of their already ambitious regional agenda, which includes both EMU and the expansion of the European Union to a number of former-socialist countries in Eastern and Central Europe.
Finally, we sometimes see efforts by the most powerful nations--and particularly the United States--to impose conditions on the way in which they will interact with other nations in the new globalized economy. For example, the United States succeeded in the early 1990s in imposing changes in the manner in which Mexican and other foreign fishing firms could harvest tuna if they wanted access to the American market. The goal of the United States was to force foreign tuna fishing fleets to use fishing nets that would reduce the number of dolphins unintentionally killed as the tuna were harvested, and to make the foreign fishing nets and techniques as dolphin-friendly as those required by U.S. law of American fishing fleets. It should be noted that the United States succeeded in imposing these changes in fishing techniques even though Mexico won a GATT case against the United States on the issue. In the same vein, the United States has forced its trading partners to require oil tankers registered in their countries to be equipped in such a way as to make intentional oil spills less likely. Similarly, in an effort to reduce the risk of bank failures in the face of more integrated world capital markets, the United States, after striking a bilateral deal with Great Britain, essentially compelled other major banking countries to impose on banks headquartered in their national jurisdictions U.S.-preferred minimum standards for capital reserves. Finally, the United States and, in some instances, the member-states of the European Union, have made the extension by them of preferential trading arrangements to developing countries conditioned on improved worker rights and conditions in their countries.
Countries have often sought to use collaborative approaches to the problems posed by economic globalization. Some of these collaborative efforts seek to limit the exposure of these countries to the forces of globalization. For example, in the area of cultural products, in 1989 the French government persuaded its partners in what was then called the European Community (now the European Union) to put into place an EC-wide quota system for the importation of audio-visual products. According to the 1989 EC Directive, Television Without Frontiers, all European TV channels were required to have a minimum of 50% European-content programming (France, as noted above, pursues a higher 60% European-content level for French broadcasting, and 40% of the total must be French-origin). Moreover, the French government was successful in persuading its EU partners to reject American efforts in their bilateral negotiations at the end of the GATT-sponsored Uruguay Round of trade negotiations in 1993 to liberalize trade in the motion picture industry.
Similarly, the United States and, to some degree, its European Union partners, have sought in recent years to link worker rights and conditions to trade liberalization under the auspices of the GATT and its successor body, the WTO. To date the United States has been modest both in its diplomatic goals and its achievements in this area: it called for acknowledgement of the substantive linkage between the issues of trade and labor at the end of the Uruguay Round in 1994, and, together with the European Union, it pressed its trading partners at the Seattle WTO Ministerial Meeting in 1999 to agree to establish a working party on the subject that would jointly managed by the WTO and the International Labor Organization (ILO). Both efforts let with little success, since from the viewpoint of such developing countries as Brazil and especially India, this American-European interest in talking about labor standards in the framework of trade liberalization if patently protectionist. What the emerging countries fear is that the U.S. government will introduce into a WTO-ILO working party's deliberations something that has been being pressed on the U.S. government for many years by American labor unions and non-governmental organizations concerned about foreign labor standards and practices, namely, the idea of including some sort of "social clause" in future WTO trade liberalization agreements. Such a clause would permit WTO members to withdraw trade concessions and perhaps even impose trade sanctions against their WTO partners that were found not to be faithfully implementing core international labor standards as posited in a number of ILO conventions. From the viewpoint of many developing countries, the social-clause route would entail not just an unfair imposition of foreign standards on their domestic labor systems, with a possible loss in comparative advantage, it would also constitute an unwarranted infringement on the rights of these countries to address their labor problems in ways that acknowledge their less developed status. In the end, from the perspective of developing countries, a social clause would allow developed countries to pursue protectionism against them, and not liberalization with them, under the auspices of the WTO.
While the EC Broadcasting Directive and the U.S. interest in worker rights might be viewed as collaborative efforts to restrict globalization, other collaborative efforts seem quite clearly not to have this intent but rather to manage globalization without curtailing it. For example, in the wake of the Asian, Russian, and Brazilian financial crises at the end of the 1990s, the United States, Europe, and Japan worked with their partners in the IMF to develop new policy mechanisms aimed at reducing the incidence and severity of such crises. This IMF-based effort at developing a "new international financial architecture" recommended in October 1998 a number of steps directed toward mitigating the risk and severity of currency and financial crises. Among the proposals, the IMF partners urged emerging-market governments to provide more information on a timely basis about their national economic circumstances (such as their total foreign liabilities and foreign-currency reserve levels), and to develop stronger regulatory institutions for their banking sectors; the IMF members also urged private creditors from the industrialized countries to develop new lending practices whereby they would work together to forestall panic selling of emerging-market assets in the face of temporary market turbulence; and they proposed a number of collaborative actions that the IMF members might undertake through the Fund to be better prepared to limit financial crises and their contagion in the future.
Economic globalization is among the most powerful forces operating to shape our contemporary world. It is affecting in profound ways what we consume; how and where we conduct business; how we marshal and employ savings; and how we communicate with one another. It is changing the structure of many societies, creating vast new opportunities for some and wrenching, terrifying dislocations for others. Globalization is surely making is easier for individuals to become more aware of cultures in far-off lands; but it may also be creating a sense of loss for some individuals as to their long-held values and ways of life. Globalization makes autarchy more and more costly and less and less plausible for a nation in the modern world, but it also creates tighter and tighter constraints on the autonomy of those national communities that choose to participate in the global economy. It draws into sharper relief, in other words, the age-old tension that market society presents to its members: markets present opportunities for new growth, new development, new consumption, and higher welfare; but they also present new risks for booms and busts, they raise the problem of greater efficiency co-existing with greater inequality; and they raise the question of whether market dynamics will overwhelm a community's sense of cultural coherence and social solidarity. Whether and how societies in both the industrialized nations and the emerging-market countries manage the tensions that are produced by intensified economic interactions will surely determine the scope and sustainability of economic globalization, and thus the shape and texture of the social world in which we will live for many years to come.
 See Paul Krugman, "Growing World Trade: Causes And Consequences," Brookings Papers On Economic Activity, Issue 1 (1995), available through the World Wide Web at ESBSCOhost Full Display, p. 3; for other helpful discussions that place contemporary globalization in historical perspective, see Douglas A. Irwin, "the United States in a New Global Economy? A Century's Perspective," American Economic Review Papers and Proceedings (May 1996), pp. 41-46; Dani Rodrik, Has Globalization Gone Too Far? (Washington: Institute for International Economics, 1997), pp. 7-9; Richard E. Baldwin and Philippe Martin, "Two Waves of Globalization: Superficial Similarities, Fundamental Differences, " NBER Working Papers Series, Working Paper 6904, January 1999, available on the World Wide Web at www.nber.org/papers/w6904; and Michael D. Bordo, Barry Eichengreen, and Douglas A. Irwin, "Is Globalization Today Really Different Than Globalization a Hundred Years Ago?," NBER Working Papers Series, Working Paper 7195, June 1999, available on the World Wide Web at www.nber.org/papers/w7195, p.6.
 U.S., Council on Economic Advisers, Economic Report of the President (Washington: GPO, February 2000), p. 203.
 Robert C. Feenstra, "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives 12 (Fall 1998), pp. 34-35; also see Irwin, "United States in A New Global Economy?, " p. 42; and Bordo, Eichengreen, and Irwin, "Globalization Today," p. 7.
 CEA, Economic Report of the President 2000, p. 203; also see Bordo, Eichengreen, and Irwin, "Globalization Today," pp. 10-11.
 Economic Report of the President 2000, p. 205
 U.S., Council on Economic Advisers, Economic Report of the President (Washington: GPO, February 1999), p. 224.
 Maurice Obstfeld, "The Global Capital Market: Benefactor or Menace?," Journal of Economic Perspectives 12 (Fall 1998), p. 11-12; also see International Monetary Fund, World Economic Outlook (Washington: May 1997), p. 114.
Obstfeld, "Global Capital Market," pp. 12-13; also see IMF, WEO May 1997, pp. 114-15.
 Economic Report of the President 2000, p. 206.
 Economic Report of the President 2000, p. 209; and Bordo, Eichengreen, and Irwin, "Globalization Today," p. 17.
On the manner in which multinational firms have learned how to use advanced technology to manage their worldwide business operations, see Wolfgang H. Reinicke, Global Public Policy: Governing without Government? (Washington: Brookings Institution Press, 1998), pp. 15-18.
 John Gerard Ruggie footnote.
 See Kenneth N. Waltz, Theory of International Politics (Reading: Addison-Wesley Publishing Co., 1979), pp. 70-71.
 Thomas L. Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus and Giroux, 1999), p. 197; also see 195-96.
 Ibid., p. 198; for empirical evidence in support of the view that growing economic interdependence,
see John Oneal and Bruce Russett, 1997. "The Classical Liberals Were Right: Democracy,
Interdependence, and Conflict, 1950-1985," International Studies Quarterly 41 (June 1997), pp.
267-94; and Oneal and Russett, "Assessing the Liberal Peace with Alternative Specifications: Trade Still
Reduces Conflict," Journal of Peace Research 36 (July 1999).
For this argument, see Kenneth Waltz , "The Myth of National Interdependence," in Charles P.
Kindleberger, ed., The International Corporation (Cambridge: MIT Press 1970); Waltz, "Globalization and
Governance," PS: Political Science & Politics, available on the World Wide Web through Proquest; and
Katherine Barbieri, "Economic Interdependence: A Path to Peace or a Source of Interstate Conflict?,"
Journal of Peace Research 33 (October 1996).
 Christopher Gelpi and Joseph M. Grieco, "Democracy, Interdependence, and the Liberal Peace," Unpublished Manuscript (March 2000).
 Paul A. Papayoanou, "Interdependence, Institutions, and the Balance of Power," International Security 20
(Spring 1996), pp. 42-76.
 Friedman, Lexus and Olive Tree, p. 11.
 Such crises, it should be emphasized, are not restricted to emerging-market economies alone: for example, when the currency values and Italy and France came under attack in 1992 after they and other European Union countries set a path for Economic and Monetary Union (EMU), the Swedish currency also came under pressure even though Sweden had not proposed to join EMU and indeed was not even then a member of the European Union!
For a review of these crises, see U.S., Council on Economic Advisers, Economic Report of the President (Washington: GPO, February 1999), pp. 225-235.
 International Monetary Fund, World Economic Outlook (Washington, October 1999), pp. 64-67.
 Ianthe Jeanne Dugan, "More Losses Reported in Fund Collapse," Washington Post, September 26, 1998,p. C1, available on the World Wide Web through Lexis- Nexis.
See "Statement by William J. McDonough, President, Federal Reserve Bank of New York, Before the Committee on Banking and Financial Services, U.S. House Of Representatives," October 1, 1998, and reprinted in the Federal Reserve Bulletin (December 1998), and available on the World Wide Web through InfoTrac; also see William Lewis, Richard Waters, and Tracy Corrigan, "$3.5bn Bail-Out for Hedge Fund," Financial Times, September 4, 1998, p. 1, and available on the World Wide Web through Lexis-Nexis.
See "Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, Before the Committee on Banking and Financial Services, U.S. House Of Representatives," October 1, 1998, reprinted in the Federal Reserve Bulletin (December 1998), and available on the World Wide Web through InfoTrac, pp. 1-2.
For a theoretical analysis of this differential response of Europe and America to economic globalization, see Krugman, "Growing World Trade," pp. 14-19.
 Feenstra, "Integration of Trade," pp. 41-42.
 Friedman, Lexus and Olive Tree, pp. 233, 309.
 Tyler Cowen, "French Kiss-Off, Reason 30 (July 1998), available on the World Wide Web at ProQuest, P. 1; also see Mel van Elteren, "GATT and Beyond: World Trade, the Arts and American Popular Culture in Western Europe," Journal of American Culture 19 (Fall 1996), pp. 59-73, available on the World Wide Web through ProQuest; and Bill Grantham, "America the Menace: France's Feud with Hollywood," World Policy Journal 15 (Summer 1998), available on the World Wide Web through ProQuest.
 Culture Wars," Economist, Sept. 12 1998, available on the World Wide Web through InfoTrac, p. 1
 For a helpful overview, see William Watson, Globalization and the Meaning of Canadian Life (Toronto: University of Toronto Press, 1998).
 IMF, October 1999 WEO, p. 52.
 Sebastian Edwards, "The Americas: Capital Controls Are Not the Reason for Chile Success," Wall Street Journal, April 3, 1998, p.A19, available on the World Wide Web through ProQuest.
 IMF, October 1999 WEO, pp. 54-56.
See World Trade Organization, "Canada-Certain Measures Concerning Periodicals: Report of the Panel," WTO Document WT/DS31/R, available on the World Wide Web through the WTO website, www.wto.org; also see Marci McDonald, "Menacing Maganizes," Maclean's, March 24, 1997, available on the World Wide Web through ProQuest; and John Urquhart and Bhushan Bahree, "WTO Orders Canada to Drop Magazine Rule," Wall Street Journal, July 1, 1997, p. B8, available on the World Wide Web through ProQuest.
I.M. Destler, a long-time student of U.S. trade politics, suggested at the end of the 1990s that U.S. trade policy was "on hold"; see Destler, "Trade Policy at a Cross Roads," Brookings Review (Winter 1999), pp. 26-30, and available on the World Wide Web through ProQuest.
 See “The Sinking of the MAI,” Economist, March 14, 1998, available on the World Wide Web at www.economist.com (archive).
 David E. Sanger, "U.S. Resistance Plan to Remove Tariffs for Poor Nations," New York Times, April 9, 2000, p. 1.
 Thomas E. Skilton, "GATT and the Environment in Conflict: the Tuna-Dolphin Dispute and the Quest for an International Conservation Strategy," Cornell International Law Journal 26 (1993): 455-494.
 Ronald Mitchell, "Intentional Oil Pollution of the Oceans," in Peter M. Haas, Robert O. Keohane, and Marc A. Levy, eds., Institutions for the Earth: Sources of Effective International Environmental Protection (Cambridge: MIT Press, 1993), pp. 183-247.
 Ethan Barnaby Kapstein,"Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence," in Peter M. Haas, ed., Knowledge, Power, and International Policy Coordination, special issue of International Organization 46 (Winter 1992), pp. 265-288.
 Virginia A. Leary, "Workers" Rights and International Trade: the Social Clause," in Jagdish Bhagwati and Robert E. Hudec, eds., Fair Trade and Harmonization: Prerequisites for Free Trade?, Volume 2, Legal Analysis (Cambridge: MIT Press, 1996), pp. 210-214.
 See Leary, "Workers' Rights and International Trade," and Eddy Lee, "Globalization and Labor Standards: a Review of Issues," International Labor Review 136 (1997), available through the ILO website at www.ilo.org.
 For a helpful overview of these and other proposals relating to the construction of a "new international financial architecture," see Economic Report of the President,1999, pp. 267-305.