Coping with Globalization

1
Coping with Globalization

• A Conference Organized by Aseem Prakash and
  Jeffrey A. Hart in Alexandria, Virginia, on July
  31 and August 1, 1998.

2
Key Concepts

• Globalization
• Convergence
• Race to the Bottom
• Governance

3
Defining Globalization

• Economic globalization is a set of processes
  leading to the integration of economic activity
  in factor, intermediate, and final goods and
  services markets across geographical boundaries
  and the increased salience of cross-border value
  chains in international economic flows.

Source Introduction to Globalization and
Governance by Hart and Prakash
4
Other Conceptualizations

• Deterritorialization
• Convergence
• The selling of the idea/myth of globalization

Appadurai is more interested in deterritorializati
on than we are, but the greater the degree of
economic globalization, the greater the
likelihood that firms and money will lack a
clear territorial home.
5
Race to the Bottom

• Tendency of political units to reduce
  regulations/taxes/standards in order to match the
  reductions of others as part of a competition for
  the location of value-added activities in their
  territory.
• Seen as a possible major negative consequence of
  globalization.
• May be prevented by governance from the top if
  properly designed.

Source Paper by Deb Spar and David Yoffie.
6
Examples of Possible Races to the Bottom

• Corporate taxes
• Environmental regulations
• Wages and other labor practices
• Internet-related
• pornography
• gambling
• hate groups

7
Organization of the Conference

• First Day Issues
• money
• environment
• Second Day Countries
• Russia
• China
• Korea
• Japan, etc.

There will be two volumes based on the
papers presented, also organized in this way.
8
Summary of Major Controversies

• Technonationalism vs. Ethnonationalism
• Is globalization of the mind a prerequisite for
  further economic globalization?
• Does globalization mean convergence toward
  Anglo-Saxon institutions?

9
More Major Issues

• Convergence vs. harmonization or
  interoperability
• What is the residual role of nationalism in a
  globalized world economy?
• The deterritorialization of currencies, e.g.
• dollars in Russia
• DMs in E. Europe

10
First Day of Conference

• Currency, Taxes, Financial Services, MNCs, the
  WTO, and US Federalism

11
Benjamin J. Cohens Currency Coping Strategies

• Market Leadership
• aggressive unilateralism
• Market Alliance
• cartels sharing monetary sovereignty
• Market Preservation
• status quo policy to defend a previously acquired
  market position
• Market Followership
• subordinating monetary sovereignty to a stronger
  foreign currency

12
Currency Subissues Discussed

• The likely impact of the switch to the Euro in
  Western Europe
• The ability of Central Banks to maintain a focus
  on domestic policy as opposed to competitive
  implications of changes in the money supply and
  currency exchange rates

13
Paper by Alan Rugman and Alain Verbeke on MNCs
and Environment

• Multiple levels of environmental regulations
  faced by MNCs.
• Pollution haven as rough equivalent to tax
  haven and example of race to the bottom vs.
  Michael Porters idea that environmental
  regulations can form the basis for new
  competitive advantages.
• Conclude that Porters argument is a special
  case.

14
Paper by Bob Kudrle on Taxes

• Impact of globalization on taxation policies is
  likely to be low
• There is not likely to be a race to the bottom in
  taxation
• corporations need public services that are paid
  for with taxes
• If that occurred, states would be unable to
  continue to redistribute income and wealth

15
More on Kudrle

• Tax havens and transfer prices are the target of
  recent OECD negotiations (governance vs. race
  to the bottom)
• Green taxes can be a problem because of lack of
  harmonization, but possibility of double
  dividend (higher revenues, better environment)
  makes them attractive
• Problem of taxing electronic commerce (locating
  where the transaction took place --
  deterritorialized transactions)

16
Financial Convergence

• Reba Carruths paper on governance in the
  insurance sector
• Competition between the IMF and the Bank for
  International Settlements (BIS)
• IMF seen as US-dominated, BIS seen as more
  acceptable to Europeans
• Underlying problem is the blurring of boundaries
  between financial industries

17
Open Discussion of Cohen, Kudrle, and Carruth

• Transfer pricing by MNCs
• Tolchin says new regs are good
• Daniels says new regs are wasteful because MNCS
  spend too much time justifying intrafirm pricing
  and end up overreporting profits on both ends
• New financial products such as derivatives are
  not regulated by Central Banks in any way
• Similarly, cybercommerce is not yet regulated
• Who is going to make the rules in these areas?

18
Paper by Sylvia Ostry on Preventing an
Antiglobalization Backlash

• NGOs are a rallying point for the backlash
• Tokyo and Uruguay Rounds were much more intrusive
  than earlier trade rounds
• The Uruguay Round produced WTO institutions with
  many unintended consequences
• Will have to strengthen the WTO to deal with the
  above

19
Ostry on MNCs in the 3rd World

• Uruguay Round showed willingness of LDCs to
  reduce barriers to trade
• Evidence of a shift in development strategies
• Now LDCs are adjusting to MNCs rather than vice
  versa
• want to add resources (capital)
• consistent with export-led growth
• decline in faith in state enterprises

Discussion centered on the question of whether
this was voluntary or imposed.
20
Paper by Alfred Aman on Federalism in the US

• Federalism as interpreted by the current Supreme
  Court introduces inflexibilities that prevent the
  U.S. government from responding adequately to the
  challenges of globalization
• Main criticism
• wanted more comparisons with non-US federalist
  systems

21
Second Day

• Coping with Globalization in the US, Europe,
  Japan, Russia, China, the Yugoslavia, Bulgaria,
  Australia, Latin America, the Middle East, South
  Africa

22
Paper on Flat Panel Displays in the US by Jeff
Hart, Stefanie Lenway and Tom Murtha

• Theme of techno-nationalism vs. postnationalism.
• US failures attributed to inappropriateness of
  techno-nationalist policies in industries
  undergoing globalization.
• Recommend postnationalism as an alternative to
  techno-nationalism.

23
Paper on European Capital Market by Steve Weber

• Only outline, no paper prepared for meeting.
• Stressed need for unification of capital markets
  in the face of monetary integration.
• Suggested that there has to be a political
  solution to competition among equity markets of
  London, Paris, and Frankfurt.
• Argued that Europe will not converge to
  Anglo-Saxon institutions and that doing so is not
  necessary.

24
Paper on Japan by Marie Anchordoguy

• Focused on software industry as example of
  industry where Japan has not succeeded.
• Argued that Japanese business and government have
  decided to stop fighting Microsoft and Intel in
  PCs.
• However, Japanese government (MITI) still tries
  to provide administrative guidance and wont
  give up on its idea of challenging US
  intellectual property laws.

25
Paper on China by Daly Yangand Fubing Su

• PRC is becoming a status quo power because of
  its increased stake in the global economy.
• Globalization accelerated PRC internal reforms
  and modernization of industries.
• Data on large inflows of foreign direct
  investment (FDI) into China.
• Specific industries aerospace, energy, telecoms,
  photographic film, and soft drinks.

26
Paper on Russia by Steven Solnick

• Dismantling of social safety nets in Russia in
  face of integration into global markets (without
  adequate internal market reforms) has been a
  disaster.
• The highly decentralized nature of the Russian
  political system and its experiments with
  electoral democracy have hindered efforts to
  reform the economy.
• Inward FDI is minimal, the Russian state is too
  weak, failure to collect taxes is chronic.

27
Paper on Yugoslavia and Bulgaria by Beverly
Crawford

• Key innovation integration into the world
  economy can exacerbate regional and ethnic
  cleavages and thereby trigger social conflict.
• Differences in political institutions in
  Yugoslavia and Bulgaria help to explain
  differences in levels of social conflict.
• Pre-1989 federalism in Yugoslavia exacerbated
  post-1989 ethnic tensions.

28
Paper on Australia by John Ravenhill

• Australia pursued import substitution policies
  through early 1980s, then switched to a
  neoliberal approach which has only been partially
  successful.
• Trade and budget deficits have led to cutbacks in
  social safety nets.
• The retreat of the state seems to be
  unravelling the social fabric.

29
Paper on Latin America by Fernando Robles

• Focuses on impact of regional integration on
  Latin American MNCs.
• Suggests that regional integration has given LA
  MNCs more room for maneuver in competing with
  extraregional MNCs.
• General tone optimism, especially if LA MNCs
  continue to become stronger.

30
Paper on Middle East by Nazli Choucri

• Actually an outline for a paper, Choucri unable
  to attend.
• Focused on defining globalization in a manner
  appropriate to Middle East.

31
Paper on South Africa by Phil Morgan

• Until 1980s, S. Africa pursued import
  substitution policies.
• Continued under post-Apartheid government, but in
  1996 switch to neoliberal policies.
• Trade and inward FDI are declining.
• Rise of Black Chip corporations.
• Government is still looking for a coherent
  approach.

32
Themes in Discussion of Country Papers

• Lack of Subsaharan African paper.
• Role of regionalism and regional integration.
• Role of decentralization of authority and
  federalism within countries.
• Role of diasporic groups, such as Overseas
  Chinese, in globalization processes.
• Rise of technotribes -- e.g. mobility of people
  of the various Silicon Valleys of the world.