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The topic of globalization is wide and all-encompassing, it has no easy explanations and comes with conflicting and often hugely ideological differing standpoints from academics, activists, politicians and people. Here Ulrich Beck describes the public discourse that surrounds globalization well: “it has many faces, is full of mystery, all-powerful and it confirms the attitude with which it is approached: fear or hope.” As with any controversial topic, people tend to have very firm opinions of globalization, either it’s inherently bad or good in its nature. But globalization is not that easy to discern, it’s not black nor white, instead it has a more greyish-colour. And perhaps contrary to popular belief, globalization is not a new or modern phenomena, its processes can actually be traced back to six or so main historical waves: such as the spread of world religions and the establishment of the first transcontinental civilizations, European colonialism and imperialism, the First and Second World War and its aftermaths, the mainly politico-military wave during the Cold War, and today’s more financial-cultural wave which is primarily dominated by neoliberalism. Financially, the current neoliberal wave of globalization has, among other things, opened new financial markets around the world, diminished state control of capital markets, dismantled tariffs and other trade barriers, and massive privatizations of various public services and enterprises. Culturally, new technologies have given us high-speed communications and transportations on a truly massive scale and successfully connected people from every corner of the world. This recent historical wave of economic globalization, which has allowed the free flow of capital, but also culture and, to a lesser extent, people across borders, all overseen by international institutions, is probably what most people would describe as globalization. The effects from globalization on our social life is virtually endless and it cover nearly every aspect of our daily lives. Our jobs, the very food we eat, and most of the things we use and consume in our lives, are the products of an increasingly complex and global production and distribution network dominated by powerful transnational corporations (TNCs). This global shift in our production chains obviously also brings consequences and changes to people’s lives as the location of economic activities changes and jobs are being outsourced and offshored. This problem of globalization is primarily an issue in the developed world. In fact, worldwide opinion polls tend to show that people from developing countries who worry about the negative and uneven effects from economic globalization are more likely to believe that globalization is proceeding too slowly, while people with similar concerns in developed countries say globalization is transforming societies too quickly. There are clearly differing attitudes towards globalization between the developing and the already developed world. There is no denying that globalization has started to fundamentally change the economic, political, cultural, and legal landscape of our world. Legally, people’s rights and entitlements are no longer solely tied to nation states and citizenship as new and global human rights has emerged. State’s sovereignty is therefore being challenged by international human rights law as various global treaties, agencies, and actors force states to accept their moral obligations towards individuals. Economically and politically, globalization has emerged as a mainly neo-liberal ideology that has started to fundamentally transform the very structure of the global economy, and how it’s integrated and organized into our societies. At the centre of this neo-liberal, free market ideology – often labelled the Washington Consensus – is the belief that the free and efficient market ultimately knows best, and that any interference is undesirable and even harmful. For these neo-liberals on the right, the major problem with globalization is that it’s not moving fast enough and that the many problems that the world is facing today is simply the result of too little globalization. They believe that once globalization is fully established it will bring the greatest benefits for the greatest number of people. On the opposite side of the spectrum, the anti-globalizers on the left instead see globalization as the problem – with some even calling for the total rejection of globalization in favour of a return to a more “local” world. These anti-globalizers, or sceptics, argue that free and unregulated markets create inequalities that negatively affect the well-being for the majority of people, while at the same time creating massive problems such as environmental and climate degradation on a global scale. As such, they see the globalization of markets as something dangerous as it increases the scale and extent of social, economic, and environmental problems. David Held, a prominent political academic active in the field of political science and international relations, will here represent the more centre-left criticism of globalization. Held doesn’t reject globalization, instead he calls for a more progressive form of social democratic globalization that is sustainable and capable of addressing the various problems associated with globalization13. While Held and others who hold similar views believes that markets are capable of generating economic well-being, they also warn that markets that lacks appropriate regulation will inevitably result in unwanted problems and risks that are unequally distributed among people and regions. Held argues that it’s not really globalization per se that is the problem, instead it is neo-liberalism and the Washington Consensus that have failed to create a world order that works for all people. Held identifies four major and global areas of political, economic, humanitarian, and environmental crisis that are exacerbating each other and threatening the world. These crises are: The erosion of the post-war multilateral world order symbolized by the UN and other international co-operations, agreements and agencies. The collapse of regulations on world trade and trade negotiations that could potentially further worsen global inequality levels. The failure to live up to the UN’s Millennium Development Goals. The lack of action against climate change. These crises, Held argues, are being driven by the specific, and broken, form of globalization that is being forced upon the world by the neo-liberal politics and policies that the Washington Consensus represents. Central to the Washington Consensus is privatization, free trade, and the free market that when utilized effectively undermines and dismisses the role of governments and strong public sectors – which in the end could severely hamper the capacity of public institutions to deal with local, national and international problems and challenges of globalization. A combination of measures to these three core policies has been the generally accepted doctrine among leading OECD countries and international financial institutions for at least the past two decades. This neo-liberal doctrine has been implemented through various loans and debt rescheduling programs by the Washington-based International Monetary Fund (IMF) and as a policy basis for developing countries by the World Bank. In order to receive vital loans for development programs or during financial crisis, these international institutions require developing countries – but also developed countries as we can see in Greece in recent years – to undergo vast structural adjustments so that their economies can be better aligned to these neo-liberal core policies. But despite being the dominant economic orthodoxy, these neo-liberal policies have failed to reduce poverty levels or generate any sustained and healthy economic growth for affected countries – with Greece and it still ongoing economic crisis being just one example. Martin Wolf, the editor and chief economics commentator at the Financial Times and author of Why Globalization Works, is critical of this viewpoint and argues that the perspective which Held represent is too gloomy and that globalization should be seen with more optimism. Wolf completely dismisses the fears that we are seeing an erosion of the multilateral world order, arguing that WTO is the most competent and forceful international economic institution ever created. Wolf does admit that the IMF has been weakened, but only because its resources are inadequate for today’s global challenges. And while the UN has always been conveniently ignored by world powers, the institution’s effectiveness has increased since the Cold War, Wolf argues. But one can wonder how true this statement is these days when the Trump administration has announced their intention to cut U.S. funding to multilateral institutions such as the UN. While Wolf strongly believes that international trade is tremendously beneficial to developing countries – just look at the successful development in China – he does acknowledge that there are problems, especially the protectionism of agricultural products by richer countries. When it comes to global poverty, Wolf again argue that we should remain optimistic because real progress is being made. Despite a rapid population growth, extreme poverty levels are shrinking albeit not fast enough, according to Wolf. Statistics from the World Bank shows that while global poverty levels have declined in recent years, the progress is uneven and slow. And while the deadline to reduce extreme poverty by half was successfully met five years ahead of the 2015 deadline, WTO predicts that given the current pace, the world will most likely not be able to end extreme poverty by 2030. Joseph Stiglitz, former senior vice president and chief economist of the World Bank, argue that thanks to globalization people now live longer and better lives. Globalization, Stiglitz say, has improved the lives of countless of people and increased the standard of living immensely. International trade as helped poorer countries develop their economies much faster than they otherwise would have done. Globalization has also helped reduce the isolation and separation between people, and giving them access to vast amount of new knowledge. Even where there are negative effects from globalization there are often benefits that outweigh the downsides. Despite this very positive perspective on globalization, Stiglitz still seem to agree with much of the criticism against the current form of globalization that Held puts forward. Stiglitz acknowledges that globalization has not succeeded to reduce poverty or ensure sustainable economic stability in developing countries. Globalization, the free market economy, and the elimination of trade barriers, pushed by the West on developing countries, has not produced the positive results and the prosperity which was promised. In many cases, and for most people, it has instead resulted in even more poverty and suffering. The West has driven the globalization agenda at the expense of the developing world, and they have managed to shape its rules so that they themselves will gain a disproportionate share of the benefits from globalization. For example, developing countries have been pushed to eliminate their trade barriers, but the West haven’t removed their own barriers, and thus they have prevented developing countries from exporting their products to Western markets and deprived them from vital export incomes. For Stiglitz, much of the problems related to globalization lies within its institutions. The World Bank, WTO and the IMF have been central at shaping the economic doctrine of the last two decades, and they have been closely involved in all the major economic issues in modern time, finding solutions to financial crises and overseeing the economic transformation of developing countries. Stiglitz argue that it’s clear that these institutions, and especially the IMF, has failed their original missions because of their strict focus on pushing neo-liberal, free market policies as the only viable solutions, no matter the problem or country. Another problem with these institutions is that both the World Bank and IMF are led by representatives from the West – the head of the IMF and the World Bank has always been a European and a North American respectively – and this despite the fact that the majority of their work is done in developing countries. Furthermore, Stiglitz notes that the policies these institutions push are often too closely linked to the commercial and financial interests of governments and TNCs in the developed countries. And in many cases, these interests have disregarded concerns for the environment and climate, democracy, human rights and social justice. TNCs' production, trade, and investments are done on a global scale, they are therefore in the centre of the forces driving global economic integration and transformation. These activities can result in a lot of public good and development benefits to developing countries. But they could also distort local economies and contribute to environmental degradation, human rights violations, and more. The potential impact from these TNCs on people’s lives and the environment are huge and far-reaching. In fact, the economic power of the ten largest TNCs is bigger than 180 of the poorest nations combined. Despite this, there are no internationally binding instruments to hold these powerful TNCs accountable for the harm they might cause in their daily operations. Currently, TNCs have addressed these issues using various codes of conducts or CSR (Corporate Social Responsibility) initiatives. Obviously, these policies have resulted in positive benefits and change, but they are still only voluntary measures which can be easily disregarded and comes with few or no penalties. To combat this, there needs to be a strong multilateral world order with institutions that are capable of enforcing transnational legal frameworks that applies to TNCs, as well as governments. The first steps towards such international binding regulations that hold companies accountable and ensure justice for victims are actually being taken. In 2014, the UN Human Rights Council (UNHRC) adopted resolution 26/9 – despite objections from France, USA, Germany and other industrial nations – which calls for the elaboration of an international legally binding instrument on TNCs to ensure their compliance with human rights. While progress is slowly being made to combat the many challenges and issues related to economic and political globalization, the question is, will it be sufficient? The current form of globalization that predominately only benefit the already rich and powerful cements the huge inequalities and grows disbelief and angers among people towards a multilateral and multicultural world order. If markets are left on their own, without any kind of regulation or government oversight, to decide possible solutions to problems and challenges related to globalization, economic creation and distribution, it will only risk to prolong many of the political and economic difficulties both developing and developed countries faces. By weakening the capacity of governments and the public sector in favour of market forces and privatization, the many difficulties that the poorest and most vulnerable people – no matter if they live in either the North or the South – already face will be worsened as societies cut back on the very services which has previously offered them protection and relief. Unregulated economic development will never fully reach prosperity for all, it will only benefit a small minority and the powerful corporate interests that are already deeply engrained in the global economy. Likewise, international trade will never be able to help combat poverty in developing countries and improve the well-being and welfare of people in all corners of the world as long as the current rules of globalization and global trade continues to protect the interests of the already rich against both the poorest countries and many middle income countries. Free trade must take into consideration the huge power asymmetries between countries in the global economy, and extra attention must be given to the people in low and middle income countries that are the most vulnerable and the worst affected by the economic transformation of societies from globalization and external market integration, especially capital market liberalization. Even people in rich industrialized countries face similar challenges from globalization and are also vulnerable from globalization when they lose their jobs or see their wages cut in times of major economic shifts. The many inequalities, double standards, and unequal rules, between developing and developed countries, between poor and rich people, that is currently the rule in the globalized world economy cannot continue. In its current form, globalization is deeply broken for the majority of people. If it’s allowed to continue, there is a real risk that dangerous populists and extremists will use the deep inequalities and the growing public discontent to their advantage and shape a new world order into their sick and twisted image. ... If you want to learn more about globalization and social change be sure to check out these references: Beck, Ulrich (2005) “The Cosmopolitan State: Redefining Power in the Global Age”. International Journal of Political and Cultural Sociology, 18:143-159. Dicken, Peter (2011) “Global Shift. Mapping the Changing Contours of the World Economy”. 6th edition. Guilford Press. Chapters 12-17. Held, David et al. (2005) “Debating Globalization”. Polity Press. Mepham, David (2005) “The Far Side of Globalization: David Held’s Missing Links”, in Held, David et al. “Debating Globalization”. Polity Press. Stiglitz, Joseph E. (2003) “Globalization and its Discontent”. W.W. Norton & Company. Therborn, Göran (2000) “Globalizations: Dimensions, Historical Waves, Regional Effects, Normative Governance”. International Sociology, 15:2, 151-179. Wolf, Martin (2005) “The Case for Optimism: A Response”, in Held, David et al. “Debating Globalization”. Polity Press.
Simon posted a blog entry in Simon SaysGlobal production networks (or GPNs) in which transnational corporations (or TNCs) operative in have the potential for enormous impact on the economic development of local and regional economies, and the GPNs and TNCs can create both benefits and/or costs to the inhabitants of these economies. Obviously, these potential impacts encompass numerous complex interactions, which are both direct and indirect, between the GPNs and the local economies. But according to Peter Dicken there are four major areas where we can see the potential impacts of GPNs on local economies and communities (See: Dicken, Peter. Global Shift. Mapping the Changing Contours of the World Economy 6th edition. Guilford Press, 2011). In this blog post the primarily focus will be on the four sub-points listed under the major areas of potential GPN impact (see image above), which are: capital injection, stimulation of local firms, knowledge diffusion, and the local creation of jobs. Before I continue I would like to add that while I believe Dickens list to be rather wide-ranging and comprehensive, I would’ve liked it to include climate and environmental impacts from GPNs. The degradation of our environment and climate is one of the most pressing issue of our time and it’s an issue that affects all parts of human life. Its sources and effects are not just confined to specific regions or local communities – it’s a global problem that requires global solutions. And because TNCs, as Dicken himself writes, “are responsible for much of the shaping and reshaping of the global economic map” they are very much contributing to its negative effects. As such, they also need to be included in its solutions. The first point, which involves the inflow of capital to local economies from foreign investment, might be one of the more obvious impacts. These capital injections can help and energize the economies of both developing and developed nations that are suffering from capital shortage. But even here the dimensions of capital injection are both numerous and multifaceted, just consider the following. Not all foreign investments by TNCs into the overseas host economy involves the actual transfer of outside capital from external markets. This means that the TNCs mode of entry – which is (among other things) either the acquisition of existing firms or the establishment of new firms – can be solely financed by local money. And even where outside capital does flow into the local economy the flow will eventually be reversed, and could in time exceed the inflow, as the local firm sends its profits back to the parent company and its home economy markets, often by using various legal loopholes and tax evasion techniques that lessen their economic responsibilities to the host-country. This in turn can create problematic questions on the host-country’s ability, and willingness, to properly tax the foreign-controlled firms on the profits its local operations results in. An example of this can be seen in the controversial Apple tax case between Ireland and the European Union last year. Garment factory workers in Lao PDR. Photo by: ILO in Asia and the Pacific (cc) Local firms can be stimulated, in various ways, by its involvement in a GPN, but only if the TNCs actively work to create positive connections within the host-country’s economy. For example, TNCs can work together with local suppliers and demand their orders meet stringent specifications which can raise the technical expertise in these local firms. By sourcing its materials locally, TNCs can also indirectly help create new domestic firms to meet the new demand created, thus additional employment is created. Much of this depends on the nature of the GPN operation as well as the function and attributes of the TNCs. TNCs that mainly serve the host country are more likely to create these required positive linkages with the local economy than those TNCs who has an export focus that mainly serve the home market of the TNC. The nature and characteristics of the local economy also plays an important part. Compared to developing countries, it is easier for more industrialised and developed countries to implement various policies that can help upgrade local suppliers and increase the local linkages between the TNCs activities and the local economy. To what extent does GPNs and TNCs result in knowledge diffusion? Merely by establishing an overseas operation, the TNC contributes to the transfer of knowledge from its home country to the new host country as it employs local labour and engage in training these in the specific skills and techniques required. But the transfer of more advanced technologies from TNCs to developing countries is generally minimal. And even when such transfer does happen it does not necessarily mean that the technology will be beneficial and widely diffused throughout the host country. This is mainly because TNCs tend to inhibit the spread of its proprietary technologies beyond its organizational core in their home country, or in more advanced industrialized countries. In fact, very little of TNCs research and development facilities are located in developing countries. It’s usually only when the host country is capable of pressuring the TNC to establish certain research and development facilities in exchange for entry to its local market that such establishments in developing countries happens, which again brings us back to the nature of the local economy and how a country’s social, political, and geographical characteristics are all important factors for its people, government and local firms in a globalized world. There exist further obstacles, beyond these characteristics, for local firms to upgrade – their process, products and functions – and advance within GPNs. Local firms face higher and higher entry barriers to the more lucrative and profitable parts of GPNs, such as marketing and research and development. The geographical proximity could also hamper upgrading for local firms located far away from the TNCs core organisation. And even when there are successful upgrades there is a risk of differential effects, such as workers’ displacement due to new efficient and/or obsolete processes, among other things. Workers also face the risk that the extra value from industrial upgrading might not reach them in form of higher and better wages. These gains may also be spread unevenly among different groups of workers with the more vulnerable groups such as guest workers being among the hardest hit. A country’s upgrade process could also lead to more restrictive labour laws and the suppression of workers’ rights and unions. So, what about the fourth and last area namely employment creation, which tend to be the most important issue for most governments and ordinary people? Do GPNs create jobs in the local economy, and are they good jobs? Again, it’s difficult to say anything definitive because there are numerous factors in play that one need to consider. For example, the number of direct jobs created depends on such issues such as the scale and the technological nature of the TNCs local operation. And the number of indirect jobs created depends on how many positive linkages have been established with the local economy and how much of its profits are retained within its host country. It is also a possibility that the GPNs have adverse effects on other local and competing firms so that local jobs will be lost. As previously explained, TNCs tend to focus their research and development facilities in its own home country and other developed and highly industrialised countries, therefore the overwhelming majority of jobs created in developing countries from GPNs are low-skilled and low-paying production jobs. With that said, TNCs tend to pay the average or even above the average salary-levels in the host country. But this is generally only the case with local affiliates that are directly connected to the TNC as they do not have the same control with their independent and third-party local suppliers – which are usually the primary source of labour complaints directed towards TNCs. Examples of this can be seen with H&M’s use of “strategic suppliers” which has caused severe and deadly workplace accidents over the years. Confronted with heavy criticism, many TNCs resort to the implementation of various ethical codes of conducts which themselves and their suppliers must follow. A worker sprays stain onto components that will form the “Stefan” chair sold by Ikea in 2015. Photo by Province of British Columbia (cc) IKEA with nearly 400 stores in 48 different countries is one of these TNCs with a code of conduct for their operations, some of their regional offices have also published yearly sustainability reports that give more detailed information about the progress of the firm’s social and environmental goals. IKEA’s code of conduct is called the IWAY Standard and contains minimum requirements for social, working and environmental conditions that need to be met by their local suppliers when IKEA purchases products, materials and services. Among other things, the IWAY prohibits the use of child labour and forced labour. The code of conduct also says that workers need to be free to unionize and that they should at least be paid minimum wages and have the right to overtime pay. The IWAY standards also encourages safe and healthy working settings that reduces stress to the local environment, prevent emissions to air, land and water, as well as efforts to reduce energy consumption. Unfortunately, the content of the code of conducts only affects IKEA suppliers, and not those who are employed directly by IKEA in their stores and in other parts of the firm. This omission in their code of conduct seems insufficient, to say the least, especially considering some of IKEA’s more recent scandals – such as the revelations that IKEA systematically spied on its employees in France and how they actively work against unions in North America, at their own stores and at IKEA-owned factories. There have also been reports over the years on how IKEA’s suppliers have exploited child labour in Asia and India, used forced labour in Europe, and clear-cutting forests in environmentally sensitive areas. IKEA is also constructed in such a way that it can use various legal loopholes and techniques to minimises both tax and public disclosure on their profits. Various codes of conducts are clearly not enough to reach greater social responsibility from TNCs. But they are a step in the right direction, and definitely better than nothing. Together with efforts from various NGOs and sufficient media coverage they can help push TNCs in the right direction and lessen the negative effects of GPNs on local communities.