Definition of Economic Globalization

 
“[E]conomic globalization,” according to the International Monetary Fund (IMF), “is a
historical process, the result of human innovation and technological progress. It refers to the
increasing integration of economies around the world, particularly through the movement
of goods, services, and capital across borders. The term sometimes also refers to the
movement of people (labor) and knowledge (technology) across international borders.” (in
Benczes 2014, 134; emphasis supplied)
 
From the given definition, globalization is (a) a historical process (meaning, economic
globalization is a phenomenon that has roots in the past, that continues to happen at present, and
will continue to happen in the future—it is an on-going event) and (b) it is a product of human
innovation and technological progress. Note that the definition does not include the growth of
capitalism as a precursor of globalization, unless we consider the growth of capitalism as one of
human innovations, broadly speaking. The definition seems to imply that globalization is an
inevitable, and perhaps unintended, outcome of human innovations and technological progress as
if telling us that there is no idea that directs all these innovations and progress. Do you agree
with this?
 
We can be critical about the definitions given about globalization. We may ask, for
instance, who is defining the term because definition sometimes depends on the interest of the
one who is giving it. Definitions may appear to be neutral at a glance  but upon examination we
may be able to uncover some hidden agenda especially when they are given by powerful bodies
like the IMF.
 
Aside from that, however, we can agree with the IMF’s definition of economic
globalization, which is the continuing integration of the economies of the world into one
global economy through the worldwide movement of goods, services, capitals, labors, and
technologies. In other words, economic globalization is the transformation of previously
dispersed economic activities between and among countries to one of worldwide integration
through the removal of regional and national economic borders giving rise to the unhampered
worldwide flow of people, goods, and services ushered the developments in transportation and
information and communication technologies.
 

  Economic globalization involves the following interrelated aspects: 

         “(1) the globalization of trade of goods and services;  
          (2) the globalization of financial and capital markets;
          (3) the globalization of technology and communication;  and
          (4) the globalization of production.” (Benczes 2014, 134)
 
   Globalization of goods refers to the worldwide movement of goods from and to different
directions. Globalization of services has been intensified because of the development in
information and communication technology. The rise of BPO industry is one example, wherein
services previously given by local workers can now be performed by qualified workers wherever
they may be. COVID-19 pandemic has made the globalization of services even more intensified
as work from home has seemingly become the new normal.
 
 Globalization of financial and capital markets refers to the movements of currencies
through direct and portfolio investments making the world market the playing ground of the
Transnational Corporations.
 
 Globalization of technology and communication means the availability of technologies
all over the world. Everyone in the world may have access to these technologies—computer
most especially—thereby intensifying more economic engagements of people all over the world.
 
 Lastly, globalization of production refers to the system wherein the various parts of a
certain product are manufactured in different parts of the world taking into consideration the
principle of competitive advantage (David Ricardo's principle that states that a country should
focus on a product in which it has better edge than other countries). This also refers to the
worldwide supply chains where a certain company, for example, gets its products from different
countries in the world.
 
 These economic processes are interrelated in the sense that the operation of one
dimension requires that of the other. For example, global trade  and global production cannot
exist without the globalization of transportation and information and communication, vice-versa.

Economic Globalization and Internationalization

 
 Economic globalization is sometimes taken synonymously with internationalization.
This is wrong. Worldwide economic relation is a historical process which transforms from one
stage to another. In the case of internationalization and globalization, the latter may have
developed from the former. While internationalization refers to “the extension of economic
activities of nation states across borders,” globalization refers to the “functional integration
between internationally dispersed activities” (Dicken in Benczes 2014, 134). To
internationalize the economic activities of a nation-state is to extend its production and
distribution to other nation-states. When two nation-states engage in internationalization, they
are governed by the terms and conditions they have mutually agreed upon. To internationalize,
then, is to reach out to borders outside ones own. That is, economic relation is happening
between well-defined economic borders. While internationalization operates respective of
national economic borders, globalization is the removal of these borders, thereby creating one
global market. The role and importance of the nation-states is, consequently, diminished  as it
makes private corporations and individuals as major players in the global market. It is perhaps
based on this understanding that Benczes (2014, 134) calls the transformation in economic
globalization as a qualitative change rather than a quantitative one. Qualitative in the sense that
the transformation is on the kind of economic relations and not simply on the growth of
economic activities. The change is essentially on the system not simply on the volume of
goods produced and distributed and on the number of economic players involved.
 
Szentes aptly captures the concept of economic globalization above when he defines
globalization as “nothing but a process making the world economy an “organic system” by
extending transnational economic processes and economic relations to more and more countries
and by deepening the economic interdependencies among them.” (in Benczes 2014, 134)
 
This definition does not discount the relevance of international, regional, and national
economic relations. It does not claim that only nation-state is “the only unit of analysis and that
current trends in the world economy are simply the redesign of the external relations of
interacting nations. Instead, it claims that economic activities and processes (production in
particular) can be interpreted only in a global context, i.e. in an integrated world economy.”
(Benczes 2014, 134)
 
What this means is that globalization is not incompatible with the existence of
international, regional, and national economic relations. These economic relations may still exist
in a globalized economy. What economic globalization brings is the establishment of a free
world market whose “rules of the game” are not determined by international, regional, and
national players. While these economic relations may exist among nation-states, a bigger and
freer market exists outside them.

As scholars differ in their definitions of globalization, according to Benczes, they also

differ in their ideas on when and how globalization began. However, if globalization refers to the
“organic system of the world economy,” according to him, we must look beyond the last three
decades for its origin. But, how far should we look back, he asks.
 
On one hand, Gills and Thompson (in Benczes 2014, 135), states that globalization
started from the time the Homo sapiens began to populate the world, impliedly claiming that
migration is one of the drivers of globalization. On the other hand, for Frank and Gills (in
Benczes 2014, 135), globalization can be traced back to the existence of the world-system which
existed some 5, 000 years ago. They consider Silk Road, the land routes that connected Asia,
Africa and Europe as proof of the existence of this ancient globalization. However, world-system
analysts, according to Benczes, mark the 16th Century, the start of the long distance trade, as the
origin of modernity and globalization. 
 
Adam Smith considers two historical events as mankind’s greatest achievements:
“the discovery of America by Christopher Columbus in 1492 and the discovery of the direct
sea route to India by Vasco de Gama in 1498.” (Benczes 20124, 135) These achievements,
however, were overshadowed, according to him, by the technological and methodological
developments introduced by the British Industrial Revolution, which spread to Continental
Europe and North America in 1800s.
 
 While international economic integration was slowed down by the adoption of economic
nationalism and monopoly in trade in the 16th and 17th centuries, it gained impetus during the
19th century when “[t]he annual average compound growth rate of world trade saw a dramatic
increase of 4.2 per cent between 1820 and 1870…”(Madison in Benczes 2014, 135) and the
amount of international trade in 1913 was 16-17 per cent of the world income (Held in Benzces
2014, 135). In fact, the period between the last quarter of the 19 th century and the first quarter of
the 20th century, “characterized of relative peace, free trade, and financial and economic stability”
is considered as the “golden age” of globalization (O’Rourke and Williamson in Benczes 2014,
135) . Even sceptics of globalization consider this era as the origin of globalization. The
19th century world economy, according to them, was more integrated than the present one
(Benczes 2014, 135).
   
    Thomas Friedman (2007) has a different take on the history of globalization. For him,
globalization is a historical process that evolved from one stage to another, namely:
Globalization 1.0 (from 1492-1800); Globalization 2.0 (1800-2000); and Globalization 3.0
(2000-onwards). While Friedman believes that globalization is not a new phenomenon, the kind
of globalization that we are experiencing today is unprecedented in intensity. In his book
poetically titled, The World is Flat, Friedman argues that Globalization 3.0 has flattened the
world. And he names ten forces that have flattened the world.
     We shall discuss them in the next section.

   Thomas Friedman (2007) declares that the world is flat or the world has been flattened.
 
    What does he mean by this? 
     
    Flattening the world means that “[the] global competitive playing field was being leveled”
(Friedman 2007: 8), making it "possible for more people than ever to collaborate and compete in
real time with more other people on more different kinds of work from more different corners of
the planet and on a more equal footing than at any previous time in the history of the world—
using computers, e-mail, fiber-optic networks, teleconferencing, and dynamic new software.”
(Friedman 2008: 8)
  
    When the world is flattened, the barriers that separate people all over the world are removed
thereby giving them equal access to the resources of the world. The world is flattened when the
ideological walls that separate the world are removed so that that world has become ideologically
one. The world is flattened when all are given equal access to technology, information, and
resources of the world. The world is flattened when it becomes everyone's field  irrespective of
his/her nationalities.
 
    Friedman enumerates ten (10) significant events that have flattened the world, which have, in
turn, intensified the globalization of goods and services, capitals, and production, namely:
 
       (1) Fall of Berlin Wall
       (2) Introduction of Netscape to the public 
       (3) Invention of Work Flow Software
       (4) Outsourcing
       (5) Offshoring
       (6) Open-sourcing
       (7) Insourcing 
       (8) Supply-chaining
       (9) Informing
       (10) Steroids
 
      Listen to Friedman as he explains these 10 flatteners of the world. 
 https://youtu.be/53vLQnuV9FY

A summary of his book is found in the article he wrote in 2005. Here is the
link: https://www.nytimes.com/2005/04/03/magazine/its-a-flat-world-after-all.html
 
        In the next section, we will try to explain why the collapse of the Berlin Wall is a world
flattening event.  

The short film below describes the historical events that led to the establishment of the Berlin
Wall that divided Germany into two ideologically opposed nation-states: West Germany
(capitalism) and East Germany (communism). It also describes the event that triggered the fall of
the said wall, which led to the reunification of the Germany and, consequently, the ideological
flattening of the world according to Friedman.
 
Watch the film and try to discern how this historic event became a major flattener of the world.   
 https://youtu.be/A9fQPzZ1-hg
 
On November 9, 1989, the Berlin Wall had fallen. But why is this important in the flattening the
world? The fall of Berlin Wall signaled the fall of the Soviet Union and communism as an
ideology. It did not only liberate the people of East Germany, “[it] tipped the balance of power
across the world toward those advocating democratic, consensual, free-market-oriented
governance, and away from those advocating authoritarian rule with centrally planned
economies.” (Friedman 2007: 52)
 
Furthermore, the fall of Berlin Wall “allowed us to think about the world differently—to see it as
more of a seamless whole. Because the Berlin Wall was not only blocking our way; it was
blocking our sight—our ability to think about the world as a single market, a single ecosystem,
and a single community. Before 1989, you could have an Eastern policy or a Western policy, but
it was hard to think about having a "global" policy.” (Friedman 2007: 54)) 
 
“Finally, the fall of the wall," according to Friedman (2007: 54-55), "did not just open the way
for more people to tap into one another's knowledge pools. It also paved the way for the adoption
of common standards—standards on how economies should be run, on how accounting should
be done, on how banking should be conducted, on how PCs should be made, and on how
economics papers should be written.”
In order to appreciate better the nine (9) other flatteners of the world, watch the short film below
about the revolution that happened in information and communication technology. The
revolution that has revolutionized how economic activities are done all over the world.  The
Revolution that has further flattened the world.
 
 https://youtu.be/2nxDkbLRRpw
 
The second flattener of the world, according to Friedman, is the introduction of Netscape to the
public on August 9, 1995. This event is revolutionary for two things: “First, it brought the
Internet alive by giving us the browser to display images and data stored on Web sites. Second,
the Netscape stock offering triggered the dot-com boom, which triggered the dot-com bubble,
which triggered the massive overinvestment of billions of dollars in fiber-optic
telecommunications cable.” (Friedman 2005)
  
The third flattener is the invention of the workflow software which "enabled more people in
more places to design, display, manage, and collaborate on business data previously handled
manually. As a result, work started to flow within and between companies and continents faster
than ever." (Friedman 2007: 79)
 
This third flattener has brought about the six other flatteners: outsourcing, offshoring, open-
sourcing, insourcing,  supply-chaining, and informing.
 
Outsourcing
 
"When my software applications could connect seamlessly with all of your applications, it meant
that all kinds of work -- from accounting to software-writing -- could be digitized, disaggregated
and shifted to any place in the world where it could be done better and cheaper." (Friedman
2005)
 
Offshoring
 
It is the system of putting up factories outside one's country, the operation of which may be
directed from the country of origin.
 
Open-sourcing
 
The system in which engineers, scientists, and other professionals collaborate online in order to
produce something usually for free.
 
Insourcing
 
The system in which the company hires an independent contractor to perform its various
operations. 
 
Supply-chaining
 
"This is Wal-Mart's specialty. I create a global supply chain down to the last atom of efficiency
so that if I sell an item in Arkansas, another is immediately made in China. (If Wal-Mart were a
country, it would be China's eighth-largest trading partner.)" (Friedman 2005)
 
Informing
 
"[T]his is Google, Yahoo and MSN Search, which now allow anyone to collaborate with, and
mine, unlimited data all by themselves." (Friedman 2005)
 
Steroids
 
"[T]hese are wireless access and voice over Internet protocol (VoIP). What the steroids do is
turbocharge all these new forms of collaboration, so you can now do any one of them, from
anywhere, with any device." Friedman 2005)

References
Benczes, Istvan (2014). The Globalization of Economic Relations. In The Sage Handbook of
Globalization. Eds: Manfred Steger, Paul Battersby & Joseph Siracusa. London: Sage
Publications Ltd.
 
Friedman, Thomas (2007). The World is Flat: A Brief History of the Twenty-first Century: New
York: Picador.
 
Friedman, Thomas (2005). The World is Flat, After All. The New York Times
Magazine: https://www.nytimes.com/2005/04/03/magazine/its-a-flat-world-after-all.html Access
ed: September 27, 2020
Suggested Readings
A. Global Corporation
 
/files/602722/Global_Corporation.pdf/files/602722/Economic_Relations.pdf
 
The Globalization of the Economic Relations
/files/602722/Economic_Relations.pdf
 
Economic Dimension of Globalization
/files/602722/Economic_Globalization.pdf