《国际政治经济学》文献资料（Political Economy of Regionalization and Globalization）The Causes of Globalization

Garrett CAUSES OF GLOBALIZATION 955 The evidence in support of this view seems straightforward.In the 1870- 1914 period,the bulk of-and the fastest growth in-world trade was in raw materials (agriculture and minerals),as the industrial revolution reduced the costs for the first industrial nations of extraction and transportation from their colonies.Today,international trade is dominated by manufactures,not only among the OECD countries but both ways between north and south as well. Trade in services was unheard of 100 years ago,but it is of considerable and rising importance these days.The nature of international capital movements also clearly differs between the two epochs of internationalization.Most international lending in the earlier period was directed to raw material extrac- tion and transportation to market,particularly in developing countries.In the contemporary period,international finance supports the gamut of production activities around the globe. The uniqueness of the contemporary international economy is nowhere more apparent than with respect to the multinationalization of production. The basic features of today's multinational firms-captured in management jargon such as breaking up the international value chain and global strategic alliances-have no historical parallels.3 One clear indication of the prolifer- ation of multinational production is the estimate that intrafirm trade (i.e., among international affiliates of the same firm)comprises roughly one third of all global trade (Jones,1996,p.56). One need not embrace all the hyperbole of international management gurus to accept the fundamental point that there does indeed seem to be some- thing new and distinctive about the contemporary era of international market integration.But this only raises the questions of what has caused the mush- rooming of international economic activity in recent decades. TECHNOLOGICAL DETERMINISM The core question addressed in this section is,If governments wish to restrict cross-border economic activity,can they do so?14 The analytic diffi- culty in answering this question is that one cannot draw any firm conclusions about the feasibility of closure from the extent of government interventions designed to insulate domestic markets from international activity.The global 13.For summaries,see Brooks(2000,chap.4)and Dunning(1993,1997). 14.Iconsider the issue in the context ofindividual governments versus market actors.Ifthere were evidence that individual governments are powerless to stop globalization,this would raise the issue of whether international cooperation would be more effective.I will address this ques- tion in a follow-up article,"The Consequences of Globalization." Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

The evidence in support of this view seems straightforward. In the 1870- 1914 period, the bulk of—and the fastest growth in—world trade was in raw materials (agriculture and minerals), as the industrial revolution reduced the costs for the first industrial nations of extraction and transportation from their colonies. Today, international trade is dominated by manufactures, not only among the OECD countries but both ways between north and south as well. Trade in services was unheard of 100 years ago, but it is of considerable and rising importance these days. The nature of international capital movements also clearly differs between the two epochs of internationalization. Most international lending in the earlier period was directed to raw material extrac￾tion and transportation to market, particularly in developing countries. In the contemporary period, international finance supports the gamut of production activities around the globe. The uniqueness of the contemporary international economy is nowhere more apparent than with respect to the multinationalization of production. The basic features of today’s multinational firms—captured in management jargon such as breaking up the international value chain and global strategic alliances—have no historical parallels.13 One clear indication of the prolifer￾ation of multinational production is the estimate that intrafirm trade (i.e., among international affiliates of the same firm) comprises roughly one third of all global trade (Jones, 1996, p. 56). One need not embrace all the hyperbole of international management gurus to accept the fundamental point that there does indeed seem to be some￾thing new and distinctive about the contemporary era of international market integration. But this only raises the questions of what has caused the mush￾rooming of international economic activity in recent decades. TECHNOLOGICAL DETERMINISM The core question addressed in this section is, If governments wish to restrict cross-border economic activity, can they do so?14 The analytic diffi￾culty in answering this question is that one cannot draw any firm conclusions about the feasibility of closure from the extent of government interventions designed to insulate domestic markets from international activity. The global Garrett / CAUSES OF GLOBALIZATION 955 13. For summaries, see Brooks (2000, chap. 4) and Dunning (1993, 1997). 14. I consider the issue in the context of individual governments versus market actors. If there were evidence that individual governments are powerless to stop globalization, this would raise the issue of whether international cooperation would be more effective. I will address this ques￾tion in a follow-up article, “The Consequences of Globalization.” © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

956 COMPARATIVE POLITICAL STUDIES/August-September 2000 trend to declining barriers could be the product either of a voluntary choice by governments to liberalize or of their resignation that they cannot affect cross- border trade,production,and capital movements even if they try.On the other hand,countries that persist with protectionist barriers might do so not because they actually affect economic behavior,but because they send sig- nals of support to constituencies adversely affected by market integration. INTERNATIONAL FINANCE The technological determinism thesis regarding international finance is straightforward (Bryant,1987).Nowhere is globalization's ballyhooed shrinkage of time and space more apparent than in international finance.Ever faster and bigger semiconductors,fiber optics and the Internet have radically cut the costs of transmitting information in the past 20 years.Financiers can literally operate wherever and whenever they like,cutting deals in whatever financial instruments they can dream up.It is the specter of truly footloose liquid capital that generates images of hapless governments seeking to regu- late yesterday's financial instruments within their borders-when the essen- tially homeless market makers they are trying to control have already moved on to newer and more exotic types of transactions. The first piece of evidence cited to demonstrate the difficulty of regulating international financial flows predates the information technology revolu tion.s The euromarkets(financial transactions in a national currency that occur outside the home country)became central to international finance in the mid-1960s when the U.S.government responded to the weakening of America's balance of payments by imposing various policy restrictions on cross-border capital flows.In response,American banks moved their opera- tions to London to avoid the new regulations.16 When faced with the enliv- ened euromarkets that it had unwittingly created,the U.S.government had little choice but to do away with its capital controls,which it did in the early 1970s. There were significant costs to offshore operations in the 1960s in terms of moving the relevant information halfway around the world (e.g.,a 3-minute New York-London telephone call cost more than $30).Nonetheless,Ameri- 15.Foraclear and concise discussion of this case,see Krugman and Obstfeld (1991,pp.605-608). 16.Of course,this would not have been possible had the British government mimicked the American regulations.They had little incentive to do so,however,because Britain could-and did-gain by becoming the world center for offshore financial transactions.Moreover,the Brit- ish government must have known that there would have been many others willing to offer an unregulated environment catering to the offshore activities of American banks. Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

trend to declining barriers could be the product either of a voluntary choice by governments to liberalize or of their resignation that they cannot affect cross￾border trade, production, and capital movements even if they try. On the other hand, countries that persist with protectionist barriers might do so not because they actually affect economic behavior, but because they send sig￾nals of support to constituencies adversely affected by market integration. INTERNATIONAL FINANCE The technological determinism thesis regarding international finance is straightforward (Bryant, 1987). Nowhere is globalization’s ballyhooed shrinkage of time and space more apparent than in international finance. Ever faster and bigger semiconductors, fiber optics and the Internet have radically cut the costs of transmitting information in the past 20 years. Financiers can literally operate wherever and whenever they like, cutting deals in whatever financial instruments they can dream up. It is the specter of truly footloose liquid capital that generates images of hapless governments seeking to regu￾late yesterday’s financial instruments within their borders—when the essen￾tially homeless market makers they are trying to control have already moved on to newer and more exotic types of transactions. The first piece of evidence cited to demonstrate the difficulty of regulating international financial flows predates the information technology revolu￾tion.15 The euromarkets (financial transactions in a national currency that occur outside the home country) became central to international finance in the mid-1960s when the U.S. government responded to the weakening of America’s balance of payments by imposing various policy restrictions on cross-border capital flows. In response, American banks moved their opera￾tions to London to avoid the new regulations.16 When faced with the enliv￾ened euromarkets that it had unwittingly created, the U.S. government had little choice but to do away with its capital controls, which it did in the early 1970s. There were significant costs to offshore operations in the 1960s in terms of moving the relevant information halfway around the world (e.g., a 3-minute New York–London telephone call cost more than $30). Nonetheless, Ameri- 956 COMPARATIVE POLITICAL STUDIES / August-September 2000 15.Foraclearandconcisediscussionofthiscase,seeKrugmanandObstfeld(1991,pp. 605-608). 16. Of course, this would not have been possible had the British government mimicked the American regulations. They had little incentive to do so, however, because Britain could—and did—gain by becoming the world center for offshore financial transactions. Moreover, the Brit￾ish government must have known that there would have been many others willing to offer an unregulated environment catering to the offshore activities of American banks. © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008

Garrett CAUSES OF GLOBALIZATION 957 can bankers thought that the benefits of evading domestic regulation out- weighed these costs.Today,of course,even individual consumers pay less than 50 cents for the same international call.This is why the predicament of governments trying to regulate international capital flows seems even more parlous than was the case 30 years ago.Thurow(1997)describes an infamous 1990s analog of the euromarkets story: The Japanese government tried to prevent the trading of some of the modern complex financial derivatives that depended upon the value of the Nikkei Index in Toyko.As a result,the trading simply moved to Singapore,where it had exactly the same effects on the Japanese stock market as if it were done in Toyko.This was dramatically brought home to the world when a single trader for Barings securities in Singapore (Nick Leeson)was able to place a $29 bil- lion bet on the Nikkei Index and lose $1.4 billion when the index did not trade within the ranges that he expected.(p.72) More generally,very few economists these days believe that governments can effectively control capital outflows(Krugman,1999 is a notable excep- tion).The situation is more complicated with respect to capital inflows. Dooley(1995)concluded from an extensive study of the empirical literature on the 1980s that capital controls did have real consequences for cross-border economic flows.More recently and visibly,key policy makers with exem- plary credentials as academic economists-including the IMF's interim man- aging director,Stanley Fischer(1998);Joseph Stiglitz,former chief econo- mist of the World Bank;and Alan Blinder(1999),former vice chairman of the Board of Governors of the Federal Reserve-have all argued that one clear lesson of the Asian crisis is that capital controls can and should be used to mitigate the adverse affects of volatility and uncertainty in international financial markets. Much of the optimism about the effectiveness of capital controls is based on Chile in the 1990s.Chile is a darling of neoclassical development econo- mists because of its manifestly successful efforts radically to reduce govern- ment intervention in the economy in the past two decades.But one area in which the Chilean government violated neoclassical principles concerned the imposition of capital controls.In 1991,the government imposed the require- ment that all (nonequity)foreign capital inflows be accompanied by a non- interest-bearing 1-year deposit equal to 30%of the initial value of the invest- ment.17 Because the deposit was only for 1 year,it was essentially a tax whose effective cost to investors declined the longer their money stayed in Chile. 17.These controls were ultimately lifted in the aftermath of the Asian crisis Dowrloaded from http://cps.sagepub.com at CORNELL UNIV on February 11.2008 2000 SAGE Publications.All rights reserved.Not for commercial use or unauthorized distribution

can bankers thought that the benefits of evading domestic regulation out￾weighed these costs. Today, of course, even individual consumers pay less than 50 cents for the same international call. This is why the predicament of governments trying to regulate international capital flows seems even more parlous than was the case 30 years ago. Thurow (1997) describes an infamous 1990s analog of the euromarkets story: The Japanese government tried to prevent the trading of some of the modern complex financial derivatives that depended upon the value of the Nikkei Index in Toyko. As a result, the trading simply moved to Singapore, where it had exactly the same effects on the Japanese stock market as if it were done in Toyko. This was dramatically brought home to the world when a single trader for Barings securities in Singapore (Nick Leeson) was able to place a $29 bil￾lion bet on the Nikkei Index and lose $1.4 billion when the index did not trade within the ranges that he expected. (p. 72) More generally, very few economists these days believe that governments can effectively control capital outflows (Krugman, 1999 is a notable excep￾tion). The situation is more complicated with respect to capital inflows. Dooley (1995) concluded from an extensive study of the empirical literature on the 1980s that capital controls did have real consequences for cross-border economic flows. More recently and visibly, key policy makers with exem￾plary credentials as academic economists—including the IMF’s interim man￾aging director, Stanley Fischer (1998); Joseph Stiglitz, former chief econo￾mist of the World Bank; and Alan Blinder (1999), former vice chairman of the Board of Governors of the Federal Reserve—have all argued that one clear lesson of the Asian crisis is that capital controls can and should be used to mitigate the adverse affects of volatility and uncertainty in international financial markets. Much of the optimism about the effectiveness of capital controls is based on Chile in the 1990s. Chile is a darling of neoclassical development econo￾mists because of its manifestly successful efforts radically to reduce govern￾ment intervention in the economy in the past two decades. But one area in which the Chilean government violated neoclassical principles concerned the imposition of capital controls. In 1991, the government imposed the require￾ment that all (nonequity) foreign capital inflows be accompanied by a non– interest-bearing 1-year deposit equal to 30% of the initial value of the invest￾ment.17Because the deposit was only for 1 year, it was essentially a tax whose effective cost to investors declined the longer their money stayed in Chile. Garrett / CAUSES OF GLOBALIZATION 957 17. These controls were ultimately lifted in the aftermath of the Asian crisis. © 2000 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution. Downloaded from http://cps.sagepub.com at CORNELL UNIV on February 11, 2008