Globalization: Prerequisites, Effects, Resistances 3658417161, 9783658417161

Table of contents :
Contents
1 Introduction
1.1 Globalization on the Brink?
1.2 Preliminaries to the Concept of Globalization
1.3 Definitions of Globalization and Their Problems
1.4 What’s New about the Current Globalization Phase
1.5 Measurement of Globalization
References
2 Globalization and Technological Development: Production, Transport and Communication
2.1 Overview
2.1.1 Globalization as a Result of Technological Change
2.1.2 Manufacturing Technology
2.1.3 Transport
2.1.4 Communication
2.2 Industrial Revolution and Globalization
2.3 Industry 4.0: Future Perspectives
2.4 Technology and Socio-Economic Development
References
3 Political Globalization: Democracy, International Organizations and Global Civil Society
3.1 General Relationships
3.2 Political Causes of Globalization
3.3 The Role of International Organizations in Globalization
3.4 The Role of International Civil Society in Globalization
References
4 Trade
4.1 Development of World Trade
4.2 The Expansion of Foreign Trade and Its Causes
4.3 Motives for Global Trade Liberalization
4.4 What are the Reasons for the Resistance to Trade Liberalization?
4.5 Distribution of Foreign Trade Gains
References
5 Foreign Investment
5.1 Foreign Investment, in Particular by Transnational Corporations: Development and Focus
5.2 Increase in Foreign Investment and Its Causes
5.3 Scope and Distribution of Foreign Investment
5.4 The Splitting of Value Chains by International Corporations
5.5 Causes of the Increase in Private Foreign Investment
5.6 Effects and Problems of Foreign Investment
References
6 International Finance
6.1 The Development and Structure of Global Financial Markets
6.2 The International Capital Market Today
6.3 Benefits of the Internationalization of Capital Flows
6.4 Problematic Effects of Open Financial Markets
6.5 Regional and International Financial Crises
6.6 Crisis Prevention
References
7 Migration and Globalization
7.1 Introduction
7.2 Extent and Geographical Distribution of Refugee and Migration Flows
7.3 Causes of Refugee and Migration Movements
7.4 Consequences of Migration for the Host Countries
7.5 Consequences of Migration for Countries of Origin
7.6 The Future of Migration
References
8 Globalization and Employment
8.1 Introduction
8.2 The Empirics of Employment Worldwide
8.3 Wage Share and Polarization of Labor Markets
8.4 Employment and the Rise of Emerging Economies
8.5 Creation/Destruction of Jobs Through Automation
References
9 Globalization and Income Distribution
9.1 What is Problematic About Unequal Distribution?
9.2 Possible Links Between Globalization and Distribution
9.3 Measuring Global and Intra-state Inequality
9.4 The Development of Inequality Worldwide and Within Countries
9.4.1 Global Inequality
9.4.2 Regional/Interstate Inequality
9.5 Globalization as the Main Cause of Income Concentration?
9.6 Solutions
References
10 Statehood
10.1 General
10.2 Globalization and Taxation
10.3 Reasons for Continued Taxability
10.4 So No Tax Policy “Race to the Bottom”?
References
11 Globalization and the Welfare State
11.1 Problem Statement
11.2 The Theoretical Relationship Between Globalization and the Welfare State and Its Verification
11.3 To the Current Social Policy Empirics
11.4 Deficits in Social Security in the North and South
References
12 Globalization and Democracy
12.1 General
12.2 The Spread of Democratic Systems in the Second Globalization Wave
12.3 International Organizations, Civil Society and Democracy
References
13 Globalization and Culture
13.1 General
13.2 Different Positions on Cultural Globalization
13.3 The Empirics of Cultural Convergence
13.4 The Global Culture Market
References
14 Globalization and Its Opponents
14.1 Opponents of Globalization
14.2 Election Successes of Populist Parties
14.3 Explanatory Patterns of Populist Success
14.3.1 The Socio-Economic Explanation
14.3.2 The Culturalist Explanation
14.3.3 The Political Science Approach
14.4 The Lack of Success of Left-Wing Populists
References
15 Global Governance
15.1 Global Governance as a Necessary Counterpart to Globalization
15.2 Global Public Goods
15.3 The Emergence and Expansion of Complex Global Governance
15.4 The Empirics of Global Governance
15.5 The Criticism of Global Governance
15.6 Failure of the Liberal World Order?
References
16 Drying up of Globalization Sources or Resilience
16.1 The Empirics of Deglobalization
16.2 Alternatives to Globalization?
References

Citation preview

Joachim Betz · Wolfgang Hein

Globalization Prerequisites, Effects, Resistance

Globalization

Joachim Betz · Wolfgang Hein

Globalization Prerequisites, Effects, Resistance

Joachim Betz GIGA Institut für Asien-Studien Hamburg, Germany

Wolfgang Hein GIGA Institut für Lateinamerika-Studien Hamburg, Germany

ISBN 978-3-658-41716-1 ISBN 978-3-658-41717-8  (eBook) https://doi.org/10.1007/978-3-658-41717-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Contents

1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Globalization on the Brink?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Preliminaries to the Concept of Globalization. . . . . . . . . . . . . . . . 5 1.3 Definitions of Globalization and Their Problems . . . . . . . . . . . . . 6 1.4 What’s New about the Current Globalization Phase. . . . . . . . . . . 9 1.5 Measurement of Globalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2

Globalization and Technological Development: Production, Transport and Communication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.1.1 Globalization as a Result of Technological Change . . . . 21 2.1.2 Manufacturing Technology . . . . . . . . . . . . . . . . . . . . . . . 23 2.1.3 Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.1.4 Communication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.2 Industrial Revolution and Globalization . . . . . . . . . . . . . . . . . . . . 27 2.3 Industry 4.0: Future Perspectives. . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.4 Technology and Socio-Economic Development. . . . . . . . . . . . . . 37 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3

Political Globalization: Democracy, International Organizations and Global Civil Society. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.1 General Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.2 Political Causes of Globalization. . . . . . . . . . . . . . . . . . . . . . . . . . 44 3.3 The Role of International Organizations in Globalization. . . . . . . 47 3.4 The Role of International Civil Society in Globalization . . . . . . . 53 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

V

VI

Contents

4 Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4.1 Development of World Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4.2 The Expansion of Foreign Trade and Its Causes. . . . . . . . . . . . . . 66 4.3 Motives for Global Trade Liberalization. . . . . . . . . . . . . . . . . . . . 68 4.4 What are the Reasons for the Resistance to Trade Liberalization?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 4.5 Distribution of Foreign Trade Gains . . . . . . . . . . . . . . . . . . . . . . . 72 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5

Foreign Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 5.1 Foreign Investment, in Particular by Transnational Corporations: Development and Focus. . . . . . . . . . . . . . . . . . . . . 77 5.2 Increase in Foreign Investment and Its Causes . . . . . . . . . . . . . . . 79 5.3 Scope and Distribution of Foreign Investment. . . . . . . . . . . . . . . 81 5.4 The Splitting of Value Chains by International Corporations. . . . 84 5.5 Causes of the Increase in Private Foreign Investment. . . . . . . . . . 86 5.6 Effects and Problems of Foreign Investment. . . . . . . . . . . . . . . . . 88 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

6

International Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 6.1 The Development and Structure of Global Financial Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 6.2 The International Capital Market Today . . . . . . . . . . . . . . . . . . . . 96 6.3 Benefits of the Internationalization of Capital Flows . . . . . . . . . . 98 6.4 Problematic Effects of Open Financial Markets . . . . . . . . . . . . . . 100 6.5 Regional and International Financial Crises . . . . . . . . . . . . . . . . . 104 6.6 Crisis Prevention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

7

Migration and Globalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 7.2 Extent and Geographical Distribution of Refugee and Migration Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 7.3 Causes of Refugee and Migration Movements . . . . . . . . . . . . . . . 119 7.4 Consequences of Migration for the Host Countries. . . . . . . . . . . . 120 7.5 Consequences of Migration for Countries of Origin. . . . . . . . . . . 122 7.6 The Future of Migration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Contents

VII

8

Globalization and Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 8.2 The Empirics of Employment Worldwide. . . . . . . . . . . . . . . . . . . 128 8.3 Wage Share and Polarization of Labor Markets . . . . . . . . . . . . . . 131 8.4 Employment and the Rise of Emerging Economies . . . . . . . . . . . 136 8.5 Creation/Destruction of Jobs Through Automation. . . . . . . . . . . . 138 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

9

Globalization and Income Distribution . . . . . . . . . . . . . . . . . . . . . . . . 145 9.1 What is Problematic About Unequal Distribution?. . . . . . . . . . . . 145 9.2 Possible Links Between Globalization and Distribution. . . . . . . . 147 9.3 Measuring Global and Intra-state Inequality. . . . . . . . . . . . . . . . . 152 9.4 The Development of Inequality Worldwide and Within Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 9.4.1 Global Inequality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 9.4.2 Regional/Interstate Inequality . . . . . . . . . . . . . . . . . . . . . 155 9.5 Globalization as the Main Cause of Income Concentration?. . . . . 161 9.6 Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

10 Statehood. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 10.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 10.2 Globalization and Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 10.3 Reasons for Continued Taxability. . . . . . . . . . . . . . . . . . . . . . . . . 172 10.4 So No Tax Policy “Race to the Bottom”? . . . . . . . . . . . . . . . . . . . 174 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 11 Globalization and the Welfare State. . . . . . . . . . . . . . . . . . . . . . . . . . . 181 11.1 Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 11.2 The Theoretical Relationship Between Globalization and the Welfare State and Its Verification . . . . . . . . . . . . . . . . . . . 182 11.3 To the Current Social Policy Empirics. . . . . . . . . . . . . . . . . . . . . . 185 11.4 Deficits in Social Security in the North and South . . . . . . . . . . . . 189 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 12 Globalization and Democracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 12.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 12.2 The Spread of Democratic Systems in the Second Globalization Wave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 12.3 International Organizations, Civil Society and Democracy. . . . . . 203 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

VIII

Contents

13 Globalization and Culture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 13.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 13.2 Different Positions on Cultural Globalization. . . . . . . . . . . . . . . . 214 13.3 The Empirics of Cultural Convergence. . . . . . . . . . . . . . . . . . . . . 218 13.4 The Global Culture Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 14 Globalization and Its Opponents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 14.1 Opponents of Globalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 14.2 Election Successes of Populist Parties. . . . . . . . . . . . . . . . . . . . . . 226 14.3 Explanatory Patterns of Populist Success . . . . . . . . . . . . . . . . . . . 228 14.3.1 The Socio-Economic Explanation. . . . . . . . . . . . . . . . . . 228 14.3.2 The Culturalist Explanation. . . . . . . . . . . . . . . . . . . . . . . 231 14.3.3 The Political Science Approach. . . . . . . . . . . . . . . . . . . . 233 14.4 The Lack of Success of Left-Wing Populists. . . . . . . . . . . . . . . . . 236 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 15 Global Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 15.1 Global Governance as a Necessary Counterpart to Globalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 15.2 Global Public Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 15.3 The Emergence and Expansion of Complex Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 15.4 The Empirics of Global Governance. . . . . . . . . . . . . . . . . . . . . . . 249 15.5 The Criticism of Global Governance. . . . . . . . . . . . . . . . . . . . . . . 250 15.6 Failure of the Liberal World Order?. . . . . . . . . . . . . . . . . . . . . . . . 254 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 16 Drying up of Globalization Sources or Resilience. . . . . . . . . . . . . . . . 259 16.1 The Empirics of Deglobalization. . . . . . . . . . . . . . . . . . . . . . . . . . 259 16.2 Alternatives to Globalization?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

1

Introduction

At the end of the 1980s, academic, political and media attention increasingly focused on globalization, perceived as a new phenomenon and predicted to have an inexorable spread. Recently (since around 2015), this optimism has been replaced by predictions of a reversal or at least stagnation of processes of increasing global economic networking and a partial deglobalization/renationalization. Both predictions require clear concepts of what is meant by globalization and how it differs from earlier processes of cross-border interaction. This makes it possible to locate globalization in time, to decide which regions, sectors and population groups are involved in this, strongly, less or not at all, and to attribute positive/negative social effects to these globalization processes. This attempt should be made through the present textbook, though its main goal is not to define globalization, to describe its history in detail, to list the actors, organizations and social groups involved and to portray descriptively which specific phenomena can be defined as globalization-related. This has already been done by numerous other, quite commendable works, in sufficient detail. The aim of this textbook is rather to show the prerequisites and economic, social, political and cultural consequences of globalization processes empirically and to separate these from other influencing factors as far as possible. So this textbook should primarily show what globalization has “brought us” or failed to do and thus make its support or rejection plausible to the interested public. In the course of the discussion (hopefully) it will become clear that globalization can not be held responsible for all, if also some conditions of this world, which moreover differ according to countries and regions, social groups, more or less qualified workers and social/economic areas in significant ways. Included in the analysis should be primarily those processes/areas in which globalization really makes a difference, or in which only international/global cooperation © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_1

1

2

1 Introduction

promises solutions to problems that arise from the independent actions of national/ regional actors for the world community. First, therefore, the rapid technological progress, the politically enforced deregulation of foreign trade and direct investment, the internationalization of the capital market and generally the political factors which supported or even made these processes possible are to be examined. It should be made clear that some fields were included to a different extent or almost not at all in globalization, such as the free migration of labor, and also that different countries and regions have integrated in specific ways into the world economy and world society. Subsequently, the consequences of the current globalization with regard to employment, income distribution, taxation and social security systems, and the maintenance of democratic order are shown, and (in a preliminary way) the negotiation progress in some areas of global interdependence, which can only be satisfactorily brought to a solution with global approaches. Finally, the resistance to continued globalization is examined and it is asked whether this may have already peaked and—related to this—whether the resilience of the nation state and the social classes supporting it has been underestimated in the face of the challenges of globalization. We could have packed more topics into this textbook, for example the connection between globalization and environmental issues, between globalization, security and wars, etc. But this book should not be an encyclopedia of world problems, but rather focus on those areas where globalization makes a difference. Civil wars would probably exist even without increasing global interdependence, and the climate crisis would probably also exist, although possibly not to this extent. Therefore, the structure of this book is also (hopefully to a limited degree) arbitrary; but it can hardly be otherwise.

1.1 Globalization on the Brink? First, however, to determine the starting point related to the latter question: In recent years, a number of new monographs and numerous articles have been published predicting the end of the current globalization wave or at least its decline (see, for example, Mallaby 2016; O’Sullivan and Subramanian 2017; Crouch 2019; Green 2019; Hüther et al. 2018; Walter 2021), at the latest since the Global Financial Crisis or the outbreak of the Corona pandemic (Farrell and Newman 2020). The authors base this on (a) the political gains of numerous right-wing and left-wing populist and naturally anti-globalization parties in Western industrial countries and also in many developing countries, which (b) when they came to power, tried to turn the wheel back, that is, tried to obstruct or suppress the

1.1  Globalization on the Brink?

3

international civil society, slow down international and national media in their reporting, generally restrict freedom of opinion and—if still necessary—tried to overthrow the separation of powers and minority rights. (c) This was accompanied by a withdrawal from international agreements (such as the Paris Climate Convention) or their blockade (such as the WTO dispute settlement mechanism), the suspension of new global and regional trade agreements, the increase in protectionist measures against imports, the partial relocation of companies, the stronger regulation of immigration from abroad and partly the pursuit of a more power-political, mainly nationally colored foreign policy. In general, the mistrust of these forces in cross-border forums of cooperation increased, even within the European Union. (d) These political changes were partly based on broad popular, anti-globalization approval, especially in some Western countries, where in many cases the loss of jobs, the stagnation of real wages and other problems were blamed on globalization, in particular the outsourcing of work to low-wage countries and the competition for wages and jobs through the increase in migration. (e) The gain of populist parties was paired with a progressive erosion of democratic regimes (towards illiberal or even facade democracies), which has been observed for more than a decade, and more recently also with the further hardening of authoritarian rule in many countries and the resumption of civil wars since about 2006. This is significant because there has always been a close connection between unimpeded economic exchange, political openness and social consensus or peacefulness. Economically, too, the process of globalization seems to have reached its zenith: global economic growth is moving more and more sideways, the share of goods and services trade in global GDP has been stagnating for some years, foreign direct investment is being regulated more strongly again, the increase in overall economic productivity is far below the promises of new technologies, the creation of additional jobs has been kept within tight limits worldwide and a significant proportion of them are precarious, only partially regular employment relationships. This was also associated with only moderate gains or even losses in the share of industry in gross domestic product (GDP) in many “emerging” economies, earlier than in the classical industrial nations at a comparable level of development (Keller 2016; Rodrik 2016). The international capital market also suffered—at least for a time—from the aftermath of the Global Financial Crisis 2008 onwards. Worldwide, there are numerous initiatives to regulate it more strongly or to make it more costly and difficult through new national/international taxation procedures. There is no need to talk about the third pillar of economic globalization—the international mobility of workers—in view of the strong and further increasing obstacles worldwide. Finally, even a number of major eco-

4

1 Introduction

nomic powers have recently switched to a policy of strengthening domestic consumption in relation to foreign trade (e.g. China), others more recently also to gain economic independence from and protection against the possible risk of interruption of international value chains (in the wake of the Corona pandemic) or the supply of energy sources. One must not exaggerate the possible endangerment of the globalization process by these and related factors—a complete return to closed (national) political and economic spaces is very unlikely—but the earlier positively or fatalistically sounding expectation of further, inevitable globalization has nevertheless received a noticeable damper. It is certainly in stark contrast to the mood at the beginning of the current globalization acceleration (from the beginning or middle of the 1990s), when most academic and political observers assumed its alternative-less extension and intensification, with alleged, unpleasant political and social side effects. In this process, some observers claimed, power would shift from state apparatus to private companies or actors through systematic privatization, liberalization and deregulation (Lisbon Group 2001), some authors even predicted a large (Strange 1996) or even complete loss of national authority and regulatory capability (Ohmae 1991). As a significant cause of this assumed loss of power of state apparatuses, the exit options of economic actors from the national market and the decreasing chances of governments to generate the financial resources necessary for their operation and for the social security of the population (specifically through taxes on companies) were identified (World Commission on the Social Dimension of Globalization 2004) therefore, a “race to the bottom” in social and fiscal policy would be imminent. National states would no longer be able to maintain the value of money and autonomously control economic activity in the country because of the internationalization of currency areas and the global business cycle; infrastructure would increasingly be provided by private providers; the state monopoly of violence would be undermined by international criminal or terrorist networks. For critical observers, it was and is clear that globalization also undermines liberal democracy within the framework of the nation state, because governments can hardly hold private economic actors accountable for their transnational options, and because they can hardly implement countercyclical policy or compensatory social policy against their resistance (Altvater and Mahnkopf 1997; Strange 1996; Habermas 1998; George 2004). The ‘alternative-less’ prognosis of continued globalization was paired with the assumed inevitability of intensified international cooperation in coping with challenges that cross national borders and can therefore no longer be coped with nationally, or with the necessary, successive outsourcing of political rule-making competences to the international or at least regional level, including the further

1.2  Preliminaries to the Concept of Globalization

5

juridification of international politics, so that the actual validity of international agreements, based on a growing and more influential transnational civil society, is guaranteed. All this was mostly subsumed under the heading of ‘global governance’ or ‘governing beyond the nation state’. At least these prospects were perceived positively, because they allegedly ensured the pacification of international politics and the provision of the necessary global public goods (the prime example of which is the mitigation of climate change). Most critical observers of these developments were in agreement for a long time in terms of the unequal distribution of possible globalization gains at the national and global level; these would be concentrated on the established industrial nations, within which the lion’s share of private investment and other capital flows would be made, which would furthermore be able to expand their lead in knowledge, while the latecomers would be hindered by protectionism (German Bundestag 1999). In particular, Africa would be left behind in global networking (Kappel 2000, 2003; Tetzlaff 2000). In addition, the internal distribution of income in the globalization process has generally shifted in favor of the privileged with connections to transnational corporations and the modern sector as a whole, while the rest has been pushed back onto increasingly precarious employment relationships. This inevitably also worsens the distribution of income (World Commission on the Social Dimension of Globalization 2004). Finally, the global integration of markets would also contribute to the destruction of the environment (Steger and James 2019).

1.2 Preliminaries to the Concept of Globalization Before we can enter the debate on the scientific justification of positive or skeptical future predictions for the further course of globalization, it is necessary to clarify what globalization can mean definitionally and which useful, reliable and valid measuring instruments are available for its development over time and across countries and regions. It must also be discussed whether globalization processes should be examined primarily in economic terms or whether social, political and cultural globalization processes should also be included. Only a relatively precise definition of globalization makes it possible to decide how far states/regions/companies/social groups have progressed in this process and at what time or over what period of time one can set its beginning. After all, it makes no sense to talk about the consequences of globalization if the units to be examined have not yet or only very limitedly embarked on the globalization path, that is, if they have maintained obstacles to the global integration of their societies. In this case only or primar-

6

1 Introduction

ily national or even local factors can be held responsible for positive or negative social developments. It is also not really meaningful to hold globalization solely responsible for socio-economic or technologically induced structural changes that would probably have occurred even without it, such as the transition to service societies, the greater use of digitally controlled processes, etc. Even with complete global networking, considerable local, national or regional political and social decision-making scope remains, which—as subsequent chapters show—is also used. This is already the case because, for example, of transport costs and productivity differentials (even when using the same or similar production processes) and because a larger part of goods and services is not tradable and probably never will be. Conclusion: One can legitimately not hold globalization responsible for all different development failures, especially if regions/countries have only limitedly engaged in it or if the causes of failures are mainly on a national/local level. However, it is not always easy to separate this. Two further remarks are necessary: In this book, terms such as industrialized and developing countries, Global North and South will be used, even though these groups internally vary considerably in terms of development, economic structure and growth, statehood, good governance and democratic progress. Many so-called developing countries have high social and economic dynamics, have overtaken some of the slower-growing industrialized countries. A clear line between these groups can hardly be drawn anymore. In addition, both groups are subject to the same global political and economic forces, so that the separate treatment makes little sense. It also does not really help to use the terms Global South or North or emerging economies instead of developed or industrialized countries, because not all industrialized countries are in the northern hemisphere and not all developing countries are on the rise, few are rather on the decline. In the absence of better terms, the traditional ones should therefore be used, even if we are aware of their shortcomings. Also, the talk of (partially homogeneous) nation-states is not always convincing when state sovereignty begins to erode under the influence of global economic, political and cultural forces and developments (more on this later).

1.3 Definitions of Globalization and Their Problems Common definitions of globalization often reduce this to the economic sphere and understand it to mean the growing global interdependence and networking of all societies on Earth through trade, capital, labor and ideas, often measured as the share of foreign trade, capital inflows and outflows in the GDP of the econo-

1.3  Definitions of Globalization and Their Problems

7

mies involved, payments for foreign technologies and patents and net immigration of workers (Wolf 2004; Huwart and Verdier 2014; Koch 2014; Bergh et al. 2017; OECD 2018; Catao and Obstfeld 2019; Steger 2020). Other, more sociopolitically oriented approaches include the flow of information, cross-border environmental effects, the weakening or undermining of national sovereignty, and the “killing” of distance in the globalization process (Beck 1997). This could be supplemented by the extension of international agreements, regimes and organizations, the increase in globally operating non-governmental organizations (NGOs) and the cultural or social media-controlled networking of people everywhere. Sometimes chemical metaphors are used in such attempts at definition (the “liquefaction” of formerly physically bound connections worldwide) in order to grasp globalization (Ritzen and Dean 20192). None of these definitions captures all the facets of multidimensional globalization and its different reach in terms of regions/areas. They also don’t really help to determine the causes of rising global connectivity and its progress, or even to determine the beginning of the globalization wave. In general, it should be noted that the introduction of the term “globalization” only makes sense if it is something else and more than just the continuation or increase of the cross-border exchange of goods that has existed for centuries. Also something else than the frequent privatization of companies, the deregulation and liberalization of the economy within the national framework, or the “triumphal march” of the capitalist (neoliberal-organized) market economy and/or the global Westernization of societies (Reinicke 1998). The term “globalization” suggests that transnational interactions are assuming a global character, that they can no longer be controlled, fenced in or driven forward solely by national agencies. Furthermore, this is associated with the fact that new, transnational actors are impacting on national societies, eroding their sovereignty or even undermining it from within. This is something different from the undermining of sovereignty through defeats in the traditional struggle between national societies for regional/global dominance. However, this juxtaposition also shows that the loss of internal sovereignty in the globalization process can only be talked about if statehood was largely given beforehand. Only in the case of consolidated states does the talk of a loss of sovereignty make sense. If one uses the usual globalization indicators, it appears that they already reached a considerable level during the period from the 1870s to the First World War—in the following referred to as the first globalization phase—and then fell sharply again, so that the current globalization wave is not really new. This is the view, for example, of Martin Wolf (2004). However, it must be admitted that these indicators exceeded the level of 1913 again from the 1980s onwards. Some authors solve this problem by assuming two globalization waves (the present one

8

1 Introduction

and that before the First World War), while others set the beginning of globalization with the discovery of America (Frank and Gills 1996) or the emergence of the first high cultures. This is done above all by many neo-Marxist authors who only see globalization as the (hopefully) last stage of capitalism that is subjugating the whole globe (instead of many and with reference to the relevant literature here Steger and James 2019; Moghadam 2021). Economically speaking, this is completely absurd. Cross-border exchange in earlier times between more or less stationary societies with very weak national statehood was limited to luxury goods for a tiny elite, solely because of excessive transport costs (at least until 1820), never exceeded 2% of the GDP of the participating countries (see Maddison 2001) and could therefore hardly have any significant impact on their internal development. Cross-border private investments were unknown before the late 18th century, capital raising on international financial markets was limited to a small number of countries that industrialized early on. Lastly, large parts of the world (China, India, Russia, Africa, etc.) were hardly or not at all integrated into the international economy before the middle of the 19th century. In a fully globalized world economy, leaving transport costs aside, prices would be the same everywhere, and wages would converge accordingly in the area of tradable goods and services. There should only be differences in interest rates to balance out inflation rates and expected changes in exchange rates, and no obstacles whatsoever to the establishment of workers outside national borders. International organizations should be authorized to prescribe and enforce legally binding regulations for all global problems that cannot be solved at lower levels, and in the cultural sphere, a dominant world culture should have spread with only weak local manifestations, borders should be irrelevant for contacts/communication among people worldwide. These are very demanding indicators. It is quite obvious that we are still miles away from this state today, not to mention earlier times. However, a certain convergence of prices has been observed since 1820, albeit by no means for all products (O’Rourke and Williamson 2002), and convergence of interest rates was not possible before the liberalization of capital movement, which began in the established industrial countries in the 1970s and is not yet complete in developing countries. The liberalization of foreign direct investment has progressed, but by no means everywhere and is already declining again. There is no need to even talk about the worldwide mobility of workers, and the transfer of national competences to regional or international organizations has only been partially successful. In the end, communication and cultural exchange still takes place mainly within national borders, despite the availability of media with global reach. Conclusion: Globalization cannot

1.4  What’s New about the Current Globalization Phase

9

be treated as a realized end product, but only as a process that has progressed to different degrees in different sectors and countries. Not all sectors, countries, and social groups are equally involved in the globalization process, not completely and not everywhere has the national context given way to a global one to the same extent, in some cases it has even been strengthened. Perhaps it would be better, therefore, to talk about denationalization that has progressed to different degrees in different areas, as Stephan Leibfried and Michael Zürn (2006) do, rather than about generalized globalization.

1.4 What’s New about the Current Globalization Phase In order to identify the new in the current, second globalization phase, it is first necessary to check where and to what extent reliable indicators in comparison to the first phase (1870/80 to 1914) show a qualitative change in the globalization process. a) First of all, similar to the first phase, the further falling transport and communication costs for the exchange of goods, services and ideas (for the first phase O’Rourke and Williamson 2002, for the more recent development UNCTAD 2020b), catch the eye. These costs have now fallen so far that they are only of minor importance for goods traffic, but no longer play any role for the worldwide communicative networking of administrations, companies, global social movements, etc. This makes the globally coordinated division of production processes (the splitting of value chains), the mobilization of political actors for global goals, the coordination of worldwide programs and other activities cheap, effective and only to a limited extent susceptible to interference attempts. Technical infrastructure includes, for example, the reduction in rail and sea freight costs through the introduction of standard containers, the construction of transcontinental or satellite-based communication links, the use of the Internet for e-commerce and e-government (see chapter Globalization and Technology). Of course, the use of these technological innovations is not universal, but separated by a (albeit decreasing) digital divide. Poorer parts of the world, less privileged social groups and also small businesses are still only partially included. b) The importance of ‘intangible capital’, i.e. the growth of digitally supported production and services through computer-based programs, artificial intelligence and the Internet of Things, is rapidly increasing. Intangible is this

10

1 Introduction

capital because it is not based on tangible values (machines, buildings, etc.), but essentially on software, digital networking and ideas. This does not prevent the stock market value of corresponding companies from now exceeding that of classical industrial companies and their value creation in the USA and Great Britain (Haskel and Westlake 2018). The factors mentioned under (a) and (b) are the technological preconditions for expanding globalization. They make distance shrink and allow almost complete spatial separation of the conception, production and consumption of goods and services (Baldwin 2016). c) But there are also essential, politically conditioned preconditions for the stronger networking of the world, namely the reduction of the once high, politically imposed barriers to the cross-border flow of goods, services and capital. These include the reduction of tariffs and later (limited) also the non-tariff trade barriers within the framework of trade liberalization rounds within the GATT (later the WTO) after the Second World War. These have now fallen to a level in the industrialized countries that can no longer deter foreign competitors from entering the market, but have also declined significantly in most developing countries, though there they are still at a higher level. From the mid-1980s onwards, at least in the classical industrialized countries, capital controls were abolished; since then, foreigners have been able to acquire or dispose of financial assets almost unlimitedly within the country. Later, many developing countries also participated in this deregulation, often under pressure from the International Monetary Fund following the debt crisis. In the end, the governments of many countries have reduced the once strict regulation or hindrance of private foreign investment or set up special economic zones where these do not apply. However, despite all the loosening, the investment regime in the Global South is still significantly more restrictive than elsewhere.; Interestingly, leaders in limiting permissible foreign ownership stakes in domestic companies and other restrictions (especially those relating to the use of domestic inputs) are also developing countries with high inflows of foreign direct investment, such as China, India, Indonesia and Thailand (Thomsen and Mistura 2017). However, it should be emphasized that globalization was also and above all a politically desired project. State actors promoted it, but they could also have prevented it or reversed it (if they had accepted the costs). Also in the second wave it was therefore not inevitable or without alternative. d) Closely related and also politically caused, market-oriented economic policy orientations have spread worldwide, later even in formerly socialist states (in China from 1978, in the former Eastern Bloc from 1989 ff.). This was

1.4  What’s New about the Current Globalization Phase

11

associated with nationwide privatizations of state-owned companies, internal deregulation measures and the reduction of state controls, all of which broadened the scope of action for private investors (Wolf 2004). The result of technological developments and economic policy agendas was first of all the strong resumption of international trade (not only in relation to global GDP) significantly above the level of 1913. In addition, its character has changed compared to the first globalization wave. First, the group of trading, nonisolated economies has increased enormously since the Second World War simply because numerous former colonies became independent states and the economic counter-proposal (central planning) later collapsed or was dissolved. Secondly, numerous new participants in the international market have significantly increased their share in world imports and exports. They have been exporting long since not only t raw materials in exchange for capital goods and luxury goods. Some of them are now among the most important exporters of finished goods and also technologically demanding products. Third, trade in complementary products (which can only be replaced poorly by domestic production, for example raw materials in exchange for capitalintensive manufactured goods and investment goods) has shrunk in favor of the exchange of substitute products (for example German against French automobiles) and in particular the trade in intermediate goods and raw materials for production elsewhere. A decisive new point is fourth, that a large part of the trade is carried out within the same company or with companies that are dependent on this. This is the result of the cost-saving division of the production process (mostly within transnational companies or supply chains) into a number of locations, each of which has a cost advantage for certain manufacturing stages. Because of this, the national market for export products and companies loses much of its importance (Koch 2014; BIS 2017). Finally, services are also exported or imported to a greater extent in the current globalization phase. This has to do, but to a limited extent, with the gradual liberalization of the corresponding sector in many countries, but even more with technological developments (internet trade), which made location-dependent services exportable. e) With the splitting of value chains, the character of foreign private investment has also changed. In the past, they financed—also to circumvent high import barriers in the host country—the establishment of more or less complete and identical production facilities there, today, however, primarily the production of product parts in different locations with the concentration of the demanding production stages in the more developed economies. The dominant actors of international trade, private direct investment and technology

12

1 Introduction

transfer are today the transnational companies. Their number has increased massively (to over 82,000), their share in global production was (2016) 36%, in exports 64%, in global GDP 32% (De Backer et al. 2019). What is new is that they no longer just establish branches everywhere for the production of always the same range of goods and services, but break down the production process and identify the most favorable locations for each sub-task. What is new is also that developing and emerging countries have caught up with the established industrial nations in private foreign investment (and overtook them for the first time in 2012), what is new is also that emerging countries (with China in the lead) or their companies have become important foreign investors themselves (UNCTAD 2020a). The strong inflow of private investment capital into the Global South is essentially due to their more marketfriendly economic policy and their growing domestic markets, in particular the removal of investment restrictions. This inflow continued until recently, but has lost momentum in the last five years, even in industrial countries, as growing political resistance to the takeover of technology-intensive companies by foreign corporations shows. f) While poorer countries used to be solely dependent on state development cooperation and—in times of crisis—on bridging loans from the IMF to finance economic and social development, they have since become important borrowers from international banks, have placed state and corporate bonds in foreign and domestic currency on capital markets, while global investment funds have bought into their listed companies through portfolio investments. The inflows from these sources as well as the remittances of migrants from the global south now exceed the transfers through development cooperation many times over. But overall, global financial interdependence has increased massively with the liberalization of capital movement and financial innovations. The corresponding claims against industrial countries have risen from less than 80% of their GDP (1995) to more than 290% (2015). The largest financial institutions dominate the capital market, including in particular the so-called shadow banks (stock, bond and hedge funds, insurance companies, etc.), which are subject to only limited state supervision (BIS 2017). g) In terms of the migration of workers, however, no quantitative expansion in relation to the first globalization wave can be observed. The proportion of people living outside their home country has risen to 3.5%, only slightly more than in 1970 (2.3%). Recently, migration has increased significantly in some emerging countries, but the main host countries are still the developed Western industrial nations (World Bank 2018; IOM 2019). For some time now, the latter have been engaged in intense competition for the “best

1.4  What’s New about the Current Globalization Phase

13

minds” among those who want to migrate, with more or less strong deterrents for the others. h) After a period of consolidation of nation-states and their intervention possibilities after World War II (extensive structural and social policy, corporatist coordination of state, unions and employer associations, planned industrialization in the Global South), the stagflation in industrial countries (= simultaneous economic downturn and acceleration of inflation) and the critically rising foreign debt in developing countries led to a nearly global economic and social policy reorientation towards neoliberal, supply-oriented approaches, also guided by structural adjustment programs under the auspices of the IMF and World Bank. Internal and external liberalization fueled the globalization process (Betz and Hein 1996). i) The rapidly increasing cross-border transactions required (and supported) a growing, transnational policy coordination. The number of international organizations, regimes, agreements and internationally active non-governmental organizations (NGOs) has increased massively compared to the time when the current globalization phase began (see Union of International Organizations 2021). They have helped prepare this phase—by measures of standardization and internationalization, which accompanied their implementation, but partly also tried to contain their consequences. This went hand in hand with international regulation, rules for and partly also bans on government action and thus a (limited) transfer of state authority to the supranational level (see chapter Global Governance). j) This was accompanied by a corresponding loss of sovereignty of national governments. This was further exacerbated by the cross-border activities of private actors (companies, banks, etc.), which undermined the effectiveness of state regulations, threatened to undermine national monetary, fiscal, currency, employment and tax policy and actually partially have done so. The most striking example is the worldwide reduction in income and corporate taxes (with a relatively stronger burden on immobile production factors, in particular labour), the hesitant burden on the economy with levies and charges to reduce greenhouse gas emissions, and the like. Particularly helpless are states in the face of cross-border, largely immaterial activities of digital conglomerates. The loss of sovereignty to private-sector actors would only have been stoppable if economies had remained more detached from the world market or if they had been able to agree on a harmonisation of corporate taxes and regulations. Unlike in the past, state sovereignty is therefore eroding not from the outside, but from within, that is, through the power of transnational economic and social actors on the ground (Reinicke 1998;

14

1 Introduction

similarly Baldwin 2016). State sovereignty remains relatively intact in key areas, but is otherwise fraying (Leibfried and Zürn 2006). k) Cultural globalisation was tendentially promoted by the increased media coverage of foreign events and developments, the worldwide dissemination of art, music and film via digital media, the global connection of activists in social networks, the regular transnational contact of politicians, scientists, students, the migration of workers, worldwide tourism, etc. Whether all these contacts contribute to the creation of a homogeneous world culture, to the creation of a global awareness everywhere and international solidarity of all citizens of the earth, however, is questionable (see later and Scholte 2011b). Nevertheless, it can be said that, as in the past, only small elite groups participate in the worldwide cultural exchange.

1.5 Measurement of Globalization The indicators most commonly used to determine and measure globalization are only partially reliable. For example, the shares of foreign trade and capital inflows or outflows in GDP may have grown/shrunk without the governments of the participating states having contributed to this through promoted integration into the world economy. The share of foreign trade could have increased due to price increases for certain products (e.g. oil) or generally growing consumer demand, through decolonization of territories, through technological progress and falling transport costs. Capital imports could have increased due to expanding interest rate differentials to abroad, declining investment activity in the source countries and/or a global oversupply of savings. Payments for patents could have increased solely because they were registered internationally more frequently, migration because of economic stagnation in the home countries and the host countries were not able to reliably seal their borders. The growing number of international organizations and internationally active NGOs says very little if we do not know about their possible growth in competence, power and influence. Even cultural globalization—for example through the flood of the media market with American series—is not a perfect indicator of whether the recipients have been influenced in their norms and values. It is clear that these different facets of today’s globalization wave cannot be captured by a simple measurement of a few indicators. Nevertheless, there are a considerable number of attempts to determine the freedom of economic actors in the national/international context and also the openness of societies/states to the outside world. However, in terms of globalization, these are mainly focused on

1.5  Measurement of Globalisation

15

the area of foreign trade and the financial sector, and use different measurement concepts, without always justifying them exhaustively (Gräbner et al. 2018). There are two much-cited indices (Economic Freedom of the World 2020; 2021 Index of Economic Freedom) that span a wider net, for example the extent to which the state influences the economy, the rule of law and the control of corruption, the stability of the financial sector and monetary policy, the regulation of foreign trade, the credit and labor markets (Gwartney et al. 2020; Miller et al. 2021). Both rankings are extremely market-friendly and have arisen in close proximity to capital interests, measuring progress essentially by how far companies are restricted in their actions. The authors make it clear that they want to reduce the state to a night watchman function in favor of unchecked private initiative. Much more useful for our purposes is the KOF Globalization Index of ETH Zurich (2020). In it, a distinction is made between actual and legal globalization. Both are not the same. De facto indicators determine the actual share—for example of trade or capital imports or exports as a percentage of GDP—de iure indicators to what extent governments have taken the necessary legal measures to open up. However, population-rich states drive less foreign trade de facto than small countries (because of their larger domestic market), more industrialized and technologically advanced economies more than less developed ones, geographically less favorably located states are less involved in world trade than others. Conversely, de iure measures, which liberalize the foreign economy, do not remain without long-term influence on the actual global integration into the world. A hybrid measure (which includes both) is therefore more meaningful. The index shows a slight increase worldwide from 1970 and a rapid increase from 1990 (cf. Fig. 1.1.) Regionally, however, there are still considerable differences (cf. Fig. 1.2): Sub-Saharan Africa and South Asia are far behind (2019 de iure at 52.4 and 52.7 points and de facto at 47.4 and 48 points), Europe and North America are far ahead (de iure at 78.5 and 70 points, de facto at 70.3 and 69.6 points). With economic globalization, the differences are even more pronounced (especially in the financial market). Worldwide, there are massive differences between frontrunners and national laggards, which, however, become smaller over time. This shows that one cannot lump together all regions/countries in the globalization process. This also makes little sense with respect to different fields of globalization: worldwide there is a not inconsiderable difference between stronger economic and weaker cultural or political globalization. The data for this and the two indices mentioned above are mostly obtained from the World Bank, the IMF, UNCTAD and other international organizations, but are more broadly based in the case of the KOF index. However, there are only meager informations concerning the scaling of the indicators and their weighting. Nevertheless, the KOF index is a useful tool for

16

1 Introduction

Fig. 1.1   KOF Globalization Index of all countries worldwide 1970–2019. (Source: KOF 2021.) Note: blue line = de iure globalization; green line: de facto globalization Rectangular cung

Fig. 1.2   Globalization index 2019 by country. (Source: KOF 2021.) Note: the darker the blue, the higher the globalization index. Gray: no data

References

17

determining the respective globalization level, including the statistical allocation of globalization effects. At least it shows that globalization is not a figment of the imagination and has gained considerable momentum since the 1990s.  Important As a buyer of this book, you can use our free flashcard app “SN Flashcards” with questions for knowledge verification and learning book content. To use it, please follow these instructions: 1. Go to https://flashcards.springernature.com/login 2. Create a user account by entering your email address and setting a password. 3. Use the following link to access your SN Flashcards Set: sn.pub/ Rn8nYD If the link is missing or does not work, please send us an email with the subject “SN Flashcards” and the book title to customerservice@ springernature.com.

References Altvater, Elmar und Birgit Mahnkopf (1997) Grenzen der Globalisierung. Ökonomie, Ökologie und Politik in der Weltgesellschaft, Münster. Baldwin, Richard (2016) The Great Convergence. Information Technology and the New Globalization, Cambridge, MA. Und London. Bank for International Settlements, BIS (2017) 87th Annual Report, Basel. Beck, Ulrich (1997) Was ist Globalisierung? Frankfurt a. M. Bergh, Andreas et al. (2017) Economic globalisation, inequality and the role of social protection, Working Paper No. 341, Paris. Betz, Joachim und Wolfgang Hein (1996) Globalisierung und der Weg zur Weltgesellschaft: Herausforderung aus dem Süden – ein Problemaufriss, Nord-Süd aktuell, X,3; pp.466–481. Catao, Luis A.V. and Maurice Obstfeld, (2019) Introduction in: dies. (Eds.) Policies to Make Trade Work for All, Princeton and Oxford; 1–37. De Backer, Koen et al. (2019) Multinational enterprises in the global economy: Heavily discussed, hardly measured, OECD, Paris. Crouch, Colin (2019) The Globalization Backlash, Cambridge und Medford. Farrell, Abraham und Henry Newman (2020) Will the Coronavirus End Globalization as We Know It? Foreign Affairs, March 16. Frank, André Gunder und Barry K. Gills (1996) The World System: Five Hundred Years or Five Thousand? London.

18

1 Introduction

George, Susan (2004) Another World Is Possible If.., London und New York. Gräbner, Claudius (2018) Measuring Economic Openness, Vienna Institute for International Economic Studies, Working Paper 157. Green, Jeremy (2019) Is Globalization Over? Cambridge. Gwartney, James et al. (2020) Economic Freedom of the World 2020, Fraser Institute. Habermas, Jürgen (1998) Die postnationale Konstellation, Frankfurt. Haskell, Jonathan und Stian Westlake (2018) Capitalism without Capital: The Rise of the Intangible Economy, Princeton. Hirst, Paul and Grahame Thompson (19992) Globalization in Question: The International Economy and the Possibilities of Governance, Cambridge. Hüther, Michael et al. (2018) Die erschöpfte globalisierung. Zwischen transatlatischer Orietierung und chinesischem Weg, Heidelberg. Huwart, Jean-Yves und Loic Verdier (2014) Die Globalisierung der Wirtschaft. Ursprünge und Auswirkungen, OECD, Paris. International Organization for Migration, IOM (2019) World Migration Report 2020, Geneva. Kappel, Robert; 2000: Afrikas Entwicklungspotentiale im Globalisierungsprozess, in: Rainer Tetzlaff (Hrsg.) Weltkulturen unter Globalisierungsdruck, Bonn; 202–231. Kappel, Robert; 2003: Kirschen und Kerne. Welche Entwicklungsländer sind Gewinner und welche Verlierer auf dem Weltmarkt? In: Peripherie 90/91; 232–262. Keller, Rebecca (2016) Why this era of globalization is coming to an end, Market Watch, June 7. Koch, Eckart (2014) Globalisierung Wirtschaft und Politik. Chancen – Risiken – Antworten, Wiesbaden. KOF (2020) Globalization Index 2020, ETH Zurich. KOF (2021) Globalization Index 2021, ETH Zurich. Leibfried, Stephan und Michael Zürn (2006) Transformation des Staates, Frankfurt. Maddison, Angus (2001) The World Economy. A Millenial Perspective, OECD, Paris. Mallaby, Sebastian (2016) Globalization Reset, finance and Development, December. Miller, Terry et al. (2021) 2021 Index of Economic Freedom, The Heritage Foundation, Washington, D.C. Moghadam, Valentine M. (2021) What was globalization? Globalizations 18,5; 695–706. O’Rourke, Kevin H. und Jeffrey G. Williamson (2002) When did globalisation begin? European Review of Economic History 6; 23–50. O’Sullivan, Michael und Krithika Subramanian (2017) Getting over Globalization, Credit Suisse. OECD (2018) Meeting at the OECD Council at Ministerial Level, Key Issues Paper, Paris. Ohmae, Kenichi (1991) The Borderless World. Power and Strategy in the Interlinked Economy, New York. Reinicke, Wolfgang H. (1998) Global Public Policy. Governing without Government, Washington, D.C. Ritzen, George und Paul Dean (20192) Globalization. The Essentials, Oxford. Rodrik, Dani (2016) Premature Deindustrialization, Journal of Economic Growth, 21; 1–33.

References

19

Scholte, Jan Aart (2011b) Global governance, accountability and civil society, in: Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 8–41. Steger, Manfred B. (2020) Globalization. A Very Short Introduction, Oxford. Steger, Manfred B. und Paul James (2019) Globalization Matters. Engaging the Global in Unsettled Times, Cambridge usw. Strange, Susan (1996) The Retreat of the State. The Diffusion of Power in the World Economy, Cambridge. Tetzlaff, Rainer; 2000: Globalisierung – “Dritte Welt”-Kulturen zwischen Zukunftsängsten und Aufholhoffnungen, in: ders. (Eds.) Weltkulturen unter Globalisierungsdruck, aaO.; 18–64. Thomsen, Stephen und Fernando Mistura (2017) Is investment protectionism on the rise? OECD, Paris. UNCTAD (2020a) World Investment Report 2020. International Production Beyond the Pandemic, Geneva. UNCTAD (2020b) Review of Maritime Transport, New York. Union of International Organizations (2021) Yearbook of International Organizations 2021–2022, Brussels. Walter, Stefanie (2021) The Backlash Against Globalization, Annual Review of Political Science 24; 421–442. Wolf, Martin (2004) Why Globalization Works, New Haven and London. World Bank (2018) Moving for Prosperity. Global Migration and Labor Markets, Washington, D.C. World Commission on the Social Dimension of Globalization; 2004: A Fair Globalization: Creating Opportunities for All, ILO, Geneva.

2

Globalization and Technological Development: Production, Transport and Communication

2.1 Overview 2.1.1 Globalization as a Result of Technological Change Assuming that globalization requires (a) a minimum (with a tendentially increasing share) of international transactions, (b) increasing scale economies through a concentration of specific production processes on the respective optimal locations, (c) an increasing transnational networking of production processes in connection with complex value chains and (d) a correspondingly flexible and reliable international financial system, it becomes clear that the development of technology of production, transport and communication plays a outstanding role. The “Industrial Revolution” of the 18th and 19th centuries is seen as the central starting point in the economic history of the modern world. Since then, we have been able to observe some fundamental technological changes that had farreaching effects on global economic interdependence and successively shaped the globalization process until today. It should be noted that social and political change takes place in close, but not linear relationship with the technological changes. Depending on the respective technological capacities, but also political reactions, such changes have very different local effects and are widely associated with significant shifts in the international balance of power. Initially, historians have dealt extensively with “the” Industrial Revolution, which was characterized above all by the mechanization of the textile industry and the introduction of the factory system, the development of the steam engine and the growing use of coal as an energy source as well as the large-scale production of iron (1780s to around 1850).

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_2

21

22

2  Globalization and Technological Development …

Fig. 2.1   Waves of technological change. (Source: UNCTAD 2021, p. xiii)

Since then, various periods of technological development can be distinguished (Fig. 2.1). The so-called Maddison Project at the Groningen Growth and Development Centre provides extensive data sets that make it possible to analyze longterm trends in the world economy over the last millennium, without, however, focusing more closely on the technological basis of these trends (Bolt and van Zanden 2020). The UNCTAD’s Technology and Innovation Report 2021 is based on these data and analyzes the waves of technological change (UNCTAD 2021). Most current overviews assume four “industrial revolutions” (Industry 1.0– 4.0), with fundamental technological “revolutions” seen as starting points for the economic and social change of the time since the second half of the 18th century and thus also for globalization in the long term. The term “industrial revolution” is commonly used to refer to the permanent transformation of economic and social relations as well as the working conditions that began in the second half of the 18th century in England and later led to the transition from agrarian to industrial society in many parts of the world. Some economists and sociologists later characterized historical breaks as the second and third industrial revolutions. In 1936 the French sociologist Georges Friedmann first spoke of a second industrial revolution (1936). He dated it to the decades around 1900 and identified its characteristics as the intensification of mechanization, the widespread use of electricity and the mass production of goods (Taylorism and Fordism). The microelectronic revolution since the mid1970s is seen as the technological core of a new, third industrial revolution, for example by the US sociologist Daniel Bell (1990). The debate on Industry 4.0 has

2.1 Overview

23

led to the term “fourth industrial revolution” (1990). However, the technological basis of the described informatization of manufacturing technology and the closer networking between production and logistics is still microelectronics (“second phase of digitalization”). The change in the organization of production cannot be separated from progress in the areas of transport and communication. The improvement of transport made it possible to procure raw materials and supply markets more quickly and cheaply; communication creates information about inputs and markets, about the development of technologies and new products in other countries, and also about the opportunities and risks of foreign investment. For the sake of better overview, however, these areas will first be dealt with in three separate sections:

2.1.2 Manufacturing Technology Industrial Revolution 1  The mechanization in the textile industry (development of machines for spinning and mechanical looms, since 1788 with a steam engine as drive unit) is usually seen as the starting point of the Industrial Revolution, but is also closely linked to the development of the chemical industry (bleaching agents). Parallel to this, progress in iron production (development of the blast furnace) and the efficiency increase in the use of hydropower play an important role (Fig. 2.2). Industrial Revolution 2  The development of the electric engine and the expansion of power grids and power plants (transformation initially of hydropower and coal into electricity) allowed for a diverse and more efficient use of energy in industry and households and formed the basis for a rapidly growing electrical industry; oil became the most important energy raw material with the development of the internal combustion engine, the production of automobiles and the development of the petrochemical industry (plastics). Parallel to this, the systematic control of work processes (Taylorism) and mass production (assembly line and marketing processes) led to significant productivity gains in industry. Industrial Revolution 3  Automation led to an increasing replacement of human labor in production through centrally controlled machines, with microelectronics playing a constantly growing role in the design of products and production processes as well as their control. The advances in transport and communication (see below) allowed the optimization of production sites in terms of labor costs, infrastructure, investment security, etc. International value chains became the dynamic elements of the world economy.

24

2  Globalization and Technological Development …

Fig. 2.2   Time arrow of industrial revolutions. (Source: https://news.utar.edu.my/news/2020/ Aug/03/01/01.html)

Industrial Revolution 4 A number of innovations have emerged through the further development of microelectronics (see Sect. 2.3 below), which have revolutionized production and the provision of services, such as the “revolution of virtual presence”, which makes it possible to hold conferences and coordination meetings without physical presence and to carry out work processes by remotely controlled robots, so that work performance no longer has to be carried out by persons present on site (see Baldwin 2016 for telerobotics).

2.1.3 Transport The technological development of the first Industrial Revolution required improved transport options and at the same time created the conditions for this through the invention of the railway and developments in shipbuilding (large cargo ships, steam shipping and the construction of iron ships), the creation of growing transport capacities and the increase in transport speed (overview in Beria 2011). The freight rates in maritime shipping fell by almost 0.5% per year; overall, the increase in productivity in ship operation and in shipbuilding led to a decrease in freight rates in 1910 to just over 40% of the values of ​​ 1840 (Harley 1988). The breakthrough in transport, coupled with the nationwide expansion of

2.1 Overview

25

Fig. 2.3   Development of transport technology since the 18th century. (Source: Rodrigue (2020) Figure 10.4)

the critical infrastructure in Europe, North America, and in the connections with the economically most important colonies, took place around the middle of the 19th century with the expansion of larger railway networks and extensive canal systems for inland navigation as well as important channels in the international space connected with the expansion of large ports (Fig. 2.3). Even the most important transport structures that shaped the development of the 3rd Industrial Revolution after World War II were based on innovations during the previous phase, the use of the automobile (possibilities of the combination of truck and rail, but also by the truck transport of goods from start to finish, in order to save the costs of reloading) and aviation. The critical infrastructure continued to play a central role, reaching more and more also the growing regions in the global south, especially in East Asia. In addition to the continued innovations in the field of road transport and rail transport, the development of container transport played the central transformative role since the 1960s, mainly through the integration of sea and land transport (and to a limited extent also air freight). In shipping, the significant increase in ship size led to a steep increase in international transport capacity and handling speed and a corresponding reduction in unit costs. The loading capacity of container ships rose from 500–800 TEU (Twenty-foot Equivalent Unit, approximately 6.1m long container) in the 1960s to 24,000 TEU in the latest generation of container ships, that is, about 30 times (https://de.wikipedia.org/wiki/Containerschiff).

26

2  Globalization and Technological Development …

The reloading from ship to railway or truck was simplified; the goods thus remained in the container from the factory to the recipient (Baldwin 2016).

2.1.4 Communication Until the middle of the 19th century, there was only a slow improvement in the transport of messages (by couriers and stagecoaches). Cable-bound telegraphy has been developed since the 1830s and was largely established in the 1870s; in 1866 there was the first permanently functioning transatlantic cable. With telegraphy, the transmission time of information decreased from days or weeks (depending on the distance) to a few seconds, but remained limited to existing and technically vulnerable cable connections and implied a laborious encoding of the respective information (slightly simplified by the introduction of the Morse alphabet). With the introduction of wireless telegraphy (radio) around 1900, the dependence on cables was overcome; while telephony eliminated the need for encoding, it remained network-dependent (Woodford, 2022). The development of the telex and finally of radio and television brought considerable progress in the simultaneous transmission of large amounts of information; it should be noted that the expansion of cable networks was initially limited to Europe, parts of North America and the connection between the two continents, while since then practically all world regions have been integrated into a hardly delayed communication that also includes visual media. The qualitative jump to the current situation was brought about by the development of (digital) information and communication technology (ICT) since the 1960s. The digitalization of communication implies the automatic transformation of analog into digital (computer-readable) information and the substitution of human telephone operators by digital circuits. This not only increased the transmission speed and -safety, but also the storage capacity by a multiple. The development of communication satellites finally perfected the practically simultaneous transmission of large amounts of data to all regions with corresponding receiving stations within a few years (from 1975 to the 1980s). With the development of the Internet a worldwide communication platform was created by the networking of individual mobile phone subscribers. However, this communication is still characterized by a “digital divide” between people and regions with and without access to digital media, despite the rapid expansion of mobile phone use worldwide. In 2016, 78% of the population in North America and 73% in Europe and Central Asia used the Internet, but only 25% in South Asia and 20% in sub-Saharan Africa.

2.2  Industrial Revolution and Globalization

27

In view of the large amounts of information that are available in a short time, the problem of optimizing communication has shifted, however. The problem is now the focus/selection of relevant information. It requires the existence of a decentralized network “with experts at different locations who know the local markets and structures.” (Spangenberg 2019).

2.2 Industrial Revolution and Globalization The most important technological transformations in production, transport and communication show the way to the globalized world of today, with the current structures still being largely shaped by the results of the 3rd Industrial Revolution and the first phase of digitalization as well as the corresponding socio-political developments, while the key technologies of a much more far-reaching digitalization are already in development and partly already in use (Industrialization 4.0). A new, much more fundamental change is looming. The most transformative technologies that formed the basis for the development of Fordism had already been used to a greater extent in industrial production since the beginning of the 20th century. The assembly line production implied the transport of materials between the individual production sites by means of conveyor belts, with the individual work steps often being reduced to a few hand movements. This reduces transport routes within the company and allows cost savings through division of labor and specialization and thus increasing scale advantages through the standardization of products. The classic example is the production of the Ford T (since 1911 in assembly line production), whose price fell from 800 (in 1910) to finally 260 dollars (1925) (Forbes&Gross 1996). The concept of assembly line production in the automotive industry and in the manufacturing of other high-quality consumer goods (refrigerators, freezers, washing machines, etc.) as well as the chemical industry (plastics) promoted an affordable range of industrial products for larger population groups. The growing demand for consumer goods was initially strengthened by social compromises within the framework of an institutionalization of the conflict between capital and labor. Above all, the strengthening of unions, the development of collective bargaining and state social policy as well as an increasing supply of consumer credit allowed the expansion of demand for these products benefitting from part of the productivity gains. With reference to the pioneer role of Henry Ford, this socioeconomic arrangement was referred to by many social scientists as “Fordism”. In parallel, the demand for energy, primarily for fossil energy sources (coal and, rapidly increasing since the 1920s, oil) in the transport sector, as a raw mate-

28

2  Globalization and Technological Development …

rial for electricity generation and the steel industry, but also for a growing range of chemical basic materials (plastics, textiles, fertilizers and pesticides), grew. In addition, the technological development and the expansion of large hydroelectric power plants played an important role; depending on the geographical conditions, hydropower became the most important basis for electricity generation in some countries (Brazil, Norway, Austria). In the 1960s and 1970s, there was a change in situation due to various developments: In the major industrial countries, the social compromise of Fordism was increasingly controversial; strong unions made demands that were not matched by further increases in labor productivity (Marglin et al. 1990). However, there were signs that these structures could be changed: On the one hand, the container system mentioned above led to a considerable reduction in transport costs, on the other hand, population development in many countries of the global South led to a strong migration from rural to urban areas, resulting in a large supply of cheap labor, but as a result of national development policy a certain pool of leadership was also available. The new technological possibilities of digital communication and the increasingly widespread use of electronics in the organization of industrial production led to a rapidly growing efficiency increase through a breakdown of production processes and their transfer to optimal locations in terms of wage and transport costs as well as the necessary qualifications (i.e. the development of global production chains). The reliability of supplies is an important factor in preventing the aforementioned advantages from being consumed again by costly inventory. A prerequisite for the use of such a flexibilization of the production process and thus the realization of a new stage of globalization was that national regulations did not impede corresponding entrepreneurial activities. As early as the mid-1930s, the USA tried to reduce the protectionism prevalent during the world economic crisis by means of trade liberalization measures, but without much success. Only the 1947 General Agreement on Tariffs and Trade (GATT) could set in motion a systematic process of international trade agreements, which led to a stronger reduction of tariffs. The political term “neoliberalism” summed up demands for liberalization and privatization of economic policy, which, since the second half of the 1960s, fundamentally challenged the Keynesian-dominated Fordism: In content, it was about intensifying competition through deregulation, enforcing free trade and financial globalization, and reducing the role of the state through privatization, reducing bureaucracy and limiting state deficit financing. These goals, which dominated the economic policy of the major industrial countries from the 1970s to the end of the 1990s, allowed an “unleashing” of the globalization process already made possible by technological development.

2.2  Industrial Revolution and Globalization

29

The use of wage and qualification differences led to the construction of integrated value chains, especially in technology- and consultancy-intensive industries, such as the automotive industry. These companies have become global in character because they no longer operate as a consortium of independently operating companies on national markets, but rather geo-centrically, with procurement, marketing and sales of individual units being optimized and integrated into the overall strategy of the companies worldwide. Figure 2.4 illustrates the complexity of production chains using the example of an e-bike: The Pedego Conveyor electric bike is assembled in Vietnam from parts from eight different countries (approx. 60 % of the value), and then sold in the USA for around USD 4,000 with reference to the motor developed in Germany. Economic and social progress has been historically closely linked to technological development. However, this has progressed very unevenly in different parts of the world. Local conditions have been extremely different historically; the political dominance of the global north since the first industrial revolution, which was closely related to this, has largely cemented this situation, especially since many of today’s developing countries were integrated into the world economy mainly as colonial raw material exporters, if at all, even after independence. The industrialization strategies after the Second World War, which were mostly based on the substitution of imports on the basis of imported intermediate products with minimal appropriation of technological knowledge, hardly brought any progress in technological capacities with them. The level of technological development and the learning ability of societies are closely related to the level of prosperity in different countries (Stiglitz and Greenwald 2014). This meant that for developing countries, technology transfer and local absorption capacity formed the starting point for their own technological progress (and in exceptional cases also for a more advanced innovation capacity). The organization of domestic markets and strategically skillful government policy are very important. Most countries of the global south lack the ability to develop innovations at the frontier of technological progress. The world’s share of countries with upper middle-income levels in research spending (31.2% in 2018) and patent applications (from 25.6% (2010) to 40.4% (2020)) has risen sharply, while the share of the poorest countries is extremely low (patent applications 0.5% (2010), 0.1% (2020)). The most important shifts are mainly due to development in China (2018: 24.8% of all research spending) and to a lesser extent also in other Asian countries; for example, the share of patent applications in Asia rose from 51.5% (2010) to 66.6 % (2020), while this fell in Latin America and the Caribbean from 2.8% to 1.6% in the same period. (WIPO 2021; UNESCO 2021).

30

2  Globalization and Technological Development …

Fig. 2.4   Example of a production chain: E-bike. (Source: World Bank 2020, p. 120)

The so-called brain drain has contributed to the fact that many researchers from developing countries work in the Global North; however, this also offers opportunities to attract qualified personnel if there are incentives to encourage them to return (see Chap. 7 Migration). Technological progress depends on one

2.2  Industrial Revolution and Globalization

31

hand on a policy that reduces restrictions on private foreign direct investment, but on the other hand drives forward targeted measures to promote human capital formation (and to strengthen the national market through logistics systems, improvement of transport networks, integration of production and retail). An advantage of modern communication systems is the ease of technological diffusion: Older technologies (landline connections, for example) require a massive infrastructure and are therefore less widespread in poor countries than mobile phones. The infrastructure for this is less expensive and requires less qualified workers and is also delivered more by the private sector than by state monopolies as before. This also makes it possible to access the Internet in remote regions. Overall, a higher absorption capacity has arisen in developing countries at least for less complex new technologies. The strengthening of intellectual property rights provides an additional incentive for the emergence of innovative companies, but requires good management to avoid, for example, that access to patented drugs is made more difficult, and on the other hand a better research infrastructure (World Bank 2008a, b). Examples of successful technology development are provided by some countries of the global South in recent decades, such as China, South Korea and India compared to other emerging economies such as Mexico and Brazil (Dahlmann 2008). From the comparison, the following key elements of the successful strategy of Asian countries can be identified: a strong orientation towards the outside, a comprehensive use of foreign knowledge (including the copying and reverse engineering of products), macroeconomic stability, high investment rates, as well as economic incentives and an institutional regime that demand increased performance. Korea, however, did not rely on foreign investment, but rather increased its knowledge base mainly through trade and reverse engineering, as well as substantial investments in its own research and development capacities. The strategies of most of the successful economies in the global South were based on a start with labor-intensive industrial exports and a gradual development towards more technologically demanding products. The second generation of successful Asian economies (Indonesia, Malaysia, Thailand, Vietnam) also followed this path (Dahlmann 2008; Dadush 2008). The acceleration and densification of information flows, as well as participation in internet platforms, help companies in developing countries to actively participate in international trade. The use of such platforms allows smaller traders to open up export markets. Increasing internet usage correlates with increasing trade: The World Bank (World Bank 2016) estimates, based on a comprehensive database, that a 10% higher internet usage in two countries leads to 0.6% more

32

2  Globalization and Technological Development …

bilateral trade. About US$700 billion of the US$3.5 trillion turnover in global electronic sales in 2019 was due to international trade (DMCC 2020). Digital technologies further reduce the costs of moving individual production processes to more favorable locations, especially when the host country has enough human capital. The disaggregation of manufacturing processes has increased trade in services, such as the production of publications, the performance of complex calculations, and ordering processes. Companies use the internet more when they are exposed to foreign competition; overall, companies are more interconnected worldwide. However, it should be noted that geographical conditions still have a significant impact on the movement of goods and services: Bilateral trade between countries is still negatively affected by the distance between them when the effects of the internet are controlled (World Bank 2016). Conclusion: The changes in the world through the technological developments of the 1st and 2nd Industrial Revolution created the conditions for the dynamic globalization process since the 2nd World War. Until the second half of the19th century, the costs of overcoming geographical distance isolated consumption and production from each other to such an extent that there were ultimately only local economies. This changed later with the fall in transport costs (steamship and more recently container transport). After that, production and consumption could take place at different locations. The later development of information and communication technologies lowered the costs of moving ideas; this allowed complex activities to be coordinated over long distances. At first, mainly labor-intensive production processes were outsourced, but now technology development, marketing, and other services were also connected through outsourced facilities. The revolution of global value chains made outsourcing strategies possible in which the know-how of industrialized countries was combined with cheap labor from the global South in a complex way (Baldwin 2016). However, this development had its downside: It starts with countries that have nothing more to offer than cheap labor. Digitalization and further automation of production lead to the loss of comparative advantages in typical low-wage industries, while higher demands on social and environmental standards can significantly impair traditional export opportunities. The discussion of global cities initiated by Saskia Sassen (1991) refers to the emergence of a worldwide network of cities whose recent development can no longer be understood within the framework of national spatial and urban structures, but only in the context of a hierarchical global city system (Sassen 2001). Control functions of the world economy and top innovations concentrate in these cities and a few “Silicon Valleys”, which in turn are linked to dynamic industrial districts (Paunov et al. 2019). Other regions can benefit from this dynamics if

2.3  Industry 4.0: Future Perspectives

33

they are integrated into the value chains controlled from there (including suppliers of agricultural and mineral raw materials); otherwise they are marginalized, become economically meaningless intermediate spaces between islands of modern development (Hein 2002). Inequality has increasingly been seen as a systemic challenge, which also included aspects of unequal income distribution in industrialized countries (Piketty 2014; Milanovic 2016) (see on the topic of “inequality” especially the capital globalization and income distribution). Although, due to the high growth rates in the most populous countries (especially China and India), the inter-state income inequality has decreased, but the intra-state inequality increased significantly. This can be seen as one of the causes for a decline in the dynamics of the 3rd Industrial Revolution at least since the turn of the millennium, which is reflected in a relatively low economic growth in the classical industrialized countries. The Total factor productivity (TFP), which measures the output of a sector or an economy in relation to the value of all inputs, fell in OECD countries between 2005 and 2014 (growth of -0.4%), while it increased by 0.7% annually for all developing countries in the same period. (Kim and Loayza 2019). However, the period since the turn of the millennium has seen the development of a number of technologies, such as artificial intelligence (AI), robotics, 3D printing, etc., which open up new technological possibilities, but so far have only made a limited contribution to international value creation. In the following section, we will give an overview of the most important of these technologies (Frontier technologies; Border technologies) and investigate to what extent it is to be expected that they will be able to counter the challenges of the current crises (use of fossil fuels and climate change; income distribution and poverty; international financial system) and become the axis of a new dynamics of global growth. Approaches of the current Frontier technologies can be traced back partly for several decades, but so far for various reasons have only been able to establish themselves to a limited extent (inherent risks, ethical concerns, but also technically conditioned long development times).

2.3 Industry 4.0: Future Perspectives The UNCTAD provides an overview of the most important technologies at the cutting edge of technological progress in its comprehensive Technology and Innovation Report 2021 (UNCTAD 2021), which is summarized in Figure 2.5. The authors point out that, given the rapid pace of development in this area, it can only be a “snapshot”:

34

2  Globalization and Technological Development …

Fig. 2.5   List of current cutting-edge technologies. (Source: UNCTAD 2021, p. 17)

The explanations make it clear that there are a number of overlaps in the application of these technologies, such as artificial intelligence and robotics in the case of autonomous driving of cars and other vehicles, or genetic analysis and nanotechnology in the development of new drugs. A number of these cutting-edge technologies have already (to some extent since the 2000s) been incorporated into

2.3  Industry 4.0: Future Perspectives

35

market-ready products (such as in the area of the Internet of things (IoT)1, blockchain technology in the case of cryptocurrencies (Bitcoin) drones, nanotechnology and photovoltaics are still in a process of rapid development. Most of these new technologies are based on an enormous expansion of the computing power of computers; supercomputers with conventional technology are very large: the “Frontier” computer at the Oak Ridge Leadership Computing Facility in Tennessee, United States, is the most powerful supercomputer as of June 2022; it takes up 7300 square meters of space (about the size of a football field), weighs 30 t and uses 300,000 L of water per minute for cooling (https:// mein-mmo.de/neuer-computer-wiegt-2-autos-tausende-liter-wasser/). Quantum computing is an alternative for processing large amounts of data. IBM and some universities have been working on it since 1998, and individual quantum computers have been in use since 2018. This is a rapidly growing technology that uses the laws of quantum mechanics to solve problems that are too complex for classical computers. Bits can only take on a state of 0 or 1, while quantum computers can take on an infinite number of states between 0 and 1 (qubits) due to the properties of quantum physics and thus solve more complex problems. This makes it possible to solve problems with many variables that interact with each other in a complex way. The advantage of the quantum computer is that under certain conditions it can perform several parallel operations at the same time, for which even today’s supercomputers would need decades. Quantum computers are relatively small devices that consume less energy than supercomputers. The processor for IBM Quantum is a wafer that is not much larger than a laptop. The hardware system of a quantum computer is about the size of a car and consists mainly of cooling systems, so that the ultra-cold operating temperature (close to absolute zero) of the superconducting processor can be maintained. However, a number of technical problems still need to be solved before this technology can be widely used, as the qubits are very sensitive to external influences such as unstable temperatures and vibrations (Bolkart 2022).

1 The

Internet of Things (abbreviated to IoT) is a network of devices (from household items to complex industrial tools) that are connected to each other and to systems via the Internet using sensors and other electronic means, so that data can be exchanged between these things.

36

2  Globalization and Technological Development …

A list of areas of application of quantum computing (McKinsey Digital 2021) shows that it is a central cross-sectoral technology. This explains the high investments that are currently being made in this area: financing of start-ups in the field of quantum technologies doubled from 2020 to 2021 to $1.4 billion. Governments have announced high levels of funding for the coming years (China: $15 billion, EU: $9.8 billion, USA: $1.3 billion). The quantum computer market is still relatively small in 2021 (USD 472 million), but is expected to reach USD 1.765 billion by 2026 (Markets and Markets 2021) and could exceed $90 billion by 2040, according to a McKinsey report (McKinsey&Company 2022). Even though the UNCTAD report does not go into quantum computing, the statement is confirmed that frontier technologies are increasingly interwoven and often extend the functions of the other. For example, 3D printers can produce more complex products, which in turn requires more data (big data), which can be connected via IoT products with AI-controlled error detection functions. 5G has the potential to provide almost real-time responses from robots (UNCTAD 2021; Fig. 2.6). Industry 4.0 largely represents a complex further development of ICT, which opens up new dimensions through the coupling and control of enormous amounts of data (“big data”), artificial intelligence (AI) and their use in complex systems such as the autonomous control of devices and vehicles. IBM is developing new technologies to optimize value chains that use various border technologies (AI, IoT, blockchain, cloud and quantum computing) to largely organize digital workflows and controls within a network. This development has been given an addi-

Fig. 2.6   Economic sectors as early users of border technologies. (Source: UNCTAD 2021, p. 19)

2.4  Technology and Socio-Economic Development

37

tional boost by the COVID-19 pandemic. (Loughlin 2017; IBM-IBV 2021) The further development of quantum computing promises a qualitative leap in ICT, the possible consequences of which have so far been little discussed. Telepresence and telerobotics have already had considerable effects on work organization, which have been considerably extended by the Corona epidemic concerning the field of virtual presence. Richard Baldwin speaks of a “virtual presence revolution” in the service sector, which has added a new dimension to the globalization process (Baldwin 2016), and which he describes as the third decoupling in globalization—after the spatial separation of production and consumption as well as the international division of factory work, now the separation of work performance from the workers (i.e. the execution by remotely controlled machines, robots). Workers could perform tasks at other locations (also in another country) from any location (with the corresponding technical equipment). This corresponds to a denationalization of comparative advantages; previously internal workflows can be relocated into the international space and also North-South borders can be crossed. Are there limits to the substitution of human work by artificial intelligence? Huang and Rust (2018) distinguish four stages of this substitution, namely a mechanical, an analytical, an intuitive and an empathetic one, depending on the development of a robot’s abilities. They assume that the progress of AI in all four forms of intelligence creates rich opportunities for innovative human-machine integration, which enables new services but also creates a severe threat to the employment of people as well as fundamental ethical problems. In theory, most activities in production and services could be replaced by AIcontrolled robots—to the extent that robots themselves design and produce other robots, and that these might also have the appearance of “humanoids”. This creates a rich field for science fiction. But in fact, the short- to medium-term transformation of the world on the basis of Industry 4.0 (better perhaps: Technology 4.0, because in the classical sense industry is no longer in the foreground here) will be the result of conflicts and adaptation processes, the results of which are hardly predictable (see below).

2.4 Technology and Socio-Economic Development As we have already pointed out in the introductory overview, technological innovations that characterise the respective industrial revolutions usually arise long before they are taken up on a large scale by companies and referred to as new

38

2  Globalization and Technological Development …

techno-economic paradigms in the UNCTAD Technology and Innovation Report (2021), characterised by a cluster of technologies, products, industries, infrastructure and institutions. The report distinguishes between two phases, a construction phase, in which technological innovations take place in key industries, and an implementation phase, in which the new paradigm prevails. Social conflicts are to be expected in both phases, in the construction phase vis-à-vis the non-innovative sectors, in the implementation phase vis-à-vis political actors who hardly benefit from the progress of the new development. The period since the turn of the millennium can thus be seen as the end of the implementation of the age of ICT (3rd industrial revolution) and the beginning of the construction of the technoeconomic paradigm of Industry 4.0 (4th industrial revolution). According to UNCTAD (2021), the extent to which Industry 4.0 will affect inequality between countries depends on their national policies and their integration into world trade. Concerning the internal political structures of many poorer resource-exporting countries, this does not give much cause for optimism. Typically, innovations arise in different areas with the aim of increasing productivity and profits; the future importance of these innovations for social transformation is initially shown in the mass application of new technologies in strategically important areas, including spillover effects on other sectors. UNCTAD (2021) provides estimates of the market size of the respective technologies, with the “Internet of Things” sector at the top with 1.5 billion US$. The OECD (2019) emphasizes that in the last two decades the diffusion of new digital technologies (high-speed broadband, cloud computing) has lagged behind their potential. The productivity gains from the use of these technologies have largely been limited to the already most productive firms, which has led to an expansion of the productivity gap and, as a result, to an increase in wage differentials and income inequality; in many applications of the frontier industries, qualified workers are lacking also in OECD countries. Political measures are needed to counteract this, e.g. to promote investments in broadband technologies and to strengthen competition in the telecommunications sector, to improve qualifications in this area and to reduce financial and administrative barriers to start-ups. Most analyses agree that rising inequality and its political consequences will play a central role: widespread reference is made to the enormous potential of new technologies to improve people’s lives and protect the environment, such as monitoring the course of epidemics and assessing infection risks, using telemedicine and drones to help people in remote areas, controlling environmental quality and predicting drought crises. At the same time, caution is advised. All technologies must be used carefully, if they are to help and not to deteriorate the situation of those with no access to them, and to avoid unintended side effects (UNCTAD 2021).

2.4  Technology and Socio-Economic Development

39

In a contribution co-authored by Joseph Stiglitz, one of the most renowned critics of the international financial institutions, it is emphasized that the current advances in technological development could lead to increasing inequality between and within countries if no political strategies are designed to counteract this. The authors emphasize the unequal distribution of power in international organizations in favor of the countries with high incomes and powerful special interests in these countries, but are optimistic in two respects: (a) the balance of power in international institutions is changing and the rich countries should consider the more effective involvement of developing countries to be in their own best interests; (b) an economic analysis based on appropriate models has the potential to support the development of political measures that can mitigate the negative effects of the 4th Industrial Revolution. (Korinek et al. 2021). The optimism expressed here, however, is in contradiction to other statements in the same text which point out that, for example, AI is very likely to be biased towards ever higher skills, so that general education becomes less important. At the same time, the service sector with tendentially smaller companies gains in importance, so that union organization also loses influence. On the other hand, powerful companies disposing of monopolistic power control access to many digital technologies, so that a small number of extremely wealthy individuals and companies gain additional influence. We have already pointed out that fundamental technological innovations (“industrial revolutions”) are closely related to social conditions, but that their widespread implementation has brought about shifts in geopolitical power relations and changes in international order. The representation of the four industrial revolutions often completely omits the 1st and 2nd World Wars by seeing the period of the world wars at best as an interruption of the dynamics of the second industrial revolution (declines in economic growth and international trade; setbacks in the globalization process, which had accelerated considerably between 1871 and 1914). As we will show in the following chapters of the book, most aspects of the globalization process have been decisively influenced by the change in hegemonic relations and the restructuring of the world order after the Second World War. With regard to current conflicts and the global development prospects in connection with Industry 4.0, we are—taking into account the anything but peaceful history of the past two centuries—faced with the fundamental challenge of a peaceful transformation: The establishment of the WTO as the central institution of the world trade order has apparently reached its limits. On the one hand, there is broad resistance from developing countries to an expansion of WTO competences without far-reaching compromises, for example in the area of agricultural

40

2  Globalization and Technological Development …

trade (see Chap. 4), on the other hand, there was also resistance in industrialized countries to a further globalization-promoting liberalization of the world economy, which has been radicalized by right-wing populist movements (see chapter Globalization and its opponents).

References Baldwin, Richard (2016) The Great Convergence. Information Technology and the New Globalization, Cambridge, Mass: Belknap/Harvard University Press. Bell, Daniel (1990) Die dritte technologische Revolution und ihre möglichen sozioökonomischen Konsequenzen. In: Merkur Jg. 44/1990, pp. 28 ff. Beria, Paolo (2011) Course in Transport Economics. L5 – Economic history of transport technologies (Powerpoint presentation). (https://www.academia.edu/864565/Economic_ history_of_transport_technologies). Bolkart, J (2022, Webseite), Quanten-Computing – Relevante Statistiken; https://de.statista. com/themen/7398/quanten-computing/#dossierKeyfigures. Bolt, Jutta & Jan Luiten van Zanden (2020) Maddison style estimates of the evolution of the world economy. A new 2020 update. Maddison-Project Working Paper WP-15, Groningen. Dadush, Uri (2008)Technology and Development: Stylized Facts and Policy Directions. In: Economía Política, 25: 405–422 Dahlmann, Carl (2008) Technology, globalization, and international competitiveness: Challenges for developing countries. In: O`Connor, David und Mónica Kjöllerström (Eds.) Industrial Development for the 21st Century. London: ZED Books; 29–83. Dubai Multi Commodities Centre, DMCC (2020) The Future of Trade 2020. Forbes Magazine & Daniel Gross (1996) Greatest Business Stories of All Time. (https:// www.wiley.com/legacy/products/subject/business/forbes/ford.html Sample Material: Henry Ford And The Model T). Friedmann, Georges (1936) La crise du progrès. Esquisse d’histoire des idées 1895–1935, Paris 1936. Harley, Knick C. (1988) Ocean Freight Rates and Productivity, 1740–1913: The Primacy of Mechanical Invention Reaffirmed. In: The Journal of Economic History, 48, 4; 851– 876. Hein, Wolfgang (2002) Globalisierung und Regionalentwicklung. Neue theoretische Ansätze und die Chance des Empowerment durch Global Governance. In: Nord-Süd aktuell, 16, 2; 214–234. Huang, Ming-Hui&Roland T. Rust (2018) Artificial Intelligence in Service. In: Journal of Service Research, 21(2) 155–172. IBM Quantencomputing (Webseite) Was ist Quantencomputing? (https://www.ibm.com/ de-de/topics/quantum-computing). IBM Institute for Business Value (IBV) (2021) The Virtual Enterprise. The Cognitive Enterprise in a virtual world (https://www.ibm.com/downloads/cas/DRX53AG7). Kim, Young Eun& Norman V. Loayza (2019) Productivity Growth. Patterns and Determinants across the World. Policy Research Working Paper 8852, World Bank, Washington,

References

41

DC. (https://documents1.worldbank.org/curated/en/130281557504440729/pdf/Productivity-Growth-Patterns-and-Determinants-across-the-World.pdf). Loughlin, Steve (2017) Blockchain. Transforming the Global Supply Chain. IBM Think Blog. https://www.ibm.com/blogs/think/2017/05/41097/. Marglin, Stephen & J. B. Schorr (Eds.) (1990) The Golden Age of Capitalism. Oxford. Markets and Markets (2021) Quantum Computing Market by Offering (Systems and Services), Deployment (On Premises and Cloud Based), Application, Technology, End-use Industry and Region (2021–2026). (https://www.marketsandmarkets.com/ Market-Reports/quantum-computing-market-144888301.html?gclid=Cj0KCQjwz96WBhC8ARIsAATR252PpGAwCM3wbK5VneNMTM1xugHPwhfV88jP6xv0PKJXk7Xiz wP10lAaApvuEALw_wcB). McKinsey Digital (2021) Quantum computing use cases are getting real—what you need to know. (https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/ quantum-computing-use-cases-are-getting-real-what-you-need-to-know). McKinsey&Company (2022) How quantum computing could change the world. (https:// www.mckinsey.com/featured-insights/themes/how-quantum-computing-could-changethe-world?cid=other-eml-alt-mip-mck&hdpid=c2240945-2140-404d-a036-8d8bc080d 3ec&hctky=2194141&hlkid=a774e1a8976d4a078406df70a8406fd5). Korinek, Anton, Martin Schindler und Joseph E. Stiglitz (2021) Technological Progress, Artificial Intelligence, and Inclusive Growth, IMF Working Paper WP/21/166, Juni 2021. Milanovic, Branko (2016) Die Ungleiche Welt. Migration, das eine Prozent und die Zukunft der Mittelschicht, Berlin. Paunov, Caroline, Dominique Guellec, Nevine El-Mallakh, Sandra Planes-Satorra and Lukas Nüse (2019) On the concentration of innovation in top cities in the digital age. No 85, OECD Science, Technology and Industry Policy Papers. Piketty, Thomas (2014) Capital in the Twenty-First Century. Cambridge, Mass.: Belknap/ Harvard University Press. OECD (2019) Digital Dividend: Policies to Harness the Productivity Potential of Digital Technologies, OECD Economic Policy Paper No. 26, Paris. Rodrigue, Jean-Paul (2020) The Geography of Transport Systems, 5th edition, New York: Routledge. Sassen, Saskia (2001) The Global City: New York, London, Tokyo. Princeton, NJ: Princeton University Press. ScienceAlert (Webseite), How Do Quantum Computers Work? https://www.sciencealert. com/quantum-computers. Spangenberg, Toni (2019) Vier Fehler der internationalen Kommunikation. In:, Kom. Magazin für Kommunikation, 12.09.2019; https://www.kom.de/medien/vier-fehler-der-internationalen-kommunikation/. Stiglitz, Joseph E. & Bruce C. Greenwald (2014) Creating a learning society: a new approach to growth, development, and social progress. New York: Columbia University Press UNCTAD (2021) Technology and Innovation Report 2021, Geneva. UNESCO (2021) UNESCO Science Report. The race against time for smarter development, Paris

42

2  Globalization and Technological Development …

World Bank (2008) Global Economic Prospects 2008. Technology Diffusion in the Developing World, Washington, D.C. World Intellectual Property Organization, WIPO (2021) Global innovation Index 2021. Tracking Innovation through the COVID-19 Crisis, Geneva. Woodford, Chris (2022) History of communication. Webpage: https://www.explainthatstuff.com/history-of-communication.html (Last updated: January 7th 2022). World Bank (2008) Technology and Development. Findings from a World Bank Report, Washington, D.C. World Bank (2016) World Development Report 2016. Digital Dividends, Washington, D.C. World Bank (2020) World Development Report 2020. Trading for Development in the Age of Global Value Chains. Washington, D.C.

3

Political Globalization: Democracy, International Organizations and Global Civil Society

3.1 General Relationships Globalization is not only a phenomenon of the economic sector and its processes of “networking the world” are also not predominantly or almost exclusively driven by private actors driven. On the contrary, it requires—as already mentioned in the context of the liberalization of foreign trade and capital flows—the political enablement through the elimination or reduction of national obstacles of cross-border interaction. In a positive sense, the participating in globalization requires the political creation of conditions, so that societies can successfully network globally, for example the creation, maintenance and administration of cross-border infrastructure, the conclusion of inter-state, regional or global cooperation agreements, the establishment of certain product, process, legal and financial standards in transnational exchange, certainly also the empowerment of national actors in order to be able to compete internationally or to cushion its consequences. This catalog could be extended much further, but it already makes clear that there can be no question of a purely and exclusively economically or technologically conditioned and inevitable occurrence of globalization (as for example Ohmae 1995 and Strange 1998 assumed), this process rather requires political initiation, flanking and deepening. A look at history shows that national/international networking in the sense understood here requires well-established state structures and internal legal certainty as well as the creation of the necessary institutions as a basic prerequisite. If this is not the case, transactions between individuals/groups are reduced to expensive, arbitrary and unsafe processes. Even in inter-state exchange, certain minimum guarantees for the observance of contractual agreements, which are fixed by the international community, are required. Secondly, it makes little sense

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_3

43

44

3  Political Globalization: Democracy, International …

to talk about international networking, if the degree of cross-border exchange remains very low (see Chap. 1); the requirements for international legal certainty and contractual flanking arise and increase with the international transaction volume. The historical development clearly shows that cross-border agreements and openings do not have a compulsory character, they can also be prevented or terminated, as for example the Paris Climate Agreement and its predecessor, the (Doha) World Trade Round, which is on hold, or European integration (Brexit) testify. In this respect, the current globalization phase is therefore a politically enabled, permitted, promoted or hindered project, which by no means automatically moves in the direction of a fully integrated world economy/world society and its seamless global regulation. As is generally known, the first globalization wave was abruptly interrupted by the First World War and the withdrawal of national states onto themselves, which was caused by the war and the post-war crises, while the current wave is threatened to dry out due to the rise of rightwing nationalist parties and protectionist currents, also due to an again polarizing political bloc formation.

3.2 Political Causes of Globalization This raises the question of why continued globalization, continued integration into the world economy, and international agreements were politically promoted. It must be immediately restricted that this promotion did not take place everywhere and in all fields to the same extent, as the different levels of the liberalization of foreign trade, payments, migration, etc. (see Chap. 4– 7) show. This fact also makes it clear that there is no general compulsion to submit to a globalization dictate, variance remained possible. But the majority of governments must apparently (especially from the 1980s onwards) have seen an advantage in the extended global integration of their respective states, otherwise no liberalization steps would have been taken. A first, banal and obvious explanation for this is that the relative costs of transnational mobility sank dramatically since the introduction of railways, steamships and telegraphy (later-on electronic communication), international exchange became cheaper and thus benefited from increasing demand. Numerous products and intermediate goods were thus traded for the first time or to a greater extent. But secondly—and more importantly—the political weight of export- and importoriented groups also increased, while that of proponents of national isolation declined. This weight shift was further dynamized by the fact that the removal of

3.2  Political Causes of Globalization

45

barriers to trade and capital flows increased both in relative weight (in relation to GDP) (already Garrett 2000). But the slowly changing balance would probably not have been everywhere sufficient for a change of course. It also required crisis-related impulses and a changed climate of opinion to be able to accomplish a respective political turn. In fact, a global, fairly wide ideological reorientation in favor of market freedom and against state intervention took place from the late 1970s onwards, often associated with the work of political leaders such as Ronald Reagan and Margaret Thatcher (1994), supported by international organizations such as the World Bank, the IMF and the WTO and also accompanied by the European integration process, which created a relatively barrier-free European economic area. The reorientation and increased market orientation of many economies can thus also be explained by the diffusion of neoliberal ideas across borders (2004; Swank 2006), a thesis that is supported by the fact that liberalization steps were taken in numerous economies in the Global North and South at the same time, or by the proliferating privatization of state-owned companies and pension systems (2005). This diffusion was of course also promoted by the intensifying locational competition after liberalization steps had been completed. The ideological reorientation in favor of deregulation and liberalization in the industrialized countries and later in the developing countries did not come out of nowhere; it is also explained by the negative experiences with protectionist measures in the interwar period, later the crisis of Keynesian, demand-oriented policy in the middle of the 1970s and the collapse of alternative economic systems in the East. In the global South, it is mainly explained by the failure of import substitution policy. Many developing countries pursued a strategy of import substituting industrialization to varying degrees until the 1990s, that is, the replacement of previously imported goods with domestic production of industrial goods. The companies were protected against foreign competition by high tariff rates, non-tariff trade barriers (such as import quotas) and manipulation of exchange rates, the use of capital was subsidized and exports were promoted by export subsidies. Initially, the result was a noticeable economic acceleration, but with declining productivity over time, growing trade deficits and thus foreign debt. The often small size of the domestic markets usually did not allow for efficient production of highervalue, capital-intensive products (which nevertheless took place), the shielding of the domestic market made exports more difficult, promoted the passivation of the trade balance and made efforts to improve product quality largely superfluous. The subsidization of capital expenditure reduced the employment effects of this approach, the prescribed ceiling on interest rates stunted the capital market

46

3  Political Globalization: Democracy, International …

(already Little et al. 1970; Balassa 1981). Finally, the high degree of government regulation required to implement the strategy (for example, in the allocation of scarce foreign exchange) greatly favored corruption. The governments of many developing countries therefore began to switch to an export promotion and diversification strategy as early as the 1960s and 1970s. The so-called Asian Tiger states of Singapore, South Korea, Taiwan and Hong Kong (the latter country was always world market-oriented) led the way, followed by Southeast Asian countries, later by China, parts of Latin America and even later by India. The transition therefore occurred earlier in countries with a small domestic market and without a large raw materials sector. It took place more generally after the debt crisis in the Global South in 1982, was promoted by structural adjustment programs under the auspices of the IMF and World Bank, and was therefore largely due to the compulsion of the situation. The industrial nations, on the other hand, could already learn from the experiences of the interwar period, in which the competitive isolation of the domestic markets (by means of tariffs, currency devaluations, etc.) led to the collapse of international trade and capital flows, the economy floundered and millions of workers lost their jobs, thus also preparing the way for authoritarian or fascist takeover (see, for example, Kindleberger 2019). After the Second World War, a liberal world economic system was indeed established; however, this left enough national leeway to protect the states against massive import growth and capital flight, in order to also shield the population against global economic upheavals and to preserve socio-political stability. However, this system of “embedded liberalism” (see Ruggie 1982; Hobsbawm 1995; Crouch 2008), including the associated counter-cyclical economic policy, first got into serious trouble with the end of the system of fixed exchange rates (1971), shortly afterwards with the first oil crisis (1973/74): stimulating the economy did little to help against rising oil prices and their economic impacts. On the contrary, recession, unemployment and inflation combined to form a volatile mixture (called stagflation). The departure from Keynesianism and ideas about active state economic policy came about gradually (see Scharpf 1987; Hobsbawm 1995; Crouch 2008). It first took place in Great Britain (also with the aim of breaking the power of the unions), followed by the USA (tax reforms under Ronald Reagan) and finally also by social democratic governments that tried to take a “third way” between capitalism and socialism (in Germany with the Hartz reforms). This change of course was accompanied by the collapse of the socialist states at the end of the 1980s, which gave this change additional plausibility. In short, the so-called neoliberal wave in the West was not just a scheme hatched by evil spirits. It was also associated with the hope of reviving the economy through privatisation, liberalisation and open-

3.3  The Role of International Organizations in Globalization

47

ing up to the world market, a hope that was only partially fulfilled. Of course, there were significant national differences in the implementation of this agenda: some industrial countries remained more protectionist than the rest (such as Australia, Canada and New Zealand), some countries (in Southern Europe) only opened up their capital markets at the end of the 1990s. Nevertheless, in the West over the years a certain convergence of economic policy principles and measures can be observed. These differences could also be attributed to the different regime character, that is, the different degree of political openness. The lower barriers to trade and capital flows in democratic countries could be an indication of the latter’s greater openness. However, on average, democratic countries are also wealthier and, on average, also more economically open. If one controls for the influence of this factor, the explanatory power of the regime character for openness to the world market shrinks somewhat in the short term, but less so in the medium term (Giavazzi and Tabellini 2004). This also makes theoretical sense: While the public in democratic countries does indeed appreciate economic and cultural exchange with foreign countries and may be more sensitive to price increases due to isolation, the interests of producers (that is, the companies and workers more exposed to imports) are also easier to organize and to attack liberalization intentions. This was already pointed out by Mancur Olson (1993). Interestingly, however, the relationship does not work the other way around: Economic openness does not necessarily promote democratization, as the example of China alone amply demonstrates. In general, factors below the broad regime character make a difference. Economies with strong unions, proportional representation, and federal political systems are more protectionist than others (Rogowski 1987; Garrett 2000).

3.3 The Role of International Organizations in Globalization One can conclude from the more or less parallel increase in international networking and international organizations that they somehow condition each other. In fact, the creation of the first international organizations and agreements (including the first transnational NGOs, see below) took place in the first globalization wave, that is, in the second half of the 19th century. Early examples were the International Telegraph Union (1864) and the International Postal Union (1875), both conceived as apolitical, functional solutions for the efficient handling of denser transnational relations in limited areas (Held et al. 1999; Barnett and Duvall 2018). The emergence of corresponding organizations and agreements in the political, even security-political,

48

3  Political Globalization: Democracy, International …

social, human rights, and environmental areas took somewhat longer—relevant here were the Hague agreements (1899 and 1907) and the associated foundation of the International Court of Arbitration (1899)—but gained momentum above all through the experiences of war at that time (Karns et al. 2015). The number of intergovernmental organizations rose to 37 by 1909, then stagnated, only to explode after the end of the Second World War: In 1951, 123 such organizations were counted, in 1986 the provisional peak was reached with 369 (only “conventional international bodies”; for the total number of IGOs and NGOs, see Table 3.1). The end of the Eastern Bloc brought a decline; today 289 such organizations are counted (Union of International Associations 2020). In addition, there is a number of state-sponsored international conferences, treaties, and regimes (rule-based cooperation, usually without or with little administrative infrastructure) that take place periodically. In the past, this growth has sometimes been greeted with satisfaction, and a trend towards cooperative, global and peace-promoting governance without world Table 3.1   Number of Intergovernmental Organizations and International NGOs

Intergovernmental Of which inactive International Org etc. NGOs 1909

37

Of which inactive etc.

176

1951

123

832

1960

132

985

1970

242

3379

1978

289

9521

1983

2549

910

13.633

607

1988

4038

2337

24.902

8577

1993

5103

3367

28.901

16.142

1998

6250

4414

42.100

25.514

2003

7215

5277

49.471

31.138

2008

7459

5546

54.377

33.153

2013

7710

5689

58.588

34.278

2018

7726

5627

62.621

35.835

2020

7804

5664

65.027

36.733

Source: Union of International Associations Explanations: inactive etc. refers to organizations that have been dissolved or inactive, unconfirmed founding represent or are not “international” in the true sense of the word

3.3  The Role of International Organizations in Globalization

49

state has been predicted. This optimism has given way to a certain degree of disillusionment. First, the growth rates of international organizations are stagnating, second, withdrawals of powerful national states from organizations and treaties or at least threats thereof have increased in the meantime (this affected, for example, the ILO, UNESCO, WHO, the Paris Climate Agreement, the EU, but also OPEC). Third, member states have been holding or blocking the functioning of international organizations for decades, or at least blocking their functioning (for example, the WTO dispute settlement body). This affects in particular the World Bank and the IMF, once and still today particularly globalization-friendly institutions, but also the United Nations. For some time now, moreover, multilateral, global institutions have been competing with bilateral and plurilateral organizations (agreements between willing, but not all states), in particular in the field of trade, recently also in the field of currency and finance, which threaten to undermine their formative power. The termination of membership and the blockade attitude can be explained as a reflex of growing nationalism in parts of the world and growing skepticism with regard to the efficiency and legitimacy of international organizations, accompanied by an increase in popular resistance to the encroachment of only partially legitimate agencies (cf. Fig. 3.1). It is often also based on the refusal of national governments and communities to submit to international criticism and accountability and—related to this—a growing gap between the values of the organization and those of the countries willing to leave (Borzyskowski and Vabulas 2019). With this and an overall growing anti-globalization mood (at least in industrialized countries), public opinion towards international organizations has become increasingly critical (see Fig. 3.1). This has also—mediated by governments at least partially dependent on this opinion—prevented or delayed the creation of new organizations and directly favored the withdrawal from existing organizations. One could now argue that this is a direct reflex of the grown strength of these institutions (Börzel and Zürn 2021). Previously, however, unpolitical (perhaps also uninformed) goodwill towards them prevailed. Similarly, it is questionable whether the dissatisfaction with international organizations is based on a precise popular assessment of their increased importance, or whether it is simply a nationalist reflex that seeks these organizations as a simple target. At least the geographical, country-related variance of rejection, which makes the clear influence of nationalist parties visible, leaves room for doubt about only rationally justified rejection (similar to De Vries et al. 2021). It can be argued whether international organizations have actually made a contribution to globalization or whether their emergence, their task assignment and -extension merely reflect the converging preferences of their member states.

50

3  Political Globalization: Democracy, International …

Fig. 3.1   Support for international organizations in surveys, 1995–2013 Explanations: left column—IOs should have the right to implement solutions for certain problems; middle column—countries should have to comply with decisions of IOs, even if they are not in agreement with them; right column—IOs have taken too much power away from national governments. (Source: De Vries 2021, p. 312.)

This would at least be the thesis of the realist school of international relations (Mearsheimer 2001; see also Rittberger et al. 2010), who do not attribute any autonomous shaping power to these organizations and agreements. One could also argue that companies and commercial banks initially internationalized their business field without the accompaniment of these organizations (Garrett 2000). Finally, most international organizations and agreements are of an intergovernmental nature, that is, they do not have any supranational authority beyond the usually unanimous authorization by member states, with the exception of the spectacular examples of the European Union and the World Trade Organization, partly also of a few, regional cooperation alliances elsewhere. In the end, it is by no means the case that every (new) cross-border problem automatically and alternatively leads to global re-legitimation in the sense of the establishment of corresponding multilateral institutions. Many global problems were not, or late, or insufficiently regulated by new international organizations, such as global energy supply, averting the climate crisis, the impending water scarcity, etc. Some initiatives for joint regulation have failed in recent years due to the political resistance

3.3  The Role of International Organizations in Globalization

51

of individual states/state groups, such as the continuation and expansion of negotiations in the Doha round or the conclusion of a multilateral investment agreement. The regulatory deficit is particularly visible in areas closely linked to state sovereignty (Sell 2018). However, several arguments can also be put forward against the alleged low importance of existing international cooperation arrangements: First, these agreements often protect against a relapse into purely state-nationalist action. If one takes the example of the WTO, the suspension of once granted liberalization of customs duties and non-tariff trade restrictions is only admissible under narrowly defined exceptions, and the victims are also allowed to take countermeasures. Less strongly armed agreements at least provide for reporting and justification obligations of the individual national states in the event of non-compliance with provisions, and are therefore (because otherwise relatively sanction-free) actually ‘toothless’. Nevertheless, contract breakers usually go to great lengths to disguise or justify their behavior among member countries. In other words: International organizations and agreements at least partly protect against an excessively ruthless representation of state interests of major powers in the global context. They thus stabilize the level of achieved economic, social and political globalization, create expectations of security and protect smaller, powerless states against excessive exploitation (Rittberger et al. 2010). In addition, international organizations have expanded their areas of responsibility, certainly with the tolerance of their member states and encouragement from some members, but also very much in the interests of the organizations and their administrative apparatus. Just as there is on the national level an interest of the state in itself, which is not automatically the executive organ of capital and other interests, so there is also an interest of international organizations in the preservation and expansion of their competence and areas of responsibility, which is sometimes successfully imposed. Otherwise, it would hardly be possible to explain why individual states and civil society organizations oppose this (see below). In addition to the expansion of their fields of activity, the intensity of their influence on national relations of the member states was and is even more controversial. Several examples may suffice: The GATT was a relatively harmless undertaking for the joint, multilateral and gradual reduction of tariffs until the mid-1990s; with the foundation of the WTO, it became responsible for the liberalization of the nationally highly protected and sensitive service sector (GATS), trade-related intellectual property protection and private investment. In addition, codes of conduct for subsidies, government procurement, anti-dumping etc. and a genuinely supranational dispute settlement institution were agreed, all of which reduced the sovereignty of the member states (Steffek 2013; Hoekman 2018).

52

3  Political Globalization: Democracy, International …

The International Monetary Fund was originally designed as an organization to support member states with balance of payments difficulties, provided loans that were more or less automatically paid out. This changed as early as during the 1950s with the gradual tightening of conditions, i.e. the linking of the payment to the compliance with agreed performance obligations. This became even more pronounced with the transition of the fund to development financing in the form of stability-oriented structural adjustment. The number and severity of the conditions increased until the early 2000s, when they were cut back under the pressure of international civil society and IMF clients (Betz 2007). In the global financial crisis, the fund became, so to speak, an international finance ministry; its mandate was extended to include the monitoring of the financial sector of the member countries and the coordination of their economic policies, even though its recommendations were often ignored in the aftermath. It also received new resources and the distribution of quotas was better adapted to reality (Momami 2018). Similar things can be reported with regard to the World Bank: It was originally mainly an institution for the provision and promotion of the infrastructure of its member countries, but has developed since the mid-1980s into another agency of condition-bound credit granting and the promotion of nationally neglected sectors (especially in the fields of education and health). There is no question that the establishment of new international organizations such as the International Criminal Court or new agreements for example, to combat corruption, to ban land mines, to protect human rights, etc. increased the influence of international agencies on domestic affairs (Park 2017). Nationalist circles feared the gradual erosion of state sovereignty, while left-wing groups mostly suspected the preparation of the field for international capital. But both arguments are somewhat far-fetched: Real restrictions on sovereignty by international/regional agreements can only be observed in relation to the WTO dispute settlement body, the European Union and (limited) in relation to individual regional organizations that provide for supranational dispute settlement or interventions against contract breakers (for example, ECOWAS). These organizations and agreements, however, came about by consensus, i.e. were de iure not imposed. It is just as wrong to always perceive these organizations as the forerunners of international capital. This could still be said of GATT, but then it would have to be neglected that the removal of trade barriers also benefits the general public (through lower prices, increased sales of goods and thus increased employment). In the case of the Bretton Woods institutions, this accusation of being the advance guard of international capital is partially empty because they only cover a very small part of global capital transfers and have recently been primarily promoting the “wrong” areas (social) to a greater extent. At most, one could argue that the

3.4  The Role of International Civil Society in Globalization

53

World Bank and IMF would keep poor, insolvent countries afloat and thus enable the continuation of private, cross-border economic contacts. Finally, it should be noted that the classical type of intergovernmental institution, the members of which are exclusively national governments, is tending to retreat from “multipartisan” (hybrid) organizations that count both private and public actors as decision-making members, such as the Joint United Nations Programme on HIV/AIDS (UNAIDS), the Global Compact, the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) and the Internet Governance Forum for the regulation of the Internet (Rittberger et al. 2010).

3.4 The Role of International Civil Society in Globalization Civil society is often perceived as an obstacle to globalization, especially to “neoliberal” globalization. Prominent images are the protests against the WTO conference in Seattle (1999) or the tumultuous scenes during the meetings of the main Western economic powers (G7). But a look at these events is more obstructive than enlightening. First, with regard to the relatively small realpolitical impacts of these protest actions. Second, the role of civil society in the re-establishment of globalization-compatible institutions and its involvement in the stabilization of existing international organizations is overlooked. To begin with a few words about the clarification of terms: Civil society does not only include the mostly perceived non-governmental organizations (NGOs) and citizen movements, but also associations, clubs, religious communities and trade unions, i.e. all groups that have not been set up or are dependent on state agencies and that act without private profit motive. The same applies to the international civil society, which consists of international NGOs (INGOs) and the complementary international associations, clubs and social movements. The distinction is partly not easy, because civil society in some areas is often (co-)financed by state agencies and/ or these exert political influence on civil society. Neither is the distinction towards purely private economic interest organization often easy. There is no doubt that transnational NGOs and transnational social movements have become important actors in world politics, even though their political influence has declined in many parts of the world in recent years due to state control and increased repression (see below). Their hitherto growing influence is due to several reasons: First, to the worldwide economic growth, the social differentiation of societies and the cheapening of transport and communication, i.e. central facets of globalization. Second, to the increasing demands for participation from

54

3  Political Globalization: Democracy, International …

below in partly or completely democratizing regimes or those that at least allow local complaints (such as China), demands that were also promoted by church communities or local NGOs with international connections and co-financing. Thirdly, to the more frequent holding of international negotiations and summit conferences, which offered the international civil society a forum for influencing the international public and for agreements with like-minded people. This was also related to the growing participation of representatives of social movements and INGOs in the consultations (less often the decisions) at these global conferences and within international organizations (see below). Finally, this also includes the growing legitimacy deficit of IGOs, which increasingly affected the living conditions of national societies, but without allowing them to participate beyond their governments. The problem of increasing complexity and global diversity of the political regulatory fields is also connected with global networking, which could hardly be coped with by state agencies and the staffs of international organizations alone, i.e. the information and consultation by civil society has been increasingly required. Last but not least, the initial mobilization successes of civil society in negotiations in the WTO, World Bank/IMF and the G7 or G20 as well as the participation of INGOs in the foundation of new organizations and international political foundations have further promoted their popularity (Krawczyk 2019). The influence and popularity of the international civil society is undoubtedly due to the perceived intensification of globalization processes that, with the hitherto available political instruments, that is, purely intergovernmental negotiations, obviously seemed unsolvable (Dryzek 2012). On the other hand, Smith and Wiest (2005) pointed out that the participation of citizens in the international civil society was not only based on the respective involvement of their home countries in globalization, but also on their participation in international organizations. There have been international NGOs for quite some time, starting with the Red Cross and similar organizations that were created by wars and massive social suffering around and even before the world wars (Karns et al. 2015). After the Second World War, their number increased like a comet. In 1951, the Union of International Associations (2021) counted just under 1,000 INGOs, from the middle of the 1970s there was a clear, from the end of the 1980s (as with the International Organizations) a stagnation to observe, which from the middle of the 1990s turned into a gradual, but continuous growth. According to the Union of International Associations (2021), there are 66,425 “international NGOs” today, but with a large proportion (about 40%) of dissolved or inactive or ultimately national or personal (another 25%) associations (cf. Table 6.1.). The hard core is reduced to 10,190 NGOs with worldwide or regional membership. Nevertheless, a large part

3.4  The Role of International Civil Society in Globalization

55

of true INGOs remains, for which no precise information is available on the number of members. This also applies to the social movements that mobilized tens of thousands of people at international conferences, but only had a limited and rarely permanent administrative infrastructure. It has been pointed out many times (cf. Scholte 2000; Heins 2008) that the international civil society is only limitedly international, rather it is dominated by organizations and movements located in Western market democracies (Neyer 2013). Of the best known and financially strongest 20 INGOs, 14 are based in the USA, four in other Western industrial countries and only two in the Global South (BRAC in Bangladesh and Barefoot College in India (NGO Advisor 2022). The civil society density is thin in sub-Saharan Africa, in the Middle East and in the successor states of the Soviet Union. This cannot be otherwise, because primarily wealthy societies can afford to send representatives of their INGOs around the world and, for example, to finance programs of international development cooperation. And only liberal societies allow political activists to act internationally independently of the government. Consequently, the dominance of the North in the global civil society ensures that this is only limitedly representative. This also applies partially to the much-admired social movements, i.e. the alternative world social summits, Attac, Jubilee 2000, etc. Protest movements of this kind often had their origins in the national context, owe their growth to country-specific factors such as the openness of the political system, specific party political constellations, local alliance partners and, of course, the different support for or repression of these movements. Accordingly, the amount of followers vary depending on national conditions (Tarrow and della Porta 2005). Of course, in the common fight against an enemy located beyond national borders (usually identified as neoliberal, global capitalism), something like a genuinely postmodern, global and democratic world-governance demanding movement has arisen (ibid. and Della Porta 2018). The previous successes of the international civil society are of mixed character. Nevertheless, groups scattered all over the world were often able to forge unexpected alliances. For the global summit in Rio de Janeiro 1992, 1400 different organisations were accredited, in Seattle the city centre was blocked for days and the WTO conference was forced to break off. In other places, the conference could only be guaranteed with massive police action (Krawczyk 2019). However, comparatively little came out of such spectacular events. In hard sectors that are at the core of sovereign state action (international financial and currency policy, energy and parts of trade policy), there were rather small successes of civil society engagement, although the effort here was particularly high and loud. In more marginalised areas (ban on land mines, ban on whaling, ban

56

3  Political Globalization: Democracy, International …

on cluster bombs, debt relief for the poorest developing countries, compulsory licences for pharmaceutical patents), progress was indeed made in the sense of globalisation-critical groups (Rucht 2013), albeit with the assistance of progressive governments from industrialised and developing countries. The standstill and actual break in WTO negotiations in the Doha round and the prevention of a multilateral agreement on the protection of private investment (MAI) were mainly due to the fact that agreement-hostile governments (ibid.) were in power. To be fair, it must be said that the international civil society not only wanted to prevent globalisation-friendly agreements, but at times they tried to establish and justify these and the necessary international organisations. Numerous INGOs pleaded for the establishment of a central world environmental organisation or a stronger global financial and tax supervision. In other fields, they have successfully and against the resistance of powerful nation states advocated for the establishment of international conventions with bite; these include the Convention on the Combating of Bribery of Foreign Public Officials in International Business Transactions, or the Convention on the Prohibition of Landmines. In alliance with Sweden and Canada, they have also successfully advocated for the establishment of the International Criminal Court (Zürn 2013). A very significant new development in world politics is the stronger involvement of international civil society in the work of international organizations. It varies considerably with regard to organization and sensitivity of the subject matter as well as the involvement in the policy cycle (from the first consultation to the decision), being sectorally weakest in security and finance. It also started with a certain timelag, but usually intensified from the mid-1990s onwards (Tallberg et al. 2013). The World Bank has started with the support of this involvement at the earliest and most thoroughly. Civil society is now involved in the preparation, implementation and evaluation of more than three-quarters of World Bank projects; it has also managed to extend the accountability of the Bank to project-related issues, making project documents public (from the beginning of the 2000s) and to provide for the establishment of a complaints office for project victims. Nevertheless, the influence of INGOs on the general orientation of World Bank policy remains rather weak (Bignami 2005; Ebrahim and Herz 2011). The IMF is primarily accountable to its more powerful member states. A department for public information was not set up until the end of the 1980s, and until the beginning of the 1990s only representatives of central banks and finance ministers received timely and detailed information on political decisions within the Fund. Today, the Fund is characterized by high transparency. Since the 1980s, accredited representatives of civil society have been granted access to the IMF’s annual meetings, and individual departments of the Fund also involve civil soci-

3.4  The Role of International Civil Society in Globalization

57

ety advisers. A formal, independent evaluation department was set up at the urging of civil society in 2001, and later civil society pressure also managed to secure a waiver of payment obligations to the Fund for the poorest developing countries (Scholte 2011c). However, the additional influence of INGOs in the IMF appears to have come to a standstill in recent years. Improvements in the information and participation of civil society were also achieved at the WTO. Its documents are now distributed much more widely, mediation proceedings can be made public with the consent of the parties to the dispute, representatives of civil society have been admitted to WTO ministerial conferences since the end of the 1990s, but only to plenary sessions. Mostly representatives of developing countries voted against a further involvement of INGOs, as well as against their demand for the introduction of environmental and social clauses in WTO agreements (Williams 2011). Civil society participation has increased sharply within the United Nations since the 1990s. Today, it also contributes to the formulation, implementation and monitoring of UN policies, works with special organizations on the implementation of humanitarian aid, and independently realizes certain operational program points. Since 1996, accredited INGOs have been entitled to attend the sessions of the United Nations Economic and Social Council (ECOSOC) and make proposals there for the agenda. Recently, this has also been made possible for NGOs based in only one country. However, so far only privileged NGOs are represented—for financial reasons. However, civil society does not have access to the formal negotiations of the UN General Assembly and, in addition, some member states also prevent the participation of their local NGOs in meetings, for example on human rights issues (Martens 2011). The stronger participation of INGOs in multilateral organizations can also be seen critically because the latter (and their representatives) are not appointed in democratic procedures. This means that the participation of international civil society can also be seen as lobbying by elitist circles; as a worse alternative to trying to gain more influence domestically (Chandler 2004). Another question is what has prompted the leadership of international organizations to grant civil society more influence in the first place. The question is usually answered with the special sectoral and geographical expertise of INGOs in certain regions/sectors, expertise which is often lacking among the staff of international organizations, but which is becoming more and more important in view of increasingly complex world problems. Secondly and just as important, these organizations appear to be seeking to strengthen their legitimacy in the face of a public that is becoming more critical of them—legitimacy that can be strengthened by the greater involvement of civil society instead of direct democratic confirmation.

58

3  Political Globalization: Democracy, International …

NGOs, on the other hand, gain the right to be heard and to have a say in international organizations. Both sides thus receive something that they could only achieve to a limited extent on their own (for this “resource exchange approach”, see Rittberger et al. 2020; similarly Tallberg et al. 2013). Last but not least, a word about another non-state actor in globalization with underreported but significant influence on its institutional shaping: Transnational corporations or the business associations to which they belong have a significant interest concerning the rules agreed upon by states for economic exchange and try to influence them in their favor by promoting, impeding, and partly creating their own organizations and agreements. The former was particularly evident in the negotiations leading to the establishment of the WTO in general, but especially of the TRIPS agreement of this organization, which was preformulated, negotiated, and adopted, in particular on the initiative of export-oriented American business associations, against the resistance of protectionist economic associations (Sell 2003; Bartley 2018). Similar things can be said for a whole range of other international agreements, especially those in the EU area. Thus, in particular, the “Round Table of European Industrialists” has agitated for a more comprehensive integration of the European internal market. American companies also lobbied for the agreement of the North American Free Trade Agreement (NAFTA). The private sector was not successful with proposals for a multilateral investment protection agreement within the framework of the United Nations, which failed due to the resistance of developing countries and also of several Western countries (Sauvant 2015; Tapiola 2015). As (co-) blockers of global agreements, corporations appeared concerning the demands to introduce environmental and social standards into the WTO agreement, as brakes in the conclusion of legally binding agreements to reduce greenhouse gas emissions (Bartley 2018). This is countered by the fact that many corporations are now trying to profile themselves as climate- and socially progressive actors, launching or supporting corresponding, but voluntary initiatives (Clean Clothes Campaign, environmental and social seals, etc.), and mobilizing resources for responsible business conduct (corporate social responsibility). This will also be reported elsewhere (see chapter Global Governance). But it should already be pointed out here that transnational corporations and their association representatives have transformed themselves from agencies for the prevention of socially and ecologically sustainable globalization into an actor interested in such an expression, even if the practical implementation leaves something to be desired. At the same time, companies have been developing private, transnational forms of coordination and control for a long time. For example, disputes between companies and between these and states are decided by arbitral awards of private

References

59

arbitration institutions. They are characterized by a high compliance rate: 90% are accepted without recourse to state enforcement organs (Rittberger et al. 2010; Bartley 2018). Relevant examples are the certification of sustainable logging by the Forest Stewardship Council, followed by the Marine Stewardship Council to ensure sustainable fishing. Examples would also be the numerous social and ecological labels developed only by private actors. Such world governance without state involvement also gains societal shaping power, for example in setting global industrial standards or assessing the creditworthiness of companies and states by rating agencies. Standard problems of this non-state world governance are understandably its legitimacy, the reliability of the award of seals and quality labels, as well as the control of compliance with obligations and the sanctioning of violations (instead of many Marx et al. 2012).

References Balassa, Bela (1981) The Newly Industrializing Countries in the World Economy, New York. Bartley, Tim (2018) Transnational Corporations and Global Governance, Annual Review of Sociology, 44; 145–165. Barnett, Michael und Raymond Duvall (2018) International organizations and the diffusion of power, in: Thomas G. Weiss und Rorden Wilkinson, International Organization and Global Governance, London und New York; 51–62. Betz, Joachim (2007) Macht und Ohnmacht der internationalen Finanzinstitutionen – IWF und Weltbank, in: Andreas Hasenclever et al. (Eds.), Macht und Ohnmacht internationaler Institutionen, Campus, Frankfurt und New York; 314–342. Bignami, Francesca (2005) Civil society and International Organizations: A Liberal Framework for Global Governance, Ms. Börzel, Tanja, and Michael Zürn (2021) Contestations of the Liberal World Order: From Liberal Multilateralism to Postnational Liberalism. International Organization 75,2; 282–305. Borzyskowski, Inken von und Felicity Vabulas (2020) Hello, goodbye: When do states withdraw from international organizations, The Review of International Organizations 14; 335–366. Brooks, Sarah M. (2005) Interdependent and Domestic Foundations of Policy Change: The Diffusion of Pension Privatization Around the World, International Studies Quarterly 49; 273–294. Chandler, David (2004) Building Global Civil Society ‘From Below’? Millenium, 33,2; 313–339. Crouch, Colin (2008), Postdemokratie, Frankfurt am Main. Della Porta, Donatella (2018) Global movements, in: Mark Juergensmeyer et al. (Eds.), The Oxford Handbook of Global Studies, Oxford.

60

3  Political Globalization: Democracy, International …

Della Porta, Donatella und Sidney Tarrow (2005) Transnational protest and global activism, Lanham. De Vries, Catherine et al. (2021) Politicizing International Cooperation: The Mass Public, Political Entrepreneurs, and Political Opportunity Structures, International Organization 75; 306–332. Dryzek, John S. (2012) Global Civil Society: The Progress of Post-Westphalian Politics, Annual Review of Political Science, 15;101–19. Ebrahim, Alnoor und Steven Herz (2011) The World Bank and democratic accountability: the role of civil society, in: Jan Aart Scholte (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 58–77. Eichengreen, Barry und David Leblang (2006) Democracy and Globalization, NBER Working Paper 12450, Cambridge, MA. Garrett, Geoffrey (2000) The Causes of Globalization, Comparative Political Studies 33, 6/7; 941–991. Giavazzi, Francesco und Guido Tabellini (2004) Economic and Political Liberalizations, NBER Working Paper 10657, Cambridge, MA. Heins, Volker (2008) Nongovernmental Organizations in International Society. Struggles over Recognition, New York and Basingstoke. Held, David et al. (1999) Global Transformations. Politics, Economics and Culture, Cambridge. Helleiner, Eric (1994). States and the reemergence of global finance. Ithaca, NY. Hobsbawm, Eric (1995) Das Zeitalter der Extreme. Weltgeschichte des 20. Jahrhunderts, München. Hoekman, Bernard (2018), global Trade governance, in: Thomas G. Weiss und Rorden Wilkinson, International Organization and Global Governance, London und New York; 603–615. Joachim, Jutta (2017) NGOs in world politics, in: John Baylis et al. (eds) The Globalization of World Politics. An Introduction to International Relations, Oxford, 347–362. Karns, Margaret P. et al. (2015) International Organizations. The Politics and Processes of Global Governance, London. Kindleberger, Charles (2019) Die Weltwirtschaftskrise, München. Krawczyk, Kelly Ann (2019) International NGOs, Transnational Civil Society, and Global Public Policy: Opportunities and Obstacles in the Twenty-First Century, in: Diane Stone und Kim Maloney (Eds.) The Oxford Handbook of Global Policy and Transnational Administration, Oxford; 148–164. Leibfried, Stephan und Michael Zürn (2006) Von der nationalen zur postnationalen Konstellation, in: Dies. (Eds.) Transformation des Staates, Frankfurt; 19–65. Little, Ian et al. (1970) Industry and Trade in Some Developing Countries, London. Martens, Kerstin (2011) Civil society and accountability of the United Nations, in: Jan Aart Scholte (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 42–57. Marx, Axel et al., Eds. (2012) Private Standards and Global Governance Economic, Legal and Political Perspectives, Cheltenham. Mearsheimer, John J. (2001) The Tragedy of Great Power Politics, New York und London. Momami, Bessma (2018) Global Financial Governance, in Thomas G. Weiss und Rorden Wilkinson, International Organization and Global Governance, Routledge Press

References

61

Mueller, Julie (2011) The IMF, Neoliberalism and Hegemony, Global Society, 25,3; 377– 402. NGO Advisor (2022) World 200 Best SGOs, Carouge. Neyer, Jürgen (2013) Globale Demokratie: Eine zeitgemäße Einführung in die Internationalen Beziehungen, Baden-Baden. Ohmae, Kenichi (1995) The End of the Nation-State: the Rise of Regional Economies, New York. Olson, Mancur (1993) Dictatorship, democracy and development, American Political Science Review, 87; 567–576. Park, Susan (2017) International organizations in world politics, in: John Baylis et al. (eds) The Globalization of World Politics. An Introduction to International Relations, Oxford, 316–330. Rittberger, Volker et al. (2010) Grundzüge der Weltpolitik, Theorie und Empirie des Weltregierens, Wiesbaden. Ritzer, George and Paul Dean (2019) Globalization. The Essentials, Oxford Rogowski, Ronald (1987) Trade and the variety of democratic institutions, International Organization, 41; 203–223. Rucht, Dieter (2013) Globalisierungskritische Proteste als Herausforderung an die Internationale Politik, in: Michael Zürn und Matthias Ecker-Ehrhardt (Eds.) Die Politisierung der Weltpolitik, Berlin; 61–83. Ruggie, John Gerard (1982) International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order, International Organization, 36,2; 379–415. Ruggie, John Gerard (2004) Reconstituting the Global Public Domain – Issues, Actors, and Practices, European Journal of International Relations, 10,4; 499–531. Sauvant, Karl P. (2015) The negotiations of the United Nations code of conduct on transnational corporations: experience and lessons learned. The Journal of World Investment & Trade, 16,1; 11–87. Scharpf, Fritz W. (1987) Sozialdemokratische Krisenpolitik in Europa, Frankfurt und New York. Scholte, Jan Aart (2000) Globalization. A Critical Introduction, New York. Scholte, Jan Aart (2011a) Introduction, in: ders. (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 78–104. Scholte, Jan Aart (2011b) Global governance, accountability and civil society, in: ders. (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 8–41. Scholte, Jan Aart (2011c) Civil society and IMF accountability, in: ders. (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 1–7. Simmons, Beth A. und Zachary Elkins (2004) The Globalization of Liberalization: Policy Diffusion in the International Political Economy, American Political Science Review 98,1; 171–189. Steffek, Jens (2013) Mandatskonflikte, Liberalismuskritik und die Politisierung von GATT und WTO, in: Michael Zürn und Matthies Ecker-Ehrhardt (Eds.) Die Politisierung der Weltpolitik, Berlin; 213–239. Stephen, Matthew D. (2019) Contestation Overshoot. Rising Powers, NGOs, and the Failure of the WTO Doha Round, in: ders. und Michael Zürn (Eds.) Contested World

62

3  Political Globalization: Democracy, International …

Orders: Rising Powers, Non-Governmental Organizations, and the Politics of Authority Beyond the Nation State, Oxford; 39–81. Strange, Susan (19982) States and Markets, London und New York. Swank, Duane (2006) Tax Policy in the era of Internationalization: Explaining the Spread of Neoliberalism, International Organization 60,4; 847–882. Toye, John (2003) The International Monetary fund (IMF) and the World Bank, in: Michie, Jonathan (ed.) The Handbook of Globalisation, Cheltenham and Northampton; 35–369. Tallberg, Jonas et al. (2013) The Opening Up of International Organizations. Transnational Access in Global Governance, Cambridge und New York. Tapiola, Kari (2015) The heritage of the Code, in: Khalil Hamdani und Lorraine Ruffing (Eds.) Corporate Conduct and the Public Interest, United Nations Centre on Transnational Corporations, New York; 110–17. Union of International Associations (2020) Yearbook of International Organizations, 2020, Brussels. Union of International Associations (2021) Yearbook of International Organizations, 2021– 2022, Brussels. Williams, Marc (2011) Civil society and the WTO: contesting accountability, in: Jan Aart Scholte (Eds.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 105–127. Zürn Michael (2013) Politisierung als Konzept der Internationalen Beziehungen, in: ders. und Matthias Ecker-Ehrhardt (Eds.), Die Politisierung der Weltpolitik, Berlin; 7–35. Zürn, Eds. (2013) Contested World Orders: Rising Powers, Non-Governmental Organizations, and the Politics of Authority Beyond the Nation State, Oxford; 82–123.

4

Trade

4.1 Development of World Trade Foreign trade is rightly considered to be the earliest and still most important facet of a growing international economic interconnection. For a long time, it remained relatively small compared to the global gross domestic product and focused mainly on luxury goods with low weight in relation to the market price. This has changed significantly since the middle of the 19th century; until the outbreak of the First World War, world trade grew faster than the global gross domestic product. Exports increased (in constant prices) from 4.6 to 7.9% of global GDP (Maddison 2001), fell sharply during the war and interwar period (to 5.5% in 1950), then rose rapidly (to 23.6% in 1998 and 30.5% in 2019). The global financial crisis caused a significant drop, followed by a recovery in line with global growth, that is, no faster than this. It declined sharply in the COVID 19 pandemic, but less than before, and rose rapidly in 2021, only to moderate again after Russia’s attack on Ukraine (WTO 2020 and 2021). This development shows the increased sensitivity of the interconnected world economy to any deterioration in the politicoeconomic environment, but also its still remarkable resilience, amplified by the cushioning of the economic downturn caused by trade through massive government support measures. In addition to the growing global trade interdependence, other structural developments are noteworthy: first, the shift in the weights in world trade. While the Western industrialized countries used to dominate world trade, the focus is now slowly shifting to Asia (see Table 4.1). The share of developing countries in world exports is now 47.5%; these go just over half to other developing countries (called South-South trade). Secondly, it has transformed the colonial and postcolonial exchange (raw materials for finished goods); the exports of developing © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_4

63

64

4 Trade

Table 4.1   Share of world exports by region and country 1948–2019

Region

1948

1953

1963

1973

1983

1993

2003

2020

North America

28.1

24.8

19.9

17.3

16.8

17.9

15.8

13.1

USA

21.6

14.6

14.3

12.2

11.2

12.6

9.8

8.4

Mexico

0.9

0.7

0.6

0.4

1.4

1.4

2.2

2.4

Canada

5.5

5.2

4.3

4.6

4.2

3.9

3.7

2.3

South and Central America 11.3

9.7

6.4

4.3

4.5

3.0

3.1

3.2

Brazil

2.0

1.8

0.9

1.1

1.2

1.0

1.0

1.2

Chile

0.6

0.5

0.3

0.2

0.2

0.2

0.3

0.4

Europe

35.1

39.4

47.8

50.9

43.5

45.3

45.9

38.2

Germany

1.4

5.3

9.3

11.7

9.2

10.3

10.2

8.1

Netherlands

2.0

3.0

3.6

4.7

3.5

3.8

4.0

4.0

France

3.4

4.8

5.2

6.3

5.2

6.0

5.3

2.9

Great Britain

11.3

9.0

7.8

5.1

5.0

4.9

4.2

2.4

CIS

–

–

–

–

–

1.7

2.6

2.7

Africa

7.3

6.5

5.7

4.8

4.5

2.5

2.4

2.2

South Africa

2.0

1.6

1.5

1.0

1.0

0.7

0.5

0.5

Middle East

2.9

2.7

3.2

4.1

6.7

3.5

4.1

4.5

Asia

14.9

13.4

12.5

14.9

19.1

26.0

26.1

36.1

China

0.9

1.2

1.3

1.0

1.2

2.5

5.9

15.2

Japan

0.4

1.5

3.5

6.4

8.0

9.8

6.4

3.8

India

2.2

1.3

1.0

0.5

0.5

0.6

0.8

1.6

Austr. + NZ

3.7

3.2

2.4

2.1

1.4

1.4

1.2

1.7

Six traders

3.4

3.0

2.5

3.6

5.8

9.6

9.6

10.1

Source: WTO, World Trade Statistics 2021, p. 56 Explanation: The six traders are the Asian emerging economies (see text)

countries now consist only of 30% oil and other raw materials, but mostly of finished goods. This is the case even for the poorer developing countries. Concerning important investment goods such as steel, shipbuilding, telecommunications and solar power, some less developed economies have made progress, but this is limited to a very small group. China is the world’s leading exporter of technologically intensive goods, followed by Hong Kong, Germany, Korea, the United States, Singapore and France. However, in terms of exports per capita, all developing countries still rank lower (UNIDO 2019).

4.1  Development of World Trade

65

The achievements of the global South must not be exaggerated. As can be seen from Table 4.1, these are mainly due to China and the “six traders” (Hong Kong, Malaysia, Singapore, South Korea, Taiwan and Thailand), followed later by India and Mexico. The rest of the developing countries lag behind in world trade. This is, however, even more true for the classical industrial countries, with early and sustained position losses in the United States, Great Britain and Australia in particular. Japan and Germany have been able to compensate for their relative growth and trade losses during the Second World War with their economic miracle and have been able to maintain their shares in world exports for a long time. This was also favored by an atypically high share of industry in GDP and a strongly export-oriented economic policy. Overall, however, the industrial countries have lost competitiveness, especially in the area of goods with low and medium technology level (OECD 2017). However, their declared position loss in world trade is exaggerated because (a) the exports of industrial countries have also declined to a considerable extent due to the outsourcing of production facilities, which can and do replace former exports. It is exaggerated in terms of goods trade because (b) a former structural change away from industry to modern services took place in industrial countries, whose overall economic weight increased significantly. Services used to be only limitedly tradeable, but this has strongly changed due to digitalization. Secondly, their export was hindered by high, protectionist trade barriers, which were gradually abolished in industrial countries from the mid-1990s onwards. Accordingly, the growth of services trade has been faster since then, exceeding that of goods trade since 2011 (WTO 2019). However, the digitalization of services (prototype: data processing) also led to the fact that the extent and value of the corresponding import and export could hardly be determined, because it is often unclear where and with what effort these services are created and consumed. The old industrial countries still dominate global service exports (with around 2/3 of the total), led by the United States by a wide margin, followed by Great Britain and Germany. The dominance of the West is particularly pronounced in commercial services, insurance, financial services and revenues from intellectual property, much less in service inputs into material production (WTO 2020). The share of developing countries in these exports as a whole is still relatively moderate (2019 just over a quarter, but only 15% in 2005), the country concentration is enormous. Five Asian economies (in order: China, Hong Kong, Korea, Singapore and India) accounted for 57% of the service exports of developing countries, including increasingly the more demanding services. However, it should be added that the majority of these exports in the aforementioned countries (with the exception of India) fall on the subsidiaries of transnational corporations.

66

4 Trade

4.2 The Expansion of Foreign Trade and Its Causes As a result of developments during the last few decades, world trade has diversified in terms of partners and goods. This is firstly a consequence of decolonization, i.e. the participation in trade of now independent states, and secondly a wave of trade liberalization in formerly more or less closed economies. Closely related to this is the membership in the World Trade Organization (WTO) which has become almost universal. There are currently 164 member states which account for 96% of global economic output. Non-members are only a few Asian and African countries which are not significant in the global economy. Membership obliges adherence to market economy rules and the trade facilitation agreements concluded within the framework of the former GATT (today the WTO). As a result of numerous rounds of negotiations since 1947, these have been quite considerable. At first, liberalization only concerned customs duties, later also non-tariff trade barriers (quotas, export subsidies, etc.), and finally, after the conclusion of the Uruguay Round and the establishment of the WTO, also trade-related aspects of intellectual property (patents and licenses, copyrights, etc.) as well as trade-related investment measures, such as the forced use of domestic inputs in foreign production facilities. However, the last round of WTO negotiations (the Doha Round launched in 2001) ended in a deadlock and was effectively buried after some limited agreements on agricultural export subsidies and trade facilitation measures (e.g. accelerated customs clearance) (Ritzen and Dean 2019). Worldwide, customs duties have fallen dramatically since 1947 (see Fig. 4.1). Today, the applied customs duty in the EU is 5.1% of the value of the goods, in the USA it is 3.3%, on average it is 3.5% for all industrial countries. It should also be noted that in both markets, up to half of the goods can be imported dutyfree under various preference agreements and that the average customs duties in the non-agricultural sector are even lower. Customs duties of industrial countries can therefore hardly have any deterrent effect anymore, although the opposite is often reported. What is really new is the dismantling of trade barriers in developing countries: while the average tariff rates in the Global South were still 40% in the 1980s, they have now fallen to around 10%. However, only the applied, but not the bound tariff rates (to which they committed themselves as part of the last round of world trade) have declined sharply (this is far less the case in industrialized countries). So they could be raised again significantly if necessary. In addition, the non-tariff trade restrictions have increased again in the Global South, as has recently been the case in industrialized countries, including import quotas and

4.2  The Expansion of Foreign Trade and Its Causes

67

Fig. 4.1   Applied customs duties of industrial and developing countries since 1988 and respective share of trade in GDP. (Source: Engel et al. 2021, p. 8)

contingent, anti-dumping measures, price controls or sanitary regulations. However, it is empirically difficult to measure non-tariff restrictions and to summarize them in a comparative index; a corresponding attempt shows, however, as with tariffs, more liberalization in relation to the global North (Estefania et al. 2022). Worldwide trade in services, especially in China, India, Southeast Asia and subSaharan Africa, has been deregulated to a much lesser extent, mostly out of fear of exposing this sector, which has so far been heavily controlled by the state, to international competition and influence (for example in the field of media) (IMF/ World Bank/WTO 2017). In addition to the effects of this apparently politically wanted liberalization of foreign trade—which will be discussed below—the already mentioned case of transport costs for the expansion of world trade and the splitting of value chains are responsable. The costs for the sea and air freight of goods have fallen secularly; however, with declining rates since the 1990s and a sharp increase after 2019 due to the Corona pandemic and the Ukraine conflict (OECD 2017; UNCTAD 2015, 2021). However, they were still between 6.8 %(industrialized countries) and 11.4% (Africa) of the value of imports in the decade 2005–14, today again they had reached significantly higher values, and in many places they exceed the customs burden. In addition, there are the loading and unloading costs on site, insurance premiums, personnel costs for the crew, etc.. These costs are higher for small and less developed countries, also due to the lack of efficiency of port infrastructure, smaller market size (and thus relative delivery quantity) and pronounced bureaucratic hurdles.

68

4 Trade

A special feature of international trade is the long-term rapidly increasing export and import of intermediate goods, a consequence of the division of value chains by international corporations, that is, the production of the respective production inputs at the most cost-effective location and their assembly elsewhere. The share of trade in global value chains has increased massively since 1990, differently according to sectors and countries. Today it accounts for about half of all world trade. From 2008 onwards, however, slower growth can be observed because China (and other emerging countries) have produced a larger share of inputs domestically (or taken over final production), a certain relocation of foreign investment has taken place and lastly, because the USA has replaced a larger share of its energy imports through domestic production (fracking). Trade within value chains is highly concentrated on a few countries and sectors (Europe, in particular Germany, North America, automobiles and motor vehicle parts) and only 15% of companies. South Asia and the Middle East are weakly represented. It is not surprising that these value chains are essentially controlled by transnational corporations with high productivity. About one third of total international trade is made up by intra-firm trade. This is not surprising given the moderate technological level of semi-finished products in many places (except in China and the former socialist countries) and the fact that the share of raw materials in the exports of poorer countries is increasing again (UNCTAD 2018).

4.3 Motives for Global Trade Liberalization The question of the economic and political reasons for the global trade liberalization continued until recently can be answered in two ways. First, by the welfare and growth gains resulting from the expansion of foreign trade which can be expected on the basis of the strong increase in trade in relation to GDP (see Fig. 4.1). Second, by a better understanding of the widespread failure of development strategies based on internal markets. The first point is a central argument in every classic introduction to macroeconomics: the inclusion and increase of foreign trade allows the participating economies in principle to specialize in the production of those goods and services for which they have comparative cost advantages, that is, they can produce them with less use of production factors than others because of natural conditions (for example, tropical fruits), they have a higher labor productivity in the production of certain goods, or they are better equipped with a specific production factor (with labor, land or capital) and therefore have a competitive advantage in products that require a relatively high use of this factor (see, for example, Krugman et al. 2015). The resulting exchange

4.3  Motives for Global Trade Liberalization

69

of goods and services would naturally increase the consumption possibilities, the costs incurred and the wage level in the participating economies, although to different degrees. Foreign trade creates for producers a larger market for their sales than just the domestic one and thus reduces the average production costs, it enables the diffusion of technological innovations through imported products and more efficient management techniques (by learning from others), it increases competition on the domestic market, thus promoting efforts to increase productivity and product quality and also makes it more difficult to achieve extra profits (to the detriment of consumers) through shielding from the outside and influencing decision-makers in favor of established, politically well-connected companies. All of these effects should theoretically have a positive and lasting effect on economic growth and social welfare. This is also the overwhelming consensus of the empirical studies carried out for this purpose. There is a close relationship between the relative size of foreign trade, economic growth, the openness of the trade system (measured by the level of tariffs, the absence of state monopolies and realistic exchange rates) and the level of per capita income or the development of overall economic productivity (Frankel and Romer 1999; Baldwin 2003; Weil 2012). The liberalization of a previously highly regulated foreign trade regime also brought considerable growth and investment benefits to the developing countries concerned (Wacziarg and Welch 2008; Cerdiro and Komaroni 2017; Irwin 2019). Of course, the trade system cannot do everything on its own, as the share of foreign trade in GDP is usually too small. However, it has been empirically shown that trade liberalization improves other growth-promoting factors, such as the reduction of corruption and inflation and the increase in overall economic productivity. A long-term positive effect of trade liberalization also depends on the quality of government leadership, which encourages investment, on effective economic and political institutions in the country such as the rule of law, good infrastructure, the promotion of human capital and the maintenance of internal peace (Freeman 2003; Hallak and Levinsohn 2004; Winters 2004). Therefore, with the liberalization of trade, finally many other things also improve in a country, for which the attribution of direct causal consequences to foreign trade might be difficult. In addition, the strength of positive effects emanating from trade is of course also dependent on a number of geographical and structural factors, in particular the distance from the main trading partners, the share of tradeable goods and services in the country, the absence of market-dominant companies, protectionist barriers to trade and the mobility of production factors. But that does not mean— as has sometimes been claimed—that only the full presence of favorable factors promises trade gains.

70

4 Trade

4.4 What are the Reasons for the Resistance to Trade Liberalization? If foreign trade has such great advantages, one naturally wonders why many developing and, earlier, also industrial countries initially and in some cases even much later, heavily shielded their internal market from foreign competition. A quite understandable reason for this was the desired protection of the emerging, small and thus limitedly efficient companies (“infant industries”) against still overwhelming international competition. This also played a role in Germany until the middle of the 19th century. This motive becomes questionable when permanently never-maturing, politically well-connected companies and their relatively privileged workforce are protected against the loss of their domestic market position. This is usually done on much too small markets that do not allow for economies of scale (i.e. the decrease in average costs per unit produced), which is inevitably the case, especially for more sophisticated products. In addition, in former colonies after independence, the conviction—supported by economists in the Third World and elsewhere—that no development success would be possible in the long run with the continued specialization in the production and export of raw materials (the then dominant export products of most developing countries) due to allegedly permanently declining raw material prices, in particular no real economic independence from the former colonial powers. The governments of these states therefore pursued a partly excessive import substitution policy after decolonization and in some cases until the 1990s, that is, the replacement of previously imported goods by domestic production of industrial goods. Companies were protected against foreign competition by high tariff rates, non-tariff trade barriers (e.g. import quotas) and manipulation of exchange rates, the use of capital was subsidized and exports promoted by export subsidies. The result was initially a quite noticeable economic acceleration, but with decreasing returns over time in relation to the capital employed, growing trade deficits and thus foreign debt. The limited size of the domestic markets usually did not allow for efficient production of higher-value, capital-intensive products (which nevertheless took place), the shielding of the domestic market drove up the exchange rate, made exports more difficult, promoted the passivation of the balance of payments and made efforts to improve product quality largely superfluous. The subsidization of capital expenditure reduced the employment effects of this strategic approach, the prescribed ceiling on interest rates stunted the capital market (already Little et al. 1970; Balassa 1981, in overview Irwin 2020). Finally, the high degree of state regulation required to implement the strategy (e.g. in the

4.4  What are the Reasons for the Resistance to Trade Liberalization?

71

allocation of scarce foreign exchange) considerably promoted corruption. These problems were only avoided in a few countries—mainly in East Asia—with sound macroeconomic policy and reliable agreements between more or less competent governments and companies, whose protection was gradually reduced or linked to export growth. The contemporary resistance of many developing countries to further liberalization of trade—which has contributed significantly to the failure of the Doha round under the auspices of the World Trade Organization—can be explained by several factors: first, the inadequate willingness of industrialized countries to substantially reduce their agricultural subsidies in return, second, the threatening danger of new agreements to better safeguard social and environmental standards (in the traded products), which would naturally be to the detriment of poorer countries with lower standards and third, the demands of the global north for particularly clear reduction of trade barriers in the south in politically sensitive sectors. In particular, the representatives of India and Brazil were of the opinion that their own concessions would not be worthwhile in view of the already quite low tariff rates in the global north and the internal resistance to further liberalization (Rodrik 2011). This is also because these concessions would be to the detriment of politically important social groups (in India, for example, small farmers and small shopkeepers). In industrialized countries, the aversion to free trade (especially in the USA, but also elsewhere) is based on the assumption that trade deficits are generally bad and would arise not least through unfair competition from low-wage countries that exploit their labor force and artificially depress social and environmental standards. This is kitchen economics: If national consumption exceeds production capacity, as is the case in the USA, for example, this must necessarily result in trade deficits and—if creditworthiness is given—increasing international indebtedness. Furthermore, trade deficits or surpluses have empirically second, little to do with the number of people employed in the country. If the economic focus shifts from the industry characterized by higher growth in labor productivity to the services, the proportion of people employed in industry automatically decreases. Raising tariffs to protect the domestic market can then only provide short-term breathing space. The argument of exploitative wages in poor countries, which discriminate against and make workers in the north unemployed, is nonsense but often heard. However, wages reflect very closely the different overall economic and labor productivity, their artificial increase would therefore deprive less advanced countries of their international competitiveness (Krugman et al. 2015; Lawrence 2020). Two other arguments with respect to the consequences of rapid, excessive or premature integration into world trade are, however, somewhat more convincing.

72

4 Trade

In the long run, it is not only important whether countries integrate into the world market at all, but also how they do so. An export growth that is not based on an increase in local value creation, because only the extremely labor-intensive, technologically less demanding production stages are located in the country with little local, industrial and technological networking, or that is based solely on the expansion of traditional sectors (e.g. agricultural products), is probably permanently inferior. The UNCTAD has repeatedly pointed this out (already UNCTAD 2002) and claimed that the relationship between foreign trade and long-term economic growth depends on the position of local companies in the international division of labor, so that an increase in technological assets is more important than a hasty integration into the world market. In fact, a study (Hausmann et al. 2005) shows that economies that succeed in further climbing the technological ladder in international competition achieve higher economic growth. But how this is to be accomplished socially without falling back into the trap of state-controlled import substitution is another question.

4.5 Distribution of Foreign Trade Gains Foreign trade finally also leads to unequal distribution effects within society and regionally. These are the ones that probably fuel the criticism of trade liberalization and globalization most intensely. It is widely accepted that foreign trade generates overall economic benefits that could be distributed in theory if the winners of the trade exchange compensated the losers and the latter could easily switch from negatively affected to other, expanding sectors/companies. But this is not or only to a limited extent the case in reality (in contrast to many textbook claims). Foreign trade affects income distribution solely because it changes the demand for production factors (usually limited to labor and capital, less to land). In the simple (Heckscher-Ohlin-) model with two production factors and two trading partners, the introduction of trade increases the demand for the production factor that is abundant in one country and increases its price/interest rate, but reduces the demand for the less abundant factor and its compensation. So economies that are rich in labor would have to record an increase in wages with an increase in foreign trade, while those that are rich in capital would record an increase in capital interest and a reduction in wages. In the extreme case, this could lead to the international alignment of factor prices (factor proportionality compensation theorem). Workers employed in a capital-rich country (or sector) would therefore experience relative wage and income losses, while those employed in a country rich in labor would experience gains.

4.5  Distribution of Foreign Trade Gains

73

Theoretically, the losers (employees and capital) could move to thriving sectors, but at least in the short term this is hardly possible due to insufficient mobility (more on this later). Capital cannot be transferred from one sector to the other free of charge and without problems, workers are often not sufficiently qualified or not easy to retrain for new employment in expanding sectors. The possible compensation of the losers from the overall welfare gains—for example, through financial transfers or severance payments—is also often only a theoretical possibility. There are relevant programs in some countries (such as the USA) for this, but they only cover a limited part of the workforce released (see also Krugman et al. 2015). The empirical validity for the equalization of factor prices is also rather limited; first, because so far a large part of goods and services is not tradable (estimated at up to 60%), second, because transport costs and economic policy deficits drive a wedge between domestic and foreign prices and thus factor prices, third, because the classical model assumed the use of the same technology everywhere for identical goods. But that is by no means the case; agriculture (and other) can be carried out by manual labor or expensive machines. If the latter is the case, the labor productivity increases considerably, thus also the effective labor supply. The labor force is also not homogeneous, but worse or better qualified. As a result, in capital-rich countries with more highly educated workers, these workers and capital-intensive companies would benefit from trade, while in countries with plenty of moderately educated workers, the latter would benefit more. If this is taken into account, the—revised—factor compensation theory finds rather empirical confirmation (Davis and Weinstein 2001). It is also reflected in the income inequality in the traditional industrial countries, unless it is decisively countered by tax measures and social transfers (see Chapter Globalization and Welfare State). This inequality is further increased if transnational and other corporations break down the production process and outsource labor-intensive sub-processes to countries with low wages (OECD 2017). More on this in the chapter Globalization and Income Distribution. The liberalization of foreign trade—assuming only limited flexible labor markets—inevitably also leads to the loss of jobs, losses that concentrate on regions and sectors of declining international competitiveness and the corresponding workforce. There are fierce debates among experts about how far this has been the case and still is. In particular, American scientists have blamed the loss of employment in the USA on massively increasing Chinese imports (Acemoglu et al. 2016; Autor et al. 2018), later seconded by experts on European labor markets (Aghelmaleki et al. 2019). However, there are indications that the losses in industrial employment in the global north are more due to technical progress than

74

4 Trade

to increasing import pressure from emerging countries (especially from China), because the loss of jobs focuses on routine activities and less on the fragmentation of production across different locations. This apparently also applies to more advanced developing and transition countries (Reijnders and Vries 2018). Moreover, many jobs are retained in richer countries because they can trade and split value chains to obtain raw and intermediate products more cheaply (Wang et al. 2018). More on this in the chapter Globalization and Employment. It is not surprising therefore, that foreign trade, even if it can have positive effects on all consumers in the country or does so, can nevertheless cause considerable political distribution conflicts. The potential losers of further liberalization—that is, less efficient companies and their employees—are politically much stronger than their theoretical beneficiaries in the future. The political power distribution between these two camps can only be reversed if the weight of the export economy increases and/or the results of trade policy blockades become unbearable.

References Acemoglu, Daron et al. Import Competition and the Great US Employment Sag of the 2000s, Journal of Labor Economics, 34, S1; pp. 141–S198. Aghelmaleki, Hedieh et al. (2019) The China Shock, Employment Protection, and European Jobs, Discussion Paper No. 328, Düsseldorf Institute for Competition Economics. Autor, David et al. (2013) The China Syndrome: Local Labor Market Effects of Import Competition in the United States, American Economic Review, 103(6); 2121–2168. Balassa, Bela (1981) The Newly Industrializing Countries in the World Economy, New York. Baldwin, Robert E. (2003) Openness and Growth: What’s the Empirical Relationship? NBER Working Paper 9578, Cambridge, MA. Cerdeiro, Diego A. und Andras Komaromi (2017) Trade and Income in the Long Run: Are There Really Gains, and Are They Widely Shared? IMF Working Paper 17/213, Washington, D.C. Davis, Don R. und David Weinstein (2001) An Account of Global Factor Trade, American Economic Review, 91,5; 1423–1453. Engel, Jakob et al. (2021) The Distributional Impacts of Trade. Empirical Innovations, Analytical Tools, and Policy Responses, World Bank, Washington, D.C. Estefania-Flores, Julia et al. (2022) Measurement of Aggregate Trade Restrictions and their economic effects, IMF Working Paper 22/1, Washington, D.C. Frankel, Jeffrey A. und David Romer (1999) Does Trade Cause Growth? American Economic Review 89,3; 379–398. Freeman, Richard B. (2003) Trade Wars: The Exaggerated Impact of Trade in Economic Debate, NBER Working Paper 10000, Cambridge, MA.

References

75

Hallak, Juan Carlos und James Levinsohn (2004) Fooling Ourselves: Evaluating the Globalization and Growth Debate, NBER Working Paper 10244, Cambridge, MA. Hausmann, Ricardo et al. (2005) What You Export Matters, NBER Working Paper 11905, Cambridge, MA. IMF/World Bank/WTO (2017) Making Trade an Engine of Growth for All. The Case for Trade and for Policies to Facilitate Adjustment, Washington, D.C. Irwin, Douglas A. (2019) Does Trade Reform Promote Economic Growth? A Review of Recent Evidence, Working Paper, Peterson Institute for International Economics, Washington, D.C. Irwin, Douglas A. (2020) The Rise and Fall of Import Substitution, NBER Working Paper 27919, Cambridge, MA. Krugman, Paul R. et al. (201510) Internationale Wirtschaft. Theorie und Politik der Außenwirtschaft, Hallbergmoos. Lawrence, Robert Z. (2020) Trade Surplus or Deficit? Neither Matters for Changes in Manufacturing Employment Shares, Peterson Institute for International Economics, Working Paper 20–15, Washington, D.C. Little, Ian et al. (1970) Industry and Trade in Some Developing Countries, London. Maddison, Angus (2001) The World Economy. A Millenial Perspective, OECD, Paris. OECD (2017) OECD Economic Outlook, vol 2017, Issue 1, Paris. Reijnders, Laurie S.M. und Gaaitzen J. De Vries (2018) Technology, offshoring and the rise of non-routine jobs, Journal of Development Economics 135; 412–432. Ritzer, George und Paul Dean (2019) Globalization. The Essentials, Hoboken. Rodrik, Dani (2011) Das Globalisierungs-Paradox. Die Demokratie und die Zukuft der Weltwirtschaft, München. UNCTAD (2002) Trade and Development Report 2002, New York and Geneva. UNCTAD (2015) Review of Maritime Transport 2015, New York and Geneva. UNCTAD (2018) Trade and Development Report 2018. Power, Platforms and the Free Trade Delusion, New York and Geneva. UNCTAD (2021) Review of Maritime Transport 2021, New York and Geneva. UNIDO (2019) Industrial Development Report 2020. Industrializing in the Digital Age, Vienna. Wacziarg, Roman und Karen Horn Welch (2008) Trade Liberalization and Economic Growth: New Evidence, The World Bank Economic Review 22,2; 187–231. Wang, Zhi et al. (2018) Re-examining the effects of trading with China on local markets: A supply chain perspective, NBER Working Paper 24886, Cambridge, MA. Weil, David N. (20123) Economic Growth, London und New York. Winters, L. Alan (2004) Trade Liberalisation and Economic Performance: An Overview, The Economic Journal 114; F4–21. World Trade Organization, WTO (2019) World Trade Report 2019. The future of services trade, Geneva. World Trade Organization, WTO (2021) World Trade Report 2021. Economic resilience and trade, Geneva. World Trade Organization, WTO (2020) World Trade Statistical Review 2020, Geneva. World Trade Organization, WTO (2021) World Trade Statistical Review 2021, Geneva.

5

Foreign Investment

5.1 Foreign Investment, in Particular by Transnational Corporations: Development and Focus The most striking signs of globalization are undoubtedly foreign capital investments, predominantly made by transnational or multinational corporations (TNCs or MNCs), i.e. companies that have a branch office in at least one other country than their country of origin, in which they hold at least 10% of the capital shares. This definition by UNCTAD is relatively soft, which is why foreign investments and those made by TNCs are almost identical and the number of TNCs thus determined is high and rapidly increasing. But even if one were to limit oneself to the 100 companies with the highest sales, their share of global production, employment, private sector investment, foreign trade and global technology transfer would be considerable (see below). The production of these companies now far exceeds the volume of global exports, i.e. it has become the predominant mode of supplying foreign markets with goods and services. Their importance is further increased by the fact that they generate a large part of their sales through purchases and sales within their own company (intrafirm trade) and finance their investments to a considerable extent through reinvested profits and capital raising in the host countries (UNCTAD 1997), thus increasing their share of capital formation in the host countries even further. The largest TNCs organize their research, production, marketing and financing on a global basis, each where these partial steps can be carried out most efficiently, while also relying on subcontractors to which parts of the production are outsourced. Given their size, their partially “homeless” overall organization,

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_5

77

78

5 

Foreign Investment

which only allows individual states limited influence on their business strategy, and given their considerable ability to evade the jurisdiction of national tax authorities and control institutions, it is not surprising that their activities have been the subject of substantial criticism since their rise (see further below). In this respect, recently accusations have become somewhat quieter; even governments and international organizations, which once deplored the dangers posed by TNCs to the economic and social sovereignty of weaker states, are now striving to serve as locations for their subsidiaries and are highlighting—as the rather development-oriented UNCTAD—their contribution to increased exports, productivity, employment on site and technology transfer (cf. UNCTAD 1999). The first companies that can be described as truly transnational were the large trading companies of the 17th to 19th centuries, that is, the English and Dutch trading companies, which, however, operated to a large extent within the colonial empires and hardly carried out any independent production. Foreign direct investment rose sharply in the first globalization wave, but focused on portfolio capital, that is, financing stakes in foreign companies with a focus on oil and ore extraction, later also on plantation farming, livestock farming and the banking sector. Their share in actual industrial production remained limited until the First World War. Great Britain was the main country of origin of these investments, followed by the USA, France and Germany. The main areas of investment were the then colonial countries and—to a limited extent—the laggards among the industrial nations (Canada, Russia). Companies financed by foreign private capital operated on their own independent basis; there was only rudiments of internationally networked production. Nevertheless, the total sum of foreign investments amounted to 7–9% of global production in 1913, that is, not very much less than today (Sutcliffe and Glyn 2011). Foreign investment collapsed considerably in the interwar period, but recovered again until the outbreak of the Second World War, despite increasing public restrictions and nationalizations. After the end of the war, foreign investment took an initially hesitant, but from the 1960s onwards rapid upswing. Its growth was mostly significantly higher than that of the world’s gross domestic product, at least until the mid-1990s. The countries of origin of the investments were now mainly the USA, due to their global productivity advantage, followed by European and Japanese companies. This upswing was driven by falling communication and transport costs, but also by the closure of many markets through high import duties, especially from developing countries (which could be circumvented by local production), as well as by the establishment of regional economic communities and customs unions (EU, NAFTA, ASEAN), but above all by the gradual liberalization of the investment regime in many places: This gained

5.2  Increase in Foreign Investment and Its Causes

79

momentum in the 1980s and especially in the 1990s (see various editions of the World Investment Report, starting with UNCTAD 1997), finally also affecting the excessively protected services sector and resulting (in the Global North, less in developing countries) in a massive series of company acquisitions, mergers and alliances.

5.2 Increase in Foreign Investment and Its Causes Foreign investments have long been motivated by securing the supply of raw materials for processing companies and access barriers to protected domestic markets through tariffs and other trade barriers. But for the last three decades, the decomposition of the production process by internationally active corporations and the outsourcing of individual production and marketing stages to the most efficient/cost-effective locations have moved to the top of the investment motives. This process was greatly supported by the rapid development and efficiency of information and communication technologies, which facilitated the decomposition of the production process organizationally. In addition, the further decline in transport costs reduced the time and financial requirements for the decomposition of value-added stages and their later merger to the final product. Last but not least, the removal of state obstacles to foreign investment played a decisive role. So this part of the globalization process was also to a large extent politically controlled and desired. The motives of foreign investment are obvious in the raw materials sector; in the areas of industry and services, the size of the host countries, good infrastructure and legal certainty play the biggest role (Walsh and Yu 2010). The global dismantling of state restrictions on foreign direct investment took place in industrial countries at the latest in the 1970s, followed by some emerging countries. Industrial countries still have a significantly more liberal investment regime than developing countries (see Fig. 5.1). Interestingly, large Asian economies (China, India, Indonesia), which are quite popular as investment locations, have particularly high barriers to foreign corporate engagement. But these states also showed the greatest liberalization progress since the end of the 1990s, which is of course easier from a low level. No country in the world has no investment barriers at all. Their once rapid reduction has slowed down considerably in recent years (UNCTAD 2020, 2021), also due to increasing concerns about national supply security and the acquisition of domestic technology by foreign companies for security reasons. In terms of type of restriction, requirements for the permissible share of equity of foreign companies predominate in order to make it more difficult to take over local companies or to prevent sectoral dominance (and thus

80

5 

Foreign Investment

Fig. 5.1   (Upper part) Project finance by sector, developed economies, 2010–2019 (Lower part) Project finance by sector, developing and transition economies. (Source: UNCTAD 2020, p. 19 f.)

Fig. 5.1   (continued)

5.3  Scope and Distribution of Foreign Investment

81

the weakening of domestic companies). Also important are requirements for the examination, approval, registration and control of foreign companies, which usually place the latter at a disadvantage compared to domestic companies. These had become rare in OECD countries, but are now increasing again, especially with regard to Chinese investments/acquisitions (Mistura and Roulet 2019). Among economic sectors the raw materials, agriculture and services sector are particularly closed to foreign investment. The latter because service companies are often state-owned or enjoy monopoly positions (media, transport, finance), the agricultural sector mainly for social reasons. The aforementioned restrictions have a clearly investment-inhibiting effect, weaken productivity growth in those sectors that need it most, according to calculations by Mistura and Roulet (2019).

5.3 Scope and Distribution of Foreign Investment The volume of foreign direct investment has risen sharply until just before the global financial crisis (inflow in 1990: 205 billion US dollars; in 2007: 1905 billion), but then there was a sharp drop to 1.238 trillion US dollars (2009), followed by a rebound to a new record level in 2015 (2.05 trillion), followed by a sharp contraction since then to 1.54 trillion in 2019 and 963billion in 2021, the lowest level since 2005 (UNCTAD 2022, Global foreign direct investment flows over the last 30 years). So far, the recent decline in investment has been much more strongly felt in industrial countries (see Table 5.1), especially after the outbreak of the pandemic (with the exception of Latin America); but for the near future a sharp fall is expected in all those developing countries that are heavily dependent on raw material exports and intensively integrated into international

Table 5.1   Inflows and outflows of direct investment 2017–2019

Source: UNCTAD 2020, p. 13

82

5 

Foreign Investment

value chains (UNCTAD 2020, 2021). Foreign investment is therefore characterized by considerable fluctuations, which are, however, less pronounced than those of other financial transfers (portfolio investment, bonds, bank loans), because of this they are particularly seen as a stabilizing element in the access of relatively poor countries to international capital. The current decline in investment is due to a decrease in the number of new companies (‘greenfield investments’), this now mainly in developing countries, fewer takeovers of existing companies or mergers with these, by postponing new projects (with the exception of those for the promotion of green energy) and relocating investments back to the home countries of the investors. In addition, the governments of some countries tightened investment conditions again (mainly for reasons of national security) or prevented sales of distressed companies to foreign conglomerates. Long-term negative consequences could be measures taken by companies—supported by such state agencies—to secure their supply chains against interruptions and to increase selfsufficiency in important raw materials. The Corona crisis provided examples of this, such as the supply of raw materials for vaccine production or the supply disruptions caused by the far-reaching lockdown in the supply of semiconductors. A further renationalization of industrial production cannot be ruled out. Of the total foreign investments, 312 billion of 1000 billion US$ fell on the industrial countries in 2021, 685 billion on the developing countries, which had overtaken the industrial countries as an investment area for the first time in 2012. Until 2012, the industrial countries were the dominant investment area for foreign investment, in stark contrast to the first globalization wave, when about 60% of direct investment fell on colonial territories and already independent states in Latin America—with a focus on raw material exploitation. Within the developing countries, the Asian countries continue to dominate (with 535 billion, i.e. around 80% of the total) by a wide margin, followed by Latin America (88 billion) or even Africa (40 billion). The main host countries were China (22% of the total) in 2020, followed by Hong Kong (18%), Singapore (13.7%) and India (just under 10%). The dominance of the emerging economies within the South is even greater in terms of foreign investment than in terms of foreign trade. However, something similar can be said about the global North, because here 70% of foreign investments were made in the USA, the Netherlands, Ireland, Great Britain, Canada and Germany, more than 30% in the USA alone. However, the often heard argument of a geographical imbalance of foreign private capital must be linked to the fact that the main investment countries also account for a correspondingly large share of global economic output and even more of private demand. What is new in recent years is that companies from emerging economies have themselves become important foreign investors: In 2020, Chinese compa-

5.3  Scope and Distribution of Foreign Investment

83

nies were even ranked first worldwide, followed by Hong Kong in third place and Korea in tenth place. What is not quite new is that the inflows of foreign investment into the Global South far exceed those from development cooperation. Only a small proportion of the companies existing worldwide are involved in foreign trade at all, and even fewer and only the most productive ones have foreign subsidiaries (Helpman et al. 2003). Within the transnational corporations, the lion’s share of business activity falls on the largest corporations. So today there are 65,000 transnational corporations with 850,000 subsidiaries (7000 in 1990) with over 82 million employees. However, the top 100 TNCs are responsible for about 1/5 of global sales and employment, probably for an even larger share of profits. The weight of foreign subsidiaries of companies in the world economy has increased to a considerable extent; they now account for around 38% of global GDP, and trade within international companies for about 1/3 of world trade (UNCTAD 2020; World Bank 2020). The sales of transnational corporations have been compared several times with the gross domestic product of states; it exceeds this in a considerable number of countries. However, this comparison, from which a global concentration of power on TNCs was concluded, is flawed because a high proportion of TNC sales consists of intermediate products (approx. 4/5), which reduces the value-added sales of TNCs to just over 9% of global GDP (Sutcliffe and Glyn 2011; UNCTAD 2020), and because sales are not synonymous with freely available resources for the exercise of power. Nevertheless, the weight of TNCs within the world economy has quadrupled since 1970. However, for a long time, it has not surpassed the global economic weight of foreign investment in 1913 (Sutcliffe and Glyn 2011). Sectorally, an approximately equal proportion of new subsidiaries is currently evenly balanced between industry and services, with the most important subgroups being (in order) the energy sector, coal and oil, construction, information and communication, and the automotive industry. In the case of acquisitions and mergers with domestic companies, which are only half as large financially, the pharmaceutical sector and business-related services are particularly noteworthy (see Fig. 5.1a and b). A striking feature of the sectoral structure of newly announced projects is the steep increase in renewable energy projects, both in industrial and developing countries. Their share in total financing (including domestic third-party funding) was over 60% in industrial countries and 45% in developing countries. The shares of all other sectors shrank; the mining sector and agriculture also played only a minor role in investment in the Global South. Emerging economies have long been significant sources of private direct investment themselves. In this respect, China ranked 4th globally with 117 billion dollars, but 2nd in 2020. Hong Kong, Korea and Singapore were among the top

84

5 

Foreign Investment

ten. Consequently, more than one third of private investment in the South comes from other developing countries. There are often exaggerated claims circulating about the profits of foreign subsidiaries of transnational corporations, but they are not insignificant either. Until 2007, they were around 8 or 9% of sales, but have been stuck at just over 6% since 2017. However, one must add the not inconsiderable income from patents and licenses, which amount to more than 18% of their profits. In addition, there are the profits realized through holding companies in low-wage countries and the creative evaluation of the performance of other parts of the company in third countries. For a long time, the profitability of subsidiary companies in the Global South was higher than in the North (especially in mining and oil), but now a convergence is observed. Typically, 1/3 of the profits are reinvested, the rest is repatriated to the parent company (see UNCTAD, World Investment Report, various years). The reinvestment ratios are higher for foreign investments in the North, above average for stable, export-oriented developing countries, quite low for the rest and for investments in the raw materials sector. It should also be mentioned that transnational corporations are particularly research-intensive; more than 1/3 of global private research expenditure can be attributed to the 100 largest TNCs (UNCTAD 2019). Not surprisingly, the leaders were the information and communication sector, the pharmaceutical sector and the automotive industry.

5.4 The Splitting of Value Chains by International Corporations What is really new about global investment activity and for many observers one of the phenomena characteristic of the current globalization phase, is the splitting of global value chains by transnational corporations. World trade and global production are increasingly structured by the division of the entire production and marketing process into individual components that are provided by different companies within and outside a corporation and later assembled and marketed elsewhere, depending on the comparative advantages of the respective locations. This means, for example, that the production of simple, labor-intensive partial production takes place in a low-wage country with little human capital, capitalintensive work steps, while research and marketing of the products takes place in high-wage countries with qualified workers. Countries, or more precisely parts of companies in host countries, therefore specialize in certain company functions or partial tasks of production instead of mainly producing final goods as in the

5.4  The Splitting of Value Chains by International Corporations

85

past (De Backer and Miroudot 2013; Ignatenko et al. 2019). The purpose of splitting the value chain is obvious, it reduces production costs by using the respective location advantages, meets the demands of some emerging countries for local value creation and creates the best of all worlds for companies: technical and organizational expertise at one location is combined with low-cost work elsewhere, an unbeatable combination (Baldwin 2016). Of course, this implies that the host countries allow as unhindered access as possible to the inputs from locations elsewhere, the logistics and transport of intermediate goods do not require excessive effort, the workforce is trained according to the respective requirements (on average much better) and state interference in the production network collaboration is avoided (Kowalski et al. 2015). With the spread of value chains, less developed countries have the opportunity to industrialize more quickly through the rapid diffusion of technologies from the home countries of corporations to the periphery, a diffusion that took longer in the past and required local research and development efforts. The flip side, however, is that changes in cost parameters (e.g. automation in home countries) or global demand can also quickly change/reduce the participation of locations in value creation (Hallward-Driemeier and Nayyar 2018). For the wealthier countries, participation in value chains provides access to cheaper intermediate goods or semi-finished products. Cheaper intermediate products make exports competitive. The flip side is the relocation of jobs and the tendency towards a passive trade balance (OECD/WTO/World Bank 2014; Ignatenko et al. 2019). It is quite obvious that the division of value creation and the supply within or outside the same corporation with components for final assembly or re-export from the location of this assembly to third countries fundamentally changes the character of international trade. In addition, many elements of production (design, know-how, patents, trademarks, etc.) have no reliably ascertainable transfer price within the same company/corporate group, but a high actual value, with corresponding consequences for the possibility of tax estimation and -collection. Even the traditional excitement about trade deficits makes little sense if, for example, the US deficit is largely due to the fact that TNCs based in the USA import components of their sub- or subsidiary companies from Asia. In the extreme, the disassembly of production can lead (example Apple smartphone) to sales where no manufacturing in the classical sense takes place. Production and trade within global value chains have risen rapidly up to the global financial crisis, then collapsed sharply (see Fig. 5.2), then only recovered to a limited extent. China’s participation, in particular, has declined because companies there now produce more components and services themselves, while the USA’s participation is also declining, but that of China’s neighbouring countries is still growing strongly (ADB et al. 2021).

86

5 

Foreign Investment

Fig. 5.2   Rise and fall of participation in global value chains. (Source: ADB et al. 2021, p. 38 Note: Trade-based shows the share of intermediate products (within value chains of (gross) export value), production based the share of value creation as a whole)

5.5 Causes of the Increase in Private Foreign Investment Exploring the causes of the increase in private investment capital in the Global South and elsewhere is not a great challenge. In developing countries, it is essentially a result of more business-friendly policies, including the mentioned reduction of investment barriers, growing domestic markets, especially in emerging countries, and still favorable wages with (on average) significantly increasing overall economic productivity. It allows companies in industrialized countries to better compete against international competition, to participate in networks of research, innovation and development in their home countries. The liberalization of foreign investment continued worldwide, especially in the 1990s, but lost some momentum in the last five years, also in industrialized countries, as growing political resistance to the takeover of technology-intensive companies by Chinese

5.5  Causes of the Increase in Private Foreign Investment

87

Fig. 5.3   Index of restrictions on foreign investment (2019/20). (Source: OECD Note: No restrictions = , maximum restrictions = 1)

companies shows. However, national liberalization steps still far outweigh new, restrictive measures, although the trend has been declining since the turn of the millennium. Despite the relaxation, the investment regime in the Global South is still significantly more restrictive than elsewhere (see Fig. 5.3); Surprisingly, leaders in limiting the permissible share of foreign owners in domestic companies and other requirements (especially those for the use of domestic inputs) are also developing countries with high inflows of foreign direct investment, such as China, India, Indonesia and Thailand (Thomsen and Mistura 2017). The liberalization process also includes the increase in multilateral and, above all, bilateral investment agreements. Worldwide, 2895 such bilateral agreements were concluded by the end of 2019, another 389 general agreements contain clauses on investment protection. The peak of new agreements was in 1997; in recent years, more agreements have been terminated than new ones have been started. Prominent new international agreements with investment protection include the African Continental Free Trade Area, the EU’s agreement with Mercosur, the new NAFTA (United States-Mexico-Canada Agreement, USMCA), and the Regional Comprehensive Partnership Agreement of Asian countries. A special case of attracting foreign direct investment is the establishment of special economic zones, which are zones in which national labor, tax and traderelated government regulations are suspended, various benefits are offered to

88

5 

Foreign Investment

companies that settle there, such as temporary tax breaks, restrictions on union activity, provision of functioning and subsidized infrastructure, customs duty exemption, etc. These special economic zones have existed since the 1970s, and their number increased sharply in the 1980s and again since 1995. According to UNCTAD (2019), there are 5400 such zones, which therefore also compete with each other. They are mostly located in Asia, half of them in China. Their balance sheet is mixed: in China and some other countries they contributed significantly to the export boom, their impact on employment was substantial, the wages paid were above average, but their contribution to growth was rather limited. Even the IMF and the World Bank have admonished developing countries not to overdo the promotion of these zones through tax breaks.

5.6 Effects and Problems of Foreign Investment It is not exactly easy to come to a final balance sheet of the advantages and disadvantages of foreign investment in general and especially those of transnational corporations. This was attempted by earlier, critical writings that made these investments responsible for almost everything that went wrong in the world and especially in its poor southern half, in particular the deterioration of income distribution, wage pressure, poor working conditions, overpriced transfer of inappropriate technologies and generally the exploitation and the permanent fixation of the host countries on a dependent, hardly growth-prone production at low level. This was at least as exaggerated as the promises of salvation by international business circles and their followers. The most important thing would be a positive contribution of TNCs to growth and employment. But general statements about this are difficult because this can vary considerably depending on investment priorities, capacity to absorb foreign technology, liberalization of trade, level of human capital, and other local factors (Baldi and Miethe 2015). Of course, particularly economically prosperous countries attract foreign investors, so it is not so easy to distinguish cause and consequences Finally, indirect investments (via offshore centers, for example via Hong Kong in China) complicate the reliable calculation of the relationship. It seems plausible that the growth effects are weak in resource-related investments, moderate in the service sector, and stronger in the production of finished goods, depending also on the extent of networking with the local economy (Alfaro 2003). The latter brings mainly growth dividends if this also increases exports. The otherwise often quite critical UNCTAD (2013) sees above all the integration of host countries into international value chains as conducive to growth and overall eco-

5.6  Effects and Problems of Foreign nvestment

89

nomic productivity, which, however, could also increase the scope for the manipulation of transfer prices and thus the hidden transfer of profits. Similar results are obtained by the majority of the studies available (see the meta-analysis by Kastratovic 2020). The positive impact on productivity is not only visible in the subsidiaries of TNCs, but also in relation to local companies (Girma et al. 2015). Positive effects on growth, productivity and exports are particularly evident in the participation in value chains, especially in already more advanced countries of the Global South, less so in others (Ignatenko et al. 2019). The relatively clear benefit of better pay for workers in foreign companies is the stronger, the more they are integrated into the value chains mentioned. The flip side is their contribution to the polarization of labor markets and the impairment of a uniform distribution of income. But a number of negative effects may offset these basically positive effects: Employment only increases very slightly through foreign companies because they produce more capital-intensive than domestic companies. Otherwise they would have to adapt their technologies completely to the environment with plenty of available labor and make compromises in production quality. The relatively low labor intensity is only partially compensated by increased production (World Bank 2020). There is no question that transnational companies contribute directly (via tax havens) or indirectly (via manipulated transfer prices) to tax avoidance (Bruner et al. 2018). The OECD estimates the loss of tax revenue through these practices at 200 billion US dollars annually. On the other hand, foreign companies also contribute to higher capital formation in host countries, provided they do not simply take over domestic companies. The impact on development depends on the assessment whether poorer countries are able to climb to higher levels of value creation by recruiting foreign companies or participating in international value chains. This can by no means be expected for all developing countries (UNCTAD 2018; Ignatenko et al. 2019; World Bank 2020). It is unlikely that this will happen on a large scale, as there are only a few actual cores of value creation (USA with few neighboring countries, Germany with Western Europe, China with Japan and parts of East Asia) with limited impact on the rest of the world (WTO et al. 2019). Finally, it is a special annoyance for the host countries of foreign investments that the great influence of often market-dominant foreign investments threatens to undermine their economic policy sovereignty, with regard to tax, employment, innovation and industrial policy. The influence of these companies can also be seen in the worldwide increase in market concentration, which is reflected internationally in increasing price premiums of market-dominant, productive companies. This is also pointed out by the World Bank, which is by no means hostile to

90

5 

Foreign Investment

companies and investments (World Bank 2020; 83 ff.; see also IMF 2019). The problem for regulating the power of global players is that there is no coherent international regime for this purpose: There are only bilateral and regional investment protection agreements, which of course serve primarily to protect investors and make interventions by host countries more difficult. Attempts by developing countries to establish a multilateral regime for the control of TNCs failed at the outset due to the resistance of industrial countries (with strong argumentative assistance from Western companies). At the same time, however, the scope for interventions by host countries has been further reduced by the extension of the WTO mandate to services trade and the trade-related aspects of investment (TRIMS) and intellectual property (TRIPS) (Held et al. 1999).

References Alfaro, Laura (2003) Foreign direct Investment and Growth: Does the Sector Matter? Harvard Business School, Boston. Asian Development Bank, ADB et al. (2021) Global Value Chain Development Report 2021. Beyond Production, Manila. Baldi, Guido und Jakob Miethe (2015) Foreign Direct investment and Economic Growth, DIW, Berlin. Baldwin, Richard (2016) The Great Convergence, Cambridge, MA. Bruner, Jennifer et al. (2018) Multinational Profit Shifting and Measures Throughout Economic accounts, NBER Working Paper 24915, Cambridge, MA. De Backer, Koen und Sébastien Miroudot (2013) Mapping Global Value Chains, OECD Trade Policy Papers No. 159, Paris. Girma, Sourafel et al. (2015) Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms, Journal of international Economics 95; 157–169. Hallward-Driemeier, Mary und Gaurav Nayyar (2018) Trouble in the Making? The Future of Manufacturing-Led Development, World Bank, Washington, D.C. Held, David et al. (1999) Global Transformations. Politics, Economics and Culture, Cambridge und Oxford. Helpman, Elhanan et al. (2003) Exports versus FDI, NBER Working Paper 9439, Cambridge, MA. Ignatenko, Anna et al. (2019) Global Value Chains: What are the Benefits and Why Do Countries Participate? IMF Working Paper 19/18, Washington, D.C. IMF (2019) Corporate Taxation in the Global Economy, Policy Paper, Washington, D.C. Kastratovic, Radovan (2020) The impact of foreign direct investment on host country exports: A meta-analysis, The World Economy 43; 3142–3183. Kowalski, Przemyslaw et al. (2015) Participation of Developing Countries in Global Value Chains. Implications for Trade and Trade-Related Policies, OECD Trade Policy Papers No. 179, Paris.

References

91

Mistura, Fernando und Caroline Roulet (2019) The determinants of Foreign Direct Investment: Do statutory restrictions matter? OECD Working Papers on International Investment 2019/01, Paris. OECD/WTO/World Bank (2014) Global Value Chains: Challenges, Opportunities, and Implications for Policy, Paris. Sutcliffe, Bob and Andrew Glyn (2011) Measures of globalization and their misinterpretation, in: Jonathan Michie (ed.); The Handbook of Globalization, Cheltenham and Northampton; 87–103. Thomsen, Stephen und Fernando Mistura (2017) Is investment protectionism on the rise? Evidence from the OECD FDI Regulatory Restrictiveness Index. Global Forum on International Investment, OECD, Paris. UNCTAD (1997) World Investment Report 1997. Transnational Corporations, Market Structure and Competitions Policy, New York. UNCTAD (1999) World Investment Report 1999. Foreign Direct Investment and the Challenge of Development, New York. UNCTAD (2013) World Investment Report 2013. Global Value Chains: Investment and Trade for Development, New York. UNCTAD (2018) World Investment Report 2018. Investment and New Industrial Policies, New York. UNCTAD (2019) World Investment Report 2019. Special Economic Zones, New York. UNCTAD (2020) World Investment Report 2020. International Production Beyond the Pandemic, New York. UNCTAD (2021) World Investment Report 2021. Investing in Sustainable Recovery, New York. Walsh, James P. und Jiangyan Yu (2010) Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach, IMF Working Paper 10/187, Washington, D.C. World Bank (2020) World Development Report 2020. Trading for Development in the Age of Global Value Chains, Washington, D.C. World Trade Organization et al. (2019) Global Value Chain Development Report 2019. Technological Innovation, Supply Chain Trade, and Workers in a Globalized World, Geneva.

6

International Finance

A particularly negatively perceived side of globalization is connected with the idea of financial jugglers on Wall Street and elsewhere who, at the push of a button and in seconds, move huge financial flows across the globe, thereby enriching themselves excessively, potentially destabilizing companies and countries, and plunging people into misery everywhere. In fact, unimaginable large values of shares, bonds, credit contracts and loan secutarizations as well as currencies are traded daily on global financial markets, which far overshadow all other global economic transfers in terms of value. The worldwide liberalization of capital movement has contributed to this development, the growth of internationally operating banks and other financial institutions, the development of new, highly complex financial instruments and, of course, the worldwide networking of financial actors with always fast-working IT infrastructure. This financial globalization could theoretically have positive effects, namely better access, especially for capital-poor societies and companies, to capital (the use of which is thus cheaper), better worldwide compensation of global savings and investment, better risk diversification through broadly diversified capital investments with the result of increased productivity and, last but not least, a positive contribution to growth (instead of many: Levine 2021). Of course, the positive effects of the liberalization of the financial sector depend on considerable conditions (see below); if these are lacking, dangers in the form of cyclically recurring bank and financial market crises threaten, as numerous national and regional examples (e.g. the Asian crisis of 1997) and more recently the global financial crisis (2008) have shown. These crises had severe real economic and longer-lasting consequences, caused growth setbacks, unemployment and other social upheavals, which were often only overcome after years (Reinhart and Rogoff 2014). Together with the not unjustified claim that the “financialization” of the world economy has signifi© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_6

93

94

6  International Finance

cantly contributed to the deterioration of the distribution of income, it is not surprising that the once promisingly propagated liberalization of capital movement has lost much of its shine. First, however, it must be defined what is meant by the globalization of financial markets: The degree of openness of financial markets is determined (de jure) by the extent of legal restrictions on cross-border financial transactions, de facto usually by their share in gross domestic product. Both definitions have disadvantages: The first because it does not capture the severity of the obstacles, the second because it does not take into account factors that, in addition to financial globalization, have an impact on capital transfers (IMF 2001). One can only speak of complete globalization of financial markets when the prices and earnings rates of identical capital investments—taking into account inflation rates and the expected exchange rate—would be approximately the same everywhere. It is obvious that we are still far from this point, that there are still considerable regional/country-specific differences with regard to the globalization of the banking and financial sector, even if these have decreased since the 1980s (Gudmundsson 2008).

6.1 The Development and Structure of Global Financial Markets International trade has long required the use of recognized means of payment for the settlement of the associated financing, usually in the form of gold or silver coins. These were already traded and transferred across borders in the Middle Ages; with the discovery of America and the exploitation of its precious metal deposits, the minting and circulation of corresponding coins increased significantly. They served to finance a significant portion of trade with Asia (specifically with China), which imported very few goods from abroad. Moneylenders operating internationally have existed since the late Middle Ages, and a credit system spanning all of Europe (originally for the financing of absolutist rule during wartime, later also for the granting of credit to private individuals) has existed since the 16th century. The initial international financial system was still very modest in scope, limited to Europe and its colonies (Neal 1991). With the industrial revolution starting in England, the center of the financial system shifted to London; British banks became active worldwide. Cross-border financial transfers increased dramatically during the first globalization wave (starting in 1870), almost comparable to the level of today. For the first time, a truly global financial market emerged (Hirst and Thompson 2011). This was also due to the low

6.1  The Development and Structure of Global Financial Markets

95

level of state restrictions on cross-border financial flows and the stabilization of the financial system through the nearly universal adoption of the gold standard, i.e. the linking of the price of national currencies to a certain amount of gold. This link hindered active national monetary and fiscal policy to a considerable extent, as long as exchange rates were kept stable and the participating countries neither had excessive trade surpluses on the one hand nor excessive borrowing to finance deficits on the other (Eichengreen 1996). As a result, the respective national interest rates converged, although not completely. In addition to London, other financial centers developed during this time, primarily Berlin and Paris, followed by the meteoric rise of New York. After World War I, the system of the gold standard collapsed; as a consequence, international capital flows also decreased significantly, especially in the wake of the world currency crisis of 1929. They recovered slowly after World War II with the transition to a system of fixed but adjustable exchange rates pegged to the dollar and the establishment of the International Monetary Fund to oversee the system and provide bridge loans to countries in balance of payments difficulties subject to conditions (= Bretton Woods system). The (relative) volume of financial transfers achieved in 1913 was not even remotely approached for a long time, it was concentrated in a few industrialized countries, capital controls were general and there was no talk of a convergence of interest rates. At the same time, the limited internationalization of capital markets shielded the domestic economy from negative external influences, making possible an independent national monetary and fiscal policy and an independent social security of the population, an arrangement that was named “embedded liberalism” by Ruggie (1982) and worked surprisingly well for a long time. Rising deficits of the reserve currency country (the USA) and the unwillingness of the American government to address them led to the collapse of the original Bretton Woods system by the suspension of the dollar’s gold peg in August 1971. It was replaced by a system of floating exchange rates, in which theoretically the (foreign exchange) markets determine the exchange rates. Later attempts by the OPEC countries to sharply increase international oil prices, in the face of the oil-producing countries’ inability to immediately spend the resulting increased revenues, led to a significant increase in free funds in the international financial system. Global capital markets exploded thereafter; the expansion of international lending, portfolio investment and bond issuance from the 1970s onwards exceeded global economic growth and world trade by a factor of two to three (BIS various years); the borrowers also diversified considerably. Developing countries, which had long been avoided by international commercial banks in lending, became sought-after clients (also because of declining attractive invest-

96

6  International Finance

ment opportunities in the West) from the early 1980s onwards, while generally expanding their overseas business much faster than their national activities. A major cause of the increased capital flows was the elimination of capital controls in industrialized countries (from the 1970s onwards), later also in many developing countries, often as part of the debt crisis and accompanying IMF conditions to loosen capital controls.

6.2 The International Capital Market Today There is an influential minority opinion that denies that we can speak of a global capital market. They point out that the majority of financial transactions take place between Europe and North America, and that the recent financial crisis of 2007–2009 was therefore not a global, but a North Atlantic crisis. Asia would have been hardly affected by it. The world financial market would be more of a collection of limitedly connected national markets, there is no world reserve currency, no world central bank and only a few countries that could internationally raise funds in their own currency. Significantly, the global financial crisis was also not resolved by a wide-ranging international action, but by each national rescue umbrella for its own banking system (Thompson 2011; Yeyati and Williams 2011). This is not entirely wrong; although the share of foreign-held financial capital in industrial countries has increased dramatically since the early 1980s, but significantly less than its financial weight in the world economy would suggest (cf. Krugman et al. 2019), even if the absolute amounts are considerable. A full internationalization of the investor portfolio has apparently not taken place. Domestic investments are still financed by domestic savings to a far greater extent and a full alignment of interest parity has not yet taken place. But you should not exaggerate this skepticism either. To name just one figure: the stock of foreign claims and deposits has increased from 75–77% of global GDP (1995) to 172– 189% in 2016 (Korniyenko et al. 2018, see also Fig. 6.1). The current international capital market is not a single market, but an ensemble of closely connected submarkets on which foreign assets (shares, bonds, bank deposits, options) are traded. You also have to include the foreign exchange markets, where tradeable currencies are exchanged and hedged against fluctuations. Actors on international capital markets are international banks and companies, ‘shadow banks’ (pension, investment and hedge funds, insurance companies, etc.) and central banks. Banks have increasingly internationalized their business activities. In the early 1960s, only a few banks had foreign branches, today there are hundreds.

6.2  The International Capital Market Today

97

Fig. 6.1   Extent of foreign investments as a share of global GDP. (Source: OECD 2018, p. 14)

They engage in so-called off-shore bank or foreign exchange transactions. The former refers to the transactions carried out by foreign branches and therefore subject to the supervisory requirements of the home country to a very limited extent. The latter refers to bank deposits in a currency other than that of the home country of the respective financial institution. A significant proportion of trade on foreign exchange markets takes place with such deposits. They are usually referred to as euro currencies, although a large part of the business takes place outside Europe and with non-European currencies. The business with government and corporate bonds, which can be organized directly between investors and borrowers, developed particularly dynamically and thus saved financing costs. Initially, such transactions were limited to governments and companies of industrialized countries, today numerous developing and transition countries are among the debtors. The developing countries became a much more significant investment sphere for private capital as a whole. In addition to their increasing attractiveness for private foreign investment, their share of portfolio investment, bonds and bank loans has also increased. Reasons for this were, in addition to the increasing competition on the financial markets of the industrialized countries, the strongly declining costs of transnational communication around the clock, new financing instruments that allowed better risk diversification, the already mentioned liberalization

98

6  International Finance

of capital movements and the temporarily risk-reducing stabilization of the macroeconomic situation in the South. There, too, the financial returns were and are higher. Capital inflows were particularly pronounced in developing countries that had improved their economic performance the most, had declining budget and current account deficits and moderate foreign debt (World Bank 1997a, b). The growth of foreign trade only explains the rise of international banking to a limited extent; at least as important was the possibility that banks could avoid the legal restrictions on their activities at home by internationalizing them (see below) and that investors could thus hold foreign exchange reserves outside the jurisdiction of their home countries. In addition, deposits in the domestic currency are usually subject to stricter regulations—to comply with the control over the money supply—than those in foreign currency. Consequently, global financial centers dominate, in which financial business is only slightly or not at all restricted (Luxembourg, Hong Kong, etc.). Even less regulated are the so-called shadow banks. These are institutions such as stock and pension funds, as well as insurance companies, which today provide similar services as the banks themselves (e.g. lending to foreign debtors, corporate financing, etc.), but are often commercially related to them. They are subject to much less national regulation; their business volume is today comparable to that of traditional banks. The further liberalization of capital markets has been stagnating for a few years. This does not apply to the foreign exchange market, because the currency regimes of most countries have not become more restrictive. But with the outbreak of the Corona pandemic (from 2020) at the latest, the liberalization of international capital transactions turned around, focusing on developing countries that sought to prevent capital outflows. Industrial countries, on the other hand, regulated inflows more strongly (IMF 2020). Moreover, capital inflows to low- and middle-income countries have been relatively lower again for the last few years—that is, in relation to gross domestic product—although this is mainly due to short-term funds. So maybe the peak of globalization has already been reached in terms of capital flows, too.

6.3 Benefits of the Internationalization of Capital Flows International capital flows potentially create benefits by providing foreign countries/companies with financing for the purchase of goods and for projects whose compensation—in the form of repayment or capital service—can only take place later or in installments (for example, from the earnings of the production made possible by this or from these projects). It also makes it possible to exchange

6.3  Benefits of the Internationalization of Capital Flows

99

assets transnationally (for example, land for shares in equity capital) and to transform the maturities of often short-term capital investments to finance longerterm projects that are not limited to the national space. The wider, transnational placement of capital or the distribution of the risk of granting foreign capital to financial institutions from more than one state theoretically has further advantages: it increases the return on investment of investors because in capital-poor societies the return on capital and the cost of capital are higher, and the risk of granting large amounts of foreign capital to one/a few debtors can be reduced by the broad, international diversification of capital. This also makes it possible for investors to diversify their portfolios, they are no longer dependent on the economic development of one economy. This should also increase investment ratios in general. The internationalization of capital flows also tends to promote the development and deepening of local capital markets, lowers the cost of credit for borrowers and the return on investment of investors through the more intense competition of financial institutions (Edison et al. 2002; Prasad et al. 2003; Krugman et al. 2019). If the internationalization and liberalization of banking had only these positive effects, the excitement about these processes would be incomprehensible. But, as the global financial crisis (2007–2009) made clear at the latest, it has weakened the stability of the financial sector in numerous countries, regionally and globally, and also pulled institutes/countries into the downward spiral that actually had sound economic policy. Even at the national level, banking is only limitedly stable because banks lend short-term deposits at longterms and because the equity of the institutes is rather meager in comparison to their business volume. If credit customers of the bank are no longer able to service their obligations (as in the American mortgage crisis), the bank’s assets lose value quickly and it may not be able to pay out its depositors (today to a lesser extent households than other financial institutes because of the hedging of smaller investors, see below). Because long-term funds can not be sold immediately or only at a loss, a global crisis can be triggered by the strong interlocking of banks nationally and now also across borders. In the national context, (a) deposit insurance, which is designed to prevent a panic of bank customers by insuring their deposits (up to a certain amount), (b) reserve requirements, which force banks to deposit a portion of their assets with the central bank interest-free (c) equity requirements, which provide a minimum level of equity for banks and restrictions on excessive lending to individual customers or states (d) a banking supervision, which is responsible for the auditing of the institutes (e) refinancing options for banks through the central bank and— last but not least—state-organized rescue operations during and after the global

100

6  International Finance

financial crisis protect against the possibility of bank failures and their consequences. These anchors of security do not exist or in only very limited form in international banking (see also below). Interbank deposits are not insured, although the transnational institutes are strongly interwoven. There are no reserve requirements: their absence has precisely led to the expansion of activities beyond national borders. The credit business of foreign branches is only monitored to a limited extent, which is why risky business is often outsourced. Finally, it is also not clear who should be responsible for the rescue of foreign bank branches. This can only be accomplished by a coordinated action as there is of course no international central bank. In short: the political intervention options of national actors are very limited in internationalized banking. Finally, there is no world state that could rescue financial institutes or states in distress. There are only the, increased in the face of the world financial crisis, but still too low credit facilities of the IMF and not quite comparable regional or multi-regional counterparts (such as the Asian Infrastructure Investment Bank founded in 2010) and the New Development Bank of the BRICS (Brazil, Russia, India, China and South Africa) established in 2015, or the Chiang Mai Initiative, see below), but which essentially grant funds for long-term infrastructure projects.

6.4 Problematic Effects of Open Financial Markets Early on, there were many voices questioning the generally positive consequences of opening up capital markets for all involved parties. Even the International Monetary Fund, which used to be a strong supporter of financial deregulation, already found in 2001 only a very weak connection between economic growth of economies and the opening of the financial sector, if this did not happen gradually and was not accompanied by institutional improvements (IMF 2001). According to the Fund’s opinion, countries with underdeveloped, unstable financial systems should therefore limit short-term capital inflows (Ostry et al. 2010). There is an almost overwhelming number of studies trying to determine the economic and social effects of open financial markets. In addition to the IMF, others have emerged who can only see positive effects in relation to East Asia, or even no growth contribution of open capital markets, if other influencing factors are controlled for (Martin and Rey 2002; Kose et al. 2010). Other studies calculated a limited positive growth contribution, which, however, reversed with increasing credit volume in relation to GDP (Levine 2004; Beck 2013;

6.4  Problematic Effects of Open Financial Markets

101

Estrada et al. 2015). The connection of both variables is therefore not linear. If credit uptake in the country exceeds 90 or 100% of GDP, empirical data show that growth of national productivity also decreases quite significantly (Reinhart and Rogoff 2010; Arcand et al. 2015; Cecchetti and Kharroubi 2015, see also Fig. 6.2.). This counteracts the positive effect of a credit-induced increase in investment rates and a deepening of local capital markets. The reasons for this negative connection seem to be that with increasing credit uptake also less profitable projects are realized and the financial sector draws human capital (i.e. well-trained workers) away from the real economy. In addition, there are costs in the form of higher volatility of capital inflows and outflows, especially for bank loans and portfolio investments. The connection between financial market development and economic stability is also non-linear (Sahay et al. 2015). These ambiguous results of strong capital market liberalization only improve for certain sources of financing: less volatile inflows such as equity to companies apparently bring higher growth yields (also better access to technology and management knowledge) than mere credit borrowing. It is therefore not only the

Fig. 6.2   Financial market development and growth. Note: The curve shows the degree of financial depth of individual countries and (on the y-axis) the respective growth contribution. (Source: Sahay et al. 2015)

102

6  International Finance

volume of the financial system that matters, but also its structure and its adequate size in relation to the economy as a whole (Peia and Roszbach 2015). The indirect impacts of capital market liberalization produce a more favorable picture. The access of foreign banks increases competition in the financial sector and improves the profitability of domestic institutions. More open financial sectors discipline monetary policy and lower inflation rates, but do not improve fiscal policy (Spiegel 2009). Access to international capital indeed increases budget deficits, at least as long as they are financed by foreign creditors (Kose et al. 2010). The favorable effects mentioned above are offset by considerable costs to the economy as a whole. The volatility of capital inflows and outflows increases with openness and the financial system turns more crisis-prone, even if it seemed relatively stable beforehand (Martin and Rey 2002). It is also clear that the domestic banking system can be destabilized with excessive local credit growth and growing foreign claims (especially from banks) to a level of over 50% of GDP; a crisis-proneness that can only be limited by sufficient foreign exchange reserves (Catao and Milesi-Ferretti 2013). Premature liberalization of capital movements is dangerous for countries that run high budget deficits on a continuing basis, have a weakly supervised and managed banking system with a low equity base, and have distorted market structures (such as unbalanced exchange rates). International capital inflows amplify these weaknesses, depending on the phase of the international financial cycle, leading to a rapid withdrawal or inflow of funds, related to the current crisis aversion or the strength of the US dollar. Even industrialized countries were affected by this (BIS 2017). The volatility is particularly pronounced in capital-poor countries because they are of little importance to international financial institutions and can therefore also be cut off from further funding at an early stage. In general, an excessive expansion of credit by banks and other financial institutions reduces economic growth. The OECD (2016) suspects that this may be related to the expectation of large banks that they could rely on government aid in a crisis (too big to fail) and therefore could afford to exercise limited care in choosing their debtors. It must also be taken into account that the deregulation of the financial market strengthens local social forces that have transnational connections (including subsidiaries of transnational corporations). They actually always welcome and actively promote the opening up (Haggard and Maxfield 1996). It is therefore not surprising that liberalization is often associated with a deterioration in income distribution, especially when capital markets are not particularly deep and larger parts of the population have no or insufficient access to the financial system (OECD 2016). However, if this is the case, the negative distributional effects are moderate, at least up to a certain point, at which further growth of the finan-

6.4  Problematic Effects of Open Financial Markets

103

cial sector feeds speculation (Arcand et al. 2015). Empirically, the opening up of capital markets often shifts the balance between work and capital and leads to a tendency for the wage share to fall. This is demonstrated in a wide-ranging study by Furceri and Loungani (2018). This can only be avoided in economies with strong financial systems that include all social groups. However, studies on this are few and far between. On the one hand, banking and financial crises have negative effects on the incomes of the wealthy (due to bankruptcies and falling stock or real estate prices), on the other hand, these crises are associated with permanent loss of growth, which affects the poor to a greater extent. Income concentration has increased more in countries that liberalized their financial markets, especially with a significant increase in credit, but less with the stock markets (OECD 2016). Moreover, the liberalization of financial markets also makes it easier for the wealthy to flee to tax havens (Saez and Zucman 2020; Eichengreen et al. 2021). Last but not least, an independent national monetary and fiscal policy is also made more difficult by the liberalization of the financial sector. Foreign capital inflows are procyclical, i.e. they intensify the swings of the domestic credit supply, inflation, exchange rates and asset prices until a possible banking crisis (BIS 2017, 2019). The increase/decrease in interest rates by the central bank to counter this development makes relatively little sense in small economies because this only accelerates the inflow or outflow of capital. Strong inflows lower real interest rates, appreciate the exchange rate and push up asset prices. These effects can be mitigated to some extent by capital controls, which are now also recommended by the IMF as a last resort (Ostry et al. 2010). National monetary policy only becomes effective when the local financial sector is more extensive and when companies/households finance their expenditure with loans in local currency or with long-term capital raising. If small economies tie their currencies to the dollar parity with open capital markets, they lose control over national financial variables to a large extent (Gudmundsson 2008; Arregui et al. 2018; Aldasoro et al. 2020; Banerjee and Duflo 2020). In summary, it can be said that the competitiveness and growth prospects of national economies cannot be improved by capital imports alone, these are determined much more by other factors, such as better infrastructure, the quality of human capital, administrative competence and conducive legal framework conditions. If these factors are insufficient, foreign capital can only be used productively to a limited extent, if they are better, capital market liberalization has indeed brought growth dividends (German Bundestag 1999; Prasad et al. 2003). However, this is offset by considerable risks of destabilization due to a larger, more internationally oriented financial sector.

104

6  International Finance

6.5 Regional and International Financial Crises National bank and financial crises have been and are not uncommon. Between 1970 and 2017, the IMF counted no less than 151 systemic banking crises, i.e. crises in which deposits had to be frozen, banks nationalized and restructured at the expense of the state treasury (Laeven and Valencia 2018; Fig. 6.3). This led to massive public costs and significant collapses of economic growth. Often these crises were also followed or accompanied by currency crises (= significant devaluation of the currency against the US dollar) and debt crises (= international insolvency). Until the global financial crisis of 2007–2009, these incidents mainly affected developing countries because the financial sector there was less developed, less effectively regulated and supervised (in terms of reserves and accounting regulations), foreign loans—if available—were taken up regardless of their own tax revenues, export earnings and foreign exchange reserves, not always very productively used and credit not sufficiently hedged against exchange rate risk. External debt is only not problematic if the borrowed funds increase economic growth to a greater extent than the interest burden and this can be offset by earnings from exports in convertible currency (in which the loans were usually taken

High income

16

14

20

12

20

10

20

08

20

06

20

04

20

02

20

00

20

98

20

96

19

94

19

92

19

90

19

88

19

86

19

84

19

82

19

80

19

78

19

19

19

76

0

3

6

9

12

15

Number of episodes

18

Low and middle income

Starting year of the crisis

Fig. 6.3   Systemic bank crises by income level of countries. (Source: Laeven and Valencia 2018, p. 9)

6.5  Regional and International Financial Crises

105

up). Since this was not always the case, interest rates rose and exports collapsed. A whole series of debt crises with actual international insolvency followed from 1982, which could only be somewhat resolved with the help of the IMF, bilaterally and multilaterally negotiated support from industrial countries and repeated debt restructuring actions. The later Asian crisis (1997 ff.) was no less dramatic for the countries involved. In the 1990s, East Asian countries became preferred customers of Western lenders due to their economic dynamism, with which the former financed their growing trade deficits. The funds raised only to a limited extent increased overall economic productivity, were not hedged against currency risks (= actual appreciation of the currency in which the credit was taken up), state bank supervision was full of holes, the onward transmission of state credit often went to well-connected companies or into real estate speculation and there was practical no swift settlement of insolvent companies, which would have preserved parts of their assets. As a result there were spreading real estate crises, currency devaluations and steep economic downturns. With the exception of Malaysia, the governments of all the affected countries turned to the IMF. More advanced developing countries (not only in East Asia) have learned from these experiences to slow down their borrowing, reduce their debt, reform their banking sector, and build up significant foreign exchange reserves to ward off the return of possible crises. As a result of this crisis, the member states of ASEAN, China, Japan and Korea agreed in 2010 on the so-called Chiang Mai Initiative on the establishment of a precautionary common currency pool with an initial volume of US$ 120 billion, which was doubled in 2012. This initiative was not frequently used, which is also related to the fact that the larger part of the contributions is linked to an agreement with the IMF. However, industrial countries also had little reason for arrogance. As early as 1990/91, numerous US banks burdened with unserved mortgage loans had to close their operations; a little later, other developed countries that had deregulated their banking sector from 1980 onwards also got into trouble with their financial system and had to strengthen appropriate safeguards. As it turned out, these measures were not enough to cope with the effects of the global financial crisis. The history of this crisis has often been told and does not therefore need to be elaborated extensively (cf., for example, Tooze 2018). The 2007/08 financial crisis was the worst since the world economic crisis of 1929 and had several roots. First, the massive current account surpluses of China, the East Asian countries, Germany and the oil-producing countries had to be invested somehow. Secondly, the increasingly lax banking supervision in the USA and its low interest rate policy motivated the financial institutions to engage in ever more risky credit business and to hide the risks in innovative instruments,

106

6  International Finance

mainly in securitized papers, which, for example, bundled mortgage loans into new, opaque, but tradable bonds and forwarded them—ultimately around the globe. This made it possible to circumvent the banking supervisory regulations of Basel II (see below). With the insolvency of many highly indebted “homeowners” in the USA, the crisis took its course. It was also fuelled by massive current account imbalances between the USA on the one hand, China, the oil-producing countries and also Germany on the other hand, which massively increased global savings and depressed global interest rates. This fuelled unprofitable, public investment and public/private consumption (instead of many Turner 2016; Krugman et al. 2019). The ensuing increase in loan defaults, rising interest rates and mutual capital withdrawals among financial institutions led to a series of bankruptcies of individual financial institutions or massive state rescue operations to keep them afloat. The losses in prosperity and employment were unprecedented for the post-war period. Many banks could only be saved by partial nationalization and massive recapitalization at the expense of the taxpayer.

6.6 Crisis Prevention What are the special features of the internationalization of the financial system and what additional risk prevention does it require? Commercial banks and institutions with similar activities hold the vast majority of Euro currency assets, which in turn come from other financial institutions. So the international banking landscape is closely interlinked, and in the event of a crisis it is also at risk of collapsing altogether, but with greater risks for smaller economies (Korniyenko et al. 2018). In crises, even institutions with apparently sufficient equity were affected. The domino effect triggered by the crisis—as the international financial crisis showed—had far-reaching real economic consequences, even for economies that were initially only marginally affected. In the course of the crisis, the capacity of national budgets to stabilize the national financial system was also overburdened. Secondly, as has been seen, the banking supervisory regulations in crossborder traffic are weaker than in the national context. This is especially true for shadow banks, whose international activities are hardly regulated. Thirdly, new credit instruments such as the securitization of mortgages, their bundling with other claims and their cross-border onward sale reduced transparency and made the control of financial traffic more difficult. Internationalization without international banking supervision can therefore act as an accelerant. Measures to prevent international financial crises have long been inadequate. They were based on the resources of the International Monetary Fund, whose

6.6  Crisis Prevention

107

scope in relation to international trade and capital flows lagged behind in growing proportions, while at the same time borrowing was associated with increasingly strict conditions to limit deficits in the balance of payments and government accounts, which greatly reduced their popularity. In addition, in an emergency, rescheduling was possible within the framework of the Paris Club (for debts to public moneylenders) and the London Club (for debts to private sector creditors), where interest and amortization payments were basically only postponed, later (from the 1980s) reduced or even completely cancelled. However, for a long time this affected almost exclusively over-indebted developing countries. Even the industrialized countries, after the introduction of flexible exchange rates, were obliged to contain the risks arising from predictable fluctuations in these rates through increased banking supervision and bank regulation in the Basel Committee. This committee, to this day the most important forum for cooperation between Western central banks and banking supervisory authorities (later supplemented by the access of numerous emerging countries), agreed in 1975 on a “concordat” which mainly contained supervision for foreign branches of banks and the exchange of information between the members. Later (1988), the Committee recommended a minimum capitalization of 8% of the respective bank deposits (= Basel I), which is now almost implemented worldwide, replaced in 2004 by slightly modified regulations (= Basel II). The Asian crisis of 1997 onwards gave rise to a revision, which took place with the participation of numerous developing countries and laid down minimum requirements for bank supervision, also for cross-border business. This work was interrupted by the outbreak of the global financial crisis, which provided an opportunity to tighten the requirements (= Basel III, 2010), formulated stricter requirements for the minimum capitalization, a higher provision for riskier investments and a minimum level of quickly mobilizable liquidity. Basel III has been implemented in all economically relevant markets, and the governments of some countries have gone beyond its provisions. As early as 1999, the Financial Stability Forum was established under the auspices of the Bank for International Settlements to coordinate international measures to stabilize financial markets. It was renamed the Financial Stability Board after the global financial crisis in 2009 and for the first time included representatives of emerging economies as members, thus enabling as much global coordination as possible on the regulation of financial markets and, above all, cooperation with the IMF. The international financial crisis led to the first internationally coordinated effort to overcome the crisis, agreed within the framework of the G 20, a group of the world’s 20 most important industrial and emerging economies founded in

108

6  International Finance

1999. It established itself as the central steering group during the crisis, also dealing with additional aspects of global economic governance (world trade, global imbalances, global development financing, etc.). Although it does not have its own resources, it was able to bring about a jointly agreed economic stimulation of the world economy (with different national measures) and to prevent competing currency devaluations, as well as to increase the IMF’s resources considerably, though still insufficiently, to ensure a reallocation of quotas and voting rights within the fund in favor of emerging economies and to integrate them into the Financial Stability Board. The reform of financial market regulation was referred to the Basel Committee (result: Basel III). No real breakthrough was achieved in overcoming global imbalances, which result from shortcomings in national economic policy. The IMF was only given the task of initiating a process of mutual review of the economic policies of its (most important) member countries, insofar as these have impacts on others. This has so far been a largely sanction-free and therefore toothless exercise (Betz 2014).

References Aldasoro, Inkai et al. (2020) The macro-financial effects of international bank lending on emerging markets, BIS Working Papers 899, Basel. Arcand, Jean-Louis et al. (2015) Too Much Finance? Journal of Economic Growth, 20; 105–148. Arregui, Nicolas et al. (2018) Can Countries Manage Their Financial Conditions Amid Globalization? IMF Working Paper 18/15, Washington, D.C. Banerjee, Abhijit V. and Esther Duflo (2020) Good Economics for Hard Times, New York usw. Bank for International Settlements, BIS (2017) 87th Annual Report, Basel. Bank for International Settlements, BIS (2019) 89th Annual Report, Basel. Betz, Joachim (2014) Emerging Powers and Global Financial Governance, Strategic Analysis, 38,3; 293–306. Catao, Luis A.V. und Gian Maria Milesi-Ferreti (2013) External Liabilities and Crises, IMF Working Paper 13/113, Washington, D.C. Cecchetti Stephan und Emisse Kharroubi (2015) Why does financial sector growth crowd out real economic growth? CEPR Discussion Paper 10642. Deutscher Bundestag; (1999) Zwischenbericht der Enquete-Kommission. Globalisierung der Weltwirtschaft—Herausforderungen und Antworten, Bonn. Edison, Hali J. et al.; (2002) Capital account liberalization and Economic Performance: Survey and Synthesis, in: IMF Working Paper WP/02/120, Washington, D.C. Eichengreen, Barry (1996) Globalizing Capital: A History of the International Monetary System, Princeton.

References

109

Eichengreen, Barry et al. (2021) Financial Globalization and Inequality: Capital Flows as a Two-Edged Sword, IMF Working Paper 2021/004, Washington, D.C. Estrada, Gemma et al. (2015) Financial Development, Financial Openness, and Economic Growth, ADB Economics Working Paper No. 442, Manila. Furceri, Davide and Prakash Loungani (2018) The distributional effects of capital account liberalization, Journal of Development Economics, 130; 12–44. Gudmundsson, Már (2008) Financial globalisation: key trends and implications for the transmission mechanism of monetary policy, Bank for International Settlements, Basel. Haggard, Stephan und Sylvia Maxfield (1996); The Political Economy of Financial Internationalization in the Developing World, in: Robert O.Keohane/Helen V.Milner (Eds.), Internationalization and Domestic Politics, Cambridge; 209–239. Hirst, Paul und Grahame Thompson (2011) The Future of Globalization, in: Jonathan Michie (Hrsg.) The Handbook of Globalization, Cheltenham; 19–38. International Monetary Fund, IMF; (2001) World Economic Outlook. October 2001, Washington, D.C. International Monetary Fund, IMF; (2020) Annual Report on Exchange Arrangements and Exchange Restrictions 2020, Washington, D.C. Kose, M. Ayhan et al. (2010) Financial Globalization and Economic Policies, in: Handbook of Development Economics, vol 5; 4238–4359. Korniyenko, Yevgeniya et al. (2018) Evolution of the Global Financial Network and Contagion: A New Approach, IMF Working Paper 18/113, Washington, D.C. Krugman, Paul R. et al. (201911) Internationale Wirtschaft. Theorie und Praxis der Außenwirtschaft, Hallbergmoos. Laeven, Luc und Fabian Valencia (2018) Systemic Banking Crises Revisited, IMF Working Paper 18/206, Washington, D.C. Levine, Ross (2004) Finance and Growth: Theory and Evidence, NBER Working Paper10766, Cambridge, MA. Levine, Ross (2021) Finance, Growth, and Inequality, IMF Working Paper 217164, Washington, D.C. Martin, Philippe und Hélène Rey (2002) Financial Globalization and Emerging Markets: With or Without Crash? NBER Working Paper 9288, Cambridge, Mass., Oct. Neal, Larry (1991) The Rise of Financial Capitalism: International Capital Markets in the Age of Reason, New York. OECD (2016) OECD Economic Outlook, vol 2016, Issue 1, Paris. OECD (2018) Meeting at the OECD Council at Ministerial Level, Key Issues Paper, Paris. Ostry, Jonathan et al. (2010) Capital Inflows: The Role of Controls, IMF Staff Position Note, Washington, D.C. Peia, Oana and Kasper Roszbach (2015) Finance and growth: time series evidence on causality, Journal of Financial Stability, 19; 105–118. Prasad, Eswar et al.; 2003: Effects of Financial Globalization on Developing Countries: Some Empirical Evidence, IMF, Washington, D.C. Reinhart, Carmen M. und Kenneth S. Rogoff (2010) Growth in time of debt, NBER Working Paper 15639, Cambridge, MA. Reinhart, Carmen M. und Kenneth S. Rogoff (2014) Recovery from Financial Crises: Evidence from 100 Episodes, NBER Working Paper 19823, Cambridge, MA.

110

6  International Finance

Ruggie, John Gerard (1982) International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order, International Organization 36,2 379–415. Saez, Emmanuel und Gabriel Zucman (2020) The Triumph of Injustice. How the Rich Dodge Taxes and How to Make Them Pay, New York und London. Sahay, Ratna et al. (2015) Rethinking Financial Deepening: Stability and Growth in Emerging Markets, IMF Staff Discussion Note 15/08, Washington, D.C. Spiegel, Mark M. (2009) Financial globalization and monetary policy discipline: A survey with new evidence of financial remoteness, IMF Staff Papers 56,1; 198–221. Thompson, Grahame (2011) Financial globalization? History, conditions and prospects, in: Jonathan Michie, The Handbook of Globalization, Cheltenham and Northampton; 39–59. Tooze, Adam (2018) Crashed. Wie zehn Jahre Finanzkrise die Welt verändert haben, München. Turner, Adair (2016) Between Debt and the Devil. Money, Credit, and Fixing Global finance, Princeton and Oxford. World Bank (1997a) Global Economic Prospects and the Developing Countries. 1997, Washington, D.C. World Bank (1997b) Private Capital Flows to Developing Countries. The Road to Financial Integration, Oxford usw. Yeyati, Eduardo Levy and Tomas Williams (2011) Financial Globalization in Emerging Economies Much Ado about Nothing? Policy Research Working Paper 5624, World Bank, Washington, D.C.

7

Migration and Globalization

7.1 Introduction A more strongly interconnected world economy is—as seen—characterized by the increase in cross-border trade and the mobility of international capital. In theory, it would also be characterized by free movement of people—especially by the freedom of establishment of workers—across borders, since globalization would favor this freedom and make it profitable for (almost) all participants (see below). However, there can hardly be any talk of free choice of workplace in the global or even regional context, with the exception of the special situation within the European Union. This is essentially due to politically motivated immigration restrictions of almost all potential host countries, followed by the financial, social and psychological costs of migration for those concerned. Thus, the cross-border movement of people is globally the least internationalized field. However, this freedom would be materially (for migrant workers) and politically (for refugees) by far the most useful globalization factor. First, however, to make a distinction: Migration is understood to be a spatial change of residence of a person that is intended to be permanent. If this is beyond the national borders, one speaks of international migration, if not, of internal migration, if it includes back and forth movements between the country of origin and the host country, one speaks of circular migration. Migration accompanies almost the entire history of mankind almost everywhere in ascending and descending waves. In contrast to migrants, refugees are defined as persons according to the Geneva Convention who are outside the country of their nationality due to a well-founded fear of persecution because of their religion, nationality, membership of a particular social group or their political conviction.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_7

111

112

7  Migration and Globalization

Economic reasons (such as poverty) are not included in the Geneva Convention. So you have to at least distinguish between migration and movement of refugees, even if this is practically often difficult, since refugees can also have additional economic reasons for leaving their homeland or have an eye on the earning opportunities in potential host countries when fleeing. In the following, migration and refugee movements should be discussed mainly in so far as they are related to globalization processes and have an impact on them. However, one must also consider the respective internal political effects of waves of migration and refugees, in particular concerning their increasing or decreasing volume, and the internal social debate in the host countries and the respective positioning of the political actors and parties. These in turn determine the intensification or liberalization of the respective national migration and asylum law and thus also the extent of emigration and immigration. This is clearly visible in relation to the European and North American refugee and immigration debate and has also contributed to the rise of right-wing populist parties and politicians there in recent years. Migration and refugee movements have economic, social and political relevance for both host and home countries because, for example, they can reduce or increase the supply of labor, potentially also influencing the respective wage level, and entailing massive financial transfers to the families of origin, which can have macroeconomic effects. Furthermore, they can relieve political pressure if opponents have to flee, while on the other hand social tensions in host countries can rise or these (especially in the less developed world) can be overloaded by migration and refugee flows. All of this is the subject of sometimes heated political and academic debate, with positions differing sharply between representatives of host and home countries as well as according to the respective socio-political groupings. Development- and peace-promoting migration policy has also been included in the Sustainable Development Goals. Goal 8.8 stipulates that the rights of all migrants should be protected, international migration should be facilitated by appropriate political measures and the costs of remittances should be reduced. In contrast to the now widespread negative attitude towards migration and large refugee movements, this and similar documents (the controversial Global Compact for Safe, Orderly and Regular Migration and the 2018 Global Compact for Refugees) explicitly advocate migration. This is remarkable because in the past, negative migration effects (above all the brain drain from developing countries) were given greater international prominence. These considerations point to the fact that there is a strong connection between globalization and increasing migration flows, even if currently the latter are politically slowed down and historically there was also emigration and immigration at

7.2  Extent and Geographical Distribution of Refugee and Migration  …

113

times of limited or no globalization tendencies. Migration is, however, tendentially promoted by the global economic, cultural and political context, for example by the global communicative networking, which provides information on employment opportunities in potential host countries, on immigration conditions, on escape routes and similar topics in a timely manner. Furthermore, the (in absolute terms) still widening wage gap between regions of origin and destination and the aging-related reduction of the labor force reservoir in the latter and not least the relative decrease in transport and communication costs stimulate emigration. Through ongoing migration, the internal debate about the benefits and risks of increasing immigration and emigration also changes, so that it can also change the political balance in societies more affected by it.

7.2 Extent and Geographical Distribution of Refugee and Migration Flows The number of people living outside their home country has risen to 281 million in 2020. This is not particularly much, only about 3.6% of the world population (IOM 2021). Of course, this proportion has been increasing for years (1970: 84.5 million and 2.3% of the world population), although the growth has been slower in 2020/21 due to the coronavirus pandemic and the travel restrictions associated with it. Of all people living outside their home country, about two thirds are migrant workers, the rest are refugees. Migrants are 52% men, the rest are women. People of working age make up the largest proportion of immigrants (78%). In 2020, India (17.5 million) was the largest source country, followed by Mexico, Russia, China, Syria, Bangladesh and Pakistan. Asia has seen the fastest growth in emigration since 2005, followed by Europe, Africa and then Latin America. In terms of the native population, some island and civil war countries have extremely high emigration rates of up to 40%. The main destination regions were Europe and Asia (82 and 84 million), followed by North America (59 million). Other regions play a relatively small role. The proportion of migrants to the total population therefore varied regionally, being highest in Oceania, North America and Europe (21, 16 and 11%), and lowest in Asia and Africa. However, Asia has seen the strongest growth in immigration since 2000. In terms of individual host countries within the OECD, there is also a high degree of geographical concentration of people with a migrant background (see Fig. 7.1), even stronger in terms of individual urban cores within these countries. However, the correlation of this concentration with the most immigration-hostile policies within the OECD world is moderate.

Fig. 7.1   The proportion of the population with a migrant background in the OECD area, 2010 and 2020. (Source: OECD (2021) International Migration Outlook 2021, Paris)

114 7  Migration and Globalization

7.2  Extent and Geographical Distribution of Refugee and Migration …

115

In terms of numbers, the United States is the most important destination for migrants; their number has quadrupled there since 1970 (to 51 million in 2019). In second place came Germany (2019: 13.1 million), followed by Saudi Arabia, Russia and the United Kingdom. So migration shows a high concentration on the wealthier countries in their respective regions; two-thirds migrated to the industrialized countries. It is interesting that the proportion of developing countries with middle incomes has been increasing in recent years (from 12% in 2013 to 19% in 2019). Causes for this are their disproportionate economic growth and partly increasing admission restrictions in the West (IOM 2019). A not inconsiderable part (currently 40%) of migration is due to family reunification (OECD 2019). Data on the number of people living outside their home country are much less reliable than those on annual new immigration to host countries, because those are only partially recorded or only document immigration but not emigration, not to mention illegal immigration. There are only somewhat reliable data on OECD countries, which registered a significant increase of immigration from 2010 to 2016 (from almost 4 to over 5 million people per year); since then, however, a slight decline took place, which was further exacerbated during the Corona pandemic due to restrictions on entry and exit and on the issuance of visas. In the USA, Australia, Japan and Korea, the number of new migrants fell to almost zero in the first half of 2020 (OECD 2020). Previously, as with the proportion of people not born in the country, the USA had been the leader in new arrivals for years, followed by Germany, Spain, the United Kingdom, Canada and France. The order of the countries of origin of the new arrivals hardly changes compared to the migrants already living in the country. In addition to the aforementioned categories of migrants, there is also temporary labor migration (in the OECD area in 2018: 4.9 million workers), which is mainly employed in the construction industry, in the health sector, but also in the IT sector. Here, too, the usual receiving countries predominate with the exception of Poland, which has become the most important host country for migrants with (planned) limited stay (mainly from Ukraine). In addition to the aforementioned categories of migrants, there are also seasonal workers, young people with temporary work permits, trainees, employees transferred to foreign branches of companies and students. The number of the latter was as high as 3.9 million in 2018, which was about 6% of all students in the OECD, again with dominance of the USA, the United Kingdom, Australia, Germany and France (in this order). China and India dominate as countries of origin of students. The number of cross-border and internal refugees has now risen to a record level of 82.4 million people (UNHCR 2021). The UNHCR also counts asylum seekers and, more recently, people who have fled the Venezuelan chaos among

116

7  Migration and Globalization

the displaced. Refugees nevertheless account for only a modest share of international migration—contrary to often other perceptions—and are also much more concentrated than migrant workers on certain countries, namely about three quarters on neighbouring states. This particularly affects Turkey, Colombia, Pakistan, Uganda and Germany in terms of numbers, and Lebanon, Jordan and Turkey as a proportion of the population, largely as a result of internal wars and conflicts in Afghanistan, Iraq, Yemen, Syria, the Congo, the Sahel, Somalia, South Sudan; Venezuela and Central American states. Accordingly, the share of neighbouring states as a receiving area for the global refugee population is large; however, regionally Western Europe has moved up to third place (World Bank 2018). The number of internally displaced people (2020: 48 million) was greater than the number of cross-border refugees (2020: 26.4 million excluding 4.1 million asylum seekers) and almost as rapidly increasing. In 2019, they were concentrated in (in this order) Syria, Somalia, Afghanistan, Nigeria, the Democratic Republic of Congo, Ethiopia and Iraq (IOM 2019; UNHCR 2021). Politically, the number of new asylum applications per year is in the spotlight, but quantitatively it is rather moderate. Within the OECD, it has risen from around 200,000 in 1980 to over 800,000 in 1992, then fell back to about half in the following period before increasing sharply again in 2015/16 (to over 1.6 million). The subsequent decline in 2017/18 led to another increase before the outbreak of the Corona pandemic. By far the most applications were made in the USA, followed by Germany, France, Spain and Greece (UNHCR 2020). Just over half of the applications were approved. Outside the OECD, Peru, Brazil, and Costa Rica have become important destinations for asylum seekers in recent years. Among the applicants were people from Afghanistan, Venezuela, Honduras and Syria at the top, with Central American asylum seekers applying for admission to the USA, those from the Middle East and Afghanistan to Western European countries. As a special case of international migration, intra-regional migration must also be considered. However, its share of total migration has fallen significantly compared to earlier periods (1960: 56%), but remains relatively high in sub-Saharan Africa and Europe (between EU states and the rest). For the future, growth in international migration is to be expected for a number of reasons (see also below). In surveys carried out some time ago, 30% of African respondents said they wanted to emigrate, 19% in the Middle East, and 18% in Latin America. The USA was by far the most desired host country, followed by Germany, Canada, the United Kingdom and France (World Bank 2018). However, a general desire

7.2  Extent and Geographical Distribution of Refugee and Migration …

117

to leave does not necessarily translate into immediate emigration, because this is often limited by financial constraints and continuing family/local ties. Contrary to the widely held view that the migration regime of Western countries has become increasingly restrictive over time, empirically, this is only the case to a limited extent (see United Nations 2020; see Fig. 7.2). In general, the admission of foreign students and family reunification was made easier, in general, most OECD countries tried to speed up the processing of applications and to increase the admission of well-qualified or sectorally scarce workers. In general, there is also a more stringent approach to irregular migration. The exception to liberalization also concerns the treatment of asylum seekers. In particular, European countries, Japan and the United States sought to streamline and standardize procedures and to prevent abuse of the asylum system. Since 2019, people who have illegally crossed the border into the United States have been returned, the deportation of offenders has been made easier in Germany, Italian authorities have not allowed rescue boats with refugees to land, etc. (OECD 2020). The employment situation of migrants has improved significantly up to the outbreak of the Corona epidemic. Almost 70% were employed in regular employment within the OECD in 2019, the unemployment rate of migrants exceeded that of the indigenous population weighted by only 1% (unweighted 2.7%). Unemployment was particularly high among migrants in Greece, Spain, Sweden and Turkey, but in some places (USA) it was lower than that of the natives. However, the country of origin of migrants plays a significant role: migrants from North African and Middle Eastern countries had a significantly higher risk of unemployment, while there was no gap between migrants and the resident population from other countries of origin. Female migrants had a lower participation in the labour market. The higher proportion of migrants in employment with relatively low qualifications is not surprising; this gap to the native-born is not inconsiderable in Germany, especially high among women. If the latter are employed, they quite often work under their level of qualification. This is particularly annoying against the background of scarce qualified personnel in OECD countries and a significantly increased level of education among migrants. It should not be forgotten that many Western countries have started to realize this and are trying to better integrate migrants into the labour market (through language courses, onthe-job training, etc.).

Fig. 7.2   Average annual change in migration restrictions in the OECD area, 1995–2013. (Source: OECD 2017, p. 33.) (Note: A value of zero indicates that there was no change in immigration conditions)

high-income countries

High and sustained growth countries

118 7  Migration and Globalization

7.3  Causes of Refugee and Migration Movements

119

7.3 Causes of Refugee and Migration Movements There is no need to puzzle over the causes of refugee movements for long; the main reasons for flight are civil wars, violence, expulsion and increasing crime in the countries of origin, today already and in future probably stronger followed by environmental reasons. Since refugees usually only want to save their skin and are usually not excessively well-off financially, they mainly flee to the neighbouring countries (also with a view to the end of the conflict); secondary factors also include cultural, social and economic reasons (income opportunities) in the host country (OECD 2017). The latter are much more important in the case of labour migration. In the past, extensive considerations were made on the push and pull factors of migration, i.e. unfavourable economic starting conditions in the country of origin and more favourable ones in the host country. The most important reason for labour migration is simply wage and income differences. These are—for job seekers with the same qualifications—enormous. According to earlier calculations (Clemens 2011), they are on average 1 to 6.5 between the wages in the USA and in the country of origin, and can therefore easily exceed the costs of migration over the remaining working life (if work is found and paid for adequately). A 10% income difference between the country of origin and the host country explains an increase in migration of 3.1% empirically; migration therefore increases with increasing wage gap. Since the earning potential for trained personnel is higher, it is also not surprising that, in the OECD countries, it is mainly the better qualified—measured by the level of education in the country of origin—who emigrate. This is promoted by increasing efforts of the host countries to grant entry and work permits mainly to such persons (OECD 2017, 2019). In addition to the differences in earnings, the costs of emigration also play a role; they are easier to bear for less poor migrants and their families. Migration aspirations therefore increase—up to a considerable per capita income of migrants and their families in the country of origin—and not decrease. Poverty makes the realization of migration impossible. This is in contrast to the common popular perception in the host countries. Costs also play a not unimportant role in the choice of migration destinations. It is not by chance that emigration from Mexico to the USA (relatively) is significantly higher than further away countries such as Colombia or even Brazil, despite approximately the same per capita income in the home countries. Other, migration-promoting factors are of course the same language in the host country and the cultural proximity to this. Even more important, but related to this, is the existence of social networks of already

120

7  Migration and Globalization

employed workers from the countries of origin, which can assist with the first accommodation, acclimatizaion and job search. Their existence is particularly important for migrants from very poor countries (OECD 2017). Furthermore, of course, the social and psychological costs of migration play a role, i.e. the loss of the familiar environment, of friends and acquaintances, etc. Last but not least, a decisive factor in migration and the choice of destination are the fluctuating legal barriers in the respective host countries.

7.4 Consequences of Migration for the Host Countries The consequences of migration for the labor market, social security systems, social cohesion and the political climate in the host countries are hotly debated. In popular, especially in right-wing populist discourses, the negative consequences for the host countries are grossly exaggerated. This begins with the fact that the number of migrants and the unemployment rate are greatly overestimated (usually by more than double), as are the proportions of Muslims and North Africans in the identification of their origins, with the overestimation being significantly correlated with the level of education of the respondents. The same applies to the assessment of state transfers to migrants/refugees. Therefore, it is not surprising that there is a close relationship between the attitude towards migration and the support for state redistribution. It is interesting that simpler minds do not even want to know exactly, in surveys they prefer not to take notice of offered data might correct their opinion (Alesina et al. 2018). First of all, the consequences for the labor market: Young and dynamic migrants can increase the employment rate in receiving countries, partially compensate for a rising shortage of less and better qualified workers, and relieve the public finances and social security funds of aging societies in the medium term. This is even the case with less qualified immigrants if they take over care and nursing tasks and allow women to participate more in the local labor market. This is offset by the facts that they can compete with local workers for their jobs and put pressure on their wages or sometimes fail to integrate into the labor market. Empirically, an increase in the immigration of migrant workers by 1% increases economic growth by 0.2% in the medium term. It also increases productivity in the long term (Jaumotte et al. 2016). The standard answer of classical economics to the influence of immigration on employment would actually be

7.4  Consequences of Migration for the Host Countries

121

that it would have to reduce employment and wages of the resident population, especially those of the less qualified workers, because of the increased supply. However, according to some controversial studies, this is only the case to a limited extent. First, because the educational level of immigrants has risen sharply in recent years, they do no longer necessarily compete with the low-skilled in the host country. Second, because migrants and the domestically born workforce are often employed in complementary and not competing activities, migrants earn less, at least at the beginning, even if they are equally qualified. Moreover, it would be very difficult to determine the development of the wage and employment situation in the country in the absence of immigration, especially since migrants mainly migrate to countries/regions with strong growth, natives sometimes migrate when immigration increases, and the latter also increases consumption in the country. The available empirical studies show only a very weak (negative) influence of labour migration on wages and employment (National Academies 2017; World Bank 2018; Banerjee and Duflo 2019), which tends to zero in the long term. With regard to individual national regions and subgroups, the situation is different; less well-qualified natives (e.g. dropouts) suffer less from the immigration of less qualified migrants, but benefit from the immigration of highly educated migrants. It should also be mentioned that migrants have a measurable and positive impact on the exports of host countries and their direct investments in source countries. Of course, immigration increases the cultural diversity of a population, could thus undermine the social cohesion of a society if it assumes too large dimensions and the immigrants can no longer be reasonably assimilated or integrated (see Collier 2013). Then, the resident population does not see this as an enrichment, but fears for its own cultural identity and opposes it. There are relatively few studies on this. These show that the majority of the population in OECD countries appreciates the import of new ideas by immigrants, but an almost equally high proportion believes that migrants would undermine their own culture (IISP 2013). Otherwise, the electoral gains of right-wing populist parties in the West, which correlate strongly with immigration, would hardly be comprehensible,. With the presumed negative consequences for one’s own income and employment security, these gains can hardly be explained (Papademetriou et al. 2018). Of course, migrant workers are easier identified as risks than the somewhat nebulous globalization.

122

7  Migration and Globalization

7.5 Consequences of Migration for Countries of Origin The emigration of migrant workers, especially of those with higher qualifications from developing countries, was often criticized in the past because of the outflow of largely state-financed human capital (‘brain drain’) to the industrialized countries. This should not be minimized either. It seems outrageous that in countries with considerable medical under-supply, trained personnel emigrate to the global North and save this training cost. Of course, developing countries with a policy of education reflecting the needs of the labor market and tolerable institutional quality (as well as less corruption) have lower emigration rates. Moreover, it is not certain that the well-trained migrants would have been able to find work easily in their home country and empirically, for example, the emigration of medical personnel to the global North has not worsened the health indicators of the population in the home country on average, because this personnel traditionally concentrates in the larger cities and is also numerically too small to meet the need for medical personnel in the country of origin (Clemens 2014). Furthermore, emigration also has development- and social-political advantages for the home countries (‘brain gain’). First, it relieves the domestic labor market of unemployment and underemployment and, under otherwise equal conditions, increases the wages of those remaining in the country. This was particularly the case in Eastern Europe after the fall of the Berlin Wall (OECD 2017). Migrants also bring new development-friendly norms and behaviors from abroad or transfer them through their diaspora in the host countries. For example, the birth rates of emigrating families abroad are significantly lower than those remaining in the country. They may also contribute to a more liberal political awareness and, through remittances, increase the social influence of the remaining families. Their influence on conflicts in the home countries is ambivalent; in part they contributed to social pacification, in part to intensification of conflict (for example by financing rebel groups as in Sri Lanka). Migration can also lead to those remaining at home intensifying their educational efforts with a view to their economic usefulness and thus raising the overall level of education (World Bank 2018). Returning migrants, whose number is not inconsiderable—in Europe only one thirds of migrants remain after more than 20 years of activity, in the USA, Canada and Australia however considerably more (Dustmann and Görlach 2016)—are an important development factor. With the help of their savings, they often become more entrepreneurial than those who stay at home, but mostly in endeavours of a limited size (OECD 2017). Above all, returnees increase the human capital of their home countries through their profes-

7.5  Consequences of Migration for Countries of Origin

123

sional experience. Finally, migrants contribute significantly to alleviating the current account deficits of their home countries through their remittances. More on this below. Of course, mass migration also has social disadvantages for the sending countries. At the level of the family, the remaining members have to work more or accept income losses. This affects women in the countries of origin negatively, especially because of the predominance of male labor migration. The effects of remittances on the domestic labor markets are also ambivalent because they reduce the demand for employment by alternative sources of income for the beneficiaries (OECD 2017). Remittances from migrant workers back to their home countries have increased significantly (estimated at $548 billion in 2019, $508 billion in 2020 due to the pandemic, see World Bank 2020) and are now the largest source of capital inflows to developing countries (see Fig. 7.3). They far exceed development assistance from donors, and this trend is increasing, they increase foreign exchange reserves and relieve the balance of payments. In addition, remittances are also relatively stable (the estimated decline for 2020–2021 is due to the Corona crisis and its aftermath). The largest beneficiaries of remittances are East and South Asia, Africa much less. This also shows that migration is positively correlated with the per capita income of the home countries. The largest recipients of remittances in 2019 were India (83.1 billion $), China (68.4 billion $), Mexico (38.5 billion $), the Philippines (35.2 billion $) and Egypt (26.8 bil-

Fig. 7.3   Capital inflows to developing countries in billion USD, 1990–2020. (Source: World Bank 2020, p. 7)

124

7  Migration and Globalization

lion $). With these inflows, India, for example, was able to plug half of its trade deficit in the same year. Measured by gross domestic product, of course, microstates were the top performers: in Tonga the remittances accounted for 37.6% of GDP, in Haiti for 37.1%, in South Sudan for 34.4% and in Kyrgyzstan for 29.2%. These are considerable magnitudes. It has often been assumed that remittances from migrants would mainly be used for (unnecessary) consumption and property acquisition by the families of origin. This is only partly true. Studies have shown that remittances had a significant impact on poverty rates in the countries of origin, that families receiving remittances invested significantly more in the health and education of their offspring or started small businesses (Newland 2013). A development policy annoyance for migrants and their families are the high transfer costs that are imposed on them for remittances to their home countries. Despite the international community’s self-commitment to reduce them, only little has been done. On average, 6.79% of fees are charged for transfers to the home country (2020), in sub-Saharan Africa even 8.90% (World Bank 2020); everywhere far above the target value of the Sustainable Development Goals (3%). In addition, the quality of the financial services concerned is apparently more than meager. There is no question that domestic and foreign financial institutions are milking these services.

7.6 The Future of Migration As already mentioned above, the intention and execution of migration increases with per capita income and educational level. Clemens (2011) has calculated on various occasions at which income the willingness to emigrate again decreases and comes to the somewhat sobering result that this (at prices from 2010) is only the case at an average per capita GDP of more than 7200 dollars (see also Fig. 7.4). Most developing countries are still far from this; even if the economic growth of these countries were to double on average, it would take until 2198 for the peak of migration from the Global South to be exceeded (Clemens and Postel 2018; similarly OECD 2017), especially since the nominal difference in per capita incomes would not decrease. The hope cherished by the European Union and the German government that the wave of emigration from developing countries could be combated at the root through development cooperation and the pacification of armed conflicts in Africa and elsewhere appears completely absurd against this background. This is due to the—in view of the problem—rather meager financial expenditure of the EU, the unimaginable utopia of how Germany and the European Union should settle civil wars in the Global South and finally due to

References

125

Fig. 7.4   Share of migrants depending on GDP per capita, 2010. (Source: OECD 2017, p. 118) (Note: The middle curve shows the statistical relationship between per capita income and emigration, the upper or the lower curve corrected by one standard deviation)

the immigration policy of the industrial countries, which increasingly favors more highly qualified migrants. As the level of education in source countries increases and better educated people have stronger emigration intentions, this fuels migration. This is by no means to say that immigration necessarily has to be stopped or slowed down. From the perspective of migrants, given the enormous wage differences between workers in source and host countries—with the same qualifications—the reduction of immigration barriers would be the best form of development aid, as its material effects would far exceed those of the target groups (Pritchett 2006; Clemens 2011), and would also be more helpful for source countries than an even more resolute liberalization of world trade (World Bank 2018). What social consequences this would have for Western societies is another question, but from a certain perspective of global justice, it would probably be the most appropriate policy.

References Alesina, Alberto et al. (2018) Immigration and Redistribution, NBER Working Paper 24733, Cambridge, MA. Banerjee, Abhijit und Esther Duflo (2019) Good Economics for Hard Times: Better Answers to Our Biggest Problems, New York.

126

7  Migration and Globalization

Clemens, Michael A. (2011) Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? Journal of Economic Migration Policy Institute, Policy Brief No. 3, Washington, D.C. Perspectives 25,3; 83–106. Clemens, Michael A. (2014) Does Development Reduce Migration? Working Paper 359, Center for Global Development, Washington, D.C. Clemens, Michael A. und Hannah M. Postel (2018) Deterring Emigration with Foreign Aid: An Overview of Evidence from Low-Income Countries, Center for Global Development, Washington, D.C. Collier, Paul (2013) Exodus: How migration is Changing Our World, Oxford. Dustmann Christian und Joseph-Simon Görlach (2016) The Economics of Temporary Migration, Journal of Economic Literature 54,1; 98–136. International Organization for Migration, IOM (2019) World Migration Report 2020, Geneva. International Organization for Migration, IOM (2021) World Migration Report 2022, Geneva. ISSP Research Group (2013) International Social Survey Programme: National Identity III, Cologne. Jaumotte, Florence et al. (2016) Impact of Migration on Income Levels in Advanced Economies, Spillover Notes 8, IMF Washington, D.C. National Academies (2017) The Economic and Fiscal Consequences of Immigartion, Washington, D.C. Newland, Kathleen (2013) What We Know About Migration and Development, Migration Policy Institute, Policy Brief No. 9, Washington, D.C. OECD (2017) Perspectives on Global Development 2017. International Migration in a Shifting World, Paris. OECD (2019) International Migration Outlook 2019, Paris. OECD (2020) International Migration Outlook 2020, Paris. OECD (2021) International Migration Outlook 2021, Paris. Papademetriou, Demetrios G. et al et al. (2018) In Search of a New Equilibriums: Immigration Policymaking in the Newest era of Nativist Populism, Migration Policy Institute, Washington, D.C. Pritchett, Lant (2006) Let Their People Come. Breaking the Gridlock on International Labor Mobility, Center for Global Development, Washington, D.C. UNHCR (2020) Global Trends. Forced Displacement in 2019, Geneva. UNHCR (2021) Global Trends. Forced Displacement in 2020, Geneva. United Nations (2020) World Population Policies 2019, Department of Economic and Social Affairs, New York. World Bank (2018) Moving for Prosperity. Global Migration and Labor Markets, Washington, D.C. World Bank (2020) Covid-19 Crisis Through a Migration Lens. Migration and Development Brief 32, Washington, D.C.

8

Globalization and Employment

8.1 Introduction It was taken for granted in classical economic treatises that most workers worldwide would benefit from the intensification of international trade and technological progress. First, by importing cheaper consumer goods, second, by importing intermediate products that can be produced more cheaply abroad and thus increasing the domestic international competitiveness in the final assembly, third, by expanding the sales markets with the abolition of trade restrictions. Globalization has led to the fact that modern technologies are adopted more quickly, thus increasing productivity in the respective companies/sectors and also in adjacent areas. This and the access of competitive suppliers to the domestic market should increase the real wages of the population and thus global consumption, improve employment and the remuneration of employees (e.g. World Bank 2005; OECD 2017; Acemoglu and Restrepo 2018; Autor and Salomons 2018). However, early on, some negative distributional effects of foreign trade—to the detriment of the abundant production factor—and the decline in employment due to the use of labor-saving technologies were also discussed. It does not require much discussion that unskilled or semi-skilled workers in capital-rich economies are at least temporarily affected by the increased import of laborintensive products from relatively capital-poor countries or by the use of laborsaving technologies, at least until they have found a new job in expanding sectors. However, this was considered relatively unproblematic under the assumption of flexible labor markets. In addition, it was argued that the benefits from the increase in foreign trade and the use of new technologies would far outweigh the costs in the form of temporary, frictional unemployment, and that the losers of

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_8

127

128

8  Globalization and Employment

structural change could be easily compensated from the social surplus, for example by means of social adjustment assistance, retraining of the relevant employees, etc. This quite friendly representation of the social benefits of globalization and technological change with relatively mild transitional problems for a minority of workers has been replaced over the past two decades by a sometimes strongly alarmist point of view, with some representatives of this direction already seeing the end of the work society as we know it. Job losses, especially in industry, have also promoted protectionist reactions that were justified by unfair competition conditions to the detriment of their own employees, as in the current USChinese trade conflict. However, it is interesting to note that political attacks on the labour-saving use of new technologies, which are probably more responsible for job losses than the increase in imports from countries with lower wages or the outsourcing of manufacturing processes to them, have been neglected. It is also interesting that, over the past two decades, rather circles in established industrial countries have taken a position against more intensive economic globalization and increasing trade policy interdependence than the representatives of developing countries who were previously extremely skeptical or negative towards free trade recipes. So the positions taken have reversed. Of course, this is a reflection of the fact that many “emerging” economies have been able to record significant position gains in globalization, while traditional industrial societies have experienced a sometimes massive deindustrialization with a corresponding decline in industrial jobs.

8.2 The Empirics of Employment Worldwide The global employment situation is perceived by the somewhat informed public as follows: The labor markets in developed industrial societies are currently under the double pressure of technological progress and the integration of economies into global value chains. This benefits so far well-qualified employees in booming economic sectors and in companies at the forefront of technological progress, but less those with low or outdated qualifications in declining, unproductive areas. This results in an increasing polarization of employment in well-paid employees with better education and those with low qualification profiles, low incomes, precarious employment, employed in easily automatable routine activities. At the same time, the proportion of permanent standard jobs with regular weekly working hours and legally anchored social security has decreased in favor of more or less unstable employment relationships (including fixed-term or part-time

8.2  The Empirics of Employment Worldwide

129

employment) or false self-employment. A job change takes place more often, the respective employment duration decreases. With regard to developing countries, while positive employment effects of integration into global value chains and technology transfer (mainly by transnational corporations) are emphasized, it is also pointed out that only a few locations (China and the East Asian tiger states) benefit from this, others are rather adversely affected by the increasing competitiveness of these locations and the gain in employment is concentrated in the informal sector with low wages, poor or nonexistent protection, while hardly any growth in employment can be observed in the formal, productive sector. With regard to both groups of countries, a decrease in the wage share (as a proportion of gross domestic product) is emphasized, caused by the strong increase in the number of workers producing for the world market, the replacement of work by capital (use of robots, information and communication technologies, etc.), its relative cheapening and—associated with this—a worldwide deindustrialization and weakening of trade unions. This description of the global employment situation, which is discussed in many places, is by no means wrong, as will be explained below. However, there is less consensus with regard to the identification of the key driving forces of the current development. First of all, however, the global employment situation is doing better than is sometimes assumed. Unemployment has fallen on average in the OECD area since the early 1990s, interrupted by occasional increases in connection with the Global Financial Crisis and the aforementioned pandemic (see OECD 2021). Outliers were the economies most affected by crises (such as Greece, Spain, Portugal). The employment rate of the population over the age of 15 has remained constant (2020: 66.3%); it was slightly lower for young people, but much higher for the elderly (over 55 years of age) and especially for women (over 25 years of age). These data hardly show that work has run out in Western societies. Of course, employment varies greatly by educational level; not surprisingly, it is much weaker for employees without a 10-year school education than for graduates (59.1 to 85.6%), with this difference being particularly pronounced for women. The unemployment rate is the mirror image of this, with each higher level of education. Part-time work has increased, but not to a dramatic extent (an increase from 13.9 to 16.7% of all employees since 2000), with considerable differences between countries. A slightly declining, but still very high proportion (2/3) of part-time employment fell on women. This is, much more than for men, often of an involuntary nature. This shows a considerable extent of under-employment. A high, but only slightly increasing proportion of young people and women are employed on a temporary basis, generally in France, Italy, the Netherlands and

130

8  Globalization and Employment

Spain. The remuneration and working conditions of the precariously employed are below average. It is positive to note that the once alarming long-term unemployment has declined significantly on average in the OECD area since 2000 (OECD 2018, 2021). The employment situation has not deteriorated much worldwide: In the poorer countries, the employment rate has been slightly lower since the outbreak of the pandemic (2015: 67.4%, 2020: 65.2%), while unemployment has remained at a relatively low level. In the lower-middle-income countries, the situation looks worse; however, the moderate employment rate (2020: 52%) and the unemployment rate have hardly increased in recent years. The latter has a lot to do with resistance to women’s employment outside the home. In upper-middle-income countries, the situation is similar to that in the OECD area (see ILO 2021). Of course, the reported unemployment rate for poorer developing countries, which hardly have any legally anchored protection against it, says relatively little, especially since the methods used to collect this data are often inaccurate and inconsistent. More cause for concern than the worldwide but relatively complete absorption of the labor force potential even in developing countries is its underutilization, which is estimated at just under 30% for poorer economies, although little can be said about the relevant development trend due to lack of sufficient data. The wealthier developing countries come out here with significantly better, but still high, values of just under 15%. A dominant, only slightly declining part (cf. ILO 2018) of the workforce in the Global South also ends up in the informal sector, often without a regular employment contract, occupational or social security. This shows that integration into the world economy has brought limited prosperity gains and little job security to many workers in developing countries. A North and South common employment problem is the loss of share of industry in employment in favor of services. This decline in industrial employment is problematic because it started much earlier in less advanced economies than in traditional industrialized countries—Rodrik (2016) referred to this as premature deindustrialization—and because the industrial sector can provide employment for less educated masses more than modern services. Employment in industry has fallen by 20% in the OECD area over the past two decades, while employment in services has increased by 27%. This has contributed to the polarization of the labor market (see below). Industrial sectors with a strong shrinkage of employment were textiles and clothing, wood and paper processing, electrical and optical equipment, i.e. labor-intensive manufacturing. In developing countries, the share of manufacturing in employment has only fallen slightly on average since 2001, and in some large economies (China, Bangladesh, Vietnam,

8.3  Wage Share and Polarization of Labor Markets

131

Thailand, Turkey) it has even increased significantly. Of course, the examples of Brazil, Mexico, Malaysia and Korea show that the peak of job creation in industry has already been passed in many emerging economies (Ait Ali and Dadush 2019).

8.3 Wage Share and Polarization of Labor Markets Wages have developed much less favorably than employment. For years, they have been characterized by weak and declining growth rates in the OECD area (on average in the OECD 2000–2007 by 1.2% per year, from 2007–2020 by 0.7%), which were slightly below the inflation rate, therefore showing a significant real wage loss over time (OECD 2021). The wage increase in industrialized countries in the G20 shown in Fig. 8.1 corresponds to this finding. The wage increase in the Global North has therefore decoupled significantly from productivity development in the last two decades. Of course, there are some differences between countries; in the United Kingdom, Italy and Japan, real wages have fallen since 2008, but (moderately) increased in Germany, Australia and the USA. As can be seen from Fig. 8.1, wage development in emerging economies was much better. However, China accounts for a significant share of the increases. There, real wages more than doubled from 2008–2019; India, Indonesia and Tur-

Fig. 8.1   Annual increase in real wages in G20 countries (2006–2019). (Source: ILO 2020, p. 31) Note: The G20 are the world’s most important industrialized and emerging economies, G20 advanced refers to the classic industrialized countries in this group, G2 emerging to the emerging economies in the Global South

132

8  Globalization and Employment

key also recorded wage increases of more than 50%, while the other, non-Asian economies fell significantly (ILO 2020). Nevertheless, it is difficult to maintain the thesis of a general, progressive disadvantage of non-Western workers in globalization. In addition, the wage results in the North and South vary considerably; it is difficult to attribute this solely to the increasing global interconnectedness. It goes without saying that the wages that have lagged behind productivity growth have lowered the overall wage share in the economy, according to the OECD since the mid-1990s by 3.5 to 68% of GDP (OECD 2019), particularly sharply in the USA, Korea and Japan, significantly less or not at all in the United Kingdom and Italy, less also in France (Cho et al. 2017; OECD 2018). The wage share fell most sharply in richer countries in manufacturing, followed by the construction industry, while it increased in agriculture. In poorer countries, this was almost the reverse (IMF 2017). The causes are manifold, the first indication—but no evidence of a statistical correlation—is given in Fig. 8.2. However, it must first be pointed out that the calculation of the capital ratio often does not take into account depreciation, i.e. the loss in value of capital goods and the sharp rise in property prices in boom times, which flow into the capital ratio (Cho et al. 2017). However, the prices of investment goods have fallen sharply in relation to the costs of labour in recent decades, for which technological progress is responsible (IMF 2017). Consequently, labour has been replaced by machines, especially in

Fig. 8.2   Case of the wage share and falling prices of investment goods and increasing participation in global value chains in the OECD. (Source: Schwellnus et al. 2018, p. 15) Note: GVC participation is the relative increase of economies in global value chains; the apparent relationship between wage share, this participation and the prices of investment goods is not causal evidence

8.3  Wage Share and Polarization of Labor Markets

133

labour-intensive industries. There, the outsourcing of production to countries with lower labour costs was particularly pronounced and the wage ratio has fallen dramatically (much more strongly than in technologically strong industries). The latter two factors apparently explain more than 2/3 of the falling wage ratio, with the influence of the technological factor becoming more important and dominant over time (Author and Salomons 2018; OECD 2018, 2019; Pak et al. 2019). Of course, it must also be emphasized here that the growing international competition (e.g. in the form of rising imports from China and other emerging countries) has greatly accelerated technological development—as can be seen from the increasing number of patent applications by companies under pressure—and has eliminated less productive companies from the market (Bloom et al. 2016). In addition, industrial production has shifted in recent years in favour of the most productive companies with the relatively lowest labour input. More about this is discussed below. In developing countries, the wage ratio, corrected for depreciation and the self-employed, has also been declining; but there the structural change (from agriculture to other activities) and the participation of companies in global value chains have contributed much more than in the global North. The wage ratio has fallen particularly sharply in employment with routine character and low qualification profile of the employees, much less in all others (Pak et al. 2019). Another, less weighty cause of the declining wage share is the increasing weakness of employee representatives, visible in the drastic decline in union members (especially among employees without standard employment contracts) in industrial countries (with a halving since the mid-1980s) and probably also in developing countries, as well as the declining coverage of collective agreements, which in OECD countries fell from 45 to 32% between 1985 and 2016 (IMF 2017; OECD 2018). Employees who were included in collective agreements enjoyed a wage premium and also had better working conditions. Coordinated agreements also reduced wage dispersion, i.e. also the polarization of employment relationships (see below). The reduction in corporate taxes in many countries has made the use of capital more attractive than labor. Last but not least, it must be added that in industrial countries, the market shares have been shifting in favor of “superstar companies” for some time now, these are companies with significantly higher capital intensity (and thus lower wage share) and productivity than the others; higher export performance, price premiums in relation to production costs and profits, which are partly passed on as wage supplements (Autor et al. 2019). These superstar companies sweep less productive companies off the market, thus simultaneously reducing the overall wage share. The sectoral concentration has indeed increased significantly in most industrial countries (especially in the USA, less in Europe, see Philippon 2019) as well as the price

134

8  Globalization and Employment

premiums (ibid. and De Loecker and Eeckhout 2017). This too has to do with globalization: Supply-strong companies can now cover a much wider market than before due to the fall in international transport and communication costs, as well as the reduction in tariff rates. In the industrialized countries, a clear polarization of employment has been evident since the early 1990s, a development that otherwise characterizes only the more advanced emerging countries. On the one hand, employment requiring advanced qualifications is strongly expanding, as well as employment requiring of low-skilled workers, while on the other hand, employment in medium qualification is clearly declining (cf. Fig. 8.3). Medium-skilled employment includes traditional skilled workers and office workers without management functions. Their work often has a routine character and can therefore be automated and sometimes outsourced. This is not the case with management tasks on the one hand and simple services (such as cleaning staff) on the other. The automation of various production stages and the globalization of foreign trade are therefore apparently also contributing to the polarization of the labor market, reinforcing each other’s effect. Which factor exerts more weight is controversial; the majority of experts attribute this to automation and technological progress in general. Keller and Utar (2016) see the main responsibility rather in the increasing competition from imports, which destroy relatively more labor-intensive employment than can be gained through increased exports, while other authors argue that polarization is a macroeconomic phenomenon, which therefore is not limited to sectors with strong import competition (Breemersch et al. 2017). They see the intensified introduction of information and communication technologies

Fig. 8.3   Percentage change in employment by qualification 1995–2015. (Source: OECD 2019, p. 64)

8.3  Wage Share and Polarization of Labor Markets

135

into business processes and the substitution of workers by industrial robots as the main causes (OECD 2019). Probably one has to distinguish between the qualification levels of the employees on the one hand and the routine character of their activities on the other hand, which refer to different dimensions of work (hairdressers have low qualifications, but do not work in a monotonous routine). This routine character determines whether employees are more negatively affected by globalization/import growth or the automation of business processes (Owen and Johnston 2017). Automation does not particularly affect low-skilled workers, but the outsourcing of production units does (Autor et al. 2015). In addition to the two mentioned factors, there are the temporary cyclical underutilization of production potential and the relative decline in the industry’s share of employment (OECD 2017), as well as the overall increase of the educational level. If this lags behind demand, the wage premium of graduates increases, if it precedes the productivity increase, their wage premium decreases, which is apparently already the case in the USA. For a long time, however, the demand for very highly qualified personnel in the industrial countries has risen faster than the supply. Today, a much higher level of qualification is required for many (predominantly urban) jobs in industrial countries than a few decades ago; at the same time, the supply of qualified employment has declined due to automation and outsourcing. For the remaining and relatively unqualified jobs, they face competition from graduates who often cannot find a job appropriate to their training, but now compete with workers with formally poorer qualifications. In turn, this leads to a significant reduction in the former wage premium of urban workers of medium qualification, with corresponding status loss (Autor 2019). The polarization of the labor markets differs among industrial countries (for example between North and Southern Europe); while poorer countries are less influenced by these processes, some emerging countries that are strongly integrated into international value chains are already significantly affected (Costa Rica, Mexico, Turkey, Brazil), where the employees are distributed between a relatively small capital-intensive segment on the one hand and a growing informal, unproductive sector. In the modern segment, work is more capital-intensive than would be appropriate for the country’s development level, simply because it does not pay for the advanced (often foreign) companies to use different technologies worldwide (Alonso Soto 2020). However, the significant differences between countries concerning the polarization of labor markets make the conception of uniform concepts for all economies hardly conceivable.

136

8  Globalization and Employment

8.4 Employment and the Rise of Emerging Economies The question of whether countries with lower wages destroy jobs in the global north, which has already been appearing in this chapter, is largely affirmed in popular discourse. With the claim that China would be stealing jobs from the USA through unfair means, visible in the massive bilateral trade imbalance, Donald Trump ran his election campaign. This is simply nonsense. The US trade deficit with China is explained on the one hand by the fact that the USA consumes too much or saves too little in relation to its economic performance. The credit financing necessary for this excessive absorption came to a considerable extent from China—through the purchase of US government securities. A rather significant part of imports from China consist of semi-finished products which are processed further in the USA. Without these semi-finished products, many US companies would hardly be able to survive worldwide. Moreover, mainly the American consumers benefit from cheap imports. The wage level is determined internationally in relation to the overall economic productivity; this is an iron rule and has little to do with exploitation most of the time. Products therefore do not have to be subsidised in poor countries in order to remain competitive, a trade surplus or deficit has little to do with employment in the manufacturing industry (see Krugman et al. 2015; Lawrence 2018, 2020 for this argumentation). At most one could argue that the Chinese government kept the exchange rate artificially low in order to additionally depress domestic consumption and indirectly—by hindering union activity—the wage quota. In fact, however, industrial employment in the USA and in other industrialised countries has declined due to competition from emerging economies in the sectors concerned. Increased imports have led to a loss of 5 million jobs in the USA between 2001 and 2016 (of which 1/3 in upstream and downstream areas); at the same time, however, 2.5 million new jobs were created by increased exports, even significantly more if one also includes the employment gains in downstream areas made possible by the supply of Chinese intermediate goods (Wang et al. 2018). The job loss must therefore be seen in overall economic perspective. However: According to the calculations of Hufbauer and Lu (2017), increased imports from emerging economies were responsible for about 10% of the immediate release of workers in the US industry, workers of them only 1/3 were insured against this loss. Still, this was less than the losses attributable to technological progress. Bloom et al. (2016) achieved similar results for 12 more industrialised countries, but in the case of Germany these were more than compensated for by an increase in employment in the export sector.

8.4  Employment and the Rise of Emerging Economies

137

A group of American economists has rightly pointed out that while international trade may create overall economic growth, it can have regional disadvantageous, long-term effective and concentrated effects, especially for less qualified workers. They show, using the example of the districts in the USA affected by Chinese imports (and their immediate vicinity), that this had considerable negative effects on local employment. The jobs lost were not quickly replaced by other, equally valuable jobs, but rather the losses of the regions concerned increased due to the decrease in demand due to unemployment, lower wages in new jobs and their effects on local businesses, declines that were only partially offset by US government adjustment assistance and lasted for a decade (Autor 2018). In Europe, too, the pressure of imports from Chinese companies led to higher local unemployment and difficulties for those affected in finding a new job, especially if existing employment is protected by government regulation (Aghelmaleki et al. 2019). The question that arises in relation to the USA and other developed countries is, of course, why the workers who were affected by the increase in imports (or the loss of their jobs due to the use of labour-saving technologies) and had to accept wage losses in new employment relationships were not able to migrate to sectors/regions with positive development of the labour demand. The obviously low mobility of labour (not only in industrialised countries) has long been underestimated by economists; it is easily explained by the fear of losing the familiar environment, the social network and affordable housing (Kletzer 2019). There are, of course, also voices which deny the strong regional effects of the increase in imports and, for example, point out that employees were just as often dismissed because of increasing import competition as for other reasons and then had to accept similar wage losses and that, furthermore, the wages in the industry mainly affected by imports still exceed the national average. However, the authors mentioned above had not claimed the opposite. Rothwell (2017) does not see any particularly dramatic local effects of stronger import pressure and claims that business departures were caused here rather by other factors, a conclusion which the former authors strongly (and for good reason) disputed. The different allocation of responsibility for industrial job losses obviously also has a political function; it is always more convenient to blame foreigners for this than the apparently faceless technological progress, which one would have to welcome—at the risk of obviously declining competitiveness. This allocation of responsibility is not rationally justified (Trebilcock 2019).

138

8  Globalization and Employment

8.5 Creation/Destruction of Jobs Through Automation Concerns that technological progress could eliminate jobs on a broad scale, eventually leading to the end of the work society as we know it, have a long tradition, dating back to the machine breakers (the so-called Luddites) at the beginning of the industrial revolution in England. Each subsequent wave of innovation stoked these fears again, as in recent years and decades the introduction of information and communication technologies and the development of artificial intelligence based on them. Technology optimists always reply to such fear-ridden scenarios with the argument that so far the employment rate has never fallen permanently despite technological progress, that new technologies bring productivity gains that, if passed on to consumers through lower product prices or better quality of goods and services, maintain employment and enable real gains in welfare (Tyson 2019). The latter is also the case because technical progress brought completely new products on the market (Acemoglu and Restrepo 2018). In this context, reference is often made to the introduction of ATM machines, which initially raised concerns about whether this would not make bank employees unemployed en masse. The opposite turned out to be the case, because bank employees could now devote more time to individual customer advice. The last stage of alarmist predictions was reached with a widely quoted study by McKinsey (Frey and Osborne 2013), which estimated the release potential of industrial robots and artificial intelligence, especially for routine tasks, and thereby calculated a share of 47% of jobs in the USA that could be dispensed with in future. This study sparked an intense debate about the future of the work society and its possible replacement by other arrangements. Just so much: The study by Frey and Osborne (2013) had classified all jobs in which routine work without high qualification requirements accrues, as threatened by automation. However, if one only calculates the share that routine activities take up in the total working time and breaks them down accordingly, the potential release effect of the new technologies is much lower (9% in relation to the OECD area). However, this value is not quite low; it varies according to countries and sectors in proportion to their concentration on products and services with automation potential (Arntz et al. 2016). Of course, higher-value and lowervalue services (in terms of requirements or remuneration) are much less affected, similarly activities that require customer contact or interaction with users, for which social competence plays a role or creative activities. As has been mentioned several times, it is above all routine activities in the middle segment that appear to be particularly threatened.

8.5  Creation/Destruction of Jobs Through Automation

139

So far, automation and outsourcing of jobs have mainly affected industrial workers and office workers in routine activities. The robotics of the economy is still relatively low, especially outside the industrial sector. The share of robots in industrial investment is still quite low. Companies have so far mainly invested in their acquisition when they cannot find enough suitable workers, but this makes them more productive, innovative and export-oriented, thus partly offsetting the loss of jobs (Benmelech and Zator 2022). However, this previously friendly picture of automation effects could dramatically turn around in the future, also and especially to the disadvantage of better-paid employees (“white-collar jobs”). Service and professional staff are still protected by the need for personal communication with customers or presence at the place of service delivery. But this could change radically as a result of better global Internet connections, further development of electronic data evaluation and pattern recognition in the legal and medical fields, machine translation work, the mass creation of collaborative software platforms, automated driving, etc. Many of these tasks could be outsourced to countries with a rapidly growing supply of graduate-level workers without any direct contact. This “tele-migration” of professional employment is—according to the augurs (e.g. Baldwin 2019)—going to destroy millions of previously wellpaid workers in high-wage regions, quite possibly including those without routine character. This will then leave mainly jobs that require creative, social, communicative intelligence and proximity, or that cannot be automated at all (Lane and Saint-Martin 2021). Relatively little research has been done so far on the effects of automation on employment in poorer countries. The risks arising from the use of industrial robots and artificial intelligence are generally higher there because a large part of the production and services carried out there are of a routine nature and require limited qualifications. However, these risks are mitigated by the fact that a high supply of relatively cheap labor does not make the automation of production economically viable or not yet viable, because small businesses dominate the economy, which cannot afford the use of the corresponding technologies, and because in many cases the quality of education in poorer countries is not sufficient for their widespread use. Of course, wages are rising rapidly in many developing countries, even if they are still far from reaching the level of the West. However, industrial robots have already been used on a massive scale in China, 246 per 10,000 employees, more than in many industrial countries and with a rapidly increasing trend (see Fig. 8.4). In addition, poorer countries are indirectly affected by the developments described above, because the automation of production, the introduction of 3D printers and similar technologies could allow companies from industrial countries to relocate production back to their home locations

140

8  Globalization and Employment

Fig. 8.4   Density of robots used in industry per 10,000 employees. (Source: IFR 2021)

(Alonso Soto 2020). This is already the case in the electronics and fashion industries, for example (World Bank 2019; UNIDO 2019), and is likely to increase as a result of the negative experiences during the Corona epidemic and the consequences of the Russian invasion of Ukraine, which have increased the vulnerability of supply chains. In public discussion, there is generally only one panacea to the risks arising from further automation and outsourcing of employment, presented namely from international organizations (and also from Western parties): more and better education, lifelong learning, strengthening of occupational flexibility and social protection for those released (see, for example, IMF 2017; OECD 2017, 2018, 2019; World Bank 2019; Tyson 2019; Georgieff and Milanez 2021). This is certainly not wrong. However, it remains to be seen whether the higher qualification of the workforce can win the race against advancing technological development in the long run and—in combination with the technological and training-related catching up of emerging economies—will be sufficient to stop the loss of employment in the global North, and later perhaps in some emerging economies. It is not certain that the jobs that so far cannot be replaced by artificial intelligence so far will remain so in view of the increasing ability of new technologies to cope with nonroutine tasks and their increasing “learning ability”. There is also the question of

References

141

whether there will be enough willing or able trainees or retrainees who can be qualified for future-oriented employment (Susskind 2021).

References Acemoglu, Daron und Pascual Restrepo (2018) Artificial Intelligence, Automation and Work, NBER Working Paper 24196, Cambridge, MA Aghelmaleki, Hedieh et al. (2019) The China Shock, Employment Protection, and European Jobs. Düsseldorf Institute for Competition Economics Discussion Paper, No 328, Düsseldorf. Ait Ali, Abdelaziz and Uri Dadush (2019) Manufacturing Employment, International Trade, and China, Research Paper Policy Center for the New South, Rabat. Alonso Soto, Daniel (2020) Technology and the future of work in emerging economies: What is different, OECD Social, Employment and Migration Working Papers No. 236, Paris. Arntz, Melanie et al. (2016) The risk of automation for jobs in OECD countries: A comparative analysis OECD Social, Employment and Migration Working Papers, Paris. Autor, David (2018) Trade and labor markets: Lessons from China’s rise, IZA World of Labor 431. Autor David (2019) Work of the Past, Work of the Future, NBER Working Paper 25588, Cambridge, MA. Autor, David et al. (2015) Untangling Trade and Technology: Evidence From Local Labour Markets, The Economic Journal 125; 621–646. Autor, David und Anna Salomons (2018) Is automation labor-displacing? Productivity growth, employment, and the labor share, NBER Working Paper 24871, Cambridge, MA. Baldwin, Richard (2019) The Globotics Upheaval. Globalization, Robotics and the Future of Work, London. Benmelech, Efraim und Michal Zator (2022) Robots and Firm Investment, NBER Working Paper 29676, Cambridge, MA. Bloom, Nicholas (2016) Trade-induced technical change? The impact of Chinese imports on innovation, The Review of Economic Studies 103,3; 208–213. Breemersch, Koen et al. (2017) Labour Market Polarization in Advanced Countries: Impact of Global Value Chains, Technology, Import Competition from China and Labur Market Institutions, OECD Social, Employment and Migration Working Papers, No. 197, Paris. Cho, Taehyoung et al. (2017) Has the Labour Share Declined? It Depends, OECD Statistics Working Papers 2017/1, Paris. De Loecker, Jan und Jan Eeckhout (2017) The Rise of Market Power and the Macroeconomic Implications, NBER Working Paper No. 23687, Cambridge, MA. Frey, Carl Benedict und Michael A. Osborne (2013) The Future of Employment: How Susceptible are Jobs to Computerisation? Working Paper, Oxford Martin School. Georgieff, Alexandre und Anna milanez (2021) What happe ned to jobs at high risk of automation? OECD Social, Employment and Migration Working Papers No. 255, Paris.

142

8  Globalization and Employment

Hufbauer, Gary Clyder and Zhiyao Lu (2017) The Payoff to America from globalization: A Fresh Look with a Focus on Costs to Workers, Policy Brief, Peterson Institute for International Economics, Washington, D.C. International Federation of Robotics, IFR (2021a) World Robotics 2021. Industrial Robots, Frankfurt. International Federation of Robotics (2021b) World Robotics Report 2021. International Labour Organization, ILO (2018) Women and men in the informal economy: a statistical picture (third edition). Geneva. International Labour Organization, ILO (2020) Global Wage Report 2020–21. Wages and minimum wages in the time of COVID-19, Geneva. International Labour Organization, ILO (2021) World Employment and Social Outlook. Trends 2021, Geneva. International Monetary Fund, IMF (2017) World Economic Outlook, April. Gaining Momentum? Washington, D.C. Keller, Wolfgang und Hale Utar (2016) International Trade and Job polarization: Evidence at the Worker-Level, NBER Working Paper 22315, Cambridge, MA. Kletzer, Lori G. (2019) Trade and Labor Market Adjustment: The Costs of Trade-Related Job Loss in the United States and Policy Responses, In: Catao, Luis A.V. and Maurice Obstfeld (eds.) Policies to Make Trade Work for All, Princeton and Oxford; 166–178. Krugman, Paul R. et al. (2015) Internationale Wirtschaft. Theorie und Politik der Außenwirtschaft, Hallbergmoos. Lane, Marguerita und Anne Saint-Martin (2021) The impact of Artificial Intelligence on the labour market: What do we know so far? OECD Social, Employment and Migration Working Papers, No. 256, Paris. Lawrence, Robert Z. (2018) Five Reasons Why the Focus on Trade Deficits Is Misleading, Policy Brief, Peterson Institute for International Economics, Washington, D.C. Lawrence, Robert Z. (2020) Trade Surplus or Deficit? Neither Matters for Changes in Manufacturing Employment Shares, Working Paper, Peterson Institute for International Economics, Washington, D.C. OECD (2017) Employment Outlook 2017, Paris. OECD (2018) Employment Outlook 2018, Paris. OECD (2019) Employment Outlook 2019. The Future of Work, Paris OECD (2021) Employment Outlook 2021. Navigating the COVID-19 Crisis and Recovery, Paris. Owen, Erica and Noel P. Johnson (2017) Occupation and the Political Economy of Trade: Offshorability, and Protectionist Sentiment, International Organization 71; 665–699. Pak, Mathilde et al. (2019) Labour share developments over the past two decades: The role of technological progress, globalization and “winner-take-most” dynamics, Ms. Philippon, Thomas (2019) The Great Reversal. How America Gave Up on Free Markets, Cambridge, MA. und London. Rothwell, Jonathan (2017) Cutting the Losses: Reassessing the Costs of Import Competition to Workers and Communities, Gallup. Schwellnus, Cyrille et al. (2018) Labour share developments over the past two decades: The role of technological progress, globalization and “winner-take-most” dynamics, OECD Economic Department Working Papers, Paris.

References

143

Susskind, Daniel (2021) A World Without Work. Technology, Automation and How We Should Respond, London usw. Trebilcock, Michael (2019) The Fracturing of the Postwar, Free Trade Consensu: The Challenges of Constructing a New Consens, in: In: Catao, Luis A.V. and Maurice Obstfeld (eds.) Policies to Make Trade Work for All, Princeton and Oxford; 208–216. Tyson, Laura D. (2019) Trade and Policy Adjustment to Automation Challenges, In: Catao, Luis A.V. and Maurice Obstfeld (eds.) Policies to Make Trade Work for All, Princeton and Oxford; 113–120. UNIDO (2019) Industrial Development Report 2020. Industrializing in the Digital Age, Vienna. Wang, Zhi et al. (2018) Re-Examining the Effects of Trading with China on Local Labor Markets: A Supply Chain Perspective, NBER Working Paper 24886, Washington, D.C. World Bank (2005) World Development Report 2006: Equity and Development, Washington, D.C. World Bank (2019) World Development Report 2019. The Changing Nature of Work, Washington, D.C.

9

Globalization and Income Distribution

9.1 What is Problematic About Unequal Distribution? There are a whole series of reasons why unequal distribution within states (and also globally) is disadvantageous for economic, social and political development to a certain extent. An important functional reason is that the alleviation of poverty and social disadvantage is more difficult and slower to achieve the more unequal income growth is distributed. Without growth, the elimination of these problems is theoretically possible, but politically quite unlikely, because this would force a redistribution of national income or -assets. Nevertheless, country comparisons show that inequality can be dampened to a certain extent by adequate state measures even at a low level of development and under unfavorable economic conditions; there is therefore no automatic mechanism of continuous or even necessary deterioration (or improvement), even if the distribution of income and assets has a considerable tendency to persist. Societies with similar economic and social profiles show different patterns of income and asset distribution. An example of this is the corrected index of human development, which shows that wealthier countries (such as the oil states) fall behind considerably when it is taken into account to what extent all groups benefit from economic growth, education and health (see UNDP 2020). A second, politically-psychological reason for dealing with distributional issues is that the satisfaction of people and social groups, regardless of their respective cultural background, is determined not only by their absolute income, but also by its distance to their neighbors or comparison groups. If this is high,

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_9

145

146

9  Globalization and Income Distribution

generally accepted standards of fairness are violated (Dabla-Norris 2015). A large number of experiments show that distributional solutions are rejected if they are perceived as unfair, even though they would have promised material gain to the disadvantaged group as well (see Tirole 2019). Furthermore, there is a third, well-founded fear that (a) the globalization process, coupled with the outsourcing of jobs and the rapid technological development, will lead to a further favoring of the already privileged, i.e. the owners of capital and highly qualified employees, and that this (b) will fuel political resistance to further economic liberalization, the rise of populist parties and social unrest (Aiyar and Ebeke 2019). Finally, inequality also has a long-term effect because high income and assets significantly improve the starting chances of the younger generation, while intergenerational mobility (i.e. upward mobility into a higher social class) is thereby reduced, status is inherited and not earned. There are already relatively depressing empirical results on the declining intergenerational mobility: it has declined dramatically in the USA contrary to the political folklore, and it is not far from that in Germany and other industrialized countries (ibid. and Saez and Zucman 2020; Sandel 2020). In contrast, there is an older debate about whether the (at least initial) unequal distribution of consumption, income and wealth does not also benefit economic and social development because it motivates and rewards individual efforts, encourages efforts that could be eschewed if everyone would achieve the same income growth. You often read that in the business section of liberal newspapers. At the beginning of industrialization—so the argument supporting this thesis— only a few wealthier people would be able to save and invest because the others would have to use all their income for necessities of life. Growth would also take place first in the narrow, relatively capital-intensive sector, but the majority of the workforce would remain in the traditional and less productive sector (e.g. agriculture). The distribution deteriorates secondly because at first only a few people can enjoy a better education and thus earn higher wages in the modern sector. Simon Kuznets bundled these thoughts into the prediction of an U-shaped relationship between economic development and income distribution. At the beginning there would be little inequality because everyone lived in poverty, at the start of the economic boom the distribution would inevitably deteriorate, to improve again significantly when reaching a high development level (Ostry et al. 2014).

9.2  Possible Links Between Globalization and Distribution

147

9.2 Possible Links Between Globalization and Distribution However, the review of the latter thesis rather brought mixed results; an deterioration of the income distribution that is necessary for the acceleration of development could not be proven (Ravallion 2004). This is first of all the case because rich people do not necessarily save a higher proportion of their income, but at least partly use it for luxury consumption or move it abroad immediately and because secondly also poorer people can save if they are offered reasonable and safe investment forms. But if they do not or cannot do so, the society loses human potential due to the lack of education and entrepreneurial investments of the poor. Thirdly, the income concentration resulting from the self-regulation of the economic process can still be alleviated today by political measures, as the experience of recent times and different country cases demonstrate. Unequal distribution does not necessarily have to be allowed for the sake of development (see below). More recent studies in fact show that there is no positive, but at least on the medium term negative relationship between inequality and economic growth (Ostry et al. 2014; Halter et al. 2014; Dabla-Norris 2015). However, this is only the case with a time lag of five years or more and only in countries with a per capita income of more than 3000 US$. Above this threshold, the negative impact of skewed distribution on growth is quite clear (Brueckner and Lederman 2018). However, the Kuznets hypothesis probably applies to very poor countries with little capital and low educational levels, elsewhere there is no contradiction between income equality and economic efficiency (Ernan and te Kaat 2019). The growth-inhibiting effect of inequality is essentially explained by three factors: First, extreme inequality in combination with a weakly developed credit sector prevents poor groups from building human capital, that is, investing in education and health for themselves and their children. As a result, part of the potential total societal human capital remains unused. Second, inequality amplifies the political pressure on tax-financed redistribution, especially in politically open countries. The proportion of the population with below-average income is always greater than that above this threshold, so it should ‘favour’ left-wing parties. Redistribution measures, if they are drastic, theoretically weaken entrepreneurial activities and performance incentives because social groups are more likely to focus on getting a share of the (state) cake, or avoiding taxation. This has been tried to be demonstrated in various ways (World Bank 2016). The rich might also resist these measures, thus exacerbating the political situation. This leads to

148

9  Globalization and Income Distribution

the third factor, namely the promotion of political instability by skewed distribution, especially if it affects clearly delineated (e.g. ethnic) groups that then feel rightly discriminated against (Berg and Ostry 2011). The allegedly negative relationship between income concentration and tax redistribution is empirically somewhat unclear; in fact, more redistribution takes place at the state level in more unequal countries, but the data on this are weak. However, the negative impact of such measures only occurs if they are excessive (Ostry et al. 2014). It also depends on what the resources from redistribution are used for. If they are used to build human capital and infrastructure that increases productivity (Berg et al. 2018), it is not clear and not proven empirically why this should brake growth. The particularly interesting question here is how globalization and income concentration could be related, whether there are other and more important factors that influence a changing distribution of income and wealth, and—even more difficult—to what extent the effects of globalization and these other factors add up or cancel each other out partially. In the initial globalization discussion, it was taken for granted that the globalized economy must inevitably lead to a widening of the income gap between rich and poor, between developing and industrialized countries (instead of many Afheld 1995; The Lisbon Group 1997; World Commission on the Social Dimension of Globalization 2004). In such and similar publications, it was argued quite simply, for example, with the exit options of mobile capital from the market, without questioning this in any way or even investigating it empirically. Of course, there are much more differentiated theoretical analyses of the possible causal relationships and high-class statistical checks. According to classical international trade theory (Heckscher-Ohlin-Samuelson; HOS), the beneficiaries of trade are the owners of the respective abundant production factor, that is,—schematically argued—in poor countries the less qualified workers, in industrialized countries the capital owners and better qualified workers. This means that even the representatives of the neoclassical school do indeed assume initially negative consequences of trade for certain groups (see, for example, Krugman et al. 2019; Pavnic 2019). Initially, because these authors (a) assume very mobile workers who move to areas where they earn more and (b) because, due to the strong demand for workers in poor countries and the growing supply of capital in rich countries, factor prices (of capital and labor) converge or at least partially converge. This trend would be further reinforced with free capital flows and free labor migration, because capital would flow into poorer countries and workers from there would move to areas with higher wages (Easterly et al. 2004). However, there can be no talk of a global factor adjustment, because only a part of production is traded, wages therefore hardly rise in the economy as a

9.2  Possible Links Between Globalization and Distribution

149

whole and countries have very different labor productivity, which at least partially or even completely compensates for lower labor costs. If the latter were the case, capital would mainly flow into the rich countries. Even a theoretically decreasing wage gap between better and less well-trained workers in poor countries cannot be consistently observed, because, for example, the supply of well-trained workers in poorer countries lags behind the demand and, although transnational corporations relocate labor-intensive production steps to low-wage countries, they only work there to a limited extent with simple technologies and therefore also require technically skilled workers. Being trained also means less in poor countries than elsewhere, but trade always increases the premium on better training everywhere (Menendez et al. 2018). Moreover, the export that increases with liberalization and the establishment of subsidiaries of transnational corporations is always associated with a relative capital intensification of production (OECD 2017). Overall, this means that less developed countries do not necessarily remain poor in capital, technological standards, and management knowledge. They can rather couple relatively low wages with relatively high productivity, according to Baldwin (2016), a hardly beatable combination that is likely to cause more problems for workers with low to medium qualifications in industrialized countries in the future. These negative distributional effects of international trade are offset by positive ones; namely, a verifiable acceleration of growth, from which most people benefit, but especially the less qualified in the global south as a result of the export increase in more labor-intensive products, the better educated in richer countries and—worldwide—the consumers by importing cheaper imported goods experience a relative increase in income (BIS 2017). However, the model-based assumption of relatively little limited mobility of labor in the north and south is not really given (instead of many Goldberg and Pavnic 2007). Immigration of workers into the capital-rich countries is politically strongly impeded, workers do not quickly change from a declining to a flourishing sector within a country, for example, because they do not have the necessary qualifications, they do not want to lose their social contacts, their friends, the family connection and their home or there are simply political access barriers. As a result, they remain on site, become unemployed or take up lower-paid jobs with the consequence not only of individual income losses, but also of collateral damage to their environment (restaurants, shops, etc.), which has been repeatedly demonstrated by Autor et al. (2016) and had long-time effects. The consequences of limited mobility can also be demonstrated in Germany (for example, in the new federal states or in the Ruhr area), but interestingly also in relation to poor countries such as India, where male workers are not particularly mobile because

150

9  Globalization and Income Distribution

they risk losing the social protection of their extended family and caste when they move away (Munshi and Rosenzweig 2016). Consequently, sectoral/regional wage differences do not or only partially offset each other. This is already the case because the export-related increases in wage and employment income are not evenly distributed among companies, but concentrate on the more productive companies, which can therefore also pay better and higher than industry-standard wages (cf. Fig. 9.1). This inevitably leads to increased inequality within the state (Pavnic 2019; Song et al. 2019; Flaherty and Rogowski 2021). These highly productive companies often concentrate on specific regions (prototype Silicon Valley) despite higher costs for business premises, etc. there, because these costs are offset by the local availability of well-trained personnel, opportunities for cooperation with related companies and other positive agglomeration effects (see Moretti 2013). With relatively rising wages in the highly productive companies and the attractive regions, the inequality of income inevitably increases. There are additional reasons why the distribution could deteriorate during the globalization process. Prominent among these is the technological progress already indirectly mentioned, which increases the demand for qualified workers, secondarily also for those with low qualifications (e.g. service and service personnel), but not for those with medium qualifications in routine activities, i.e. the

Fig. 9.1   Development of average wages in the best companies (leaders) and the others, 2001 = 100. (Source: Pak et al. 2020, p. 7)

9.2  Possible Links Between Globalization and Distribution

151

classic skilled workers or office workers in the service sector. The question is, of course, what does technological progress have to do with globalization, more precisely, whether the globalization process accelerates technological development and whether the two can be separated in their distributional effects. Here opinions differ: the majority opinion sees technological progress as the main cause of the polarization of labor markets and increasing inequality (cf. OECD 2017; BIS 2017; Pavnic 2019). In any case, productivity in industry is growing faster than in the rest of the economy; this leads to a cheaper investment goods (the labor force tends to be replaced) and to a nearly global deindustrialization. The distributional effects of this development are obvious. The decline in overall productivity growth is also associated with deindustrialization and structural change in the economy (many services have little scope for improvement in this regard), which in turn reduces the scope for wage increases. The outsourcing of production, the increase in irregular or even precarious employment, also leads to a weakening of the trade unions, as can be seen, for example, in the declining level of organization of workers in industrial countries (in developing countries it has always been weak). It is disputed to what extent this puts pressure on wages (IMF 2017). Finally, the redistributive effects of government taxes and transfers have also declined, with tax sources shifting towards immobile sources (labour, consumption) in favour of corporate tax rates (see Taxes and Globalization). The last, rarely investigated source of increasing income concentration is (a) the incomes of the super-rich, which are usually excluded from household surveys, and (b) the ability of these privileged people to leave income shares untaxed in the enterprise or to move them to low-income areas. If all households could be surveyed and the latter incomes included, the Gini index (see below) would increase by at least 5% in the OECD world (see Ravallion 2018; Saez and Zucman 2020). From higher income to even greater income concentration is not far, because more can be saved and the savings can be invested more productively (Piketty 2015). Given this parade of factors that promote inequality, it would at least be surprising if the distribution of income and wealth had not deteriorated significantly in the case of the more mature industrial countries. This is indeed the case, but to a lesser extent than the previous considerations suggest (see below).

152

9  Globalization and Income Distribution

9.3 Measuring Global and Intra-state Inequality Personal inequality is the most commonly used measure by economists. It takes into account all incomes, regardless of source, and ranks all citizens by ascending income into groups (usually by quintiles or deciles, that is, by fifths or tenths of the population) and sets their income in relation to their share of the population. One can either set the income of the lowest quintile or the two lowest quintiles (= Kuznets rate) in relation to the highest quintile, or plot it on the so-called Lorenz curve. The population shares are cumulatively added on the x-axis, on the y-axis their share of total income. The deviation of this curve from the 45° line (where all groups would receive exactly the same share of total income) characterizes the degree of inequality. The closer this curve comes to the x-axis, the more pronounced it is. Furthermore, one can calculate the share of the area between the 45° line and the Lorenz curve to the total area between the x-axis and the 45° line. This results in the widely used Gini index. It can range from 0 (absolute equality) to 1 (complete inequality). In countries with pronounced inequality (such as Brazil and South Africa), it is above 0.5, in countries with high income equality it is 0.3 or less. The problem with this determination is that quite different curve shapes, for example those with high income concentration at the top, but moderate inequality for the rest (or even positive outcomes for the lower groups) as compared to relatively even slanting overall, lead to similar values for the Gini index. Consequently, many experts have switched to determining the income gap between the lowest and the highest quintile/decile (= Theil index). The World Bank has recently introduced a different approach that makes sense if one attaches particular importance to the participation of the less privileged in prosperity growth. It is called “shared prosperity” and is defined as equal or even disproportionate participation of the bottom 40% of the population in income growth (World Bank 2016, 2018, 2020). Finally, there is the calculation of the functional distribution by production factors, that is, the share of capital, labor and (today limited) land in national income, realized through wages, profits and land rent. Ideally, these incomes would correspond to their marginal product (that is, their market-determined contribution to total production), but in reality, of course, the political and economic power of the groups behind the production factors (such as unions or entrepreneurs) also plays an important role.

9.4  The Development of Inequality Worldwide and Within Countries

153

9.4 The Development of Inequality Worldwide and Within Countries 9.4.1 Global Inequality In the opinion of most non-scientific observers, inequality has risen sharply worldwide and within individual countries for some time now, especially during the phase of accelerated globalization (motto: the gap between rich and poor is widening all the time). This somewhat simple thesis does not stand up to scrutiny, however. The global distribution of income, i.e. the income differences between people worldwide (without taking their country of origin into account), which had been steadily increasing since the Industrial Revolution, fell sharply in the 1990s (Bourguignon 2015; Milanovic 2016) despite significant gains by the top one percent in the global income pyramid (Fig. 9.2). The global Gini index, which ranks all inhabitants of the earth by ascending income, fell by 0.15 points from 0.65 to 0.5 between the 1990s and today, with this decline being slightly lower when taking hourly wages into account and slightly higher when taking government taxes and transfers are included (which should actually reduce income concentration by a significant amount) (World Bank 2016; Hammar and Waldenström 2019). The share of income of the bottom half of the world’s population has increased from 9 to 19 percent during this time. The improvement in the global distribution of

Fig. 9.2   Global income inequality 1820–2020. (Source: World Inequality Lab 2021, p. 57. Note: The red line shows the development of intra-state, the blue line the inter-state inequality)

154

9  Globalization and Income Distribution

income is of course due to the fact that developing countries have experienced much faster growth in per capita income than industrial countries since 2000, with population-rich Asian economies (China, India, Indonesia) in particular standing out. However, this should not be used as an opportunity to downplay this quite positive result, because these three economies are home to around 40 percent of the world’s population. There have been attempts to relativize this development by pointing to the hardly improving international distribution, in which all countries (whether it is China or Andorra) are given the same weight. Such a procedure makes absolutely no sense from the point of view of global fairness. In contrast to the improving global distribution of income, the distribution within countries (according to Fig. 9.4) must have deteriorated at least until 1998, otherwise its share in the global distribution would not have increased so much. It should be noted that the super-rich usually fall out of household surveys (because they rarely participate in them), they leave part of their income in the company or transfer it to tax havens, which further increases concentration at the top. To characterize the distribution of global income growth, Lakner/Milanovic introduced the image of the elephant curve (Lakner and Milanovic 2016; Hammar and Waldenström 2019; see Fig. 9.4). Figure 9.3 shows the respective income growth by percentiles; at the lower end (= people in poor developing countries)

Fig. 9.3   Elephant curve of income distribution by percentiles (1988–2008). (Source: Lakner and Milanovic 2016 Explanation: The curve indicates by how much the income of a hundredth (ranked by income) of the world population has increased)

9.4  The Development of Inequality Worldwide and Within Countries

155

Fig. 9.4   Trend in the Gini index by region 1988–2013. (Source: World Bank 2016, p. 83)

there were moderate income gains, in the middle (= emerging countries, especially China) significant, at the top few or none (= employees in routine work in industrialized countries), at the top there are very strong increases (= influence of the super-rich). One could conclude from this curve that the broad lower middle class in the global north is more negatively affected by the globalization process and could therefore easily conclude from this their social frustration and tendency towards voting for populist parties.

9.4.2 Regional/Interstate Inequality Regional and intra-state income inequality has developed quite differently. It is still most unequal in Latin America (although with a clearly declining trend since the 2000s), followed by Africa (also with a declining trend), East Asia, the Middle East and South Asia, and is least unequal in the industrialised countries, although with an increasing trend up to the global financial crisis. Accord-

156

9  Globalization and Income Distribution

ingly, the income of the top 10% of the income pyramid has increased slightly in Europe, significantly in North America, but particularly strongly in Russia. At the same time, the income share of the bottom half of the population has generally declined; in Russia until 1995, in China and India until 2010, in North America until today (2016). It has risen slightly in Europe, Brazil and the Middle East (Alvaredo et al. 2017). From this disparate development it is difficult to conclude that an income gap is opening up everywhere in globalisation. Of course, this is not proof to the contrary, because the effects of globalisation could have been contained or overlaid by other effects to a greater or lesser extent. However, the income distribution broken down by country and decile also shows a very disparate picture (Table 9.1). There are countries that have integrated themselves strongly into world trade and the world financial system, but still have a tolerable level of inequality, and those that have more or less completely isolated themselves, but still have a completely skewed distribution. It is striking that the distribution differs according to the level of development; in OECD countries it has deteriorated (at least until a decade ago), especially in relation to the lower middle of the income pyramid, apparently similarly in rapidly opening developing societies, otherwise it has improved. Therefore, in the following, the respective causes of the differences will be asked separately for Western and developing societies. The intra-state inequality in the OECD world has, according to the majority of studies in the last decades, increased with the exception of a few countries, with this trend slowing down significantly since 2000 (Bourguignon 2019). This was primarily due to the sharp increase in top incomes (the top income percent), secondly the earning lag of low-wage workers (OECD 2015, 2018a, b). This has long since sparked a heated debate about how this development is to be contained, how the super-rich can be prevented from hijacking the state and appropriating state benefits that are hardly justified by their own performance (OECD 2015; Mazzucato 2019). There is no question that the inequality of assets is even greater than the concentration of assets. In the OECD, only 3% of assets went to the poorest 40% of households, but half to the top 10% (OECD 2015). After the publication of the immensely extensive monograph by Piketty (2015) on the development of income distribution in selected industrial countries since 2014, the focus has been put particularly on the income and asset share of the top one percent of the pyramid, which has risen sharply since the 1970s, after it had fallen sharply massively the two world wars. In fact, this share has reached an almost obscene level (especially in the USA), but is now mainly generated by wage income (of the managers) and less by the preservation of inherited income

9.4  The Development of Inequality Worldwide and Within Countries

157

Table 9.1.   Share of consumption or income by decile

Source: World Bank 2020; p. 96 Explanation: The black bar represents the share of consumption/income of the richest, the red that of the poorest decile

158

9  Globalization and Income Distribution

without any significant further work input. Of course, the inheritance of hoarded income still contributes to a significant freezing of the social structure. At least the growth of the income and asset share of the super-rich seems to have reached a plateau in recent years, and even fallen since 2008 (United Nations 2020). However, not the gap between the income of the better and the less well-qualified employees. For example, the income gap between workers with a college degree and those with a high school diploma has doubled in the USA during the last three decades (Author 2014), elsewhere it does not look much better. This is the result of the gradual replacement of physical by cognitive activities. The relative decline of members of the middle class, their share of income has fallen from 64 to 61% between the mid-1980s and around 2015 (OECD 2019; Pleninger et al. 2022). There are numerous reasons for this, such as the inflation of housing and education (for the younger generation), the increasing insecurity of the job, the increasing demands on professional qualifications and the low ability of the corresponding employees to avoid paying taxes (ibid.). This is problematic because these layers were considered to be the bulwark of democracy and—because of their desire for upward mobility— economic dynamism. The political effects of their blocking can be seen in the rise of right-wing populist parties. One of the key reasons for the growing inequality within the OECD has been the declining importance of public taxes and transfers in correcting market-based inequality. On average, they reduce the Gini index by 11 points (= a quarter) in the OECD, but at different rates across countries (see Fig. 9.5.). Since the mid1990s, the redistributive effect of taxes and transfers has declined significantly (by an average of almost 5% points in the OECD), most notably in Israel, the Scandinavian countries (except Norway) and New Zealand, countries in which the poorest quintile benefited most from the transfers (OECD 2018a, b). Another reason is the decline of regular standard employment relationships in favor of part-time, temporary employment and (self-)employment, activities that almost always entail lower incomes. From 1995 to the global financial crisis, half of the new employment in the OECD was of this type. Furthermore, one can observe almost throughout a polarization of the labor markets, that is, a relative increase at the top or at the bottom of the pyramid and a thinning in the middle (OECD 2015, 2019b). The declining redistributive effect of unemployment benefits (especially for long-term unemployed) and social assistance in the OECD is explained by a relative decline in payments, higher eligibility requirements and shorter benefit periods. The OECD attributes the falling redistribution through taxes to globalization to a large extent, because the degree of tax progression (especially for income

9.4  The Development of Inequality Worldwide and Within Countries

159

Fig. 9.5   Inequality before and after taxes and transfers. (Source: PIIE 2020, p. 22)

tax) decreases with the opening up to world trade, the maximum tax rates fell from 1990 to 2008, but then rose again slightly (OECD 2018b). However, it must be emphasized that the measured income concentration in the OECD before and after taxes and transfers has only increased in a few countries since 2004, with the exception of a few smaller countries, including Denmark and Sweden. Even more striking is the massive difference between the income concentration before taxes and transfers and afterwards. The two Gini

160

9  Globalization and Income Distribution

indices are 0.45 to 0.33 in Australia, 0.49 to 0.28 in Austria, 0.53 to 0.30 in Finland, etc. This means that the tax and social state in the OECD still massively interferes with income distribution. This is only weakly the case in the latecomers to the OECD (South Korea), the United States and Great Britain. As already shown, the distribution of consumption and income is worse in developing countries than within the OECD. South Africa and Indonesia were at the top of income concentration, closely followed by Brazil, China, Costa Rica, India and Colombia. After the turn of the millennium, the previously very skewed distribution improved in most Latin American countries, later also in China, but it deteriorated in India and Indonesia. In China, rural areas fell behind, mainly due to lack of access to public services (education and health), in India the gap between prospering and lagging states increased, in South Africa the legacy of apartheid had an impact, in Latin American countries newly introduced or expanded social programs dampened market-related inequality, but not, for example, in Costa Rica. The share of social spending in GDP is usually low in developing countries, as tax revenue also falls significantly below the OECD average. But Brazil is a remarkable exception. There, expenditure on contributory pensions, support for the working population (unemployment, disability, pregnancy, etc.) is particularly low. In general, social security has a bias in favor of formally employed people in the public sector and large companies. No wonder that this kind of social policy could hardly compensate for the unequal market results for a long time. But in the last two decades we have observed remarkable improvements with the almost nationwide introduction of conditional and unconditional transfers for school attendance or health care (particularly strong in Latin America), the introduction of universal or almost universal pension systems also in some poor countries and the expansion of government employment programs with employment guarantee (Betz 2022). The redistributive effect of these new programs is not inconsiderable, especially in South Africa, Brazil, Chile and Mexico (Lustig 2016; Balestra et al. 2018). Stronger income concentration is not identical to poorer layers being left out. The World Bank is now propagating the strategy of shared prosperity (“shared prosperity”) and is examining whether economic growth has also arrived at the bottom 40% of the income pyramid or whether this has even benefited more. This approach has a certain proximity to philosophical ideas of justice (John Rawls) about a good society, in which the betterment of the poorer layers enjoys foremost priority. The World Bank has been using this approach since 2016 and has come to somewhat surprising results in its investigations. According to the latest report from 2020, in 74 of 91 economies (however, in this study, development

9.5  Globalization as the Main Cause of Income Concentration?

161

countries predominate), for which somewhat reliable and complete data are available, the incomes of the poorer have risen at the same pace as in the rest of society, in 54 economies even faster (World Bank 2020). As authors in the vicinity of this organization had already noted earlier, there is a close connection between growth dynamics and income gains of the lower layers (Dollar and Kraay 2001; Dollar et al. 2016). From this positive balance sheet, however, some regions/ countries stand out, primarily some ex-socialist and African states. According to this, about 80% of the income gains of the poorer arise solely from economic growth, a negative connection with globalization processes is denied. That was perhaps a bit premature: The World Bank’s country selection and that of the latter-mentioned authors focused on developing countries, in which—on average— the distribution effects of globalization could turn out better because they were characterized bveforehand by enormous income concentration and a policy that protected the small layer of entrepreneurs and the employees they employed by extra profits through the protection of the internal market. Secondly, economic growth is not the same as globalization; hardly anyone will sensibly deny that the poorer will benefit more or less from growth; for social reasons, there is therefore no need to demonize growth. But the question of interest here is not the income effect of growth, but of opening up to the world market.

9.5 Globalization as the Main Cause of Income Concentration? There are not too many serious studies that try to determine the connection between globalization and the concentration of income and wealth empirically. Although the existing work often notes a negative distributional effect of trade and capital market liberalization, this relationship is apparently not significant or even not given in all cases (Foerster and Toth 2015; Marsh 2016). Explanations for this unsatisfactory result could be that the studies differ in terms of time frame, data sources and country selection, that the distributional effect of stronger integration into the world economy also depends on other factors such as the income distribution at the beginning of the globalization process, the competition in the respective economies, the technology change that rewards better education and the already mentioned decreasing compensation of market results by state taxes and transfers (Bergh et al. 2017; Ravallion 2018) Finally, when comparing across countries, one must always bear in mind how strongly the respective econ-

162

9  Globalization and Income Distribution

omies have globalized de iure and de facto and whether inequality is measured before or after taxes and transfers. Studies that take this into account to some extent actually come to a negative impact of globalization, especially the opening up to world trade, on income distribution. However, this influence is not particularly strong in linear regressions and has moderate significance (Bergh et al. 2017). Preliminary studies that work with a non-linear relationship between globalization and distribution achieve better results: The influence of globalization on income distribution is clearly, but not completely compensated by high public assistance benefits (ibid.), It is also not equally negative with respect to all economies: Strongly globalized industrial countries can no longer gain much or even no increase in prosperity through further opening of their trade and capital sectors, so the negative distributional effects carry more weight. In not yet very integrated developing countries, the gains in growth benefit low-skilled workers or only highly skilled workers in technology-intensive companies more (Lang and Mendes Tavares 2018). However, the hoped-for distributional improvement depends firstly on a more or less active welfare policy with a broad impact and on whether growth favors lowskilled workers or only highly skilled workers in technology-intensive companies. It is also empirically clear that the groups at the top of the income pyramid benefit disproportionately from globalization processes, without endangering the incomes of the poorer ones. The latter benefit from globalization (relatively) only in developing countries (ibid.). It is clear from all the investigations that globalization is not the sole cause of worldwide income concentration, perhaps not even the most important one. But at least in the industrialized countries it contributes its share. Several studies attribute the main share of the deterioration of distribution to technological change (e.g. BIS 2017), which has led to a progressively stronger use of well-educated workers. Others see political decisions, namely the reduction of corporate and income tax rates, as the main culprits (Bourguignon 2019) or the worldwide erosion of the industrial sector, which has reduced the relative supply of relatively well-paid employment opportunities (Catao and Obstfeld 2019). However, the question remains to what extent these factors were also promoted by globalization processes, so that we are dealing with a multi-causal problem of deteriorating income distribution. Finally, the evidence also shows that this development can be countered with resolute, targeted political measures, as the very different income distribution after taxes and transfers in the USA on the one hand and the Scandinavian countries on the other hand demonstrates.

References

163

9.6 Solutions It is not primarily the task of this textbook to offer political solutions to the distribution problems arising from globalization (see Atkinson 2018; Saez and Zucman 2020 in detail). Therefore, only in the necessary brevity: The most efficient approach would be to prevent/restrict inequality where it arises—in the market—rather than to carry out social repair afterwards, which can hardly be sustainable financially. The promotion of true competition would be helpful, making it more difficult to obtain quasi-monopolistic extra profits. Also helpful would be adequate minimum wages, the prevention of excessive precarious employment, the full granting of tariff autonomy and freedom of association (i.e. the strengthening of unions). It would help to promote early childhood education (before cognitive deficits solidify), the promotion of lifelong learning, associated with an active labor market policy that enables the qualification, retraining and integration of long-term unemployed and other difficult-to-place individuals. Also helpful would be the reduction of gender-related wage differences and a stronger integration of women into the labor market through the promotion of the compatibility of family and work. Tax-wise, it would help to prevent the privileging of capital expenditure at the expense of labor, to reverse the decline in tax progression, to reduce the burden on labor income and consumption at the expense of capital taxation, and to limit the shift of profits to low-tax areas. This is impossible without international cooperation. There are at least first efforts s within the OECD with the agreement of a very low minimum tax rate (15%). Finally, social protection systems would have to be adapted to the new world of work, i.e. the disproportionate increase in nonstandard (‘atypical’) employment relationships (see Globalization and the Welfare State). This will not be possible without financial top-ups in countries with low social benefits.

References Afheldt, Horst (1995) Ausstieg aus dem Sozialstaat? Gefährdungen der Gesellschaft durch weltweite Umbrüche, Aus Politik und Zeitgeschichte, 25–26/95; 3–12. Aiyar, Shekhar and Christian Ebeke (2019) Inequality of Opportunity, Inequality of Income and Economic Growth, IMF Working Paper 19/34, Washington, D.C. Alvaredo, Facundo et al. (2017) The elephant curve of global inequality and growth, WID. world Working Paper Series 2017/20. Atkinson, Anthony B. (2018) Ungleichheit. Was wir dagegen tun können, Stuttgart.

164

9  Globalization and Income Distribution

Autor, David H. (2014) Skills, education, and the Rise of Earnings Inequality among the ‘Other 99 Percent’, Science 344, no. 6186; 83–851. Autor, David H. et al. (2015) Untangling Trade and Technology. Evidence from Local Labor Markets, The Economic Journal, 125, 621–646. Autor, David H. et al. (2016) The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade, Annual Review of Economics, 8; 205–240. Baldwin, Richard (2016) The Great Convergence, Cambridge, MA. Balestra, Carlotta et al. (2018) Inequalities in emerging economies: Informing the policy dialogue on inclusive growth, OECD Statistics Working Papers 2018/13, Paris. Bank for International Settlements, BIS (2017) 87th Annual Report, Basel. Bergh, Andreas et al. (2017) Economic globalization, inequality and the role of social protection, Working Paper No. 341, Development Centre, OECD, Paris. Berg, Andrew G. and Jonathan D. Ostry (2011) Inequality and Unsustainable Growth: Two Sides of the Same Coin? IMF Staff Discussion Note, Washington, D.C. Berg, Andrew et al. (2018) Redistribution, inequality, and growth: new evidence, Journal of Economic Growth, 23; 259–305. Betz, Joachim (2022) Entwicklungspolitik. Eine Einführung in Zielsetzungen und Ergebnisse, Wiesbaden. Bourguignon, Francois (2015). The Globalization of Inequality. Princeton, NJ. Bourguignon, Francois (2019) Inequality, Globalization, and Technical Change in Advanced Countries: A Brief Synopsis, in: Luis A.V. Catao und Maurice Obstfeld, eds. (2019) Policies to Make Trade Work for All, Princeton and Oxford, 94–110. Brueckner, Markus und Daniel Lederman (2018). Inequality and economic growth: The role of initial income. Journal of Economic Growth 23, 341–66. Catao, Luis A.V. und Maurice Obstfeld, (2019) Introduction in: dies (eds.) Policies to Make Trade Work for All, Princeton and Oxford; 1–37. Dabla-Norris, Era et al. (2015) Causes and Consequences of Income Inequality: A Global Perspective, IMF Staff Discussion Note, Washington, D.C. Die Gruppe von Lissabon (1997) Grenzen des Wettbewerbs. Die Globalisierung der Wirtschaft und die Zukunft der Menschheit, München. Dollar, David und Aart Kraay (2001) Growth is Good for the Poor, World Bank, March. Dollar, David et al. (2016) Growth still is good for the poor, European Economic Review 81; 68–85. Easterly, William et al. (2004) Channels from Globalization to Inequality: Productivity World Versus Factor World, Brookings Trade Forum, Globalization, Poverty, and Inequality; 39–81. Ernan, Lisardo und Daniel Marcel te Kaat (2019). Inequality and growth: Industry-level evidence. Journal of Economic Growth 24, 283–308. Flaherty, Thomas M. und Ronald Rogowski (2021) Rising Inequality as a Threat to the Liberal Order, International Organization, International Organization, i. E. Förster, Michael F. und István György Tóth (2015) Cross- Country Evidence of the Multiple Causes of Inequality Changes in the OECD Area, in: Handbook of Income Distribution, vol 2B; Amsterdam; 1729–1843. Goldberg, Pinelopi and Nina Pavnic (2007) Distributional Effects of Globalization in Developing Countries, NBER Working Paper 12885, Cambridge, MA.

References

165

Halter, Daniel et al. (2014). Inequality and growth: The neglected time dimension. Journal of Economic Growth 19, 81–10 Hammar, Olle and Daniel Waldenström (2019). Global earnings inequality, 1970–2018, Ms. IMF (2017). World economic outlook October 2017. Washington, DC. Krugman, Paul et al. (201911) Internationale Wirtschaft. Theorie und Politik der Aussenwirtschaft, Hallbergmoos. Lakner, Christoph und Branko Milanovic (2016) Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession, World Bank Economic Review, 30,2; 203–232. Lang, Valentin F. und Marina Mendes Tavares (2018) The Distribution of Gains from Globalization, IMF Working Paper 18/54, Washington, D.C. Lustig, Nora (2016). Fiscal policy, inequality and the poor in the developing world, Center for Global Development, Working Paper 441, Washington, DC. Marsh, Robert M. (2016) What Have We Learned from cross-National Research on the Causes of Inequality? Comparative Sociology 15; 7–36. Mazzucato, Mariana (2019) The Value of Everything. Making and Taking in the Global Economy. London. Menendez, Irene et al. (2018) Low skill products by high skill workers: the distributive effects of trade in developing countries, University of Zurich. Milanovic, Branko (2016) Global Inequality: A New Approach for the Age of Globalization, Cambridge, MA. Moretti, Enrico (2013) The New Geography of Jobs, New York und Boston. Munshi, Kaivan and Mark Rosenzweig (2016) Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap, American Economic Review 106,1; 46–98. OECD (2015) In It Together. Why Less Inequality Benefits All, Paris. OECD (2017) OECD Economic Outlook 2017, Issue 1, Paris. OECD (2018b) Income Redistribution Across OECD Countries: Main Findings and Policy Implications, OECD Economic Policy Paper No. 23, Paris. OECD (2018b) OECD Economic Outlook, vol. 2018b, Issue 2, Paris. OECD (2019) Under Pressure: The Sueezed Middle Class, Paris. Ostry, Jonathan et al. (2014). Redistribution, inequality and growth. IMF Staff Discussion Note. Washington, DC. Pak, Mathilde et al. (2020) Labour Share Developments in OECD Countries in the Last Two Decades, Economics and Statistiques, OECD, Paris. Pavnik, Nina (2019) International Trade and Inequality in Developing Economies: Assessing Recent Evidence, In: Catao, Luis A.V. and Maurice Obstfeld (eds.) Policies to Make Trade Work for All, Princeton and Oxford; 129–142. Peterson Institute of International Economics, PIIE (2020) How to Fix Economic Inequality, Washington, D.C. Piketty, Thomas (2015 5) Das Kapital im 21. Jahrhundert, München. Pleninger, Regina et al. (2022) The ‘Forgotten’ middle class: An analysis of the effects of globalization, The World Economy 45; 76–110. Ravallion, Martin (2004) Pro-poor growth: A primer, Policy Research Working Paper, World Bank, Washington, D.C. Ravallion, Martin (2018) Inequality and Globalization: A Review Essay, Journal of Economic Literature 56,2; 620–642.

166

9  Globalization and Income Distribution

Saez, Emmanuel und Gabriel Zucman (2020) The Triumph of Injustice. How the Rich Dofdge Taxes and How to Make Them Pay, New York und London. Sandel, Michael J. (2020) The Tyranny of Merit: What’s Become of the Common Good? London. Song, Jae et al. (2019) Firming Up Inequality, The Quarterly journal of Economics, 134,1; 1–50. Tirole, Jean (2019) Economics for the Common Good, Princeton und Oxford. UNDP (2020) Human Development Report 2020. Human Development and the Anthropocene, New York. United Nations (2020) World Social Report 2020. Inequality in a Rapidly Changing World, New York. World Bank (2016). Taking on inequality. Poverty and shared prosperity. Washington, DC. World Bank (2018). Poverty and shared prosperity 2018: Piecing together the poverty puzzle. Washington, DC. World Bank (2020) Poverty and Shared Prosperity 2020. Reversals of Fortune, Washington, D.C. World Commission on the Social Dimension of Globalization; 2004: A Fair Globalization: Creating Opportunities for All, ILO, Geneva. World Inequality Lab (2021) World Inequality Report 2022, New York.

Statehood

10

10.1 General It was and is a foregone conclusion for numerous critics of globalization dynamics that this would erode statehood of traditional type, that the state would not necessarily die, but statehood would certainly fray at the edges (Leibfried and Zürn 2006) because economic and social transactions exceed the national state framework, that the state remains limited in its ability to act territorially. Many authors saw no way out of this conundrum other than renouncing traditional ideas of sovereignty in favor of a “cosmopolitan realism” (Beck 2002), i.e. the regain of sovereignty vis-à-vis transnational actors on a new supranational level, supported by an active, global civil society. In particular, developing countries would never be able to achieve statehood in the Western sense in globalization and in the face of increasing internal conflicts; they should therefore dissolve into a kind of “post-national constellation” (Leibfried and Zürn 2006). These are steep theses. The question of the feasibility of the alternatives to methodological nationalism is not to be debated here (see, however, the chapter on Global Governance), but rather the consistency of the thesis of the partial or complete loss of sovereignty in the globalization process. This requires that agreement can be reached on the dimensions of more or less fully functioning statehood in order to distill criteria for the alleged decline from this. After years of discussion about state failure, fragile statehood and similar terms, which were supposed to encompass crisis-prone developments in poor countries, this is not particularly difficult, although the criteria for given statehood differ somewhat from author to author (cf. Betz 2007). However, there is no question that functioning statehood first and foremost requires the enforcement

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_10

167

168

10 Statehood

of the state’s monopoly of violence in order to guarantee internal peace, which is the prerequisite for all rule-based economic and social exchange. Secondly, binding norm setting for social transactions and the regulation of disputes by orderly, state-organized legal procedures and equality before the law are the necessary complement. Thirdly, the state must have the ability to procure the necessary resources to perform its functions, with which it can also—fourthly—ensure necessary infrastructure services and social security or welfare for the population. Finally, one can argue about how far redistribution or the correction of market results belong to the essential state functions, and also that state sovereignty must be legitimized. Now it is a question of course that these functions are not fulfilled everywhere and in all dimensions and that it also took centuries in today’s developed societies to contain internal violence, to raise taxes, to provide social benefits, to provide for redistribution and to allow social participation in political decision-making. Therefore, caution is advised when talking about the erosion of statehood in globalization, which may also have been only partially achieved in many countries according to a somewhat demanding standards. Reports on the influence of globalization on state social efforts and the quality of political participation can be found elsewhere; here it should first be about the ability of states to collect taxes despite the continued global networking of economic and social actors, which has often been at the center of relevant controversies.

10.2 Globalization and Taxation At the beginning of the relevant discussion in the 1990s, it was assumed that the ability of state agencies to collect taxes would suffer from the global expansion of companies without or with limited national anchoring, because transnational corporations would have an “exit option” i.e. the relocation of their activities to other countries (with lower tax burden) or at least the avoidance of taxes through creative design of transfer prices within their own company. The logical consequence of the increasingly intense competition for locations would be a global, competitive reduction in corporate tax rates (“race to the bottom”), also a reduction in top income tax rates and a shift in the focus of tax collection to “immobile sources”, i.e. wages and consumption (Rodrik 1997; Scholte 2000; Torres 2001; World Commission on the Social Dimension of Globalization 2004). The empirical validity of this so-called efficiency thesis was already called into question at the end of the 1990s (Quinn 1997), confirmed by a multitude of subsequent studies. Swank and Steinmo (2002) show that while income and

10.2  Globalization and Taxation

169

corporate tax rates were reduced in some cases quite sharply in several l OECD countries from 1981 to 1995, this was offset by a widening of the tax base (through the reduction of opportunities for write-offs, the elimination of tax credits, the inclusion of investments in taxation, etc.), so that tax revenue and its distribution among certain sources changed little or not at all. Only the taxation of labour incomes rose disproportionately, primarily because of higher contributions by employees to social security. This finding is confirmed by almost all subsequent studies (Bénassy-Quéré et al. 2005; Swank 2006; Plümper et al. 2009; OECD 2021). The picture did not change much when data from developing countries were included, whose tax rates should be particularly sensitive to changes in foreign capital investment. According to the World Bank, taxes on income, profits and capital gains in these countries on average neither fell nor rose significantly between 1990 and 2002, although these calculations do not differentiate between payroll, income, corporate and capital taxes (World Bank 2001, 2004). However, this is the case with later data sets. What does it look like now? First, global tax revenue as a share of global GDP—with slight fluctuations—has risen from 14.4% (1990) to 15.3% (2019) in all regions for which complete data are available (see Tax revenue (% of GDP) | Data (worldbank.org)). A relatively steep increase (since 2002) has been recorded worldwide in taxes on income, corporate profits and capital gains (ibid.). Even broken down by individual countries, there are few exceptions (see Fig. 10.1). Within the OECD, the share of taxes in GDP has risen moderately in most countries since 2000, but not in countries with already high tax burdens (Scandinavia, as well as the USA, Canada, Ireland), more strongly in those with initially moderate tax revenue (Chile, Greece, Korea, Portugal). A certain tendency towards convergence of the burden is therefore clearly discernible (OECD 2017). After an extensive study by the OECD, which includes 105 countries, the share of corporate tax in their total tax revenue has increased from 12.3% in 2000 to 15.3% in 2018. In the same period, it rose as a share of GDP in these countries from 2.7 to 3.2% (OECD 2021). The share of corporate tax in the total is particularly high in Africa (19.2%) and Latin America (15.6%), significantly lower in the OECD area. It is not really surprising that corporate tax revenue is particularly heavy in resource-exporting countries and subject to considerable fluctuations with the business cycle. It is also confirmed for the latest period that corporate tax revenue has not declined, even though maximum rates have been reduced in some cases dramatically (see Figs. 10.2, 10.3). Of particular interest for our topic is also the lack of statistical correlation between the level of tax rates and the extent of capital liberalisation, which has been proven for quite some time (Swank and Steinmo 2002); moreover, they are

170

10 Statehood

Fig. 10.1   Share of taxes by country in GDP 2010 and 2018. (Source: OECD 2021, p. 5)

higher in states with left-wing governments than in the others. This points to the political causes of differences in capital taxation (see also below). A later study also found no statistical correlation between countries’ integration into the world financial market and corporate tax rates; rather, national rates appear to be mainly based on the US model, especially after the tax reform there in 1986 during the

10.2  Globalization and Taxation

171

Fig. 10.2   Average corporate tax rate by region. (Source: OECD 2021, p. 13) 18%

4%

16%

Percentage of total taxation

14%

3%

12% 10% 2% 8% 6% 1%

4% 2% Percentage of total taxation

0%

Percentage of GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0%

Fig. 10.3   Corporate tax revenue as a share of tax revenue and GDP. (Source: OECD 2021, p. 4)

172

10 Statehood

Reagan administration (Kumar and Quinn 2012). This points more to the diffusion of economic policy models between neighbouring, culturally and politically similar countries than to globalisation as the cause (Cao 2010).

10.3 Reasons for Continued Taxability The aforementioned findings therefore contradict the common understanding of the exclusive pressure of globalization and the accompanying possibilities for tax avoidance leading to lower tax revenue, especially from corporate taxes. How can this be explained? First of all, it should be noted again that the tax rates on income and corporate profits have been significantly reduced since the late 1980s; the international competition for locations has therefore not remained without effect. On the one hand, this and the accompanying reaction of almost all national financial authorities to cut opportunities for tax relief maintained investment incentives for transnational companies, but on the other hand only limited the tax revenue only moderately, also because of the offsetting of out- with domestic tax expenses of these companies. An obvious reason for unchanged or for unchanged or rising tax revenues was the fact that most states simply could not or did not want to forego additional revenue in the face of (also in the course of development or aging of society) growing tasks. The alternative of increasing public debt was not available to all states (and also not unlimited) and/or would have been sanctioned by capital markets with rising interest rates. The resulting debt service would have also restricted the public financial leeway for maneuver in the medium term (Swank and Steinmo 2002). A further shift of tax revenue to immobile sources partly failed because this led to increased wage demands in the next round of wage negotiations and violated the wage differentials principle, that is, the difference between wages and social transfers without employment. A permanent increase in value added tax would have had distributionally regressive tendencies and would also have fueled inflation. This therefore recommended relatively moderate increases in wage and consumption taxation. In addition, companies do not choose their locations primarily or solely on the basis of the respective tax rates, but also in relation to the value that the location offers for this, that is, in terms of infrastructure, the supply of suitable workers, legal certainty, etc. Bénassy-Quéré et al. (2005) have calculated that an increase in the corporate tax rate by one percent would theoretically reduce foreign investment, but not if it also increased the supply of public goods (transport

10.3  Reasons for Continued Taxability

173

and government support for research and development). So it also depends on the expenditure side of public finances. One could object that companies also benefit from public services that have contributed little or nothing to their financing and that many countries compete for investments that offer the same infrastructure (Plümper et al. 2009). On the other hand, one must not exaggerate the ease with which companies can relocate investments at higher tax rates; if this were the only reason, economies with above-average tax rates would not receive any foreign investment at all. For obvious reasons, this is not the case. Finally, the entrepreneurial reaction to taxation also depends on the economic structure of the respective countries: Small, open economies with necessarily limited domestic markets cannot tax companies as much as others (and do not do so). For the future, when all economies become more open and smaller in relation to the world market, this does not bode well (Hines and Summers 2009). Related to this is the influence of the liberalization of trade and capital markets on corporate taxation, which apparently also depends on whether the respective country is rich in capital or labor, a capital importer or exporter. Jha and Gozgor (2019) report an increase in taxation in capital-rich countries in the current globalization phase and a reduction in the others, while they calculate that the opening of capital markets is associated with a reduction in the tax burden everywhere. One must not neglect the political influencing factors of corporate taxation. It has already been pointed out that countries with left-wing governments on average have slightly higher corporate taxes, even if a certain convergence can be observed in recent years. Coordinated market economies like Germany—that is, with a stronger social partnership and/or wider influence of the state on the economy—have lowered corporate taxes less than liberal market economies like Great Britain and the USA, majoritarian democracies have to take less account of economic actors than systems with proportional representation, which usually requires coalition governments (Swank 2002; Fuest et al. 2003). Finally, the question arises as to whether the management of transnational corporations must be highly nervous about corporate taxation if they are given (and use) the opportunity to shift profits to low-tax countries or tax havens by manipulating internal transfer prices Devereux et al. 2008; Hines and Summers 2009). This dampens the compulsion or incentive to respond to tax increases through relocations abroad. In addition, there is the uncertainty about the actual incidence of the burden. In small, open economies it is very likely that the workforce and consumers will bear the (shifted) higher tax burden on companies (Zodrow 2010).

174

10 Statehood

10.4 So No Tax Policy “Race to the Bottom”? Before we pass an excessively positive judgment on the continued taxability of states in globalization, several things need to be considered: First, it has already been pointed out that the rates of income and corporate taxes have fallen in recent decades—especially in industrialized countries—and also show clear convergence, even if total revenue has remained more or less constant due to the elimination of possible deductions. Countries with unfavorable global economic conditions were forced to make more drastic corrections. Secondly, some authors (such as Genschel 2000) have rightly pointed out earlier that the requirements on state activity would have to increase, currently in the course of development (especially in initially poorer states), then as a result of ageing of society and global vicissitudes (international financial crisis, increase in ecological and climate risks, pandemics), with a rising trend, in order to meet these requirements. In the global north that was only the case to a limited extent. The resulting consequence is a significant increase in public debt, the burdens of which are mitigated by the current already longer-lasting, now apparently coming to an end, low-interest phase. Thirdly, the globalization of capital flows and the worldwide networking of transnational corporations (and also wealthy individuals) have clearly had negative consequences in terms of the tax avoidance possibilities of these companies through the manipulation of transfer prices (e.g. between the headquarters and the foreign subsidiaries of these companies) and thus the shift of profits to low-tax areas. Companies can today import services, sell patents, lease goods and services etc. with a mouse click. This is of course not particularly difficult in the case of intra-firm trade, it becomes even more acute with the increasing digitalization of the economy (see below). Empirically, subsidiaries of transnational corporations report lower profits than other companies, especially in high-tax countries (Hebous 2021). Even more on the ethical borderline is the establishment of “letterbox companies” in Panama and elsewhere for the purpose of tax avoidance. Their number exploded until 2010, until a US law on automatic data exchange between foreign banks and US tax authorities partly cut off their air supply. However, the noncriminal practice of shifting profits (through transfer prices, payment of trademarks, patents, etc.) from and to subsidiaries in low-wage countries remains. That not everything is above board can be seen from the comparison of reported, lavish profits in tax havens and the relatively meager share of resident subsidiaries in production, sales and employment (more on this: Saez and Zucman 2020). The estimated size of the revenue losses was estimated by the IMF at just under $450

10.4  So No Tax Policy “Race to the Bottom”?

175

billion for OECD countries and just over $200 billion for developing countries (both in 2013). Germany, the USA and France are particularly affected by this (IMF 2019). These are fantastic sums, which make up 4 to 6% of the respective state budget revenues. According to calculations by Alstadsaeter et al. (2017), the top percent of the income pyramid in the Scandinavian countries smuggles 30% of their income and wealth tax due past the tax offices. Even higher tax avoidance is estimated for other states. It is also clear that, taking into account this tax evasion—that is, only on the basis of the tax data—the actual distribution of income and wealth would be even more unfavorable than without. With the expected further increase in technology-intensive business models that do not require major capital investment (type Amazon, Google etc.), the risk of tax avoidance is becoming even greater, because these are partly based on services without price, but the provision of personal data and these services can be provided in countries in which the corresponding companies do not even have a physical presence. How should they then be taxed in a tax-equitable manner, how should the revenues be divided between the countries of domicile and those in which business activities take place? It is quite clear that a solution requires the cooperation of many countries, not only the large ones, but also the numerous small countries, which often act as tax havens. However, progress has actually been made in this respect, in particular on the initiative of the G7 (i.e. the largest industrial countries) and with the active participation and coordination of the OECD and the IMF, which one can certainly not suspect of left-wing tendencies. But they represent the enlightened interests of global total capital, so to speak, in a fair distribution of burdens and the maintenance of sufficient taxation capacity of their member countries. Serious efforts have been made in the international coordination of tax measures within the framework of the G20 and the OECD since 2013. Attempts were made to limit the worst varieties of tax avoidance through the transfer of profits by preparing a relevant multilateral agreement, to establish common standards for the determination of transfer prices and—as a preliminary stage—to improve the tax information basis with regard to cross-border transactions first of all (OECD 2014, 2016). Progress has been made in this respect, a multinational framework threatened to fail at times due to previous unilateral actions by the USA (2017) and the EU as well as conflicting interests of low-tax countries. However, in summer 2021 an agreement was actually reached involving 130 countries and prepared under the auspices of the OECD, which is to bring about a fair distribution of profits and taxation rights among the largest transnational corporations (including digital companies). It provides for the transfer of a part of the taxation rights from the

176

10 Statehood

countries of domicile to those economies where they conduct their actual business and generate profits. Secondly, the agreement limits tax competition by introducing a minimum corporate tax (agreed rate: 15%). This agreement is to lead to a tax redistribution of USD 125 billion and to generate additional USD 150 billion annually in state treasuries (OECD 2021), but mainly in those of the industrial countries. However, this reform can only be the first step, because companies are only included above a considerable minimum turnover (USD 20 billion), raw material companies are excluded and the minimum rate is still quite low. In Europe, it is only undercut by Ireland (Ocampo and Faccio 2021). The agreement, which may already be referred to as ‘historical’, impressively demonstrates that national states are not as helpless with regard to the enforcement of transnational corporations as they have been made by globalization skeptics, but—provided unity—could put the international capital under much stricter control. However, unity is lacking even within the European Union, where several member states exploit the rest by means of tax rebates. The negative effects of globalization on tax justice are therefore mainly politically determined. In connection with the avoidance of taxes by the wealthy and the increasing inequality of income and wealth (at least in the OECD countries), it is also a special annoyance that the redistribution effects through taxation and the granting of state transfers have decreased since the mid-1990s. In developing countries with the partial exception of Latin America, the redistributive effects of taxes and transfers have never been really strong—partly due to moderate tax revenues, partly due to the dominance of indirect (value-added) taxes, partly due to low tax progression, partly also due to often low target group orientation of state transfers (cf. IMF 2017). But even in OECD countries, these effects decreased due to the already mentioned reduction of the highest tax brackets, reduced progression in income tax, stricter conditions for the use of state transfers, their real decline, etc. (ibid.). For this it is necessary to know that the distribution of income through taxes and state transfers improves substantively compared to the pure market result, the Gini index decreases by almost a third in the OECD area (see Fig. 10.4.). The decreasing public correction of market incomes affected above all the Scandinavian states, the Netherlands and also Germany, improvements only showed states with previously relatively low tax rates or low transfers. The majority of this deterioration is attributable to the other countries, above all to less progressive social security contributions, which were only limited compensated by more comprehensive social security (IMF 2014). Disproportionally affected—as part of an active employment policy—were the benefits for unemployment and disability. In addition the requirements for claiming such benefits were tightened. It must be justifiably added that these transfers did and do compete with increased

10.4  So No Tax Policy “Race to the Bottom”?

177

Fig. 10.4   Redistribution through taxes and transfers within the OECD. (Source: Causa and Hermansen, p. 30) Note: The upper part of the figure shows the percentage change in income distribution (Gini index) through taxes and transfers; the lower part breaks down the effect on the distribution before and after taxation and the granting of state transfers

expenditures for health and, in particular, the retirement age. Increases in the latter therefore reduced the scope for the former benefits. Income taxes played a significant, but smaller role in improving the income distribution; here the redistribution improved downwards, but deteriorated in relation to the wealthier. There is no doubt that the state redistribution through taxes and transfers still differs significantly from state to state; within the OECD it is particularly meager in Chile, Japan, New Zealand and the USA, in Belgium, Denmark, Ireland but considerably stronger (see Fig. 10.3). The distribution by income classes also varies considerably: In Greece, for example, only 7% of transfers reach the lowest income quintile, in New Zealand, however, 45% (Causa and Hermansen 2019).

178

10 Statehood

References Abdel-Kader, Khaled and Ruud De Mooij (2020) Tax Policy and Inclusive Growth, IMF Working Paper 20/271, Washington, D.C. Alstadsaeter, Annette et al. (2017) Tax evasion and inequality, NBER Working Paper 23772, Washington, D.C. Anderson, Edward und Samuel Obeng (2019) Globalisation and government spending: Evidence for the ‘hyper-globalisation’ of the 1990s and 200s, The World Economy 44; 1144–1176. Beck, Ulrich (2002) Macht und Gegenmacht im globalen Zeitalter. Neue weltpolitische Ökonomie, Frankfurt a. M. Bénassy-Quéré, Agnès, Nicolas Gobalraja und Alain Trannoy (2005) Tax Competition and Public Input, Centre d’Etudes Prospectives et d’Informations Internationales, Paris Betz, Joachim (2007) Staatlichkeit von Entwicklungsländern, Zeitschrift für Politikwissenschaft, 17,3; 735–757. Cao, Xun (2010) Networks as Channels of Policy Diffusion: Explaining Worldwide Changes in Capital Taxation, 1998–2006, International Studies Quarterly 54; 823–854. Causa, Orsetta and Mikkel Hermansen (2019) Income Redistribution Through Taxes and Transfers Across OECD Countries, OECD, Paris. Devereux, Michael et al. (2008) Do countries compete over corporate tax rates? Journal of Public Economics 92, 5–6; 1210–1235. Fuest, Clemens et al. (2003) Capital Mobility and Tax Competition: A Survey, CESIFO Working Paper No. 956. Genschel, Philipp (2000) Der Wohlfahrtsstaat im Steuerwettbewerb, MPIfG Working Paper No.5, Köln. Hebous, Shafik (2021) Global Firms, National Corporate Taxes: An evolution of Incompatibility, in: De Mooji, Ruud et al. Corporate Income Taxes Under Pressure. Why Reform Is Needed and How it Could Be Designed, IMF, Washington, D.C.; 33–56. Hines, James R. and Lawrence H. Summers (2009) How Globalization Affects Tax Design, NBER Working Paper 14664, Cambridge, MA. International Monetary Fund, IMF (2014) Fiscal Policy and Income Inequality, Policy Paper, Washington, D.C. International Monetary Fund, IMF (2017) Fiscal Monitor. Tackling Inequality, Washington, D.C. International Monetary Fund, IMF (2019) Corporate Taxation in the Global Economy, Policy Paper, Washington, D.C. Jha, Priyaranjan and Giray Gozgor (2019) Globalization and taxation: theory and evidence, CESifo Working Papers No. 7589. Kumar, Manmohan S. and Dennis P. Quinn (2012) Globalization and Corporate Taxation, IMF Working Paper 12/252, Washington, D.C. Leibfried, Stephan und Michael Zürn, Hrsg. (2006) Transformation des Staates? Frankfurt a. M. Ocampo, José und Tommaso Faccio (2021) A Global Tax Deal for the Rich, Not the Poor, Project Syndicate, June 11. OECD (2014) Addressing the Tax Challenges of the Digital Economy, Paris.

References

179

OECD (2016) BEPS Project explanatory Notes, 2015 Final Reports, Paris. OECD (2017) OECD Economic Outlook, Vol. 2017, Issue 1, Paris. OECD (2021) Corporate Tax Statistics. Third Edition, Paris. Plümper, Thomas et al. (2009) Why is There No Race to the Bottom in Capital Taxation? International Studies Quarterly 53; 761–786. Quinn, Dennis (1997) The Correlates of Change in International Financial Regulation, American Political Science Review, 91,3; 531–551. Rodrik, Dani (1997) Has Globalization Gone Too Far? Institute for International Economics, Washington, D.C. Saez, Emmanuel and Gabriel Zucman (2020) The Triumph of Injustice. How the Rich Dodge Taxes and Ho to Make Them Pay, New York and London. Scholte, Jan Aart (2000) Globalization: A Critical Introduction, New York. Swank, Duane (2006) Tax policy in an era of Internationalization: Explaining the Spread of Neoliberalism, International Organization 60; 847–882. Swank, Duane and Sven Steinmo (2002) The New Political Economy of Taxation in Advanced Capitalist Democracies, American Journal of Political Science, 46,3; 642– 655. Torres, Raymond (2001) Towards a Socially Sustainable World Economy. An Analysis of the Social Pillars of Globalization, ILO, Geneva World Bank (2001) World Development Indicators 2001, Washington, D.C. World Bank (2004) World Development Indicators 2004, Washington, D.C. World Commission on the Social Dimension of Globalization (2004) A Fair Globalization: Creating Opportunities for All, ILO, Geneva. Zodrow, George R. (2010) Capital Mobility and Tax Competition, National Tax Journal, 63,4 (Part 2); 865–902.

Globalization and the Welfare State

11

11.1 Problem Statement The tough global competition for export markets, the establishment of transnational corporations and the acquisition of financial resources from international banks and investors should actually—in view of the fact that international capital is mobile and can therefore be withdrawn relatively quickly again—lead to a worldwide race to reduce income and corporate taxes, resulting in a corresponding pressure on national social expenditure, regardless of whether it is financed by taxes or social security contributions. This was also the tenor of initial contributions to the relationship between globalization and social or welfare state (see below), which assumed its widespread hollowing out everywhere (race to the bottom) and the basis for active social policy would diminish (Strange 1996; Stryker 1998; Boswell and Chase-Dunn 1999). However, as will be shown, this is not really the case. There is no direct correlation between globalization (de iure and de facto) and social expenditure in relation to gross domestic product or total government expenditure (see below). For the reduction or expansion of social benefits, other factors are therefore apparently responsible to a greater or lesser extent. However, the rapid technological progress—including the replacement of human labor by digital programs, robots, 3D printers, etc. that has already taken place and is likely to increase, the faster turnover of jobs and the decline in regular employment relationships, the outsourcing of production, the immigration of workers and the aging of society— makes the existing social protection systems (especially those of the German or Central European type) increasingly unsuitable and prone to crises. In developing countries with still very partial protection of the population against the standard

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_11

181

182

11  Globalization and the Welfare State

risks of life and a high degree of employment in the informal sector, the question arises as to whether the classical social welfare state model of the North, which has so far only been adopted by a privileged minority (mainly in the public sector), is generalizable and sustainable, or whether it should be supplemented or replaced by other forms of social security.

11.2 The Theoretical Relationship Between Globalization and the Welfare State and Its Verification At the beginning of the second globalization wave, skeptics predicted a significant widening of the international and intra-societal income gap (see Chapter Globalization and Income Distribution), but also—due to increasing exit options for mobile capital, privatization and deregulation—a weakening of the state’s ability to mobilize tax revenue and thus to finance social benefits (see ibid. and Group of Lisbon 1996; German Bundestag 1999). This is the core of the socalled efficiency thesis: it assumes that there is a negative relationship between the inclusion of economies in the global economy and the relative extent of social benefits. An opposite assumption—the compensation thesis—claims, on the other hand, a necessary increase in social spending in the course of globalization (first Cameron 1978; later Rodrik 1998; Leibfried and Rieger 2011), essentially because only in this way could trade and capital market liberalization be imposed against political resistance, and secondly, because efficiently used education and health care expenditures could make the workforce fit for the world market. The later empirical verification of these theses brought about clear differentiations with regard to industrialized countries in terms of government expenditure on social welfare: For the period up to the turn of the millennium, social welfare expenditure did not decrease, but increased, as did employment in the public sector and the density of market regulation with a social purpose. In addition, considerable differences could be observed depending on the political party in power, with social democratic societies in Northern Europe still having more generously designed social welfare systems (financed by taxes and with almost universal coverage) in comparison to economically liberal countries (USA and Great Britain), while conservative welfare states (Germany, Austria, Switzerland) occupied a middle position (Scholte 1997; Garrett 1998; Boix 2003). Genschel (2000) made a somewhat laborious attempt to save the efficiency thesis by pointing to the problems arising from globalization (aging, increasing unemployment),

11.2  The Theoretical Relationship Between Globalization and …

183

which, without the pressure of the markets, would have forced an even greater increase in social benefits. Until the mid/end of the 1990s, hardly any cuts in the level of social benefits could be observed in the north, or mainly only where their level was already low beforehand. However, from the turn of the millennium onwards, one can observe a reduction of individual benefits, higher hurdles for claiming them and the decrease of the replacement rate for lost earnings; i.e. the proportion of lost income which is compensated for by social benefits (Korpi and Palme 2003; Allan and Scruggs 2004). But even with these cuts, differences could still be observed—albeit somewhat diminishing—depending on the political coloring of the government (ibid). Left-wing parties still strived for a stronger social policy compensation of the risks for employees arising from liberal trade and capital markets, while conservative and liberal parties were significantly less engaged. Their social policy commitment also declined more sharply through migration, which, however, (weaker) also affected left-wing parties (Burgoon 2012). Other, non-globalization-related causes of different social policy profiles could be identified in the global North: (a) First, the distribution of political power in society; strong unions and centralized wage negotiations were long considered conducive to social policy, but have been downgraded somewhat (Korpi 2006; Schmidt 2005). (b) This was related to the fact that liberal market economies generate less welfare state activism than coordinated market economies with a social partnership organization of production (Germany being the prime example), in which more value is placed on the training and thus binding of employees to the company (Iversen 1999; Hall and Soskice 2001). (c) Intense party competition for political power, especially between Christian and Social Democratic parties, was a particularly important factor in the expansion of the welfare state in Germany and the Netherlands (Huber and Stephens 2001). (d) Countermajoritarian institutions that prevent the unrestricted ruling of the majority (upper houses, constitutional courts, independent central banks, proportional representation, strong veto players) (Swank 2002; Iversen and Soskice 2006). (e) The greater participation of women in the labor market which increases the demand for (and supply of) child care services. (f) Furthermore, social policy arrangements cannot be changed overnight due to historically grown claims of clients, they are therefore strongly path-dependent (Pierson 2004). (g) Of course, social developments (aging, increased separation of couples, etc.), political events (such as German reunification) or outdated construction principles of social security (such as those that assume almost lifelong, regular employment) also have an impact on claims and actual performance. (h) Finally, not all welfare state benefits have been equally affected by increasing integration into the world economy; active labor market

184

11  Globalization and the Welfare State

policy and education spending apparently benefited, while pension payments and family benefits suffered (Burgoon 2001; Garrett and Mitchell 2001). It ultimately also depends on the mostly neglected demand side for social protection in the globalization process. Highly qualified employees or those in the non-tradable goods and services sector understandably need less protection than low-skilled workers who are exposed to global competition and also concentrated geographically. Accordingly, the expressed preference in the population for the expansion of benefits differs, as does the political incentive to provide benefits (Menendez 2016; Walter 2017). Companies’ reactions to the expansion of the welfare state also differ according to their technological level; high-ranking companies hardly react to this by outsourcing production to countries with lower protection (Chen 2014). One would therefore not expect a very close relationship between simple globalization indices and the volume/distribution of social security benefits by individual schemes. This skepticism also seems appropriate with regard to developing countries. The not very numerous studies that exist claim a moderate overall effect of the world market integration of these countries on tax rates and social spending in the Global South (Glenn 2009) and, if so, conditioned by trade liberalization, but not by the opening up of the capital market. The negative influence apparently also concentrated on social transfer benefits, to a lesser extent, however, on education and health care (Kaufman and Segura Ubiergo 2001; Wibbels 2006; Rudra 2009). Different economic policy strategies also had different effects on the scope and structure of social spending in the Global South. Rudra (2007) differentiated between the reaction to globalization in export- and more domestic marketoriented economies; The governments of export-oriented economies in the South supported the conditions for the inclusion of the workforce in the globalization process (through primary and secondary education, literacy, reduction of child mortality), domestic market-oriented economies were characterized by more protective social policies, i.e. classical social security for employees of the formal sector, social assistance or consumer subsidies for the rest and priority for universities in the field of education. Rudra and Nooruddin (2014) later deepened this approach by portraying the expansion of state employment as a key compensation strategy in the course of economic liberalization. Other explanatory variants of welfare activisms emphasize the importance of internal political factors for the expansion of the welfare state in developing countries, primarily the political regime type (authoritarian versus democratic) and growing party political competition, further—as in the literature with regard to the global North—the favorable influence of left-wing government (Huber and Stephens 2012). This thesis can be based primarily on the expansion of social

11.3  To the Current Social Policy Empirics

185

policy approaches in East Asian and Latin American countries after their (re-) democratization. If not in terms of the breadth of social security arrangements, democratic systems would take positive effect on their more needs-based structure and quality (Rudra and Haggard 2005). There are also authors who see no favorable influence of the regime type on the scope and structure of social benefits during economic liberalization in developing countries (Wibbels 2006; Nooruddin and Simmons 2009) but, for example, attribute the (mostly regional) diffusion of social policy models for the expansion of social protection to the expansion of social protection, for example, the increase in unconditional or conditional social transfers (Tillin and Duckett 2017; Carnes and Mares 2015; Betz and Neff 2017). Finally, one can ask whether employees in the informal sector actually value welfare policies, from which they have so far benefited to a limited extent (Holland 2018) and whether they should rather rely on the security provided by the family, community or caste (India) (Potrafke 2018).

11.3 To the Current Social Policy Empirics After what has been said so far, it will be difficult to construct and prove a clear causal connection between the integration of economies into the globalization process and the respective social policy enthusiasm of governments. You cannot simply compare the relative size of social entitlements over time (say since 1990) and then draw conclusions about the influence of global economic factors without further ado. You can only do this if you compare the growth of these outlays to the increasing or decreasing globalization of the economies concerned de facto and de iure. Secondly, one should distinguish between welfare state categories, because—as shown above—not all expenditures need be equally globalizationadverse. Thirdly, one should see the increase or decrease in social expenditures in relation to the rising costs of old-age provision and the associated health expenditure as well as the cyclically dependent support payments in case of unemployment. Finally, social expenditure falls/rises in relation to GDP with increasing or decreasing economic growth, because the legally binding expenditure cannot be cut or increased to the same extent. Therefore, their volume at the end of the global financial crisis (2009) was quite high, while in Ireland and Hungary it decreased during the rapid growth of recent years. In the end, the welfare state is only partially financed from the income of the corporate tax, the increase of which would motivate companies to emigrate to countries with lower taxes. The actual decrease in the maximum rates in this case (in the OECD area) was compensated by widening the tax base (see chapter globalization and taxation).

186

11  Globalization and the Welfare State

First, however, a simple look at the development of public social expenditure in the OECD countries: On average and in all member states, it has increased massively in relation to gross domestic product from 1960 to 1990 (see Fig. 11.1), also afterwards until 2009, but at a slower pace since then, since afterwards it has stagnated at a high level (in the OECD average between 21 and 20% of GDP). The relative slowdown in growth since 1990 is due to the already increased hurdles to the claiming of benefits and their partial privatization. The latter explains, for example, the significant decrease in Dutch social expenditure. However, the data shown still do not support the thesis of a race to the bottom for the lowest possible amount. They also leave massive doubts about the mentioned thesis because expenditure (at approximately the same level of development and similar integration into the world economy) diverges very strongly (for example, between France, Finland, Belgium and Denmark on the one hand, and Ireland, Switzerland, the Netherlands and Australia on the other). It is quite obvious that in many OECD countries with a high social budget, this was further increased after 1990 and some countries with a strong need for catch-up (Australia, Greece, Japan, Portugal, USA) partly followed this. Doubts about both the efficiency thesis and—to a lesser extent—the compensation thesis also arise when one looks at the distribution of social benefits within the OECD (see Fig. 11.2.). The largest expenditure item is public pension payments, expenditure on behalf of a population group that does not really need to be insured against ups and downs in the globalization process, but also is not fit for world market competition. The share of state pension expenditure in the OECD world’s GDP has risen from 5.7% (1995) to 7.7% (2018). A large part of the total

Fig. 11.1   Public social expenditure as a share of GDP (1960, 1990, 2010 and 2019). (Source: OECD 2019)

11.3  To the Current Social Policy Empirics

187

Countries with social security schemes anchored in national legislation, by policy area (branch) (%)

100 90 80 70 60 50 40 30 20 10

Old age

Disability

Survivors

Employment injury

Sickness

Maternity

Children/family

Unemployment

2020

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

1945

1940

1935

1930

1925

1920

1915

1910

1905

Pre-1900

0

Fig. 11.2   Share of countries with statutory anchoring of individual social programmes 1900–2020. (Source: ILO 2021, p. 32)

social expenditure (approx. 40%) goes to pensioners, far above their share of the population of 15% (OECD 2012). Public pension expenditure differs considerably, especially according to the proportion of private old-age provision and the age structure of the population. Also, family benefits that are not really relevant to globalization have increased (from 1.77 to 2.16% of GDP), while expenditure on labour market issues fell sharply for all OECD countries after a peak during the global financial crisis, especially for the countries that were previously particularly active. Expenditure on unemployment (from 1.03 to 0.74% of GDP) and disability (from 2.24 to 2.02% of GDP) also fell. The second largest social policy block in the OECD is state health expenditure; this only has one direction, namely upwards; it has doubled on average in the OECD since 2003 (from 2.22 to 4.22% of GDP). The greater concern for the health of employees could be characterized as globalization-related, although its growth is largely due to the increased wages in the health sector and the price increases for drugs and medical technology. Another expenditure item, which is usually not classified as social policy, but which would make most societies fit for the world market, namely public expenditure on education, has hardly increased in the current globalization phase. In short: There is no talk of a social policy race to the bottom among OECD countries, on the other hand the expenditure structure does not reflect the requirements of the globalization process.

188

11  Globalization and the Welfare State

When examining the relationship between globalization and social protection in developing countries, it must be taken into account beforehand that the globalization indicators there are of lower rank, have only been increasing sharply since the mid-1990s, and that the level of social benefits is significantly lower in comparison to the OECD area. This makes it more difficult to attribute social policy changes to globalization alone. Empirically, the financial basis for the provision of social protection in the Global South has not become narrower. The basis for the provision of these benefits—that is, the national tax revenue—has grown in relation to GDP in most developing and transition countries (in 58 of 73 states) during the current opening of the trade and financial account (see World Development Indicators of the World Bank). The legal anchoring of social programs has increased significantly in all world regions during this time (see Fig. 11.2.), That is, also in all developing regions. Weak points are the care for children/families and the protection against unemployment. According to the relatively comprehensive data of the ILO (2017), the social expenditure of most developing countries (72 of 94) has also increased significantly from 1990 to 2010/2015, in some countries by more than 50% (e.g. Benin, Botswana, Burundi, China, Costa Rica, Colombia, Lesotho, Mexico, Rwanda, South Africa, South Korea). There were setbacks mainly in countries at war or those with already high level of benefits (Sri Lanka, Uruguay). In relation to developing countries, therefore, a simple efficiency thesis does not apply. This does not mean that everything is going well in welfare terms there: The coverage of social benefits is on average meager, as is the achievable replacement income (see Fig. 11.3; Here in relation to the replacement income by pensions), the distribution by social class and the quality of care (Betz 2021). The opposite thesis, that social protection in the global south should have been expanded for political and economic reasons as part of its integration into the world economy, does not carry much weight either. The expansion of employment in the public sector has come to a standstill or even declined almost everywhere (with the exception of Latin America), in opposition to the above claim by Rudra and Nooruddin (see Herrera and Munoz 2019) and could simply be explained by the state taking on additional responsibilities. Employees in the public sector are in addition privileged and usually cannot be fired. This is in line with the fact that a large part of social expenditure in developing countries is spent on pensions for state employees. New programmes, such as unconditional or conditional transfers (unconditional or conditional transfers) and the introduction of universal pension entitlements (from tax revenue) or universal, almost non-contributory, health care, target the elderly in the population, the informal sector and small-scale farming (Clemens et al. 2013), are only lim-

11.4  Deficits in Social Security in the North and South

189

Fig. 11.3   Pension incomes as a percentage of the minimum wage by country (2017). (Source: ILO 2021, p. 57)

ited in their ability to protect formal sector employees against income losses. At most, one could argue that the stagnation of employment in the formal sector, the inevitable increase in informal employment, is in need of a minimum level of protection. The new programmes are—at least in Africa—largely financed from development cooperation funds, so they only place a limited burden on the state budget (World Bank 2016, 2018).

11.4 Deficits in Social Security in the North and South The foregoing does not mean, however, that traditional social security systems can withstand the globalization process, the associated polarization and partial precarization of employment, as well as the deterioration of income distribution, or the challenges posed by medical progress, etc.

190

11  Globalization and the Welfare State

In poorer developing countries, the need for social welfare reform is palpable because more than half the population is not insured against any life risks at all, only marginally against unemployment, moderately against maternity and illness. In addition, in areas where more needs to be done in the globalization process (early childhood education, lifelong vocational training, active labour market policy), there is often a lack of provision, and existing social programmes do not primarily benefit those who need them most (Betz 2021). Fortunately, many states have begun to change course. After the turn of the millennium, the coverage rate of and the income replacement by social programs has improved in many developing countries (ILO 2014a, b, 2017, 2021). In 22 developing and transition countries, universal pension systems have been introduced, including in particularly poor countries (Botswana, Lesotho, Mongolia, Nepal). Elsewhere, the share of non-contributory systems has increased, the level of income replacement achieved through them has often moves upwards, and in numerous countries (over 70), conditional or unconditional transfer programs or a right to state-organized employment have been introduced (Barrientos 2013; Leisering and Barrientos 2013; ILO 2018). However, the picture is not so rosy when it comes to protection against illness. State spending on this fell (2007–2011) in one third of countries, and private financing of health care (‘out of pocket’) still predominates in many places. Too many people in the global South are therefore still hardly or not at all protected against numerous life risks, and they cannot be, because 60% of the workforce is employed in the informal sector (in sub-Saharan Africa and South Asia 90%), from which no classical social security contributions can be taken. The existing benefits are often of poor quality and serve only to a limited extent to improve income distribution. It is also not to be expected that the informal sector would shrink so quickly and sharply as a result of globalization-related progress that prompt social policy action would become superfluous; rather, the opposite is to be expected because of the relative employment stagnation in the formal sector. A truly globalization-compatible social policy would therefore have to focus on the broad, previously unprotected layer of informal workers, and would have to provide those who fall out of the labor market as a result of international competition or technological development with support to improve their human capital on a continuous basis and to remove mobility barriers. The introduction of a unconditional basic income or one with limited conditions is to be recommended parellel to the abolition of the excessive number of social assistance programs with very low coverage and enormous distribution losses. The additional costs for this would be manageable for middle-income countries (UN-ESCAP 2018; World Bank 2018; Guven 2019), and could be borne by the international community in other cases.

References

191

References Allan, James P. and Lyle Scruggs (2004) Political Partisanship and Welfare State Reform in Advanced Industrial Societies, American Journal of Political Science, 48,§; 496–512. Barrientos, A. (2013) Social Assistance in Developing Countries, Cambridge: Cambridge University Press. Betz, Joachim (2021) Globalization, in: Esther Schühring und Markus Loewe (eds.) Handbook on Social Protection Systems, Cheltenham; 663–675. Betz, Joachim und Daniel Neff (2017) Social policy diffusion in South Asia, Journal of Asian Public Policy, 10,1; 25–39. Boix, Carles (2003) Democracy and Redistribution, Cambridge, MA. Boswell, Terry und Christopher Chase-Dunn; 1999: The Spiral of Capitalism and Socialism, Boulder. Burgoon, Brian; 2001: Globalization and Welfare Compensation: Disentangling the Ties that Bind, International Organization, 35,3; 509–551. Burgoon, Brian (2012) Partisan Embedding of Liberalism: How Trade, Investment, and immigration Affect Party Support for the Welfare State, Comparative Political Studies, 45,5; 606–635. Bind, International Organization 35,3; 509–551. Carnes, M. and I. Mares (2015) ‘Explaining the “Return of the State” in Middle-Income Countries: Employment Vulnerability, Income and Preference for Social Protection in Latin America’, Politics & Society, 43 (4); 525–550. Clemens, Benedict J. et al. (2013). Energy Subsidy Reform: Lessons and Implications. Washington, DC: IMF. David R. Cameron (1978) ‘The Expansion of the Public Economy: A Comparative Analysis’, American Political Science Review 72; 1243–1261. Deutscher Bundestag (1999). Zwischenbericht der Enquete-Kommission. Globalisierung der Weltwirtschaft. Bonn. Garrett, Geoffrey; 1998: Global Markets and National Politics: Collision Course or Virtuous Circle? International Organization 52,4; 787–824 Garrett, Geoffrey und Deborah Mitchell; 2001: Globalization, government spending and taxation in the OECD, European Journal of Political Research 39; 145–177 Genschel, Philipp (2000) Der Wohlfahrtsstaat im Steuerwettbewerb, Zeitschrift für Internationale Beziehungen, 7,2; 267–296. Glenn, J. (2009) ‘Welfare Spending in an Era of Globalization: The North South Divide’, International Relations, 23,1; 27–50. Gruppe von Lissabon (2001) Grenzen des Wettbewerbs. Die Globalisierung und die Zukunft der Menschheit, München: Luchterhand. Guven, M. (2019) ‘Extending Pension Coverage to the Informal Sector in Africa’, Social Protection & Jobs Discussion Paper No. 1933, World Bank, Washington, D.C. Hall, Peter A. and David Soskice (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford. Herrera, Santiago and Ercio Munoz (2019) What Determines the Size of Public Employment? Policy Research Working Paper 8961, World Bank, Washington, D.C.

192

11  Globalization and the Welfare State

Huber, E. and J. D. Stephens (2012) Democracy and the Left. Social Policy and Inequality in Latin America, Chicago: The University of Chicago Press. ILO (2014a) Social protection global policy trends 2010–2015, Social Protection Policy Papers, Geneva. ILO (2014b) Addressing the Global Health Crisis: Universal Health Protection Schemes, Social Protection Policy Papers 13, Geneva. ILO (2017) World Social Protection Report 2017–19. Universal Social Protection to Achieve the Sustainable Development Goals, Geneva. ILO (2018) Social protection for older persons: Policy trends and statistics 2017–19, Social Protection Policy Papers 17, Geneva. ILO (2021) World Social Protection Report 2020–22. Social Protection at the crossroads – in pursuit of a better future, Geneva. Iversen, Torben (1999) Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies, Cambridge, MA. Iversen, Torben und David Soskice (2006) Electoral Institutions and the Politics of Coalition: Why Some Democracies Redistribute More Than Others, American Political Science Review, 100,2; 165–181. Kaufman, Robert R. und Alex Segura-Ubiergo; 2001: Globalization, Domestic Politics, and Social Spending in Latin America, World Politics 53,4; 553–587. KOF Swiss Economic Institute (2019), KOF Globalization Index Zurich. Korpi, Walter; 2006: Power resources and Employer-Centered Approaches in Explanations of Welfare States and Varieties of Capitalism, World Politics 58 (Jan.); 167–206 Korpi, Walter and Joakim Palme (2003) New Politics and Class Politics in the Context of Austerity and Globalization: Welfare State Regress in 18 Countries, 1975–95, The American Political Science Review, 97,3; 425–446. Leibfried, Stephan und Elmar Rieger (2001) Grundlagen der Globalisierung. Perspektiven des Wohlfahrtsstaates, Frankfurt Leisering, L. and A. Barrientos (2013) ‘Social citizenship for the global poor? The worldwide spread of social assistance’, International Journal of Social Welfare 22; S50–67. Menendez, Irene (2016) Globalization and Welfare Spending: How Geography and Electoral Institutions Condition Compensation, International studies Quarterly 60; 665–676. Nooruddin, Irfan and Joel W. Simmons (2009) Openness, Uncertainty and Social Spending: Implications for the Globalization-Welfare State Debate, International Studies Quarterly, 53; 841–866. OECD (2012) Social spending during the crisis, Paris. OECD (2019) Social Expenditure Update, Paris. Pierson, Paul (2004) Politics in Time. History, Institutions, and Social Analysis, Princeton. Potrafke, N. (2018) ‘The globalisation-welfare state nexus: Evidence from Asia’, ifo Working Papers 272, Munich. Rodrik, Dani (1998) Why Do More Open Economies Have Bigger Governments? Journal of Political Economy 106,5; 997–1032. Rudra, N. and S. Haggard (2005) ‘Globalization, Democracy, and Effective Welfare Spending in the Developing World,’ Comparative Political Studies 38 (9); 1015–49. Rudra, Nita and Irfan Nooruddin (2014). Are developing countries really defying the embedded liberal ism compact? World Politics 66 (4), 603–40. Rutkowski, M. (2018) ‘Reimagining Social Protection’, Finance and Development 55 (4).

References

193

Scholte, Jan Aart (1997). Global capitalism and the state. International Affairs 73 (3), 427– 52. Schmidt, Manfred G.; 2005: Sozialpolitik in Deutschland. Historische Entwicklung und internationaler Vergleich, Wiesbaden. Stryker, Robin; 1998: Globalization and the Welfare State, International Journal of Sociology and Social Policy, 18,1; 1–49. Swank, Duane; 2002: Global Capital, Political Institutions and Policy Change in Developed Welfare States, Cambridge. Tillin, L. and J. Duckett (2017)’The politics of social welfare expansion in Brazil, China, India and South Africa in comparative perspective’ Commonwealth and Comparative Politics, 55; 253–277. UN/ESCAP (2018). Social outlook for Asia and the Pacific. Bangkok Walter, Stefanie (2017) Globalization and the Demand-Side of Politics: How Globalization Shapes Labor Market Risk Perceptions and Policy Preferences, Political Science Research and Methods, 5,1; 55–80. Wibbels, Erik; 2006: Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World, International Organization 60 (Spring); 433–468 Wibbels, E. and J.S. Ahlquist (2011) ‘Democracy, trade and social insurance’, International Studies Quarterly, 55 (1); 125–149. World Bank (2016) Taking on Inequality, Poverty and Shared Prosperity 2016, Washington, D.C. World Bank (2018) Poverty and Shared Prosperity 2018, Washington, D.C.

Globalization and Democracy

12

12.1 General It is relatively easy and this experiment has also been undertaken many times to construct a direct connection between continued globalization and the worldwide advancement or decline of democracy or the preservation of democratic conditions. Internationally networked corporations, international agreements and external impairments caused by globalization (climate change, migration, etc.) strongly and often negatively affect the life chances of many citizens in central areas of their well-being, without them or their national governments being adequately involved in the corresponding decisions, or being able to prevent them (instead of many Crouch 2008; Brown 2015; Nachtwey 2016; Streeck 2021). This is hardly thinkable if social transactions increasingly take on transnational character without being directed, promoted or prevented by international, political regulations, let alone of a democratic character. The responsibility for this lies primarily in the geographical disjointness between transnational interactions and political determination, which is essentially bound to national borders (cf. Zürn 1998). To this extent, there is a certain hollowing out of substantial democracy through globalization. Organized and free elections in democracies thereby mask, at least partially the domestic undemocratic character of the whole edifice, i.e. the factual rule of international corporations and organizations that largely escape political control (ibid. and Strange 1996; Kaldor 2003; Ritzer and Dean 2019). In addition, transnational actors can also exert direct pressure on national governments and do so, to induce weak or no regulation of their activities by threatening severe reactions (emigration, etc.) or influencing ruling parties to friendly behavior through campaign donations (Nachtwey 2016).

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_12

195

196

12  Globalization and Democracy

It is not surprising, therefore, that in many areas of specific corporate (and also national) interest, multilaterally agreed rules for containment of negative effects of cross-border interaction (e.g. in energy, tax or financial policy) are completely lacking or very weakly developed. If they are in other areas, the problem arises that international organizations or agreements only have derived democratic legitimacy (via the governments of the member states), but not such of immediate kind (e.g. via elected representatives), because they are usually not provided. International organizations are also increasingly interfering in the living conditions of citizens worldwide. The resulting worldwide democratic legitimacy deficit can not really be offset by the participation of the international civil society (usually by international NGOs) in the consultations of international agencies and conferences, especially since the democratic legitimacy of civil society organizations also has considerable deficits (see below). So it is no wonder that the public in more advanced economies is increasingly skeptical of globalization, loses confidence in international organizations, ultimately also gives its voice to anti-globalization, populist parties on the national level or does not oppose the authoritarian relapse of its political system. The logical consequence would be a decrease in the number of liberal (as opposed to merely electoral) democracies and the decrease in political freedoms worldwide. In a nutshell, Rodrik (2011) argues that one can only have two of the following three things at the same time—democracy, national self-determination and economic globalization. The further one pushes the deep global integration, the less room there is for national, democratically agreed country-specific paths in social and economic policy. He considers the alternative of democratic control of the world economy to be a chimera, a hobby horse of a globalized elite. This is already the case because the discrepancies between the individual states/societies are too great to squeeze them into an identical corset of globally valid rules. Of course, one could also argue the opposite, namely that the spread of democratic systems and global networking go hand in hand (Scholte 2000), so they might be dependent on each other, globalization at least does not require the weakening of democratic procedures. One could support this thesis by the inevitable increase in independent exchange of information and ideas through stronger, cross-border networking, supported by the globalization of media and culture. Economic liberalization also promotes technical/social innovations through contact with other communities, eliminates national monopolies and weakens national political-economic cabals. If globalization contributes to growth and prosperity, which is at least partially the case according to the available empirical evidence, the democracy-friendly middle classes expand, citizens become more self-confident and independent and minorities can no longer be privileged so eas-

12.2  The Spread of Democratic Systems in the Second Globalization …

197

ily. This should actually give a boost to democratization efforts (cf. Eichengreen and Leblang 2007). In fact, democratic societies do relatively more foreign trade with others and also eliminate capital controls to a greater extent, even though one must immediately concede that even some authoritarian regimes are economically relatively open and combine political freedom with liberalized internal and external economic activity. But one can first ask whether economic liberalization does not promote or even force political openness beyond a certain point and second, whether transnational corporations are really so obsessed with authoritarian structures, especially if they are technologically dependent on the intellectual cooperation and knowledge of their better qualified employees, state support for training, research and logistics and thus the tax revenue of democratic systems in particular to provide these services (similar to Scholte 2011; Iversen and Soskice 2019).

12.2 The Spread of Democratic Systems in the Second Globalization Wave A first, rather rough test of the connection between the second globalization wave and worldwide democratic progress would have to be the increase or decrease in the number of democracies at the state level since 1990. This would be superficial because no causal connection between the two factors would be established that way. This can only be done if the globalization indicators are correlated with the democracy indicators and other influencing factors are eliminated (see below). If we set the beginning of the second globalization wave in the year 1990, then approximately from this time—parallel to the end of the East-West conflict—a dramatic increase in democratic or at least partially democratic regimes could be observed. This so-called third wave of democratization (Huntington 1996) mainly affected countries of the Global South and the former socialist bloc. The reasons for this were in East and Southeast Asia mainly the political mobilization of the population caused by development successes, in Africa the failure of dictatorial presidential regimes, in Eastern Europe the failure of socialist social models. Overall, the number of democratic regimes worldwide increased rapidly from the low point in 1974 (46 democracies) to the high point in 2005 (114 to 119 democracies depending on the classification) (Diamond 2015). In less developed regions, power-sharing was introduced, civil and political freedoms were guaranteed and the control of extra-constitutional powers (primarily the military) was enforced. This relative break with the past cannot be denied, it is historically without precedent.

198

12  Globalization and Democracy

The break with the past led to a kind of end-of-time expectation, namely the speculation about the “end of history”—the alternative-free triumph of democracy and market economy, the complete exhaustion of alternatives to Western liberalism (Fukuyama 1989). Today we know that this joy was somewhat premature: since 2006 we have not observed an increase in democratic systems, but rather a significant erosion of once democratic regimes, mostly less by military coups, but the gradual return to authoritarian forms of rule, the curbing of civil society and the suppression of freedom of opinion, the circumventing of the separation of powers and a problematic government leadership, often staged by once democratically elected executives (Mainwaring and Bizarro 2019). According to the latest annual report by Freedom House (2021), the number of countries with democratic setbacks now exceeds those with progress for the 15th consecutive year, consequently the share of free countries fell to 42% in 2019, while that of unfree or only partly free countries rose to 27.7% or 30.3%. The share losses or gains are moderate (two to four percentage points compared to the highest or lowest level), but among the countries with setbacks are heavyweight countries such as Bangladesh, India, Nigeria, Mexico, Turkey and Venezuela (among the industrialized countries also Hungary, Poland, Russia, Slovenia and the USA, see Fig. 12.1). The largest decline in civil and political freedoms between 2011 and 2021 was recorded in developing countries, where they were already in a bad state at the beginning and that too almost across all regions. Among the subcategories of political and civil freedoms, there were setbacks across the board, most notably in the rule of law, freedom of opinion and assembly, and effective government. Other democracy barometers also show similar downward movements, also according to countries/regions and individual areas. The very detailed ranking of the V-Dem Institute shows that there have actually been almost only setbacks since 2011 (with a few exceptions such as South Korea, Armenia, Malawi, Malaysia), with a general erosion of liberal democracy being observed everywhere regionally (cf. Fig. 12.2.). The Institute for Democracy and Electoral Assistance (2021) compares democratic progress and regress and shows a significant deterioration of the corresponding balance sheet since 2003. The chart below shows that democratic progress since 1989 has been wiped out by recent developments. However, it would be extremely problematic to blame globalization alone or primarily for the worldwide democratic regression. The fact would remain unexplained why we first observe a significant improvement in democracy indicators in the current globalization phase, but then a deterioration after 2005, which can hardly be explained by the same, spectacular global trend reversal. Moreover, it

12.2  The Spread of Democratic Systems in the Second Globalization …

199

Fig. 12.1   Largest declines in political and civil freedoms 2011–2021 by country. (Source: Freedom House 2021, p. 6)

has already been pointed out that those countries/regions that were already ranked at the bottom of the ranking showed a deterioration in their status in terms of democratic values. Of the 21 countries with the largest losses in position, not a single Western industrial country is included (the USA is ranked 24th), and the countries with the largest losses in rank are only exceptional cases characterized by strong and/or increasing globalization de facto and de iure.

200

12  Globalization and Democracy

0.9

0.9

0.8

0.8

0.7

0.7

0.6

0.6

Asia and the Pacific

0.5

0.5

Eastern Europe and Central Asia

0.4

0.4

Latin America and the Caribbean

0.3

0.3

The Middle East and Northen Africa

0.2

0.2

Western Europe and North America

0.1

0.1

World

Sub−Saharan Africa

0.0 1972

0.0 1980

1990

2000

2010

2020

1972

1980

1990

2000

2010

2020

Fig. 12.2   The index of liberal democracy, global and regional, 1971–2011. (Source: V-Dem Institute 2021, p. 13). Explanations: The black lines show the global average, the others the respective regional average, left unweighted, right weighted by population size. The grey hatching shows the confidence interval

It would be extremely problematic to blame globalization alone or primarily for the worldwide democratic regression. The fact would remain unexplained why we first observe a significant improvement in democracy indicators in the current globalization phase, but then a deterioration after 2005, which can hardly be explained by the same, spectacular global trend reversal. Moreover, it has already been pointed out that those countries/regions that were already ranked at the bottom of the ranking showed a deterioration in their status in terms of democratic values. Of the 21 countries with the largest losses in position, not a single Western industrial country is included (the USA is ranked 24th), and the countries with the largest losses in rank are only exceptional cases characterized by strong and/or increasing globalization de facto and de iure. Are all assumptions about the decline of democracy in globalization therefore wrong? This conclusion would also be premature. There are some indications below the level of the rough system character that could be cited as evidence for such a connection. But this does not include, as Streeck (2021) argues, the declining voter turnout worldwide, because firstly it does not decline everywhere and secondly it can have quite banal reasons (e.g. relative satisfaction with the political conditions and therefore passivity). The widely declining trust in democratic institutions, the increasing political polarization and intolerance, the rise of left- and especially right-wing populist movements and the partial retreats already

12.2  The Spread of Democratic Systems in the Second Globalization …

201

mentioned in individual, central subcategories of democratic freedom, such as the treatment of civil society, the protection of press and freedom of opinion as well as the rule of law (Chu et al. 2019; Hartmann 2018) must be taken more seriously. The proportion of those who are dissatisfied with democracy has risen worldwide from 47.9% (mid-1990s) to 38.7% (2005) to a record 57.5% today (2020). The increase was strong in populous countries such as Brazil, India, Mexico, Nigeria and the USA, also considerable in the Western democracies as a whole. In many small industrial countries (Switzerland, Denmark, Norway, Netherlands, Luxembourg), however, satisfaction remained high, limited also in the larger part of Asia and in sub-Saharan Africa, but not in Latin America. In countries that were not free, democratic procedures were (theoretically) held in high esteem (Freedom House 2019; Foa et al. 2020). It can be concluded that part of the dissatisfaction in the global South can be explained by the disappointment of exaggerated expectations of the democratic transition, which could not eliminate corruption, political instability, crime and economic crises. Freedom House (2019, 2021) also sees the influence of the attempted export of alternative political models by authoritarian governments (China and Russia) at work. Also in industrial countries, poorly or not coped crises (increase in migration, global financial crisis, Corona management) are reflected in declining trust in political institutions. But here, too, the increasing socio-political polarization plays a stronger role than in developing countries. This polarization and the rise of right-wing populist, nationalist parties caused by it can at least partially be traced back to the social division caused by globalization and technical progress into insiders and outsiders of the labor market, i.e. the well-qualified, cosmopolitan globalization winners and the “left behind”. The political polarization has risen to a “toxic” level in 40 countries according to a relevant study, has otherwise only decreased in a few countries and has increased significantly in the vast majority of countries (V-Dem 2021), see also Fig. 12.3. It is measured how strongly society is divided into conflicting ideological camps and how often parties seek refuge in hate comments. Toxic polarization undermines political stability, makes government formation more difficult due to an influx of radical parties, endangers social cohesion and ultimately paves the way for authoritarian regressions (Haggard and Kaufman 2021). The V-Dem Institute (2021) sees the danger of political polarization across all country groups, Haggard/Kaufman identify states in an ongoing regression as particularly at risk. In any case, the advance of populist parties and leaders is taking place not only in Europe and the USA, but also in many developing countries (e.g. in Brazil, India and the Philippines). A common feature of these groups is the systematic exclusion and persecution of minorities and opposition groups, the demonization

202

12  Globalization and Democracy

0

0.1

0. 2

0.3

0. 4

0.5

0. 6

0.7

0. 8

0.9

1

Fig. 12.3   Countries in which the political polarization decreased or increased from 2011 to 2021. (Source: V-Dem Institute 2021, p. 31; red = deterioration, blue = improvement, grey = unchanged)

of the political opponent and the attempt to eliminate the separation of powers, independent media and opposition civil society organizations (Mounk 2019; Diamond 2020). One can, without much methodological contortion, relate the global erosion phenomena of political liberal systems to structural effects of globalization, primarily the worsening income and wealth distribution in many economically more advanced countries, also conditioned by outsourcing, increased competition, and intensified technological competition, deindustrialization, and structural change towards modern, employment-poor technologies and the rise of the international financial sector. Associated with this is the division of society into a traditional, mostly less well-qualified population group and the minority of better qualified, cosmopolitan or postmodern oriented professionals. This division becomes explosive when the former are no longer protected by national barriers to the movement of goods and capital. It is intensified by the economic rise of new, partly authoritarian regimes, which try to export their social model or at least undermine the hegemony of liberal values. It is also intensified by the periodic increase in migration waves, which are rightly or wrongly seen by parts of the indigenous population as a social and cultural threat. These migration waves are also promoted by the communicative (IT) revolution, which at the same time favors the worldwide dissemination of disinformation and polarizing hate speech (Diamond 2021). These explanations are more relevant to Western industrial countries; political polarization and the rise of populist parties in the global South—espe-

12.3  International Organizations, Civil Society and Democracy

203

cially in the large emerging economies—are based more on socially mobile middle classes, their desire for peace, order and combating corruption, and their nationalist reflexes shaped by previous colonial rule (Foa 2021). In general, the population’s approval of globalization—more precisely: whether it is a positive or negative force—has declined sharply in recent years, interestingly more sharply in the wealthier countries than in the emerging economies, a clear reflection of the fact that the population in the global North now feels much more threatened by its dark sides (threatening loss of jobs), while in emerging economies the employment gains from greater integration into the world economy are still perceived (Bertelsmann Stiftung 2020). One does not have to see the “democratic regression” (Mainwaring 2015) of recent years as irreversible. After all, there were also severe setbacks after the first two waves of democratization—just think of the spread of fascism after World War I—which later turned around again. It is also hardly to be expected that “strong leaders” and their political followers will bring about social progress more reliably than their liberal predecessors. Vivid examples of this are the Latin American and African dictatorships that led their countries directly into bankruptcy in the early 1980s. Whether authoritarian regimes do this better today, despite all the noise about their decisiveness and consistent activity in crises (such as the pandemic from 2019 onwards), can still be doubted.

12.3 International Organizations, Civil Society and Democracy This does not relieve democratic states and the international community from the question of how globalization can be made more compatible with democracy. In principle, only two answers are possible to this: Either the range of democratic, political regulation in globalization is adapted upwards, in accordance with the range of socio-economic transactions, for example by empowering and democratizing international organizations, that is, any form of democratic world government, or globalization is generally, spatially and sectorally reduced to the level that is compatible with democratic self-determination. There are advocates for both positions. First of all, to the former approach: It could be argued that the democratization of and democratic participation in international organizations is superfluous because they already have—by the consent of the government of their member states—derived democratic legitimacy. However, such a position is firstly based on the fact that not all governments of the member states are democratically

204

12  Globalization and Democracy

elected and secondly, that the chains of legitimacy between voters and the leadership of international organizations are quite long and difficult to overview, only bridged by the respective national elections and the transfer of legitimacy by governments to these organizations. However, in voting, the attitude of the candidate parties towards international regulatory attempts plays only a minor role and secondly, the leadership bodies of these organizations also have a certain scope for design, in individual cases also the possibility of supranational intervention rights with influence on the life and development opportunities of citizens in the member states. Furthermore, in particular, small states would probably have considerable difficulties in calling into question the authority of international organizations and finally, some international agreements or organizations also have an impact on non-members or come almost without an administrative infrastructure. Finally, there are also institutions for the regulation of cross-border interactions on a private basis, for example with regard to the agreement of technical standards, the administration of the Internet (ICANN), the international insurance industry, etc. For these reasons, it is also not particularly useful to try to accomplish the democratization of international institutions solely by means of a changed internal distribution of votes by country, as is ritualistically demanded by emerging powers in the Global South in relation to the UN Security Council or the IMF and World Bank. This would not change the political marginalization of large parts of the world population to a great extent, would hardly be acceptable to competing developing countries (such as Pakistan or Argentina), which strictly reject, for example, a permanent seat of India or Brazil in the UN Security Council, and would also only slightly correct the neoliberal orientation of the IMF and World Bank (Betz 2012). If, on the other hand, each country is given a vote, this also does not bring democratic progress because then micro-states are given the same influence as China or India. But even an international multi-class voting system (according to population or economic power) would also hardly be majority-compatible. Finally, the question remains as to whether, through the representation of governments (and only these) in the management bodies of international organizations, the quality of global democracy would be greatly increased by the way in which authoritarian-ruled states are represented. Finally, the proposals discussed also suffer from the fact that they do not take into account the independent transnational expansion of private sector regulations (with no or limited participation by state agencies), such as banking and insurance standards or the supervision of the organization of the Internet and international commercial law (lex mercatoria) (see Rittberger et al. 2010; Scholte 2011).

12.3  International Organizations, Civil Society and Democracy

205

An option that has been widely discussed until recently as to how the democracy and participation gap could be closed at the international level is the involvement of civil society in the consultations and decisions of international agencies and organizations, possibly even in lieu of state participation (Scholte 2011). The civil society referred to here consists essentially of international NGOs and global social movements (Kaldor 2003); it is supposed to enable a new form of global, democratic governance together with state actors, celebrated by Keane (2003) as ‘cosmocracy’, by Archibugi (2004) and Held (2007) as cosmopolitan democracy, by Baker and Chandler (2005) as a precursor to a legal system not based on territorial sovereignty and global citizenship, and a new global ethic. The contours of this new construct remained somewhat in the dark; from today’s perspective, it appears to be quite utopian and otherworldly. This is primarily due to the almost nationwide and increasingly repressive repression of civil society that has been going on for at least 15 years. By 2010, more than 50 states had already enacted legislation to restrict the scope of civil society (cf. Fig. 12.4). This was done with the usual justification of combating terrorism, or the interference of foreign powers in internal affairs, in reality mostly to prevent any possible local opposition. The foundation of NGOs was restricted by the obligation to register, but above all by the ban on their financing by foreign donors and their participation in management, sectorally mainly against activities to protect human rights (Rutzen 2015; Kreienkamp 2017; Cooper 2018). Promoters of this repression were not only authoritarian regimes, but also democracies under the growing influence of nationalist, populist groups. By 2018, civil society was under pressure in 111 countries (Civicus 2019), by 2021 it was already 117 out of 197 countries. Civil society could only be described as truly free in 39 countries (Civicus 2021): its scope of action has therefore shrunk considerably, thus also the possible role of civil society in the democratization of world governance. Even without the increasingly repressive repression of civil society associations, the question arises as to their possible democratization contribution. It has already been pointed out (cf. Chap. 3 that the global protest movements and NGOs operating worldwide do not really have a transnational character, but their personnel and material base is predominantly in the Global North. The values they represent also have their spiritual home more there (and also essentially only among the intellectual elite), a fact that is particularly criticized by civil society associations with a lot of clout in the Global South (Thrandardottir and Mitra 2019). So the question arises, who do the NGOs really represent, the members, the donors or the beneficiaries of their activities?

Fig. 12.4   Suppression of civil society worldwide. (Source: CIVICUS 2022)

206 12  Globalization and Democracy

12.3  International Organizations, Civil Society and Democracy

207

In connection with this, it is also worth considering whether the assembled global civil society could not only oppose ‘neoliberal globalization’, but also agree on a practicable, consensually adopted counter-proposal, more easily than the community of states, which is undoubtedly divided within itself. Doubts are certainly allowed in this regard (see Wolf 2004). The international civil society seems to be rather a motley mixture of very diverse groups, which also only represent the ‘world opinion’ to a limited extent, if such could be explored at all. Only in passing, it must be pointed out that the international non-governmental organizations themselves often only meet limited claims of internal democracy, have a sometimes limited accountability to their members and/or know independent evaluations of their activities. Decisions on the orientation of organizational activity and important actions are often made in a narrower circle of leaders, justified by Amnesty International and Greenpeace with reference to the higher organizational impact thereby achieved (see also Heins 2008). Finally—and that should then also be enough—the question arises as to how international problems are to be solved in cooperation with civil society, for which there is no institutional place and channel of influence, or which are regulated statelessly by private institutions. But if the participation of civil society in global problem-solving is of no use or of too little use and also not really conducive to democracy, what then? There are only two democratically viable alternatives to empowering the international civil society in the setup of today’s world economy and politics: the very ambitious project of a democratic world state with a democratically elected world parliament, or a renationalization, that is, a planned restriction of the geographical areas within which free, social transactions are possible and/or permissible. First of all, to the world state: Dozens of theorists have already let off steam about the difficulties and potential risks of this idealistic project (for example, Höffe 1999; Archibugi 2004; Held 2007). A world state inevitably leads to a great spatial and social distance between voters and representatives. The constituencies would have to be huge if the parliament were not to burst at the seams. Furthermore, how are the representatives of the people to be elected on a global level in states that are governed autocratically? It is also hard to imagine that one could get the globally very diverse political preferences, values and cultural dispositions under one roof in a global state. How are common goals to be formulated and, if so, how are they to be enforced? Probably only with considerable force, that is, the opposite of the desired democratic freedom. Furthermore: On which level should the global problems, which also overlap, be solved? It was much easier to implement negative integration, that is, the removal of internal barriers, than a positive project such as a community social policy within the European Union

208

12  Globalization and Democracy

(Scharpf 2015). In the global context, it would probably be much more difficult to achieve consensus on a partial equalization of living conditions and the distribution of benefits and burdens associated with it. One could list further conditions for the foundation of a democratic world state and the resulting problems (for this purpose, for example, Mouffe 2007), but the above remarks should be enough. Against this background, the second of the two alternatives mentioned above is gaining in attractiveness again, namely a re-nationalization of the worldwide social context, a re-location of decisive powers of control from international and supranational agencies to those spaces which enable a democratic collective will-formation, for which only the nation state is suitable (Jörke 2019, almost identical: Streeck 2021). The growing number of authors who plead for a deglobalization and re-nationalization of the world are in favor of a stronger orientation of the economy towards the domestic market, including a moderate, protectionist shielding against foreign countries, for a re-appropriation of the commanding heights of the economy by the state (renationalization), thus also for a relativization of absolute property rights and a reduction of private consumption. This is to be justified empirically with the reference to the higher economic growth of smaller states and their better ranking in the global democracy indicators as well as to the modest performance of (alternative) international arrangements in solving global problems. This strategy approach leads to the revival of small statehood, thus giving up the possible social, at least economic benefits of globalization (which its proponents also quite rightly acknowledge), would entail considerable costs, primarily for the less affluent countries and the less affluent citizens in the global north, but also for the world society. It is to be described as an elitist, left-populist blueprint, also represents a revival of the state-centered import substitution policy of the 1950s to 1970s, which ended in numerous state bankruptcies. Apart from that, its implementation would also deliver the new micro-states to the appetites of larger neighbors who have remained. It is also very much a question of whether one can reset the political and economic systems to previous states, that is, the world of Bretton Woods. Decoupling, as Crouch (2021) argues, is more difficult than entanglement. The recommended strategy would be a policy of nostalgic pessimism. However, this harsh criticism must not be overlooked that parts of the program draft had quite a chance of realization in the Corona pandemic and the world political discord that followed the Russian invasion of Ukraine and had and has supporters: For example, the state-supported shortening of supply chains for internationally active companies, the repatriation of certain, strategically important value-added stages to the parent countries of the companies, the operation of

References

209

an energy and raw material security-related, autarky-oriented national economic strategy, etc. All of this can be done, but it has—as does the further strategy of renationalization—a not inconsiderable price, the costs of which cannot be borne solely by state subsidies in the long term. Whether this is polically capable of winning a majority in the long term is questionable. Of course, there are also approaches that see the future of global democracy in a much more friendly light and claim that modern, emancipatory values are spreading worldwide, especially among younger cohorts, that the triumph of participatory democracy will encounter few obstacles in the long term, and thus political cooperation at the global level would be easier (Welzel 2021). One can also be of the opinion that international cooperation, through the involvement of civil society, the interaction of these, economic, local and state agencies, is not so bad after all, at least has certain successes to report (cf. Chap. 3; Broome 2009; Rittberger et al. 2010). The arguments presented so far would speak in favor of campaigning for modest political approaches instead of comprehensive but utopian concepts, that is, for example, for a gradual democratization of the existing institutions of global governance (cf. Chapter Global Governance).

References Archibugi, Daniele (2004) Cosmopolitan Democracy and Its Critics: A Review, European Journal of International Relations, 10,3; 437–473. Baker, Gideon and David Chandler (2005) Introduction: global civil society and the future of world politics, in: dies. (eds.) Global Civil Society. Contested futures, London and New York; 1–14. Bertelsmann Stiftung (2020) Gains, Pains and Divides Attitudes on Globalization on the Eve of the Corona Crisis, Gütersloh. Betz, Joachim (2012): India and the Redistribution of Power and Resources, Global Society, 26,3; 387–405. Broome, André (2009) When do NGOs Matter? Activist Organizations as a Source of Change in the International Debt Regime Global Society, 23,1; 59–78. Brown, Wendy (2015) Die schleichende Revolution—Wie der Neoliberalismus unsere Demokratie zerstört, Berlin. Chu, Yun-han et al. (2019) A Lost Decade for Third-Wave Democracies? Journal of Democracy 31,2; 166–181. CIVICUS (2019) State of Civil Society Report 2019, Johannesburg. CIVICUS (2021) State of Civil Society Report 2021, Johannesburg. CIVICUS (2022) State of Civil Society Report 2022, Johannesburg. Cooper, Rachel (2018) What is Civil Society, its role and value in 2018? K4D Helpdesk Report, Birmingham. Crouch, Colin (2008) Postdemokratie, Frankfurt, a.°M.

210

12  Globalization and Democracy

Crouch, Colin (2021) Postdemokratie revisited, Berlin Diamond, Larry (2015) Facing Up to the Democratic Recession, Journal of Democracy, 26,1; 141–155. Diamond, Larry (2020) Breaking out of the Democratic Slump, Journal of Democracy, 31.1.; 36–50. Diamond, Larry (2021) Democratic regression in comparative perspective: scope, methods and causes, Democratization 28,1; 22–42. Eichengreen, Barry und David A. Leblang (2007) Democracy and Globalisation, BIS Working Paper No. 219, Basel. Foa, Roberto S. et al. (2020) The Global Satisfaction with Democracy Report 2020, Centre for the Future of Democracy, Cambridge. Foa, Roberto (2021) Why Strongmen Win in Weak States, Journal of Democracy 32,1; 52–65. Freedom House (2019) Freedom in the World 2019. Democracy in Retreat, Washington, D.C. Freedom House (2021) Freedom in the World 2021. Democracy under Siege, Washington, D.C. Fukuyama, Francis (1989) The End of History? The National Interest, Summer; 1–18. Haggard, Stephen und Robert Kaufman (2021) Backsliding Democratic Regress in the Contemporary World, Cambridge Hartmann, Hauke (2018) The Erosion of Democracy in Developing and Transition Countries, Bertelsmann Foundation, Gütersloh. Heins, Volker (2008) Nongovernmental Organizations in International Society. Struggles over Recognition, New York and Basingstoke. Held, David (2007) Soziale Demokratie im globalen Zeitalter, Frankfurt a.M. Höffe, Otfried (1999) Demokratie im Zeitalter der Globalisierung, München. Huntington, Samuel (1996) The Clash of Civilizations and the Remaking of the World Order, New York. Institute for Democracy and Electoral Assistance (2021) The Global State of Democracy 2021, Stockholm. Iversen, Torben und David Soskice (2019) Democracy and Prosperity. Reinventing Capitalism Through a Turbulent Century, Princeton und Oxford. Kaldor, Mary (2003) Global Civil Society. An Answer to War, Cambridge. Jörke, Dirk (2019) Die Größe der Demokratie. Über die räumliche Dimension von Herrschaft, Berlin. Keane, John (2003) Global Civil Society? Cambridge. Kreienkamp, Julia (2017) Responding to the Global Crackdown on Civil Society. UCL Global Governance Institute. Mainwaring, Scott und Fernando Bizarro (2019) The Fate of Third-Wave Democracies, Journal of Democracy, 30,1; 99–113. Mouffe, Chantal (2007) Über das Politische. Wider die kosmopolitische Illusion, Frankfurt a.M. Mounk, Yascha (2019) The End of History Revisited, Journal of Democracy 31,1; 22–35. Nachtwey, Oliver (2016) Die Abstiegsgesellschaft. Über das Aufbegehren in der regressiven Moderne, Berlin.

References

211

Rittberger, Volker et al. (2010) Grundzüge der Weltpolitik, Theorie und Empirie des Weltregierens, Wiesbaden. Ritzer, George and Paul Dean (2019) Globalization. The Essentials, Oxford. Rodrik, Dani (2011) Das Globalisierungs-Paradox. Die Demokratie und die Zukunft der Weltwirtschaft, München. Rutzen, Douglas 82015) Authoritarianis Goes Global (II): Civil Society Under Assault, Journal of Democracy, 26,4; 28–39. Scharpf, Fritz W. (2015) Das Dilemma der supranationalen Demokratie in Europa, Leviathan 43,1; 11–28. Scholte, Jan Aart (2000) Globalization: A Critical Introduction, New York. Scholte, Jan Aart (2011) Global governance, accountability and civil society, in: ders. (Hrsg.) Building Global Democracy? Civil Society and Accountable Global Governance, Cambridge; 8–41. Strange, Susan (1996) The Retreat of the State. The Diffusion of Power in the World Economy, Cambridge. Strange, Susan (19982) States and Markets, London und New York. Streeck, Wolfgang (2021) Zwischen Globalismus und Demokratie. Politische Ökonomie im ausgehenden Neoliberalismus, Berlin. Thrandardottir, Erla und Susanna G. Mitra (2019) Who does Greenpeace India represent? The University of Manchester Research. V-Dem Institute (2021) Democracy Report 2021. Autocratization Changing Nature? Gothenburg. Welzel, Christian (2021) Why the Future is Democratic, Journal of Democrarcy 32,2; 132– 144. Wolf, Martin (2004) Why Globalization Works, New Haven and London. Zürn, Michael (1998) Regieren jenseits des Nationalstaates, Frankfurt a.M.

Globalization and Culture

13

13.1 General Globalization cannot be reduced merely to an increased economic exchange between countries, or to technological cooperation, it also has a significant political-social and thus interactive—cultural component. Now there is a cultural connection and exchange worldwide or even just regionally much longer than the recently re-emerging economic networking or the formation of organizations of global governance. Just think of the importance of classical (Greek-Roman) literature, philosophy and art for all of Europe (and beyond) up to modern times, the connection of values, beliefs and traditions created by the Christian churches throughout the Christian world—and other world religions elsewhere—and the international exchange of ideas between scientists within and outside of universities and academies long before the increase in cross-border trade and financial transactions (Brock 2008; Steger 2013). However, this cultural exchange affected until the 19th century directly only a very small circle of people who were powerful in reading and writing, could travel and were part of the tiny intellectual elite. On the other hand, cultural influences (in general more slowly) spread through other forms of mediation (pictorial representations in churches and monasteries as well as their functions of mediation (sermons, education), travelers (pilgrims, traveling theater, craftsmen), but also a change in territorial affiliation as a result of military conquests, occupation times, etc.). Given the limited technical resources, the exchange of ideas over long distances was laborious, extremely slow and time-consuming. This has changed with the progress of transport and communication since the middle of the 19th century at first hesitantly, with the development of audio-visual technologies (radio, tele-

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_13

213

214

13  Globalization and Culture

vision), the emergence of multinational news agencies, press and media conglomerates, later with the digital communication connections, the privatization of the once mostly state-run radio and television stations and the proliferation of corresponding broadcasters completely. The cultural exchange across borders is now almost always possible for the vast majority of the world population, unless it is prevented or almost made impossible by state agencies. If one wants to get an idea of the effects of globalization on culture, this requires first and foremost an understanding of what is meant by culture. For a long time this was only understood as high culture, that is, as dealing with the aesthetic, the beautiful and the true, while everyday and popular culture was excluded. Under culture fall next to art and crafts, literature, music and painting especially also socially recognized values, attitudes, attitudes and manners, as well as popular media in which the latter phenomena are reflected. Even more generally, Tomlinson (2012) defines culture as everyday practices by which people interpret their social existence individually and collectively. This leaves enough room for the influence of politics, economy and indeed globalization on cultural practices. Secondly, culture must not be understood as a homogeneous, time-fixed and static phenomenon that resides in a community, shaping its members in a way that makes them distinguishable from members of other communities, making them more or less passive objects of powerful cultures. This ‘essentialist’ idea not only has a bad tradition in Germany, it also suppresses and denies that all cultures are subject to constant external influences (through immigration, exchange of ideas, violent conflicts, etc.), thus being a mixture in itself and in constant change. Moreover, the individual members of communities are also shaped differently by the prevailing culture. This is especially the case in times of mass, cross-border migration and mass tourism. If one wants to measure the influence of globalization on the individual cultures in the world, this must not be lost sight of.

13.2 Different Positions on Cultural Globalization There have been and still are three essential and controversial, but in fact complementary, strands of argumentation in the description of the influence of global networking on local cultures. The first assumes that globalization would tend to destroy or has already destroyed local traditions and identities; the dominance of the Western culture industry and the cultural and media conglomerates that support it would flood the world with their products and create a kind of global melt-

13.2  Different Positions on Cultural Globalization

215

ing pot. This refers to the erosion of local cultures and their more or less complete assimilation into a Westernized (Americanized), homogeneous and inevitably flat, global mixture, which would be more or less forcibly imposed on poorer societies by their superior market power. This worldwide expansion of Western culture results solely from the fact that companies are forced to constantly seduce the population (especially young groups) to consume more and more by means of infantilizing, unethical advertising (Barber 2007). Examples of a Westernized consumer and cultural landscape do not have to be searched for long: The most striking examples are certain items of clothing (jeans, T-shirts, sneakers, etc.) that have established themselves worldwide, internationally almost identical shopping centres, fast food chains, but also an international architectural uniformity, globally owned popular music styles, television series and light games, everywhere similar leisure activities up to an apparently worldwide parallel change in values towards individualistic, secular and liberal attitudes. A much-cited and illustrative example of the convergence towards a globally homogeneous food culture was the (originally American) fast food chain McDonald with its globally always identical appearance, limited and almost identical “menu” offer, as well as the company concept designed for efficiency, predictability and calculability as well as control (of the workforce and customers) (Ritzer 2006), a concept that was found and still is found in many comparable chains and service companies. Now, similar clothing and eating habits in the moral-cultural depth dimension do not have to mean much yet. The decisive question is whether they, especially fuelled by the growing consumption of Western media, actually create a gradual cultural change in the depth layer, whether, in other words, global cultural convergence, an alignment of attitudes, values and behaviour, can be observed worldwide. This was already disputed early on. One can only speak of a global culture in the proper sense if every inhabitant of the earth is affected by it in a similar way and local cultures have disappeared to the greatest possible extent. This stage is certainly not yet reached and will probably not do so in the foreseeable future. The mere acceptance of Western consumer goods and Western technology does not mean the acceptance of completely secularised behaviour, the devaluation of close, familial or communal orientation, to name just a few examples (Tomlinson 1999). In addition, the local film culture in China, India and the Arab world has not been destroyed by the dominance of American culture, the market power of foreign radio and television stations is relatively modest worldwide, and media capital is relatively little global. Many states have also reacted to the growing influence of global media conglomerates with increased political control (Hafez 2005). Lastly, the McDonaldisation of the world has been accompanied by the

216

13  Globalization and Culture

emergence of global pizza, doner, sushi and espresso chains that do not come from the USA, but also from poorer countries. The antithesis to cultural convergence is the worldwide cultural fragmentation of formerly more homogeneous cultures caused by globalisation. Numerous sociologists argued that the growing stream of global cultural, medial influences rather strengthens particular, often also subnational cultures, partly as a defiant counter-movement against the levelling pressure of Western cultural influences, partly by the sharpening of one’s own cultural identity previously only perceived to a limited extent as a result of this pressure, partly by the modern, medial means which create a social and political forum for the expression of these particular identities (Robertson 2001; Pieterse 2013). Examples of this do not need to be searched for long. In the Western cultural sphere, sub-nationalist, state-seeking movements (such as the Basques, Catalans, Scots, Corsicans, etc.) or other non-territorial groups claiming independent ethnic, sexual or religious identity stand out. In historical perspective, this is often a reaction to previous targeted and often repressive homogenization by a dominant culture in the process of nation-building. In many cases, social and political movements have also arisen in the North to defend themselves against cultural foreignization and—sometimes supported by state authorities (as in France)—to prevent foreign cultural/religious influence. This culminates in the formation of militant, fundamentalist splinter groups and movements (Islamic State, Taliban, etc.) that reject and fight the whole of modernity, processes that Samuel Huntington (1996) equated with a clash of cultures. Globalization can therefore also intensify cultural differences and trigger a Taliban effect (Pearse 2004) of aggressive rejection of foreign influences. The emphasis on cultural independence must therefore not necessarily have a progressive character; it can justify repressive regimes in justifying this, gender inequality, curtailing freedom of opinion in the name of national/regional values and justifying political/cultural repression (Tomlinson 2012). However, this fragmentation thesis must not be overdrawn: In many cases, the partly aggressive return to local cultures is rather the self-assertion of national minorities, which were both politically and economically marginalized by the representation of the majority, and therefore has only limited anti-globalist tendencies. Or it expresses resistance to modernization in general and the devaluation of tradition, so it is not only directed against globalization. There is a third, less radical theory about the influence of globalization-related influences on culture, which claims a mixture of global and local cultural pieces, popularized under the terms “glocalization” or “creolization”. According to this theory, the trends of cultural homogenization and mixing on the one hand, and

13.2  Different Positions on Cultural Globalization

217

the sharpening of local cultural identities on the other hand, are by no means contradictory, but both are the result of the strategy of globally acting actors to market their specific products optimally in culturally different regions, or, from the reverse perspective, the attempt of local actors to profit from the advantages of global integration without giving up their own cultural identities (Breidenbach and Zukrigl 2002). This theory can be based on a broader empirical foundation. Consumers worldwide do not simply adopt the moral values and principles of American TV series heroes, but rather reject or adapt them—adapted—to their world views and values, thus perceiving and interpreting them differently. In addition, we also observe an increasing South-North transfer of cultural content (telenovelas, influences of African, Latin American music, films and literature from the global South. Also in this partial deterritorialization of culture, digital technologies have been involved (Tomlinson 2012). Of course, one can also problematize the alleged hybrid character of all today’s cultures, because it ignores questions of unequal power relations and imbalanced cultural transfers. However, it must be recognized that the reception of foreign influences is no longer an elite phenomenon as it used to be, but has a collective, everyday character (Pieterse 2009). The modern, digital media have contributed to the fact that original cultural imprints are not replaced in new environments, often the social-cultural context of minorities in host countries is even strengthened, because they create opportunities for permanent communication with family members, neighborhood groups, etc. in the country of origin, which strengthens the original cultural identity. Think, for example, of the largely retained values of immigrant groups in Germany and elsewhere. These groups can now largely stay in their home country and communicate preferentially with their own kind in the host country. Nevertheless, this cultural difference undergoes a certain erosion over time if the host countries offer favorable integration conditions. In short, new cultural hybrid forms arise in the globalization process; international and local influences mix to create new constellations, blur the boundary between the self and the foreign, and at least partially relativize the influence of cultural heritage. So there is no zero-sum game between local and global cultural influences (Breidenbach and Zukrigl 2002). Regardless of this, the question remains whether one should glorify cultural diversity as such, or fundamentally condemn the leveling of some local cultures. More than the preservation of sometimes questionable traditions, it is surely more important—as the Human Development Report 2004, led by Amartya Sen, argues—that personal freedom is guaranteed, preserved and expanded in the cultural sphere (UNDP 2004). People should be able to choose for themselves which cultural role models they want to live by.

218

13  Globalization and Culture

13.3 The Empirics of Cultural Convergence In empirical cultural research, the often-claimed one-sided transfer of cultural values from rich to poor societies and its effectiveness in terms of changing attitudes in the latter are not supported. The most comprehensive study to date on this issue by Norris and Inglehart (2009) lists several heavyweight reasons for this. First, consumers in poorer countries often have no technical or financial access to international media because they—if at all—only read the local press, do not own a radio/television or are not connected to the global network via smartphone/PC. This also affects some poorer citizens in the global north or in rural areas. Of course, this argument must not be overdrawn, because the country-specific, social or spatial differences at least in the use of digital media have declined sharply, there are allegedly five billion Internet users worldwide and hardly any less (4.65 billion) in social media. This leaves little room for the digital divide, even if most users download predominantly trivial content. However, the isolation of the respective population from foreign media influences has increased in a number of authoritarian countries, as has the repression of journalists and independent newspapers/magazines. There are also plenty of examples of this in increasingly authoritarian political systems in some European countries. Globally, in recent years, citizens have been arrested in dozens of countries for their online contributions, and in many states, access to the Internet and social platforms for critical content has been completely blocked. China is the leader in this respect, followed by Vietnam, Egypt, Pakistan and Russia. Only 21% of the world’s population currently benefits from freedom on the Internet (Freedom House 2021). The situation is no better with press freedom (see Reporters Without Borders 2022): The number of countries with absolute repression has been increasing for some time, and the number of countries with relatively untarnished press freedom has been decreasing (to 8 out of 180 countries in 2022). The ranking in this respect is not very different from that of free Internet access. The possibility of cultural influence from abroad therefore requires users to first circumvent state interference with freedom of opinion. The acid test in terms of the cultural influence of international media would of course be the proof that the respective individual use of these media has significantly changed personal attitudes and values. The possibilities of this influence depend of course first of all on the socially and politically different openness to international influences—not only the absence of censorship. This is higher in “cosmopolitan” societies than in media-isolated ones. The study by Norris/

13.3  The Empirics of Cultural Convergence

219

Inglehart examines the influence of media use on national versus cosmopolitan orientation of users, on the priority of market versus state, on gender parity, democracy, human rights and personal autonomy, controlled by the factors age, educational level, income and gender, as well as—crucially—the degree of the respective individual/social barriers to the use of foreign media. The data on cultural attitudes and their changes as well as the use of domestic and foreign media, books and the Internet are taken from the World Values Survey. The used method is not without problems: long-term effects of the use of domestic and foreign media can be just as little captured as two-way causality, that is, the assumed disproportionate use of the media by people with anyway already stronger “cosmopolitan” orientation. It is not surprising that the use is strongly, but by no means exclusively, related to the respective economic and social development of the home countries. It is just as little surprising that the use by more affluent, better educated groups far outshines that of others worldwide, especially with regard to the use of new media. The narrowing digital and medial divide primarily prevents a permanent bombardment of less privileged groups by foreign cultural influences. Finally, it is also obvious that countries differ widely in terms of external and internal barriers to media access, due to different state share in broadcasting, press and television, economic concentration in the media sector, different strictness of censorship, etc. Empirically, trust in foreigners increases with increasing media use, but more (from a higher level) in open societies. On the other hand, the feeling of national identity grows in proportion to media use, but it receives less nationalist expression in cosmopolitan societies. The media consumption has a similar strong influence on the individual’s attitude to state influence on the economy, to the moral principles (such as tolerance of other sexual morality and religious practice) and to democracy. The proven influence of media use is mediated by the more or less strong particular/cosmopolitan of the social environment. It is also remarkable that these values ​​remain relatively stable in media societies closed to foreign media, so that hardly any talk of global convergence can be made despite increasing international networking (Norris and Inglehart 2009). Other studies also see the influence of global cultural imports differently. Hafez (2005) emphasizes that media use is an active process that integrates content into local reference and meaning systems, thus not taking them over undigested and unchanged. Western cultural goods would only be raw material with which the forces of the respective market (including the users) could almost arbitrarily proceed, which does not exclude partial sense transfer.

220

13  Globalization and Culture

13.4 The Global Culture Market But despite all the restrictions imposed, the growing cultural influence of external forces was driven by three background conditions: first, the emergence of a transnational culture industry, second, the long-term massive deregulation and liberalization of national media markets in the north (also limited in the global south), and third, the easier cross-border transfer of cultural content made possible by digital media and networking. In many places, radio and television were at least partially privatized and barriers to foreign broadcasters were relaxed. Until the 1980s, state-owned broadcasters in industrialized countries enjoyed a monopoly; the granting of broadcasting licenses was monitored and had to be renewed constantly. They were tasked with neutral, sometimes patriotic or educational reporting. Only in a few wealthy countries was there a mixed public-private system or even entirely private broadcasters. The production of newspapers, magazines and books was mainly in the hands of national companies. The rest of the cultural sector was organized or supervised by the national state and usually also subsidized. Accordingly, the import and export of cultural goods was low (UNCTAD 2018), with the important exception of film and music production. However, it should be noted that even national media increasingly transport international content (television: acquisition of foreign productions, especially series; in addition: advertising) and that the isolation often focuses explicitly on political matters (Clark et al. 2017). The liberalization of radio and television in the 1980s and later led to a huge increase and relaxed control of broadcasters and the agencies that supervise them, including and especially those in foreign ownership. This also applies to the field of press, film companies, book publishers and advertising agencies. Technological developments also played an increasingly important role in this process. The rapid increase in nationwide access to new information and communication technologies since the mid-1990s accelerated international media exchange, reinforced by the meanwhile increasing liberalization and deregulation of the media landscape even in previously almost closed societies. As a consequence, the weight of the cultural industry (recently called the “creative economy”) has risen considerably worldwide and especially in Western countries (but also in China, Korea, India and Turkey). According to UNESCO calculations, it contributes 3.1% to global GDP and 6.2% to employment (UNESCO 2022). The study by Deloitte (2021) comes to slightly higher values. These shares are sometimes significantly higher in many countries and especially in urban centers (see Fig. 13.1).

13.4  The Global Culture Market

221 Lowest

Germany

National average

Highest Berlin

Saxony-Anhalt

Czech Republic

Prague

Moravia-Silesia

United Kingdom

London

West Midlands

Hungary

Budapest

Southern Transdanubia

Belgium

Brussels Capital Region

Flemish Region

Netherlands

North Holland

Drenthe

Sweden

Stockholm

Upper Norrland

Austria

Vienna

Upper Austria

Switzerland

Zürich

Eastern Switzerland

Finland

Helsinki-Uusimaa

Eastern and Northern Finland

Denmark

Capital

Zealand

Slovak Republic

East Slovakia

France

Hauts-de-France

United States

Bratislava Region Île-de-France District of Columbia

Mississippi

Norway

Oslo and Akershus

Northern Norway

Iceland Poland

Masovian Macroregion

East Macroregion

Malta Slovenia Luxembourg Estonia Spain

Madrid

Centre

Lithuania

Sostines regionas

Vidurio ir vakaru Lietuvos regionas

Italy

Lazio

Calabria

Australia

New South Wales

Northern Territory

Serbia

Serbia - south

Greece

Kentriki Ellada

Turkey

Serbia - north Attica

Istanbul Region

East Black Sea Region

Ireland

Southern

Croatia

Adriatic Croatia

Eastern and Midland Continential Croatia

Canada Newfoundland and Labrador

British Columbia

Korea Bulgaria Northern and Eastern Bulgaria

South-Western and South-Central Bulgaria

Portugal Latvia Montenegro North Macedonia Mexico Coahuila de Zaragoza Romania

Quintana Roo Macroregion Three

Macroregion Two -2 %

0

2

4

6

8

10

12 %

Fig. 13.1   Share of employment in the creative industries in 2020 by OECD country, region with the highest and lowest share respectively. (Source: OECD 2022, p. 108)

The creative economy is therefore also characterized by agglomeration tendencies like the production of high-tech goods; today, one location can supply the whole world with identical cultural products electronically. This also promotes the meteoric rise of only a few, globally known and celebrated stars. Overall, the economic weight of the creative economy is equal to that of other heavyweight

222

13  Globalization and Culture

industries (automotive and chemical industries). Finally, this economy is also an important employer for women; their employment share here corresponds to that of men (OECD 2022). Of course, employment in the creative scene is more precarious than in the rest of the economy; the share of “self-employed” forces is relatively high, and employment is subject to strong fluctuations. This was particularly evident during the Corona crisis. Creative industries are businesses that engage in the conception, production and commercialization of cultural content, content that is mostly protected by copyrights. They are internationally dominated by a small group of media conglomerates that dominate entertainment, film, television and news. Eight media conglomerates (Yahoo, Google, AOL/Time Warner, Microsoft, Viscom, General Electric, Disney and News Corporation) recently accounted for more than 2/3 of the global communications industry’s sales (UNESCO 2000). The noticeable dominance of US companies has decreased only slightly in recent years and is also declining in the trade of cultural goods. This has increased from $ 208 billion to $ 509 billion between 2002 and 2015, expanding faster than other trade, but then also collapsing more than that (UNCTAD 2018). Developing countries have been able to increase their share to 52% of the total in 2015, with China alone accounting for about one third; Western European countries and the USA are far behind, non-Asian countries play hardly any role. According to other calculations (UNESCO 2016)—with different delimitation of the creative economy—the dominance of the classical industrial countries is even more pronounced. This is especially true in the field of audiovisual services, in which some developing countries (China in video games, India in feature films, Latin America in telenovelas) are gaining ground. In the export of creative products, fashion items, interior design and jewelry dominate. This is followed by works of art, then by handicrafts. The case of China with a remarkable increase in exports of 14% per year is striking. Obviously, the digitalization of production and services in the creative sector has contributed greatly to its worldwide networking and the internationalization of ideas and information. Data on the export of creative services are incomplete; according to UNCTAD data, the total export is approximately at the level of the export of cultural products; here the USA is by far the largest in terms of size and technology, but closely followed by China. Other emerging economies (India, Brazil) follow at a distance (UNCTAD 2018).

References

223

References Barber, Benjamin R. (2007) Jihad vs. McWorld. How Globalism and Tribalism are Reshaping the World. New York Breidenbach, Joana und Ina Zukrigl (2002) Widersprüche der kulturellen Globalisierung: Strategien und Praktiken, Aus Politik un Zeitgeschichte B12/2002; 19–25. Brock, Ditmar (2008) Globalisierung. Wirtschaft, Politik, Kultur, Gesellschaft, Wiesbaden. Clark, Justin, Robert Faris, Ryan Morrison-Westphal, Helmi Noman, Casey Tilton, Jonathan Zittrain. 2017. The Shifting Landscape of Global Internet Censorship. Berkman Klein Center for Internet & Society Research Publication. Deloitte (2021) The Future of the Creative Economy. A report by Deloitte. Freedom House (2021) Freedom on the Net 2021. The Global Drive to Control Big Tech, Washington, D.C. Hafez, Kai (2005) Mythos Globalisierung. Warum die Medien nicht grenzenlos sind, Wiesbaden. Huntington, Samuel (1996) The Clash of Civilizations and the Remaking of the World Order, New York. Norris, Pippa und Ronald Inglehart (2009) Cosmopolitan Communications. Cultural Diversity in a Globalized World, Cambridge usw. OECD (2022) The Culture Fix. Creative People, Places and Industries, Paris. Pearse, Meic (2004) Why the Rest Hates the West: Understanding the Roots of Global Rage, Lanham, RD. Pieterse, Jan Nederveeen (2009) Globalization and Culture. Global Mélange, Lanham. Pieterse, Jan Nedderveen (2013) Globalization as Hybridization, in: Keri E. Lyall Smith (ed.) Sociology of Globalization, New York; 65–94. Reporters without borders (2022) World Press Freedom Index: a new era of polarization. Ritzer, George (20064) Die McDonaldisierung der Gesellschaft, Konstanz. Robertson, Roland (2001) Globalization Theory 2000+: Major Problematics, in: George Ritzer und Barry Smart (Hrsg.) Handbook of Social Theory, SAGE, 458–471. Steger, Manfred (2013) Globalization of culture, Ms. Tomlinson, John (1999) Globalisation and Culture, Polity: Cambridge. Tomlinson, John (2003) The Agenda of Globalisation, New Formations, 50, 10–21. Tomlinson, John (2012) Cultural Globalization, in: George Ritzer (Hrsg.) The WileyBlackwell Encyclopedia of Globalization, vol 1; 363–371. UNCTAD (2018) Creative Economy Outlook. Trends in international trade in creative industries 2002–2015. Country Profiles 2005–2014, New York. UNDP (2004) Human Development Report 2004. Cultural liberty in today’s diverse world, New York. UNESCO (2000) Culture, Trade and Globalization. Questions and Answers, Paris. UNESCO (2016) The Globalisation of Cultural Trade: A Shift in Consumption, Montreal. UNESCO (2022) Re/Shaping Policies for Creativity. Addressing culture as a global public good, Paris.

Globalization and Its Opponents

14

14.1 Opponents of Globalization There has been a growing political reaction for many years against almost everything that can be associated with globalization, namely the loss of jobs, their growing precariousness, the increase in inequality, the increase in legal and illegal migration, the hollowing out of democracy and cultural foreignization. This is associated in the popular (and academic) perception with an increase in social polarization, the thinning out of the middle class and a growing distance between citizens and their (elitist) representatives, accompanied by a loss of trust in political institutions. It cannot be a question of whether these accusations against globalization are justified, or whether they are only a convenient target for complaints that cannot be attributed to one factor as a whole because they are ultimately all the result of economic and social modernization and would have also occurred with less international networking (see Banerjee and Duflo 2019; O’Sullivan 2019). Politically, it is significant that this somewhat simple narrative is believed and has led to clear reactions that have been reflected in almost nationwide increases in votes, primarily for right-wing, less left-wing populist parties and movements, in a fragmentation of the political landscape in parliaments and a thinning out of the political center. Associated with this is the increase in protectionist and anti-immigrant attitudes in the population and, as a result, measures to limit immigration.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_14

225

226

14  Globalization and Its Opponents

14.2 Election Successes of Populist Parties There is no question that the share of votes for right-wing and left-wing populist parties worldwide has increased dramatically since the turn of the millennium. If you add everything that is appropriate (such as the PIS in Poland or the Peronists in Argentina), you will get a share of around 23% in a corresponding election analysis in 2015 (compared to less than 3% at the end of the 1980s and around 10% at the turn of the millennium; see Rodrik 2018). It is not difficult to establish a connection between this increase and globalization (in particular its financial variety), with rising import quotas, income concentration and immigration, although this does not of course prove causality. Two things are striking: first, the different development in North and West Europe compared to Latin America, limited to Southern Europe (Greece and Italy). In the former region, only the rightwing populists increased, in the latter two regions the left-wing populists were much stronger and lost very little over time (see Fig. 14.1). Second, the electoral success of right-wing populist parties in West and North Europe varied considerably (see Fig. 14.2), although it is not really clear to what extent this is due to

Fig. 14.1   Vote shares of right-wing and left-wing populist parties in Europe and Latin America, 1961 to 2015. (Source: Rodrik 2018)

14.2  Election Successes of Populist Parties Belgium

227 Denmark

Left-wing populist and left-wing extremist parteles Popuilsmus of the mine Right-wing populist and Far-right parties Eurosceptic, not populist parties Other parties

Germany

Finland

France

Great Britain

Ireland

Luxembourg

Netherlands

Austria

Sweden

Fig. 14.2   Share of votes for right-wing and left-wing populistand Euroskepticparties in Western and Northern Europe, 1998 to 2018. (Source: The Mirror, 29.04.2019)

228

14  Globalization and Its Opponents

welfare differences in the respective countries or their different integration into the world economy, or rather to the effects of different electoral systems. It has often been speculated whether populism would represent an ideology and whether voters would be attracted to it or would only express their frustration in general by voting for populists, without being particularly influenced by the positions of the parties they voted for. Probably both are partly true. Populist parties do not have a firmly established and defined policy, Mudde (2007) claims the existence of only a very “thin” ideology, based on his and other authors’ massive front against the allegedly decoupled establishment of the mainstream, the positioning of populist parties as the true representatives of the people, a rejection of pluralistically negotiated political decisions, an emphasis on traditional, cultural values and the rejection of stronger immigration. This is usually combined with an anti-European and anti-globalist positioning (Norris 2020; Guth and Nelsen 2021). Of course, populist parties differ considerably in the priority they attach to individual points on this agenda, especially in the question of the socio-economic framework of politics (role of the state in the economy, extent of redistribution, expansive or restrictive tax and social policy). The above list also does not answer the question of whether voters correctly perceive the positions of the populist parties and give them their vote mainly for this reason. According to all the evidence, this is only the case to a limited extent. Populist parties also adapt their program after relative election victories and make it, at least verbally, usually even more “populist”, just as traditional parties react to the successes of populists with (slight) modifications. Party positions are therefore not set in stone (Breyer 2022).

14.3 Explanatory Patterns of Populist Success Of course, the populist reaction to globalization is not entirely irrational and empirically completely unfounded, otherwise it would not have had such strong political effect. However, experts are divided on what forces and developments have fueled it primarily. Three strands of explanation can be distinguished.

14.3.1 The Socio-Economic Explanation First, those that argue with the material deprivation of an growing part of the population, which are due to economic liberalization and internationalization, second a culturalist thesis, which explains the political reaction to globalization by the loss of national identity or cultural modernization associated with it and

14.3  Explanatory Patterns of Populist Success

229

thus of homelessness, and third—less represented in the literature—the thesis of an increasing social alienation between citizens and their political representatives and—as a result—a loss of representativeness and responsiveness of the political system in society. Representatives of a material explanation of populist terrain gains can rely on the observation that populist parties have gained in popularity above all in the wake of the global financial and Euro crisis, the subsequent growth slumps and the associated income losses of broader layers. Funke et al. (2016) point out that financial crises have in the past been accompanied by a clearly changing voter behaviour, shrinking majorities of ruling coalitions and political factioning, especially since these crises—in contrast to recurring economic downturns—can also be traced back to the wrongdoings of the political leadership. The growing factioning made overcoming the crisis politically more difficult on the subsequent level. Even more popular is another variant of material explanation, namely the disproportionate and growing voting decision of the losers of economic globalisation (‘the left-behind’) for populist parties (see, for example, Autor et al. 2017; Colantone and Stanig 2017; Komlos 2018; Galston 2020; Rodrik 2021). This explanation can be based empirically on the fact that sharply rising imports from low-wage countries have led to at least short- and medium-term job losses in many Western countries and exactly there to a nationwide and considerable increase in populist party votes, especially when the social protection or compensation of the losers of globalisation could no longer be achieved or enforced for reasons of scarce budgetary resources. Prime examples of this connection are the preferences of voters in the declining rust belt of the USA for Donald Trump in the presidential election at the end of 2016 and those in stagnating districts of Great Britain for the withdrawal from the European Union (Brexit) in mid2016, both of which were also a vote for a stronger retreat of politics to economic nationalism. In fact, it was precisely in the Anglo-Saxon democracies that the wages of classical workers were in free fall; there the income gap between well and poorly qualified employees has widened the most, employment in industry (also due to rising imports from China) has fallen the most sharply (Komlos 2018). With these and other examples of the material deprivation thesis, one wonders first of all why similar income losses of the target groups brought different increases of radical parties in individual countries (or even within individual federal states such as the USA and Germany) and why not left-wing populist parties with explicit programmes for the state-organised betterment of the losers of globalisation have won the race. A possible answer would be that even old middle classes under pressure reject a strong expansion of state-financed social ben-

230

14  Globalization and Its Opponents

efits—possibly also immigrants would benefit from them—and therefore prefer economic nationalism as an alternative. However, it is striking that there are still different social reactions to similar globalisation pressure in different nations (see below) mediated by parties. Economic nationalists are closely linked to the perception of economic disadvantage through globalization and the fear of loss of state sovereignty through interventions by international and regional organizations. This includes the possible effects of international investment agreements in areas of environmental and social standards and competition policy. Finally, with the fear of the growing imbalance between national authorities and transnational corporations with consequences also for national security (Goodheart 2017). The alleged loss of sovereignty plays an important role in the United States with regard to the WTO dispute settlement mechanism, the shift of power in favor of transnational corporations was particularly important in the planned Transatlantic Free Trade Agreement (TTIP) and the international arbitration courts provided for in this agreement to settle investment disputes in Europe (specifically Germany), an important issue, but more of a left-wing populist group was impaled. More generally, there is a further-reaching thesis on the connection between globalization and populism, which operates with the assertion that a new class struggle has set in, namely in the form of the front position of a new, well-educated, transatlantic class of corporate executives, technicians, IT experts, etc., which recruits from itself, in opposition to the class of traditional workers, the trade union representation in the course of globalization and the associated new organization of world-wide, networked production—intensified by immigration of workers competing for the same jobs—was weakened. The new transatlantic class has little regard for the former, corporatist arrangement between capital and unions, the social policy cushioning of globalization or even the defense of imports and immigration, which would bring losses for them (Lind 2017). This thesis fits in with the perception of populist voters of a massively increasing inequality of income and wealth, both of which may partly be achieved by the use of unfair or less legitimate means (corruption, lobbying). The result of this development was the alleged emergence of an elitist, cosmopolitan class of unpatriotic entrepreneurs and politicians held by them. Problematic in such and similarly located previous analyses is the assumption of homogeneous class interests: Not all classical workers are equally negatively affected by rising imports, those with above-average qualifications significantly less, nor those in export-strong, protected and/or sectors with non-tradable goods and services. Only the combination of low qualification and high import pressure promotes empirically economic nationalist attitudes of employees (Walter 2017).

14.3  Explanatory Patterns of Populist Success

231

Similarly, one could argue for the side of the entrepreneurs: Not all compaanies can outsource tasks, not all are equally exposed to import pressure, not all can shift their book profits to tax havens. Doubts about a narrowly defined socio-economic thesis arise when one looks at the main supporters of the EU’s withdrawal, from Donald Trump to other populist leaders. It is precisely the less educated people in rural areas. In purely material terms, they often did and still do better: in Scandinavian countries and Austria, wages rose during the rise of right-wing parties, mostly employment increased (as in Poland) (Goodhart 2017). However, the thesis of the new class struggle between cosmopolitan workers and the less qualified, down-to-earth majority shows a political-empirical foundation in that it reflects an increasing divergence of wage incomes, strong demand for highly qualified personnel and thus also a divergence of life plans and social-cultural milieus. Politically, this is expressed in the fact that, in addition to the traditional left-right axis of the political spectrum, another, mostly cosmopolitan-identity-named axis has been added, thus promoting a stronger fractioning of parliamentary representation and weakening traditional milieu parties.

14.3.2 The Culturalist Explanation This is also where a connection to the second, culturalist explanation of resistance to globalization can be found. Inglehart and Norris (2016 and 2019) are the most prominent representatives of an approach according to which the rise of populism is a reaction to a wide range of shifting cultural focal point that eroded the fundamental values as well as the old social norms and customs within Western societies. Populism is therefore not only or possibly not primarily the result of growing economic inequality, although it is conceded that the risk of job losses increases the chances of populist parties. Lower trust in political institutions is also not denied as an explanatory factor. However, the empirical connection between these sources of dissatisfaction and the voting for authoritarian/populist parties is rather mixed and not very significant in and of itself. More explanatory has the identity/ culturally shaped reaction against the advance of liberal values (including openness to immigration, foreign cultures, individualism, tolerance of different sexual orientations, etc.). The two authors show that values differ greatly by age cohort in the West. Whereas people born in the interwar period were still strongly influenced by traditional values, liberal values oriented towards authority predominate among the following cohorts and especially among millennials (i.e. those born around or after 2000). This puts the older generation increasingly in a value-based

232

14  Globalization and Its Opponents

minority position and they feel increasingly marginalized, which they defend themselves against by voting for right-wing nationalist parties. There is evidence that authoritarian attitudes (for example with regard to the primacy of the family or the nation) promote the choice of right-wing parties, certainly also supported by the perception of educational deficits of one’s own group and economic position deteriorations as well as also culturally more significant differences between urban and rural life. This process of growing social marginalization of older people was only limited by the lower voter turnout of younger cohorts. Inglehart and Norris claim that the classical social conflict lines (social and religious group affiliation) are gradually losing importance in relation to this new, cultural conflict line. The connection of this thesis to globalization processes is obvious: the losers of globalization today were previously protected by borders from losses, immigration played a much smaller role in the erosion of national identity, better educated people need national anchoring less, can work anywhere in the end. Representatives of this narrative can argue with considerable influence on cultural attitudes in the voting decision in Europe and the USA (cf. Inglehart and Norris 2016; Barquero et al. 2021). They can also show that the feeling of growing economic insecurity only limitedly influences voting decisions, but promotes voter turnout and thus indirectly benefits right-wing party formations (Guiso et al. 2017; Margolit 2019). This is probably also true for Germany, where the electoral successes of the AfD are only narrowly or not at all associated with the respective regional economic deprivation, but rather, for example, with the culture shock of reunification and later with the increasing share of migrants (Manow 2018; similarly Bermann et al. 2017). The cultural thesis is also supported by the fact that, above all, less educated people tend more to (right-)populist voting decisions. Nationalistically colored attitudes are often found among voters who have nothing but their national, threatened by immigration, membership. This conflict line has, of course, been sharpened by the boom of the knowledge economy, the partial abolition of racial discrimination and the relative status increase of women; consequently, the status of men without a college education has deteriorated in the global north (Gidron and Hall 2019; Roodjuin and Burgoon 2018; Kurer 2020). Representatives of the more culturally oriented explanation of right-wing nationalist election successes rightly point to the role of immigration as an important or even the most important factor (Kaufmann 2016; Roodjuin and Burgoon 2018; Margalit 2019), regardless of whether the indigenous population was economically affected by it. It would be enough if immigration were perceived as a current or future threat to the cultural homogeneity of a society. Finding this out by surveys is relatively difficult—affirmative answers are politically incorrect—

14.3  Explanatory Patterns of Populist Success

233

but experimental alternative strategies have yielded interesting results with regard to a massive rejection of continued immigration across broad sections, albeit with higher values among the less qualified and in relation to immigrants from very different cultural and religious areas (Margalit 2019). The cultural approach can claim for itself that it is compatible with factors that give little weight to economic factors—that is, the stronger preference of older, less educated, rural voters for right-wing populist parties and a clear restriction of immigration. Why this is so is not further clarified; sometimes the argumentation is therefore strongly circular according to the motto: people with an authoritarian attitude vote right-wing.

14.3.3 The Political Science Approach The approaches presented so far have all had difficulty explaining the different, also time-varying attractiveness of right- and left-wing populist parties across countries and even within countries, nor why in economic crises people vote more to the right than to the left. Approaches that are more oriented towards political science come closer to this. They operate more with political structural deficits as the decisive factor: According to this, socio-economic shocks—also the massive immigration of migrants—first reduce voter turnout, which is why the statistical relationship between economic losses and the election of populist candidates initially appears relatively weak. Over time, however, these shocks increasingly undermine people’s trust in the established parties if they cannot find an adequate answer to globalization crises and waves of immigration. In addition, the convergence of party programs towards the center, accompanied by the drying up of traditional social milieus (of workers and Catholics), has lowered the entry barriers for populist parties. So it was not economic crises alone that promoted populist movements, but also the relative weakness of the traditional parties (Bertoa and Rama 2021). In crises, people are looking for short-term solutions; if these are not offered, new parties enter this gap. Guiso et al. (2017) call into question the above-mentioned relativization of economic needs for the rise of populists on the basis of this connection. As a secondary effect of the entry or strengthening of populist parties, the traditional parties also move further to the right (less often to the left) (ibid.). This phenomenon could be observed especially in Scandinavian countries. According to this approach, populist movements would not only be fueled by economic crises, but above all by the increasing weakness and declining responsiveness of traditional parties, triggered by a

234

14  Globalization and Its Opponents

progressive loss of trust in their mediation services (see Serani 2016; Bertoa and Ram 2021). The position of a necessarily stronger weighting of political factors for the rise of populist parties is also represented by the newer study by Schäfer and Zürn (2021). They also rightly ask themselves why left-wing parties were not favored electorally in the crisis and point out that populists were particularly successful in countries with tolerable economic performance and income distribution. They also emphasize that the adoption of cosmopolitan attitudes does not take place independently of personal well-being, so the cultural explanation does not carry much weight on its own. It is only the politically selective handling of social change that provokes the populist defensive reaction. This means deficits in representation of liberal democracy, in which not all groups are equally well represented and decisionmaking competencies are increasingly transferred from elected representatives to central banks, constitutional courts and international organizations. However, one may wonder whether things were better with the representativeness of the national representatives in the past. Also, the outsourcing of decision-making competencies to “apolitical” national or even international institutions has come to a standstill in recent years, thus only limitedly explaining the increasing loss of trust of the population in democratic institutions. However, the German example of Germany can at least demonstrate the thesis of declining representativeness and responsiveness (popularly expressed: aloofness) of the political class, in particular the representatives of the working class. Not only has the social milieu of the latter changed as a result of changes in the world of work to the detriment of trade union strength and political representation of workers, but also the social democratic party itself has, according to critics, partially lost its responsiveness to its former core clientele through its approach to liberal economic positions (similar to the Labour Party under Tony Blair and culminating in Agenda 2010 in Germany) and the adoption of the cosmopolitan habitus of the educated middle class. As a result, new but not excessively loyal voter groups were initially reached. Later, however, large parts of the traditional core voters were lost through the new course, voters who would rather welcome a protectionist, anti-immigration closure of the country. This was also helped by the fact that, for example, the Alternative for Germany (AfD) modified its once liberal economic program to make it welfare-oriented. The combination of cultural/economic nationalism and the demand for expansion of the welfare state has thus become a new “winning formula” not only in Germany. Jörke and Nachtwey (2017) therefore favour a social democratic change of course, which would make the party interesting again for its classical, also left-authoritarian oriented clien-

14.3  Explanatory Patterns of Populist Success

235

tele. Against this position stands a study commissioned by the party leadership, which recommends sticking to the strategy pursued so far (see below). However, in terms of underpinning the political science interpretation of the connections, one must not forget that the increase in votes for populist parties took place quite exactly in the period in which there was also a significant democratic backsliding (i.e. from around 2005/06), so that the political pluralism, the independence of the judiciary and the freedom of the press were eroded and this was done at the instigation of elected governments. This and the associated political polarization favoured the further rise of radical parties, which is certainly embedded in a broader social development context (Diamond 2021; Haggard and Kaufman 2021). This also fits in with the fact that there has been a comparatively solid minority of voters with a nationalist, authoritarian and xenophobic basic attitude in Western industrial countries for a long time; in the USA there have always been evangelicals, racists and market radicals as well as a very strong following of the increasingly right-wing Republicans. In the former socialist countries, the socialist internationalism propagated to the outside concealed a significant nationalist basic current, which became apparent quite quickly after the change. Globalization effects of different kinds have, however, intensified these basic developments. It is also not certain that the support for populist parties would decrease quickly after an improvement in the economic situation (for those mainly affected) or when additional social policy compensation is granted to the victims of the crisis. In a number of relatively prosperous countries outside Western Europe, populist parties or political leaders were elected—for example in India, Mexico, the Philippines, Poland, Turkey and Hungary. They find their main support not among the losers of globalization, but among the emerging classes (Foa 2021). This points to the fact that political and cultural factors can amplify or weaken economic shocks, sometimes pushing the latter into the background. Populism in emerging economies is probably more of an anti-Western reflex. The mobilization of ethnic-national or ethno-religious reflexes demonstrates a search for national identity and dignity, and also serves as a glue for a relatively heterogeneous society (Rogenhofer and Panievsky 2020; Velasco 2020). On the demand side, emerging classes have a preference for political groups that provide peace and order and promise to curb corruption. The motivation behind the rise of rightwing populism therefore seems to be quite different in less developed countries. The belief that populism everywhere fades with economic improvement is obviously wrong. Overall, it is probably not possible to completely separate cultural, political and economic factors in order to explain the rise of populism, they probably also partly condition each other.

236

14  Globalization and Its Opponents

14.4 The Lack of Success of Left-Wing Populists Why do the chances of right-wing and not left-wing populist parties increase disproportionately in crisis-ridden globalization phases and with increasing immigration? Why do voters in Central and partly also in Southern Europe turn away from social democratic parties and prefer right-wing nationalist groups that only promised to promote their economic and social interests to a limited extent (at least at first)? A somewhat flat but not necessarily false explanation for this is the alleged change of course of social democratic parties away from their traditional and towards a more neoliberal agenda (see above) as well as their support for increasingly cosmopolitan, post-materialist positions in immigration, gender and climate/energy policy, which increasingly alienated the electorate from the more progressive party cadres. This gap was tried to be reduced by some social democratic parties (in Denmark, Belgium and Norway) through a more restrictive attitude towards immigration. Abou-Chadi et al. (2021) warn against a copy of this shift, because the social democratic voter base has become very diverse, not as backward in cultural terms as thought, a partial departure from post-material attitudes would hardly bring electoral dividends. In this and similar statements, the differences in the agenda of nationalist and left-wing parties and their supporters (for reasons of political correctness) are clearly exaggerated. Economically, both right-wing and left-wing populists are protectionist, oppose globalization and reject the transfer of further sovereignty to the European Union and/or international organizations. In this respect, for example, the differences between the radical right and the left in France are very small (Przeworski 2020). The country-specific causes of populist electoral successes and the different constellations which either promote the left-wing or the right-wing populist variant have long been a clearly under-researched topic. This is regrettable because the generalised approaches put forward so far to explain the very different populist electoral successes are only of limited use (Przeworski 2020). At least, it is to be expected that there is an interaction of global and country-specific causes. A study of 21 countries by Rooduijn and Burgoon (2018) tried to address this very issue and, after identifying possible causes of differences between individual societies, identified the respective different economic development, social protection and immigration as possible causes. The result is that personal economic well-being plays a relatively minor role in the election of populist parties, at least in comparison to a comparison group (peer group), but surprisingly only then if the economic conditions in the country and the employment situation were relatively favourable and social protection remained relatively strong. In such a situ-

14.4  The Lack of Success of Left-Wing Populists

237

ation, the less fortunate would become more aware of their relative deprivation. However, if unemployment and inequality are massive, the success rate of rightwing populist parties decreases because the perception of the risks associated with a change of government also increases. Left-wing populist supporters who are economically dependent and disapprove of the overall architecture of capitalist society are much less afraid of regime change and its consequences. Differences in the attitude of right-wing and left-wing populists become particularly apparent in the issue of immigration; here, personal well-being makes hardly any difference. Przeworski (2020) was quite right to point out that global explanations do not provide satisfactory results for the different successes/failures of populist parties in individual countries in economically similar situations. There must therefore be at least an interaction between global causes and national special factors. In particular, two authors ask themselves why there has been a left-wing bias in populism in Latin America and Southern Europe, whose representatives rail against neoliberalism and austerity, while in the European centre and north there has been a right-wing variant which is mainly directed against mass immigration. Rodrik (2018) argues that the population in Latin America perceived the insecurity caused by globalisation primarily in connection with increasing financial crises, rapid import growth and the entry of transnational companies into previously protected sectors, while in Europe it was perceived in connection with increasing immigration, which prompted political entrepreneurs to place identity issues in the foreground, but elsewhere the dangers arising from global economic interdependence. Manow’s (2018) sheds light on the background of populist successes in a more differentiated way. According to him, it is always specific national problem constellations of a socio-economic character that determine the respective manifestation of populist protest, namely the respective economic model (exportversus domestic market-oriented), the scope of generous social security against globalization-related vicissitudes and its accessibility. Migration is, according to Manow, rather a political problem in an export-oriented economy with high social benefits, which compensates for the risks of integration into the world market, an arrangement that appears to be threatened by mass immigration (and thus the overstraining of the social state). This would promote right-wing populist election successes. In Southern Europe, however, social benefits for migrants are only limitedly accessible, since they are further reserved for insiders of the labor market. The latter is also largely closed to migrants (with the exception of inferior, temporary jobs), making it unattractive for them. In Southern Europe, however, the strong domestic market orientation and the broad public sector as well as the lim-

238

14  Globalization and Its Opponents

ited international competitiveness of the economy turn out to be crisis- and debtpromoting (especially within the Eurozone), a connection that periodically (also monitored from the outside) requires stabilization and liberalization efforts. The protest against this has understandably a left-wing populist, globalization-critical slant. Only in the exploration of the right-wing nationalist orientation of populist parties in Eastern Europe this approach has certain weaknesses, explains this with the trauma of the great transformation after the turn of 1989. It is not to be understood why the non-occurring immigration to Eastern Europe should be a hot topic there, unless one takes the cultural approach a little more seriously, expands it by the shock resulting from the transition to the market economy. Overall, however, it can be seen from this overview that research into the causes of left- or right-wing protest against the demands of globalization has become increasingly differentiated, monocausal attributions have increasingly been set aside. They also show that the success of populists is not only determined by one factor; their voters are concerned about their own future and their socio-economic status as well as the preservation of identity, which they see as threatened by multiculturalism, rampant feminism and the erosion of traditional values. They also feel that they are not represented by the traditional parties. The latter factors and a similarly moderate level of education apparently add up as influencing variables (Gidron and Hall 2017; Velasco 2018; Rommel and Walter 2019; Milner 2021).

References Abou-Chadi et al. (2021) Left Behind By the Working Class? Social Democracy’s Electoral crisis and the Rise of the Radical Right, Berlin. Autor, David et al. (2017) Importing political polarization? The electoral consequences of rising trade exposure, NBER Working Paper 22637, Cambridge, MA. Banerjee, Abhijit V. and Esther Duflo (2020) Good Economics for Hard Times, New York usw. Barquero, Pablo Ortiz et al. (2021) Ideological voting for radical right parties in Europe, Acta Politica, i.E. Bermann, Knut et al. (2017) Die AfD: Eine Partei der sich ausgeliefert fühlenden Durchschnittsverdiener)? Zeitschrift für Parlamentsfragen 48,1; 57–75. Bértoa, Fernando Casal und José Rama (2021) The Antiestablishment Challenge, Journal of Democracy 32, 1; 37–51. Breyer, Magdalena (2022) Populist positions in party competition: Do parties strategically vary their degree of populisms in reaction to vote and office loss? Party Politics; i. E. Colantone, Italo and Piero Stanig (2017) The Trade Origins of Economic Nationalism: Import Competition and Voting Behavior in Western Europe, Ms.

References

239

Diamond, Larry (2021) Democratic regression in comparative perspective: scope, methods and causes, Democratization 28,1; 22–42. Foa, Roberto (2021) Why Strongmen Win in Weak States, Journal of Democracy 32,1; 52–65. Funke, Manuel et al. (2016) Going to extremes: Politics after financial crises, 1870–2014, European Economic Review 88; 227–260. Galston, William A. (2020) The Enduring Vulnerability of Liberal Democracy, Journal of Democracy, 31,3; 8–24. Gest, Justin et al. (2018) Roots of the Radical Right: Nostalgic Deprivation in the United States and Britain, Comparative Political Studies, 51, 13; 1694–1719. Gidron, Noam and Peter A. Hall (2019) Populism as a Problem of Social Integration, Comparative Political Studies 53, 7; 1027–1059. Goodhart, David (2017) The Road to Somewhere: The Populist Revolt and the Future of Politics, London. Guiso, Luigi et al. (2017) Demand and Supply of Populism, Ms. Guth, James L. und Brent F. Nelsen (2021) Party choice in Europa: Social cleavages and the rise of populist parties, Party Politics 27,3; 453–464. Haggard, Stephan und Robert Kaufman (2021) Backsliding: Democratic Regress in the Contemporary World, Cambridge Inglehart, Ronald F. and Pippa Norris (2016) Trump, Brexit, and the Rise of Populism: Economic Have-Nots and Cultural Backlash, Faculty Research Working Paper, Harvard Kennedy School. Jörke, Dirk und Oliver Nachtwey (2017) Die rechtspopulistische Hydraulik der Sozialdemokratie. Zur politischen Soziologie alter und neuer Arbeiterparteien, Leviathan, 45, Sonderband 32; 163–186. Kaufmann, Eric (2016) Trump and Brexit: why it’s NOT the economy, stupid, blogs.lse. ac.uk. Komlos, John (2018) The Economic Roots of the Rise of Trumpism, CESifo Working Paper No. 6868, Munich. Kurer, Thomas (2020) The Declining Middle: Occupational Change, Social Status, and the Populist Right, Comparative Political Studies 53,10–11; 1798–1835. Krause, Werner et al. (2017) Attraktion und Repulsion. AnhängerInnen rechts- und linkspopulistischer Parteien im europäischen Lind, Michael (2017) The New Class War, American Affairs 1,2; 19–44. Mader, Matthias (2020) The globalisation divide in the public mind: belief systems on globalization and their electoral consequences, Journal of European Public Policy 27,10; 1526–1545. Manow, Philipp (2018) Die Politische Ökonomie des Populismus, Berlin Margalit, Yotam (2019) Economic Insecurity and the Causes of Populism, Reconsidered, Journal of Economic Perspectives, 33,1; 152–170. Milner, Helen V. (2021) Voting for Populism in Europe: Globalization, Technological Change and the Extreme Right, Comparative Political Studies 54,13; 2286–2320. Mudde, Cas (2007) Populist radical right parties in Europe, Cambridge. Norris, Pippa (2020) Measuring populism worldwide, Party Politics 26,6; 697–717. Norris, Pippa and Ronald Inglehart (2016) Trump, Brexit, and the Rise of Populism: Economic Have-Nots and Cultural Backlash, Working Paper, Harvard Kennedy School.

240

14  Globalization and Its Opponents

Norris, Pippa and Ronald Inglehart (2019) Cultural Backlash. Trump, Brexit, and Cultural Backlash. Trump, Brexit, and Norris, Pippa and Ronald Inglehart (2019) Cultural Backlash. Trump, Brexit, and Authoritarian Populism, Cambridge, MA. O’Sullivan, Michael (2019) The Levelling. What’s Next After Globalization, New York. Przeworski, Adam (2020) Krisen der Demokratie, Berlin. Rodrik, Dani (2018) Populism and the political economy of globalization, Journal of International Business Policy, 1,1; 12–33. Rodrik, Dani (2021) Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-Wing Populism, Annual Review of Economics, 13; 133–70. Rogenhofer, Julius Maximilian und Ayala Panievsky (2020) Antidemocratic populism in power: comparing Erdogan’s Turkey with Modi’s India and Netanyahu’s Israel, Democratization 27,8; 1394–1412. Rooduijn, Matthijs and Brian Burgoon (2018) The Paradox of Wellbeing: Do Unfavorable Socioeconomic and Sociocultural Contexts Deepen or Dampen Radical Left and Right Voting Among the Less Well-Off? Comparative Political Studies, 51,13; 1720–1753. Rommel, Tobias und Stefanie Walter (2019) The Electoral Consequences of Offshoring: How the Globalization of Production Shapes Party Preferences, Comparative Political Studies 51,5; 621–658. Schäfer, Armin und Michael Zürn (2021) Die demokratische Regression, Berlin. Serani, Danilo (2016) Explaining vote for populist parties: the impact of political trust, the economic and the political context, Ms. Velasco, Andrés (2020) Populism and Identity Politics, LSE Public Policy Review 1; 1–8. Walter, Stefanie (2017) Globalization and the Demand-Side of Politics. How globalization shapes labor-market risk perceptions and policy preferences. Political Science Research and Methods, 5,1; 55–80.

Global Governance

15

15.1 Global Governance as a Necessary Counterpart to Globalization In other chapters, it has already been discussed to what extent international organizations, networks and NGOs have driven or limited globalization, i.e. how they have acted as additional actors in the emerging complex world governance, which is now commonly referred to as ‘global governance’. What this global governance means, which international, state, societal and private actors are involved, why they should be involved and why governmental networks or organizations are no longer sufficient to cope with the increasingly complex problems of world governance, has been discussed quite often, so it should only be summarized in the shortest possible way. There has been and still is less of an overview of how this world governance has been expressed in possibly sector-specific institutional forms and which problems, which have arisen or at least aggravated as a result of the world economic and world societal intertwinement, have been identified and—also or not—tackled. Finally, and more importantly, what success these efforts have been granted. This should form the core of the following explanations. The quantitative increase in global regulatory attempts is easier to determine than their success or relative failure, as this can only be defined in relation to quite disparate target values (legitimacy of regulation, participation of those affected as far as possible, solution of the fundamental problem, etc.) and in relation to quite different priorities of the actors involved. It should also be noted that the success should not only be defined in relation to the existing initiatives, but also in relation to problems that have not or have been addressed internationally

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 J. Betz and W. Hein, Globalization, https://doi.org/10.1007/978-3-658-41717-8_15

241

242

15  Global Governance

with insufficient means. There are numerous examples of this, even and especially in cases where initiatives are in the existential interest of a world society as defined in any way. There is widespread agreement that globalization has changed the playing field of the international system, which has long been defined by nation-states, and that new non-state actors with very real power have emerged, be they international or civil society organizations, companies and business associations, foundations, the globally networked media, etc. One need not immediately sing the praises of the power of nation-states, but today they are only one, albeit important, player among others. According to Held et al. (1999), the global arena has mutated into a polyarchic, multifaceted system with considerable diffusion of political authority and the ability to shape events. This is the core of the muchvaunted global governance (also referred to here as complex world governance, to avoid stylistic fatigue). The classic nation-states, it is often argued, are in globalization each only limited in their ability to fulfill their assigned basic functions, i.e. to ensure security, raise enough taxes to finance economic activity and social security for their populations, control the business cycle, and regulate foreign trade or foreign investment (see already Strange 1996). This is not only because the space within which social transactions take place is no longer identical to that which each community regulates politically, because this allows them to escape control, because positive or negative “spillovers” of these transactions overflow into other political communities which are then not regulated, promoted, or hardly prevented by the majority of the institutions responsible for this because they remain tied to the nation-state territory (Leibfried and Zürn 2006). The logical demand to regain political power is therefore at least to expand the cooperation of states with each other in order to prevent them from being disadvantaged by other, societal actors, to ensure their control, and/or to partially transfer their competencies to supranational, international institutions. Nation-states would have to follow the lead of “deterritorialized” companies and extend their activities beyond national borders (Beck 1997, 2002). This appears to be completely plausible and obvious. However: 1. Not all global problems are global in the same way. They therefore often pose different requirements for international politics. Some require binding conventions, institutional start-ups and burden-sharing for the provision of services, others only require the closer cooperation of the respective national states (or their respective authorities) with or without the involvement of transnational social actors, while others can be mitigated or even solved solely by the cooperation of these civil society actors (with or without the involvement of

15.2  Global Public Goods

243

national governments). In fact, there is a whole range of sector-specific coping strategies that should be tailored to the individual case (Messner 1999). 2. Not all problem areas are denationalized to the same extent. Leibfried and Zürn (2006) state, for example, that there is still a given capacity of national states to levy taxes and to legitimize political action democratically, but that the importance of setting rules and providing social security is decreasing. One could partly disagree with this diagnosis, but it is understandable that the authors do not speak of a general erosion of statehood, but of sectorally different “state fragmentation”. 3. International organizations or other solution instances for transnational problems often lack direct democratic legitimacy, even if they try to acquire this by involving the international civil society. They cannot implement their decisions on their own, they need the administrative apparatus of national governments for this. They usually have no or only very limited (as in the EU) own revenue base and ultimately hardly any own sanctions power to enforce decisions (Genschel and Zangl 2008). Similar to the federal state, the solution of global problems is therefore not possible without the active participation of the lower level (in this case the federal states). 4. The transfer of sovereignty to international organizations or comparable institutions for the planning and enforcement of strategies for coping with problem areas that have arisen from the growing interdependence of states and the lack of congruence of economic-social and political action spaces is often not in the immediate material interest of individual states, sometimes not even in their entirety, if reliable and fair arrangements for the participation in costs and the sovereignty to be accepted cannot be made.

15.2 Global Public Goods To justify this last, somewhat steep thesis, one must take a step back. The solution to global public problems represents a global public good, that is, a good or service that can only be provided as a whole by the international community (indivisibility) and from which no state can really be excluded. A classic example of a national public good is national defense. Because everyone participates, regardless of whether they contribute to the costs of providing it or not, it cannot be left to private initiative, but must be left to state institutions directly or indirectly and financed through taxes levied. The collection of international taxes for the provision of global services (such as reducing greenhouse gas emissions) is conceivable in theory, but not common. There is no international equivalent

244

15  Global Governance

of the compulsory collection of contributions and taxes or the compliance with state regulations (see Sandler 2010; Kaul 2019; Buchholz and Sandler 2021 in detail). States therefore have an interest in leaving the provision of global public goods and services as much as possible to others—in other words, free riding— even if they are interested in the production of these services. Limited relief can only be achieved through an agreement reached in advance and, if possible, also somewhat enforceable, unless a (preferably powerful) individual state or a small club of individual states have such a predominant interest in the provision that they are also willing to finance it alone. This was rarely the case, most notably with the Montreal Protocol, that is, the global agreement to limit the production of CFCs. This points to an additional difficulty in the production of global public goods: Some, such as the fight against global pandemics, require the cooperation of all states in order to contain them reliably, others (such as reducing greenhouse gas emissions) the participation of as many societies as possible in proportion to their emissions contribution, few (such as the neutralization of a group of international terrorists) could be achieved alone by the action of a single great power (see Barrett 2007 in detail). However, precisely because of the problems caused by globalization, such solutions are rarely possible and usually require the cooperation of a significant group of “willing” states. In addition, global public goods and services often require a high initial financial expenditure, but the benefits of these efforts are only long-term and often only indirect. Governments, especially democratic states, usually have a shorter time horizon, are not rewarded for revenues in elections that only occur much later. In addition, it is initially unclear which states/state groups will exactly benefit from the provision of the service and how they will behave in terms of their financial contribution to this. If one adds that a community of almost 200 states must agree on the provision of services and the distribution of burdens, it is no wonder that agreements on the provision of global public goods and services are still being reached. Solutions to this cooperation dilemma are conceivable in various ways: First, one can artificially reduce the number of states that are effectively involved in the creation of international regimes, organizations or agreements. Mancur Olson (1968) has already shown that this can also be a potentially more effective approach for the provision of national public goods. Internationally, William Nordhaus (2015) had proposed a club of the willing, main greenhouse gas emitting countries to lead and force other countries to follow through sanctions (see below) to solve the climate problem. This idea was recently (end of June 2022)

15.2  Global Public Goods

245

picked up by Federal Chancellor Olaf Scholz at the G7 conference at Schloss Elmau. The International Task Force on Global Public Goods (2006) proposed the formation of a ‘Global 25 Forum’, that is, an institutionalized cooperation of the heads of state of the world’s 25 most important countries, to provide the conditions for the provision of global public goods. In principle, proposals for reform of the United Nations also go in the direction of smaller decision-making bodies. A Security Council enlarged by a few permanent members would probably better guarantee global security than the current arrangement. Not surprisingly, states that are not supposed to be part of the exclusive club of decision-makers oppose such proposals massively, do not want to be represented by more powerful neighbors in their region (for example Pakistan by India or Argentina by Brazil). Nevertheless, such proposals still seem to be in vogue and nevertheless the number of informal, global networks has increased significantly since 1990 (Manulak and Snidal 2021). A final possibility for facilitating decisions is weighted voting in global steering forums (according to economic weight), as for example in the allocation of quotas in the IMF and the World Bank. The decades-long, partially successful protest of those who have been left out speaks against the generalizability of this model. In addition, it would have to be constantly adapted to the changing weights of the states in the world, a probably quite controversial process. Closely connected with the approaches mentioned above is the occasionally propagated shift of responsibility for collective performance to the regional level, because—so the assumption—states in the region are more similar, anyway interact more strongly with each other and therefore also have more reason to take a step back from selfish individual aspirations in order to gain regional actionability. All regional communities, including the EU, owe their existence and growth to this calculation. Of course, these hopes are sometimes misplaced: Even within the EU, there are conflicts over the provision, financing and allocation of public goods (correct: regional public goods) and the partial renunciation of national sovereignty, not least within other regional organizations. Of course, this has to do with the fact that the national conditions of participation and the interests in and at these projects are different. A logical counterpart to the creation of regional communities is the agreement on regional free trade and currency zones as well as instruments for regional development promotion and assistance in the event of balance of payments deficits. These have increased in the 1990s, especially in the Asian region, often under the auspices of China. It is too early to give an assessment of the performance of these arrangements, but first doubts have certainly arisen (for example with regard to the conditions of the Asian Infrastructure Development Bank and the resulting indebtedness of the member states).

246

15  Global Governance

Even more far-reaching than the regionalization of the required collective performance would be the bilateralization of its provision, for example by means of bilateral trade and investment agreements. The number of such agreements has exploded in the last two decades (see below). The obvious deficit of such strategy approaches is of course that they undermine and counteract global agreements, also that the less powerful states are even more exposed to the pressure of the powerful in institutions with limited membership. Moreover, the question arises as to how regionalization and bilateralization can be reconciled with multilateral regulations or whether they do not lead to the end of such efforts. So one can quite easily argue in relation to the international trade system (in particular the WTO in the stalled Doha round). Members of agreements on global governance can also, if they no longer agree with the whole direction, terminate their membership in the treaty or the relevant organization and/or try to come to grips with the desired solution to a global problem by setting up a new institution, or shift the debate to forums that suit them better. This is now being done by established industrial nations as well as emerging powers such as China (Zürn 2018). Another option for empowering and enforcing international agreements is to have their compliance controlled by an expert panel, to publicly shame and blame the non-cooperative members, to ultimately exclude them from the agreements/institutions, or to sanction their non-participation or breach of contract with financially effective sanctions. Many international and regional institutions are empowered to do this (e.g. WHO), but they rarely if ever resort to extreme sanctions, instead opting for ‘shaming and blaming’. Overall, it is clear that the various alternative options for providing global public goods through multilateral, universal institutions, agreements or networks are also not always viable solutions. It is also clear that there is always a tension between—the efficiency of global procedures that require smaller decision-making bodies—and legitimacy, which suggests the involvement of as many affected parties as possible, and certainly not just state institutions. This immediately points to the next problem area of global attempts at solutions. Potential partners outside the central state level could be individual agencies, sub-state units, civil society organizations, social movements, associations and companies, i.e. all those who are included in the usual definitions of global governance (Behrens 2005a, b). In fact, there are quite different arrangements for providing global public goods and services; the exclusive provision by national member governments in international organizations has become less common, usually this procedure is combined with the consultation and involvement of the international civil society, less often also by international associations (in the

15.3  The Emergence and Expansion of Complex Global Governance

247

ILO by trade unions and employers). Public-private partnerships have increased, i.e. the joint provision of services by private actors such as foundations, business associations, international and civil society organizations (examples: Global Compact, Extractive Industries Transparency Initiative), or the division of responsibility for functioning between states and expert staff (in the administration of the Internet). A serious, but recently again slightly declining trend is the processing of global problems by purely private agencies, for example in setting technical, environmental and social standards, determining the creditworthiness of countries or internationally operating financial institutions, etc. (Saxer 2009; Jang et al. 2015). The comprehensibility of the overall system of global governance suffers last also the fact that the forums for the main processing of global problems change. So the international financing of the current account deficits of poorer (and few wealthier countries) happened first exclusively over development cooperation, later—up to the debt crisis—mainly over bank credits and bonds. After massive defaults on payments intervened again stronger state agencies from the west and international organizations. The stabilization of the world financial markets happened after the Second World War essentially over the central banks, after the end of the system of fixed exchange rates increasingly over the foreign exchange markets, until in the course of the global financial crisis a massive intervention of central banks and the IMF was inevitable and new rules and institutions were entrusted with the global supervision. About the shift of the international trade policy from the multilateral level (the WTO) on regional and bilateral level was already reported. Finally, also an increasing number of international non-governmental organizations, business representatives and other representatives of civil society were included in the consultations (less often in the decisions) of international organizations and committees. This made and makes the overall system of the “complex world governance” almost incomprehensible, allows only to a limited extent the attribution of successes or failures in the coping with global problems on specific arrangements or groups of actors.

15.3 The Emergence and Expansion of Complex Global Governance If you are looking for explanations for the emergence and expansion of global governance, you will usually be bitterly disappointed beyond banal, descriptive descriptions of the worldwide post-war development. They shrink to the unmentioned increase in international interdependence and the miraculous growth of the

248

15  Global Governance

international civil society (for example, Weiss 2014) or simply jump over to the crisis of the global