REPORT

ON

“Today, many nations are multicultural societies, composed of

numerous smaller subcultures”

DONE BY: OPTERON

 GLOBALIZATION
Globalization, integration and democratization of the world’s culture,
economy, and infrastructure through global investment, rapid increase
of communication and information technologies, and the impacts of
free-market forces on local, regional and national economies.

1. Seeds of Globalization
The term "globalization" refers to the increasing interconnectedness of
nations and peoples around the world through trade, investment,
travel, popular culture, and other forms of interaction. Many historians
have identified globalization as a 20th-century phenomenon connected
to the rise of the Western-dominated international economy. However,
extensive interaction between widespread peoples, as well as travel
over vast distances across regions of the world, has existed for many
centuries. By 1000, the seeds of globalization had already taken root
in the eastern hemisphere, particularly in the lands bordering the
Indian Ocean and South China Sea. These were the most dynamic
regions in the world at that time, and their interactions were
extensive. To understand how globalization first took root between
1000 and 1500, one must focus on contact between distant peoples in
Asia, especially contact carried on through long-distance trade.
Interregional trade has been a major force throughout world history
because it fosters other forms of exchange, including the spread of
religions, cultures, and technologies. For many centuries, the most
outstanding example of overland interaction was the Silk Road, a trade
route through Central Asia. Maritime trade flourished as well; the
Indian Ocean became the heart of the most extensive seagoing trade
network in the pre-modern world. Islamic merchants dominated this
network, spreading their religion far and wide. Islamic expansion
established a huge cultural region that stretched across the entire
eastern hemisphere. Trading ports such as Melaka in Malaya became
vibrant, globalized centers of international commerce and culture.
Chinese ships would later follow this trading network in undertaking
the greatest oceanic explorations in world history to that point. This
exploration confirmed the crucial role played by this Afro-Eurasian
maritime commerce and the dynamism of some Asian civilizations. The
exchanges across Asia at this time, including the spread of Islam, were
significant enough that we can speak of a globalized economy and
culture.

1.1 Trade and Interregional Contact

One characteristic of globalization in the modern age has been

expanding commerce between countries around the world. The roots
of this phenomenon reach far back in history. Long-distance trade
routes grew out of the transportation systems that developed out of
the need to move resources by land and sea. In turn, trade and
expansion led to increased contact between different civilizations and
societies. This contact enabled Indian influence, including that of
Buddhism, to spread over the land and sea trading routes into Central
Asia, Tibet, China, Japan, and Southeast Asia between 200 B.C and
A.D. 1500.From around 200 B.C to around ad 1000, the most
significant example of interaction and long-distance trade was the Silk
Road, which stretched across central and southwest Asia, linking China
to India, western Asia, and the Mediterranean. Along the Silk Road,
goods, people, and ideas traveled thousands of miles between China,
India, and Europe. Silk, porcelain, and bamboo from China were
carried west across the deserts, mountains, and grasslands to
Baghdad and the eastern Mediterranean ports, and then shipped by
sea to Rome.

The maritime system established on the Indian Ocean grew more

important between 1000 and 1500, eventually surpassing overland
trade. The oceanic routes between Southeast Asia and the Middle East
greatly expanded. Traders from Arabia, Persia, and India visited the
East African coast, and many Asians and Africans enjoyed a long
period of lucrative and relatively free seagoing trade.
 1.2 The Silk Road and the Mongol Empire

Between 1250 and 1350, the Mongols established and controlled the
largest land empire in world history. This empire stretched from Korea
to Vienna, placing a huge bloc of the world's population under Mongol
control. The Mongols brutally conquered Siberia, Tibet, Korea, and
Russia, much of Eastern Europe, Afghanistan, Persia, Turkey, and
parts of Arab civilization in the Middle East. Western Europeans were
too remote and underdeveloped to give reason for conquest and thus
did not suffer the ravages experienced by other peoples. In 1279,
China, a more formidable foe and tempting prize than Western Europe,
was added to the Mongol-ruled realm. One cannot underestimate the
importance of the Mongol era to world history or its role in establishing
an early form of globalization. In the 20th century, globalization
enabled Western technology to reach other parts of the world. Some
historians consider the Mongols the great equalizers of history because
during their rule, they permitted the transfer of technology from the
more developed East Asia to the more backward Western Europe. They
did this by reopening and protecting the Silk Road, however briefly.
During the Mongol era, Chinese inventions such as gunpowder,
printing, the blast furnace, silk machinery, paper money, and playing
cards found their way to Europe, as did many medical discoveries and
such domesticated fruits as the orange and lemon. The Mongols paved
the way for greater global communication, opening China's doors to
the world. One Chinese monk, a Nestorian Christian, became the first
eastern Asian visitor to Rome, England, and France. In addition, some
Chinese people settled in Persia, Iraq, and Russia. This movement was
possible because travel from one end of Eurasia to the other was
easier than ever before. Furthermore, the Mongols unwittingly set in
motion changes that would later allow Europe to catch up with and
eventually surpass China. Some of these changes were based on
European improvement of such Chinese inventions as printing,
gunpowder, the stern-post rudder, and the magnetic compass. For
example, in about 1050, the Chinese invented movable type. The
Europeans later developed a better technology, and in the 1450s
Johannes Gutenberg used movable type to produce multiple printings
of the Bible. Likewise, the Chinese invented the first flamethrower. By
the 13th century the flamethrower had evolved into a primitive gun—
one major reason the Mongols took so much longer to conquer China
than other civilizations. As these weapons were transported to Europe
during the Mongol Era, and then improved, late medieval European
warfare became far deadlier than it had been before.
Today's globalize world has been characterized by a brain drain, or
exodus of talented people from various continents to Europe and North
America. The world in the 14th century witnessed the same
phenomenon; however, the flow moved the other way, from west to
east. In China, the Mongol administration relied on a large number of
foreigners who came to serve in what was effectively an international
civil service. These included many Muslims from West and Central Asia
as well as a few Europeans who found themselves drawn to the fabled
Cathay, as they called it. One such person was the Italian traveler and
author, Marco Polo. Polo claimed to have spent seventeen years in
China, mostly in government service. Eventually he returned home to
tell unbelieving Europeans of the wonders he encountered or heard
about from other travelers. Polo’s reports seemed incredible because
at that time China was well ahead of other Eurasian civilizations in
many fields. For these reasons, the Mongol Empire was one of the
most important land empires in history. Yet in spite of the success of
Mongol civilization during the 1200s, their empire would prove short-
lived. Unlike other empires, the Mongols never took advantage of the
maritime commerce developing at the time.

1.3 The Globalization of Islam and the Indian

Ocean Maritime Trade System
Between the 8th and 15th centuries, Islam ventured out of its Arabian
heartland in the Middle East to become the dominant religion in many
parts of Africa and Asia and in Iberia. Muslim groups emerged in such
different and geographically distant locations as China and the
Balkans. In the process, an interlinked Islamic world called dar al-
Islam (the Abode of Islam) emerged, a world that was joined by both
a common faith and trade connections. The dar al-Islam stretched
from Morocco to Indonesia. This global Islamization spread Arab
names, words, alphabet, architecture, social attitudes, and cultural
values to peoples around the world. The great 14th-century Moroccan
traveler Ibn Battūtah spent decades touring the extensive dar al-
Islam. He traveled from Mali in Africa and Spain in the west to
Southeast Asia and the coastal ports of China in the east. Whereas the
Christian Marco Polo was always a stranger in his travels, everywhere
Ibn Battūtah went, he encountered people who shared his general
worldview and social values.
Muslim-dominated trade routes, which ultimately reached from the
Sahara to Spain to the South China Sea, fostered travel. The key to
their success was a more complex and increasingly integrated
maritime trade throughout the Indian Ocean. This trade network linked
China, Japan, Vietnam, and Cambodia in the east through Malaya and
the Indonesian archipelago. From there it crossed into India and Sri
Lanka, and then moved westward to Persia, Arabia, the East African
coast as far south as Mozambique, and the eastern Mediterranean,
finally connecting to Venice and Genoa.

The Strait of Hormuz on the Persian Gulf and the Strait of Melaka in
Southeast Asia were the major pillars of what became the most
important mercantile system of the pre-modern world. It was through
this mercantile system that the spices of Indonesia and East Africa;
the gold and tin of Malaya; the batik and carpets of Java; the textiles
of India; the gold of Zimbabwe; and the silks, porcelain, and tea of
China made their way to distant markets. When many of these
products reached Europe, people there yearned to find their sources in
the East, sparking the European age of exploration. Maritime trade
flourished, especially in the 14th century after the Mongol empire
ended and the spread of the Black Death, the bubonic plague,
throughout Eurasia disrupted overland trade. The maritime network
reached its height in the 1400s and 1500s, when Muslim political
power was reduced but its economic and cultural power remained
strong.

1.4 Islam and the Rise of Melaka

Various states around the Indian Ocean and South China Sea were
closely linked to maritime trade. For example, East African city-states
such as Mombassa and Kilwa, with their mixed African-Arab Swahili
culture, thrived for many centuries. Merchants in India, including many
Jews and Arabs, maintained close ties to Western Asia, North and East
Africa, Southeast Asia and China. No political power was dominant
along the maritime trading route. Its vigor depended on cosmopolitan
port cities such as Hormuz on the Persian coast, Cam bay in northwest
India, Calicut on India's southwest coast, and Melaka near the
southern tip of Malaya. Of all the cities, historians probably know the
most about Melaka, and this city well illustrates pre-modern patterns
of globalization. Southeast Asia had long been a cosmopolitan region
where peoples, ideas, and products met. Some rulers of coastal states
in the Malay Peninsula and Indonesian archipelago, anxious to attract
the Muslim traders who dominated interregional maritime commerce
and attracted by the universality of Islam, adopted the faith. The
arrival of Islam in Southeast Asia coincided with the rise of Melaka,
which became the region's political and economic power. Melaka
became the main base for the expansion of Islam in the archipelago,
as well as the last stop on the eastern end of the Indian Ocean trading
network. Melaka's pivotal role in world trade was confirmed by an
early 16th-century Portuguese visitor, who wrote that it had "no equal
in the world" and proclaimed its importance to peoples and trade
patterns as far away as Western Europe. "Melaka is a city that was
made for merchandise, fitter than any other in the world…” he wrote.
“Commerce between different nations for a thousand leagues on every
hand must come to Melaka. Whoever is lord of Melaka has his hands
on the throat of Venice.” During the 1400s, Melaka was a flourishing
trading port attracting merchants from many lands in Asia and Africa.
More ships dropped anchor in Melaka’s harbor than in any other port in
the world; seagoing merchants were attracted by its stable
government and free trade policy. Among Melaka's population of
100,000 to 200,000 people were about 15,000 foreign traders, among
them Arabs, Egyptians, Persians, Turks, Jews, Armenians, Ethiopians,
East Africans, Burmese, Vietnamese, Javanese, Filipinos, Chinese,
Japanese, and Indians from all over the subcontinent. On the city's
streets, some 84 languages were spoken. Melaka had a special
connection to the Gujarat port of Cam bay, which was nearly 3,000
miles away, because merchants from Gujarat in northwest India were
Melaka’s most influential foreign community. Every year trading ships
from around the Middle East and South Asia would gather at Cam bay
and Calicut to make the long voyage to Melaka. The ships carried
grain, woolens, arms, copperware, textiles, and opium for exchange.
Melaka had become one of the major trading cities in the world, a
multiethnic center of globalized culture and commerce, much like New
York, Los Angeles, or Hong Kong are today.
 .5 Ming China and the World

The extent of globalization by the early 15th century is suggested by

the great Chinese voyages of discovery. The emperor of the Ming
dynasty, Yonglo (or Yung-lo), dispatched a series of grand maritime
expeditions to southern Asia and beyond, expeditions that were the
greatest the world had ever seen. Admiral Zheng He (or Cheng Ho), a
Muslim whose father had visited Arabia, commanded seven voyages
between 1405 and 1433. These voyages were huge undertakings, with
the largest fleet including 62 vessels carrying nearly 28,000 men. (By
contrast, a few decades later, Christopher Columbus would sail forth
from Spain in three small vessels crewed by a hundred men.) The
massive Chinese junks were far superior to any other ships of the
time. In fact, the world had never before seen such a large-scale feat
of seamanship. During these extraordinary voyages, ships carrying the
Chinese flag followed the maritime trade routes through Southeast
Asia to India, the Persian Gulf and Red Sea, Arabia, and down the East
African coast as far as Kilwa in Tanzania. Melaka became their
southern base, and Melaka’s rulers made occasional trips to China to
cement the alliance. Had the Chinese ships continued, they would have
had the capability of sailing around Africa to Europe; however, Europe
offered few products the Chinese valued. The Chinese expeditions
expressed the exuberance of an era of great vitality. Although the
Chinese traveled mostly in peace and fought only a few military
actions, some 36 countries, including a few in western Asia,
acknowledged allegiance to China. In this period, China was the
greatest power in a globalizing hemisphere. Historians still debate the
reasons for Zheng He's great voyages. Some see diplomacy as the
primary goal, with the recognition by so many foreign countries
reaffirming the emperor's position. Others point to commercial
motives, since the voyages came at the time Chinese merchants were
becoming more active in Southeast Asia. In the early Ming period,
China remained the most advanced civilization in the world.
Commercially vibrant and outward-looking, Ming China could have
opened greater communication between the continents and become
the dominant world power well beyond eastern Asia. However, it never
did. The grand voyages to the west and the commercial thrust in
Southeast Asia came to a sudden halt when the Ming emperor ordered
a return to isolationism and recalled all Chinese people living outside
the empire. How can we account for this stunning reversal that, in the
perspective of later history, seemed so counterproductive? Perhaps the
voyages were too expensive even for the wealthy Ming government.
The voyages were not cost-effective because the ships returned chiefly
with exotic goods, such as African giraffes for the imperial zoo, rather
than mineral resources and other valuable items. It seems that the full
possibilities of globalization were not apparent to Chinese leaders.
Furthermore, in the Chinese social system, merchants lacked status.
And unlike Christian Europe, China had little interest in spreading its
religion and culture. The Mongols were regrouping in Central Asia, and
the Ming court was forced to shift its resources to defend the northern
borders. As a result, the oceans were left open to the Western
Europeans, who improved upon Chinese and Arab naval and military
technology and soon challenged Arabs, Indians, and Southeast Asians
for supremacy in the Indian Ocean trading system.

The End of the First

Globalized System
By the end of the 1400s, the reputation of such cities as Melaka,
Canton, Calicut, and Hormuz as treasure troves of Asian luxuries had
reached Europe. Anxious to gain direct access to Asian trade, the
Portuguese finally made their way to India in 1498 and Melaka in
1509, inaugurating a new era of European activity in Asian history.
Indeed, the Portuguese seized Melaka in 1511. Despite Portugal’s
superiority in ships and weaponry, its standard of living was probably
inferior to that of people in the more developed societies of Asia. This
no doubt contributed to the tendency of Europeans to use armed force
to obtain their commercial and political goals. This tendency ensured
that the globalization of the world over the next five centuries would
be under the auspices of Western Christians rather than the Muslims,
Indians, and Chinese who established the basic framework between
1000 and 1500.
TAKE THE WORLD IN
YOUR HAND!!!
 2. The Roots of Our Global
Economy
Demonstrations in Seattle and Prague, passage of NAFTA and GATT,
talk of multinational businesses and multinational markets—the third
millennium opened as the era of globalization. Growing in popular use
during the 1990s, this term describes a world with porous borders.
Today money, goods, and services readily cross national boundaries.
Instantaneous messages and enormous libraries of information flash
across the Internet. Television, telephones, and wireless
communications link people everywhere. Political, economic, and
environmental developments have planetary impact: Global warming
exemplifies this situation both as an effect and as a name. Unique as
the modern world seems to be, globalization has been developing for a
long time. The pace of trade, travel, and communication is much faster
now, but people have always spread out, always dealt with others
outside their own societies. Such interactions have been critical to
history. Only the speed of change has changed.

2.1 Globalization Begins: Out of Africa

The first and perhaps most crucial globalizing process was the
migration of human beings from the birthplace of the species to other
continents. For several million years, humans stayed in Africa, their
original homeland. About 1.5 million years ago, Homo erectus, an
ancestor of modern human beings, walked out of Africa and
established communities throughout much of the Eastern Hemisphere.
About 100,000 years ago, Homo sapiens, our own species, also left
Africa. By about 10,000 B.C Homo sapiens was present throughout
virtually the entire habitable world.
 2.2 Shipping and Shopping in Ancient
Times

Soon after people settled down to work the land, they began to trade
with other societies, nearby and far away. The wheel and sailing
vessels, both invented about 3500 B.C, sped travel throughout the
Eastern Hemisphere. By 100 B.C heavily traveled trade routes such as
the famous Silk Road carried goods and ideas between China and the
Roman Empire.

2.3 Food for Mind and Body

Profits on trade in luxury goods justified the costs and risks of long-
distance shipping in the ancient world. In addition to Chinese silk,
merchants exchanged African gold, Roman glassware, and spices from
Southeast Asia and India. Awareness of these desirable commodities
increased demand and so multiplied the traffic. And the goods carried
information: regional clothing and cooking styles and techniques of
metalwork and decoration reached people on the other side of the
globe from their points of origin. New food crops providing improved
nutrition for everyone followed along the roads and sea-lanes that
served privileged classes. After the 8th century ad, plants such as
sugarcane, eggplants, artichokes, melons, and oranges spread from
India and Southeast Asia to the Mediterranean region and North Africa,
where they enhanced diets and led to rapid world population growth.

2.4 Death and Religion

Material well-being was not the only cargo carried by caravans and
caravels. Early traders and travelers transmitted diseases such as
measles, which came from China to the Roman Empire as early as the
3rd century ad. In the 14th century plague spread throughout the
Eastern Hemisphere. With these new fears came new consolations.
Buddhism, Christianity, and Islam all spread from their points of
origins and attracted converts in foreign lands. Missionaries and
scholars found protection among commercial voyagers and a welcome
for strangers in the centers of exchange.
 2.5 Exploration, Exploitation?

As means of transport improved, the hope of gain opened new trading

and migration routes. After Vasco da Gama led Portuguese vessels
around the Cape of Good Hope, Atlantic ports could trade with the
Indian Ocean directly. Following the voyages of Christopher Columbus
and Ferdinand Magellan, Spanish treasure galleons crossed the Atlantic
and Pacific oceans on regular schedules. On islands from New Zealand
to Hawaii, Europeans encountered the descendants of daring mariners
who had colonized this region centuries earlier.

The rapid discovery of so many new opportunities led to aggressive

forms of competition. Armies and navies battled to defend monopolies
claimed by monarchs and their favorites, and by such new business
organizations as the East India Companies. In the Western
Hemisphere, the Aztec and Inca empires fell to Spanish invaders.
France and Britain contested control of North America until American
colonists took much of it for themselves. Waged always with an eye on
commercial advantage, conflicts between these three European
Atlantic powers—Spain, France, and Britain—were the first true world
wars. Still closer to our own time, the interests of trade led to the
Opium Wars in China and to the arrival of Matthew Perry’s U.S.
gunboats in Tokyo Bay.

Though these conflicts were terribly destructive, they were part of the
process that has brought about modern society. Trade, travel, and
communication take place at a much faster rate today than in times
past, but contemporary interactions emerged directly out of cross-
cultural contacts and exchanges with deep historical roots
 THE DEVELOPMENT OF
GLOBAL CULTURE
Rapid changes in technology in the last several decades have changed
the nature of culture and cultural exchange. People around the world
can make economic transactions and transmit information to each
other almost instantaneously through the use of computers and
satellite communications. Governments and corporations have gained
vast amounts of political power through military might and economic
influence. Corporations have also created a form of global culture
based on worldwide commercial markets. Local culture and social
structure are now shaped by large and powerful commercial interests
in ways that earlier anthropologists could not have imagined. Early
anthropologists thought of societies and their cultures as fully
independent systems. But today, many nations are multicultural
societies, composed of numerous smaller subcultures. Cultures also
cross national boundaries. For instance, people around the world now
know a variety of English words and have contact with American
cultural exports such as brand-name clothing and technological
products, films and music, and mass-produced foods.

The economy of the United States, as well as that of most developed

nations, operates according to the principles of the free market. This
differs from the economies of Socialist or Communist countries, where
governments play a strong role in deciding what goods and services
will be produced, how they will be distributed, and how much they will
cost. Businesses in free-market economies benefit from certain
fundamental rights or freedoms. All people in free-market societies
have the right to own, use, buy, sell, or give away property, thus
permitting them to own and operate their own businesses as private,
profit-seeking enterprises. Business owners in free markets may
choose to run their businesses however they like, within the limits of
other, mostly non-business-oriented laws. This right gives businesses
the authority to hire and fire employees, invest money, purchase
machinery and equipment, and choose the markets where they want
to operate. In doing so, however, they may not violate or infringe on
the rights of other businesses and people. Free-market businesses also
have the right to keep or reinvest their profits.
All free-market economies, however, keep the rights of businesses in
check to some degree through laws and regulations that monitor
business activities. Such laws vary from country to country, but they
generally encourage competition by protecting small businesses and
consumers from being hurt by more powerful, large enterprises. For
example, in the United States the Sherman Antitrust Act, enacted in
1890, and the Clayton Antitrust Act of 1914 forbid business
agreements that impede interstate and most international commerce.
The Clayton Antitrust Act also protects against unfair business
practices aimed at creating monopolies and guarantees the rights of
labor to challenge management practices perceived as unfair. The U.S.
Federal Trade Commission Act of 1914 prohibits businesses from
attempting to control the prices of its products or services, among
other provisions. Other laws prohibit mergers that decrease
competition within an industry and require large merging companies to
notify the Federal Trade Commission (FTC) for approval.
 3. LIFE IN THE GLOBAL
MARKETPLACE
The everyday things that we take for granted often connect us to
faraway people and places. Consider, for example, the morning routine
of an office worker in California. After waking and showering, she puts
on a designer sweater and a pair of khaki pants. She brews and drinks
a cup of coffee and eats a banana before heading off to work. Each of
these products followed a complex path from a different part of the
world to take its place in this woman’s morning routine. Let's start with
the sweater. Its story begins with sheep grazing on the plains of
Australia. There, farm workers sheared the sheep's wool. At an
Australian factory, workers spun the wool into yarn and dyed it. The
yarn traveled to another factory in Portugal, where workers knitted
and sewed the sweater according to a pattern produced by an Italian
fashion designer. From Portugal, the sweater traveled to a warehouse
in New Jersey, then to the mall in California where this woman bought
it. The khaki pants began as cotton in a field in Pakistan. The cotton
was harvested and ginned in a nearby town and then transported to
Karachi, where workers at a factory spun, wove, and finished the khaki
cloth. In an Indonesian factory operating under contract with an
American retailer, a woman sewed this cloth into pants, which then
traveled first to the retailer’s Los Angeles warehouse and then to
another store at the mall, where they caught this woman’s eye. The
coffee beans grew on a plant in the mountains of Kenya. Kenyan farm
workers harvested the coffee “cherries” and then dried and hulled
them to produce raw coffee beans for shipment to the warehouse of an
importer in Virginia. From there they traveled to a plant in California,
where workers roasted the beans and packed them for delivery to the
café from which this woman bought them. The banana that this
woman purchased in her local supermarket grew on a tree in Ecuador.
Ecuadorian workers harvested the banana as part of a bunch and
packed it for shipment to a Los Angeles wholesale market. From there
it was sent to the supermarket’s warehouse and finally to the
supermarket itself. Before she has even left her house, this woman
has used products that tie her to hundreds of workers on six different
continents. Although she may not be aware of it, the car that she
drives and her activities at work during the day will link her to
hundreds of other people working in different parts of the world—
people she may never meet but whose lives are tied to her own in the
complex web that is our global economy
 3.1GLOBALIZATION AND DEVELOPMENT
The developing countries of Central and South America, Africa, and
Asia once merely exported raw materials and cash crops (crops
produced for sale overseas) in return for manufactured goods. The
people in these countries provided for most of their own needs through
subsistence agriculture and small-scale crafts. In time, though, people
in these countries grew increasingly dependent on the global economy,
because local crafts could not compete with the inexpensive, factory-
made exports of the economically developed countries (western
European nations, the United States, Canada, Australia, New Zealand,
and Japan). To decrease their dependence, many developing countries
sought to strengthen their economies by building factories, modern
dams, and roads during the 1960s and 1970s. Some countries also
imposed tariffs and other barriers to trade in an attempt to protect
developing local industries from competition with imported
manufactured goods. Governments frequently made poor financial
choices, however. Infrastructure projects such as dams and highways
were often too massive for local needs. Choices about industry were
sometimes based on the financial interest of government leaders
rather than on the best interests of the country, and protection from
competition frequently resulted in inferior goods. As a result, products
could not compete on the global market with the higher-quality goods
from the industrialized countries. Many developing countries then had
little income to pay off debts incurred during their expansion. A few
developing economies succeeded in building prosperity through
industrialization during the 20th century. The most notable of these
were South Korea, Taiwan, Singapore, and Hong Kong S.A.R. Like
Japan during the 19th century, they established tariffs and other
barriers to protect local products from foreign competition and
invested local wealth in industrial development. Also like Japan, they
focused on selling the products they manufactured to foreign
consumers in order to bring wealth into the country. By the end of the
20th century some experts considered these economies to be
developed, rather than developing, although many of South Korea’s
economic successes were reversed in the financial crisis of 1997.
Following a similar path, China advanced economically through a rapid
expansion of manufactured exports during the late 20th century.
Meanwhile, multinationals based in the economically developed world
set up low-wage manufacturing facilities in some developing countries,
particularly in Southeast Asia and in Central and South America. These
factories typically generated few long-term benefits for the local
economy. The profits flowed outside the country to the shareholders of
the foreign multinational. Also, the developing countries were forced to
participate in a “race to the bottom” to attract multinational
investment. If a developing country or its people sought higher wages
or enforced labor or environmental protections, multinationals often
simply relocated production to a country with lower costs.

At the end of the 20th century many developing countries, especially

in Africa, still lacked a strong industrial sector. These countries
continued to rely on money earned from exports of cash crops and raw
materials to buy manufactured goods and service their debts. An
emphasis on the export of cash crops and raw materials leads to
increases in production. As transportation became more efficient,
countries began to compete to sell the same goods and more goods
and increased competition drove down prices. This cycle perpetuated
poverty. Facing an inability to attract further investment or pay for
imports, many debtor nations turned to the World Bank and the IMF
during the 1980s and 1990s for relief in the form of extended credit
and new loans. In exchange for this relief, debtor countries had to
present a plan of reforms to the lending institutions. These reforms
often included privatization plans and reductions in government
expenditures. The measures were intended to ensure that these
countries could repay their loans, but reforms were often painful.

3.2 THE FATE OF THE STATE SOCIALIST ECONOMIES

During the early 20th century the Union of Soviet Socialist Republics
(USSR) created a state-owned economy shielded from the competitive
pressures of the global market. The state also imposed severe limits
on citizens’ personal freedom. This system, known as state socialism,
initially raised living standards, and after the Soviet victory in World
War II this economic model was introduced in Eastern Europe and
other parts of the world. Insulation from market competition and lack
of intellectual freedom caused state socialist countries to fall behind
the economically developed countries technologically, however. The
USSR and eastern European governments channeled scarce resources
into an arms race with the United States and other wealthy countries.
Living standards stagnated and economies faltered. In the late 1980s
citizens of these countries demanded an end to state socialism, and
the countries reentered the global market economy.
After half a century of insulation from competition, the industries in
the former state socialist countries generally could not compete on the
global market. Only countries that had maintained some forms of
private ownership, had well-developed infrastructures, and had post-
Communist governments that regulated economic reforms—such as
Poland and Hungary—seemed likely to join the ranks of the
economically developed countries. Others, particularly the Central
Asian countries, seemed more likely to follow the pattern of the
developing nations.

3.3 THE GLOBALIZATION OF AGRICULTURE

With the development of refrigeration and cheap long-distance

transportation in the late 20th century, increasing numbers of farmers
competed in the global market. Baker purchasing flour, for example,
did not care whether the flour was made from wheat grown in North
America, South America, Europe, or Australia, as long as the quality
was good and the price was low. With tractors and other forms of
mechanization, a single farm worker could do the work of dozens of
manual laborers. This made it possible for mechanized farmers in
North America, Europe, and Australia, where labor costs were high, to
outsell small-scale producers from the developing countries on the
global market, even though these countries had much lower labor
costs. In addition, economically developed countries, particularly the
United States, shipped agricultural surpluses—especially wheat, which
does not grow well in most tropical climates—to developing countries
in Africa and elsewhere at heavily subsidized prices or even for free, as
food aid.

Locally grown food crops could not compete with these inexpensive
imported foods. Small-scale farmers in many developing countries
were unable to make a living and had to sell their lands to larger
producers who could afford to mechanize. Farmers in developing
countries also tended to shift from local food crops to more lucrative
cash crops, especially crops such as bananas, coffee, cacao, and
sugarcane that cannot grow in the colder climates of the wealthy,
industrialized countries. Thus many developing countries, especially in
Africa, became dependent on imported foods.
3.4 THE GLOBALIZATION OF MANUFACTURING AND
SERVICES

By the end of the 20th century a firm’s research, development,

marketing, and financial management no longer needed to occur in the
same place, or even in the same country, as its manufacturing
operations. Increasingly, service activities dominated the economies of
wealthy countries, while manufacturing declined in relative
importance. To cut costs, companies relocated some kinds of
manufacturing to developing countries, where wages are lower. Such
activities included garment production and the assembly of simple
parts. Other activities remained in the economically developed
countries because they required a highly skilled workforce or proximity
to wealthy consumers. Examples are advanced health care, financial
services, retail, engineering, and software development, all considered
service activities. The service sector grew in importance in the
developed economies of North America, Europe, Australia, New
Zealand, and Japan, while manufacturing in some developing countries
expanded rapidly. The kinds of manufacturing that remained in the
wealthier countries included construction, food processing, and skilled
activities such as machine tooling and some kinds of chemical
production.

Many of the economically developed countries banded together in

large trading blocs, or economic unions, to promote mutual prosperity.
Examples include the European Union (EU) and the free-trade zone
established by the North American Free Trade Agreement (NAFTA).
These trading blocs expanded the market areas within which
companies could operate without facing customs duties or other kinds
of barriers.
 3.5 ONE WORLD
Events in one country may have serious consequences for ordinary
people in another part of the world. In the late 1990s, for example, a
long economic recession in Japan spread to Southeast Asia. The
countries of Southeast Asia had relied on Japanese banks for money to
build their economies and on Japanese consumers to buy their
products. The recession prompted Japanese banks to curtail their
investments and purchases, causing many other Asian economies to
falter. Eventually other foreign investors panicked and pulled their
money out of Southeast Asia, and thousands of Thais, Indonesians,
and others lost their jobs as these countries’ economies shrank.
Meanwhile, the economy in the United States grew steadily. As the
Asian economies soured, their currencies dropped in value relative to
the U.S. dollar, and Asian exports became cheaper. Many Asian
companies sought to improve their fortunes by exporting goods to the
United States, and during the late 1990s U.S. consumers bought many
inexpensive Asian goods. Temporarily, at least, this was good news for
Asian workers and investors, who hoped a strong U.S. market, would
lift their sagging economies. Indeed, in 1999 the long Japanese
recession showed signs of ending. This apparent good news had a dark
side, however. The growing Japanese economy attracted foreign
investors, who bid up the dollar price of the Japanese yen and thus the
price of Japanese goods in international markets. The rising yen posed
two dangers. First, it threatened to make Japanese exports too
expensive, possibly leading to a drop in sales of Japanese goods and a
renewed recession in Japan. Second, as Japanese goods rose in price
in dollars, the danger of inflation grew in the United States. Rising
inflation in the United States brings the danger of a rise in interest
rates and a drop in stock prices that could bring the U.S. economic
boom to a halt. If the U.S. economy were to falter, investors and
exporters all over the world could suffer. Throughout the world, both
rich and poor countries have grown ever more dependent on one
another economically. They face problems that are increasingly global
in scale. The ultimate example of a global challenge is the ecological
one. Both high rates of consumption and economic desperation have
led to environmental strains such as the depletion of resources, the
generation of pollution, and the conversion of natural habitats for
economic uses. In the long term, the success of globalization may
depend on its ability to bring economic well-being to all of the world’s
peoples without causing further environmental damage.
 BUSINESS
IN
GLOBALIZATION
4. BUSINESS IN GLOBALIZATION
The economy of the United States, as well as that of most developed
nations, operates according to the principles of the free market. This
differs from the economies of Socialist or Communist countries, where
governments play a strong role in deciding what goods and services
will be produced, how they will be distributed, and how much they will
cost. Businesses in free-market economies benefit from certain
fundamental rights or freedoms. All people in free-market societies
have the right to own, use, buy, sell, or give away property, thus
permitting them to own and operate their own businesses as private,
profit-seeking enterprises. Business owners in free markets may
choose to run their businesses however they like, within the limits of
other, mostly non-business-oriented laws. This right gives businesses
the authority to hire and fire employees, invest money, purchase
machinery and equipment, and choose the markets where they want
to operate. In doing so, however, they may not violate or infringe on
the rights of other businesses and people. Free-market businesses also
have the right to keep or reinvest their profits.

All free-market economies, however, keep the rights of businesses in

check to some degree through laws and regulations that monitor
business activities. Such laws vary from country to country, but they
generally encourage competition by protecting small businesses and
consumers from being hurt by more powerful, large enterprises. For
example, in the United States the Sherman Antitrust Act, enacted in
1890, and the Clayton Antitrust Act of 1914 forbid business
agreements that impede interstate and most international commerce.
The Clayton Antitrust Act also protects against unfair business
practices aimed at creating monopolies and guarantees the rights of
labor to challenge management practices perceived as unfair. The U.S.
Federal Trade Commission Act of 1914 prohibits businesses from
attempting to control the prices of its products or services, among
other provisions. Other laws prohibit mergers that decrease
competition within an industry and require large merging companies to
notify the Federal Trade Commission (FTC) for approval
 4.1 CURRENT TRENDS
Business activities are becoming increasingly global as numerous
firms expand their operations into overseas markets. Many U.S. firms,
for example, attempt to tap emerging markets by pursuing business in
China, India, Brazil, and Russia and other Eastern European countries.
Multinational corporations (MNCs), which operate in more than one
country at once, typically move operations to wherever they can find
the least expensive labor pool able to do the work well. Production
jobs requiring only basic or repetitive skills—such as sewing or etching
computer chips—are usually the first to be moved abroad. MNCs can
pay these workers a fraction of what they would have to pay in a
domestic division, and often work them longer and harder. Most U.S.
multinational businesses keep the majority of their upper-level
management, marketing, finance, and human resources divisions
within the United States. They employ some lower-level managers and
a vast number of their production workers in offices, factories, and
warehouses in developing countries. MNCs based in the United States
have moved many of their production operations to countries in
Central and South America, China, India, and nations of Southeast
Asia. Mergers and acquisitions are also becoming more common than
in the past. In the United States, for example, America Online, Inc.
(AOL) and Time Warner merged in 2000 to form AOL Time Warner,
Inc., a massive corporation that brought together AOL’s Internet
franchises, technology and infrastructure, and e-commerce capabilities
with Time Warner’s vast array of media, entertainment, and news
products. Internationally, a growing number of mergers and
acquisitions have been taking place, including Daimler Benz’s
acquisition of Chrysler to form DaimlerChrysler AG and Ford Motor
Company’s acquisition of Volvo’s automobile line. With large mergers
and the development of new free markets around the world, major
corporations now wield more economic and political power than the
governments under which they operate. In response, public pressure
has increased for businesses to take on more social responsibility and
operate according to higher levels of ethics. Firms in developed nations
now promote—and are often required by law to observe—
nondiscriminatory policies for the hiring, treatment, and pay of all
employees. Some companies are also now more aware of the
economic and social benefits of being active in local communities by
sponsoring events and encouraging employees to serve on civic
committees. Businesses will continue to adjust their operations
according to the competing goals of earning profits and responding to
public pressures for them to behave in ways that benefit society.
 4.2 Explaining the Global Economy
Globalization is a catchall term for many processes that are at the
heart of the global economy: the spread of instant global
communications; the rapid growth of international trade, global capital
markets (markets in which national currencies are traded), and foreign
investment; and the emergence of a new breed of global corporation.
The global economy is the product of all these things, and more than
the sum of them. It is a revolution that enables any entrepreneur to
raise money anywhere in the world and, with that money, to use
technology, communications, management, and labor located
anywhere the entrepreneur finds them, to produce goods or services
that can be sold anywhere there are customers. The global economy
has been building for 25 years, since the early 1970s. But it burst into
public view only in the 1990s, when the end of the Cold War (the post-
1945 struggle between the USSR and its allies and the United States
and its allies) fundamentally challenged the claims of Communism,
diluted the draw of socialism, and enabled supporters of open markets
to proclaim the superiority of capitalism. Many nations that formerly
followed the theories of German social philosopher Karl Marx abruptly
abandoned that philosophy, bringing virtually the entire globe into the
orbit of the market. The global economy is different than the preceding
international economy, which took much of its present form in the
17th and 18th centuries with the establishment of nation-states. For
hundreds of years nations promoted foreign trade to increase their
wealth and power, but rarely hesitated to limit such trade when it was
perceived as harmful. The new global economic order is unique in its
sheer scope, size, and speed—its ability to leap borders, to treat the
world as one market and the nation-state as though it does not exist.
 4.3 Globalizing Trends
Most analysts believe the global economy is the result of several
reinforcing trends, which have only recently come fully into view.
Taken together, these trends are creating increasingly open and
unfettered markets that stretch around the globe. One trend is the
emergence of instant global communications, made possible by
technological breakthroughs such as the semiconductor and the
communications satellite. The ability to send messages around the
world in a split second enables corporations to manage far-flung
operations and currency traders to make their trades anywhere,
anytime. Communications technology literally makes the global
corporation and global markets possible. A second trend is the wave of
deregulation, which began in the late 1970s and weakened the control
of national governments over economic activity. Governments once
controlled the flow of currencies, held corporations to stern labor laws,
and limited imports through tariffs and quotas. Most of these rules and
regulations, and many others, have now been dismantled or weakened
to enable markets to function more freely. A third trend is the growth
of enormous global capital markets, the first of which emerged in the
early 1970s when the Bretton Woods system of fixed currencies
collapsed. After the Bretton Woods Conference in 1944, all national
currencies were assigned a fixed exchange rate against the United
States dollar, which was backed by gold. When the Bretton Woods
system broke down in 1973, currencies began to “float” against each
other: in other words, they were worth only what the market said they
were worth at any given moment. Suddenly, there were vast profits to
be made by speculating on the market value of currencies, and so the
great global capital markets—linked by instantaneous global
communications—were born.

The global economy is far from complete. It is still much easier to do

business between Illinois and California, for example, than between
the United States and Poland or between the United States and Japan.
All countries have some limits on trade and foreign investment. If jobs
can move from country to country, people seldom do. Even in this
mobile age, only about 2 percent of the world's population lives
outside its own country, and most of these people are refugees, not
workers chasing jobs.
 4.4 The Expanding Grasp of Global Markets
But if the global economy is not yet complete, it is becoming more
intertwined and integrated every day. International trade is growing by
8 percent per year, more than double the rate at which the world's
total economic output is growing. Foreign investment (investing in the
ownership of foreign businesses) has been growing by 12 percent per
year and is now more valuable than trade: The annual economic
output of foreign-owned businesses exceeds the value of all foreign
trade combined. Of all the parts of the global economy, the most
developed are the capital markets that trade national currencies.
These markets operate virtually unregulated and trade no less than
$1.5 trillion every day, or $400 trillion per year. About 15 percent of
this vast sum is vital, because it pays for the world's trade and
investment, and because it pays for the hedging that makes this trade
and investment possible. Through this hedging, businesses and
investors buy foreign currencies to protect themselves against
potentially costly swings in currency exchange rates. For example, if
the value of a country's currency rises rapidly, businesses that hold a
reserve of that currency can continue to make purchases and pay
debts in the same country without first purchasing the currency at its
new, higher price. Without such hedging, many companies probably
would be reluctant to trade or invest abroad. But apart from this useful
hedging, all the rest is speculation, as traders operating around the
globe and around the clock buy and sell currencies, looking for quick
profits of as little as 0.05 to 1 percent or less. This is not idle
speculation. Large capital markets are conduits for potent and
relentless waves of money, constantly seeking the best price, a
momentary edge. As nations in Asia recently discovered, these
markets can confer wealth, jobs, industrialization, and riches on
societies they favor. As the Asians and, later, the Russians found out,
the markets can also pull these benefits out virtually overnight and, in
the process, undermine entire societies. With the smell of fear in their
nostrils, traders can cast instant judgments on other vulnerable
economies, sending the panic careening around the globe, from Asia to
Brazil to Russia and, finally, to Wall Street, which is what happened in
1998.This tight linkage between global capital markets and national
economies is something new. After World War II (1939-1945), the
victorious powers set up systems of nation-based safety nets, rules,
regulations, and other barriers to assure the safety of their currencies
and economies from panic elsewhere. The global economy, powered
by technology and deregulation, has eroded this system of safeguards.
A prominent objective of deregulation, for example, has been to
dismantle capital controls limiting the speed and size of currency
movements in and out of countries. These controls have been removed
in all but a few nations. National and international policy makers are
now pondering how to create a new set of global rules and regulations
to replace the old web of national regulations. Their goal is to hem in
the power of the global economy and restore some confidence and
stability to global markets and the nations where they operate. One
important target of these new rules and regulations is likely to be the
powerful global corporation.

4.5 The Global Corporation

The preceding 20 years have witnessed a widespread restructuring of
the corporate landscape. An estimated 50,000 corporations now have
operations that are primarily global in scope. Their predecessors were
multinational corporations (MNCs), with sales and manufacturing
branches abroad, but with all major functions, including the
international branches, run from headquarters back home. The new
global corporation typically has a tight, lean headquarters staff, but
scatters its other functions—research and development, accounting,
procurement, and sales—wherever the people are the best and the
costs lowest. This corporation seldom has an international department,
because the entire corporation is international. Multinational
corporations that have evolved into global corporations include Ford
Motor Company, General Motors Corporation, Royal Dutch/Shell
Group, BP Amoco PLC, Siemens AG, Nestlé S.A., and Zenith
Electronics Corporation, among many others. Global corporations, in
turn, are reshaping the political and social landscape. During the last
50 years, major corporations in the United States and other
industrialized nations struck a social compact with their employees and
communities, through a web of labor agreements, environmental and
tax laws, charitable giving, and other obligations, voluntary or
imposed. The global corporation is now mobile enough to escape these
obligations and break the social compact. Companies that once
competed domestically with other companies sharing the same social
obligations now compete with firms halfway around the globe, where
environmental laws may not exist and pay scales are a fraction of
Western wages. In the United States, for example, hundreds of
corporations—from automakers to electronics manufacturers—have
moved jobs from high-wage U.S. facilities to low-wage plants in
Mexico and other Latin American nations. In response to this trend,
policy makers in the United States have reduced corporate taxes in an
effort to keep at least some business operations at home. United
States federal tax receipts tell part of the story: Corporations that
once paid a full 30 percent of total federal taxes have seen their tax
share fall to 12 percent. Throughout much of the industrialized world,
declining corporate taxes mean less money for welfare,
unemployment, and other social programs that were initially
established to help economically vulnerable workers. In the future,
political debates will likely focus on efforts by governments and
citizens’ groups to force corporations to resume their economic and
social obligations—in a sense, to declare their corporate citizenship—
when they no longer are geographically bound to any particular
location

.
5
 EXPANSION OF
INTERNATIONAL TRADE

The reduction of trade barriers and the continued expansion of

international commerce are two of the notable achievements of the
postwar era. Tariff reductions have been accomplished through the
General Agreement on Tariffs and Trade (GATT) and by the creation of
customs unions, such as the European Union. Although world exports
more than doubled in volume and increased in value by a factor of
eight between 1954 and 1974, not all countries shared equally in this
growth. In the 1950s exports from the industrialized nations of North
America and Western Europe expanded rapidly, while exports from the
developing countries fell behind. In contrast, after 1965 the exports of
the developing nations grew most rapidly, in part because of the rising
value of oil exports from petroleum-producing countries. The share of
world trade held by Japan and the European Union rose, but that of
the former Soviet republics and Eastern Europe declined.

For the world as a whole, the value of international commerce (exports

plus imports) rose from $643 billion in 1970 to more than $11.4 trillion
in 1999—despite the efforts of some countries to impose import quotas
and negotiate voluntary export restraints. The outlook for commerce
across national borders was improved in the early 1990s as member
nations of GATT signed a major new treaty that struck down many
barriers to free trade and established the World Trade Organization
(WTO). In addition, regional treaties such as the North American Free
Trade Agreement (NAFTA) went into effect.
 Reining in the Global Economy
The crises left behind not only vast wreckage but also a growth
industry in ideas on how to cope with a global market so powerful that
it could rapidly turn once-prosperous nations into virtual paupers.
Scholars, officials, corporate executives, and traders suggested some
form of new global financial authority to regulate the markets.
Analysts who once saw the free flow of currency as the key to global
prosperity suddenly agreed that emerging nations might be justified in
imposing capital controls, at least in the short run. Malaysia did so in
September 1998 and suffered little of the international criticism that
such a move would have invited just one year earlier.

Suggestions blossomed for slowing down the speculative trading on

capital markets. One idea, first proposed by Nobel Prize-winning
economist James Tobin, would impose a tiny tax—less than 0.5
percent on each currency transaction—on grounds that most
speculative currency trades involve margins no bigger than that.
Another suggestion, pioneered by Chile, would penalize short-term
investments that do not stay in a country long enough to do some real
good. The Group of Eight, an informal organization that includes the
world's seven leading industrialized nations and Russia, announced in
October 1998 plans to “create a strengthened financial architecture for
the global marketplace of the next millennium,” a phrase vague
enough to permit almost any reform that the nations choose.

Some critics want to do away with the IMF and World Bank altogether;
some others want to hold an international conference to create new
institutions to fit the new global era. Still others argue that the IMF
and World Bank, plus others such as the BIS, are established
institutions with experienced staffs that need only new marching
orders to be effective. Virtually everyone now agrees that emerging
countries should not open themselves to global markets until they
have a structure of laws and regulations ready to cope with the
markets' power.
The Future of Global Capitalism

The unquestioning euphoria that surrounded global markets just a

year or two ago has vanished. But utter condemnation of these
markets is little accepted. Organized labor in the United States is likely
to continue to oppose trade agreements such as NAFTA, and opinion
polls show that nearly half of all Americans support some tariffs. But
Buchanan's call for a “new economic nationalism,” imposing tight limits
on trade and immigration, does not appear to have much of a future.
Even analysts who think Buchanan is asking the right questions about
trade and investment feel that the imposition of new national barriers
would not solve the problem, but only insulate the United States from
the real benefits that the global economy can bestow.

More global economic shocks like the Asian financial crisis are likely to
come, if only because the markets that produced them still exist and
the global and national regulations necessary to prevent the shocks
are not yet in place. The work ahead is as much political as it is
economic. The new rule makers will have to balance the need for
social stability and broad prosperity with the efficiency and profit
demanded by free markets. In all successful market democracies in
the past, struggles over these issues have resulted in compromise,
involving something less than totally free markets and something short
of complete regulation.

Market reforms, no matter how necessary, may limit the ability of the
global economy to spread wealth to developing nations. Some analysts
believe that the creation of global safety nets—to protect stricken
countries and prevent crushing depressions—may only provide a
cushion that encourages the speculation and risk-taking that caused
the problem in the first place. Others point to the need to reach
solutions to global economic problems within a democratic framework.
Global rule making, like global markets, takes place now in an arena
that democracy and the vote cannot reach. Making the global economy
responsive to the people who live within it may be the great challenge
of the coming century.