Globalization at Risk

Globalization at Risk

Gary Clyde Hufbauer
Kati Suominen
Copyright Date: 2010
Published by: Yale University Press
Pages: 192
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  • Book Info
    Globalization at Risk
    Book Description:

    History has declared globalization the winner of the 20th century. Globalization connected the world and created wealth unimaginable in the wake of the Second World War. But the financial crisis of 2008-09 has now placed at risk the liberal economic policies behind globalization. Engulfing the entire world, the crisis gave new fuel to the skeptics of the benefits of economic integration. Policy responses seem to favor anti-globalizers. New regulations could balkanize the global financial system, while widespread protectionist impulses might undo the Doha Round. Issues from climate change to national security may be used as convenient excuses to keep imports out, keep jobs at home, and to clamp down on global capital. Will globalization triumph or perish in the 21st century? What reforms make sense in the post-crisis world?

    International economists Gary Clyde Hufbauer and Kati Suominen argue that globalization has been a force of great good, one that needs to be actively advanced and honed. Drawing on the latest economic analyses, they reveal the drivers and effects of global finance and trade, lay out the key risks to globalization, and offer a practical policy roadmap for managing the challenges while increasing the gains. Vital reading for anyone in business, finance, foreign affairs, or economics,Globalization at Riskis sure to advance public debate on this defining issue of the 21st century.

    eISBN: 978-0-300-15731-4
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-xii)
    (pp. xiii-xvi)
    (pp. 1-26)

    The years 2008 and 2009 set new and discouraging records for the world economy. The financial crisis spread with epic speed, destroying $50 trillion of wealth and shrinking world output on a scale not seen since the Great Depression. In many nations, unemployment figures were the highest in three decades. The crisis—which we name the “Great Crisis”—mounted the biggest challenge yet seen to globalization. It caused the largest decline in international trade since the Second World War, a severe contraction in cross-border direct investment, and at its worst, wiped out half the value of global financial assets.


    (pp. 27-48)

    Cross-border flows of finance exploded from under $1 trillion in 1980 and $1.5 trillion in 1990 to more than $11 trillion in 2007 (figure 2.1). In total, global financial assets in 2007—foreign and domestic—almost topped $200 trillion, or three and a half times world gross domestic product (GDP). International investors now hold 14 percent of U.S. equities, up from 4 percent in 1975; 27 percent of American corporate bonds, up from 1 percent; and 52 percent of Treasury securities, up from 20 percent.

    The dizzying array of global capital activity—foreign purchases of equity and debt securities, mergers...

    (pp. 49-85)

    Compared to capricious international finance and lumpy foreign direct investment (FDI), trade is refreshingly steady and predictable. But the seemingly mundane world of trade has transformed over time in various ways, changing the global economy with it.

    First, world trade grew faster in the second half of the twentieth century than at any time in history. Total world exports reached $15.8 trillion in 2008, and merchandise trade (exports plus imports) grew by more than 10 percent annually between 1960 and 2008, far faster than the 3.5 percent average before the First World War. The main driver of growth has been...

    (pp. 86-114)

    Investment abroad is a very old phenomenon that can be traced at least to the Hudson Bay Company, founded in 1670 by English capitalists to gather furs from Canada. The modern term is foreign direct investment (FDI), where the word “direct” implies controlling ownership by the mother corporation. Today, the mother corporation or parent firm generally carries out headquarters functions for subsidiary corporations spotted around the world. The controlling ownership is generally 100 percent for each subsidiary, but it can be as low as 10 percent if a block of shares that small still delivers control to the parent. The...

    (pp. 115-131)

    Year 2008 left an imprint on world history. It was the year when the global economy took a terrific hit and globalization got a punch in the face. This was not a hit in popularity contests; this was a hit in hard numbers.

    The world economy started to slide in mid-2008, but the reality check came in the last quarter of the year. Comparing the fourth quarter to the third quarter, real gross domestic product (GDP) in the United States and the United Kingdom dropped by 1.6 percent,¹ in Germany by 2.1 percent, and in Japan by a depressing 3.3...

    (pp. 132-166)

    The financial crash in 2008 shattered global economic growth and many a worker’s hope for early retirement—or stable employment. Mortgage overdrive was joined at the hip with a housing bubble, triggering a global financial crisis that obliterated lending and investing around the world. Equity and property markets slumped, trade collapsed, economies ground to a halt, and emerging economies from Pakistan to Hungary clamored for International Monetary Fund (IMF) assistance. The Great Crisis became the number one issue for prime ministers and presidents, business leaders, politicians from all parties, and policy makers across the spectrum from economics to national security....

    (pp. 167-191)

    The Great Crisis had an immediate and devastating impact on trade. Finance and trade often meet in times of crisis: when credit shuts down, trade takes a hit. Demand sinks, and so do imports; some firms go out of business and can no longer supply exports. Trade finance—money required to move goods across borders—incurs the instantaneous wrath of financial instability. Letters of credit, if available at all, are considerably more expensive, just like every other bank risk. Some 90 percent of the $14 trillion global export trade depends on trade finance; in fact, both exporters and importers need...

    (pp. 192-213)

    While India’s protectionism belongs to a class of its own, worrisome trends are found in the United States and Europe, both of which have experienced a de cade of “blue-collar blues” in traditional industries.¹ Low-income workers blame outsourcing and import competition for their hardships. Well-paid blue-collar workers in manufacturing industries harbor the same complaints. Affluent professionals in some service sectors, such as software designers and medical technicians, are alarmed by offshoring. Blue-collar blues have become white-collar worries.

    Poll after poll in the five years leading to the Great Crisis evinced these concerns.² In a 2007 Pew Foundation poll, 59 percent...

    (pp. 214-240)

    Globalization has been jammed before. It slowed in the late nineteenth century, as European powers raised their protective tariffs. After the First World War, the United States, the United Kingdom, France, and others raised their tariff walls against a feared avalanche of German merchandise. In the wake of Black Friday, the United States enacted the Smoot-Hawley Tariff, and countries from Canada to France, Italy, Spain, and Switzerland followed suit. In the 1980s, oil shocks, recession, and inflation spurred a wave of “voluntary” export restraints and antidumping petitions. But globalization was revived every time by technological advances, political pressure by globalized...

  14. 10 AFTERWORD
    (pp. 241-248)

    Prospects for the global economy have brightened since we set out to write this book. U.S. unemployment has reached just over 10 percent but looks like a plateau, global trade is picking up, stock markets have rebounded 50 percent or more, and consumers are feeling better. Overall, it seems that debate on the shape of the recovery—U, V, or W—is eclipsed by expectations for a better tomorrow.

    Were there any winners in the past two years of turmoil? John Paulson, the hedge fund primo who raked in $2 billion by short-selling mortgage-backed securities and banks, was a winner...

  15. NOTES
    (pp. 249-296)
  16. INDEX
    (pp. 297-312)