Contemporary Globalization

I am Martin Wolf and I am chief economics commentator for the Financial Times in London. The globalization process at the moment is often described as the second one. It is important to place it in a historical context. There was a previous period, between 1870 and 1914, when the world economy also integrated. That went into reverse between the two wars with a series of disasters. There has been a slow recovery of integration, which started with the developed countries in the fifties, sixties and seventies and then spread quite quickly in the rest of the world with a series of big policy changes-in China, after 1978, when Deng Xiaoping started the reforms; the collapse of the Soviet Union, which was immensely important; the reforms in India, particularly in 1991; and a series of similar market-oriented opening reforms throughout most of the world, including the developed countries. In their different ways. Ronald Reagan and Margaret Thatcher were also part of this process. That was really because it came to be realized by the late seventies that the central planning system, the inward-looking sort of development process that had been seen as being the most advanced in the world-Stalin's model in large measure-didn't work very well. That was the intellectual part.

Beyond that, there have also been some quite important technological changes. Over this period, the most important have been in communications technologies. There has been a massive decline in the cost of collecting and distributing information across the world. That has allowed integration of companies across the world. Production is really integrated to an extraordinary degree. Retailers can manage their production and supply lines across oceans. Previously they could hardly do so even across state borders. For example, Wal-Mart buys enormous quantities from China and can manage that process extremely precisely because of modern technology and the know-how and organization that goes with that. Modern technology has created modern global financial markets, 24-hour financial markets. That is a new phenomenon in the world. That is sort of the second element.

As a result of these things coming together, billions of people have been integrated into the world economy. There's a huge increase in the labour supply in the world-predominantly unskilled and mostly from Asia-that has sort of turbocharged the whole process. So those are the three major things going on: technology, policy change and, as a result of these two things, the entry of billions of people into the world economy. And that is contemporary globalization.


Economic and Political changes

There are some very profound economic and also social, cultural and political changes going on. I'm focusing predominantly on economics and politics, but I think that the cultural aspect is clearly very important. Ease of communications means that ideas and images which circulate in one part of the world circulate immediately in all parts of the world. Therefore, you get reactions that you would never historically have expected when societies were still relatively hermetically sealed. So these are important.

In terms of economics, first of all there has been a huge opening of every economy in the world. It is becoming more integrated in the world, more dependent on trade. And this is not just in goods, it is also true in services. Indeed, for the first time, large parts of services-especially those bits that can be put into computers and sent down wires-these services are more tradable than goods. That is an enormous revolution. It has encouraged also a huge expansion in foreign direct investment, which has grown about two and a half times as fast as the world economy in the last 15 years. That is linked with the opening to foreign know-how that comes with FDI. It has been true of the U.S. and it has been true of China. Quite different countries have accepted that.

There is the rise of trade, the rise of FDI and therefore the rise of the multinational as a major player. There have been associated with all this, increasingly, some very big changes in relative prices. Obviously, the prices of computers, computing and communications have collapsed. We know that. But there have been shifts in the relative price of unskilled labour -- declines in the developed world, particularly -- partly because of increased competition from low-wage areas and partly because of the new technologies, which have given a big relative increase to the rewards of highly skilled people. That is another important factor. So the unskilled position has deteriorated, leading to either lower wages or higher unemployment, depending on how each economy manages its welfare state. It is a big challenge for the welfare state.

Finally, in the recent period we are seeing a big increase in demand for resources because of the growth of China and, to a lesser degree, India, which are very resource-intensive, very energy-intensive. They are generating a very large part of the global incremental demand for resources. About 45 percent of the world's incremental demand for oil is coming from these countries, much more than from the existing developed countries. This is a big change and it is going to continue because they are in a very energy-intensive phase of their development. So these are very profound economic changes.

Then, with globalization, we have what I have called the "globalization of bads." Not just good things are traded freely. Bad things like narcotics, trafficking of people and problems about managing the flows of diseases across borders have also increased. We are worried about piracy and counterfeiting of products. Some of this is less important, but some is very important, if we are talking for example about drugs or the counterfeiting of engine parts for airplanes. Managing that is a big issue. And migration itself, the trafficking of people, is part of that.