CHAPTER 2: DEFINING AND DESCRIBING "GLOBALISATION"|
21. Although globalisation may be a contested concept,
there is no dissent from the view that we live in a period of
globalisation. The first two questions which the Committee asked
in its Call for Evidence were therefore: what is globalisation?
and is it new? Both questions elicited a variety of responses.
22. It was noted by many witnesses that globalisation
- generic globalisation - should be construed broadly as spanning
a range of human activities. A cross-Government Departmental memorandum
in an economic context [globalisation]
is normally understood to mean a process of increasing international
interactions and accelerating international trade, capital and
information flows" but that "globalisation can also
be seen to have a political dimension, including the diffusion
of global norms and values, the spread of democracy and the proliferation
of treaties, such as international environmental and human rights
agreements." (Ev I, p 1). The Trades Union Congress (TUC)
noted that "today globalisation is applied to cultural, political
and social changes as well as economic" but, as far as the
economic definition was concerned, they thought that a reasonable
approach was that adopted by the World Bank and others, namely
that it is "the rapid increase in the share of economic activity
traded across national boundaries", measured by international
trade as a share of national income, foreign direct investment
flows and capital market flows (Ev I, p 31).
global integration of economic activity
23. A number of witnesses described globalisation
in terms of a process of increased global economic integration
or interaction. For example, Patricia Hewitt, Secretary of State
for Trade and Industry, endorsed the definition set out in the
White Paper Eliminating World Poverty: Making Globalisation
Work for the Poor:
"globalisation means the growing interdependence and interconnectedness
of the modern world", which is, in turn, demonstrated by
"the increased ease of movement of goods, services, capital,
people and information across national borders" (Ev II, Q
1848). Dr Gro Harlem Brundtland, Director-General of the World
Health Organisation (WHO), similarly referred to globalisation
as the circumstances in which "there are interdependencies
realities and rules that increasingly cross national
borders" (Ev II, Q 1188). Dr Caroline Lucas, a Green Party
MEP, whilst distinguishing between economic globalisation and
"the wider issues that often get bundled up in that same
term", defined the former as "an economic process whereby
national economies are integrated ever more tightly into one global
giant economy"(Ev II, Q 1393) and Anita Roddick of The Body
Shop International plc endorsed the definition of economic globalisation
formulated by Colin Hines of Greenpeace: "the integration
of national economies into the global economy though trade and
investment rules and privatisation, with the help of technological
(Ev II, p 366). The Royal Academy of Engineering assumed globalisation
to mean "progress towards an open and integrated world economy"
(Ev II, p 369).
24. Nicholas Stern, World Bank Chief Economist and
Senior Vice President, said that he preferred the language of
"integration", because "when you think about integration,
it is something that has a number of dimensions and you can go
a long way or a short way or a medium way on each dimension
The dimensions you can think about are trade, which is one of
the easiest to analyse and where the results are clearest, but
we also see globalisation of capital, some modest globalisation
and globalisation of communications, technology,
transport, crime and disease and so on." (Ev II, Q 1820).
Mr Stern thought that, of the various dimensions, trade was "key".
25. Dr Supachai Panitchpakdi characterised globalisation
as "increasing linkages" - economic, social, cultural
- "between various regions, various economies and various
sectors around the world." (Ev I, Q 562). Dr Noreena Hertz
said that she saw globalisation "
as the accelerating
extent of interconnectedness in the world today
upon economics, politics, law, culture and migration", manifesting
itself "in terms of trading arrangements and financial markets
environmental questions and questions of infectious diseases
and health." (Ev II, Q 1637).
26. Ignazio Visco, Chief Economist of the Organisation
for Economic Co-operation and Development (OECD), suggested that
globalisation was "a process towards closer economic integration
of markets", channelled through trade in goods and services,
mobility of capital and mobility of labour. (Ev I, p 170). Similarly,
Sir Samuel Brittan of the Financial Times said that globalisation
did not mean "anything different from an open integrated
world economy" in which there was free movement of goods
and services, capital and labour (Ev I, p 249) and Martin Wolf,
also of the Financial Times, referred to the current period
of globalisation as "the process of economic integration
which has been underway in the last two decades or so" (Ev
II, Q 1588).
27. The United Nations Conference on Trade and Development
(UNCTAD) offered a definition in the same vein:
"In general terms, globalisation describes the
process of increasing economic integration among nations through
cross-border flows of goods and resources together with the development
of a complementary set of organisational structures to manage
the associated network of economic activities." (Ev I, p
And we note that in a report published by the European
Commission, Responses to the Challenges of Globalisation: A
Study on the International Monetary and Financial System and on
Financing for Development,
globalisation is characterised as "a trend towards greater
integration and interdependence between countries and regions
of the globe". It continues: "These growing linkages
are often economic and political, but globalisation also has important
social, environmental and cultural aspects."
28. The Financial Services Authority (FSA), whilst
pursuing the integration theme, emphasised the institutional perspective
and defined globalisation in terms of three elements: "
the interdependence of nations, governments and other authorities;
the geographical scope of institutions which operate in
a large number of different countries;
of capital flows and markets." (Ev I, p 318).
or the diminishing importance of national
29. A number of witnesses saw the diminishing importance
of national boundaries as the key element of globalisation. Matthew
Taylor MP, Treasury Spokesperson for the Liberal Democrats, expressed
this most clearly when he said: "In some ways, the best definition
of globalisation may be that we all play in each others' backyards,
and the fences have been torn down between gardens" (Ev II,
30. Willem Buiter, Chief Economist of the European
Bank for Reconstruction and Development (EBRD), like other witnesses
emphasised - and elaborated on - the diversity of meanings applied
to globalisation, but focused principally on the breakdown of
boundaries. Globalisation was, he said:
a process of diminishing
importance of distance, geography and national boundaries in shaping
all kinds of human activities. It therefore refers to trade liberalisation,
trade integration; it refers to increased capital mobility. It
refers in certain regions to increased labour mobility; and it
also refers to the enhanced mobility of just about everything
and anything that is permitted by the combination of technological
change, lower transportation costs and communication costs that
have been going on for a long time." (Ev I, Q 189).
Mr Buiter added that there were incontrovertibly
adverse elements of globalisation: increased mobility of terrorism,
increased mobility of contagious diseases and contagion of crises
brought about by the globalisation of capital and financial markets.
Sir Andrew Large, then Deputy Chairman of Barclays Group plc,
also characterised the globalised economy as one in which boundaries,
"as fences to restrict capital movement, marketing initiatives,
and information transfer", had declining relevance, acknowledging
that "regrettably" this also had implications for the
global reach of terrorism, drugs and crime. (Ev I, p 289).
31. The World Development Movement (WDM), a non-governmental
organisation, saw economic globalisation in similar terms, describing
it as "the removal of barriers to business activity across
international borders and within societies", again noting
that this development had been accompanied by the global spread
of a variety of harmful activities including, for example, trafficking
in women and children for sex or slavery, illegal trading and
money laundering. (Ev I, p 340).
32. We have no difficulty with the broad view of
the nature of globalisation. As an economic affairs committee
it is not surprising that our main interest in what follows will
be on the economy. But as will become apparent, we take some account
of politics and administration, the cultural dimension and concerns
about the environment in our discussion of the issue.
Driving forces of globalisation
33. Underlying this reduction in the importance of
barriers are both technological and policy changes. Differences
of opinion arise less from what these "driving forces"
are - few, for example, would dispute that technological advances
or the pursuit of trade liberalisation through the WTO are relevant
- than from how these various components of the globalisation
milieu interact and what their relative importance is. We list
below some of the evidence we have received about the principal
driving forces characterising current globalisation - without
judgement as to priority.
34. Many witnesses stressed the importance of advances
in transport and communications technology as distinctive features
underpinning current globalisation. 
35. For example, Diane Coyle, Managing Director of
Enlightenment Economics, emphasised the implications of technological
advances on the structure of transnational corporations and the
location of production. She suggested that the change in trade
pattern since the Second World War - with the growth of trade
in manufactures and, in particular, intermediate goods - reflected
a truly global reorganisation of production by companies
made possible by information and communication technologies and
also declining transport costs." (Ev I, Q 662). Dr Noreena
Hertz expressed the point even more strongly, identifying technological
advance as the central feature of current globalisation:
"I think what is new now and why the subject
is so in the forefront is that the revolutions in communication
and technology have just accelerated and escalated companies'
abilities to operate all over the globe. So we have this kind
of corporate-led globalisation operating in a way that is significantly
different to before." (Ev II, Q 1639).
36. In the cross-Departmental memorandum, it is noted
that "the recent acceleration in globalisation has been made
possible by sharp reductions in transportation, telecommunication
and computation costs", and this in turn has made "it
easier for firms to co-ordinate production activities in different
locations in cost-effective ways, allows new technologies or knowledge
to spread more quickly and widely and generally reduces frictions
to world commerce." (Ev I, p 11).
37. DHL, a company providing a global carrier service,
gave a more specific instance of how technological change had
enabled it to speed up the movement of goods across the world:
"We have developed industry-leading inventory-control systems
that interface directly with customs authorities clearance systems
through Electronic Data Interchange, enabling immediate clearance
in a virtual, paper-free environment." (Ev II, p 165).
38. Some witnesses emphasised the advance of information
and communications technology in relation to the rapidity of market
flows. Sir Andrew Large referred to the "instantaneous availability
of information on a global basis" (Ev I, p 289) and Tito
Mboweni, Governor of the South Africa Reserve Bank, commented
on the growing interdependence of different countries in the world
economy, "driven in particular by the power and influence
of information and communications technology" which allowed
capital movements "almost at the touch of a button"
(Ev I, Q 574).
39. Following the Second World War, in 1947, the
General Agreement on Tariffs and Trade (GATT) was negotiated providing
a framework for a policy of trade liberalisation. The GATT was
replaced in 1995 by the World Trade Organisation (WTO) with the
purpose of promoting trade liberalisation through negotiated agreements
and a binding disputes mechanism.
A series of multilateral trade rounds under the auspices of the
GATT succeeded in reducing trade barriers from their high inter-war
40. In addition to multilateral and unilateral reductions
in trade barriers, trade liberalisation has also been pursued
in regional integration agreements. Some 150 of these agreements
are currently in force, covering more than one third of world
trade. Some of these agreements - notably in Europe - have gone
beyond tariff liberalisation to include removal of border controls
and harmonisation of a range of standards and regulations.
Capital market liberalisation
41. Capital market liberalisation is widely perceived
as a distinctive feature of current globalisation. Peter Sutherland,
Partner and Chairman of Goldman Sachs International, for example,
described the extent of capital flows - assisted by technological
developments which have enabled instantaneous transactions - as
"truly amazing" (Ev I, p 202). Professor Bulmer-Thomas,
Director of the Royal Institute of International Affairs, referred
to the "qualitative leap in the scale of liberalisation"
of capital flows in the 1980s, promoted by the International Monetary
Fund, the World Bank and the Bank for International Settlements,
as one of the "key dimensions" of globalisation (Ev
I, p 51).
New phenomenon or new
previous periods of globalisation
42. Our evidence contains a variety of views on whether
or not the phenomenon of current globalisation is new. There appears
to be widespread agreement amongst commentators that the first
period of globalisation occurred between 1870 and 1914.
Michael Kitson of the Judge Institute of Management Studies, Cambridge
University, and of the Cambridge-MIT Institute described this
period as "the era of the classical Gold Standard",
when "in effect, the growing world economy was becoming more
open and more dependent on international trade", with the
annual average growth of world output and world trade at 2.7%
and 3.5% respectively (Ev I, p 109).
43. The World Bank describes the following period
from 1914 to 1945 as "the retreat into nationalism"
and "rising protectionism", noting, for example, that
- exports as a share of world income were about
5%, about the same level as in 1870;
- the foreign capital stock of developing countries
was about 4% of income, far below the level in 1870;
- that immigration in to the United States fell
from 15 million in the period 1870 to 1914 to 6 million in the
period 1914 to 1950.
It then divides the post-Second World War period
into two: 1945 to 1980 ("the second wave of globalisation")
and post-1980 globalisation ("the new wave of globalisation").
The latter, current, period of globalisation is distinguished
in the following way:
"First, and most spectacularly, a large group
of developing countries broke into global markets. Second, other
developing countries became increasingly marginalized in the world
economy and suffered declining incomes and rising poverty. Third,
international migration and capital movements, which were negligible
during second wave globalization, have again become substantial."
44. Michael Kitson suggested that the post-Second
World War years could be analysed in three phases. First, there
was "the Bretton Woods period" which spanned 1950 to
1973 and was characterised by a rapid expansion of the openness
of the world economy (with annual average growth of world output
and of world trade at 4.7% and 7.2% respectively). Secondly, following
the 1973 oil crisis, a period of slow down occurred until 1990
(with annual average growth of world output and of world trade
at 2.8% and 3.9% respectively), since when there has been a period
of significant increase in world trade (annual average growth,
1990 to 1999, of 6.2%) although growth in output has remained
modest (3.0%) (Ev I, p 109).
45. A number of witnesses gave evidence about how
the current period of globalisation could be distinguished from
previous periods of significant world economic integration. The
Department for International Development said: "We probably
all agree with you that qualitatively we are dealing with a very
similar phenomenon at the end of the 20th century to that which
occurred at the end of the 19th century." (Ev I, Q 11). There
were, however, differences between the periods: whereas the first
had seen significant migration (especially across the Atlantic),
features of the second have been, first, a rapid advance in communications
technology and, secondly, a more substantial country coverage.
Diane Coyle expressed a similar view: "There is obviously
nothing new about globalisation per se. There have been
many episodes in history, including the late 19th century and
beginning of the 20th century - but they differ in their characteristics
" (Ev I, Q 662). Ms Coyle then listed the differences:
the absence of migration as a feature of the present period of
globalisation, changes in the pattern of trade (with a relative
decline in trade in commodities and an increase in the trade in
intermediate goods, manufactures and services), and the development
of information and communication technologies (which Ms Coyle
describes as "genuinely new").
46. Similarly, Lord Desai, Professor of Economics
and Director of the Centre for the Study of Global Governance
at the London School of Economics, suggested that the world had
"arrived back at the 19th century but on a higher level of
technology" (Ev II, Q 1723). It was, he said, wrong to call
it a "circle" but rather it was a "spiral":
"We have not arrived at the same position as 100 years ago.
For one thing, technology is different". He went on to suggest,
however, that technology was not the only (or the most important)
there are many more nation
states now than there were then", but most importantly -
"the one major difference compared to the 19th century"
was "the movement of people." (Ev II, Q 1724).
47. Professor David Greenaway, Director of the Leverhulme
Centre for Research on Globalisation and Economic Policy at Nottingham
University, suggested that, to the extent that the openness ratios
(that is, the level of trade compared to GDP) of the late 19th
century resembled those of the post-Second World War period, globalisation
was "not an entirely new phenomenon". The current "vintage",
however, had "three new dimensions": its greater global
reach ("more countries are part of the international economy
and to a greater extent, than in the second half of the 19th century");
the more extensive and more pervasive levels of cross-border investment
by transnational corporations; and, the presence of deeper and
more integrated capital markets (Ev I, p 97). The WDM similarly
focused on the level and nature of foreign investment and the
availability of capital as the hallmarks of current globalisation:
the phenomenon of globalisation as currently
experienced is different from former periods, such as the start
of the 20th century, by:
- Foreign trade and investment being undertaken
by the private sector pursuing profit, rather than by a mix of
private and public sector.
- Higher levels of foreign investment.
- Vastly increased levels of financial capital."
(Ev I, p 340).
48. Mr Kitson was keen to stress that globalisation
should be seen as a dynamic and evolving process and that the
world economy should be regarded in terms of progressing towards
(but not having achieved) full globalisation: "
is a process that is continuing; we are not in some end state
of a fully globalised economy
" (Ev I, Q 295). The
historical perspective of globalisation as a developing feature
of the world economy was expressed by others witnesses as well.
Ignazio Visco, for example, described globalisation as "an
on-going process that has been
accelerating over the past
decades" (Ev I, p 170) and the Royal Society of Edinburgh
referred to globalisation as "a continuous process"
that had been "around a long time" (Ev II, p 374).
49. We agree with the view that the process of globalisation
has a long way to go before anything like a fully open and integrated
world economy is reached. In the case of the poorest countries
we must think in terms of many decades before this may be achieved,
but even the most developed countries are far from fully open.
Objective measures of globalisation
50. Globalisation can be measured, albeit imperfectly.
The commonly accepted indicators of the extent of globalisation
are: trade flows, capital flows and migration.
51. The evidence shows that during the current period
of globalisation trade flows are high compared to the inter-war
period but that levels during pre-First World War globalisation
had also increased. During the period 1820 to 1914, the value
of world exports rose by a factor of 33 (from US $7 billion to
US $236 billion at constant 1990 prices); between 1950 and 1992,
they increased by a factor of 10 (from US $376 billion to US $3,786
billion at constant 1990 prices). The ratio of world exports to
Gross Domestic Product has increased from 1% in 1820 to 19.1%
Professor Greenaway drew attention to trade flows as a feature
of the present world economy, noting the comparison with the 19th
"Over the post-World War II period, trade volumes
have grown at unprecedented rates, averaging almost 6 per cent
per annum for 50 years.
More significantly, however, these
growth rates have consistently outstripped the comparable growth
rates of real output and average openness of economies, both developing
and developed, has increased sharply. But this is not the first
time this has occurred.
In the late nineteenth century,
openness ratios were also very high and the international economy
showed some similar features of globalisation."
(Ev I, p 97).
A number of witnesses gave evidence about the comparative
level of trade between the post-First World War period of globalisation
and the current period. We note, for example, the cross-temporal
and cross-national analysis provided in the cross-Departmental
memorandum (Ev I, pp 1-2).
52. There are different ways of measuring capital
flows. It can be measured by comparing over time the average absolute
value of a country's national current account as a percentage
of GDP (since the current account is "by definition a measure
of [a nation's] net capital inflow or outflow"),
or by examining the correlation between domestic saving and domestic
investment (the argument being that "in a world of perfect
capital mobility, there should exist no systematic relation between
domestic saving and investment since domestic saving would search
the world for the highest return irrespective of the state of
On either measurement, it appears to be the case that capital
flows, although they increased significantly during the 1990s,
remain lower than they were during the pre-First World War period
As with trade flows, it is useful to go behind the veil of the
broad figures and consider the detail. The European Commission
report - Responses to the Challenges of Globalisation -
for example, notes that "the structure of capital flows
has been evolving over time", and that the hallmark of current
globalisation (since 1990s) has been the growth in foreign direct
investment (FDI) by transnational corporations.
(We consider this in more detail in Chapter 6 of this Report.)
53. Migration has been described as "the most
obvious difference between the two waves of globalisation".
A number of witnesses raised this point (see paragraphs 45 and
46 above). Whereas trade and capital mobility have reached new
levels in the current period of globalisation, labour mobility
is far lower than during the pre-First World War period.
New key players
54. The present period of globalisation can also
be distinguished by its key players. In their memorandum, Save
the Children describe developments such the communications revolution
and the decline in costs of transport as "contextual"
or "passive" factors underlying current globalisation,
factors which "are not in themselves responsible for globalisation
as we know it today". In their view "the main forces
actively driving globalisation are human and political" (Ev
I, p 335). They list these forces as governments (of wealthy countries),
international institutions (in particular, the WTO, the World
Bank and the International Monetary Fund) and transnational corporations.
We would add two other key players as being distinctive features
of the landscape of current globalisation: the "new globalisers"
- the emerging countries which seem to be succeeding in the globalised
economy (such as China, India, South Korea) - and non-governmental
55. We do not offer a simple definition of globalisation,
but it is our view that the present period of globalisation
represents a new departure in world affairs. Partly this is
to do with what has been called "the death of distance",
assisted by the absolute and relative decline in transport costs.
Coupled with this has been the decline in costs of communication,
the counterpart of which is the vast increase in the speed and
reliability of communication in words and images. There were similar
advances in the 19th and earlier part of the 20th century, but
on nothing like the scale of recent years.
We have one world, in an economic and cultural sense, which has
not existed before.
56. This is, of course, partly a matter of the expansion
of market forces, especially those of an international character.
There are very few countries indeed which are insulated from such
forces. What is also of importance is the spread of branded products
which are truly international in character.
These have economic significance not least in connection with
the exercise of monopoly power. But they have a cultural impact
too. It is apparent, especially given the extent of United States
ownership of such brands,
that much anti-globalisation protest is prompted by the existence
and dominance of these brands.
- There is closer interconnectedness between countries
than ever before. They have much more in common and short-term
shocks, whether economic or non-economic, are transmitted more
rapidly. Moreover, the forces at work show no signs of abating.
Although some of our witnesses claimed that what we observe
is much the same as what has happened before, but on a large scale,
we believe that recent experience is both quantitatively and qualitatively
4 By officials from the Department of Trade and Industry,
HM Treasury, the Foreign and Commonwealth Office and the Department
for International Development. During the remainder of this report,
this memorandum will be referred to as "the cross-Departmental
See note 1 above. Back
Colin Hines, Localisation. A Global Manifesto (2000), p
SEC (2002) 185, 14 .2.2002. Back
Ibid, p 17. Back
A fuller analysis is set out in the briefing paper reproduced
in Appendix 5. Back
We note, however, Sir Samuel Brittan's reminder to us that significant
technological changes occurred in the 19th century: "Has
the development of information technology added a new element
- because any change in any part of the world can be viewed instantly
on computer screens? Surely the bigger breakthroughs were made
in the middle of the 19th century when we leapt from horse-drawn
transport and sailing ships to the railways and transatlantic
cable, which transmitted to the New York stock exchange news of
the 1873 Vienna financial crash?" (Ev I, p 249). Back
We consider the role of the WTO in more detail in Chapter 6. Back
This view is taken by the World Bank on the basis that globalisation
is measurable in terms of trade, migration and capital flows and
that prior to 1870 "none of these flows was sufficiently
large to warrant the term globalization" (World Bank, Globalization,
Growth, and Poverty (2002), p 23). Back
Ibid, pp 26-27. Back
Ibid, pp 24-38. Back
Ibid, p 31. Back
Figures supplied in the cross-Departmental memorandum (Ev 1, pp1-2). Back
Footnotes not included. Back
Richard E. Baldwin and Phillipe Martin, Two waves of globalisation:
superficial similarities, fundamental differences, NBER Working
Paper 6904, January 1999, p 8. Back
Ibid, p 9, citing Feldsein, M and C Horioka (1980), "Domestic
savings and international capital flows", Economic Journal
Ibid, pp 8 and 9, and see the cross-Departmental memorandum
(Ev I, pp 3 and 4). Back
European Commission, Responses to the Challenges of Globalisation:
A Study on the International Monetary and Financial System and
on Financing for Development, SEC (2002), 14 Feb 2002, p 20. Back
Baldwin and Martin, op cit. Back
See, for example, the written submission of the Royal Academy
of Engineering: "The majority view amongst those Academy
Fellows who contributed to this discussion is that globalisation
is a new phenomenon. Developments such as the communications revolution,
air travel, containerisation and bulk transport have generated
an unprecedented increase in the volume and speed of trade."
(Ev II, p 369). See also the written submission of the World Humanity
Action Trust: "[Globalisation] is a manifestation of a greatly
increased degree of interconnectedness across the world. It may
not be a new phenomenon. However, its present scale
substantial impact on national policies of many kinds." (Ev
II, p 392). Back
Professor Stiglitz gave an example of this. He told us how, in
one remote Indian village, the mayor talked to him about biopiracy
and the patenting of traditional medicines under new WTO provisions,
and in another the mayor spoke about the euro (Ev I, QQ 722-23). Back
See paragraphs 172-73 below. Back
The Confederation of British Industry give evidence that the parent
companies of the top nine global brands are US based (Ev I, p