Coping with Globalization

By Aseem Prakash; Jeffrey A. Hart | Go to book overview
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2

Convergence and sovereignty

Policy scope for compromise?

Sylvia Ostry


Introduction

No standard definition of the much-used word globalization exists (even though it first appeared in 1986). But there is growing agreement about the main features of globalization and the definition enunciated in the Introduction to this volume: "Increasing integration of input factor and final product markets coupled with the increasing salience of multinational enterprises cross-national value-chain networks" would elicit widespread agreement. An alternative to globalization is the term deep integration that refers to the ongoing process of ever-tighter linkages among countries that have proceeded in stages since the end of World War II. In the terms defined by the theoretical framework set out in the introductory chapters, the view presented here is that deep integration is the strategy adopted by states to cope with the processes of globalization. The World Trade Organization (WTO) is the institutional mechanism to carry out this task. The contrast with the General Agreement on Tariffs and Trade (GATT) is striking. The shallow integration of the early post-war decades was focused mainly on border barriers to trade flows. Reducing these barriers through successive rounds of GATT negotiations clearly involved some degree of constraint on governmental freedom of action but it was limited. Indeed, the original concept underlying the GATT was to maintain a balance between domestic priorities and international obligations.

Global integration began to intensify in the 1970s and 1980s when the liberalization of capital flows and deregulation of financial markets steadily eroded the scope for national monetary and fiscal policies. But by the end of the 1980s a new phase of interdependence had begun, led by a marked increase in foreign direct investment (FDI) primarily in capital- and technology-intensive sectors and services. With international rivalry intensifying, global integration of production is growing as firms use the new information and communication technologies (ICT) to capture the economies of scale and scope stemming from geographic diversification.

This third phase of integration was and is closely linked to the ICT revolution (and technological changes in transportation, especially containeriz-

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