What is Globalization ?

Globalization

     For years we have been hearing about world wide meetings and protests of meetings on globalization. I have put off defining the word for myself, thinking that a general understanding was sufficient.  Now, as I continue my study of Capitalism, a general definition could use a little more work. So here goes.....

     Globalization: "The process of reducing barriers to exchange".

     Through time people have developed methods of relating and working with one another. This has included languages, cultural practices, standards of behavior, national boundaries and systems of trade to name a representative few.

     From the time we are born, we begin a process of learning and defining for ourselves the "rules" of living in our world. We tend to firm up, harden, our attitudes and definitions as we age, begin to defend our positions and resist being changed. We set up boundaries whether they be cultural, geographic or national in nature.

     These boundaries then become part of the way people, nations and businesses deal with each other. Thus the "exchange" of words , ideas, culture and things of value (business) become more difficult as each party resists being changed or losing something of value to them. This resistance to loss takes the form of creating "barriers" to protect our positions and values.

     Globalization on the other hand is the process of reducing barriers to exchange. It is the process of negotiating and coming to agreements on how these exchanges will occur. Various segments of a society may consider the elimination or change in the  same barrier as a gain or a loss.

     The term "globalization" is most commonly used in reference to trade expanding to all countries of the world from a few large economy countries . Although this is the more common usage, I would like to add additional factors to consider that contribute to the process and usage of the word.

     Communications
     Computerization
     Common Language
     Usage of common currency
     Movies , Common culturalization
     Economic Schools of Thought
     Governmental Structure
     Migration
     Technologic advancements
     Resource Utilization
     Educational Advances
     On Air Analysts / Experts
     Transportation Economics

Each of the above factors and how they express themselves in an exchange can contribute to one's perspective of globalization.

Capitalism 4.0- Four Megatrends

Capitalism 4.0

Anatole Kaletsky's book identifies 4 major trends that he believes will continue to shape the future of capitalism.

     #1 Three Billion new consumers.
     The Chinese movement toward capitalism will produce 3 billion new consumers ,
       producers of income, and savers. This step by the Chinese government to join the
       world economy can not help but add to financial activity and interrelationship with
       other countries.
    #2 Globalization
    The effects of globalization will continue to cause new market competition, the
      expansion of private enterprise and free trade.
    #3 The Great Moderation
     The period of stability (The Great Moderation) has brought about a time where the
       rates of inflation, unemployment and economic cycles have been more stable and
       not gone to "Boom and Bust" extremes. This has changed our expectations of the
       functioning of capitalism.
    #4 A Financial Revolution
      The economic beliefs following the Keynesian regulations of the 1930s have
      changed during the Reagan and Thatcher years to a non interventionist economic
      policy where the free market principles have resulted in the buildup of Asian
      savings, access to cheap money in the U.S. and U.K. , credit spending and demand
      management. This has altered the thinking and beliefs of an entire generation.

In spite of this latest crisis (2007-2009) capitalism will have gained from its experiences and morphed to a new form. At this point, the full extent of the changes that are occurring and yet to be fully achieved but changes will come. Future capitalism will be  different and as the author suggests will still be under the influence of the four economic megatrends.

The "Malthusian School" Economics

     The Rev. Thomas Robert Malthus (1766-1834) British scholar developed a line of thought departing slightly from the writings of Adam Smith and David Hume.
     Malthus' interest in population growth and demographics caused him to view human population growth as an exponential mathematical function and that the growth of food supplies to be a linear function.
     From this perspective he developed a concept that population growth and the socio-economic conditions would be limited by the food resources, famine and disease.
     In support of this , he wrote "An Essay on the Principle of Population".
     This work became known as "Malthusianism School" of economics and as a side note ultimately resulted in the development of British census taking.
     Issues that could not be fully built into his work were developments in medicine, crop productivity and human willingness to limit family size as people moved from agricultural to urban forms of work.

  

Book Review-Capitalism 4.0- by Anatole Kaletsky

Capitalism 4.0 by Anatole Kaletsky

     Anatole Kaletsky is an editor at large for the Times of London and among others was a business writer for the Economist Magazine. He is active in research on the subject of "Efficient Markets".

     Mr. Kaletsky presents the evolution of capitalism as being in 4 major phases  ...ergo Capitalism 4.0 .

     Capitalism 1.0 From Adam Smith to President Hoover
     Capitalism 2.0 From Roosevelt to Keynes, Nixon and Carter
     Capitalism 3.0 From Thatcher, Reagan, Friedman, Greenspan and President Bush.
     Capitalism 4.0 From Henry Paulson to the present

     Since the financial crisis of 2007-2009, Kaletsky has observed capitalism's tendency toward self preservation through political change and actual changes in behavior of the financial markets.

     He contrasts the American style of capitalism with the Chinese style state capitalism. I found the writer very readable,well researched and thought out. His book does a very convincing job of explaining how capitalism will be very different in the years ahead because of the lessons we all learned during these last three years.

Book Review- The Keynes Solution by Paul Davidson

     Paul Davidson has written a most interesting book entitled "The Keynes Solution".
Its purpose is to present a case for additional regulations to limit some of the excesses that free market capitalism and the failure to keep up with the latest financial instruments prior to this latest financial crisis.
     Davidson re-presents the work of John Maynard Keynes not as a socialist, as some may believe, but as a problem solver of two difficulties contained within "Capitalism".
     These two difficulties are one, that capitalism fails to produce and maintain full employment for everyone who wants to work and two, that it provides an arbitrary and inequitable distribution of income and wealth.
     The author states that one of the roles of government is to "mitigate the excesses of an unstable system (capitalism) that lead to economic collapse".
     I don't agree that it is capitalism's job to maintain full employment. The concept of "Creative destruction" requires that from time to time labor must be redeployed from one area of endeavor to the next and further doesn't have to fit within some predetermined time frame. Secondly I have found that your probability of being successful is directly related to one's willingness and level of hard work. The words arbitrary and inequitable seem way to definitive to be used .
     I do agree that government (all of us in defining how we will live together) does have a role in mitigating the "Wild West" that capitalism can allow when we humans have no laws or standards to live by. Thus as Keynes would imply , there has to be some limitation of raw capitalism and this means we need applicable regulations and regulators as part of the solution.

The Role of Government in the U.S. Economy

     Following the excesses of the mid 1920s, the crash of 1929 and resulting national depression the Roosevelt administration intervened with the passage of new financial regulations and massive deficit spending in order to get the economy functioning again.

     Over the years the nation has come to consider this a proper and successful instance of government intervention and slowly began to expand its presence in the economy necessitating higher taxes.

     The Reagan administration began to counter this trend with lower taxes and a free market (non intervention) philosophy which seemed to work for a number of years.

     Whether it was caused by "non intervention" or regulators who don't regulate or failing to keep up with the new technologies of computerization and new financial investment instruments, our nation once again arrived at a financial crisis that required intervention by the government.

     The Congress and President have passed and signed major bills this year that attempt to address a number of problems in the U.S. with the "details" to be worked out by committees and government employees.

     This November the electorate will vote with these issues in mind
           "What can/should the government do?" ... and
           "What did/should the government have done?"

     Let us hope that by the fall elections enough of these details will be developed and then accurately communicated to the public that we can vote intelligently.

    
    
   

Unusual Uncertainty

     On Wednesday 7/21/2010 Fed. Chairman Ben Bernanke in testimony before Congress informed the country that the months ahead had "Economic outcomes were unusually uncertain".
     As I considered what that statement meant, the word uncertainty seemed to mean that there were a number possible events in the future that would affect the economic outlook for the U.S. economy.
     These events not only fit his definition of normality but actually exceeded his expectations.
     He didn't really elaborate on all the additional possibilities but I suspect that the unemployment numbers, Congressional action or inaction, Administration activities, actions of the electorate in November and European economic conditions were but a few of  these uncertainties he may have in mind.
     Like the utility infielder in baseball, I suspect we will have to field the situation from wherever we are as the situation comes to us.