By Lu, Zhiqiang

I. A historic trend – economic globalization

1. The concept of globalization

Globalization is a most attractive phenomenon at the turn of the century. However, it is still an open concept without a clear definition up to now. Unbridgeable disagreements exist in various types of understandings about it, even in the basic concept and principle. For example:

The time of the initial stage of globalization. Hio Zomen, a German, considered that globalization began when mankind moved out of the forest in the primitive times. However, most scholars considered that globalization should have begun from the first industrial revolution at the end of the 18th century, the time when capitalism took shape and began to expand. Some other scholars held that the term "globalization" first appeared in 1944, but it was noticed and widely accepted in the recent decades. It is considered, accordingly, that globalization took shape in the mid-1980s when information technology made breakthroughs and progress. The disagreement on the inceptive time of globalization is actually a reflection of the understanding of the essence of globalization. The first two judgments failed to explain why globalization suddenly caught worldwide attention in the 20th century whereas the third judgement overlooked the system backgrounds and historical origin of globalization.

As to the connotation of globalization, there are glaring gaps in people's understandings. Some say that globalization refers to the process whereby social relations worldwide become increasingly closer and the people of all countries in the world come together to form a global society. Some say that globalization is the worldwide expansion of the capitalist mode of production and the enlargement of the market economic system in the entire world, therefore, globalization means Westernization, or even Americanization. Some scholars have even listed the specific contents of globalization. For example, the Lisbon group composing of scholars from many countries consider that globalization includes the following seven aspects: the globalization of the possession of finance and capital, the globalization of market and market strategy, the globalization of technology, related scientific research and development as well as knowledge, the globalization of living style and the mode of consumption as well as cultural life, the globalization of the adjustment capability and political control, the globalization of the world political unity and the globalization of observation and consciousness. It virtually includes every aspect of global politics, economy, science, technology, culture and social life.

Comparatively, there is less disagreement on economic globalization, however, it could only be roughly defined as follows: the inter-country flow of commodities (including services), information and factors of production, the increasing degree of mutual dependence of the economies of all countries, and the integrating process and trend of the world economy.

2. Manifestations of economic globalization

Economic globalization caught close attention was mainly attributed to three phenomena that emerged in and after the mid-1980s in the world economy:

First, the rapid growth of transnational financial transactions. In 1980, the global capital transaction volume was only US$5,000 billion, it increased sharply to US$35,000 billion in 1992, and is expected to reach over US$80,000 billion in 2000. According to the latest estimates by Morgan Stanley International Investment Co, the total amount of market capital of the 48 largest security exchanges in the world stood at US$31,700 billion at the end of 1999, surpassing the world gross national product for the first time, and also surpassing the total trade value of commodities and services in the world. International investment also increased drastically, its growth rate was much higher than the global economic growth rate during the same period.

Second, the rapid increase in global trade volume. From 1990 to 1999, the average growth rate of gross domestic product was 1%, but the average annual growth rate of export volume in global trade was as high as 6% during the same period. The United Nations estimate that the global trade is expected to increase 8% in the year 2000, higher than the world economic growth rate (3.5%). In addition, the trade structure also underwent a drastic change, service trade emerged and developed fast, maintaining an annual average growth of 9.3% and accounting for 20% in the global trade.

Third, the rapid integration of the global production. Multinational companies made investment worldwide and carried out their production and operation across the world. In 1997, the development of direct investment overseas and the other activities by multinational companies surpassed the growth rate of the world GDP and trade, the growth rate of the sales volume of their overseas branches was higher than that of export in world commodity and service trade. The formation of the global production system increased the mutual dependence of the world economy, its influence overtook that of international trade, thus rewriting the history of global links with international trade as the main player.

3. Contributing factors to economic globalization

The formation of globalization is not an accidental event.

First, the world political environment underwent dramatic changes, peace and development have become the main themes of the world. After the end of the Cold War, the detente of international relations provided a favorable international environment for the development of the world economy, economic development has become an urgent task for all countries, particularly the developing countries. The economic development of the newly emerged industrialized countries in Asia served as a model encouraging more and more developing countries to imitate the development mode of opening to the outside world and strengthening international trade. After the disintegration of the former Soviet Union, the former republics of the Soviet Union and Eastern European countries as well as the majority of socialist countries all embarked on the road of reforming their economic systems. These changes prompted the trend of market-oriented economy worldwide and created necessary system conditions for economic globalization.

Second, the breakthroughs in science and technology offered technological foundation and driving force for globalization. The rapid development of information technology and the continuing progress in ocean transportation and air transport technologies in the 1980s and 1990s greatly reduced the cost for international transportation and information exchanges.

According to estimates by the World Trade Organization, during the 1990-1997 period, the transport cost of exporting commodities worldwide accounted for merely 2% of their value.

The cost of telecommunications dropped even more. As calculated by the US dollar in 1996, long-distance telephone call charge from New York to London per three minutes dropped from US$330 in 1930 to merely US$1 nowadays. Cheap and fast telecommunications and transportation made the global production layout and management possible.

Third, the emergence of the neo-economic liberalism of Western nations provided a theoretical basis for globalization. The stagflation in the past years led to the denial of Keynesianism, the Western countries one after another adopted neo-liberalism characterized by liberalism, privatization and renunciation of economic controls. Take customs tariff as an example. At the end of World War II, the average international tariff level was about 40%, but after the Uruguay Round, the average tariff level of the developed countries dropped to about 4%, and that of the developing countries dropped to about 14%. This meant a reduction of cost for transnational trade by a large margin. And the weakened intervention and the loosened control by government forcefully promoted global capital flow.

Fourth, transnational companies, as the main players of globalization, directly promoted the development of globalization. After the end of World War II, transnational companies expanded rapidly. In 1998, the number of transnational companies in the world reached over 60,000, creating 40% of the world GDP, accounting for 60% of the world trade and 90% of overseas direct investment in the world. The transnational companies seek efficiency of scale and efficiency of the division of work, thus promoting investment and production from domestic and regional division of work to the international division of work, their sales expanded from domestic market to the international market, thus forming a pattern of global distribution of resources and transnational coordination of production and operation.

4. Attitudes towards globalization

The world embraces globalization with mixed feelings, and opinions about globalization within a given country also differ. The opponents in Western countries consider that globalization has led to the rise of unemployment, drop of wages and inequality in incomes, and further degraded the global environment. The Seattle conference of the World Trade Organization last year and the Washington conference of the World Bank and the International Monetary Fund this year both met strong protest from numerous protesters, including human rights organizations, environmental protection organizations and various trade unions. In the developing countries, globalization’s advocates consider that globalization could bring technology and capital to the developing countries and make it possible for them to embrace new thinking and new development mode, ultimately accelerate their economic development and technology modernization. The opponents, however, believe that globalization is actually a "global trap", is "the operating form capitalist economic system under the modern conditions of transnational capital accumulation, the irrational international economic order does not change, the biggest beneficiary is still the developed countries while the developing countries can’t get their due benefits from globalization (January 2000, the Second International Economists Seminar on Globalization)".

Views about globalization in China also differ. For example, some people believe that globalization is a derivative of the subjective will of Western countries headed by the United States. The US is the initiator and major player, and always manipulates the globalization process, which has become a tool for the US to realize its hegemony. Therefore, we should expose, oppose and fight against it. But the mainstream opinion is that globalization is the objective result of the development of world economy, science and technology, it is neutral. Therefore, it is suggested in the main to go along with it and make use of it.

5. Several comments

(1). Globalization has a long, historical process for its formation, but from the mid-1980s it began to have a huge impact on the world and caught worldwide attention, and it was in the 1990s that its development was accelerated. The core of globalization is the economic globalization, and the other phenomena and results are the derivatives or byproducts of economic globalization. To better understand globalization, therefore, it is necessary to understand economic globalization first. However, other globalization phenomena all have a far-reaching impact on the development of the world and China, and they all deserve due attention.

(2). The development of globalization has profound historical and systematic reasons, it is the result of the development of science and technology, as well as the inherent requirement of the growth of world economy, therefore with inherent inevitability. From data and information now available, it seems that we have no enough evidence to say the Western countries headed by the United States has invented and manipulated globalization. However, it is well-founded and convincing that the Western countries headed by the United States do make use of globalization to strengthen their own global advantage and to maximize their national interests, and we must keep alert.

(3). The close attention to globalization by all countries in the world evidences the extreme importance of this phenomenon, we should never be indifferent towards globalization. The sharply different opinions and attitudes on globalization among scholars and various political forces indicate the its complexity. One should not look at it in a simple way, and should not term it simply as "good" or "bad", neither should one simply adopt a pro and con attitude towards it.

II. Challenges of the new century – the impact of economic globalization

The challenges of globalization target not only the developing countries, but also the entire mankind. The difference is that the level of impact on different countries is varied, and the impact also varies. The influences generated by globalization can be summarized into the following aspects in the economic field:

1. Promoting the development of world economy

First, globalization greatly reduces technical and policy obstacles to the flow of such factors as commodity, service, capital, talents and resources, and speeds up the liberalization of world trade. According to the factor endowment theory of Erlin, international exchange could help promote the division according to natural factor endowment, and could make all production factors effectively used.

Second, globalization enables all countries to take part in international cooperation and division of work, and promotes worldwide transfer of production factors and distribution of resources. For example, the flow of international capital promotes the effective integration of capital, technology and management expertise of the developed countries with the resources, cheap labor and market of the developing countries.

Third, globalization helps promote the economic restructuring of the world economy, the center of global industrialization is now moving from the Western Hemisphere to the Eastern Hemisphere. According to estimates by the United Nations Industrial Development Organization, the proportion of the developed countries, manufacturing industry will drop from 86% in 1970 to 67.6% by the year 2005, while proportion of developing countries will increase from the 10.3% in 1970 to 30.6%, the proportion of Eastern and Southeastern Asian countries will reach 19.2%. With the declining proportion of the manufacturing industry held by the developed countries, the employment rate in the service sector will increase rapidly in these countries. The employees in the service sector of the entire labor force in the United States increased from 56% in 1960 to 73% in 1994. Fourth, globalization stimulates global competition, worldwide enterprise mergers, reorganizations and structure adjustment. It also stimulates enterprises to highlight their core businesses, organize strategic alliance, increase investment in research and development and reform their management so as to increase their competitive edge. All these activities, without doubt, will forcefully speed up development of the world economy.

2. Promoting regionalization and accelerating polarization

Regionalization is a phenomenon consistent and parallel with globalization. Some countries and regions that are geographically close and have similar level of development provide each other convenience for trade and investment, promote economic integration and form various regional economic organizations. According to statistics by the World Trade Organization, the number of regional and sub-regional organizations in the world totals more than 110, of which one-third was established during the period from 1990 to 1994. Among them, the European Union, the North America Free Trade Area and the Asia-Pacific Economic Cooperation organization are the three biggest regional trade blocs in the world. This year, the regional trade volume in the world accounts for 50% of the total trade volume of the world. Regionalization could be deemed as a "globalization" in a smaller area or globalization at a certain stage, its development is likely moving towards a broader globalization with the growth of regional organizations and the narrowing difference.

Globalization really makes the "cake" of world economy bigger and bigger, but the distribution of this cake is all the more unfair. Some scholars even believe the West is making use of globalization to "exploit the world in an organized manner". The polarization caused by globalization is reflected not only among countries but also within the countries. The difference of per capita GDP between the developed countries and the developing countries enlarged from 43 times in 1983 to more than 60 times at the present, the debts of poor countries have exceeded 80% of their gross national product. According to statistics from the United Nations, the number of the least developed countries was 36 ten years ago, 42 five years ago and 48 nowadays. In the developed countries, polarization also occurred. Take the United States as an example, the actual income of the about 5% richest people grew 58%, but the growth of actual income of the about 60% poorest people grew merely less than 4%. Polarization imposes a serious challenge to the globalization process and world stability, and this is one of the most important reasons that some scholars and groups oppose globalization.

3. The disparities of the impact of globalization

The impact of globalization on different types of countries is completely different. The developed countries are in the leading position in the globalization process, and are, in general, the biggest beneficiary, but they also feel the pressure. The report on international competitive capability released by the 1994 World Economic Forum (Davos conference) is a proof to this judgement. The report claims: "The dissemination of modern technology to the newly-emerged industrialized countries has a de-industrialization effect to the high income nations: Capital flows into the Third World, but the low cost manufacturers of these countries flood into the world market with their cheap products. This trend will force the high wage countries to make a choice between lowering the wages and increasing the unemployment."

This is the reason that some trade unions in the developed countries oppose the globalization. Globalization poses a more complicated impact on the developing countries. Globalization indeed brings new development opportunities to the developing countries, however, economic globalization is fostered and developed in the circumstance of the old international economic order, the developing countries face the risk of being "marginalized" and great uncertainty under the comprehensive and overwhelming advantage of the developed countries. A recent report by the United Nations claims: "The global integration leads to the retrogression of the economy of 60 countries" (Beijing Youth Daily, Page 10, April 16). However, different developing countries have a sharply different status in the globalization process, they may be roughly classified into three types: A few newly-emerged industrialized countries (regions) and fairly fast-developing countries boast a fairly strong industrial foundation, and have now actively taken part in the globalization process and become the beneficiary; the majority of the low-income countries and middle and low income countries have taken part in the globalization process to a different degree, and are now seeking advantages and dodging disadvantages through economic reforms and opening up; a large number of the least developed countries are still excluded from the mainstream of the world development.

4. Increasing the risks of the global economy

Economic globalization carries big risks. Developing countries, because of their passive status in the globalization process, now face greater risks. As all the economies are becoming increasingly inter-dependent, the "infectiousness" of economic crisis increases sharply. At present, the 24-hour electronic transaction at the global financial markets has been developed. Of the US$1,000-2,000 billion put into daily transactions in the international market, 80% is used for short-term arbitrage, always ready to flow wherever there is profit to make, but there lacks effective measures to control this obviously and excessively free state. Sven Sandstrom, a managing director of the World Bank, directly called the 1997 Asian financial crisis "the first global crisis". The risks caused by out-of-control free market competition are manifested in the 1930s great crisis, the two world wars, and, most recently, Asian financial crisis. These shall serve as unforgettable lessons for mankind. Famous speculator Soros also called for the establishment of financial order to check the dangers of the out-of-control financial market. German scholar Gerader suggested levying "Tobin Tax" to slow down the speed of capital flow and minimize foreign exchange speculations.

The rapid expansion of transnational corporations gives misgivings to many scholars: there emerges "a powerful interest group independent of the parliament and government", and this force without constraint itself "means tremendous risks". According to predictions by related United Nations officials, by the end of this century, the sales volume of the 300 largest multinationals in the world will account for three-fourths of the gross domestic product of the Western world. At present, more than half of the world trade volume is conducted by and among the 3,000 transnational corporations. The largest 20 computer enterprises have almost controlled the computer market of the entire world, and the 10 largest chemical companies, 10 largest semi-conductor companies and 20 largest auto corporations have monopolized more than 90% of the world market.

5. The development trends

In theory, economic globalization has a limit of its development – forming a unified world economy with all countries in the world participating. In reality, however, there is still a long way to go to reach the theoretical globalization. In terms of the countries and regions involved, the economic links among the triangle of North America, Western Europe, and Japan and Southeast Asia are now being strengthened, but the Third World countries, particularly African countries, are still being excluded from the globalization process. In terms of the contents of globalization, only the financial and information market could be called globalized, there is still a long distance to reach the goal of global flow for production and commodity, and there is little progress in the global flow of the labor force. In terms of enterprises taking part in the globalization process, they are mainly transnational corporations from the West, the degree of participation by a large number of small and