Assignment Instructions This assignment is an essay assignment of 2 questions, 3 pages each, 2X-spaced, to test knowledge and assimilation of the course objectives. The exclusive use of required texts and readings from this course is mandatory. I do encourage some outside sources however. Do not send the essays as separate documents – put them on the same document. Question 1: Using the theories of globalization we have studied, analyze the impacts of globalization on individuals, states, and systems. Question 2: Considering the impact of globalization on various political, economic and security systems, evaluate whether globalization is generally a positive or negative phenomenon. Some elements to consider in answering these two essay questions – Is globalization a positive or negative factor in the world? Use concrete examples, data and theoretical perspectives provided by our readings and videos. Comment both on the economic impact on persons and countries and on the way security in the international system is affected. If you determine globalization is a generally positive phenomenon, can domestic political support for it be built/maintained in countries and what factors are relevant to this effort? If you determine globalization is a generally negative phenomenon, what is to be done? Is it possible to move away from globalization? What would be the security implication of either deepening globalization or dialing it back?\%201/THINK\%20AGAIN\%20\%20GLOBALIZATION\%20\%E2\%80\%94\%20Moises\%20Naim.htmGlobalization and the Study of International Security
Author(s): Victor D. Cha
Source: Journal of Peace Research, Vol. 37, No. 3 (May, 2000), pp. 391-403
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? 2000 Journalof PeaceResearch,
lvol 37, no. 3, 2000,pp. 391-4(03
Sage Publications(London,ThousandOaks,
CA and New Delhi)
[0022-3433(200005)37:3; 391-403; 0126321
Globalization and the Study of
International Security*
Department of Government and School of Foreign Service, Georgetown University
In spite of the plethora of literatureon security and globalization, there is relativelylittle work written
by securityspecialiststhat interconnects the two. In the case of securitystudies, this has been in no small
part because the field remains entrenched in the foodfight of competing realist,liberal,and constructionist researchprograms. In the case of the globalization literature,it has stemmed from a relatively
stronger focus on the social and economic processes of globalization.lThisessay explores how the processes ofglobalization have fundamentallychanged the way we think about security.It argues that nonphysical security,diversificationof threats,and the salience of identity are key effects of globalizationin
the securityrealm. Tlhesesecurityeffects translateinto certain behavioraltendencies in a statesforeign
policy that have thus farnot been studied in the literature.First,globalizationcreatesan interpenetration
of foreign and domestic (intermestic) issues such that national governments increasinglyoperate in
spaces defined by the intersection of internaland external security.Second, globalizationputs unprecedented bureaucraticinnovation pressureson governments in their searchfor security,and createsmultilateralistpressures to cooperate with substate and transnationalpartnersrather than traditionalallies.
Third, globalization makes the calculation of relative capabilitiesextremely complex and non-linear.
Finally,globalization compels contemplation of new modes of fighting as well as renders commonly
accepted modes of strategicthinking and rationaldeterrenceincreasinglyirrelevant.The new security
environment in the 21st century will operate increasinglyin the space defined by the interpenetration
between two spheres:globalization and national identity.
At the threshold of the 21 st century, two topics have dominated the study of international
relations in the USA: globalization and the
new security environment after the end of
the Cold War. The latter has been the object
of intense debate, largely dominated by those
arguing about the relative importance of
structural, institutional, and cultural variables
for explaining the likelihood of global or
regional peace.1 The former dynamic has
been discussed so widely in scholarly and
popular circles that it has reached the ignoble
status of buzzword, familiarly used by many
to refer to some fuzzy phenomenon or trend
in the world, but hardly understood by any.2
This essay explores how the processes of
globalization have fundamentally changed
the way we think about security. In spite of
the plethora of literature on security and
1 Ihe works here are too numerous to mention. See
Lebow & Risse-Kappen (1995); Brown (1995, 1996);
Katzenstcin (1996b); L,ynn-Jones (1993); Buzan et al.
* Thanks to Samuel Kim, Robert I,ieber and Robert
Gallucci for comments and Balbina Hwang for research
2 For a recent
insightful work in the non-academic litera-
ture, see Friedman (1999).
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journal of PTRAc RES
globalization, there is relatively little work
written by US security specialists that interconnects the two. In the case of security
studies, this has been in no small part
because the field remains entrenched in the
foodfight of competing realist, liberal, and
constructionist research programs. In the
case of the globalization literature, this has
stemmed from a relatively stronger focus on
the social and economic processes of globalization. The new security environment in
the 21st century will operate increasingly in
the space defined by the interpenetration
between two spheres: globalization and
national identity.
Securityand Globalization
Globalization is best understood as a spatial
phenomenon.3 It is not an event, but a
gradual and ongoing expansion of interaction processes, forms of organization, and
forms of cooperation outside the traditional
spaces defined by sovereignty. Activity takes
place in a less localized, less insulated way as
transcontinental and interregional patterns
criss-cross and overlap one another.4
The process of globalization is analytically
distinct from interdependence. The latter, as
Reinicke states, denotes growth in connections and linkages between sovereign entities. Interdependence complicates external
3 Sec Held (1997: 253). As Rosenau (1996: 251) writes, It
refers neither to values nor structures but to sequences
that unfold either in the mind or behavior, to interaction
processes that evolve as people and organizations go
about their daily tasks and seek to realize their particular
4 See Mittelman (1994: 427). Or as Goldblatt et al. (1997:
271) note: Globalization denotes a shift in the spatial
form and extent of human organization and interaction to
a transcontinental or interregional level. It involves a
stretching of social relations across time and space such
that day-to-day actixvities are increasingly influenced by
events happening on the other side of the globe and the
practices and decisions of highly localized groups and
institutions can have significant global reverberations.
3 / maj2000
volume37 / number
sovereignty in that sovereign choices have to
be made to accommodate these interdependent ties. Globalization processes are not just
about linkages but about interpenetration.
As Guehenno noted, globalization is defined
not just by the ever-expanding connections
between states measured in terms of movement of goods and capital but the circulation
and interpenetration of people and ideas
(Guehenno, 1999: 7). It affects not only
external sovereignty choices but also internal
sovereignty in terms of relations between the
public and private sectors (Reinicke, 1997).
Contrary to popular notions of globalization,
this does not mean that sovereignty ceases to
exist in the traditional Weberian sense (i.e.
monopoly of legitimate authority over citizen and subjects within a given territory).
Instead, globalization is a spatial reorganization of production, industry, finance, and
other areas which causes local decisions to
have global repercussions and daily life to be
affected by global events. Comparisons are
often made between globalization at the end
of the 20th century and the period before
World War I when the developed world witnessed unprecedented high volumes of trade
across borders and movements of capital
that led to the dissolution of empires and traditional structures of governance. However,
these analogies are not accurate because the
process of change at the turn of the 20th
century was driven by, and had as its final
outcome, nationalism and the consolidation
of statehood. A century later, statehood and
notions of sovereignty are not so much
under attack by so-called globalization
forces as empires were, but are being modified and re-oriented by them. In short, the
nation-state does not end; it is just less in
control. Activity and decisions for the state
increasingly take place in a post-sovereign
space (Reinicke, 1997; Rosenau, 1996). In
this sense, globalization is both a boundarybroadening process and a boundaryweakening one (Rosenau, 1996: 251).
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D. Cha
Much of the literature on globalization
has focused on its economic rather than
security implications.5 In part, this is because
the security effects of globalization often get
conflated with changes to the international
security agenda with the end of Cold War
Superpower competition.6 It is also because,
unlike economics
where globalizations
effects are manifested and measured everyday in terms of things like international capital flows and Internet use, in security, the
effects are inherently harder to conceptualize
and measure. To the extent possible, the
ensuing analysis tries to differentiate globalization from post-Cold War effects on security. As a first-cut, one can envision a
which certain dialogues in security studies
would fall. For example, the notion of selective engagement, pre-emptive withdrawal,
democratic enlargement, or preventive
defense as viable US grand strategies for the
coming century would sit at the far end of
this spectrum because they are predominantly security effects deriving from the end
of bipolar competition rather than from
globalization.7 Progressively closer to the
middle would be arguments about the debellicization of security or the obsolescence of
war which do not have globalization as their
primary cause, but are clearly related to some
of these processes.8 Also in this middle range
5 Examples of the non-security bias in the US literature
on globalization include Mittelman (1994); Goldblatt et al.
(1997); Reinicke (1997); Rosenau (1996); Nye & Owens
(1998); Talbott (1997); Falk (1997); Ohmae (1993); Held
Representative of works looking at changing definitions
of security at the end of the Cold War are Walt (1991);
Gray (1992); Deudney (1990); Chipman (1992); Nye
(1989); Lipschutz (1995).
7 For debates on selective engagement and pre-emptive
drawback strategies, see Layne (1997); Ruggie (1997). Sec
also Huntington (1999); Betts (1998). On preventive
defense see Carter & Perry (1999). European international
relations literature that has looked at the post-Cold War
effects of security (as distinct from globalizations effects
on security) include Kirchner & Sperling (1998); Leatherman & Vayrynen (1995); Buzan (1997a).
would be discussions on rogue or pariah
states as this term is a function of the end of
the Cold War; at the same time, however, the
spread of information and technology exponentially raises the danger of these threats.
Similarly, the end of the Cold War provides
the permissive condition for the salience of
weapons of mass destruction as the Soviet
collapse directly affected the subsequent
accessibility of formerly controlled substances such as plutonium or enriched uranium. But an equally important driver is
globalization because the technologies for
creating these weapons have become easily
accessible (Falkenrath, 1998). Finally, at the
far end of the globalization-security spectrum might be the salience of substate
extremist groups or fundamentalist groups
because their ability to organize transnationally, meet virtually, and utilize terrorist tactics
has been substantially enhanced by the globalization of technology and information.
While the US security studies field has made
reference to many of these issues, a more systematic understanding of globalizations
security effects is lacking.9
Agency and Scope of Threats
The most far-reaching security effect of globalization is its complication of the basic
concept of threat in international relations.
This is in terms of both agency and scope.
Agents of threat can be states but can also be
non-state groups or individuals. While the
vocabulary of conflict in international security traditionally centered on interstate war
(e.g. between large set-piece battalions and
national armed forces), with globalization,
terms such as global violence and human
x For the seminal work, see Mueller (1989). See also Mandelbaum (1999); Van Creveld (1991).
9 For a more comprehensive and useful characterization
of security studies, see Buzan (1997a), although this categorization takes the post-Cold War rather than globalization as its point of departure.
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security become common parlance, where
the fight is between irregular substate units
such as ethnic militias, paramilitary guerrillas,
cults and religious organizations, organized
crime, and terrorists. Increasingly, targets are
not exclusively opposing force structures or
even cities, but local groups and individuals
(Buzan, 1997a: 6-21; Klare, 1998: 66; Nye,
1989; Vayrynen, 1998; Waever et al., 1993).
Similarly, security constituencies, while
nominally defined by traditional sovereign
borders increasingly are defined at every
level from the global to the regional to the
individual. Or as Buzan (1997a: 11) notes:
What can be clearly observed is that the
state is less important in the new security
agenda than in the old one. It still remains
central, but no longer dominates either as the
exclusive referent object or as the principle
embodiment of threat. Thus the providers
of security are still nationally defined in
terms of capabilities and resources; however,
increasingly they apply these in a postsovereign space whose spectrum ranges
from nonstate to substate to transstate
arrangements. For this reason, security
threats become inherently more difficult to
measure, locate, monitor, and contain
(Freedman, 1998a: 56; Reinicke, 1997: 134).
Globalization widens the scope of security as well. As the Copenhagen school has
noted, how states conceive of security and
how they determine what it means to be
secure in the post-Cold War era expand
beyond military security at the national
level.? Globalizations effects on security
scope are distinct from those of the postCold War in that the basic transaction processes engendered by globalization – instantaneous communication and transportation,
exchanges of information and technology,
flow of capital – catalyze certain dangerous
phenomena or empower certain groups in
ways unimagined previously. In the former
10 See Buzan
(1997a). For applications, see Haas (1995);
(:ha (1997).
3 / may2000
volume37 / number
category are things such as viruses and pollution. Because of human mobility, disease has
become much more of a transnational security concern.11 Global warming, ozone
depletion, acid rain, biodiversity loss, and
radioactive contamination are health and
environmental problems that have intensified as transnational security concerns precisely because of increased human mobility
and interaction (Matthew & Shambaugh,
1998; Vayrynen, 1998; Zurn, 1998).
Globalization also has given rise to a skill
revolution that enhances the capabilities of
groups such as drug smugglers, political terrorists, criminal organizations, and ethnic
insurgents to carry out their agenda more
effectively than ever before (Arquilla &
Ronfeldt, 1996; Brown, 1998: 4-5; Godson,
1997; Klare, 1998; Rosenau, 1998: 21-23;
Shinn, 1996: 38). It is important to note that
the widening scope of security to these transnational issues is not simply a short-term fixation with the end of bipolar Cold War
competition as the defining axis for security.
The threat posed by drugs, terrorism, transnational crime, and environmental degradation has been intensified precisely because of
globalization. Moreover, the security solutions to these problems in terms of enforcement or containment increasingly are
ineffective through national or unilateral
means. 12
Globalization has ignited identity as a
source of conflict. The elevation of regional
and ethnic conflict as a top-tier security issue
has generally been treated as a function of
the end of the Cold War. However, it is also
a function of globalization. The process of
globalization carries implicit homogenization tendencies and messages,13 which in
combination with the borderlessness of the
1l For example, the re-emergence of tuberculosis and
malaria as health hazards has been related to the development of resistant strains in the South (because of blackmarket abuses of inoculation treatments), which then reentered the developed North through human mobility.
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D. Cha
globalization phenomenon elicits a cultural
pluralist response.4
At the same time, globalization has made
us both more aware and less decisive about
our motivations to intervene in such ethnic
conflicts. Real-time visual images of horror
and bloodshed in far-off places transmitted
through CNN make the conflicts impossible
to ignore, creating pressures for intervention. On the other hand, the hesitancy to act
is palpable, as standard measures by which to
determine intervention (i.e. bipolar competition in the periphery) are no longer appropriate, forcing us to grope with fuzzy
motivations such as humanitarian intervention.
Globalization has anointed the concept of
non-physical security. Traditional definitions
of security in terms of protection of territory
and sovereignty, while certainly not irrelevant
in a globalized era, expand to protection of
12 As Matthew & Shambaugh argue, it is not the luxury
of the Soviet collapse that enables us to elevate the importance of transnational security but the advances in human
mobility, communication, and technology that force us to.
See Matthew & Shambaugh (1998: 167). A related example of how security agency and scope have changed is the
privatized army. These groups are not a new phenomenon
in international politics, dating back to the US revolutionary war (i.e. Britains hiring of Hessian soldiers) and the
Italian city-states (of the 14th century (i.e. the condottiers).
However, their salience today is a function of the changes
wrought by the globalization of technology. Increasingly,
national armies are retooled to fight high-intensity, hightechnology conflicts and less equipped to fight loxv-intensity conflicts in peripheral areas among ethnic groups
where the objectives in entering battle are unclear. This
development, coupled with the decreasing Cold War era
emphasis on the periphery and the absence of domestic
support for casualties in such places, has made the
jobbing-out of war increasingly salient. See Shearer
(1998); Silverstein (1997); Thomson (1996).
13 Examples of homogenization impulses include the diffusion of standardized consumer goods generally from the
developed North; Western forms (If capitalism (and not
Asian crony capitalism); and Western liberal democracy
(not illiberal democracy).
and technology assets. For
example, Nye & Owens (1998) cite information power as increasingly defining the
distribution of power in international relations in the 21st century. In a similar vein, the
revolution in military affairs highlights not
greater firepower but greater information
technology and smartness of weapons as
the defining advantage for future warfare.5
These non-physical security aspects have
always been a part of the traditional national
defense agenda. Indeed, concerns about the
unauthorized transfer of sensitive technologies gave rise to such techno-nationalist institutions as COCOM during the Cold War.
However, the challenge posed by globalization is that the nation-state can no longer
control the movement of technology and
information (Simon, 1997). Strategic alliances form in the private sector among leading corporations that are not fettered by
notions of techno-nationalism and driven
instead by competitive, cost-cutting, or
cutting-edge innovative needs. The result is a
transnationalization of defense production
that further reduces the states control over
these activities.16
More and more private companies, individuals, and other non-state groups are the
14 As Falk (1997: 131-132) states, The rejection of these
globalizing tendencies in its purest forms is associated
with and expressed by the resurgence of religious and ethnic politics in various extremist configurations. Revealingly, only by retreating to premodern, traditionalist
orientations does it now seem possible to seal off sovereign territory, partially at least, from encroachments associated with globalized lifestyles and business operations.
See also Mittelman (1994: 432); Guehenno (1999: 7); and
Waver (1993).
15 These are defined in terms of things such as ISR (intelligence collection, surveillance, and reconnaissance), C41,
and precision force that can provide superior situational
awareness capabilities (e.g. dominant battlespace knowledge; pre-crisis transparency). See Nye & Owens (1998);
Cohen (1996); Freedman (1998b); Laird & Mey (1999).
Freedman correctly points out that the emphasis on information and technology is not in lieu of, but in conjunction
with, superior physical military assets. The former cannot
compensate for the latter. See Freedman (1999: 51-52).
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journal of PEACE RES E ARC(H
37 / number
3 / may2000
producers, consumers, and merchants of a
US$50 billion per year global arms market
(Klare & Lumpe, 1998). The end of the Cold
War has certainly been a permissive condition for the indiscriminate, profit-based
incentives to sell weapons or dual-use technologies to anybody. But globalization of
information and technology has made barriers to non-state entry low and detection
costs high. Moreover, while enforcement
authorities still have the benefit of these
technologies, two critical developments have
altered the equation: (1) Absence of discrimination: over the past two decades, the private sector, rather than the government, has
become the primary creator of new technologies, which in essence has removed any relative advantages state agencies formerly
possessed in terms of exclusive access to
eavesdropping technology, surveillance, and
noted earlier, these phenomena of globalization most dangerously manifest themselves as the threat posed by substate actors
with violent intentions. Through the Internet
and the privatization of formerly secured
national assets (e.g. plutonium or highly
enriched uranium), these groups are now
able to start substantially higher on the learning curve for building a weapon of mass
destruction. Building an inefficient fission
weapon capable of killing 100,000 in an
urban center or cultivating cultures for biological use is childs play relative to the past
(Falkenrath, 1998: 54-55; Carter & Perry,
1999: 151).19 Thus in a globalized world,
information and technology increasingly are
the currency of non-physical security.
encryption.17 Governments once in the position of holding monopolies on cutting edge
technologies that could later be spun off in
the national commercial sector are now consumers of spin-on technologies. (2) Volume
and variety: the sheer growth in volume and
variety of communications has overwhelmed
any attempts at monitoring or control
(Mathews, 1997; Freedman, 1999: 53).18 As
If non-physical security, diversification of
threats, and the salience of identity are key
effects of globalization in the security realm,
then how might this translate in terms of a
states foreign policy? The literature on globalization in both Europe and the USA
remains conspicuously silent on this question. Globalization authors might argue that
this criticism is inappropriate because it suggests an ideal endstate at which a globalized
country should arrive. However, the point
here is not to suggest that there will be a single uniform model, but that as globalization
processes permeate a states security agenda,
this might be manifested in certain general
inclinations and contours of behavior. Put
another way, we should observe globalization processes altering in some cases, and
16 As Goldblatt et al. point out, MNCS now account for
a disproportionately large share of global technology
transfer as a result of EDI; joint ventures; international
patenting; licensing; and knowhow agreements. This
means they are more in control of transferring dual-use
technologies than traditional states. See Goldblatt et al.
(1997: 277-279).
17 On the growing commercial pressure for liberalization
of encryption technology, see Freeh (1997). See also
Falkenrath (1998: 56-57); Corcoran (1998: 13). On the
growing reliance of the US Defense Department on commercial technological advances compared with the 19501970s, see Carter & Perry (1999: 197-198).
18 The results of this are well known: instantaneous com-
munication by facsimile, cellular phone, satellite phone,
teleconferencing, alpha-numeric pagers, e-mail, computer
modems, computer bulletin boards, and federal express
are the norm. Approximately 250,000 Global Positioning
System satellite navigation receivers are sold eachmonthfor
commercial use.
Propositions for Security Behavior
19 In the case of biological weapons, effective delivery
requires some form of aerosol spray technology. But the
point is that such technology, if it were perfected, would
most likely be the result of commercial needs and therefore easily available to anyone. In a related vein, Hoffman
(1997) has found positive correlations between the spread
of information and technology and the lethality of terrorist attacks.
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D. Cha
creating in other cases, new sets of security
interests for states.
Intermestic Security
First, the globalization and security literature
asserts but does not elaborate how security
decisions increasingly take place outside the
traditional purview of sovereignty. Globalization creates an interpenetration of foreign
and domestic issues that national governments must recognize in developing policy.
One example of this intermestic approach
to security policy might be an acceptance
that the transnationalization of threats has
blurred traditional divisions between internal
and external security (Katzenstein, 1996a).
The obverse would be the frequency with
which a state adheres to delimiting security,
formulating and justifying policy on the basis
of national security interests rather than
universal/global interests (Moon Chung-in,
1995: 64). Examples of the former are European institutions such as Interpol, TREVI,
and the Schengen Accord, which represent
an acknowledgment that domestic issues
such as crime, drug-trafficking, terrorism,
and immigration increasingly require transnational cooperation. TREVI was composed
of ministers of the interior and justice of EC
member-states whose purpose was to coordinate policy on terrorism (at Germanys initiative in 1975) and international crime. The
Schengen Accords also represented a convergence of internal and external security
with regard to common standards border
controls, pursuit of criminals across borders,
asylum procedures, and refugees (Katzenstein, 1998: 11-14). In Asia, one might see
environmental pollution and transnational
crime as issues where international and
domestic security converge (Special Focus:
China and Hong Kong, 1996). However, in
the near future, maritime piracy is the most
likely focal point. These are cases where substate actors armed with sophisticated weap-
ons, satellite-tracking technology,
cutting-edge document-forging equipment
hijack vessels in the South and East China
seas with millions of dollars worth of cargo
(Cha, 1998: 51-53; Sullivan & Jordan, 1999).
These groups operate transnationally; planning may occur at one destination, tracking
of the ship at another, the attack launched
from another port, and the cargo off-loaded
at yet another port. These acts fall under the
purview of local law enforcement, but they
are clearly intermestic security issues. The
attacks occur in overlapping sovereign
waters or international waters, and sometimes receive the tacit consent of governments where the pirated vessels are
clandestinely ported. Moreover, if targeted
cargos move beyond luxury autos and video
cassette recorders to strategic goods such as
plutonium, then distinctions between external and internal security and criminal and
strategic threats disappear (Falkenrath, 1998;
Guehenno, 1999: 11).
Second, the globalization literature acknowledges that security is increasingly conceived
of in post-sovereign, globalized terms, but
does not delineate how the modes of obtaining security should change. As noted above,
globalization means that both the agency and
scope of threats have become more diverse
and non-state in form. This also suggests
that the payoffs lessen for obtaining security
through traditional means. Controlling pollution, disease, technology, and information
transfer cannot be easily dealt with through
national, unilateral means but can only be
effectively dealt with through the application
of national resources in multilateral fora or
through encouragement of transnational
cooperation. As UN Secretary-General Kofi
Annan intimated, US bombing of targets in
Sudan in retaliation for terrorist bombings of
two US embassies in Africa is a unilateral
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piecemeal approach far inferior to concerted
global efforts at denying terrorists sanctuaries, financing, and technology and encouraging their extradition and prosecution.20
Thus one would expect globalized security processes reflected in a states striving for
regional coordination and cooperative security. It should emphasize not exclusivity and
bilateralism in relations but inclusivity and
multilateralism as the best way to solve security problems. At the extreme end of the
spectrum, globalization might downplay the
importance of eternal iron-clad alliances and
encourage the growth of select transnational
policy coalitions among national governments,
(NGOs), and individuals specific to each
problem (Reinicke, 1997: 134).
In conjunction with multilateralism, globalized conceptions of security should be
reflected in norms of diffuse reciprocity and
international responsibility. This is admittedly more amorphous and harder to
operationalize. While some self-serving
instrumental motives lie behind most diplomacy, there must be a strong sense of global
responsibility and obligation that compels
the state to act. Actions taken in the national
interest must be balanced with a basic principle that contributes to a universal, globalized
value system underpinning ones own values.
The globalization literature has not done justice to the role bureaucratic innovation plays
in response to the new challenges of globalization. On this point, indeed, the literature
has not kept pace with the empirics. For
example, in the USA, the Clinton Administration created the position of Undersecretary for Global Affairs, whose portfolio
included environmental issues, promotion of
democracy and human rights, population
20 See comments by President Clinton and UN SecretaryGeneral Kofi Annan as cited in Crossette (1998).
3 / ma.y2000
volume37 / nufmber
and migration issues, and law enforcement
(Talbott, 1997: 74). In a similar vein, the US
State Departments Foreign Service Institute
now has a new core course for FSOs on
narcotics-trafficking, refugee flows, and
environmental technologies (albott, 1997:
75). In May 1998, the Clinton Administration put forward its first comprehensive plan
to combat world crime, identifying drug-trafficking, transfer of sensitive technology and
WMD, and trafficking of women and children as threats to the USA (EWashington
1998).21 One might also expect to see foreign
service bureaucracies placing greater emphasis on international organizations and NGOs
in terms of representation, placement, and
leadership if these are recognized as the key
vehicles of security and politics in a globalized world.
Implicit in each of these examples is the
trend toward greater specialization in the
pursuit of security. As globalization makes
security problems more complex and
diverse, national security structures need to
be re-oriented, sometimes through elimination of anachronistic bureaucracies or
through rationalization of wasteful and overlapping ones. In the US system, for example,
while combating the spread of weapons of
mass destruction is widely acknowledged as
a key security objective in the 21st century,
various branches of the government operate
autonomously in dealing with these threats.
Hence, there are greater calls for renovation
and coordination to eliminate the overlap,
inefficiency, and lack of organization among
State, Defense, Commerce, Energy, CIA,
and FBI in combating proliferation.22
Another trend engendered by the security
challenges of globalization is greater crossA1 The degree to which this is spin or substantive
remains to be seen.
For a detailed set of recommendations on how to renovate and create institutions to deal with these problems,
see Carter & Perry (1999: 143-174). See also Schmitt
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D. Cha
fertilization between domestic law enforcement and foreign policy agencies. This relationship, at least in the USA (less the case in
Europe), is at worst non-existent because
domestic law enforcement has operated traditionally in isolation from national security
and diplomatic concerns, or at best is a
mutually frustrating relationship because the
two have neither inclination nor interest in
cooperating. States that understand the challenges of globalization, particularly on issues
of drug-trafficking, environmental crimes,
and technology transfer, will seek to bridge
this gap, creating and capitalizing on synergies that develop between the two groups.
Foreign policy agencies will seek out greater
interaction with domestic agencies, not only
on a pragmatic short-term basis employing
law enforcements skills to deal with a particular problem, but also on a longer-term and
regular basis cultivating familiarity, transparency, and common knowledge. On the
domestic side, agencies such as the FBI,
Customs, and police departments (of major
cities) would find themselves engaged in foreign policy dialogues, again not only at the
practitioners level, but also in academia and
think-tank forums.23
One of the longer-term effects of specialization and cross-fertilization is that security
also becomes more porous. Specialization
will often require changes not just at the
sovereign national level, but across borders
and with substate actors. Boilerplate security (e.g. dealt with by hardshell nationstates with national resources) becomes
increasingly replaced by cooperation and
coordination that may still be initiated by the
national government but with indispensable
partners (depending on the issue) such as
NGOs, transnational groups, and the media.
The obverse of this dynamic also obtains.
23 In this vein, it might not be unusual in the future to see
the commissioner of New York City Police or the head of
the FBI participating in discussions of the Council on Foreign Relations or the Brookings Institution.
With globalization, specialized communities of choice (e.g. landmine ban) are
empowered to organize transnationally and
penetrate the national security agendas with
issues that might not otherwise have been
paid attention to (Guehenno, 1999: 9;
Mathews, 1997).
The globalization literature remains relatively
silent on how globalization processes substantially alter the way in which states calculate relative capabilities. The single most
important variable in this process is the diffusion of technology (both old and new). In
the past, measuring relative capabilities was
largely a linear process. Higher technology
generally meant qualitatively better weapons
and hence stronger capabilities. States could
be assessed along a ship-for-ship, tank-fortank, jet-for-jet comparison in terms of the
threat posed and their relative strength based
on such linear measurements. However, the
diffusion of technology has had distorting
effects. While states at the higher end technologically still retain advantages, globalization has enabled wider access to technology
such that the measurement process is more
dynamic. First, shifts in relative capabilities
are more frequent and have occurred in certain cases much earlier than anticipated. Second, and more significant, the measurement
process is no longer one-dimensional in the
sense that one cannot readily draw linear
associations between technology, capabilities, and power. For example, what gives
local, economically backward states regional
and even global influence in the 21 st century
is their ability to threaten across longer distances. Globalization facilitates access to
select technologies related to force projection and weapons of mass destruction, which
in turn enable states to pose threats that are
asymmetric and disproportionate to their
size. Moreover, these threats emanate not
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from acquisition of state-of-the-art but old
and outdatedtechnology. Thus countries like
North Korea, which along most traditional
measurements of power could not compare,
can with old technology (SCUD and rudimentary nuclear technology) pose threats
and affect behavior in ways unforeseen in the
past (Bracken, 1998).
Strategiesand Operational
Finally, the literature on globalization is notably silent on the long-term impact of globalization processes on time-tested modes of
strategic thinking and fighting. In the former
vein, the widening scope of security engendered by globalization means that the definition of security and the fight for it will occur
not on battlefields but in unconventional
places against non-traditional security adversaries. As noted above, when states cannot
deal with these threats through sovereign
means, they will encourage multilateralism
and cooperation at the national, transnational, and international levels. However, the
nature of these conflicts may also require
new ways of fighting, i.e. the ability to engage
militarily with a high degree of lethality
against combatants, but low levels of collateral damage. As a result, globalizations widening security scope dictates not only new
strategies (discussed below) but also new
forms of combat. Examples include incapacitating crowd control munitions such as
blunt projectiles (rubber balls), non-lethal
crowd dispersal cartridges, stick em and
slick em traction modifiers, or stink
bombs. Smart non-lethal warfare that incapacitates equipment will also be favored,
including rigid foam substances, and radio
frequency and microwave technologies to
disable electronics and communications
(CFR Task Force, 1999).
Regarding strategy, as the agency and
scope of threats diversifies in a globalized
3 / may2000
volume37 / number
world, traditional modes of deterrence
become less relevant. Nuclear deterrence
throughout the Cold War and post-Cold War
eras, for example, was based on certain
assumptions. First, the target of the strategy
was another nation-state. Second, this
deterred state was assumed to have a degree
of centralization in the decisionmaking process over nuclear weapons use. Third, and
most important, the opponent possessed
both counterforce and countervalue targets
that would be the object of a second strike.
While this sort of rationally based, existential deterrence will still apply to interstate
security, the proliferation of weaponized
non-state and substate actors increasingly
renders this sort of strategic thinking obsolete. They do not occupy sovereign territorial space and therefore cannot be targeted
with the threat of retaliation. They also may
operate as self-contained cells rather than an
organic whole which makes decapitating
strikes at a central decisionmaking structure
ineffective. In short, you cannot deter with
the threat of retaliation that which you cannot target.
Governments may respond to this in a
variety of ways. One method would be, as
noted above, greater emphasis on the specialized utilization of whatever state, substate, and multilateral methods are necessary
to defend against such threats. A second
likely response would be greater attention
and resources directed at civil defense preparation and consequence management to
minimize widespread panic and pain in the
event of an attack. A third possible response
is unilateral in nature. Governments may
increasingly employ pre-emptive or preventive strategies if rational deterrence does not
apply against non-state entities. Hence one
might envision two tiers of security in which
stable rational deterrence applies at the
state-state level but unstable pre-emptive/
preventive strategies apply at the state-nonstate level.
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D. Cha
What then is the new security environment
in the 21st century that the globalization/
security literature must strive to understand?
It is most likely one that sits at the intersection of globalization and national identity. In
other words, as globalization processes complicate the nature of security (i.e. in terms of
agency and scope), this effects a transformation in the interests that inform security policy. Globalizations imperatives permeate the
domestic level and should be manifested in
some very broad behavioral trends or styles
of security policy. Manifestations of this
transformation are inclinations toward intermestic security, multilateralism, and bureaucratic innovation and specialization.
However, it would be short-sighted to
expect that all states will respond similarly. In
some cases, policies will emerge that directly
meet or adjust to the imperatives of globalization, but in other cases the policy that
emerges will not be what one might expect
to linearly follow from globalization pressures. The latter outcomes are the types of
anomalies that offer the most clear indications of the causal role of domestic factors in
the new security environment (Desch,
1998: 158-160); however, these alone only
highlight national identity as a residual variable (i.e. capable of explaining only aberrations) in the new security environment.
One would expect, therefore, that the former
outcomes would be as important to processtrace: If policy adjustments appear outwardly
consistent with globalization but the underlying rationale for such action is not, then
this illustrates that the domestic-ideational
mediation process is an ever-present one.
The new security environment would therefore be one in which globalization pressures
on security policy and grand strategy are
continually refracted through the prism of
national identity.
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0 2 / 0 8
Other Resources
IMF World Economic Outlook
presents economic analysis at
the global level, in major county
groups, and in many individual
countries, reviewing global
macroeconomic developments,
forecasting growth, and citing
IMF Global Financial Stability
Report provides an assessment
of global financial markets,
highlighting current potential
risks to financial market stability.
Globalization, Financial Markets, and Fiscal Policy (IMF
Policy Paper) describes how
fiscal policy can contribute
to realizing the benefits of
two important and ongoing
developments: globalization and
financial deepening.
These resources are available
online at
Issues Briefs provide nontechnical discussions of policy
issues and serve as a source of
information to the public and
as a contribution to debate on
issues of topical interest.
2 0 0 8
Globalization: A Brief Overview
By IMF Staff
A perennial challenge facing all of the world’s countries, regardless of their level of economic
development, is achieving financial stability, economic growth, and higher living standards.
There are many different paths that can be taken to achieve these objectives, and every country’s path will be different given the distinctive nature of national economies and political
systems. The ingredients contributing to China’s high growth rate over the past two decades
have, for example, been very different from those that have contributed to high growth in
countries as varied as Malaysia and Malta.
Yet, based on experiences throughout the world, several basic principles seem
to underpin greater prosperity. These include investment (particularly foreign
direct investment), the spread of technology, strong institutions, sound macroeconomic policies, an educated workforce, and the existence of a market economy.
Furthermore, a common denominator which appears to link nearly all highgrowth countries together is their participation in, and integration with, the
global economy.
There is substantial evidence, from countries of different sizes and different
regions, that as countries “globalize” their citizens benefit, in the form of access
to a wider variety of goods and services, lower prices, more and better-paying
jobs, improved health, and higher overall living standards. It is probably no mere
coincidence that over the past 20 years, as a number of countries have become
more open to global economic forces, the percentage of the developing world
living in extreme poverty—defined as living on less than $1 per day—has been
cut in half.
As much as has been achieved in connection with globalization, there is
much more to be done. Regional disparities persist: while poverty fell in East
and South Asia, it actually rose in sub-Saharan Africa. The UN’s Human Development Report notes there are still around 1 billion people surviving on less than
$1 per day—with 2.6 billion living on less than $2 per day. Proponents of globalization argue that this is not because of too much globalization, but rather too
little. And the biggest threat to continuing to raise living standards throughout
the world is not that globalization will succeed but that it will fail. It is the people
of developing economies who have the greatest need for globalization, as it
provides them with the opportunities that come with being part of the
world economy.
These opportunities are not without risks—such as those arising from volatile
capital movements. The International Monetary Fund works to help economies
Issues Brief
manage or reduce these risks, through economic analysis
and policy advice and through technical assistance in areas
such as macroeconomic policy, financial sector sustainability,
and the exchange-rate system.
The risks are not a reason to reverse direction, but for all
concerned—in developing and advanced countries, among
both investors and recipients—to embrace policy changes
to build strong economies and a stronger world financial
system that will produce more rapid growth and ensure that
poverty is reduced.
The following is a brief overview to help guide anyone
interested in gaining a better understanding of the many
issues associated with globalization.
What is Globalization?
Economic “globalization” is a historical process, the result
of human innovation and technological progress. It refers
to the increasing integration of economies around the
world, particularly through the movement of goods, services, and capital across borders. The term sometimes also
refers to the movement of people (labor) and knowledge
(technology) across international borders. There are also
broader cultural, political, and environmental dimensions
of globalization.
The term “globalization” began to be used more commonly in the 1980s, reflecting technological advances
that made it easier and quicker to complete international
transactions—both trade and financial flows. It refers to
an extension beyond national borders of the same market
forces that have operated for centuries at all levels of human
economic activity—village markets, urban industries, or
financial centers.
There are countless indicators that illustrate how goods,
capital, and people, have become more globalized.
• The value of trade (goods and services) as a percentage
of world GDP increased from 42.1 percent in 1980 to
62.1 percent in 2007.
• Foreign direct investment increased from 6.5 percent of
world GDP in 1980 to 31.8 percent in 2006.

2 0 0 8
• The stock of international claims (primarily bank loans),
as a percentage of world GDP, increased from roughly
10 percent in 1980 to 48 percent in 2006.
• The number of minutes spent on cross-border telephone
calls, on a per-capita basis, increased from 7.3 in 1991 to
28.8 in 2006.
• The number of foreign workers has increased from
78 million people (2.4 percent of the world population)
in 1965 to 191 million people (3.0 percent of the world
population) in 2005.
The growth in global markets has helped to promote efficiency through competition and the division of labor—the
specialization that allows people and economies to focus
on what they do best. Global markets also offer greater
opportunity for people to tap into more diversified and
larger markets around the world. It means that they can
have access to more capital, technology, cheaper imports,
and larger export markets. But markets do not necessarily
ensure that the benefits of increased efficiency are shared
by all. Countries must be prepared to embrace the policies
needed, and, in the case of the poorest countries, may need
the support of the international community as they do so.
The broad reach of globalization easily extends to daily
choices of personal, economic, and political life. For example, greater access to modern technologies, in the world
of health care, could make the difference between life and
death. In the world of communications, it would facilitate
commerce and education, and allow access to independent
media. Globalization can also create a framework for cooperation among nations on a range of non-economic issues
that have cross-border implications, such as immigration,
the environment, and legal issues. At the same time, the
influx of foreign goods, services, and capital into a country
can create incentives and demands for strengthening the
education system, as a country’s citizens recognize the competitive challenge before them.
Perhaps more importantly, globalization implies that
information and knowledge get dispersed and shared.
BIS Quarterly Review, Bank for International Settlements (December
2006), p. 29.

IMF and International Telecommunications Union data.

Issues Brief
Innovators—be they in business or government—can draw
on ideas that have been successfully implemented in one
jurisdiction and tailor them to suit their own jurisdiction.
Just as important, they can avoid the ideas that have a
clear track record of failure. Joseph Stiglitz, a Nobel laureate
and frequent critic of globalization, has nonetheless observed that globalization “has reduced the sense of isolation
felt in much of the developing world and has given many
people in the developing world access to knowledge well
beyond the reach of even the wealthiest in any country a
century ago.”
International Trade
A core element of globalization is the expansion of world
trade through the elimination or reduction of trade barriers, such as import tariffs. Greater imports offer consumers
a wider variety of goods at lower prices, while providing
strong incentives for domestic industries to remain competitive. Exports, often a source of economic growth for
developing nations, stimulate job creation as industries sell
beyond their borders. More generally, trade enhances national competitiveness by driving workers to focus on those
vocations where they, and their country, have a competitive
Trade in Goods and Services
(Percent of regional GDP)
Sub-Saharan Africa
Developing Asia
Middle East and North Africa
Latin America
Advanced economies
2 0 0 8
advantage. Trade promotes economic resilience and flexibility, as higher imports help to offset adverse domestic supply
shocks. Greater openness can also stimulate foreign investment, which would be a source of employment for the local
workforce and could bring along new technologies—thus
promoting higher productivity.
Restricting international trade—that is, engaging in protectionism— generates adverse consequences for a country
that undertakes such a policy. For example, tariffs raise the
prices of imported goods, harming consumers, many of
which may be poor. Protectionism also tends to reward
concentrated, well-organized and politically-connected
groups, at the expense of those whose interests may be
more diffuse (such as consumers). It also reduces the variety
of goods available and generates inefficiency by reducing
competition and encouraging resources to flow into protected sectors.
Developing countries can benefit from an expansion in
international trade. Ernesto Zedillo, the former president
of Mexico, has observed that, “In every case where a poor
nation has significantly overcome its poverty, this has been
achieved while engaging in production for export markets
and opening itself to the influx of foreign goods, investment, and technology.” And the trend is clear. In the late
1980s, many developing countries began to dismantle
their barriers to international trade, as a result of poor
economic performance under protectionist polices and
various economic crises. In the 1990s, many former Eastern
bloc countries integrated into the global trading system
and developing Asia—one of the most closed regions
to trade in 1980—progressively dismantled barriers to
trade. Overall, while the average tariff rate applied by developing countries is higher than that applied by advanced
countries, it has declined significantly over the last
several decades.
Remarks by former President of Mexico Ernesto Zedillo at the
plenary session of the World Economic Forum, Davos, Switzerland,
January 28, 2000.

Joseph Stiglitz (2003), Globalization and Its Discontents (New York:
W.W. Norton & Company), p. 4.

Issues Brief
2 0 0 8
Cross-Border Assets and Liabilities
(Percent GDP)
Latin America Sub-Saharan
and the
Central and
Commonwealth Developing
of Independent
Middle East
North Africa
Latin America Sub-Saharan
and the
Central and
Commonwealth Developing
of Independent
Middle East
North Africa
Data series begin in 1995 for Central and Eastern Europe and the Commonwealth of Independent States
The implications of globalized financial markets
The world’s financial markets have experienced a dramatic
increase in globalization in recent years. Global capital flows
fluctuated between 2 and 6 percent of world GDP ­during
the period 1980–95, but since then they have risen to
14.8 percent of GDP, and in 2006 they totaled $7.2 trillion,
more than tripling since 1995. The most rapid increase has
been experienced by advanced economies, but emerging
markets and developing countries have also become more
financially integrated. As countries have strengthened their
capital markets they have attracted more investment capital,
which can enable a broader entrepreneurial class to develop, facilitate a more efficient allocation of capital, encourage international risk sharing, and foster economic growth.
Yet there is an energetic debate underway, among leading academics and policy experts, on the precise impact of
financial globalization. Some see it as a catalyst for economic
growth and stability. Others see it as injecting dangerous—
and often costly—volatility into the economies of growing
middle-income countries.
A recent paper by the IMF’s Research Department takes
stock of what is known about the effects of financial global-
ization. The analysis of the past 30 years of data reveals two
main lessons for countries to consider.
First, the findings support the view that countries must
carefully weigh the risks and benefits of unfettered capital
flows. The evidence points to largely unambiguous gains
from financial integration for advanced economies. In
emerging and developing countries, certain factors are likely
to influence the effect of financial globalization on economic volatility and growth: countries with well-developed
financial sectors, strong institutions, sounds macroeconomic
policies, and substantial trade openness are more likely to
gain from financial liberalization and less likely to risk increased macroeconomic volatility and to experience financial crises. For example, well-developed financial markets
help moderate boom-bust cycles that can be triggered by
surges and sudden stops in international capital flows, while
strong domestic institutions and sound macroeconomic policies help attract “good” capital, such as portfolio equity flows
and FDI.
The second lesson to be drawn from the study is that
there are also costs associated with being overly cautious
about opening to capital flows. These costs include lower in-
Reaping the Benefits of Financial Globalization, IMF Discussion Paper,

Issues Brief
ternational trade, higher investment costs for firms, poorer
economic incentives, and additional administrative/monitoring costs. Opening up to foreign investment may encourage changes in the domestic economy that eliminate these
distortions and help foster growth.
Looking forward, the main policy lesson that can be
drawn from these results is that capital account liberalization should be pursued as part of a broader reform package
encompassing a country’s macroeconomic policy framework, domestic financial system, and prudential regulation.
Moreover, long-term, non-debt-creating flows, such as FDI,
should be liberalized before short-term, debt-creating inflows. Countries should still weigh the possible risks involved
in opening up to capital flows against the efficiency costs
associated with controls, but under certain conditions (such
as good institutions, sound domestic and foreign policies,
and developed financial markets) the benefits from financial
globalization are likely to outweigh the risks.
Globalization, income inequality, and poverty
As some countries have embraced globalization, and experienced significant income increases, other countries that
have rejected globalization, or embraced it only tepidly,
have fallen behind. A similar phenomenon is at work within
2 0 0 8
countries—some people have, inevitably, been bigger beneficiaries of globalization than others.
Over the past two decades, income inequality has risen
in most regions and countries. At the same time, per capita
incomes have risen across virtually all regions for even the
poorest segments of populations, indicating that the poor
are better off in an absolute sense during this phase of globalization, although incomes for the relatively well off have
increased at a faster pace. Consumption data from groups of
developing countries reveal the striking inequality that exists
between the richest and the poorest in populations across
different regions.
As discussed in the October 2007 issue of the World Economic Outlook, one must keep in mind that there are many
sources of inequality. Contrary to popular belief, increased
trade globalization is associated with a decline in inequality. The spread of technological advances and increased
financial globalization—and foreign direct investment in
particular—have instead contributed more to the recent
rise in inequality by raising the demand for skilled labor
and increasing the returns to skills in both developed and
developing countries. Hence, while everyone benefits, those
with skills benefit more.
Share of Poorest and Richest Quintiles in National Consumption
Individual countries’ income distribution data are aggregated to create regional income distribution data, so both inter- and intra-country inequality are
­assessed. The data use purchasing power parities based on 2005 prices and cover 93 percent of developing countries’ total population.
Richest 20\%
Poorest 20\%
Europe and Central Asia
South Asia
East Asia and Pacific
Middle East and North Africa
Latin America and the Caribbean
Sub-Saharan Africa
Source: World Bank

Issues Brief
It is important to ensure that the gains from globalization are more broadly shared across the population. To this
effect, reforms to strengthen education and training would
help ensure that workers have the appropriate skills for
the evolving global economy. Policies that broaden the
access of finance to the poor would also help, as would
further trade liberalization that boosts agricultural exports
from developing countries. Additional programs may include providing adequate income support to cushion,
but not obstruct, the process of change, and also making
health care less dependent on continued employment
and increasing the portability of pension benefits in some
2 0 0 8
lated into higher incomes for the poor.” Dollar and Kraay
also found that in virtually all events in which a country
experienced growth at a rate of two percent or more, the
income of the poor rose.
Equally important, globalization should not be rejected
because its impact has left some people unemployed. The
dislocation may be a function of forces that have little to do
with globalization and more to do with inevitable technological progress. And, the number of people who “lose” under
globalization is likely to be outweighed by the number of
people who “win.”
Critics point to those parts of the world that have
achieved few gains during this period and highlight it as
a failure of globalization. But that is to misdiagnose the
problem. While serving as Secretary-General of the United
Nations, Kofi Annan pointed out that “the main losers in
today’s very unequal world are not those who are too much
exposed to globalization. They are those who have been
left out.” A recent BBC World Service poll found that on
average 64 percent of those polled—in 27 out of 34 countries—held the view that the benefits and burdens of “the
economic developments of the last few years” have not been
shared fairly. In developed countries, those who have this
view of unfairness are more likely to say that globalization is
growing too quickly. In contrast, in some developing countries, those who perceive such unfairness are more likely to
say globalization is proceeding too slowly.
Martin Wolf, the Financial Times columnist, highlights
one of the fundamental contradictions inherent in those
who bemoan inequality, pointing out that this charge
amounts to arguing “that it would be better for everybody to
be equally poor than for some to become significantly better
off, even if, in the long run, this will almost certainly lead to
advances for everybody.”
As individuals and institutions work to raise living standards throughout the world, it will be critically important
to create a climate that enables these countries to realize
maximum benefits from globalization. That means focusing
on macroeconomic stability, transparency in government,
a sound legal system, modern infrastructure, quality education, and a deregulated economy.
Indeed, globalization has helped to deliver extraordinary
progress for people living in developing nations. One of
the most authoritative studies of the subject has been carried out by World Bank economists David Dollar and Aart
Kraay. They concluded that since 1980, globalization has
contributed to a reduction in poverty as well as a reduction
in global income inequality. They found that in “globalizing” countries in the developing world, income per person
grew three-and-a-half times faster than in “non-globalizing”
countries, during the 1990s. In general, they noted, “higher
growth rates in globalizing developing countries have transMartin Wolf (2005), Why Globalization Works (New Haven and London: Yale University Press), p. 157.

“Growth is Good for the Poor” Journal of Economic Growth (2002), and
“Trade, Growth, and Poverty”, The Economic Journal (2004).
Myths about globalization
No discussion of globalization would be complete without dispelling some of the myths that have been built up around it.
Downward pressure on wages: Globalization is rarely the
primary factor that fosters wage moderation in low-skilled
work conducted in developed countries. As discussed in a
recent issue of the World Economic Outlook, a more significant
factor is technology. As more work can be mechanized, and
as fewer people are needed to do a given job than in the

From remarks at an UNCTAD conference in February 2000, in
Johan Norberg (2003), In Defense of Global Capitalism (Washington:
Cato Institute), p. 155.

Issues Brief
past, the demand for that labor will fall, and as a result the
prevailing wages for that labor will be affected as well.
The “race to the bottom”: Globalization has not caused the
world’s multinational corporations to simply scour the
globe in search of the lowest-paid laborers. There are
numerous factors that enter into corporate decisions on
where to source products, including the supply of skilled labor, economic and political stability, the local infrastructure,
the quality of institutions, and the overall business climate.
In an open global market, while jurisdictions do compete
with each other to attract investment, this competition
incorporates factors well beyond just the hourly wage rate.
According to the UN Information Service, the developed
world hosts two-thirds of the world’s inward foreign direct
investment. The 49 least developed countries—the poorest
of the developing countries—account for around 2 percent
of the total inward FDI stock of developing countries.
Nor is it true that multinational corporations make a consistent practice of operating sweatshops in low-wage countries, with poor working conditions and substandard wages.
While isolated examples of this can surely be uncovered, it is
well established that multinationals, on average, pay higher
wages than what is standard in developing nations, and offer
higher labor standards.
Globalization is irreversible: In the long run, globalization
is likely to be an unrelenting phenomenon. But for significant periods of time, its momentum can be hindered by a
variety of factors, ranging from political will to availability of
infrastructure. Indeed, the world was thought to be on an
irreversible path toward peace and prosperity in the early
20th century, until the outbreak of Word War I. That war,
coupled with the Great Depression, and then World War II,
dramatically set back global economic integration. And in
many ways, we are still trying to recover the momentum we
lost over the past 90 years or so.
That fragility of nearly a century ago still exists today—as
we saw in the aftermath of September 11th, when U.S. air
travel came to a halt, financial markets shut down, and the
economy weakened. The current turmoil in financial marLinda Lim (2001) The Globalization Debate: Issues and Challenges
(Geneva: International Labor Organization).

2 0 0 8
kets also poses great difficulty for the stability and reliability
of those markets, as well as for the global economy. Credit
market strains have intensified and spread across asset
classes and banks, precipitating a financial shock that many
have characterized as the most serious since the 1930s.
These episodes are reminders that a breakdown in globalization—meaning a slowdown in the global flows of goods,
services, capital, and people—can have extremely adverse
Openness to globalization will, on its own, deliver economic
growth: Integrating with the global economy is, as economists like to say, a necessary, but not sufficient, condition for
economic growth. For globalization to be able to work, a
country cannot be saddled with problems endemic to many
developing countries, from a corrupt political class, to poor
infrastructure, and macroeconomic instability.
The shrinking state: Technologies that facilitate communication and commerce have curbed the power of some
despots throughout the world, but in a globalized world
governments take on new importance in one critical respect,
namely, setting, and enforcing, rules with respect to contracts and property rights. The potential of globalization can
never be realized unless there are rules and regulations in
place, and individuals to enforce them. This gives economic
actors confidence to engage in business transactions.
Further undermining the idea of globalization shrinking
states is that states are not, in fact, shrinking. Public expenditures are, on average, as high or higher today as they have
been at any point in recent memory. And among OECD
countries, government tax revenue as a percentage of GDP
increased from 25.5 percent in 1965 to 36.6 percent in 2006.
The future of globalization
Like a snowball rolling down a steep mountain, globalization seems to be gathering more and more momentum.
And the question frequently asked about globalization is not
whether it will continue, but at what pace.
A disparate set of factors will dictate the future direction of globalization, but one important entity—sovereign
governments—should not be overlooked. They still have the
power to erect significant obstacles to globalization, ranging

Issues Brief
from tariffs to immigration restrictions to military hostilities.
Nearly a century ago, the global economy operated in a very
open environment, with goods, services, and people able to
move across borders with little if any difficulty. That openness began to wither away with the onset of World War I in
1914, and recovering what was lost is a process that is still
underway. Along the process, governments recognized the
importance of international cooperation and coordination,
which led to the emergence of numerous international organizations and financial institutions (among which the IMF
and the World Bank, in 1944).
2 0 0 8
Indeed, the lessons included avoiding fragmentation and
the breakdown of cooperation among nations. The world is
still made up of nation states and a global marketplace. We
need to get the right rules in place so the global system is
more resilient, more beneficial, and more legitimate. International institutions have a difficult but indispensable role
in helping to bring more of globalization’s benefits to more
people throughout the world. By helping to break down barriers—ranging from the regulatory to the cultural—more
countries can be integrated into the global economy, and
more people can seize more of the benefits of globalization.
The IMF staff who contributed to this Issues Brief are Julian Di Giovanni, Glenn Gottselig, Florence Jaumotte, Luca Antonio Ricci,
and Stephen Tokarick, with assistance from Mary Yang. Matt Rees served as a consultant on the project.
The Issues Briefs series is produced by the Policy Communication Division of the
External Relations Department in collaboration with staff in other IMF departments.
The series is published by the IMF in English, French, and Spanish and is also available
electronically on the IMF’s website,
To request hard copies please contact IMF Publication Services
700 19th Street, N.W. Washington, D.C. 20431.
Telephone: (202) 623-7430 Fax: (202 623-7201

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