Goodbye to “Globalization”

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Comment by HAROLD JAMES & MATTEO ALBANESE

The term “globalization” first swept the world in the 1990’s and reached its highpoint of popularity in 2000 and 2001. In 2001, for instance, Le Monde contained more than 3,500 references to mondialisation. But then the figure steadily fell – more than 80% by 2006. Since the outbreak of the financial crisis in 2007, the word’s usage in major newspapers such as the New York Times and the Financial Times has fallen still further. Globalization is on its way out.

A brief history of the concept, and a comparison with another term that also became discredited by overuse, helps to explain what happened.

The twentieth century’s two most important conceptual innovations, “totalitarianism” and “globalization,” were originally Italian. The first term defined the tumultuous middle of the twentieth century, the latter its benign ending. “Totalitarianism” finally disintegrated in 1989, and globalization prevailed.

Both terms originated as criticisms that were supposed to undermine and subvert the political tendencies they described. But both ended up being just as frequently and enthusiastically used by the respective tendencies’ proponents.

“Totalitarianism” began its conceptual life in 1923 as a criticism or parody by the liberal writer Giovanni Amendola of the megalomaniacal pretensions of Benito Mussolini’s new regime. In the course of a few years, it had become the proud self-definition of Italian fascism, endorsed by Mussolini’s education minister, Giovanni Gentile, who became the official philosopher of fascism, and then incorporated in a ghost-written article by Mussolini himself in the Encyclopedia of Fascism.

In both the hostile and the celebratory use of the word, totalitarianism was intended to describe a movement that embraced all aspects of life in what purported to be a coherent philosophy of politics, economics, and society. Fascists liked to think of themselves as imbued with total knowledge and total power.

Today, few know where the term “globalization” originated. The Oxford English Dictionary gives as the earliest reference to its current usage an academic article from 1972. The word had been used earlier, but in a rather different sense. It was a diplomatic term conveying the linkage between disparate policy areas (for example, in negotiating simultaneously on financial and security matters).

The OED etymology ignores the non-English origins of the term, which can be found in the inventive linguistic terminology of continental European student radicalism.

In 1970, the radical left-wing Italian underground periodical Sinistra Proletaria carried an article entitled “The Process of Globalization of Capitalist Society,” which was a description of IBM, an “organization which presents itself as a totality and controls all its activities towards the goal of profit and ‘globalizes’ all activity in the productive process.” Because IBM, according to the article, produced in 14 countries and sold in 109, it “contains in itself the globalization (mondializzazione) of capitalist imperialism.”

This obscure left-wing publication is the first known reference to globalization in its contemporary sense.
Since then, the term has had ups and downs. It became increasingly faddish in the 1990’s, but mostly as a term of abuse. In the late 1990’s and early 2000’s, anti-globalization demonstrations targeted the World Trade Organization, the International Monetary Fund, the World Economic Forum, and McDonald’s. Globalization was seen at this time – as in the vision of the 1960’s Italian leftists – as the exploitation of the world’s poor by a plutocratic and technocratic elite.

But in the 2000’s, the meaning of globalization shifted and began to take on a semi-positive note, in large part because it increasingly looked as if the major winners of globalization included many rapidly growing emerging markets. Indeed, countries that had previously been described as “under-developed” or “Third World” were becoming incipient global hegemons. Moreover, many former critics began to recognize global connectedness as a way of solving global problems such as climate change, economic crisis, and poverty.

Historians have started to project globalization backwards. It is no longer seen only as a story of the capital-market-driven integration of the last two decades of the twentieth century, or even of an “early wave of globalization” in the nineteenth century, when the gold standard and the Atlantic telegram seemed to unite the world. Instead, the wider and deeper historical vision is of a globalization that encompasses the Roman empire and the China's Song dynasty, and goes back to the globalization of the human species from a common African origin.

The terms that we use to describe complex political and social phenomena and processes have odd ambiguities. Some concepts that are designed as criticisms are quickly inverted to become celebratory.
By 2011, anti-globalization rhetoric had largely faded, and globalization is thought of as not something to be neither fought nor cheered, but as a fundamental characteristic of the human story, in which disparate geographies and diverse themes are inextricably intertwined. In short, globalization has lost its polemical bite, and with that loss, its attractions as a concept have faded.

Harold James is Professor of History and International Affairs at Princeton University. Matteo Albanese is a researcher in history at the European University Institute.

China did not manipulate currency in 2010: U.S. report

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Major trading partners of the United States, including China, did not manipulate their currencies to gain an unfair advantage in international trade in 2010, according to a report released by the U.S Treasury Department on Friday.

"Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months," China's behavior did not qualify under the official definition of manipulation, the Treasury said in its long-delayed semiannual report to the Congress on International Economic and Exchange Rate Policies.

With respect to exchange rate policies, ten economies were reviewed in this report, accounting for nearly three-fourths of U. S. trade. Many of the economies have fully flexible exchange rates. A few have more tightly managed exchanges rates, with varying degrees of management.

"No major trading partners of the United States" met the standards identified by the Congress as currency manipulator, concluded the report.

Since the June 19, 2010 announcement by China's central bank of greater exchange rate flexibility, its currency, also known as renminbi (RMB) has appreciated 3.7 percent against the dollar, or about 6 percent annualized. The renminbi has appreciated 26 percent in total against the dollar since 2005.

The Treasury said that because inflation in China is significantly higher than it is in the U.S., the RMB has been appreciating more rapidly against the dollar on a real, inflation- adjusted basis, at a rate which if sustained would amount to more than 10 percent per year.

The U.S. accuses Beijing of keeping its currency undervalued, flooding the country with cheap exports and costing U.S. jobs. But many economists believe that the appreciation of RMB will help little to the U.S. employment.

"Treasury today again made the right call on China's currency policy in its latest exchange rate report," John Frisbie, President of the U.S.-China Business Council (USCBC) said in a statement after the U.S. Treasury Department'report.

"While USCBC believes that China should allow its exchange rate to better reflect market forces, designating China as a ' manipulator' would achieve nothing. USCBC continues to support the Obama administration's approach of combined multilateral and bilateral engagement with China as the most effective way to make progress on the exchange rate issue."

Source: Xinhua
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Out with the Tiger, in with the Rabbit

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THINK ASIAN BY ANDREW SHENG

As the Year of the Tiger fades, it has been a year of drama and change. The last Year of the Tiger was 1998, an unforgettable year for the Asian financial crisis. As the Tiger year fades, there has been regime change in Tunisia and big demonstrations for change in Egypt. The Year of the Wood Rabbit in a metal year means that some of the Tiger volatility might remain. Surprisingly, from the perspective of investors, 2010 was quite a year of recovery, thanks to Uncle Ben and his printing machine.

I will not try to predict the future, but will use the Chinese New Year to reflect on an important publication that reviews the lessons of the last three years of crisis. We need to study the past to understand the future.

On Jan 27, 2011, after 18 months of hard work, the US Financial Crisis Inquiry Commission (FCIC) report was finally published, a 633-page document with more appendices to be published soon. This is an important historical document, because it was based on comprehensive evidence called by the commission on almost all the major players in the crisis. Mark my words, the facts are more astonishing than fiction.

The majority view of the report listed the usual suspects: the crisis was due to human faults, with widespread failures in financial regulation and supervision; failures of corporate governance and risk management at systemically important financial institutions; excessive borrowing, risky investments, lack of transparency put system at risk; the government was ill-prepared to manage crisis and systemic breakdown in accountability and ethics. The trigger to the crisis was bad mortgage-lending standards and securitisation; and contributors were over-the-counter derivatives and rating agency failures.

This official document is elegantly written, richly filled with quotes from the insightful to the four-letter direct utterances. It rightly seeks to “expose the facts, identify responsibility, unravel myths, and help us understand how the crisis could have been avoided.”

Despite some who tried to argue that no one could have foreseen or prevented the crisis, the report argued that “The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

Even though the report commended the principal actors in doing their best to manage an incredibly complex crisis, the report did “not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup's excesses in the run-up to the crisis. They did not. Policymakers and regulators could have stopped the runaway mortgage securitisation train. They did not.”

Why did these regulators not act? “Too often, they lacked the political will in a political and ideological environment that constrained it as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.”

Unfortunately, the report was split along partisan lines. The three dissenting Republican Party FCIC Commission members considered the report as too broad and rejected as too simplistic a view that too little regulation caused the crisis.

On the contrary, they took the view that too much regulation might have been a cause. They pointed out that the report ignored the global nature of the current financial crisis and argued that the causes should look beyond the housing to the credit and other bubbles.

Another lone dissenter, Peter Wallison of the American Enterprise Institute, identified US government housing policies as the major contributor to the financial crisis.

The complexity of the current financial crisis and its causes will give rise to more debates in the years to come. The majority view of the report was correct in identifying that the crisis was avoidable. However, the dissenters were also correct in identifying that the majority view was partial, by not putting the crisis in its global context.

Indeed, I feel that a serious omission of the report was not to point out that mainstream economic theory failed to provide a holistic and systemic-wide view of the financial system and its vulnerability to crisis, instead inculcating policymakers and regulators to focus on partial analysis and silo-based views that inevitably missed the big picture and the relevant details.

In the 2010 and 2011 Annual Meetings of the American Economic Association, the economics profession is finally beginning to address its own deficiencies and also its own ethics.

Former Obama presidential economic adviser Larry Summer had the most graphic quote on the causes and trigger of the crisis. He likened the financial crisis to a forest fire and the mortgage meltdown to a “cigarette butt” thrown into a very dry forest. Was the cigarette butt, he asked, the cause of the forest fire, or was it the tinder dry condition of the forest?

The real question is who was supposed to look after the forest in the first place?

Now that we know who is responsible for the financial crisis, how is it that no one seems to be accountable for what went wrong?

The Tiger has roared. Now we want to see if the response is that of a Rabbit. Kung Hei Fat Choy to all readers.

>Andrew Sheng is the author of From Asian to Global Financial Crisis.