firmly in place has been confirmed through an abundance of historical evidence.
Historical Implication of Globalization
Reasons for the negative recognition on globalization
The reason for the negative recognition on globalization is that there were many cases of advanced countries taking advantages of the underdeveloped countries as colonizing and exploiting economically in the history. Spain and Portugal that occupied Central and South America during the 15-16 century mercantilism era committed massacre and took away massive amount of gold and silver. For example, the Mexico invaders of Spain, led by Cortez, massacred several millions of Aztec people. After Cortez took over, the population of Aztec decreased 90% only after 50 years of ruling. And, in the 19th century, called as the era of economic imperialism, the advanced countries fought for colony for their food and raw material supplies, and market. Lenin defined this period as the economic imperialism era and his theory had evolved to the Marxism-Leninism along with the Marx theory. Their thinking had developed into the world system theory by the theorists of dependence with Latin America as the basis, and it developed into the theory to oppose the globalization based on the international work division.
The theorists of dependence applied the exploitation theory of Marx to the international relations, and understood it as the advanced countries exploiting the underdeveloped countries through trading. They thought that trading based on the comparative advantage brought the benefit to all parties engaged in trading that they did not trust the international division of labor theory. Their theory is that, if an underdeveloped country with the competitive advantage on agriculture trades with an advanced country that has the comparative advantage for the high value added industry, the underdeveloped country is continuously specialized in low value added industry, agriculture, that the economic gap with the advanced country would be even wider, and the underdeveloped country eventually be subordinated to the advanced country perpetually.
Experience in history
However, the history showed the opposite outcome to their assertions. In the 19 century, the growth rate of Germany, the US and Japan that were the inferior countries compared to the Great Britain was faster than the Great Britain, and in the 20th century, the US surpassed the Great Britain and became the factory of the world. And, the growth rate of those countries called as 4 dragons in East Asia including Korea, and recently emerging Malaysia, Thailand, Chile, China and the like surpassed the growth rate of advanced countries.
An economic historian, Williamson, discovered that the free trade would reduce the economic gap of the advanced country and the underdeveloped country. He positively proved that the economic gap between the countries became larger from the early part of 20 century to the middle of the century when the protection of trade was spreading, on the other hand, at the end of the 19th century and the 20th century when it turned into the trend of free trade had the smaller gap between the countries. This implied that the underdeveloped countries gained more than the advanced countries compared to the globalization.
Is the capital advancement prelude of exploitation?
In spite of that, the reason that the opposition on globalization has not disappeared is that there is a misunderstanding on globalization. The misunderstanding is that advanced countries exploit underdeveloped countries through the multi-national companies and trading.
Is it right to recognize the companies that advance from the advanced countries to the underdeveloped countries including the multinational companies as the prelude of exploitation or incarnation of greed? In fact, there has been a number of cases in history that it is understandable for such a distrust. In the past, Spain and Portugal had the mercantilistic economic point of view that they thought more money would make the nation wealthier just like individual. Today, if there is too much money compared to the goods within the country, it only causes the inflation but not the country getting wealthier. However, under the mercantilism era, the source of national wealth was money. Such an idea is called as bullionism. With such a mistaken economic views, Spain and Portugal plundered the gold and silver from the colonies. However, their prosperity was vainful. Because of the gold and silver from the colonies, there was an overflowing of currency, and as the result, they experienced serious inflation, and Spain had to give way of leading position of the history to the Netherlands and the Great Britain.
The economists today say that the source of national wealth is not money but production. Therefore, the ranks of the powerful nations is determined by the gross domestic production (GDP), namely, how much production capability does the country have. The book that pointed out that the source of national wealth is depended on the production and criticized the mercantilistic thinking is the <The Wealth of Nations> of Adam Smith. And, the colony control method of Great Britain was different than that of SpainÀÎ. The Great Britain not only took away the gold and silver from the colony, but brought people there to form the town and produced industrial materials such as cotton. And, with the industrial material, it developed the textile industry, and this textile industry was the detonator of the industrial revolution of the Great Britain. The Great Britain that correctly understand the source of national wealth defeated the Netherlands through the GB - the Netherlands War and defeated France through the Napoleon War to build up the British Empire.
Can a advanced country company today advance to a underdeveloped country and pillage today? If so, why the summit conferences of each country request to invest to its own country? Simply speaking, Today, there is no exploitative or pillage trading like the mercantilism era any more, and the reason is that the sovereignty of each country has become stronger. And, the multi-national companies have changed as if they are longer belong to a country. In order to understand it, we have to know the difference of globalization and internationalization. Internationalism means that each country made frequent exchanges, and globalization means that there is no implication of national territory. Another word, in the internationalization era, the large corporations worked for the benefit of their own countries, but the multinational companies in the global era no longer has the priority of a particular country but they move for benefit of their own companies exclusively. For example, in the past, the US and Japan competed fiercely with the automobile market that it would not even be conceivable thought to see GM and Ford would use the metal plate from Japan. However, with the competition getting fierce, the reality today is to welcome the steel from Japan, the competing country, the price is right and the quality is good. As such, the multinational companies pursue the profit to the fullest that they advance to the underdeveloped countries to utilize the cheap labor force and the intermediary goods, therefore, it brings a lot of positive effects to the underdeveloped countries including the employment effect, expansion of tax income, increase of demand for intermediary materials and others.
Therefore, the world does not use gross national product (GNP) as a macro-index from the middle of 1990s, and instead, it uses the gross domestic product (GDP). The GNP concept that had been used in the past did not value the place where the production facilities were located, but it valued what country did it come from. However, since the index that has close relationship with the change of macroeconomic data including the change in price or exchange rate, interest rate is confirmed to be GDP, not GNP, that the world has been using GDP instead of GNP. For example, Samsung Electronics that is advanced to the US effects more positively to the US economy, rather than that of Korea. Therefore, each country today is frantically trying to attract the foreign country.
In the past, Korea was concerned of domestic advance of foreign companies that it did not want to dependent on the foreign capital such as Japan. Thus, the equity rate of foreign capital is limited to 49%. And, it borrowed money from overseas and operate plants with our own strength. However, the former prime minister of Malaysia boldly accepted Foreign Direct Investment (FDI), unlike that of Korea, and as a result, Malaysia achieved remarkable economic growth. Today, China accepted the strategy to make drastic growth. Looking at the comprehensive facts, the capital advancement, an important part of globalization, is not to cause damages as some concerned but it is more advantageous to the recipient country.
Is trade a way of exploitation?
And, is trading a way of exploitation on underdeveloped countries? The discussion on whether trading is advantageous to the advanced countries has been profound. Under the mercantilism era, the trading was understood as the zero sum game. Another word, there are countries that gain from trading, and that incurs loss that if the benefit and the loss of the two countries are combined, the outcome would be zero. However, it is well known fact that Adam Smith and David Ricardo argued that trading is not a zero sum game but the positive sum game, namely, both parties to the trading would gain for both. Thanks to their theories, the advanced countries with the leadership of the Great Britain and France, entered into the bilateral trade agreement to open up the free trading era momentarily around 1860s.
However, such a free trade era did not last long. Europe had the long-term depression for about 20 years beginning in 1873. With this great depression, each country in Europe began to turn from free trade to protective trade. Therefore, each country needed the market to sell the surplus products and it stimulated the fights for colonies, and the World War I broke out. After the World War I, each country of the world did not fully recognize the fact that the excessive trade protectionism was the cause of the War. Therefore, the protective trade trend had long been continued, and after experiencing the Great Depression and the World War II, the world recognized that the excessive trade protectionism among the countries provoke the tension among the countries that, after the World War II, the advanced countries began to contemplate the new world order for free trade.
However, even that was not flawless. While the ideology of communism under Marx was realized in the old Soviet Union, the communism bloc did not accept the theory of bringing gains for both countries under the free trade. Therefore, the world came to an agreement on the free trading only be the Western advanced countries.
The newly independent countries in so-called the third world that gained independence after the World War II had one of the two choices. Neo-classic economists called as main stream economics recommended the new independent countries to open the market, specialize in accordance with the principle of comparative advantage to join the free trading order. However, a series of other scholars warns that the free trade would make the new and politically independent countries as the economic colonies of the advanced countries, and recommends to select 'import replacement type of industrial strategy' that would provide them the competency to make the products of advanced countries that are currently imported and used. The leaders of the third world, India, Central and South American countries, and China and other communist countries, and other newly independent countries accepted the advice of the later. Korea under the Rhee Seung-man government and the Park Chung-hee government accepted the later theory to pursued the independent economy. But the Park Chung-hee government had two years of experiment and amended to the export leading type of industrial strategy. 4 countries in Asia that accommodated such a strategy were deemed as successful cases in the 1980, the communist countries collapsed that most of the world countries, including India, recognized that the export-leading industrial strategy was the right choice. As such, it took a long time to accept the free trade by each country in the world.
Recently, the empirical analysts discovered that the economic value of the colonies that had been the established theory after Lenin was different than that of the genuine facts. The cause for fierce battle for colonies by the imperial countries of the 19th century was that the colony countries were needed the product market as the suppliers of the food and industrial materials. However, according to a study of the empirical analysts, the advance imperial countries did not purchase the industrial materials not only from their colonies, and the price would enable them to make purchase from other regions as well. And, the conclusion was that the colonies had low income level that it did not have much role as the market for completed goods. Consequently, the colonies took some role as the food supplier but did not take much role as the product market and raw material supplier. On the other hand, the defense of the colony required astonishing amount of money that the colony management for the empires were concluded as not so profitable. Consequently, as Lenin insisted, the 19th century imperialists is not for economic exploitation but is the byproduct of political greed of rulers which is more persuasive opinion now. Therefore, the theory that the advanced countries exploited the underdeveloped countries through trading has been denied through several angles.
In conclusion, the globalization means that the boundary of product market and production market has disappeared. Accusing such a globalization as a mean to exploit the underdeveloped countries by the advanced countries is the byproduct of the past time when we had the wrong point of view on economy, and we must develop the concept of globalization beyond our past since the world economy today is much different from the past. Of course, there is some industry that incurs damages from the globalization. Each country is not needed to prepare to minimize the damages by enhancing the competitiveness and others. However, I believe it is not acceptable to fundamentally oppose the globalization because of damages to some industries.
Kim Seung-wook (Economics, Chung-Ang University/New Economic History, swkim@cau.ac.kr)
