| Globalization | | Curtis SwordMGT 333Professor Calton | 4/12/2012 |

|

Globalization is the process of converting the world markets to a single market without barriers to trade and investment flows. The concept of globalization is said to have been spawned out of the Cold War as a result of the increase in specialization and the need for trade. As a result of globalization many economists, businesspeople, and politicians have found that they needed to change their policies and adopt what is called “the Golden Straightjacket”, which is a set of guidelines that governments and businesses must follow to be successful in a unified market. Many economists, politicians, authors, and businesspeople have differing views on the costs and benefits of putting on the Golden Straightjacket. Tom Friedman, an economist and author, argues that the Golden Straightjacket is a good thing for the world economy, while Naomi Klein, author of The Shock Doctrine, argues that free trade is a technique used to make the rich richer and the poor poorer. Other ideas that have been argued are the effect globalization has on the spread of democracy. Tom Friedman argues that globalization is used to revolutionize governments to conform to democracy while Dani Rodrik, author of The Globalization Paradox, says that globalization actually hinders the spread of democracy. Klein, Rodrik, and Friedman offer differing views that reveal the various costs and benefits of globalization. Globalization usually refers to the global distribution of goods and services though reduction of barriers to trade. Globalization has existed for as long as there has been international trade. Our ancestors used trade routes such as the Silk Road and the triangular trade route, where goods such as cotton, silk, sugar, and other goods were produced through specialization and traded to obtain low cost goods. Today globalization is much more widespread and businesses can now work independently of their governance. Because industries are able to operate independently they are able to conduct business in more than one country and trade more efficiently. This creates economies of scale, which is a cost advantage that an enterprise obtains due to expansion. This cost advantage may include reduced labor costs, cost of raw materials, or cost to trade. Globalization also has benefits for consumers by allowing a larger amount of goods to be offered at a cheaper price. Despite its benefits globalization also has disadvantages. Some of its disadvantages involve decreased rate of employment, reduced national sovereignty, and decreased environmental integrity.
In Naomi Klein’s book, The Shock Doctrine, she illustrates how globalization and free trade can be abused by people in power to manipulate the market to their interests. Naomi Klein argues that governments take advantage of shocking events, such as natural disasters, terrorist attacks, or war, to deliver shock treatment to influence a country to open up its markets to free trade. The shock treatment that Klein talks about includes training young, future leaders of a developing country in the ways of free-trade and releasing them to influence their country to join the movement for free trade. Klein states that “the goal of the Chile project was to produce ideological warriors who would the battle of ideas against Latin America’s ‘pink’ economists” [ (Klein, 2007) ]. When Salvador Allende, an abdicator of free trade, was elected president “the businessmen formed a ‘war structure’, part of which would liaise with the military” [ (Klein, 2007) ]. The “businessmen” were economists taught by Milton Friedman, a strong supporter for free trade, to deliver the shock treatment when the time was right. When Allende became president, Friedman’s students decided the time was right. The economists joined with military forces to overthrow Allende and his ideals in favor of a free market. The result was war.
While Klein believes that the shock therapy is destroying pre-established cultures and norms in favor of an economy unfair to the common people, Tom Friedman argues that the move toward free trade isn’t a “shock therapy” but is more like “tough medicine” [ (Friedman, 2001) ]. Klein’s point is illustrated in the case in Indonesia where the Berkley Mafia, a group of free-market economist graduates from Berkley, “transformed Indonesia into one of the most welcome environments for foreign multinationals” [ (Klein, 2007) ]. The Berkley Mafia took Indonesia’s developing economy and turned it into a free market economy because they believed it was the best way to make Indonesia economically stable. Friedman says “when it comes to the question of which system today is the most effective at generating rising standards of living, the historical debate is over. The answer is free-market capitalism” [ (Friedman, 2001) ]. Friedman believes that free-market capitalism is the best way for a country to raise its standard of living and become economically stable. By agreeing to adopt free-market capitalism a country will also agree to put on the Golden Straightjacket. Friedman’s argument centers around a country’s willingness to put on the Golden Straightjacket. Friedman admits that when a country puts on the Golden Straightjacket “two things tend to happen: your economy grows, and your politics shrink” [ (Friedman, 2001) ]. What happened in Indonesia was exactly that. Because of the Berkley Mafia’s push to attract international investment Indonesia put on the Golden Straightjacket and as a result it’s “natural wealth – copper, nickel, hardwood, rubber, and oil – was being divided among the largest mining and energy companies in the world” [ (Klein, 2007) ]. Although the division of Indonesia’s resources brought in a lot of foreign funding it diffused their ownership to the point where it was almost wholly owned by foreign investors. Friedman would say that “although this is ‘tough medicine’ Indonesia needs to continue abiding by the rules of the Golden Straightjacket if they wish to keep attracting the Electronic Herd and the riches they bring”.
Friedman describes the electronic herd as “the faceless stock, bond, and currency traders sitting behind computer screens all over the globe, moving their money around” [ (Friedman, 2001) ]. The electronic herd is the people with all the money. A country puts on the golden straightjacket to attract the herd and the riches it brings; sometimes the herd might even bring democratic policies with it. For example Friedman explains his concept globalution as “the process by which the herd helps to build the foundation stones of democracy” [ (Friedman, 2001) ]. The concept of globalution is that countries unwittingly adopt a democratic system by trying to appeal to the interests of the electronic herd, and “the herd needs developing countries to put in place better software, operating systems and governance – which are the building blocks of democracy” [ (Friedman, 2001) ]. For a country to become economically stable it must operate in the best interests of the herd, if it doesn’t operate in the best interests of the herd it will get stampeded and left for dead, in other words the investors in that country will withdraw all their funds and invest in a more economically sound economy.
Contrary to Friedman’s theory of democracy and the electronic herd, Dani Rodrik believes that there is a paradox between globalization and democracy. Rodrik believes that if a country opts for hyper-globalization, they will attempt to eliminate national regulatory authority in order to allow capital markets to operate without restraint. Rodrik argues that hyper-globalization “clashes with democracy for the simple reason that it seeks not to improve the functioning of democracy but to accommodate commercial and financial interests seeking market access at low cost” [ (Rodrik, 2011) ].On the other hand if the country decides to pursue democracy they can “limit globalization in the hope of building democratic legitimacy at home” [ (Rodrik, 2011) ]. The final choice that countries have is the global governance option, which involves “robust global institutions with regulatory and standard setting powers would align legal and political jurisdictions with the reach of markets and remove the transaction costs associated with national borders” [ (Rodrik, 2011) ]. The problem with the global governance solution is that there is too much diversity in the world for a single group to regulate them all. Also people don’t want to be told what to do by foreigners, it would “result in the lowest common denominator, a regime of weak and ineffective rules” [ (Rodrik, 2011) ]. So there is a trilemma between these three options yet most countries have begun to choose hyper-globalization.
Rodrik and Friedman’s views differ because while Friedman believes that democracy and globalization enter the country together, Rodrik brings up valid points that globalization actually pushes away democracy. Friedman notes that democracy occurs with globalization because the electronic herd forces democracy upon the host country but in actuality the herd is reducing democracy by requiring lesser restrictions on trade.
Klein, Rodrik, and Friedman each give very god opinions about the costs and benefits of globalization. Klein’s arguments center around the idea that globalization comes at the cost of the poor. Klein provides case studies from Indonesia, Brazil, and Chile. These case studies portray the hidden agendas behind the larger nations push for less developed nations to participate in free market trade. Klein illustrates how richer nations are able to purchase a majority of the natural resources of a country and have political power over them when they open up their economies to free trade. In all the cases provided by Klein the result was war, death, and shock therapy.
Rodrik also brought good points explaining the dilemmas associated with globalization. Rodrik points out that to have hyper-globalization there must be less democracy, to have democracy there must be less globalization, and to have global governance you may only have a little democracy and a little free trade. Rodrik provides strong support for his claims by referring to historical and recent crises which have shown that unregulated global markets are unstable.
Friedman offers many good points about the influence of globalization, the electronic herd, and the Golden Straightjacket. He illustrates how the herd can bring riches to a country and then leave it in the dust if it doesn’t abide by the rules. Friedman acknowledges that the cost of free market trade is a reduction in employment, government spending, tariffs, and many other things; but he also acknowledges the benefits which involve a higher standard of living for everyone. Of these three authors I believe Dani Rodrik has the most convincing argument. Klein opts for no globalization and Friedman goes for hyper-globalization, Rodrik takes the middle path and tries to find a solution that would satisfy both sides. He explains that there can’t be globalization without democracy or national sovereignty and vice versa. I also agree with Rodrik’s belief of hyper-globalization and democracy as a paradox as they both have differing goals and rules that need to be abided by.

Works Cited 1. Friedman, T. (2001). The Lexus and The Olive Tree. New York: Anchor Books. 2. Klein, N. (2007). The Doctor Shock. Metropolitan Books. 3. Rodrik, D. (2011). The Globalization Paradox. New York: W.W. Norton and Company.