Great article on Globalization of financial systems.
In times of uncertainty we like to look into the past for answers. Sometimes we do it to comfort ourselves, and other times we try to predict the
future! When discussing globalization, one must look into the past in order to come up with a sound conclusion for the future.
Let’s talk about how financial globalization has created some very distinctive pressures for convergence throughout the world. To begin with,
let’s ask ourselves a question, “were national societies that embraced global capitalism and globalization expecting the differences between them
to be washed away?” Did they think there would be no difference in culture, or in the way rules are interpreted and laws are enforced? Were they
expecting the world would become homogeneous, just one giant global market? I doubt it, and if history is any guide I don’t think societies have
ever bargained for this type of globalization.
When we look at this era of globalization people have a tendency to take it for granted and thus give it a feeling of inevitability. (“it always has
existed and always will” type of attitude) Because of this people will talk about globalization and say “it started with the Phoenicians,” but
the truth is it didn’t. The Phoenicians didn’t take into account all of the national economies in the world. Historically speaking, this is a very
new project but there is nothing inevitable about it.
The last era of globalization ended in part because of organized violence. The two world wars tore apart the global economy but there were other
factors involved. In fact, part of the reason the global economy was destroyed had to do with the global markets being seen as illegitimate in the
eyes of people within national societies. They thought, as the social scientist Karl Polanyi once observed, that the markets were dis-embedded from
social forces and weren’t really serving any social purposes. (1) I guess you could say they were only serving market efficiency purposes, but the
people were disappointed with this and wanted more.
Because people were disappointed, new ideas emerged on how to manage national economies. This is seen more clearly when you look at how post world war
two systems were organized. The systems were explicitly set up to deter globalization. No one expected globalization to include finance again. The
people learned their lesson from the 1920′s-30′s which was that global finance was just to dangerous and crisis propagates itself across country
borders quickly. So, they restricted global finance to national policy arenas on purpose. This was also because they expected to preserve national
institutions of capitalism. They believed every country could have its own version of capitalism with its own priorities. They believed you could have
an international economy that would flourish without pulling apart each individual countries capitalism.
Now, as we saw this new era of globalization begin to take place between the 1960′s-80′s, some of the choices made by national policy-makers were
just plain easy. They simply reduced restrictions which had previously been in place for the free movement of goods and services. These choices
created a few distributional politics because some firms went out of business when more competitive firms from other countries exported their business
to countries taking advantage of the extent of the market, producing a division of labor. (2)