The Past of the Future of Globalization

Abstract

The first step towards globalization was the efforts of the Western World following WW2 to have bothDCs and LDCs implement free international trade, the signing of GATT and the establishment of the IMF and the IBRD (WB).But during the years ‘50s to ‘70s, most of the LDCs, in their initial years of development at the time,implemented a closed-economy model, protectionism and interventionism. Only starting with mid ‘70s did most of them opt for market economy and outward orientation. This shift vastly enlargened the space of globalization that started with the ‘90s. Globalization involves not only free trade and free flow of direct private investments (DPIs) but also free flow of financial funds. Though immigration is legally restricted in all countries, illegal migration surpass legal levels and their remittances back home provide a large source of finance.Since the ‘90s, major events took place that largely affected the globalization process. One was thecrumbling of the USSR, the shift of Russia to democracy and market economy, and a similar shift of most of the newly independent East European and Balkan countries, with many of them having eventually become EU members. This enlargened the space of globalization further.Still another was the shift of China away from Marxist central planning to a mixed economy, outward orientation and encouragement of DPIs. This event still further enlargened the space of globalization. China registered a remarkable economic economic growth to become second only to the USA in terms of total GDP.The 1997/1998 financial crisis that emanated in the Southeastern countries was quickly overcome andcaused only a temporary fall in the process of globalization.But the September 2008 global financial crisis and global recession was much deeper and its negativeeffects continued up to the present time. It emanated in the USA, in the financial sectors first, but soon spread to all other DCs and LDCs. Most countries had to implement special programmes to aid the financial sector and also to raise public investments, hence budget deficits in order to avoid, rather, to ameliorate the economic crisis.But, it must be underlined, the measures implemented did not aim to restrain or hinder the globalization process.The stress was on international cooperation in taking the measures against the crisis, using the milieu of the G-20. The measures implemented, however, brought heavy burdens for the future such as increased external debt, budgetary deficits and balance of payments deficits. In the following years, failure to cope with these problems promptly gave rise to talks about a double dip. But the USA soon raised its external debt limit and accepted a programme of reducing public expenditures. Europe, in particular, the Euro zone, faced graver problems. Firstly Ireland, Portugal, Greece and Spain failed in meeting their external debt payments. The rescue was offered by the IMF,the ECB and also the European Financial Stability Fund (EFSF). The problem faced by Greece was much deeper and required special bail-out programmes by the EU contingent on the implementation of a tight budgetary discipline. The event caused a change of the Greece government. The EU increased the funds at the disposal of EFSF and called for a closer cooperation of financial policies to be followed by Eurozone members. Dismantling of the Euro, throwing Greece out were not considered alternatives, but neither wascreating Eurobonds. The implication for the globalization was again clear; the measures implemented would in no way hinder the process of globalization, but, in fact, strengthen it in future.