The Economics Book

228

G

lobalization is a term that

means different things

to politicians, business

people, and social scientists. To an

economist it means the integration

of markets. Economists have long

thought this a good thing.

In the 18th century Adam Smith

(p.61) attacked the old mercantilist

ideas of protectionism, which

aimed to restrict the inflow of

foreign goods. He argued that

international trade would expand

the size of markets and allow

countries to become more efficient

by specializing in certain products.

Often, market integration is seen as

inevitable because it rides on the

back of a wave of new technology—

such as smarter phones, faster

planes, and an expanding internet.

But globalization is also affected

by choices made by nations—

sometimes conscious, sometimes

accidental. Although technological

change tends to bring nations

together, policy choices can push

them apart.

Modern globalization is not

unprecedented. Globalization has

waxed and waned over time as

nations have made different policy

choices. Sometimes these

choices have added to the effect

of technological progress on the

integration of markets; sometimes,

they have hindered it.

Market integration is the fusing

of many markets into one. In one

market a commodity has a single

price: the price of carrots would

be the same in east Paris and west

Paris if these areas were part of the

same market. If the price of carrots

GLOBALIZATION

Globalization is

not inevitable.

Full globalization

requires the harmonization

of trade regulations and

laws across countries.

Such harmonization

would require either

a global government or

the erosion of countries’

democracies.

In the past

governments have made

different choices about

the level of barriers and

therefore about the path

of globalization.

Globalization spreads

with technology but is

also impeded by barriers

such as trade tariffs.

IN CONTEXT

FOCUS

Global economy

KEY THINKER

Dani Rodrik (1957– )

BEFORE

1664 English economist

Thomas Mun says that growth

requires reductions in imports.

1817 British economist David

Ricardo says that international

trade makes countries richer.

1950 Raúl Prebisch and Hans

Singer argue that developing

countries lose out from

globalization because of

unequal terms of trade.

AFTER

2002 Joseph Stiglitz criticizes

globalization as promoted by

the World Bank and the IMF.

2005 World Bank economist

David Dollar argues that

globalization has reduced

poverty in poor countries.

Neither of these is

feasible, and they are not

desired by electorates.

Christopher Columbus stumbled

across the Americas on an expedition

intended to find a new trade route to

China. Such efforts to globalize trade

have taken place for centuries.