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How does a country achieve economic success? How do they reproduce it? These are questions that many countries have asked themselves. There are a number of different strategies to follow within the international economic system. Globalization is being increasingly driven because of the reduced costs of transportation and communication (5). Countries have tried various models to achieve economic success; some benefit from globalization and some do not.

For centuries, most countries used gold and silver money interchangeably, but the gold standard became the “most powerful organizing principle of global capitalism during the nineteenth century” (3). In 1717, the English currency was standardized and the country was put on a gold standard in theory, while silver was not used but known as legal tender. Almost all other countries were bimetallic, using both gold and silver, but centuries of shared gold and silver money came to an abrupt end in the 1870s (3). In the 1870s, most major industrial countries joined the gold standard, and when a country’s currency became equivalent to gold, it was interchangeable at a fixed rate with the money of any other gold standard country (3). Contracted prices would not fluctuate, exchange rates did not move, and trade was very predictable; international investment soared.

Liberals would say that globalization is mutually beneficial for companies and individuals (2). Because of globalization, there is more interconnection --i.e. economies, public health, language-- between countries, connections can be made on a broader scope, wider and deeper (2). Since technology of transportation and communication is getting cheaper and better, some goods are becoming cheaper to import than for a country to produce. International trade occurs because of a few hundred companies, but there are still thousands of companies that rely on international relations, because support, in one way or another, is often from overseas. If big companies invest all over the world by foreign direct investment, they may even be providing wages that are relatively high for the area –an example being Nike in Indonesia (2).

When the gold standard was set, citizens of rich countries invested huge portions in other countries, but not everyone welcomed economic integration (3). Globalization does not work in favor of everyone. Despite sharply lowering their barriers to trade and investment since the 1980s, scores of countries in Latin America and Africa are stagnating or growing less rapidly than in the heyday of import substitution during the 1960s and 1970s (4). In Latin America, they quickly discovered that if they cut their imports, they would stop competition within the country –which would increase jobs short-term, but created poverty long-term (1).

Import Substitution Industrialization (ISI) method is when a country decides that instead of importing the goods it needs, it will substitute by making goods they need at home (1). Hopefully, over time these countries hope to build a surplus to sell to other countries. This is good because they are not relying on outside companies, so it may lead to heavier industry. Prices of commodities go up and down, but prices of manufactured goods are much more stable and have a better growth rate, so there is a much greater incentive to industrialize and diversify (2). ISI was successful for a little while. There was a new class of rich people; urbanization in cities while big cities became more important (1). One could be very strategic with imports, so tariffs could be on specific items. Governments were able to keep currency artificially high, so when importing, goods were cheap (1). This caused trade and budget deficits. Over time, more and more countries imported goods. Unfortunately, companies that matured had become dependent on government protection. Companies owned or subsidized by their governments led to inefficient industries that were not domestic or internationally competitive. Rising oil prices leading to inflation and increasing interest rates meant countries borrowing lots of money and being unable to pay back the loans (1). ISI had to be abandoned because it was not sustainable.

Another plan that was followed was a socialist economic and political model (5). These countries decided to completely forgo the market, and instead, reply on government planning of the economy for a more fairly and thoughtfully created wealth. Socialism was even worse than ISI, because it was extremely difficult for countries to follow. The Soviets tried it, amongst others, but it was not sustainable due to its inefficiencies (5).

An alternate model would be what was followed by the “Asian Tigers:” Taiwan, Singapore, Korea, Hong Kong, and Japan (1). Instead of their governments protecting companies to serve domestic markets, they had export led growth. They decided to target certain industries to become very efficient to sell overseas. For certain market industries, they did not allow competition within the country. Instead, they would help build companies that could compete globally. If the government got the fundamentals right, intervened less, they would be able to accumulate an economic surplus. These companies reaped enormous benefits from their progressive integration into international economy, but this model cannot be repeated successfully (4). These “Asian Tigers” had to abide by few international constraints and paid few of the modern costs of integration during their growth experience, because global trade rules were sparse and their economies faced almost none of today’s common pressures to open their borders to capital flows (4). These countries followed policies that are either precluded by today’s trade rules or are highly frowned upon by organizations like the International Monetary Fund and the World Bank (4).

Those who prospered due to the globalization of the late nineteenth and early twentieth centuries were a powerful, ever-increasing force for continued economic integration (3). Global economic openness encouraged faster transport of imports and exports, better communication internationally, more reliable currencies, freer trade policies, and more political stability (3). As countries continue to try numerous models to achieve economic success, some benefit from globalization –often at the cost and exploitation of others-- and some do not.

Sources

Commanding Heights: the Battle for the World Economy. Dir. Greg Barker. Perf. David Ogden Stiers, Tony Benn, and Stephen G. Breyer. DVD. 2002.

Frankel, Jeffrey. "Globalization of the International Economy." International Politics. Robert J. Art and Robert Jervis. Brookings Institution P. 325-340.

Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. 1st ed. New York: W.W. Norton, 2006. 1-55.

Rodrik, Dani. "Trading in Illusions." Foreign Policy Mar. 2001. 30 May 2006 http://www.foreignpolicy.com/Ning/archive/archive/123/tradinginillusions.pdf.

Stefanovich, Mark. Lecture. Apperson 306, Corvallis. 23 May 2006.