Hyper- Globalization

Subject :Economy

Context:

Post-1990s era of hyper-globalization has come to an end.

Details:

World War-I 1914-1918 ended the first “golden age” of globalisation between 1870 and 1914, when world trade in goods surged from 9% to 16% of GDP.
By the time War War-II began in September 1939, the share of merchandise trade in global GDP had collapsed to 5.5%. It recovered gradually thereafter to reach the pre-World War-I levels only towards the late-1970s.
Between 1990 and 2008, global trade in goods soared from 15.3% to 25.2% of world GDP- 2nd golden age of hyperglobalization
That world – “happy age”, as Keynes would have called it – came to an end in 2022– which has seen not one, but two wars- Ukraine Russia war and China-US economic conflict.
- By 2020, world merchandise trade had dipped to 20.8% of GDP, and to 26.9% for both goods and services.
- The two conflicts cause greatest collateral damage to the global trading order–From production based on comparative advantage and gains from trade, it’s each nation for itself now.

Concept

Hyperglobalization:

Hyper-globalization is the dramatic change in the size, scope, and velocity of globalization that began in the late 1990s and that continues into the beginning of the 21st century.
It covers all three main dimensions of economic globalization, cultural globalization, and political globalization.

Difference between Globalization & Hyper-Globalisation

The International Monetary Fund defines Globalization as a means that world trade and financial markets are becoming more integrated.
Hyper-globalisation is used to describe the dramatic increase in international trade witnessed for about a decade and a half from the early 1990s. It led to an unprecedented movement of capital and of people.
The main difference is the rate of speed at which the process of globalisation takes place.

Economics and trade theories:

French philosopher Montesquieu

He said that “commerce is a cure for the most destructive prejudices” and “peace is the natural effect of trade”.
- Duox Commerce takes inspiration from Montesquieu, in propounding that trade makes men less prone to violence or irrational behaviour.

Adam Smith

Adam Smith’s theory of absolute cost advantage in international trade was evolved as a strong reaction to the restrictive and protectionist mercantilist views on international trade.
He upheld in this theory the necessity of free trade as the only sound guarantee for progressive expansion of trade and increased prosperity of nations.
Every country tends to specialize in the production and export of that commodity which it can produce most cheaply.
When countries specialize on the basis of absolute advantage in costs, they stand to gain through international trade, just as a tailor does not make his own shoes and shoemaker does not stitch his own suit and both gain by exchanging shoes and suits.

David Ricardo

Ricardo’s widely acclaimed comparative advantage theory suggests that nations can gain an international trade advantage when they focus on producing goods that produce the lowest opportunity costs as compared to other nations.
He illustrated this with an example of two countries producing two goods.
- Suppose it took 100 hours to make one unit of cloth and 120 hours for one unit of wine in England, whereas Portugal required only 90 hours for the former and 80 hours for the latter. Clearly, Portugal enjoyed absolute advantage producing both goods.
- Ricardo argued it still made sense for England to simply manufacture cloth and for Portugal to specialise in wine. It would result in 2.2 units of cloth and 2.125 units of wine being produced over 220 hours and 170 hours in England and Portugal respectively. The two were better off, then, producing one good (England cloth and Portugal wine) and importing the other.
Belief in comparative advantage is what also propelled the second golden age – of “hyperglobalisation” – after 1990.
- Example- China’s share in world merchandise trade to have risen from 1.8% in 1990 to 11.1% in 2012. This, even as that of others fell: Germany (12% to 7.6%), the US (11.3% to 8.4%) and Japan (8.2% to 4.3%).

John Maynard Keynes:

Keynes argued that inadequate overall demand could lead to prolonged periods of high unemployment.
An economy’s output of goods and services is the sum of four components: consumption, investment, government purchases, and net exports (the difference between what a country sells to and buys from foreign countries) i.e. increase export and decrease import.
Any increase in demand has to come from one of these four components thus, increasing national income and employment level.