Chapter 20 Globalization True or False 1. Globalization can be carried out through the movement of factors of production. Answer: True 2. It is possible to trace international trade back thousands of years. Answer: True 3. Steamships have never been successfully used for transoceanic transportation. Answer: False 4. Capitalist economic systems are distinguished by the fact that almost everyone has to buy on the market whatever they consume. Answer: True 5. After 1900, the world never again experienced periods of deglobalization. Answer: False 6. A commonly used measure of global economic integration is trade as a proportion of gross domestic product (GDP). Answer: True 7. Tariffs make the price of traded goods more expensive. Answer: True 8. After the Great Depression, states did not return to more market-based trade policies until shortly after World War II. Answer: False 9. Since 1900, the ebb and flow of globalization has been governed mainly by socioeconomic factors. Answer: False 10. More than 80 percent of global investment today is carried out within national borders. Answer: True 11. The role of the transnational corporations (TNCs) is a poor indicator of the importance of regionalization over globalization. Answer: False 12. The world's largest firms are concentrated in three regions: European Union, North America, and China. Answer: False 13. Economic ties between neighbouring countries are thinner than ties between countries located farther away from each other. Answer: False 14. The world has been able to reverse the degree of globalization through state action. Answer: True 15. Outsourcing is excluded from consideration of global value chains. Answer: False 16. In the era of deglobalization, the value chain was compact and geographically contained. Answer: True 17. The value chain of clothing production, when it comes to final assembly, is not labor intensive. Answer: False 18. The more labour-intensive part of the value chain of clothing production is more likely to take place in high-wage countries than in low-wage countries. Answer: False 19. Export processing zones do not benefit their host countries or their TNCs. Answer: False 20. China offers a large, willing, and high-cost labor force to the multinational corporations of the world. Answer: False 21. Employers in the United States have used the threat of moving production overseas as a means of gaining advantages over employees. Answer: True 22. Another name for state-led development is export-substituting industrialization. Answer: False 23. The United States has never instituted state-led development policies. Answer: False 24. To date, the ways in which culture is being globalized is not very visible. Answer: False 25. Even critics of the North American Free Trade Agreement (NAFTA) agree that it has engendered a net gain in jobs north and south of the U.S.-Mexico border. Answer: False Multiple Choice 1. Globalization is __________. A. a world in which every country consumes only what it produces for itself B. the integration of economic activities across national borders C. moving from a condition in which economies are linked to each other in various ways to economic isolation D. the flow of labor that adds to the pool of workers in one country while reducing it in another Answer: B 2. Which of the following activities is NOT a dimension of globalization? A. international trade B. targeted investment at home C. the movement of capital D. the movement of labor Answer: B 3. In the 1870s, what group of indicators signalled a turning point in global economic integration? A. the degree of trade and the flow of investment B. the degree of trade and the convergence of international prices C. the degree of trade, the flow of investment, and the convergence of international prices D. the convergence of international prices and the convergence of international wage rates Answer: C 4. What two things had to occur before globalization could really take off in the nineteenth century? A. a change in transportation and communication B. a change in infrastructure and a transformation of economic systems C. an increase in the pool of labor and rising levels of education D. accumulated capital and price stability Answer: B 5. Before __________, economic production and consumption had to be largely local. A. price convergence B. the spread of international trade C. foreign investment D. the advent of the railway Answer: D 6. Which two modes of transportation around the middle of the nineteenth century were truly revolutionary? A. steamship and automobiles B. steamship and railway C. railway and roads D. railway and subway Answer: B 7. Between 1820 and 1914, more than __________ miles of railroad were laid in the United States A. 250,000 B. 350,000 C. 450,000 D. 550,000 Answer: A 8. Which of the following technologies is recognized as the primary engine behind the communications revolution of the nineteenth century? A. the telephone B. the telegraph C. radio D. trans-Atlantic mail Answer: B 9. In the nineteenth century, which group represented a reliable source of demand? A. politicians B. farmers C. city residents D. new immigrants Answer: C 10. An economic system in which the market for produced goods is limited is said to be __________. A. ante capitalist B. meta capitalist C. precapitalist D. proto capitalist Answer: C 11. Prior to the rise of capitalism, what was the traditional means of survival among peasants? A. selling produced goods at local markets B. working for wages in rural communities C. working their own land with their own labor D. leasing their own land for agricultural production Answer: C 12. Which of the following features of the capitalist system distinguishes it from other systems? A. rising prices B. market independence C. market dependence D. expanding transportation infrastructure Answer: C 13. After 1913, the process of globalization that had begun in the nineteenth century began to __________. A. accelerate B. accelerate regionally but decrease globally C. decrease D. decrease regionally but accelerate globally Answer: C 14. __________ is a commonly used measure of global economic integration. A. volume of trade B. gross domestic product (GDP) C. trade as a proportion of gross domestic product (GDP) D. gross domestic product (GDP) as a proportion of trade Answer: C 15. Gross domestic product (GDP) is equal to the value of __________. A. the consumer price index B. all exports sold regionally within a defined period C. all imports sold domestically within a defined period D. all goods and services sold within a defined period Answer: D 16. Consider the course of globalization from the nineteenth century to today. After a period of increasing globalization that began in the nineteenth century, when did the process of deglobalization start? A. after World War I B. during the Great Depression C. at the start of World War II D. after World War II Answer: A 17. After the Great Depression, what was the most important factor that worked against the resumption of globalized economic integration? A. continued instability in Europe B. devalued American currency C. the power of the state D. the spread of communism Answer: C 18. After the Great Depression, countries wanted __________. A. more international control over regional economic blocs B. less international control over regional economic blocs C. more control over their economies D. better credit terms from the International Monetary Fund Answer: C 19. Which two instruments of economic policy helped states gain more control over the flow of economic activity in the period of deglobalization that followed the Great Depression? A. capital controls and currency devaluation B. currency devaluation and import quotas C. tariffs and capital controls D. tariffs and capital investments Answer: C 20. What is a tariff? A. A tariff is a tax imposed on imports or exports. B. A tariff is a levy imposed on agricultural imports. C. A tariff is an insurance payment against macroeconomic shocks. D. A tariff is a penalty imposed on emerging industrial conglomerates. Answer: A 21. A tariff _________ the price of goods. A. raises B. lowers C. destabilizes D. equalizes Answer: A 22. When a government makes it harder for an investor who, seeking diversification, wishes to move money offshore, it is exercising __________. A. capital accumulation B. capital control C. currency devaluation D. currency exchange Answer: B 23. Since the 1970s, governments across the world have enacted which type of economic policy? A. industry-protective policies B. labor-supportive policies C. market-based policies D. risk-averse policies Answer: C 24. The ebb and flow of globalization since 1900 has been governed mainly by __________ factors. A. economic B. political C. social D. technological Answer: B 25. England and France were extensive international traders in the years before 1914. Why was this likely so? A. England and France were deeply integrated with their colonial empires. B. England and France were less reliant on their colonial empires as trading partners than were other European colonizers. C. England and France were rapidly shedding ties to their least profitable colonies. D. England and France were slower than other European countries in granting independence to their colonies before 1914. Answer: A 26. When firms from one country make investments in another, it is known as _________. A. direct foreign investment (DFI) B. direct licensing (DL) C. foreign direct investment (FDI) D. investment transfer authorization (ITA) Answer: C 27. As more of what is produced across the world comes from international investment as opposed to investment by local firms, we say that __________. A. domestic production is becoming more aggregated B. domestic production is becoming more integrated C. international production is becoming more aggregated D. international production is becoming more integrated Answer: D 28. Which of the following statements about global investment is true? A. Factories and firms are as footloose as popular images of globalization would have us believe. B. Since 2000, more than 80 percent of global investment is carried out outside national borders. C. Since the 1990s, global investment has been in the range of 10 to 20 percent. D. Since the 1970s, global investment has risen steadily in all parts of the world except North America. Answer: C 29. What evidence supports the conclusion that economic integration clusters around small regions? A. that average distance that imports and exports travel rises as economic integration increases B. that average distance that imports and exports travel falls as economic integration increases C. that average distance that imports and exports travel stays relatively even as economic integration increases D. that average distance that imports and exports travel rises and falls in tandem with the business cycle Answer: C 30. The trade intensity index is the ratio of __________. A. intraregional trade share relative to global trade B. intraregional trade share relative to the region's share in global trade C. interregional trade share relative to global trade D. one TNC's share of intraregional trade relative to another TNC's share Answer: B 31. Most trade and foreign investment is actually carried out by __________. A. central banks B. entrepreneurs C. price discriminators D. transnational corporations Answer: D 32. Where does most of the trading and investment activity of TNCs take place? A. in neighbouring or nearby countries B. in far-flung regions of the world C. within their home countries D. in the European Union, North America, and Japan Answer: A 33. Where are the top migration corridors located? A. between neighbouring countries B. between neighbouring continents C. between countries that line the Pacific Ocean D. between undeveloped countries Answer: A 34. Evidence suggests that globalization is promoting __________. A. a flattening out of the world as a whole B. densely woven ties between all corners of the world C. interchangeable migration corridors D. regional economic blocs Answer: D 35. Smaller regions of the world where economic integration is particularly noticeable include all the following regions EXCEPT __________. A. East Asia B. Europe and North Africa C. North America D. South America Answer: D 36. What do global value chains organize? A. consumption B. government expenditures C. investment D. production Answer: D 37. In the era of deglobalization, __________ was uncommon. A. insourcing B. downsizing C. outsourcing D. rightsizing Answer: C 38. In the production of clothing, which step is considered more capital intensive than the others? A. spinning of thread B. weaving of fabric C. final assembly of clothing D. selling of clothing Answer: A 39. In the production of clothing, which step is considered less capital intensive than the others? A. spinning of thread B. weaving of fabric C. final assembly of clothing D. selling of clothing Answer: C 40. Capital-intensive industry involves a lot of what? A. high-technology machinery B. outsourcing C. value chains D. manual labor Answer: A 41. Steps in global value chains typically take place __________. A. under one roof B. in one country C. in different locations across the globe D. in different locations within neighbouring regions Answer: D 42. Labor-intensive garment industry assembly operators are __________. A. less likely to locate in the United States than in the Caribbean B. more likely to locate in the United States than in Mexico C. less likely to locate in export processing zones than inner cities D. more likely to avoid high wages associated with export processing zones than are other types of manufacturers Answer: A 43. What are export processing zones famous for? A. high wages for labourers and tax breaks for TNCs B. low wages for labourers and tax breaks for TNCs C. high wages for labourers and tax breaks and other special privileges for TNCs D. low wages and tax breaks for labourers Answer: B 44. Of the following locations, which is less likely than the others to operate as a garment industry export processing zone? A. Dubuque, Iowa B. Santiago, Dominican Republic C. Matamoros, Mexico D. Tijuana, Mexico Answer: A 45. Which of the following steps in the global value chain is a worker in China more likely to perform? A. assembling components B. designing components C. producing components D. post-sale servicing of components Answer: A 46. What kind of labor force does China offer TNCs? A. a small but willing labor force B. a large, willing, low-cost labor force C. a large, low-cost, but relatively inflexible labor force D. a large, willing, but relatively high-wage labor force Answer: B 47. In China, export manufacturing has blossomed __________. A. in agricultural regions B. in coastal regions C. in interior regions D. in the Cantonese-speaking regions of southern China Answer: B 48. The speed and flexibility of the Chinese labor force derives from what? A. the fact that Chinese workers are incentivized with special privileges B. the fact that Chinese workers pay no taxes C. the fact that Chinese workers are healthier than their American counterparts D. the fact that Chinese workers work far longer and harder than American workers Answer: D 49. How long is the actual working day for Chinese labourers in export processing zones? A. 8 hours B. 8 hours, with occasional overtime C. 10 to 11 hours a day D. 10 to 14 hours a day Answer: D 50. What is a "labor dispatch agency"? A. an in-house worker care centre that offers psychological counseling to workers B. an outside workers' union that monitors labor-management disputes C. an outside bureau that frees employers from contractual relationships with employees D. an in-house outsourcing intermediary that reassigns migrant labourers to new production facilities Answer: C 51. TNCs often set up production facilities in export processing zones for which of the following reasons? A. cheaper labor and fewer worker protections B. fewer worker protections and better managerial capabilities C. better managerial capabilities and better labor-management relations D. better labor-management relations and simpler employment contracts Answer: A 52. In union-organizing drives at places of work in the United States, what tactic has been particularly successful at countering organizers, according to a study commissioned by the U.S. Trade Deficit Review Commission? A. plant closure B. threat of flight to other locations C. threat of strike D. consistent communication across different media channels Answer: B 53. Globalization occurring in the cultural domains is best described as a(n)__________. A. one-way transmission B. independent ecosystem C. two-way street D. four-way intersection Answer: C 54. What is the main promise of globalization? A. cross-cultural exchange B. spread of democracy C. economic growth D. trade union solidarity Answer: C 55. The state-led development model employed in the developing world in the middle decades of the twentieth century in Latin America, Asia, the Middle East, and Africa shared all of the following practices EXCEPT __________. A. free trade B. market regulation C. price controls D. anticompetitive industry supports Answer: A 56. The state-led development model employed in the developing world in the middle decades of the twentieth century in Latin America, Asia, the Middle East, and Africa has a technical name. What is it? A. imperfect competitive industrialization (ICI) B. import-substituting industrialization (ISI) C. income-stabilizing industrialization (ISI) D. invisible trade industrialization (ITI) Answer: B 57. What was at the heart of the state-led development model employed in the developing world in the middle decades of the twentieth century in Latin America, Asia, the Middle East, and Africa? A. an attempt to stabilize private-sector investment B. a commitment to nurture national industry in the face of international competition C. a return to more market-based economic policies D. a short-term response to market fluctuations Answer: B 58. Where is the centre of the Bollywood film industry? A. Assam, India B. Gujarat, India C. Mumbai, India D. Uttar Pradesh, India Answer: C 59. As developing countries try to industrialize, what competitive disadvantage do they face? A. pressures to sell imported goods across regional markets already being produced by more experienced firms from richer countries B. producing for underserved markets not yet targeted by more experienced firms from richer countries C. producing for markets that are already being served by more experienced firms from richer countries D. restrictions on imported goods already being produced by more experienced firms from richer countries Answer: C 60. Costa Rican textile producers who successfully push American textile products out of local Costa Rican markets have, in economic terms, accomplished what? A. import stabilization B. import substitution C. market-friendly globalization D. trade liberalization Answer: B 61. What replaced state-led development in the developing world in the 1980s? A. fair trade B. free trade C. market forces D. the Washington Consensus Answer: D 62. In the middle decades of the twentieth century, which two economic policies went together? A. deregulation and reglobalization B. liberalization and globalization C. state controls and deglobalization D. state controls and reglobalization Answer: C 63. At the end of end of the twentieth century, which two economic policies went together? A. deregulation and reglobalization B. liberalization and globalization C. state controls and deglobalization D. state controls and reglobalization Answer: B 64. Under the North American Free Trade Agreement (NAFTA), where did nearly all of the growth in employment in Mexico occur? A. in rapidly industrializing agricultural regions south of the Mexican capital B. in the maquiladoras C. in locally owned assembly facilities D. in the rural-suburban fringes of Mexico City Answer: B 65. What has happened to most low- to middle-income countries with the turn away from decades of state-led development and regulated markets toward globalization? A. They have been able to sustain robust pre-1980 growth rates. B. They have seen their growth, productivity, and investment stagnate. C. They have seen the gap between wealthy and poor countries narrow. D. They have seen growing parity with Northern industrialized countries. Answer: B Scenario Multiple Choice 1. What crucial factors or changes are necessary for the process of globalization? A. a depressed economy and a rise in educational levels B. efficient transportation within a country and between countries and expansion in the demand for market-produced products C. an expanding middle class rich enough to purchase goods and a decrease in poverty levels D. political necessity for international commerce and diplomatic advances between countries Answer: B 2. What critical factors and events led to a period of deglobalization beginning in 1914? A. decrease in agricultural products to export and decreased interdependency among nations of the world B. improvements in mass manufacturing, transportation, and communication C. World War I, the Great Depression, and fear of immigrants D. World War I, the Great Depression, and the efforts of governments to gain greater control of their own national economies Answer: D 3. Which of the following statements most accurately reflects and explains the true picture of the current degree of globalization? A. Contrary to popular belief, globalization has sharply decreased, due largely to increasing fear of dependency on other countries. B. Globalization has barely risen since the early 1900s, due in part to colonization creating vast trade markets with integration levels so high that they have been difficult to top. C. National pride and the economic crisis have led to a decrease in globalization. D. Virtually every developed nation today is more extensively involved in international trade and investment than ever before, due to increased worldwide demands for foreign investments and foreign-made products. Answer: B 4. Based on your knowledge of regionalization in comparison with globalization, which of the following scenarios best reflects the true picture of international trade and investment? A. a U.K. company has 50 percent of its sales in the United Kingdom, 25 percent in Germany, and 25 percent in France B. a Latin American firm has 65 percent of its sales in Canada, 25 percent in the United States, and 10 percent in Latin America C. a Mexican corporation has 45 percent of its sales in South America, 35 percent in Canada, and 20 percent in the United States D. a U.S. company has 60 percent of its sales in Asia, 30 percent in Mexico, and 10 percent in the United States Answer: A 5. Which of the following scenarios most accurately portrays the role of global value chains in globalization? A. Companies are increasingly laying off employees and shutting down altogether, forcing many workers to look for jobs overseas. B. Corporations are setting up different phases of production and assembly in as many as two or three other countries, which creates a global link. C. Governmental and political incentives to produce goods domestically are driving companies to make products locally and sell them to a wider variety of countries. D. New immigrants are increasingly working their way into local corporations, which establishes new global connections for companies. Answer: B 6. What impacts has China and its citizens experienced from the explosive emergence of its export processing zones? A. economic growth for the country, middle- to high-skill employment opportunities for young rural people, and arduous factory conditions B. incredible economic growth for the country, low-skill employment opportunities for young rural people, and arduous factory conditions C. massive political shifts in the country, low- to high-skill employment opportunities for young urban people, and vast improvements in factory conditions D. political unrest and riots protesting unfair factory conditions, formation of unions to protect the factory workers, and low-skill employment opportunities for young urban people Answer: B 7. Santiago, a Guatemalan entrepreneur, has started his own local paper-manufacturing company but fears that he won't be able to compete with international paper mills that already sell to Guatemalan businesses. To assist Santiago, the Guatemalan government has imposed tariffs on imported paper and extended his credit to enable the purchase of up-to-date equipment. This scenario exemplifies __________. A. capital controls B. foreign direct investment C. import-substituting industrialization D. the Washington Consensus Answer: C 8. Which of the following outcomes has been attributed to the North American Free Trade Agreement (NAFTA)? A. the creation of hundreds of new manufacturing plants in the United States and Mexico and an economic upturn in both countries B. a limited increase in cross-border trade, slight increase in agricultural jobs in Mexico, and an economic boost for Mexico C. a significant improvement in factory conditions for Mexican labourer’s, the loss of agricultural jobs in the United States, and a decrease in number of unauthorized Mexican immigrants in the United States D. a substantial increase in cross-border trade, an increase in job and income inequalities, the loss of agricultural jobs in Mexico, and gains for large U.S. agricultural companies Answer: D 9. In what ways has globalization affected the economic and social condition of developing countries? A. Under globalization, there have been no notable changes in the economic, political, or social conditions among low-income countries but diplomatic relations between low- and high income countries have improved. B. Under globalization, political and economic stability prevails and emigration and immigration rates have slightly increased. C. Under globalization, economic growth has fallen and global inequality has increased. D. Under globalization, low-income countries have experienced an upturn in economic growth and improved diplomatic relations between low- and high-income countries. Answer: C 10. Which of the following statements about the multiple facets of globalization is true? A. Globalization is driven and governed by economic forces, it has been extensive, and it has produced stronger economies. B. Globalization is driven and governed by political forces. It has not been as extensive as it seems nor has it produced stronger economies. C. Globalization is the natural result of higher educational levels and decreasing poverty levels. It has been fuelled by industrialists and entrepreneurs. D. Globalization has been spurred on by industrialization. it has created a new world order where virtually all countries, regardless of geographical location, are interconnected economically. Answer: B Short Answer 1. What would a perfectly deglobalized world look like? Answer: In a perfectly deglobalized world there would be no trade and no immigration. Every country would be a self-contained economic unit. Everything made and consumed in a country, whether clothing, food, electronics, or homes, would be made and consumed within that country's national borders. 2. What is meant by price convergence? Answer: The convergence of international prices is when the price of a good sold in different places of the world tends toward the same level, for instance, when a car in Mexico City sells at the same price as it would in Atlanta. 3. Which two key changes discussed in the chapter are responsible for globalization taking off? Answer: Two important changes had to occur before globalization could really take off. One was change in infrastructure, especially in transportation and communication. The second was a transformation in society's economic systems. 4. What distinguishes the capitalist system and how did the rise of capitalist economies contribute to globalization? Answer: Capitalist economic systems are distinguished by the fact that almost everyone has to buy on the market whatever they consume. Under capitalism, people now had to purchase the wheat or rice that they once grew on their own plots. They had to buy clothes that they once spun in their own homesteads. In other words, they became market dependent. The fact that so many people had to turn to the market for goods meant that demand for goods expanded enormously in the second half of the nineteenth century. This growing demand provided the real basis for the uptick in globalization. 5. Why does a tariff increase the price of a traded good? Answer: A tariff is a tax that is imposed on imports or exports. It adds to the price of the traded good, thereby making it more expensive. It raises revenue for the government, but it also makes the good less attractive to customers because it is now more expensive than its rivals. 6. Which two state policies triggered a process of deglobalization beginning in the 1930s? Answer: Together, tariffs and capital controls acted as brakes on the free flow of capital and goods across national borders. The decades between 1930 and 1970 were marked by a very wide use of both of these measures. Tariffs had the predictable effect of reducing the flow of goods into the market. Everything else being equal, tariffs are trade-depressing measures because they raise the price of traded goods. Capital controls are restrictions imposed by the government on the movement of investment out of, or into, the country. 7. Is globalization an inexorable force? Give evidence to support your conclusion. Answer: Globalization is not an inexorable force. Globalization has always been politically driven. The main forces controlling the degree and the pace of globalization have been governments and their policies. State policies (tariffs and capital controls) triggered a process of deglobalization in the decades between 1930 and 1970. Starting in the 1970s, and then increasingly from the 1980s onward, states moved to remove many of the controls and restrictions they had placed on trade and capital flows, helping us understand why reglobalization ensued in the 1970s and 1980s after a decades-long hiatus. 8. Why is foreign direct investment (FDI) considering an indication of global economic integration and how extensive is FDI? Answer: When firms from one country make investments in another, it is known as foreign direct investment (FDI). For international production and economies to become more integrated, the share of FDI should be increasing in size and scope. Although the flows of FDI tend to be quite volatile, rising and falling from year to year, since the 1990s, the range has remained around 10 to 20 percent. Another way of stating this is to say that more than 80 percent of global investment today is carried out within national borders, not across national borders. 9. Where are the world's top migration corridors located? Answer: The top migration corridors are between neighbouring countries. As of 2010, the top migration corridor was between the United States and Mexico, followed by cross-border flows between Ukraine and Russia. Other prominent corridors are between India and Bangladesh, India and the United Arab Emirates, and Turkey and Germany. 10. In which three regions of the world does economic integration particularly stand out? Answer: Three such regions really stand out: one around North America, the other in Europe and North Africa, and the third in East Asia and now spreading into South Asia as well. Economic activity tends to flow within these regions, and less so between them. 11. Explain the difference between a bottom-up and a top-down perspective in terms of understanding the impact of growing regional economic integration. Answer: From the bottom-up perspective, we look at what the implications have been for labor (for the people actually doing the work in the export processing zones or the TNCs). From the top-down angle, we look at what integration has meant for overall economic growth in the region. Has growing regional integration sped up or slowed development and industrialization? 12. Besides their low-cost labor, workers in Chinese export zones offer multinational corporations the benefit of speed and flexibility in comparison with American workers. How is that benefit derived? Answer: The speed and flexibility of workers in Chinese manufacturing plants in China is "breathtaking" and comes from the fact that Chinese workers have to work far longer and harder than employees in any American factory. On paper, workers in China—as in the United States—have a 40-hour week, but in reality Chinese workers have no choice but to put in extensive overtime, even if it is sometimes labelled "voluntary." After all, workers could "choose" to lose their jobs instead of "voluntarily" working overtime. The actual working day is 10 to 14 hours long, often with only a 10-minute break. During peak seasons of heavy output, employees in some factories work seven days a week. 13. Itemize some examples of globalization that visible are in the cultural domain. Answer: Globalization is mainly an economic phenomenon, but there are also important cultural aspects to it. For example, the United States both imports entertainment (Bollywood films) and exports movies and television shows to almost every continent in the world. Another very visible aspect of cultural globalization is the spread of certain cuisines, such as American fast-food restaurants (McDonald's) and Starbucks coffee shops in regions of the world from Berlin to Beijing. 14. What were the principal arguments for and against the North American Free Trade Agreement (NAFTA) during the period of debate that preceded its ratification? Answer: In the debates that preceded its ratification, supporters of NAFTA argued that it would result in rising incomes for everyone and lead to the creation of tens of thousands of jobs in the United States. Opponents decried the lack of effective labor and environmental protections in the treaty and worried that it would exert a downward pressure on wages and living standards, as companies would be able to move their operations in order to take advantage of lower wage and production costs abroad without losing access to domestic markets. 15. What is one of the most direct ways to assess whether globalization has lived up to its promise? Answer: One of the most direct ways to assess whether globalization has fulfilled its promise is by comparing the growth rates of different countries, as measured by gross domestic product (GDP). Essay 1. How is economic integration carried out through the movement of factors of production? Answer: Integration can be carried out through the movement of factors of production— capital and labor (land is also a factor, but land can't travel across borders!). Firms in one country can invest in another one, either by moving their facilities to another country or by buying up existing plants and equipment in the target country. Finally, people can also move between countries, bringing about a flow of labor that adds to the pool of workers in one country while reducing it in another. 2. What did the railway and the steamship do to bring about globalization? Answer: The expansion of railways across the giant land masses of Europe, Asia, and Latin America were critical to allowing goods produced in the interior of the country to be brought out to the coasts and made available for export. Before the advent of the railway, economic production and consumption had to be largely local, or confined to a small geographical area. The long journey from one region to another meant that perishable goods had to be consumed locally or they would rot in transit. Between 1820 and 1914 in the United States alone, more than 250,000 miles of railroad lines were laid down. But the United States was not alone. In Western Europe, Russia, India, and Australia, railway construction boomed, connecting inland markets that had so far been isolated through hundreds of thousands of miles of new lines. Railways could transport goods across national borders only within the same land mass. For intercontinental trade to take off, there also had to be a revolution in oceanic travel. Steamships were available for transport in the early nineteenth century, but they were too expensive for anything but occasional use. Until the 1850s, they were mostly utilized for transporting high-cost luxury items, primarily on inland rivers. A series of technological advances made steamships more efficient and lowered their costs around the middle of the century. By the 1870s, they were becoming the major source of transoceanic transportation. 3. Explain globalization and the precapitalist social structure in terms of the economic concept of demand. Answer: Globalization is a process through which the sale of goods and services spreads across national borders, expanding across the world. But for this to happen, there has to be an expansion of the market for those goods and services— people have to want to buy them. But even in the nineteenth century, most people in the world mostly consumed what they produced for themselves on their farms and in their locality. This meant that they only went to markets periodically for those things they couldn't produce at home. And this, in turn, meant that the demand for goods and services in the market always remained limited. The only group that was a reliable source of demand for consumption goods was people living in cities because they didn't have their own land like peasants did. But cities in the nineteenth century only accounted for a small proportion of the global population. Most of humanity was still located in the countryside, and this part of the population was geared toward self-subsistence, or living off the land. The economic system in most areas was still precapitalist in that the place for market-produced goods was still very limited. This is why globalization remained limited well into the nineteenth century. As long as most of the world economy was still precapitalist, consisting of peasants who toiled on their own plots of land, producing for themselves much of what they consumed, the market for goods and services remained very small. For globalization to take off, the scope of markets would have to expand, so people would want to buy the goods coming from distant parts of the world. The demand for market-produced goods would have to increase. 4. What derailed the process of globalization in the early twentieth century and why was the period of deglobalization that followed so enduring? Answer: The process of deglobalization began with World War I. The years of military conflict caused enormous disruption in normal patterns of trade and investment, which derailed the process of economic integration that had begun in preceding decades. Once the war ended, governments tried to put trade and investment back on track. But then, just a little more than 10 years later in 1929, the global economy was hit by what has come to be known as the Great Depression. The Depression also caused enormous disruption to international trade and investment because as economies all over the world collapsed, exporters found that the markets for their goods disappeared almost overnight. The war and the Great Depression certainly derailed the economic integration that had begun after 1850. But such shocks are temporary phenomena. State action, a set of policies that enabled governments to assert greater control over their national economies, played a major role during this period of deglobalization. The most important factor that worked against the resumption of a globalized world was that, after the Great Depression, governments all over the world passed measures to insulate their economies from excessive vulnerability to global economic shocks and to gain more control over the flow of economic activity. After the wrenching experience of two world wars and the Great Depression, governments resolved to achieve greater control over the own national economies. They wanted to have greater influence over the goods that entered and exited their countries as well as the flow of capital into and out of national production. Toward this end, they implemented a number of measures designed to put brakes on the free flow of goods and services. Two instruments crucial for this were tariffs and capital controls. Use of both of these measures as well as a host of other instruments designed to allow states more control over economies was what turned the temporary shock of 1929 into a more enduring era of deglobalization. 5. What is meant by the assertion that globalization is not a force out of our control, but politically driven? Answer: Starting in the 1970s, and then increasingly from the 1980s onward, states moved to remove many of the controls and restrictions they had placed on trade and capital flows. This was part of the turn to more market based policies that governments across the world have enacted since the 1970s. As states changed course and began to allow more mobility to goods and money, the process of economic integration resumed its course, much as it had in the early twentieth century. The big lesson that we can draw from the past century is that there is nothing natural or inevitable about globalization. It took some very dramatic changes in underlying conditions for globalization to expand beyond its centuries-old limits. Just as importantly, even after capitalism spread across much of the world, globalization still did not become an unstoppable force. After the first 50 years of increasing integration of production across national borders, the world experienced 50 years of deglobalization. This was made possible by state action. It wasn't until states turned to a more market-oriented strategy that globalization resumed its course. This tells us that the ebb and flow of globalization since 1900 has been governed mainly by political factors and that globalization has depended upon a suitable political environment. States may very well have the power to begin a new era of deglobalization if citizens demand it. 6. Does economic integration cluster around small regions or is it bringing together the parts of the world into a seamless whole? Answer: Globalization is not creating a seamless web of links between all corners of the world but rather is promoting the growth of regional blocs (economic ties that are most densely woven between neighbouring countries and that get much thinner between countries located farther away). The regional bias for trade is confirmed by the fact that more countries have experienced a decline in the distance that their exports and imports have travelled (a major exception being trade between the United States and China). It is further confirmed by the increase in the regional share of total trade over the last few decades. It turns out that most of the trading and investment activity of TNCs (transnational corporations), which actually carry out most trade and foreign investment, is in neighbouring or nearby countries, not in far-flung regions. 7. Explain the relationship of outsourcing to global value chains. Answer: Outsourcing is when producers take activities that they once did in-house and farm them out to other firms in remote locations. Outsourcing is part of a larger process that is called the creation of global value chains, which are sets of linked operations that organize the production of any particular product. All these activities are linked together in a chain of operations. In the era of deglobalization, it was common for many of these processes to be carried out in-house, under one roof. This means that the value chain was compact and geographically contained. But in recent years, as transportation and communication costs have declined and as a means of locating cheaper labor, companies have turned to breaking apart various components of the value chain and moving (i.e., outsourcing) the various operations to remote locations. Activities that were once carried out under one roof now take place hundreds of miles away. 8. What is China's position in the global value chain and what are Chinese export processing zones like? Answer: China has become a centre of manufacturing as part of fragmented global supply chains. China has established itself in a very particular position in the global value chain. Instead of designing products or producing the more sophisticated components like computer processors, Chinese factories most often assemble components produced elsewhere into final products, which are then reexported to consumer markets like the United States. The final assembly step that is performed in China is often one of the simplest in the production process. Instead of advanced technology or highly skilled labor, it requires above all a large, willing, and low-cost labor force. This is what China offers to the multinational corporations that build factories or hire contractors there. The life of a worker in China's export assembly factories is gruelling. In fact, this is no small part of the appeal for the multinational corporations that locate manufacturing in China. Chinese workers have to work far longer and harder than employees in any American factory. On paper, workers in China—as in the United have a 40-hour week, but in reality, workers have no choice but to put in extensive overtime, even if it is sometimes labelled "voluntary"—after all, workers could "choose" to lose their jobs instead of "voluntarily" working overtime. The actual working day is 10 to 14 hours long, often with only a 10-minute break. During peak seasons of heavy output, employees in some factories work seven days a week. Because employees are often migrants, it is common for them to live in company dormitories, where they are bunked 6 to10 people per room. In addition, Chinese workers lack the kinds of institutional protections long taken for granted in advanced economies like the United States. Employers also seek to skirt what protections do exist. For instance, they try to keep their workers in the dark about provisions for compensation for work-related injuries guaranteed by labor law or their contracts. Other companies utilize external "labor dispatch agencies" that free the company of any contractual relationship with—and thus legal responsibility for—their workers at all. Lacking these basic protections and mechanisms for addressing grievances, it should be no surprise that working conditions are often unsafe: There are many reports of workers being exposed to dangerous chemicals and of being injured or killed in workplace accidents. 9. What is meant by import-substituting industrialization (ISI), why is it so named, and what period in twentieth-century history is it associated with? Answer: Import-substituting industrialization (ISI) is a model of economic development that relies on the state to regulate markets, provide protection to firms, control prices, and protect local industry from global competition. At the heart of ISI is a commitment to nurture national industry in the face of international competition. It is associated with a very ambitious period of rapid industrialization, from the 1930s to 1980s, when nations in Latin America, Asia, the Middle East, and Africa tried to change their economies from agriculture to industry. Under the ISI model, governments typically would impose tariffs on imports to raise their price relative to domestically produced goods. They also provided cheap credit to lower costs for domestic produces and helped them acquire the latest technologies. Successful domestic producers, then, would be able to push the imported products out of local markets and become dominant sellers. In short, they would have substituted their own goods for the imports. This is why the model is called import substitution. 10. What have been the consequences of the North American Free Trade Agreement (NAFTA) and why are they tricky to assess? Answer: Assessing NAFTA's consequences nearly two decades after it came into force on January 1, 1994, is tricky because it is hard to disentangle the effects of the free trade agreement from other factors that shape social and economic outcomes. Notably in Mexico, NAFTA's implementation was quickly followed by a massive financial crisis in 1994 and 1995, which may or may not have been linked to the agreement. Everyone agrees that NAFTA produced a significant increase in cross-border trade and financial flows, and its defenders, including many business groups, think tanks, and politicians, claim that this contributed to economic growth. Critics of NAFTA, however, insist its positive benefits have been largely limited to already economically advantaged groups, and they blame it for contributing to elevated levels of income inequality and stagnating wages and living standards for workers and other non-elite groups. Even some one-time supporters of NAFTA have concluded that it has failed to provide the boost to living standards they had expected while exacerbating a wide array of socioeconomic problems. Economist Robert Scott, for instance, has found that the subsequent explosion in the United States' trade deficit with Mexico engendered a net loss of over 680,000 jobs north of the border, with more than 60 percent of such "job displacement" occurring in the manufacturing sector. Declining industrial employment had particularly harmful consequences for the job prospects of unskilled workers and weakened labours’ bargaining position with employers; thus, NAFTA fed escalating pay and income disparities as well as a growing gap between median wage levels and productivity growth. Meanwhile, the substantial rise in FDI into Mexico resulted in only minimal employment gains while intensifying various forms of inequality. In part, that is because many of the newly created jobs by NAFTA were in the informal sector or did not provide standard benefits (such as paid vacations or social security). Nearly all of the growth in manufacturing employment was due to greater work opportunities in the low-wage and highly exploitative maquiladoras, which are mostly foreign owned export assembly plants that comprise a significant, and rapidly growing, segment of Mexico's industrial sector. Furthermore, expanded employment in manufacturing was largely outweighed by losses suffered among Mexico's agricultural producers as a result of the influx of cheaper, sometimes heavily subsidized U.S. farm imports. The result was a massive migration out of the Mexican countryside. Improved access to Mexican markets benefited large U.S. agricultural producers but did not prevent the elimination of hundreds of thousands of smaller family farms during the NAFTA era. Test Bank for The Sociology Project : Introducing the Sociological Imagination Jeff Manza, Richard Arum, Lynne Haney 9780205949601, 9780205093823, 9780133792249
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