What is globalization

Globalization: a word that is now part of our daily living, a word we come across every time we surf the web, use social media, watch television or read a newspaper or magazine. Indeed, there is no phenomenon that has so profoundly changed the structure of economic, social and cultural relations worldwide in the past four decades as globalization.

But what is actually meant by this word? What are the pros and cons of globalization?

What is globalization? One word, many answers

Globalization in a broad sense is, according to sociologist Anthony Giddens' classic definition, that phenomenon of world-wide interconnection at the cultural, political and economic levels derived from the elimination of barriers** to communication and trade.

In the context of economics, we can instead use the definition given by economist Alan M. Rugman in his essay "The Myth of Global Strategy" (2001), for whom economic globalization is the production and distribution of products and services of homogeneous type and quality** on a global scale. 

Economic globalization then developed into two distinct areas:

• The real economic globalization, which involved
  • the internationalization of business activities and services,
  • the delocalization of production processes
  • and the intensification of trade
• Instead, the financial economic globalization has resulted in the increased ability to mobilize capital internationally, primarily banking capital, by buying and selling stocks, bonds and government securities on world markets.

Let us now examine the stages of this process and the consequences it has had on international economic relations as a whole.

From the EEC to the crisis of the 1970s

Processes of globalization in larger or smaller geographic areas have always run through the course of history: the constitution of the ECE/EU (1957) can also be seen as an example of "globalization" on a continental scale, affecting the states that subsequently became members.

The gradual elimination of customs barriers and the implementation of the single market among EEC member countries were among other factors that made possible the Italian "economic miracle" of 1958-62: Italy is still the second largest manufacturing country in the Union, surpassed only by Germany.

The process of economic globalization is accelerated by the deep crisis that Western economies go through between 1971 and 1973. The end of the Bretton Woods fixed exchange rate system and the oil crisis caused by the Yom Kippur War, with the consequent surge in commodity costs, threw the development model established after World War II into crisis.

This model, which had enabled soaring growth in the world economy, was now showing all the limitations of its own, of the technologies developed after 1945 and of the keynesian inspired economic policies that had accompanied it. The latter, based on strong demand support from the state and steadily rising wages, had gradually tightened the labor market and triggered a sharp rise in inflation, accompanied for the first time in those years by a condition of stagnation in the economy (the so-called stagflation).

From neoliberalism to the global market

It is against this backdrop of crisis that the neo-liberal theories of the Chicago School of Milton Friedman, winner of the Nobel Prize in Economics in 1976, which considered most state intervention in the economy to be more harmful than helpful, asserted themselves forcefully. Friedman’s economic theories were in favor of the free market, that is, the total opening of the market for goods, services, capital and people.

Friedman’s ideas first influenced Margaret Thatcher’s new British conservative government (1979) and Ronald Reagan’s presidency in the U.S. (1980-1988) and then, starting in the 1980s, other Western economies. This climate of increasing confidence of economists and governments in the self-regulation of the market, which they believed could autonomously solve all problems related to the production and distribution of goods by automatically correcting any inefficiencies, in fact fostered a process of progressive deregulation of markets, liberalization of economic activities previously controlled by states and privatization of large publicly controlled enterprises. All this of course also meant nullifying any form of economic protection and consequently exposing businesses to competition not only domestically but also (and especially) internationally.

The collapse of the Wall, the European Union and the integration of world markets

At the same time as these developments, the final crisis and collapse of communist regimes in Eastern Europe took place in the late 1980s: the end of the Cold War between 1989 (the fall of the Berlin Wall) and 1991 (the end of the Soviet Union) has as its most significant economic consequence the transformation of the former USSR satellite countries into capitalist-economy countries and thus the enormous expansion, including in geographical terms, of the free market.

Another phenomenon that contributes to the broadening of this trend of progressive liberalization of the world economy is the simultaneous process of strengthening of European integration between the second half of the 1980s and the early 1990s, culminating in the Maastricht Treaty of 1992. This agreement established the steps of the Economic and Monetary Union (EMU) among the member states of the EEC (later the EU) and the creation of a common currency (the Euro) and a Central Bank (the ECB), the first nucleus of supranational institutions to govern the Union’s economy. The new millennium then sees the gradual entry of Central and Eastern European countries into the Union and their adoption of the rules and mechanisms of the Single Market and EMU.

At the world-wide level, a similar process of strengthening of international economic and financial organizations occurs, which will lead first to an increasingly prominent role for existing institutions, such as the International Monetary Fund (IMF/IMF) and the World Bank, and then to the establishment of the World Trade Organization (WTO, 1994), these institutions to which national governments will transfer increasing parts of their sovereignty.

The globalization process fueled by the economic policies of national governments and the liberalizing action of international bodies has led to the gradual abolition of most of the customs and tariff restrictions on trade that hindered the better integration of productive factors (capital and labor) internationally. This process subsequently resulted in the emergence of a series of integrated markets inspired in large part by the example of the EU, such as the NAFTA (North American Free Trade Agreement), the Mercosur (South American Common Market) and the Asean (the Association of Southeast Asian Nations) and the emergence of new geographic areas such as South America and Asia with very competitive technological products.

Over the past three decades, therefore, the economy has become increasingly "transnational," with an exponential increase in the economic activities of geographically distant countries. The dismantling of most protectionist measures has resulted in an equally exponential increase in foreign investment by companies from OECD countries in both absolute terms and as a percentage.

 A key contribution to globalization was then made by the gradual spread of information and communication technologies (often abbreviated to ICT, from the English Information and Communication Technology), or the information technology revolution that greatly accelerated the time of knowledge and information transfer and made it easier and faster for businesses to run.

Growing economic interconnectedness and the progressive closing of physical distances due to developments in technology have enabled countries with different raw materials and production factors to get in touch more easily, facilitating their international movement and the delocalization of production. The downside of this growing interconnectedness is that each country is now more easily exposed to the repercussions of any economic crises born in other states.

Growth and crisis in the world economy

The sum of these historical conditions and the interventions implemented by states and international bodies has meant that from the second half of the 1990s until the middle of the new millennium the world economy has grown as never before. The emerging economies of Latin American and Asian countries and primarily Brazil and China have entered the competition with impetuosity. Over the past two decades, 40 percent of manufacturing value added is now produced in emerging countries (in 1991, 80 percent of it was the preserve of developed areas).

Among other things, this phenomenon has led to the formation and growth of masses of new consumers seeking high-value-added goods and services, which have been a great opportunity for businesses in mature economies. These, in fact, continued their more than positive trend over the same period, with good growth rates, high levels of employment and low inflation.

This "state of grace" of the world economy (sustained growth of world output driven by emerging economies, low inflation, impetuous development of finance due to an abundance of liquidity, low interest rates, a very large availability of credit for investment in real and financial assets and a consequent reduction in perceived risk) ends with the financial crisis of 2007-2008 and the subsequent recession of 2008-2010, particularly felt in Italy, the European country most affected by the crisis.

Globalization and production processes: industry 4.0

Globalization has also revolutionized the evolution of the processes of industrial production. In the "globalized" world market, geographic obstacles to the movement of factors of production are now virtually nonexistent: more and more companies can now, as we have seen, delocalize production to countries that allow them to make the most of the competitive advantages obtainable while increasing competition, which is also now "global." In this increasingly complex and constantly innovating environment, a company must therefore increasingly understand the changes in the global environment in which it operates in order to take advantage of the opportunities and thus ensure its survival.

The information technology revolution, one of the main drivers of globalization, has naturally also had a great impact on the evolution of the production models of enterprises. In fact, to remain competitive in this substantially limited and ever-changing marketplace, companies have had to renew themselves profoundly with the use of new technologies that are more high-performing and more affordable, new materials, and new production processes that are increasingly automated and simplified thanks to the use of Internet and digitization, facilitating their management with increasingly sophisticated management software and networking**. 

In this way the enterprise becomes more efficient, effective and thus more competitive. They increase the quality and productivity of work, information is processed with greater speed and accuracy, production times and modes are flexible and adaptable to the company’s needs, and customer relations are more direct. 

Continued technological development and the need to overcome the recession of 2008-2010 then propelled the world economy into a new industrial revolution, the "Revolution 4.0." in 2010, enterprises are in fact beginning to use "cyber-physical systems," as all those computer systems that interact continuously with the physical system in which they operate are defined.

The availability of software, wireless connections and cheaper and better components has enabled faster and faster and more constant circulation of data and information, the creation and use of new materials and faster and more reliable data processing and analysis technologies, and the design of fully digitized and online-connected components and systems (the interconnected and programmable robots, 3D printers, augmented reality, simulation between interconnected machines to optimize processes).

Enterprise information systems, then, can now handle very high amounts of data through cloud computing: the on-demand delivery through the Internet of IT services such as storage, transmission and processing of data in fact allows anyone who is enabled to be able to access all the business information previously shared on the cloud platform. Much more accurate and rapid analysis of large amounts of data (the big data analysis) can thus be carried out and products and production processes can be optimized.

Digitization in the service of global enterprises

Taking full advantage of the possibilities offered by digitalization will enable developed countries, and especially European countries, over the next 15 years, according to the Report THINK ACT Industry 4.0 The new industrial revolution - How Europe will succeed by the consulting firm Roland Berger on manufacturing industry trends, to regain market and turnover shares lost to emerging countries over the past 20 years. 

By 2030 then, according to the same report, workers in the European industrial sector will increase from 25 million in 2011 to 31 million; the digitalization of the industry could thus bring back to the industry some of the employment that the introduction of automation had eliminated since the 1970s.

This is therefore anopportunity and a challenge that the [Italian] production system(/translation/italian-translation)** must take up and face with courage and foresight knowing that, to be brutal, there is no alternative.