Globalization

Thomas W. Zeiler

Globalization became a buzzword following the end of the Cold War, but the phenomenon has long been a factor in the foreign relations of the United States and has deep roots in history. To the extent that it meant the expansion of trade and investments, it can be defined as economic expansion, as in the transition from territorial expansion in the nineteenth century to the increasing internationalization of markets in the twentieth century. In the aftermath of World War II, economic internationalism, or the suggestion of growing interdependence of nations and the development of international institutions, seemed to capture the essence of what more recently has been termed globalization. But such usages are too limited; they do not adequately define a phenomenon that shaped American diplomacy and its constituent elements of economics and culture.

DEFINITION AND CONCEPTUALIZATION

"Globalization" is a fairly new term. Professor Theodore Levitt, a marketing professor at the Harvard Business School, apparently first employed it in a 1983 article in the Harvard Business Review. It is arguable, however, that the basic concept dates to the first humans. Defined broadly, globalization is the process of integrating nations and peoples—politically, economically, and culturally—into a larger community. In this broad sense, it is little different from internationalization. Yet globalization is more than this incremental process that over the centuries has brought people and nations closer together as technological innovation dissolved barriers of time and distance, and enhanced flows of information promoted greater awareness and understanding.

The focus, as the term suggests, is not on nations but on the entire globe. Consequently, a more sophisticated definition might emphasize that contemporary globalization is a complex, controversial, and synergistic process in which improvements in technology (especially in communications and transportation) combine with the deregulation of markets and open borders to bring about vastly expanded flows of people, money, goods, services, and information. This process integrates people, businesses, nongovernmental organizations, and nations into larger networks. Globalization promotes convergence, harmonization, efficiency, growth, and, perhaps, democratization and homogenization.

Globalization also has a dark side. It produces economic and social dislocations and arouses public concerns over job security; the distribution of economic gains; and the impact of volatility on families, communities, and nations. Many also worry about a growing concentration of economic power; harm to the environment; danger to public health and safety; the disintegration of indigenous cultures; and the loss of sovereignty, accountability, and transparency in government. These, too, are issues that have been topics of concern to American diplomats and foreign policymakers throughout the twentieth century.

There are two principal drivers to globalization: technological innovation and changing ideas about how to organize and regulate economic activity. Rapidly changing technologies for transportation and communications continue to dissolve the barriers of time, distance, and ignorance that once complicated long-range relationships. In the twentieth century some of the most important technological innovations that changed diplomacy were the jet plane, satellite communications, fiber-optic cables, and the Internet. Ideas also shape globalization, particularly the widespread belief that free trade, private enterprise, and competitive markets promote efficiency and economic growth. Another set of ideas also influences the globalization process: the belief among international lawyers that harmonization of standards, rules, and legal systems is the most appropriate way to resolve business conflicts. The impact of technology and ideas are the building blocks of globalization, and have shaped U.S. power, policy, and diplomatic conduct.

The globalization process has other independent drivers. In the history of the modern world, a rising population in less-developed areas frequently has triggered emigration to areas of economic opportunity, and this in turn has frequently produced a stream of remittances to family members who remained behind. Famine and malnourishment, as well as the need for energy and industrial raw materials to support advanced economies, also affect the globalization process, promoting greater flows of materials, food, and goods, and thus enhancing the interdependence of people and economies. Also, two World Wars, a Cold War, and the Great Depression disrupted in significant ways the ongoing globalization process through much of the twentieth century. Finally, leadership is an important element of all human activity. Had the United States, as the world's leading economic and military power in the twentieth century, not committed its public policy to promoting an open, and nondiscriminatory, international economic system, it is quite possible that the globalization process would have taken a different course—perhaps one that gave priority to regional blocs.

In explaining the emergence of globalization, it is almost trite to observe that the underlying forces of technology and economics have transformed the traditional nation-state system and compressed once-formidable barriers of time and space. But post–Cold War globalization did just that, although the process had roots in the late-nineteenth-century growth of American power. The concept, therefore, requires scholars of foreign relations to leap outside of the normal parameters of the nation-state and political-military affairs and take into account such elements as the flows of goods, services, and money; the increasing international mobility of people (and especially business professionals and skilled workers); the emergence and growth of large corporations that view the world as a single market in which they allocate resources, shift production, and market goods; the expansion of financial, legal, insurance, and information services; and the interconnections of cultures, customs, political processes, and ideas.

Mindful that the concept addresses historical transformations, scholars in political science, economics, linguistics, anthropology, geography, law, art, and film studies help to define the term. Political scientists, economists, and business historians have accurately identified techno-economic globalization as the precursor of other forms of globalization, such as transnational cultural exchanges. That is, the open and expanding market, in a synergistic relationship with technology (including scientific developments), has given rise to concomitant political, institutional, social, intellectual, and diplomatic changes. Economics and technology exert an enduring impact on international relationships, seemingly proceeding on their own separate tracks but not immune from events.

This calls into question the interpretation of economic determinists, for globalization complicates while it also complements Marxism, corporatism, and the like. To be sure, the power of markets associated with money, goods, services, and information facilitates international relationships, but it does so in diverse ways. Wealth is only one of the critical factors propelling the global economy. When viewed from a perspective of globalization, Marxism overemphasizes capitalism's contradictions of overproduction and underconsumption, diverting attention from the impact of economic and business concerns on diplomacy. Corporatists tend to discount the influence of strategic, humanitarian, and idealist considerations in government circles and within the private sector as well, while world systems theorists draw on an international lineup of states rather than global, private-oriented networks.

Traditional approaches to diplomatic history, including post-revisionism, also ignore the globalization construct in that they relegate economics and technology to a second tier in their levels of analysis. Globalization requires attention to nongovernmental actors, including religious and philanthropic organizations, consumer and environmental groups, workers, and unions, along with those active in business and finance. By including these groups, globalization lends an appreciation to the variety of concerns in U.S. foreign relations, from national security to advancing national ideals to humanitarian concerns.

Globalization is also not event or crisis driven, which are common foci for diplomatic historians. Instead, it explores the factors that are significant to diplomacy in the long run. For instance, the dispute between Guatemala and the United Fruit Company that led to the ouster of the government of Jacobo Arbenz Guzmán in 1954 is considered a crisis point in Cold War diplomacy. But just as important is discussion of the efforts of Carl Lindner, owner of United Fruit's successor, Chiquita Brands. He opened Western European markets to exports of Central American bananas by using the power of the purse to reward American politicians of both parties, thus placing his agenda at the cutting edge of U.S. trade diplomacy toward the European Common Market. Diplomatic history can account for such actions, which are often hidden by more traditional approaches, by placing the Guatemala episode and other flash points in the context of the globalized expansion of business and culture.

With its application to the many strands of the historiography of U.S. foreign relations, it is clear that globalization promotes new ways of explaining American diplomacy. And because globalization is a historical phenomenon, scholars and commentators can draw on it as an interpretive device to examine change and continuity across the world at various times. Technology and economics have long colluded with each other, beginning at least with the Industrial Revolution. Yet conquests, trade, slavery, and religious expansion, across the world as it was then known, have occurred farther back than that. The spread of Islam, the Crusades, the Roman Empire, and continuous agricultural revolution all represented the inexorable push of the market and technology that lay at the foundation of globalization. Economic globalization undergirded strife, growth, and interchange within and beyond local boundaries throughout history, but the globalizing economy, through the penetrating impact of technology, has also changed culture and politics. Globalization is of a synthetic quality in that it addresses the factors that comprise American diplomatic history; it helps group priorities in foreign relations and explain them in a coherent way.

FIRST ERA OF MODERN GLOBALIZATION: TO 1914

The current brand of globalization in American diplomacy can be traced back to the post–Civil War era, when internationalization and Americanization emerged in U.S. ideology and expressions of power. From this period to World War I, globalization came under the rubric of Anglo-American control of the transatlantic economy. From about 1850 to 1914 an international economy existed, managed by Great Britain, resting on free trade and open capital markets and reliant on colonies and developing areas as resource bases and on consumers in advanced nations. It was in the midst of this first international industrial economy that the United States rode to world power on the strength of its economic muscle and competed with Europeans, spurred on by production and technological inventions.

This period did not experience the revolutionary form of globalization that characterized the post–Cold War years, with their highly synchronized and integrated worldwide communications, transportation, and politics. In the earlier era, less production was attributed to foreign operations. Those affected by globalization were mostly of the elite, rather than the masses, in the early twentieth century. In the pre–World War I period, it was clear which nation controlled production, marketing, culture, and the like, while the multitrillion-dollar world market of the 1990s and beyond had no natural owners. The velocity of globalization in the pre-1914 years was immensely slower than at the end of twentieth century, as were the volume and the scope. The years before World War I did not witness the fundamental transformation in the global economy that started in the last century's final two decades.

Evident in the earlier era, however, were improvements in technology and a greater volume of world economic connections that indicated the influence of globalization on American power, diplomacy, and the economy. However, remarkable changes wrought by new business networks were not fully understood by diplomats back then. Some policymakers noted the importance of new technology and economic relationships; the presidents of these times, for instance, became more aware of global economic concerns. That was particularly true of William McKinley, known for the protectionist tariff with his name but actually a far-sighted globalizer. But they could not possibly foresee all of their applications. Movement toward globalization occurred, nascent and incomplete and interrupted by events of the twentieth century though it was. Thus, it is fair to argue that globalization offered, and offers, a new paradigm in which to view not only diplomatic history, but world history as a whole.

By the twentieth century, the United States had begun to replace Britain's colonial and trans-Atlantic systems of free trade and governmentrun transportation and communication networks. The new form of organization was a structured but open economic system of private enterprise and business-friendly public support for access to foreign markets, inventions, immigration, and adherence to international law. Private enterprise could export and produce abroad, the fruits of America's leadership in technology and intellectual property. People and ideas could move easily, facilitating the outward diffusion of America's political ideals and cultural values. America practiced an informal imperialism—in which investment and trade accompanied missionaries and, on occasion, the military—that gradually superseded British industrial and agricultural power.

The early era of globalization, before World War I, was greased by the technological leaps of transportation improvements like the steamship, and by marvels like the Suez and Panama Canals, which sped European and American commerce around the globe. Transatlantic cables, then direct telegraph links to Latin America and connections through British cable to Asia, allowed American investors and merchants to communicate faster abroad, thus expanding their markets. The great expositions of the age—in Chicago in 1893, Omaha in 1898, Buffalo in 1901, and St. Louis in 1904, as well as later gatherings in West Coast cities—publicized American achievements and the promise of empire based on progress in technology. Global connections shrunk the world itself.

Globalization was also driven by the emergence of America in the international economy. Capital exports, the plethora of inventions with American trademarks that were sold overseas, and a greater presence in financial markets boosted U.S. power. For instance, one of the most successful exporters was a capital goods firm, the Baldwin Locomotive Works of Philadelphia, whose engines came to symbolize power, speed, and the march of civilization. In 1900 Baldwin exported an average of one engine a day, shipping locomotives to South America, Africa, Asia, Australia and Europe. Exports soared after its engines gained recognition for their speed and for hauling weight up steep grades. At the turn of the twentieth century, Baldwin locomotives climbed Pikes Peak, hauled the Trans-Siberian Express, roamed the Argentine pampas, and whistled past the Egyptian pyramids. In the British Empire, American firms won contracts for building railroad bridges in Uganda and supplying rails for the construction of Cecil Rhodes's Cape to Cairo Railway, a project intended to develop British trade in Africa. Elsewhere, in the world's breadbaskets, Argentine, Australian, and Russian farmers used U.S. machinery to gather grain. Here were the companies that engaged in the international economy, as well as the privately run globalized market that was outside the realm of states.

Such economic connections promoted cultural ones as well. Thus, early signs of globalization in cultural exchanges were evident in sports (the Olympic Games), marriage, tourism, entertainment (Buffalo Bill's Wild West Show), the temperance movement, missionary work, and philanthropy. Regarding the latter, American-led internationalization in the years before World War I involved magnates like Andrew Carnegie and John D. Rockefeller, who turned to global philanthropy to counteract the label of "robber baron" and to advance their social concerns. Carnegie bequeathed millions to build public libraries in the United States and throughout the British dominions. For his part, Rockefeller established a huge foundation with a global mission to promote the well-being of mankind throughout the world. The oil baron personally contributed some $530 million to foundations and his son added another $537 million, which went for medical and scientific research, public health, education, and international exchange programs. The Foundation combated yellow fever and tropical African diseases. In China it established Peking Union Medical College to spread knowledge of medicine and sanitation, conduct research, and support the medical activities of Western missionaries. In addition, Carnegie's associate Henry Phipps in 1908 donated enough money so that Washington, D.C., could host the sixth International Congress on Tuberculosis, a disease that had killed thousands across the world. His contemporary, Darius Ogden Mills, funded an expedition to Chile in 1912 that measured over three hundred of the brightest stars in one-quarter of the sky surrounding the South Pole.

Besides the globalization of science and medicine, the fortunes of Americans were also spent on human rights causes. Jacob Schiff, the famous head of the banking firm Kuhn, Loeb and Company, turned his attention in 1906 to funding the American Jewish Committee, an organization dedicated to alleviating the persecution of Jewry at home and abroad. A host of banking, mining, and export firms, moreover, poured money into relief projects before World War I. For example, the New York Merchants Association raised $8,000 to help the victims of the Valparaiso earthquake of 1906, Guggenheim Sons, W. R. Grace and Company, and others more than matched this amount. In sum, the rich in America transferred some of their wealth to the international stage, in the process moving outside the realm of nations to influence the world economy. This is the essence of globalization.

DISRUPTED GLOBALIZATION: 1914–1939

The period from the end of World War I to 1950 also experienced some elements of globalization as new technology joined expansion in finance, trade, investment, and culture throughout the world. Yet in a major sense this was an era of deglobalization: first, the international economic system malfunctioned or broke down; then, during the Cold War, the world divided along ideological fissures.

World War I accelerated the expansion of U.S. business overseas. American firms were especially successful in replacing dominant British firms in Western Hemisphere and Asian markets. In addition, war requirements created a soaring U.S. demand for raw materials, especially copper, iron, and other key mineral products. Soon American firms, with the help of their government, began scouring the world for essential raw materials. Rubber companies acquired plantations in Sumatra, sugar producers expanded operations in Cuba, and meat packers enlarged their operations in South America. Paper companies opened pulp and papers mills in Canada, while mining companies purchased nitrate, iron, and copper mines in Chile. Oil companies explored China, the Dutch Indies, and other remote regions and invested heavily in unstable Mexico. War needs drove much of this overseas expansion, but American business leaders were not oblivious to long-term opportunities.

President Woodrow Wilson left an enduring mark on U.S. foreign relations, especially in providing American leadership for the postwar economic and financial system. But if he was the father of internationalism, then he also presided over the disruption of globalization. The defeat of the Treaty of Versailles demonstrated the variations in thinking about globalization. Prevailing sentiment was not prepared to abandon nationalism even as the expansive course of global commerce and investment and America's role in the world maintained their momentum. Americans would not fully adopt Wilsonian ideals until after the Cold War. In addition, globalization took a backseat to revolution. Mexico's new constitution under the Carranza government of Venustiano Carranza provided for restrictions on foreign ownership of land and subsoil resources. This meant that American investors would be limited to oil reserves; at the broader level, the clash was between nationalism and international legalism, with the former winning out. In Russia, the Bolshevik government survived a shaky start, including a civil war in which Americans participated, to create a decidedly anti-capitalist regime. At first the Soviet Union promoted globalization of the masses but not capital, lashing out at the imperialist nature of capitalist globalization. Moscow then retreated to building a socialist state under Communist Party control at home. Thus, the world started to split ideologically and politically even as Wilson's vision reached its expressive high point.

Yet many bankers and administration officials still sought outward, long-term solutions to promote peace and prosperity. Because Europe had bought three-fifths of American exports before the war, freer trade was a national interest after World War I. More generally, policymakers embraced internationalism. Understanding that the Great War had caused an explosion in U.S. exports and imports, that suffering farmers could be aided by overseas expansion, and that America held a key role in global finance, Republican administrations of the 1920s did not separate the international from the domestic. They pushed for globalism, albeit a less political brand than Wilson's. Global disarmament indicated one side of Republican engagement in the world. This effort energized citizens, diplomats, and businessmen into even more cooperative, internationalist endeavors during this era than before the war.

Cultural internationalism grew stronger as nations created numerous associations designed to facilitate global ties. An International Office of Museums, and International Congress on Popular Arts, and an International Society for Contemporary Music fostered linkages and understanding. In the United States, political scientists began studying the causes of war and universities offered new courses in various national histories and languages, all a reflection of the need to understand the global context in which America operated. Americans organized hundreds of scholarly discussion groups, such as the Institute of Pacific Relations, a multinational association of journalists, academics, and businessmen based in New York City. The new Guggenheim Foundation funded artistic projects and scholarly research, focusing on Latin American intellectuals. The Institute of International Education funded and directed foreign students to universities throughout the United States. Asians were the main beneficiaries, but increasingly, Latin American and European youth traveled to America to study. In this globalized ethos, Americans believed in peace and prosperity wrought by international contact. The influence of such private activity on foreign policy was extensive, demonstrating that globalization continued to some degree. Disarmament was one arena, regional stabilization and multilateralism another, and arbitration yet another.

Business made global connections in the 1920s. Air transport and travel became a reality under the machinations of Pan American World Airways under the leadership of Juan Trippe. American trade and investment multiplied. Along with the spread of radio, cinema was not only an American phenomenon but a global one as well; people around the world listened and watched the new media and thus developed some common cultural markers. Hollywood stars such as Douglas Fairbanks and Mary Pickford were known worldwide, for example.

Nonetheless, the onset of the Great Depression and World War II dealt a setback to further globalization. The globalizers of the 1920s—the Republican presidents and bureaucrats, the business and banking establishments—were ultimately limited by their own ideology and by the powerful concentration of forces that elevated the domestic economy over the international order. The effort at privatizing decisions and policy ultimately grounded itself on the Smoot-Hawley Tariff and imperial trade preferences of the 1930s, which reserved British Empire markets for member states and excluded or discriminated against outsiders such as America. And politics could not be taken out of the economy; businessmen could not be trusted with, nor were they capable of, running the global system of trade and finance. The Republican governments promoted the ideology of technoglobalization but often refused to take responsibility through policies of running the world economy. They were unwilling to make the tough moves that involved political haggling at home—on matters like reducing war debts and tariffs, for instance—that were requisites to continuing their brand of internationalism. This proved especially so when economic times spiraled from prosperity to misfortune during the Great Depression.

Paradoxically, however, as governments turned away from efforts to harmonize and integrate the international economy to cope with domestic distresses, advances in technology continued to erode the barriers of time, distance, and ignorance that separated nations and people. Some of the most significant improvements in air travel and mass communications, particularly the movies and short-wave radio, took place during the 1930s. At a time when dire economic circumstances compelled most government leaders to think local, a few leaders in government and business dared to speak up for closer international economic cooperation. Thus, Thomas J. Watson, Jr., the head of International Business Machines (IBM) and the International Chamber of Commerce, mimicked Secretary of State Cordell Hull in proclaiming that freer international economic relations meant world peace, and that if goods did not cross borders, he feared that armies would.

A WORLD DIVIDED: 1940–1950

World War II further threatened Anglo-American-style globalization. The Axis powers—a loose coalition of Germany, Italy, and Japan—resorted to military force to overthrow the post-Versailles world order and to establish closed, regional systems dominated from Berlin, Rome, and Tokyo. The conflict afforded the United States a second chance to provide leadership and to promote its vision of a peaceful, prosperous, and united world. The Roosevelt administration pressed plans for international rules and institutions that would structure the post–World War II global economic and political system. In joining technology with national security, the war forged an enduring partnership among business, government, and science. Afterward, the new military-industrial complex would sustain America as an economic and military superpower, develop endless frontiers for scientific discovery, and speed the globalization process.

In effect, scientists and their laboratories, with government funding and direction, contributed in a major way to the success of the war effort, and in the process they developed many new products that had commercial applications which would transform the postwar world. Atomic energy, for instance, had many peaceful applications, particularly as a source of electrical power. The mass production of penicillin transformed the treatment of disease. Also, radar provided the basis for microwave cooking. The first computers appeared during World War II to assist the military with code breaking and long-distance ballistics calculations. ENIAC, one of the first, was a huge machine, occupying 1,800 square feet and using 18,000 bulky vacuum tubes. Not until the development of transistors and the microchips that resulted from them could cheap and reliable computing power be loaded into desktop and portable units. The transistor, which was developed in 1947 and 1948, grew out of wartime research on silicon and germanium at Bell Telephone Laboratories in New Jersey. The transistor led directly to the technology of the personal computer, which itself spawned the globalized information age in the last third of the twentieth century.

No industry benefited more from wartime cooperation and federal contracts than aviation. At the outbreak of war the Boeing Company of Seattle, renowned for its seaplanes and engineering skills, had fewer than two thousand employees and was on the verge of bankruptcy. From this inauspicious beginning the company flourished on the strength of its bombers (the B-17 Flying Fortress and the B-29 Superfortress). Employment rose to nearly forty-five thousand. At the end of the war Boeing, on the strength of its experience and reputation in military aircraft production, turned its attention to the civilian market, using the B-29 as the basis of the luxurious 377 Stratocruiser that Pan American used on Atlantic routes. It contained a spiral staircase and a downstairs bar, but was soon superseded by the four-engine 707 passenger jet, launched in 1954. The latter also had roots in military work to develop a jet tanker and from wind tunnel experiments with jet engines during World War II. Thus, with government assistance, American companies like Boeing, Douglas, and Lockheed would come to dominate the rapidly expanding world market for civilian aviation.

Growth was also in order for consumer goods, which were also foundations for later globalization. Robert W. Woodruff, who had taken over the Coca-Cola Company in 1923, aimed to make his beverage an ordinary, everyday item for Americans and people around the world. He built on his foreign operations, particularly in Europe, during World War II by having Coke accompany the military overseas. Soldiers not only identified with Woodruff's product during and after the war but heroes requested it—as did an American pilot who crashed in Scotland and asked, upon regaining consciousness, for a Coke. The beverage was so pervasive that the Nazis and Japanese denounced it as a disease of American society. By war's end the company ran sixty-three bottling plants across the globe, on every continent. Its net profits in 1948 soared to $35.6 million, elevating it to near-universal acceptance as the world's beverage of choice.

The Cold War dashed the hopes of internationalists who would have facilitated the globalization of the world economy, but still strides were made toward the technoglobal system, induced particularly by governments working through the United Nations. In these instances, officials instilled international law and arbitration processes in the international economy, yet another foundation of globalization. For instance, the International Civil Aviation Organization (ICAO) pushed for global rules to govern the dynamic medium of air transport and travel. The objective was to establish international law, as well as promote order, safety, and efficient development in aviation, although ICAO authority remained limited by national desires to control lucrative commercial air traffic. The ICAO, established on a permanent basis in April 1947, provided the framework for the vast expansion of commercial airspace after World War II. By the late 1960s its 116 member nations connected markets around the world more closely by integrating various technical aspects of airplane transport, such as air navigation codes, as well as by devising a mechanism to resolve civil disputes, promote simpler procedures at borders, and boost Third World development in civil aviation—all enhancing globalization through air transport.

The protracted Cold War struggle that divided the world into two spheres of influence—one led from Washington, the other from Moscow—prompted national security considerations, rather than invisible market forces, to define international relationships. Governments continued to regulate trade and financial exchanges, despite efforts to lower barriers and promote commerce. But America's technological advantage, adaptable production processes, and access to resources, so decisive in the struggle against Axis aggressors, helped win the conflict. Also, a new generation of U.S. political and corporate leaders, familiar with mistakes made at the end of World War I when the United States shunned overseas responsibilities, chose to accept this second opportunity to guide the world. Furthermore, as it turned out, these internationalists were also better salesmen than Soviet leader Joseph Stalin and his heirs, who presided over a decrepit, controlled Soviet economy unable to satisfy basic consumer wants. Aware that a troubled world had an insatiable appetite for American values, goods, and services, U.S. leaders exploited their comparative advantage in communications and marketing to advance the American dream of democracy, mass consumption, and individual enterprise. In the long Cold War, the formula of guns, butter, and liberal ideals eventually proved a winner that spread American values on a global basis. Without America's Marshall Plan, support for Japan, and containment of the Soviet Union, the history of the Cold War might have turned out quite differently, and likewise for the course of globalization. Had the USSR won the Cold War, Soviet-directed expansion would have been far different—far more capricious, authoritarian, and state-managed—than the American-led alternative based on the rule of law, democratic elections, open markets, and the relentless energy of technology and entrepreneurship. Thus, the era of globalization that began near century's end evolved, ironically, from the deglobalized structure of the Cold War.

GLOBALIZATION UNDERCURRENTS: 1951–1972

The indicators of globalization were present throughout the superpower struggle. Prosperity and peace brought greater individual mobility. Before World War I an average of 1.5 million people arrived annually at U.S. shores, with about half that many departing. Travel lagged until after World War II and then revived. Two million people arrived in 1956, 10 million in 1970. Immigration, which fell to a low of 24,000 in 1943 and stagnated during the Depression and World War II, revived slowly after the war, reaching 327,000 in 1957. The largest numbers of immigrants—many of them war refugees—continued to come from Europe, and at this time particularly from Germany. Air travel also took off. Before the 1940s the typical traveler from abroad came by sea; after World War II the traveler arrived by air. On domestic routes the number of revenue passengers rose rapidly from 6.6 million passengers in 1945 to 48.7 million in 1957 and 153.4 million in 1970. On international routes the rise was equally dramatic: from 476,000 in 1945 to 4.5 million in 1957 and 16.3 million in 1970.

Despite Cold War crises and the further regionalization of the world economy, highlighted by the launching of the European Common Market in 1957 (which lured massive American investment), a revolution in critical technologies—including transatlantic telephone service, satellite communications, computers, and jet travel—accelerated the globalization process and ushered in a new era of rapid intercontinental travel, instantaneous communications, and economic interdependence. America's humbling experience in Vietnam, dollar woes, and the rise of oil exporting nations in the 1970s did not dampen globalization. Americans still enjoyed the benefits of unprecedented prosperity spurred by technology and economic expansion overseas. They bought new homes equipped with the latest labor-saving appliances, vacationed and studied abroad, and followed breaking news and sporting events abroad on new color television sets receiving signals transmitted via space satellites. Despite domestic political turmoil, technoglobalization continued to press forward, gradually transforming the world of separate nations.

Marshall McLuhan, a Canadian who analyzed the impact of mass media on society, made the metaphor of the "global village" famous in 1962 as a reference to the new electronic interdependence that had recreated the world. At the time, McLuhan was concerned largely with how noninteractive communications like radio and television were homogenizing the world: everyone watched the same sporting events, news, and soap operas. He identified a significant trend. The late 1950s was a period of enormous change as technical developments in aviation, transportation, and communications brought cost reductions and improved service. People, goods, and capital began to move across borders, creating interactive bonds among people and between nations. These flows integrated markets, harmonized tastes, and homogenized cultures.

Some of the most significant advances involved air transportation for people and freight. In 1957, Boeing, having gambled 25 percent of its net worth on development of a long-range passenger jet, launched the 707-120, designed as both a tanker for the air force and a civilian jet. Equipped with long-range Pratt and Whitney J-57 engines, it halved flying time across the Atlantic and opened the era of cheap air travel. The number of passengers departing internationally on scheduled airliners rose 340 percent (from 4.3 million to 18.9 million) from 1957 to 1973 as airlines introduced tourist-class fares. A round-trip flight, New York to London, fell to $487. The arrival of the wide-bodied Boeing 747 in 1969 further expanded capacity and drove down costs. Originally designed as a cargo carrier, it could accommodate two containers side by side that could be transferred to trucks; soon, high-value goods were moving swiftly by jet freighter. It also offered lower operating costs at a time when fuel prices were rising.

Thus, by the early 1970s improvements in air transport made it possible for business to source suppliers and serve markets globally. From 1957 to 1973 the number of revenue ton miles for air cargo on scheduled international flights rose 866 percent from 128.2 billion tons in 1957 to 1.2 trillion ton in 1973. It would be a decade before the full impact of these improvements worked their way through the marketplace. Air service continued to expand rapidly and airfares fell. Charter service grew rapidly on the transatlantic route and fares on scheduled airliners fell below $200 (New York to London) by 1970. Millions of college students read Arthur Frommer's best-seller, Europe on $5 a Day (first published in 1957), put on their backpacks, and set out to see Europe and learn about "foreign affairs." Meanwhile, improved engine design and weight reduction led to longer-range planes. In 1976 Boeing launched the 747 SP, which had the capacity to carry 233 passengers nonstop with full payload between New York and Tokyo. By 1989 Boeing was producing the 747-400; it could carry 412 passengers for up to twenty hours at subsonic speeds.

Along with the arrival of reliable, efficient jet freight in the late 1960s, other important cost-saving developments occurred in maritime shipping, including containerization. In the 1950s longshoremen could typically handle from ten to fifteen tons of cargo per hour. The use of truck-trailer, standard-size containers, brought productivity up to from six hundred to seven hundred tons per hour. This meant faster ship turnaround, better coordination, and lower transportation costs. Beginning in April 1956, when the trucking executive Malcolm McLean first moved loaded trailers between two U.S. port cities on an old World War II tanker, containerization took off. Grace and Matson lines adopted it in 1960 and the rush to containerization peaked in 1969, during the Vietnam War. In addition, the international shipping industry developed specially designed ships for automobiles (the first auto carriers could handle from one thousand to two thousand cars) and LNG (liquified natural gas) tankers after the 1973 war in the Middle East..

Improvements in communications also boosted the globalization process. Until the mid-1950s individuals could not communicate quickly and easily across the Atlantic and the Pacific Oceans. In 1927 commercial telephone service using high-frequency radio opened between New York and London. But this interactive advance was not designed for mass communications. Radio telephones were noisy, unreliable, and costly—forty-five dollars for the first three minutes. September 1956 brought the most significant improvement in communications in over a century when American Telephone and Telegraph opened the first transatlantic telephone cable (TAT-1) by using microwave amplification techniques. The number of transatlantic telephone calls soared—climbing slowly from 10,000 in 1927 to 250,000 in 1957, and then jumping to 4.3 million in 1961. Soon large corporations such as Ford began using the telephone cable to exchange information and coordinate their over-seas operations from their U.S. headquarters. While telephone cables improved business communications among metropolitan centers, large areas of the world could not take advantage of telephone communications. Starting in the 1980s, satellite communications ended this isolation and made the emerging global village truly interactive.

The arrival of jet planes and transoceanic telephones facilitated business expansion, but so did American scientific leadership. World War II and the early Cold War saw many technological advances, and U.S. firms moved quickly to commercialize products from military research. Between 1945 and 1965 the number of patents granted in America more than doubled, rising from 25,695 to 62,857. Five times as many patents went to U.S. firms as to foreign corporations. As late as 1967 the United States accounted for 69 percent of research and development in major countries. A good illustration was the transformation of IBM, which took its domination into the global marketplace.

The Cold War generated momentum for globalization in other ways, too. National Science Foundation, National Space and Aeronautics Administration, and Defense Department contracts spurred basic research throughout the 1960s, and space research particularly spun off growth in intelligence gathering, electronics and engineering, and weaponry. Laboratories hired thousands of corporate engineers to work on missile and aerospace projects, and clusters of companies and laboratories sprouted up near major academic institutions. The space program's budget steadily increased to $1.2 billion by 1962, and steps were taken to orbit a man around the earth (via the Mercury Project from 1959 to 1962), and eventually to send him to the moon (through the Apollo Project in 1969). These were the precursors to the space shuttle and satellite communications of the 1980s and beyond, which fueled the globalization of information.

DECENTRALIZATION ACCELERATES: 1973–1989

From the mid-1970s onward the process of world political and economic decentralization, so essential to globalization, picked up momentum. The technological transformations allowed American and other multinational firms to escape national regulations, and also helped free ordinary people from the boundaries of the nation-state. In addition, the rise of the OPEC (Organization of Petroleum Exporting Countries) oil cartel shifted global economic power away from the West. Free exchange rates, unfixed from the gold-dollar standard, gave great flexibility to international investors. American businesses would weather the energy crises and the final phase of the Cold War in different ways. With U.S. tariff barriers continuing to fall and foreign competition surging into the American market, high-cost domestic industries such as steel, autos, and machine tools lost market share to new entrants from abroad. But many bigand medium-sized firms did well in a changing, competitive environment. Firms with leading-edge technologies took advantage of market-opening opportunities to expand abroad. In the era of jet travel and networked business communications, the battle for market share was increasingly fought on a global playing field, involving all of the world's major high-income markets—Japan, Europe, and North America. Companies and nations converged as global markets for standardized consumer products appeared; transnational companies now sold the same reliable, low-priced goods in Brazil as they did in Biafra.

Even as the economic changes occurred, however, and despite the re-ignition of Cold War tensions during the late Carter and early Reagan administrations, ideological shifts occurred that reflected the emerging age of globalization. One was a new international outlook encouraged by better communications, transportation, open borders, deregulation, and the revival of nineteenth-century, laissez-faire liberalism. Business leaders began to think globally and to develop global networks that could exert influence over national political leaders through money and ideas. During the energy crisis of 1973, America's corporate elite reached out to foreign business leaders. Led by Chase Manhattan's David Rockefeller, they formed the multinational Trilateral Commission in 1973, with members from business, politics, law, and academia in America, Western Europe, and Japan. The idea was to facilitate cooperation among resource-rich nations, but outside of government supervision. Similarly, European business leaders began to meet in Davos, Switzerland, in 1982 to develop a common international strategy for European business. This network expanded in the 1980s to include world business and political leaders. In those years it launched the annual World Economic Forum, held every January and bringing together the world's movers and shakers to network, deal, and discuss public policy issues. Similarly in America during the Carter and Reagan years, business lobbying expanded from initial efforts to contain unions to the pursuit of an active agenda of deregulating markets, cutting taxes, and promoting free trade.

The deregulatory business agenda reflected another important paradigm shift that encouraged globalization. The Washington consensus had stressed an active and expansive role for the federal government, but in the 1970s economic thought turned toward a less-regulated marketplace. Under the influence of academic economists Murray Weidenbaum and Milton Friedman, a neoclassical attack on Keynesian interventionism was launched during the Reagan years. It emphasized entrepreneurship, reliance on the Federal Reserve System and monetary policy to manage the economy, tax relief, labor-market competition, deregulation, fluctuating exchange rates, and free trade in goods. In time, this consensus came to include free trade in money, or capital account convertibility.

President Ronald Reagan can be credited with fostering the second era of techno-economic globalization by expounding on the possibilities for freedom, political and economic, under U.S. leadership. He was the first president to push openly for free trade and privatization of government services, and one of the first to appreciate how new technologies of communication were transforming the marketplace and weakening the authority of totalitarian regimes. As he left office the technoglobal revolution was accelerating, bringing major changes to economics and politics, and to culture and society as well. His successors wrestled with the implications of globalization at home and abroad. They initiated new integrative bodies that restructured the global economy, such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), institutions that emphasized a rules-based economic system and liberalization of international commerce and that further integrated business processes worldwide. The freer exchanges of goods, capital, and culture inherent in globalization arose from the Cold War's ashes and took America into a new era in which transnational contacts rivaled state power.

AMERICAN-LED GLOBALIZATION: 1990–2001

The Clinton administration perceived that globalization had the potential to harmonize behavior, customs, and politics and usher in prosperity, development, and democracy. As the world's only superpower, the United States would lead the way toward openness, free access, and political stability. Also, President William Jefferson Clinton's enthusiasm for globalization was not shared by all Americans; many wondered if globalization was both inevitable and desirable. As the new millennium began, the business community seemed united in support of globalization, but among ordinary people there were concerns about jobs, food safety, harm to the environment, sovereignty, cultural homogenization, and the like. Americans were as unsure about the costs and benefits of this second era of globalization as they had been during the first one before World War I.

The Clinton administration veered from postwar history and adopted the universalist, integrative, and democratic posture of globalization. Economics replaced security on the U.S. policy agenda; globalization was the focus. The administration tied free markets to democracy. After the Mexican peso crisis of 1994, the president placed economic diplomacy at the center of foreign policy, supporting the consolidation of market democracy throughout the world, an ideology that put him in stride with global business but at odds with many in his own party who were tied to the traditional big government, workerprotection liberalism of the past.

The outpouring of analyses of globalization grew during the mid-1990s. Scholars, journalists, and politicians focused on the concept and process, but above all, on its influence. The widespread use of the Internet (304 million people in 2000) brought the issue into homes throughout the world. When added to the Clinton administration's oftentimes single-minded purpose of expanding American trade and investments over-seas, the establishment of NAFTA and the WTO, and the soaring rebound of the U.S. economy from a recession early in the 1990s, globalization had a certain cachet among Americans of all political stripes and economic status.

Americans were not the only ones anxious over globalization. In western Europe and many developing countries, globalization was a dirty word, associated in the public mind with American sneakers, blue jeans, burgers, and videos. The French were most skeptical. In one poll, 65 percent said globalization increased the gap between rich and poor; 56 percent thought it threatened national identity. The French Ministry of Culture sought to rally Europeans and to restrict access for Hollywood films and American television programs.

Around the world, defenders of traditional values sought to block the spread of American-style pop culture, but globalization proved a worthy foe. Iranian religious fundamentalists raided homes to confiscate videos and satellite dishes, and in neighboring Afghanistan the Taliban closed movie theaters, burned films, and denied schooling to women. Try as they might, the fundamentalists could not eradicate this powerfully projected alien culture. Their efforts merely benefited smugglers and the flow of contraband. Many discreetly hid satellite dishes to access Western television. The failure of Islamic fundamentalists to stamp out Western influences, like the inability of state-controlled societies in Eastern Europe to block the appeal of Western democracy and consumerism, demonstrated the power of mass communications in the era of satellites and videocassettes. It also underscored the global appeal of American values to the young, the well-educated, and the affluent, an amorphous yet tangible element of U.S. power in the world.

Yet the argument that globalization led to American cultural dominance ignored the appeal of the competition. At the time anti-globalization demonstrators were protesting in Seattle against the WTO in December 1999, children throughout America were gripped by the Japanese fad game Pokemon. Film industries in India and Hong Kong presented competition to Hollywood, and MTV discovered the need to vary its formula in the world's various regional markets—providing, for example, Chinese music in China and Hindi pop in India. True cultural globalization, not just Americanization, was in effect.

Among the world's cosmopolitan elite—business leaders, government officials, academics, and media types—the requirements of globalization produced a convergence. English became the predominant language of commerce and transnational communications, and business and government leaders wore Western business suits, flew in the same airplanes, stayed in the same hotels, read the same newspapers (the Wall Street Journal and the Financial Times ), and communicated with cellular phones and e-mail. The acceptance of American-style globalization reflected the success of U.S. business, the need to play by the rules of the world's largest open market, U.S. leadership in technological innovation and the information revolution, and the attraction of America's universal values. It also reflected the victories over fascism, militarism, and communism during the twentieth century that allowed the Anglo-American powers to establish the United Nations system, design the institutions of international economic and financial collaboration, and press for acceptance of common standards and the rule of law that were so crucial to globalization.

The post–Cold War era of economic globalization, however, also represented a synergistic dimension in which changes in technology, business strategy, and government policies combined to produce effects far more profound than the sum of incremental steps. The changes hinged on the integration of capital markets, the growing irrelevance of national borders, and the technological leveraging of knowledge and talent worldwide. As the Internet was empowering ordinary people with information, governance of the global system became more segmented in functional supranational institutions run by specialized elites. The International Monetary Fund (IMF), the World Bank, the WTO, and the Bank for International Settlements set the rules and handed out sanctions.

Integration and mobility were keys. Production, capital flows, and workers were increasingly integrated into a global marketplace dictated by transnational corporations. In 1970 there were 7,000 transnational corporations; in 2000 the numbers were some 63,000 parents and 690,000 foreign affiliates as well as a large number of interfirm arrangements. Gross product affiliated with the production of transnationals increased faster than global GDP and global exports. The foreign affiliates of transnational corporations employed six million persons and had foreign sales of $2 trillion. Their reach in every aspect of the world economy—from production to distribution—grew exponentially. In the last half of the twentieth century, international trade accelerated. The world economy grew sixfold in that time, climbing from $6.7 trillion in constant prices to $41.6 trillion in 1998, while global exports of goods rose seventeenfold, from $311 billion to $5.4 trillion. Much of the growth occurred among units of transnational corporations and involved services, which represented one-fifth of total world trade at the end of the century. From 1970 to 2000, the volume of foreign direct investment rose almost fifteenfold; in the latter year it was twice that of 1990. By then, dozens of nations had enacted special laws to attract foreign capital.

Financial globalization, reflecting the integration of equity and bond markets, was another powerful factor driving world economic integration and growth. As in late-nineteenth-century Britain, the upper and middle classes increasingly invested their savings overseas. The assets of U.S.-based international and global mutual funds climbed from $16 billion in 1986 to $321 billion in late 1996. Forty-four million American households held mutual funds, compared to 4.6 million in 1980. Moreover, the velocity of foreign exchange transactions spiraled. In 1973 average daily turnover in foreign exchange markets was $15 billion compared to $60 billion in 1983, $880 billion in 1993; and an estimated $1.5 trillion in 1998. Moreover, in a world of electronically integrated financial markets, money flowed into and out of countries in response to changing market conditions. In 1996 foreign investors put $100 billion into Asia; the next year they withdrew $100 billion.

Technology abetted globalization. World production of technology multiplied six times between 1975 and 1986; international trade in technology soared nine times. Improvements in communications and transportation abetted the process. In 1956, eighty-nine telephone conversations took place simultaneously through the transatlantic telephone cable. By the end of the millennium, about one million conversations occurred simultaneously by satellite and fiber optics. Add in e-mail and faxes and the ease, speed, and volume of communications have been magnified. Between 1955 and 1998, ship tonnage rose sixfold; the unit cost of carrying freight by sea fell 70 percent between 1920 and 1990. The volume of air freight soared from 730 million to 99 billion ton-kilometers. As with shipping, costs fell sharply. Between 1930 and 1990 the average revenue per mile for air transportation dropped from 68 cents to 11 cents (in constant dollars).

Cheaper airfares also enhanced individual mobility. Between 1950 and 1998 international tourist arrivals rose twenty-five-fold—from 25 million to 635 million. By 2000, two million people crossed a border somewhere in the world every single day. Some of them were political refugees; others simply seeking economic opportunities. At the end of the twentieth century, some 150 million people lived outside the country of their birth. This amounted to 2.5 percent of the world's population, or one in every forty people. Many of them remitted earnings to families and relatives in native countries. From 1970 to 1998, the number of immigrants living in America tripled from 9.6 million to 26.3 million. It is estimated that immigrants from Central America remitted $8 billion a year to their home countries during the last years of the twentieth century. Many of the foreign students who entered the United States for graduate education remain, contributing to the brain drain from developing lands but augmenting the supply of highly trained professionals in America. In 1990 one-third of Silicon Valley's scientists and engineers were foreign born.

Many of the less educated who remained in their homelands, moving from countryside to city, have joined the global economy. Labor became part of a global assembly line; transnationals working for the Nike Company and other multinational firms assembled products from components manufactured in factories throughout the world, while management, administration, and research and development were done at the headquarters. Service jobs in law firms, insurance, and data entry focused on electronic production, which meant that jobs flowed in and out of countries at great speed. Globalization had, simply, changed the world and its business, including the projection of national power and diplomacy.

Along with the globalization of brands like Nike, McDonald's, Coca-Cola, and Marlboro, the process also benefited sports teams. Michael Jordan's star qualities, as well as the global reach of satellite television, established a worldwide following for the Chicago Bulls. Soccer's Manchester United and baseball's New York Yankees also appealed to extensive audiences. An influx of eastern European players strengthened the international appeal of the National Hockey League. The National Basketball Association's open-door policy to talent attracted forty-five foreign players from twenty-nine countries, and as a result the NBA broadcast in 210 countries and forty-two languages. Major League Baseball, which began opening its season in foreign locations, inaugurated the 2001 season with 854 players, 25 percent of them born outside the United States. As a result of Ichiro Suzuki's success with the Seattle Mariners, the team's home games were televised live in Japan. Thousands of Japanese baseball fans even flew to Seattle to attend home games of a club owned by Nintendo president Hiroshi Yamauchi.

Along with rapid growth and increasing integration of markets, however, the age of globalization produced greater volatility. The Mexican peso crisis of 1994 and the Asian economic crisis of 1997–1998 underscored the vulnerability of the market-driven globalization system and how quickly strife could spread in a world linked by high-velocity communication, financial, and transportation networks. The Asian economic crisis also showed globalization's impact in the political arena. It aroused concerns about the merits of Western-style, free-market globalization to an extent that street protests, stimulated by the economic downturn, forced Indonesia's dictator of thirty-two years from power while politicians jockeyed for control in Thailand, the Philippines, South Korea, and Malaysia.

Over the preceding decade Wall Street, Washington, and international financial institutions had encouraged emerging economies to deregulate capital markets and open to foreign banks and financial institutions, but countries in Latin America and Asia paid for the deregulatory bonanza. By opening their markets, they made themselves susceptible to pressures from abroad and the international economy, and also lost independence over their fiscal policies. Abrupt changes in one country, region, or the world economy reverberated throughout these poorer nations, causing crises. Yet the bankers and U.S. financial officials blamed the catastrophic consequences on crony capitalism, the lack of transparency and inadequate disclosure of financial data, the absence of independent regulatory authorities, and the inadequacy of accounting standards. They stressed the benefits of liberalization under the process of globalization.

Opposition to the pro-globalization agenda emerged among a disparate alliance of activists concerned about the environment, labor standards, and national sovereignty. In 1992 the first Bush administration had refused to accept the entire Rio de Janeiro Treaty that protected biodiversity of plant and animal species. An argument also erupted over the existence of global warming, which many scientists and environmental groups blamed on the emission of carbon-based gases into the atmosphere. A total of 150 nations, including the United States, signed the Kyoto accord of 1997 that pledged to reduce such global emissions to 5.2 percent below the 1990 level. America would cut its release of carbon-based gases by 7 percent. But President Bill Clinton faced staunch opposition from powerful business interests such as the Business Roundtable, the Chamber of Commerce, and the National Association of Manufacturers who thought the agreement flawed. The Senate voted 95 to 0 to oppose the protocol if developing countries like China and India were not also required to cut their emissions. As a result, the administration never sent the agreement to Capitol Hill for ratification. The debate over global warming continued into the 2000 election when Democratic candidate Al Gore insisted that America join the Kyoto pact nations and GOP candidate George W. Bush countered that additional studies were needed to better understand the problem. It was clear that, just as with the economy, globalization of environmental concerns might require international intervention. Environmental concerns indicated that there was not a consensus on globalization.

Many people, especially in the labor and environmental movements and within academia, shunned this new globalization system, and argued that globalization undermined stability and prosperity and was leading to the disintegration of national economies and cultures. According to this view, workers had become pawns in transnational corporate agendas, the environment had been deregulated by the free-market rules of the WTO, and financial markets had been so decontrolled that the joint efforts of a handful of individuals could destabilize entire nations (as in Indonesia in 1997). The anti-globalization protesters took to the streets to voice their objections. The WTO ministerial meetings convened in Seattle in December 1999 to plan a new set of world trade negotiations called the Millennium Round, but huge demonstrations shut down the meetings. Seattle turned out not to be an isolated event; there were later demonstrations at gatherings sponsored by the United Nations, the IMF and World Bank, and Davo's World Economic Forum.

There were also optimists who saw the free market and meteoric advances in technology as a great boon or as an irreversible phenomenon that could not be halted. They announced that the world had entered a period of unity (unlike the divisive forty-five-year Cold War) that rewarded flexibility, high technology, and individualism.

Public opinion polls showed Americans divided on such issues as globalization and free trade. In general, those in the middle class and below voiced protectionist sentiments or questioned the fairness of NAFTA and the WTO. Among those warning of the perils of globalization were Pope John Paul II, UN Secretary General Kofi Annan, and former South African president Nelson Mandela.

As the twenty-first century opened, the globalization revolution continued to roll forward. While the global spread of information, the integration of markets, and the erasure of borders had the potential to promote global peace, prosperity, and the convergence of basic values, there was a dark dimension often ignored by corporate boosters. For one, globalization benefited organized criminals as well as corporations. The turnover of the criminal economy was estimated at about $1 trillion annually. Narcotics accounted for about half, but a trade in people was also lucrative. Gangs moved from four to five million people annually and earned some $7 billion in profits. In the health area, globalization presented a number of challenges. Public health officials worried that increased human mobility enhanced opportunities for microbes. The risks ranged from trade in illegal products and contaminated foodstuffs, divergent safety standards, indiscriminate spread of medical technologies and experimentation, and the sale of prescription drugs without approval of national authorities. With some two million people crossing borders daily, industrialized nations faced threats from emerging infectious diseases, exposure to dangerous substances, and violence such as chemical and bioterrorist attack. Furthermore, the spread of information on the Internet empowered individual terrorists like the Unabomber to exact their own revenge on global society.

Globalization was a phenomenon of the twentieth century, although it was often hidden from view. Its effects on diplomacy were enormous. In the age of instantaneous communication, rapid transport, and volatile markets, it was apparent that complexities of international relationships had moved far beyond the expertise of professional diplomats and foreign ministries. Diplomats and governments no longer served as gatekeepers. In the networked world, individuals, nongovernmental organizations, and officials communicated rapidly and regularly. But while technological innovation and information had networked millions of individuals into a system without central control, it is worth emphasizing that governments helped fund the networking revolution. The U.S. government had supported basic research in high-speed computers, telecommunications, networking, and aviation, all essential to the interconnected world of globalization. Moreover, Washington's commitment to market opening, deregulation, and liberalization of trade and finance provided the policy impetus that led to a variety of international agreements and arrangements promoting an open world order. Thus have diplomacy and techno-economic globalization been linked since the post–Civil War era.

BIBLIOGRAPHY

Aaronson, Susan Ariel. Taking Trade to the Streets: The Lost History of Public Efforts to Shape Globalization. Ann Arbor, Mich., 2001.

Adler, William M. Mollie's Job: A Story of Life and Work on the Global Assembly Line. New York, 2000. By one of the growing number of critics from the labor side.

Anderson, Sarah, and John Kavanagh. Field Guide to the Global Economy. New York, 1999.

Barber, Benjamin R. Jihad vs. MacWorld: How Globalism and Tribalism Are Reshaping the World. New York, 1996. A classic account of the cultural debate over globalization.

Bauman, Zygmunt. Globalization: The Human Consequences. New York, 1998. Covers the dark side of globalization.

Beck, Ulrich. What Is Globalization? Cambridge, U.K., and Malden, Mass., 2000.

Boli, John, and George M. Thomas. Constructing World Culture: International Nongovernmental Organizations Since 1875. Stanford, Calif., 1999. Explains one of the institutional elements of globalization.

Center for Strategic and International Studies. Reinventing Diplomacy in the Information Age: A Report of the CSIS Advisory Panel on Diplomacy in the Information Age. Washington, D.C., October 9, 1998. Discusses how globalization has changed diplomacy.

Chandler, Alfred D., Jr., and James W. Cortada, eds. A Nation Transformed by Information: How Information Has Shaped the United States from Colonial Times to the Present. New York, 2000.

Dragsback Schmidt, Johannes, and Jacques Hersh, eds. Globalization and Social Change. London, New York, 2000.

Eckes, Alfred E., Jr., "Backlash Against Globalization?" Global Economic Quarterly 1 (June 2000): 117–122.

Everard, Jerry. Virtual States: The Internet and the Boundaries of the Nation State. London and New York, 2000.

Fraser, Jane, and Jeremy Oppenheim. "What's New About Globalization?" The McKinsey Quarterly 2 (1997): 168–179. Accessible and informative account of the velocity and scope of late-twentieth-century globalization compared to other eras.

Friedman, Thomas. The Lexus and the Olive Tree. New York, 1999. A spritely, optimistic analysis.

Giddens, Anthony. Runaway World: How Globalization Is Reshaping Our Lives. New York, 2000.

Gray, John. False Dawn: The Delusions of Global Capitalism. New York, 1998. A leading British conservative intellectual criticizes globalization.

Greider, William. One World, Ready or Not: The Manic Logic of Global Capitalism. New York, 1997. Anecdotal but in-depth criticism of the business globalization process by a leading progressive.

Held, David, et al. Global Transformations: Politics, Economics, and Culture. Cambridge, 1999.

Holton, Robert J. Globalization and the Nation-State. London, 1998. For the role of the state and politics.

Jameson, Fredrick, and Masao Miyashi, eds. The Cultures of Globalization. Durham, N.C., 1998. Excellent starting point for understanding the cultural aspects.

LaFeber, Walter. Michael Jordan and the New Global Capitalism. New York, 1999. A leading diplomatic history revisionist analyzes globalization through the career of a famous sports star.

Lechner, Frank J., and John Boli, eds. The Globalization Reader. Malden, Mass., 2000. Extensive coverage of all aspects of the phenomenon.

Levitt, Theodore. "The Globalization of Markets." Harvard Business Review 61 (May–June 1983): 1–11. The article in which the term "globalization" was coined.

Luttwak, Edward. Turbo-Capitalism: Winners and Losers in the Global Economy. New York, 1999.

Micklethwait, John, and Adrian Wooldridge. A Future Perfect: The Challenge and the Hidden Promise of Globalization. New York, 2000.

Mittelman, James H. The Globalization Syndrome: Transformation and Resistance. Princeton, N.J., 2000.

Oloka-Onyango, J., and Deepika Udagama. The Realization of Economic, Social, and Cultural Rights: Globalization and Its Impact on the Full Enjoyment of Human Rights. New York, 2000. A useful United Nations–based summary, including globalization's noneconomic impact.

O'Rourke, Kevin H., and Jeffrey G. Williamson. Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy. Cambridge, Mass., 1999. One of a handful of historical treatments.

Prakash, Aseem, and Jeffrey A. Hart, ed. Responding to Globalization. London, New York, 2000.

Rodrik, Dani. Has Globalization Gone Too Far? Washington, D.C., 1997. Articulate and thought-provoking early warning about the negative effects of globalization.

Rupert, Mark. Ideologies of Globalization: Contending Visions of a New World Order. London and New York, 2000.

Sassen, Saskia. Globalization and Its Discontents: Essays on the New Mobility of People and Money. New York, 1998.

Soros, George. The Open Society: Reforming of Global Capitalism. New York, 2000. Warnings of impending collapse from a giant of global finance capital.

Tomlinson, John. Globalization and Culture. Chicago, 1999. Highly theoretical treatment of the complex interaction of culture in international society.

Wallach, Lori, and Michell Sforza. The WTO: Five Years of Reasons to Resist Corporate Globalization. New York, 2000. Criticism of the globalization phenomenon from Wallach, one of the protest organizers.

Went, Robert. Globalization: Neoliberal Challenge, Radical Responses. London, 2000. Concise but balanced assessment.

Zachary, G. Pascal. The Global Me: New Cosmopolitans and the Competitive Edge—Picking Globalism's Winners and Losers. New York, 2000.

Zeiler, Thomas W., and Alfred E. Eckes, Jr. Globalization and the American Century: A New Historical Paradigm. New York, 2002. First history that addresses the synergistic relationship of globalization and U.S. diplomacy since the late nineteenth century.

See also Cold War Termination; Cultural Imperialism; Cultural Relations and Policies; Economic Policy and Theory; Internationalism; Post–Cold War Policy .

THE FAB FOUR AS GLOBAL PHENOMS

Defying the label Americanization, the Beatles epitomized globalization. They emerged in the new era of rapid travel and electronic communications, influenced by black rock 'n' roll brought to Liverpool by American sailors and spurred by their initial fan base from nightclubs in Hamburg, West Germany. Beatlemania seized England in 1962, grew in popularity in Australia, and emerged on the Continent. "I Want to Hold Your Hand" broke the Beatles into the lucrative U.S. market in January 1964, the first song by a British artist to top the American charts. The hit spread to the non-English-speaking world. The Fab Four then debuted in the United States on the Ed Sullivan Show, playing to a television audience of 73 million people, about 60 percent of total U.S. viewers. Mass global hysteria set in. Between 1963 and 1968, they sold $154 million worth of records and became the first band to sell out sports stadiums worldwide. In 1965 the queen honored them for their contribution to the British foreign trade balance. Two years later, they took part in the first live global satellite broadcast, representing Britain on "Our World," a special originating in eighteen countries on five continents. Wit, cleverness, and aggressive marketing catapulted the Beatles to fame, but they also tapped into the growing cohesion of youth worldwide that attested to the cultural and economic pressures of globalization. Timing the release of their 1967 album Sgt. Pepper's Lonely Hearts Club Band, for maximum exposure, they caused a mini-explosion within the Beatles craze itself, as youth across the planet apparently bought the record and played it in unison. It was a moment of unified pop culture. The Beatles flowed across borders, commercially and culturally, exploiting communications technology and open markets—elements of the globalization process.

Globalization

RATIONALE
HISTORICAL BACKGROUND
COMPLEXITIES AND CONTROVERSIES
COMPETING IN THE GLOBAL ECONOMY
BIBLIOGRAPHY

Globalization refers to the process of integration across societies and economies. The phenomenon encompasses the flow of products, services, labor, finance, information, and ideas moving across national borders. The frequency and intensity of the flows relate to the upward or downward direction of globalization as a trend.

There is a popular notion that there has been an increase of globalization since the early 1980s. However, a comparison of the period between 1870 and 1914 to the post-World War II era indicates a greater degree of globalization in the earlier part of the century than the latter half. This is true in regards to international trade growth and capital flows, as well as migration of people to America.

If a perspective starts after 1945, globalization is a growing trend with a predominance of global economic

integration that leads to greater interdependence among nations. Between 1990 and 2001, total output of export and import of goods as a proportion of GDP rose from 32.3 percent to 37.9 percent in developed countries and 33.8 percent to 48.9 percent for low- to middle-income countries. From 1990 to 2003, international trade export rose by $3.4 to $7.3 trillion (see Figure 1). This amount continues to grow throughout the 2000s. Hence, the general direction of globalization is growth, but it is often unevenly distributed between wealthier and poorer countries.

RATIONALE

A primary economic rationale for globalization is reducing barriers to trade for the enrichment of all societies. The greater good would be served by leveraging comparative advantages for production and trade that are impeded by regulatory barriers between sovereignty entities. In other words, the betterment of societies through free trade for everyone is possible as long as each one has the freedom to produce with a comparative advantage and engage in exchanges with others.

This economic rationale for global integration depends on supporting factors to facilitate the process. The factors include advances in transportation, communication, and technology to provide the necessary conduits for global economic integration. While these factors are necessary, they are not sufficient. Collaboration with political will through international relations is required to leverage the potential of the supporting factors.

HISTORICAL BACKGROUND

Globalization from 1870 to 1914 came to an end with World War I, as various countries pursued isolationism and protectionism agendas through various treaties—the Treaty of Brest-Litovsk (1918), the Treaty of Versailles (1918), the Treaty of St. Germain (1919), and the Treaty of Trianon (1920). U.S. trade policies—the Tariff acts of 1921, 1922, 1924, 1926, and the Smoot-Hawley Tariffs of 1930—raised barriers to trade. These events contributed to the implosion of globalization for more than forty years.

Toward the end of World War II, forty-four countries met in an effort to re-establish international trade. The milestone is referred to as Bretton Woods, named after the New Hampshire country inn where the meeting was held. Results of Bretton Woods included the creation of the International Monetary Fund (IMF), the World Bank, and subsequently, the General Agreements on Tariffs and Trade (GATT).

In 1948, the International Trade Organization (ITO) was established as an agency of the United Nations, with fifty member countries and the Havana Charter to facilitate international trade, but it failed. As a result, GATT rose to fill the void as a channel for multilateral trade negotiations and recognition of “Most Favored Nation” status that applied the same trading conditions between members that applied to other trading partners with “most favored” partner standing.

GATT involved a number of different multilateral rounds of trade negotiations to reduce trade barriers and facilitate international trade. In the first round, the twenty-three founding members of GATT agreed to 45,000 tariff concessions affecting 20 percent of international trade worth $10 billion. Many of GATT's trade rules were drawn from the ITO charter. Subsequent trade rounds involved more members and additional issues, but the basic foundation of GATT remained the same.

In the second round, the Kennedy Round of the mid-1960s, the focus continued with tariff reductions.

In the third round, the Tokyo Round (1973 to 1979), 102 countries participated to reform the trading system, resulting in tariffs on manufactured products which were reduced to 4.7 percent from a high of 40 percent at the inception of GATT. Important issues revolved around anti-dumping measures, and subsidies and countervailing measures. The reduction of trade barriers enabled about an average of 8 percent growth of world trade per year in the 1950s and 1960s.

In the fourth round, the Uruguay Round (1986 to 1993), 125 countries participated to develop a more comprehensive system. An increasing importance was placed on globalization and on new, uncharted territories such as intellectual property. Additionally, other areas were discussed for coverage under new regulations, including agricultural and other old world industries (including textiles).

On April 15, 1995, in Marrakesh, Morocco, a deal was signed to create the World Trade Organization (WTO), which replaced GATT with a permanent institution that required a full and enduring commitment. The WTO encompasses trade in goods, services, and intellectual property related to trade with a more efficient dispute settlement system.

The most recent round, formally titled the Doha Development Agenda, began in 2001 in Doha, Qatar. The mission of this round was to give a hand up to impoverished peoples and nations of the world by lowering more trade barriers and strengthening local workers, farmers, and other members of agricultural communities by creating new rules for assisting underdeveloped nations. The overall goal is to create a truly global economy by stimulating all economies everywhere, rather than favoring those that are already thriving in well-developed nations. However, the Doha round has been plagued by deadlock and contention; less-developed nations have accused wealthier nations of protectionist policies, especially regarding national agricultural subsidies and tariffs. Talks to reach an agreement collapsed in 2003, 2005, 2006, 2007, and 2008.

COMPLEXITIES AND CONTROVERSIES

The increase of globalization surfaced many complex and controversial issues as economies and societies became more interdependent with greater frequency of interactions between one another. A number of important trends make up globalization, including: (1) location of integration activities; (2) impact upon poorer societies; (3) flow of capital; (4) migration of laborers and labor; (5) diffusion of technology; (6) sustainability of the natural environment; (7) reconfiguration of cultural dynamics; and (8) development of organizational strategies for global competition.

Many authors specialize in exploring each issue with much greater depth. The purpose of reviewing the different trends in this essay is to provide some highlights concerning the interrelated complexities underlying globalization.

Location of integration activities. The extent of globalization unfolds in an uneven fashion to the degree that the question is raised whether international trade is more focused on regional rather than global integration. Trading blocs, such as the North American Free Trade Agreement (NAFTA), the European Union (EU), the Asia-Pacific Economic Co-operation (APEC), Mercosur (South American trading bloc), the Association of South East Asian Nations (ASEAN), The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), and the East Africa Community (EAC), support regional cooperation between geographical neighbors. According to global economists' forecasts, most of these agreements will eventually work in unison as parts of a larger, more global agreement.

Georgios Chortareas's and Theodore Pelagidis's 2004 research findings on openness and convergence in international trade indicate that intraregional trade increased more than global trade in most situations. They stated that “…despite the positive international climate resulting from important reductions in transportation costs, the development of new technologies and trade liberalization markets continue to be determined, to a large extent, regionally and nationally …”

Within NAFTA, intraregional exports rose from 34 percent in the 1980s to more than 56 percent in 2000; exports between Asian country members amounted to 48 percent in 2000; and exports within the EU were sustained at about 62 percent. By 2005, exports from the United States to Mexico had quadrupled, and exports from the United States to Canada doubled. The trend of rapid exports growth continued into 2008.

An example of limitations to fair market access for developing countries is that developed countries subsidize agricultural producers with about $330 billion per year, which creates a significant disadvantage for poorer economies without such subsidies. The impact is exacerbated because 70 percent of the world's poorest population lives in rural communities and depends heavily on agriculture as a staple of survival and economy. Hence, one of the concerns with uneven distribution of globalization is its impact on poorer economies by perpetuating systems of inequality. Opponents of free-trade agreements suggest that in many cases, especially the case of DR-CAFTA, trade agreements can further hinder the progress of the

poor and keep the wealthiest class well moneyed, perpetuating a centuries-old cycle of impoverishment for many.

Impact on poorer societies. A challenge to globalization is that inequality arises from imbalances in trade liberalization, where the rich gain disproportionately more than the poor. Ajit K. Ghose examined the impact of international trade on income inequality and found that inter-country inequality increased from 1981 to 1997, in a sample of 96 national economies, but international inequality measured by per capita GDP declined. The ratio of average income for the wealthiest 20 percent compared to the poorest 20 percent rose from 30 to 74 from the early 1960s to the late 1990s. According to a GDP listing of nations released by the CIA World Factbook from 2008, the per capita difference between the top 10 percent of countries and the remaining 90 percent shows an overall decline in international inequality, but a disparity remains nonetheless.

In 2004 one billion people owned 80 percent of the world's GDP, while another billion survived on one dollar. However, during the same period, when factoring average income that is weighted by population, income inequality dropped by 10 percent. Global income distribution became more equal with other measures such as purchasing power parity or the number of people living in poverty.

The World Development Indicators for 2004 showed a drop in the absolute number of people living on one dollar per day from 1.5 billion in 1981 to 1.1 billion in 2001 with most of the achievements taking place in the East Asia region. Thus, the impact of globalization on inequality is a complex issue depending on the particular measures. More specific examination needs to account for other contributing factors, such as how regionalism increases concentration of trade between countries that are wealthier and leaving poorer countries at or below the margin.

Flow of capital. The flow of capital relates to both regionalism and inequality issues. Two forms of capital flow are foreign direct investments (FDI) made by business firms and investment portfolios, diversified with foreign assets or borrowers seeking foreign funding. Data from the World Bank indicated that FDI grew from an average of $100 billion per year in the 1980s to $370 billion in 1997. Net private capital flow amounts to about $200 billion in 2004. According to OCO Global, the FDI increased by another 5.1 percent in 2007, bringing the global total to $947 billion.

Also, some economies have significant remittance flows from labor migration, which were approximately $100 billion in 2003 and $126 billion in 2004 for 90 developing countries. Some Caribbean countries receive more than 10 percent of their GDP from remittances. While developing countries are the primary recipients of remittances, transaction costs can amount to 10 to 15 percent per transaction. Reducing such obstacles would benefit poorer countries with heavy dependencies on remittances. The flow of money across national borders relates to the migration of both labor and work.

Migration of labor and work. An important dimension of globalization is the migration of people. While the proportion of migration was greater during the earlier mercantilism period, sovereign border controls to a large extent create a filtration process for migration. About 175 million people lived in a different country than their birth country in 2000. They can be separated into three categories: 158 million international migrants, 16 million refugees, and 900,000 asylum seekers.

An important global trend in the future is the movement of labor from developing to developed countries because of the latter's need for labor with an aging population. Family-sponsored migration makes up 45 to 75 percent of international migrants who mainly originate from developing countries to countries in Europe and North America.

Even before 9/11, legal migration of labor needed to overcome substantial bureaucracy in the border control process. The number applying for entry into developed countries often far exceeds the number permitted. Due to extensive legal processes, some migrants enter illegally, while others become illegal with expiration of legal status.

Anti-terrorism measures imposed shortly after the 9/11 attacks resulted in a minor shift in the flow of migrants away from the United States toward other developed countries. With the aging of baby boomers in many developed countries, future globalization of migrant labor flow is receiving more attention, especially in education, health care, retirement funding, and housing.

Although migrant labor often entails the movement of people in search of work, a related globalization trend is the migration of work to different geographical locations. While multinational corporations (MNCs) often seek low-cost labor, innovation advances in computer technology, satellite communication infrastructures, Internet developments, and efficient transportation networks enable companies to distribute work in ways not possible before.

Compression of time and space with Internet technology allows for the distribution of work to take place around the world with global virtual teams. The phenomena of outsourcing and offshoring expand on the earlier sourcing of low-cost manufacturing. During the 1960s

and 1970s MNCs switched to low-wage labor to manufacture products that entailed significant labor costs.

Expansion of MNCs in the 1990s encompassed highly skilled workers, service work, and global virtual teams. Firms started to outsource information technology (IT) functions as early as the 1970s, but a major wave of outsourcing started in 1989 with the shortage of skilled IT workers in developed countries. At the same time, the trend of shifting work around the globe to leverage the different time zones began with the financial industry's ability to shift trading between the various stock exchanges in New York, Tokyo, Hong Kong, and London.

Technological innovations in computers and the Internet enabled other industries, such as software engineering, data transcription, and customer service centers to also shift work around the globe. Higher education and high-skill health care jobs are also embarking on global outsourcing.

In 2001 outsourcing expenditures amounted to $3.7 trillion and approximately $5.1 trillion in 2003. Global outsourcing of just IT services cost nearly $830 billion in 2008 alone. The impact of global outsourcing is not just a relocation of jobs, but also a dampening of employee compensation levels in more developed economies. For example, in 2000, salaries for senior software engineers were as high as $130K, but dropped to about $100K at the end of 2002; and entry-level computer help-desk staff salaries dropped from about $55K to $35K. For IT vendor firms in India, IT engineering jobs offer a salary considered outstanding in India, that is a fraction of the going U.S. rate. The migration of labor and work create complex globalization dynamics in management of people and finances for most firms.

Diffusion of technology. Innovations in telecommunication, information technology, and computing advances all support progression of globalization. In 1995 the World Wide Web had 20 million users, exploded to 400 million by late 2000, and had over 1.4 billion users in 2008. However, the rapid growth and adoption of information technology is not evenly diffused around the world.

The gap between high versus low adoption rates is often referred to as the digital divide. In 2004, over 30 percent of Americans and Europeans had Internet access, while the number for Africa was 1.8 percent. The digital divide reflects other disparities of globalization. Globalization of computer technology also entails a growing trend of computer crimes on an international basis, which requires cross-border collaboration to address. Additional globalization trends related to computer technology include developments in artificial intelligence, high-speed connections such as wireless applications, the use of handheld and mobile devices to access the Internet and e-mail, and integration with biotechnology.

Sustainability of the natural environment. The impacts of globalization on environment sustainability are hotly contested, with major environmental protests held at international economic meetings or prominent multilateral trade forums. In the United Nations 1987 publication Brundtland Report (named for Gro Brundtland, Prime Minister of Norway), galvanized international attention on sustainable development was a major concentration. The assumption was that the degradation of the environment in developing countries was due primarily to poverty.

Some advocates of globalization consider free trade to be a solution to alleviate poverty and subsequently, reduce pollution. However, the arguments depend upon corporate social responsibility, managerial knowledge of environmental sustainability, and the level of ignorance in the developing community.

Critics find that often large MNCs have greater financial resources than some developing countries, which can be used to compromise and derail regulatory regimes from protecting the environment. For example, while an MNC may not produce or sell certain environmentally damaging products in a country with tight regulatory controls, they may find their way to markets with fewer environmental regulatory constraints—“pollution havens.” This line of logic leads to the notion of globalization becoming a “race to the bottom” as countries compete with lowering of environmental standards to attract foreign capital for economic development.

One of the landmarks on environmental globalization is the Kyoto Accord, an international treaty to reduce greenhouse gas emissions based on exchanging limited pollution credits between countries. After lengthy, multilateral, and complex negotiations, the Kyoto Accord was concluded in December 1997, for ratification by national governments. On February 16, 2005, the date for the Kyoto Protocol to take effect, 141 nations ratified the agreement. Even though the United States is the world's largest polluter in volume and per capita output of greenhouse gases, the Bush administration refused to ratify the Kyoto Accord.

Reconfiguration of cultural dynamics. Culture is another area of complex controversies with globalization. Competing perspectives about how globalization affects cultures revolve around the debates of cultural homogenization versus cultural diversification. The optimistic view of cultural globalization is that cultural diversity focuses on freer cultural exchanges with broader choices and enrichment of learning from different traditions. People have greater

choices of globally produced goods, in addition to local offerings, without being bound by their geographic location. Alternatively, critics of cultural globalization present evidence demonstrating the depletion of cultural diversity through processes referred to as “Disneyfication” or “McDonaldization.”

Cultural diversity and quality are diminished with mass produced goods being directed toward a common denominator. The criticisms are related to a sense of “Americanization” of the world, rather than globalization. The process involves a sense of far-reaching, anonymous cultural imperialism. Debates from each perspective are intense with substantial evidence that also reveals complex ties to social and political dynamics within and between national borders.

Cultural globalization continues into the foreseeable future with many more controversial dynamics related to three important issues: 1) the impact of extractive industries on the socio-economic, cultural exclusion and dislocation of indigenous peoples and their traditional knowledge; 2) international trading of cultural goods and knowledge; and 3) inflow of immigration impacts on national culture, which creates a tension between a sense of threat to the national culture and migrant demands for respect to their traditions in a multicultural society.

Development of organizational strategies for global competition. The multiple dynamics of globalization—regionalism, inequality, financial flow, migration of labor and work, technological innovations, environmental sustainability, and cultural dynamics—form a turbulent and complex environment for managing business operations. While seven trends were highlighted to provide a brief sketch of interrelated complexities and controversies globalization, it also surfaced other significant issues.

Global concerns revolve around terrorism, rapid transmission of pandemic diseases and viruses, the rise of China's and India's economies, an aging population in wealthier northern countries versus younger growing populations in the southern hemisphere, and advances in bio-technology. These issues are intricately embedded in the globalization processes.

COMPETING IN THE GLOBAL ECONOMY

Globalization entails both opportunities and threats for creating and sustaining competitive strategies. Emerging economies offer resources in terms of labor, as well as expanding market opportunities. However, geopolitical relationships and backlashes from perceptions of cultural imperialism, such as the tensions between the United States and the European Union during the Iraq war create challenges for business operations.

Global managers have a wide range of options to deal with globalization. Organizational strategies for international operations involve two related demands—the need for local orientation and the need for integration (as shown in Figure 2). Firms with low need for local orientation, but high need for integration require a global strategy that centralizes core operations with minor modifications for local adaptation. However, firms with a need for high local orientation, but low need for integration, require a multinational strategy that decentralizes significant operations to respond to local market conditions. Firms integrating a high need for both local orientation and organizational integration should strive for a transnational strategy.

In addition to selecting a strategy for global competition, managers also need to make decisions regarding the internationalization process. Two processes are important.

First, the development of innovations in a home market as products move along the product life cycle stages. Firms can take products entering into the plateau of a mature stage to new international markets. Often the flow moves from developed to developing countries.

Second, stages of internationalization with foreign entry modes that involve increasing resource commitment and risks. The stage approach to internationalization takes time because it involves licensing and exportation, which can be mired with national and international bureaucracy.

Kenichi Ohmae argued that the speed and complexities of globalization require firms to rethink their internationalization processes because incremental stage models are often too slow. Given the rate and quantity of knowledge within the global business community, firms are likely to face competition in their home markets, with comparable innovations before they are able to establish a foothold in the international marketplace.

The incremental stage models are too slow for competing in an increasingly integrated global economy. Ohmae suggested that firms form global strategic alliances with partners established in three major markets—North America, Europe, and Asia, particularly Japan. Development of global competitive intelligence and innovation among partners provides for rapid market development and the establishment of strategic positions in multiple locations.

Basically, globalization into the twenty-first century creates a fundamentally different competitive environment that shifted from incremental internationalization processes to almost simultaneous deployment of innovations. This internationalization process also shifts the work of global managers from managing a field of expatriates to collaborating with strategic partners across national borders, managing global offshore outsourcing vendors in multiple geographical locations and working remotely with telecommuting staff in regions of import and export.

Figure 2 Skill Profile of the Effective Global Manager

• The ability to envision and implement the strategy of thinking globally while acting locally
• Being able to manage change and transition
• Being able to manage cultural diversity
• The ability to design and function in flexible organizational structures
• Being able to deal with stress and ambiguity
• Having the skills required to work with others-especially in team setting
• Being able to communicate well, and having a command of more than one language
• Having the ability to learn and transfer knowledge in a organization
• Entering into trusting alliances and operating with personal integrity and honesty
• Being able to turn ideas into action
• Having a stateless perception of the world
• Being willing to take risks and to experiment

Globalization is the culmination of complex and controversial trends that include a degree of geographical integration, inequalities, financial flows, labor and laborers, technological innovations, environmental sustainability, cultural dynamics, and organizational strategies for global competition. Given a historical perspective, globalization has fluctuated over time and many indicators support a trend of increasing globalization since the 1980s.

The United States is no longer the dominant super-power in the global economy; the rise of both China and India are the most important developments in globalization of the economy since the onset of the twenty-first century. Asia is proving to be a powerful competitor and excellent partner in commerce as economic trends move toward a universal system. The United States and China should not be considered foes—their mutual respect is a major consideration for international business in the future. Global managers have options for strategies and structures, as well as different internationalization processes. In summary, globalization creates a competitive arena as well as a platform for unlikely partnerships where MNCs evolve into global networks, the business model of the modern world.

SEE ALSO International Business; International Management

BIBLIOGRAPHY

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World Commission on Environment and Development. Brundtland Report: Our Common Future. New York: Oxford University Press, 1987.

Globalization

Viewed narrowly, globalization is a governmental policy favoring free trade, open borders, the free movement of capital and goods (but not always of people), elimination of tariffs and price controls (including artificial control of currency values), and the privatization of publicly-owned or controlled enterprises. Globalization is also a word used to describe all manner of phenomena associated with such a policy—both positive and negative. In the U.S., the positive consequences of globalization so far have been inexpensive imports and the ability of companies to more easily invest abroad; the negative consequences have been the loss of jobs to off-shored operations and outsourced functions, large trade deficits, and foreign ownership of domestic assets. Globalization is a polarizing issue generally favored by the right in the name of free markets and opposed by the left as a policy that favors "Big Capital" and hence a small corporate elite.

HISTORICAL CONTEXT

The International Monetary Fund, an organization of 184 countries, suggests in its definition that globalization is something of a natural process. Globalization, according to the IMF, is "a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization…."

Trade, of course, is as old as humanity. Anthropologists have traced enormous trade routes that Cro-Magnon man used all across Europe before the dawn of history. Trade over land and by ship became common, the principal trade goods being agricultural products like olives and grains. In pre-industrial times high dependence either on exports or imports tended to lead to war as countries tried either to secure their supplies or their markets. Rome became seriously dependent on grain imports from Egypt and eventually conquered its supplier. The British Empire evolved as a series of steps attempting to protect its far flung trading centers. In modern times oil and gas are the "must have" commodities and are producing wars and tensions. The relevant phrase in the IMF's definition therefore is "increasing integration." Integration implies mutual dependency and therefore the danger of being cut off in times of trouble.

Underlying trade is the uneven distribution of the world's resources. Some people have grain, others have timber. Some can raise animals on plains others can mine metal in mountains. We encounter a formulation of this argument in Adam Smith's The Wealth of Nations (18th century): "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." In the 19th century David Ricardo refined this concept and called it "comparative advantage." Ricardo factored in opportunity costs as well as direct costs. In any event, the value underlying free trade is that both sides benefit because of differential advantages.

Trade is the expression of economic power, but a more basic power underlies it: political power expressed as force. Trade-based policies in the past have been balanced by policies of autarky, a word Merriam-Webster defines to mean "national economic self-sufficiency; a policy of establishing independence of imports from other countries." No country is genuinely self-sufficient, but attempts to gain the optimum advantage by a mixture of trade and force tends to be practiced at all times. Thus the U.S. government, for instance, despite a broadly favorable view on globalization, still imposed a tariff on Brazilian ethanol imports in the mid-2000s. The relative power of a country, the relative importance of a commodity, and the relative influence of vital constituencies within that country combine to determine how much a country will rely on trade, how much on force, and in which categories particularly.

A fundamental reason for opposition to globalization arises from its chief feature, integration and therefore mutual dependence. In democratically organized countries political blocks can only hope to influence their own government—not that of scores of others. But unreachable foreign governments will influence the local economy. And narrow constituencies that benefit disproportionately from free trade may be able to control the government. The free trade philosophy, based on the vitality of competition, is also opposed by a socialist philosophy, based on the virtue of cooperation.

INSTITUTIONAL EXPRESSION

Globalization is taking place under international treaties to which a majorities of countries are signatories. Traditionally these treaties have been negotiated in so-called "rounds" and have resulted in "agreements." The last "round" was the Uruguay Round in which agreements were signed on April 24, 1994; they went into effect on January 1, 1995, and established the World Trade Organization (WTO). Several other agreements were annexed to the "WTO Agreement;" these include the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade and Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The first GATT was negotiated and signed in 1947. WTO is now the successor to all of these agreements.

The WTO is headquartered in Geneva, Switzerland, and had a membership (as of December 2005) of 145 countries. The organization describes itself as "the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world's trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business."

In the mid-2000s the WTO was engaged in the Doha Round of negotiations (based in Doha, Qatar and begun in 2001). The chief aims of the round, strongly backed by the U.S. government, were further liberalization of trade in agricultural goods and services. The future of this round, and thus indirectly of the WTO, was murky at the time of writing (2006) because ratification of the new agreements was widely opposed and not certain to be ratified even by the U.S. Congress.

U.S. TREATIES AND INITIATIVES

Within the U.S. government, the institutional body managing trade activities is the Office of the United States Trade Representative (USTR), a 200-person organization that takes the lead in negotiating trade agreements. The legal basis of this governmental element was the Trade Expansion Act of 1962, modified by subsequent trade acts, most recently by the Trade and Development Act of 2000. Official U.S. participation in the globalization movement takes the form of participation in the global agreements that formed the WTO. In addition, the U.S. is a party to three regional agreements and is a promoter of three regional initiatives.

The agreements include APEC (for Asia-Pacific Economic Cooperation, signed in 1989), NAFTA (North American Free Trade Agreement, which became effective in 1994), and CAFTA (Central American Free Trade Agreement, which became effective in 2005). CAFTA includes the Dominican Republic and all Central American States except Costa Rica which has thus far not ratified the treaty. The USTR lists CAFTA as a bilateral agreement although it includes a group of nations.

The U.S. is also active in pursuing several free trade initiatives. These include the FTAA Initiative (for Free Trade Area of the Americas, begun 1994), the ASEAN Initiative (for Association of Southeast Asian Nations, begun 2002), and the MEFTA Initiative (for Middle East Free Trade Area, begun 2003). The treatment of CAFTA as a bilateral agreement may be the consequence of difficulties in bringing the FTAA Initiative to an agreement in more than a decade of ministerial meetings.

With CAFTA removed, the U.S. also has 13 bilateral agreements with Australia, Bahrain, Chile, Columbia, Israel, Jordan, Malaysia, Morocco, Oman, Panama, Peru, Singapore, and the South African Customs Union.

Most Favored Nations

Just to keep things straight, special trade agreements are not the same as the often-mentioned "most-favored-nation" designations. The Library of Congress Research Service provides the following definition for the phrase: "Under the provisions of the General Agreement on Tariffs and Trade (GATT), when one country accords another most-favored-nation status, it agrees to extend to that country the same trade concessions, such as lower tariffs or reduced nontariff barriers, that it grants to any other recipient having most-favored-nation status." Each country, therefore, has its own definition of "most favored nation." All those so designated are treated alike. But some countries may be treated more favorably still. In that case they will not bear the "most favored" label. NAFTA members are an example. The phrasing is unfortunate because one is reminded of George Orvell's Animal Farm. Many nations may be "most favored," but some are more favored than others.

COSTS AND BENEFITS

The costs and benefits of globalization depend on who you are, where you are, and even on what you are doing at any one point in time. Are you shopping? Working? Looking for work? Do you work for a multinational? For a small business? From the U.S. perspective, globalization has resulted in massive imports of goods available at very attractive prices in major outlets like Wal-Mart. This has helped consumers but has brought hardship on many small-business retailers unable to purchase goods in high quantity in foreign markets at rock-bottom prices. Globalization has not only made it possible to import low-priced goods but also to export well-paid jobs to low-wage regions of the world, thus causing job-losses domestically. Lost jobs may be replaced, but the general consequences of intense competition with lower-paid labor elsewhere is to depress income domestically.

The benefits of lower prices have sent U.S. consumers on a shopping spree. Robert Samuelson reported in Newsweek on this phenomenon, citing Sara Johnson of Global Insight: "From 1996 to 2005," Samuelson wrote, "the United States generated almost 45 percent of global growth in consumer spending … That dwarfs the U.S. share of the world economy, [which is] about 20 percent." A consequence of this has been an increase in the U.S. trade deficit from $191 billion in 1996 to $784 billion in 2005. But trade deficits extend unbroken many decades back (to 1971—when it was only $4.9 billion), indicating that the U.S. consistently sells less abroad than it buys from others. This, in effect, represents a net loss of U.S. assets to foreign owners. In the case of the U.S., "increased integration" has produced rapidly growing "dependence"—which, unless righted by energetic corrective measures, can only be paid for, ultimately, by a decline in the standard of living.

The near term beneficiaries of globalization are consumers. And they need help because their incomes are stagnant or declining. The clearest beneficiaries are the stockholders of big multinational corporations that reap the rewards of greatly increased flexibilities in sourcing labor and raw materials while still retaining the large U.S. market. The somewhat conflicting outcomes of globalization are typically justified by appeals to technological progress: The U.S. can afford to shed jobs and enjoy the benefits of lower prices because the country's prowess in technology and innovation will generate whole new waves of much better employment. Thus goes the argument. But the argument is, to some extent, a "bird-in-the-bush" rather than a "bird-in-the-hand" argument. For this reason energetic public opposition to globalization has emerged. If it finds political resonance, globalization may in time be slowed or curbed.

see also Global Business; Tariffs

BIBLIOGRAPHY

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"US Not Ready to Scale Back WTO Hopes: USTR Nominee." Reuters. 16 May 2006.

World Trade Organization. Official Web Site. Available from http://www.wto.org/. Retrieved on 16 May 2006.

                                            Darnay, ECDI

Globalization

Globalization refers to the growing interconnectedness in economic, cultural, and political life. The use of the term has increased since the 1980s to reflect the greater ease with which people, products, information, and images move across space and, consequently, the ability of events in one part of the world to more easily affect circumstances in others. Globalization is also linked to the remarkable ascendancy of free-market philosophy and practice worldwide. The nature and extent of these changes is the subject of extensive debate. Central questions surrounding globalization are whether the nation-state can maintain its position as the principal institution of economic and political governance in the face of rapid transnational flows, and the degree to which cultures can remain relatively autonomous.

The Expansion of Global Markets

In uneven but persistent ways, technological developments have tended to reduce the "friction of space" and to link markets in labor, finance, and commodities more closely. Children, as consumers of commodity goods, health-care, and education, and in some cases as producers of commodities, have been acutely affected by what some people term the "shrinking" of the globe.

It is important to note that deepening economic and social integration, captured by the term globalization, is not unprecedented. Mercantilism and the Atlantic slave trade from the sixteenth to the eighteenth century and European colonialism, peaking at the end of the nineteenth, connected vast numbers of people across the globe; by the end of the nineteenth century, for instance, Britain's territory had been enlarged by a factor of forty through colonial plunder. From the mid-1970s, however, there occurred what David Harvey, in The Condition of Postmodernity, describes as a new round of "time–space compression." Intense economic restructuring signaled the collapse of the post–World War II development model consisting of Keynesian state-intervention and mass-production work methods. Responding to economic crisis, Prime Minister Margaret Thatcher in the United Kingdom in 1979 and President Ronald Reagan in the United States in 1980 began reforms aimed at freeing the power of the market to restore prosperity. Policies emphasized were privatization, cuts to government expenditures, and tax breaks to businesses. At the same time, new forms of communication, especially the personal computer and the Internet, made contact everywhere faster.

In the 1980s some regions in the Third World, under pressure through structural adjustment policies to earn foreign exchange to pay heavy debt, moved from exporting primary commodities, a pattern set by colonialism, towards manufacturing labor-intensive industrial goods for a global production system. Multinationals were central to this process. They became closely linked to globalization not only through aggressive advertising–promoting global icons such as Nike or Coke–but by relocating labor-intensive industries into the Third World to reduce costs. The other important international institution driving these changes was the World Trade Organization (WTO), which succeeded, with a larger scope, the General Agreement in Trade and Tariffs (GATT) in 1995. The WTO encouraged international trade by promoting reductions in trade tariffs.

The seemingly inexorable expansion of the market, reinforced by the collapse of communism at the end of the 1980s, made alternatives to capitalism appear increasingly unfeasible. Nevertheless, the perceived negative social effects of deregulation elicited a wave of criticism against globalization at the turn of the century. The 1997 East Asian financial crisis, fueled by massive currency speculation, suggested that markets could create not simply prosperity but great vulnerabilities. Moreover, antiglobalization protests at the 1999 Seattle summit of the World Trade Organization and subsequent international meetings focused further attention on the detrimental social effects of globalization.

Child Labor

The growing volume of industrial production in the Third World gave the issue of child labor a high profile from the 1980s. In contrast to similar concerns in the nineteenth and early twentieth century, however, child labor was framed primarily as a global and not simply a national problem. Despite the attention given to children working in export industries such as garments and rugs, the International Labour Organization (ILO) reports that most child labor in fact takes place in agriculture, domestic service, and the informal sector. Child workers in export industries probably amount to no more than 5 percent of total child labor, although the trend has been toward an increase in this figure. Another, less reported, link between globalization and child labor is through structural adjustment, which often results in cuts to social expenditure and reductions in formal work opportunities. In these circumstances, children's earnings can be used to supplement household incomes, particularly when education becomes unaffordable because of increased fees that result from cuts in education budgets.

These broad trends, however, need to be differentiated regionally and by the type of work that children undertake. Massive debt crisis and political instability largely excluded sub-Saharan Africa from investment in industrial production. China, although exporting large quantities of labor-intensive goods, does not have a significant reported history of child labor. In fact, at least half of all child laborers work in southern Asia and Southeast Asia, with a large amount of bonded labor (labor to pay off debts) reported in India, Pakistan, Nepal, and Thailand. Child labor can also encompass child soldiers as well as the survival activities of street children. The term street children refers to children whose usual home is the street even if they may still have relatives. According to Human Rights Watch, they are frequently subjected to physical abuse by police or criminally charged with offenses such as loitering, vagrancy, or petty theft. In some countries, participation in wars can offer children respect and material benefits. An estimated 300,000 children under the age of eighteen are involved in conflicts worldwide.

A related set of literature suggests that children's bodies have themselves increasingly become global commodities. According to Michelle Kuo, approximately 60 percent of Thailand's tourists visit solely to engage in sexual activities, including those with children. To keep the Thai sex trade "respectable" for international participants, those prostitutes found to be HIV positive are evicted to lower-class brothels, and younger children are recruited from Burma and China to replace them: the younger they are, the less likely they are thought to be infected with HIV. Similarly, Nancy Scheper-Hughes links economic globalism to an expanding trade in body organs, including those from children. Desperately poor individuals in Brazil, China, India, and other countries are forced to sell body parts in order to survive. Like sexual services, these organs follow a path from poor to rich, often from the Third World to the First World.

Global Child Standards

Clearly globalization, despite suggesting a process of homogenization, produces highly uneven patterns of development. A countervailing force against growing divergences is the institutionalization of global human rights standards for children. This is evidenced by the 1989 UN Conventionon the Rights of the Child (ratified by all but two countries: Somalia and the United States), and the ILO's 1999 Convention 182 that seeks to end the "worst forms" of child labor, such as debt bondage, the trafficking or sale of children, child prostitution, or work harmful to the health of children. Efforts to promote children's rights are also assisted by campaigns that stretch across nations. In 1996, for instance, trade unions and nongovernmental organizations (NGOs) launched the "foul-ball" campaign that successfully forced the Federation of International Football Associations (FIFA) to refuse to endorse soccer balls sewn by children. Particularly in the wake of antiglobalization protests in Seattle, transnational NGOs such as Amnesty International and Human Rights Watch have become key sources of information on issues such as child labor and child soldiers. They have been among the quickest organizations to embrace the Internet which, through listservs (forums for quickly exchanging information by e-mail among a large group of people), is used to coordinate global campaigning strategies regardless of the physical location of members. At the touch of a button, global activists can now be in almost continuous contact.

Global Identities

Whereas classic anthropology represented culture as being static and bounded, the framework of cultural globalization stresses how culture is produced through widening and deepening interconnections. Between 1980 and 1991, the global trade in goods with cultural content–such as printed matter, literature, music, visual arts, cinema, and photography–almost tripled. Worldwide, parents face intense pressure from their children to buy goods with global brand names. Although global icons are, in fact, typically produced in the United States, new global styles such as world music also celebrate cultures from outside of the dominant regions. With dramatic telecommunication advances, images are projected almost instantly around the world, expanding the geography through which childhood is constructed and experienced. In recognizing that identity is formed through more widely stretched interconnections, work on youth has moved away from long-established frameworks of subculture or deviance to show how the local, national, and global are intermeshed to produce children's identities. Icons such as Madonna, Britney Spears, and the Spice Girls, and technologies such as the Internet are the most potent symbols of these processes. Concerned about this globalization of consumption, however, the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the United Nations Environment Programme (UNEP) are among groups actively engaged in research and interventions that promote more sustainable consumption behavior among youth.

See also: Child Labor in Developing Countries; Consumer Culture; International Organizations; Juvenile Justice: International; Soldier Children: Global Human Rights Issues.

bibliography

Gereffi, Gary. 1995. "Global Production Systems and Third World Development." In Global Change, Regional Response: The New International Context of Development, ed. Barbara Stallings. Cambridge, UK: Cambridge University Press.

Griffin, Christine. 2001. "Imagining New Narratives of Youth: Youth Research, the 'New Europe' and Global Culture." Childhood 8, no. 2: 147–166.

Harvey, David. 1989. The Condition of Postmodernity. Oxford: Basil Blackwell.

Hecht, Tobias. 1998. At Home in the Street: Street Children of Northeast Brazil. Cambridge: Cambridge University Press.

Held, David, Anthony Mcgrew, David Goldblatt, et al. 1999. Global Transformations: Politics, Economics, and Culture. Oxford: Blackwell.

Hirst, Paul, and Grahame Thompson. 1996. Globalization in Question: The International Economy and the Possibilities of Governance. Oxford: Blackwell.

Kuo, Michelle. 2000. "Asia's Dirty Secret." Harvard International Review 22, no. 2: 42–45.

Myers, William E. 1999. "Considering Child Labour: Changing Terms, Issues, and Actors at the International Level." Childhood 6, no. 1: 13–26.

Ohmae, Kenichi. 1990. The Borderless World: Power and Strategy in the Interlinked Economy. London: Collins.

Polanyi, Karl. 2001 [1944]. The Great Transformation. Boston: Beacon Press.

Scheper-Hughes, Nancy. 2000. "The Global Traffic in Human Organs." Current Anthropology 41, no. 2: 191–224.

Scheper-Hughes, Nancy, and Carolyn Sargent. 1998. Small Wars: The Cultural Politics of Childhood. Berkeley: University of California Press.

Seabrook, Jeremy. 1998. "Children of the Market: Effect of Globalization on Lives of Children." Race and Class 39, no. 4: 37–49.

Skelton, Tracey, and Gill Valentine. 1998. Cool Places: Geographies of Youth Culture. London: Routledge.

United National Development Program. 1999. Human Development Report. Oxford: Oxford University Press.

Weissman, Robert. 1997. "Stolen Youth: Brutalized Children, Globalization, and the Campaign to End Child Labor." Multinational Monitor 18, nos. 1–2: 10–17.

internet resources

Global March. 2002. Available from <www.globalmarch.org>.

Human Rights Watch. 2001. Available from <www.hrw.org/children/street.htm>.

International Labour Organization. 2002. Available from <www.ilo.org/public/english/standards/ipec/index.htm>.

UNICEF. 2003. Available from <www.unicef.org>.

Mark Hunter

Globalization

Globalization has been used to explain the increasing degree of international economic integration that emerged as a feature of many industries during the late twentieth century. In the tobacco industry, however, the origins of globalization can be found unusually early. Indeed, by the closing years of the nineteenth century, tobacco goods were already being manufactured and marketed by firms whose operations spanned a variety of countries. One tobacco product in particular was responsible for this early example of successful international economic integration: the machine-made cigarette. By the year 2000, over 80 percent of all tobacco grown in the world was destined to be consumed in cigarettes, the majority of which were produced by just three leading multinational corporations: Philip Morris, British American Tobacco, and Japan Tobacco.

A Product with Global Potential

Mass-produced hand-rolled cigarettes first began to emerge as a significant form of tobacco consumption in the United States after the American Civil War (1861–1865). Using the flue-cured Bright tobacco leaf grown in Virginia, tobacco firms experimented with different blends of leaf that could be smoked in the form of a cigarette. Targeting the more affluent and sophisticated urban consumers, these relatively expensive hand-produced items became an important aspect of the development of branded products that symbolized the beginning of the era of mass-produced consumer goods. What might be considered as the first modern American cigarette was launched by the New York firm of F. S. Kinney in 1872 when it marketed the brand Sweet Caporal using a blend of flue-cured Virginian and Turkish leaf. Following Kinney's lead, other firms, such as the Virginia-based enterprise of Allen & Ginter, developed brands that replaced the costly imported Turkish leaf with flavored Burley tobacco grown in Kentucky to produce an all-American blend. To promote its brands, Allen & Ginter packaged its products with picture cards as an innovative marketing technique.

By 1880 sales of cigarettes in the United States had reached 500 million per year, and both Kinney and Allen & Ginter had begun to seek out export markets for their products. In Britain, where a small trade in the hand-rolled items had been developed by firms such as W. D. & H. O. Wills of Bristol, imported American cigarettes became a fashionable item of consumption, although the Customs authorities frowned on the adulterated products that contained flavored tobacco and, as a result, British consumers developed a taste for pure Virginia leaf cigarettes rather than the American blended version. In many other countries of Europe, the production of tobacco goods was controlled by a state monopoly, and this situation meant that in France, Spain, Italy, and Portugal, for example, consumers were offered little choice of manufacturers' brands.

Although hand-rolled cigarettes grew in popularity, the continued expansion of output required the employment and supervision of an increasingly large female workforce and allowed few gains in productivity because the cost of labor accounted for around 90 percent of the total. The globalization of the cigarette industry thus only began in earnest following the mechanization of the production process. Of the various attempts that were made to produce a machine to manufacture cigarettes, the most reliable was developed by an American engineer named James A. Bonsack. His invention was capable of producing 200 cigarettes per minute, equivalent to the combined output of around forty to fifty hand-rollers. In England, Bonsack granted an exclusive license for his machine to the Wills firm, whose Woodbine cigarette brand became a marketing sensation following its launch in 1888. In the United States, meanwhile, Bonsack's invention was exploited most successfully by the North Carolina–based firm of W. Duke & Sons. Led by the astute and ruthless business tycoon James B. Duke, the company used the cost advantages it derived from mechanization to expand its cigarette sales rapidly across the United States. Using a mixture of price-cutting, advertising, and corporate acquisition, Duke's firm was strong enough by 1890 to browbeat its four main domestic cigarette manufacturing rivals into a joint venture named the American Tobacco Company, which then accounted for over 90 percent of all cigarettes manufactured in the United States.

From Exports to Foreign Investment

Immediately following its formation, Duke's American Tobacco Company used its monopoly power in cigarettes to continue the strategy of market expansion. In domestic terms, this involved further infiltrating and gaining control wherever possible in the markets for other tobacco products. In the cigarette business, Duke's earlier campaign of domestic expansion was now transferred into foreign markets. Initially, this international growth was founded on developing an export trade in cigarettes manufactured in America. Duke sent experienced tobacco men such as Richard H. Wright and James A. Thomas on tours of duty into Europe, Asia, and the Pacific Rim to gather orders for the company's products. During the 1890s, leading cigarette brands of American Tobacco such as Cameo, Old Gold, and Pin Head found new consumers in Britain, Germany, the West Indies, India, South Africa, Australia, and, particularly, Japan and China. Such was the extensiveness of the company's bill poster advertising that, in many parts of China, the characters "Pin" and "Head" were taken to be the generic name for cigarettes.

British firms, such as Wills, John Player & Sons, and Lambert & Butler, followed Duke's example and began to set up branches outside the United Kingdom to promote their products. Wills in particular scored considerable success with brands such as Pirate, Scissors, and Diamond Queen. By the beginning of the twentieth century, one-third of American Tobacco's cigarette output was being produced for export, and around 20 percent of Wills's tobacco products were being shipped abroad. To consolidate this trade, in the face of local competition and rising tobacco tariffs, Duke's firm began to make strategic investments in foreign markets. In 1894 American Tobacco formed three subsidiary companies in prefederation Australia, in each case operating in conjunction with other manufacturers. The following year the American Tobacco Company of Canada was founded by Duke's firm in order to acquire control of the two leading Montreal-based tobacco businesses. The pattern was now set for a process of international corporate expansion in the tobacco business.

An International Cigarette Cartel

Duke's foreign investments were by no means always welcomed by firms or governments in the host country. A campaign of political resistance developed in Japan, for example, following the acquisition by American Tobacco in 1899 of the controlling interest in the Kyoto-based Murai Brothers firm, culminating in the nationalization of the entire tobacco manufacturing industry in 1904. Opposition was frequently also encountered from within the trade. Thus when, in September 1901, Duke's firm purchased control of the Liverpool-based Ogden Tobacco Company, a concerted campaign of commercial warfare was waged by the leading British tobacco companies, spearheaded by Wills, who banded together to form the Imperial Tobacco Company. This federated concern encompassed more than a dozen firms and ultimately negotiated American Tobacco's withdrawal from the British market in 1902, following a period of desperate competition that spilled into international markets and became known as the Tobacco War.

The terms that were negotiated between Imperial and American Tobacco in 1902 ushered in a new phase of international expansion in the embryonic global tobacco industry. An agreement signed in September 1902 gave Imperial and American Tobacco exclusive rights to one another's brands in Britain and the United States respectively. Outside these two markets, this vast portfolio of brands was allocated to a newly formed joint venture called the British-American Tobacco Company (now British American Tobacco), in which Duke's firm was allocated a two-thirds interest. British American was therefore created as a multinational company. As well as owning brand rights in international markets, the new firm inherited all the export trade and foreign assets that its two parent companies had built up in the preceding decade.

A Pioneering Multinational Company

Between its formation in 1902 and the end of World War II, British American was virtually unchallenged as the leading international firm in the global tobacco industry. During this time the company continued to expand the export trade from its factories in Britain and the United States. More significantly for the future shape of the industry, however, the company made significant investments in cigarette factories and distribution systems in other parts of the world. The company's main area of success was in China, where it built a huge production capacity and a distribution system that utilized local tobacco merchants whilst retaining control and accountability to the company's regional head offices. Unmarried young men, mainly American, aged under twenty-five were recruited and posted to China on tours of duty that normally lasted four years. Expatriate employees of this kind formed the vanguard through which western business methods were transferred into other economic and social systems.

Methods of market entry varied from country to country. In India, no domestic cigarette producers existed and hence British American set up its own factories and distribution system into which it gradually assimilated local employees. In Latin America entry more often took the form of corporate acquisition. In 1914 in Brazil, for example, British American bought control of Souza Cruz, a company that had been set up ten years earlier by a Portuguese immigrant and which already operated its own factories in Rio de Janeiro, Bahia, and Santa Cruz. Over time therefore, as it developed local production capacity, the balance of activity undertaken by British American in foreign markets shifted from an export business to local production and distribution. As the company gained control over foreign firms as its subsidiaries, it also acquired and developed many new cigarette brands for these markets that reflected local tastes and cultures. Ruby Queen was a derivative brand of Wills's Diamond Queen that traded outstandingly well in China where red is considered auspicious Elephant brand succeeded in India, and the brand Bicycle was aimed at upwardly mobile consumers in West Africa.

For a period during the 1920s a few other tobacco companies did begin to expand their operations into foreign markets in order to challenge British American's domination. Following the dissolution of the American Tobacco Company in 1911, some of the successor companies did make foreign investments, and a group of financiers also used the opportunity to set up the Tobacco Products Export Corporation, which briefly offered a threat to British American in China and elsewhere. Competition from the British firm Ardath was ended when British American jointly acquired this firm with Imperial, and thereby gained control of the successful international brand State Express 555. With the onset of the Great Depression after 1929 much of this international rivalry came to a halt, although the Japanese Toa Tobacco monopoly began a concerted and ultimately successful attempt to capture much of the cigarette market in Manchuria and northern China. The surge in nationalist sentiments that characterized the 1930s led British American to adopt a lower international profile in many markets, where earlier boycotts of their products (notably in China, Germany, and India) had already encouraged the company to downplay its international identity. In 1934 in China, for example, the company adopted the Chinese pseudonym Yee Tsoong to replace British American and tried to encourage more investment from local sources.

The Spread of Flue-Cured Leaf Tobacco

British American's strategy of developing local production in the majority of its markets was further supported by encouraging local cultivation of Virginian tobacco leaf. To do this the company formed the Export Leaf Tobacco Company, which handled leaf procurement and provided expertise to support local cultivation. Seedlings were developed for the varying climatic and soil conditions, and the company established extension services and leaf-handling facilities at which local cultivators could sell their crop of flue-cured Bright tobacco leaf. Important regions of tobacco growing designed to support cigarette manufacturing were established in China, India, and Brazil. In India, for example, a British American subsidiary—the Indian Leaf Tobacco Development Company—was set up to promote tobacco growing and given further encouragement by the adoption by the British government of favorable tariffs on Empire products under the Imperial Preference scheme. Thus, between the wars a substantial increase occurred in the amount of land devoted to growing tobacco leaf for cigarettes, particularly in the nonindustrialized regions.

In the period since World War II the trade in tobacco leaf has become an important aspect of the global tobacco industry. The formation in 1918 of the Universal Leaf Tobacco Company in the United States created a leaf-handling organization that exploited the cultivation of tobacco leaf in China to set up a tobacco-trading subsidiary there in 1925. Since this time, Universal has grown into a major transnational tobacco processing and trading company whose operations make up an aspect of the global commodities trade linking the producers of raw materials with the manufacturers of final products.

A Global Tobacco Oligopoly

The outbreak of World War II had a dramatic impact on the competitive conditions of the global tobacco industry. After 1945 British American found their position under threat in many of the strongest markets. The communist revolution in China in 1949 was a particularly devastating blow, ending hopes of a revival in their sales there, and significant reversals were also experienced to their position in Egypt, Indonesia, and India. American firms, conscious of the adverse publicity arising from the health consequences of smoking, began to make a more concerted effort to challenge for a share of international markets. Liggett & Myers, R.J. Reynolds, and Philip Morris all began to engage in overseas expansion during the 1950s, particularly into the markets of Latin America, using a combination of direct investment and licensing. The German Reemtsma and the South African–based Rothman's International also made inroads during this period as the competitive structure of the international cigarette industry adopted a strongly oligopolistic dimension.

After the mid-1960s all the world's leading privately owned tobacco manufacturers were growing concerned about the accumulating evidence linking tobacco smoking to lung cancer and other debilitating conditions. The industry-wide response was to adopt a strategy of growth through diversification, and by the end of the 1970s the leading group of international tobacco firms had each developed a nontobacco arm: British American evolved into BAT Industries, R.J. Reynolds became RJR Nabisco, Philip Morris merged with the food manufacturer Kraft, American Tobacco transmuted into American Brands. Diversification had in most cases involved international investments and thus, as a strategy, had created a group of global industrial conglomerates.

The Modern Global Industry

Despite this loss of focus, certain international features of the tobacco industry continued to emerge. Cigarettes and light tobacco became increasingly important across international markets, filter-tipped cigarettes grew in popularity and led to increased emphasis on image over taste in the marketing mix, American blend cigarettes attained increased popularity over the pure Virginia article, and international brands moved back into the ascendancy. Riding on the back of these trends, Philip Morris successfully developed its Marlboro brand as the world's leading cigarette and wrested away from BAT the leading position in the international industry.

Although the tobacco industry had in many senses undergone a process of globalization before World War II—when British American operated plants in over fifty countries—it was only in the 1990s that the industry could be said truly to have adopted a global form. Trade liberalization demanded the dismantling of the system of state monopoly producers, of which Japan Tobacco emerged as a genuine multinational firm when it purchased the R.J. Reynolds brands, while the collapse of communism meant that the huge markets of Eastern Europe and China opened to foreign manufacturers' products. This growth was coupled with consolidation. Pressured by corporate raiders, the leading tobacco companies unwound their earlier diversification strategy and used the capital to fund growth via acquisition. Philip Morris and British American Tobacco both successfully expanded into Eastern Europe, and the latter firm acquired Rothman's International in 1998.

See Also American Tobacco Company; British American Tobacco; Industrialization and Technology; Philip Morris.

▌ HOWARD COX

BIBLIOGRAPHY

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——. The R.J. Reynolds Tobacco Company. Chapel Hill, N.C.: University of North Carolina Press, 1985.

flue-cured tobacco also called Bright Leaf, a variety of leaf tobacco dried (or cured) in air-tight barns using artificial heat. Heat is distributed through a network of pipes, or flues, near the barn floor.

acquisition the purchase—sometimes called a merger—of a smaller company by a larger one. During the late twentieth century, major tobacco companies diversified their holdings through acquisition of nontobacco products.

tariff a tax on imported goods imposed by the importing country to protect native industry from foreign competition, protect jobs and profits, and raise revenue. Tariffs typically raise consumer prices of effected products.

subsidiary in commerce, a branch or affiliate of a larger unit that provides components or support services.

embryonic in the early stages; undeveloped; nascent.

auspicious showing promise for success; favorable.

nationalism the belief that the narrow, selfish interests of one's country should supersede international standards of behavior.

boycott an economic sanction imposed by an interest group to influence policy. In the 1900s, tobacco growers in Tennessee and Kentucky refused to sell leaf to the American Tobacco Company until prices were raised.

oligopoly control of a commodity or service by a small number of companies. A marketing environment in which a few vendors have control of a product. Oligopolies tend to suppress competition and fix prices.

diversification in agriculture, to avoid overdependence upon one crop by producing several different crops.

conglomerate a large business enterprise usually composed of several smaller companies or branches.

consolidation when numerous smaller units are combined into a larger one. In agriculture, consolidating small farms into one large farm usually makes operations more efficient and profitable.