Globalization: Introduction

OVERVIEW

 Last week: Why is capitalism so dynamic, exploitative and geographically

expansive -> Globalization

 Next two weeks -> Globalization

 This week:
 Phases of globalization -> first and second unbundling
 What is new about globalization –> complex global value chains
 Discussion: How best to address social and environmental sustainability problems in a
world of complex GVCs?

 Next week:
 Who are the loosers of globalization?
 Globalization, populism and the threat to democracy
 Discussion: Are there only people or also places left behind by globalization?

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Learning outcomes

timeline (approximately)

 Be able to identify and characterize different phases of globalization

 Be able to identify the basic components of commodity and/or value chains

 Explain how the complexity of global value chains obscures the social and
environmental conditions under which commodities are produced

 Evaluate different technical, social and political strategies and solutions to

improve the social conditions and reduce the environmental footprint of global
value chains

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Different phases of globalization
 „second unbundling“

„first unbundling“
1820-1980

6
 Linked to changes in different
costs of overcoming distance
high-tech, high-service branches

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Source: Baldwin 2013
The „pre-globalized“ world

 Workers required to live close

to places of production
 High trade, communication and
high face to face costs made in
prohbitely expensive to import
commodities from other places
 Local monopoly
 Limits to the size of production
(small markets mean little
gains from economies of scale
and scope) Source Baldwin 2016

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„first unbundling“

 First phase of globalization (1820-

1980)
 Lower transportation costs lead to
intensification and geographic expansion
of trade
 Costs of overcoming distance decrease
 Turn-over times of capital increase
 Quasi-local monopolies disappear
 Larger (global) markets mean mass
production –> increasing returns to scale
and scope -> massive efficiency gains
 But: high communication costs and face
to face costs mean that information and
knowledge are still geographically
concentrated

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 Possible ways of organizing production

First unbundling
increasing internal economies of scale Industrial district (Silicon Valley)
external economies of scale
concentrated
geographic dimension

River Rouge Plant

NIKE
Countries
dispersed

Volkswagen production network

organizational dimension (production of the whole value chain within a single firm or spread of the value chain across many firms (subcontracting))
10
single firm many firms
Prior to WWI:
Urbanization: Goods move globally but innovation
and workers travel only short distances

• With rapid industrialization and despite

falling transportation costs, urbanization in
Europe and the U.S. increased
• Why?
• Falling transportation costs makes the
shipping of products over longer distances
possible
• Large markets enable an incraseingly detailed
division of labor (efficiency gains) and large
scale production (scale economies) knowledge
• Communication costs remain high, so that the spillover is still
knowledge spillovers linked to rising internal within cities or
and external scale and scope economies countries
remain in European and later, U.S. cities.
Distance barrier to knowledge spillovers
• Industrialization also requires a workforce that
is close by because urban transportation
systems have not been developed sufficiently
at that time

Scott 1988, p. 66
Result of that

 Global level language, export & import duties in Europe, so Europe is unfortunately not that specialised as US
 Countries and cities of the Global North
specialize in manufactured products
 Countries and cities of the Global South Chicago:
Meatpacking
specialize in primary commodities and food La Cross, Eau Clair:
Minneapolis: Lumber
Leather tanning
Boston:
products Flour millingmay actuallyGrand
some countries loose
Harvesting machinery
Rapids,
in the process andMen’s
thatclothing
Milwaukee: Muskegon: Prefabricated housesMusical instruments
 Old international division of labor -> Ricardo‘s winners Brewing Lumber
world of comparative advantage (although they should compensate the loosers.
Leather tanning Only then all can gain (or at
are often artificial created (not natural) least not loose out)Peoria:from globalization
Pittsburgh:
Glass, iron, steel East coast:
advantages as part of colonial trading systems) Omaha:
Distilling
Harvesting Indianapolis:
Goat leather
Philadelphia:
Meat packing
 Within countries and regions machinery Meatpacking Textiles
Baltimore:
Cincinnati:
 Cities specialize in the production of particular Kansas City:
Flour milling St. Louis:
coachbuilding Men’s clothing
Canned vegetables and
Louisville:
commodities 40% of manufactury is produced un cities Meat packing Brewing Distilling fruits
Meatpacking
 Knowledge and Information remains in the Leather tanning
cities and factories of the Global North
 Linked to changes in different
costs of overcoming distance

production
consumtion

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Source: Baldwin 2013
 „second unbundling“ falls if Soviet Union. Massive consumption of Internet for a lot of purposes
очікувано, що так буде (про інет)
тому в якійсь силіконовій
долині почадл розробляти
щось, що потрібне до приходу масового
 Second phase of globalization інету.
WW2 begins after 1945 but accelerates
since mid-1990s –New
international division of labor
 Further improvement in
transportation technologies
reduces trade costs further still limited knowledge spillover, бо працівники можуть змінити місце роботи, або
працювати на себе
 Lower ICT cost enable a more NOW
detailed global division of labor
 Increases turnover time of capital
further
 Also leads to faster product life
cycles (eg. fast fashion)

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Enabling technologies of the „second
unbundling“

 Transportation technologies
 Commercial jet aircraft
 2009 – 74.1 million flights in total
 But: only by 1950s air travel took off
 Almost 80 million tons of air freight were
shifted in 2009 (biggest freight hub – https://www.theguardian.com/business/gallery/20
18/sep/30/fifty-years-of-the-jumbo-jet-in-pictures
Memphis)
сатндартизовані контейнери. грузяться стандартизованими кранами, а не людьми. на
 Containerization стандартизлвані кораблі. це дешевше
 History starts in 1958 in Newark, New Jersey
 Costs of loading a ship fell from an
estimated 5.83 US$ per ton to 0.16 US$
(now of course even lower)
 Now: 9000 containerships traverse the
oceans; largest: 21,000 containers; 90% of
traded goods by value https://en.wikipedia.org/wiki/Container_ship#/me
dia/File:CSCL_Globe_arriving_at_Felixstowe,_Unit
ed_Kingdom.jpg
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ICT and communication technologies

 Satellite and optical fibre technology

 Launch of first geostationary communication satellite in the mid-1960s
 Since the 1970 challenge from fibre glass optics
 Together they offer high volume and affordable data transfer capability
 The internet
 Interactive, mass-user, computer network system
 From 16 million users in 1995 to 361 in 2000 to 939 in 2005 to 2267 million in
величезне збільшення
2011.
 Mobile communication
завдяки супутекам. і кабелями. але другі дорожчі
 From 1 billion mobile phone subscribers in 2002 to 5.3 billion in 2010 – advantage
is the avoidance of expensive fibreglass networks
 Electronic mass media (TV, Radio,..)
 Through advertising global markets for products can be created,…

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Internet usage; geography of communication
tech users

Source: Dicken 2013

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Implications

Dicken 2013
https://ourworldindata.org/international-trade
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 Geographically extensive organization of
production / value chains

Industrial district (Silicon Valley)

concentrated

River Rouge Plant

Second unbundling
NIKE
Countries
dispersed

Volkswagen production network sub-contracting

різні гілки в різних географічних місцях.
single firm many firms
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Task outsourcing and intra-organization, cross-
country information flow

splitt stages

• Not whole industries, but individual

tasks are outsourced and offshored
• But, because of lower ICT costs,
information and codified knowledge is
transmitted within organizations and competing not only firms, but
also persons, jobs etc more
across space (limited information global competition
flow from North to South)
SEITE 20 Source: Baldwin 2016
 What about the „third unbundling“?
CEO літають, бізнес клсом, це дорого. щоб заключити контракти. тому все це географічно сконцентровано і предетерміновано
до того ж багато ідей та контрактів народжуються "за кавою", тому важливе
живе спілкування
 Face-to-face costs remain high
 This means that
activities/tasks/jobs that require
the frequent exchange of tacit
(non-codified) knowledge remain
geographically concentrated COVID >> Zoom.
beginning of third unbundling?
 We will see in Week 5 why they
tend to remain in new industrial
spaces, high-tech regions and
global cities / superstar cities of
countries of the global North
constant friquent knowledge exchange. +> все ще в силіконовій долині. де
high-tech/ face-to-face coscts are still very high
& hgh-service. insurence? what else?

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The main points

 What is the difference between the Old International Division of Labor and
the New International Divison of Labor?

 What is the role of trade, communication and face-to-face costs for

enabling different forms of globalization?

 What is the „first unbundling“ and „second unbundling“ and how are they
linked to changes in costs?

 How can companies organize their value chains geographically and

organizationally as a result falling trade and/or ICT costs?

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Next

 The new world of complex global value chains

 Commodity fetishism

 Value chain analysis to look behind the „veil of commodity fetishism“

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What is new about globalization?
Global Commodity Chains
The world of complex global commodity/value
chains

„Old International Divison of Labor“ „New International Division of Labour“

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Content

 Basic vocabulary:
 What is a commodity?
 What are the consequences of the „commodity form“?
 What is commodity fetishism?
 Establishing the link between consumers and producers: Global Commodity
Chains / Global Value Chains
 Dimensions of commodity chains
 What do we learn from GCC analysis?
 Discussion: Generating social and environmental sustainability through
consumer choice?
Commodities

 Commodity as product with use value produced to

be exchanged at the market for an exchange value

 Notice: Only in a specific social context a product is

transformed into a commodity (eg. Apples)
Commodity form

 Generally we no longer produce the products we consume

 We go to the store and buy them

 Price often reflects cost of labor inputs, raw materials, etc.

 But price tag in store reveals nothing about the conditions under which
a commodity has been produced -> commodity fetishism
when we buy, we become unaware of production prosesses
Commodity fetishism

приховувати
 Focusing only on the point of exchange obscures the complex social relations that
are required for us to be able to participate in this exchange
приховувати
 The term captures the way in which markets conceal social and geographical
information and relations.

 We can not tell by looking at a commodity whether it was produced by happy

workers working in a cooperative or by exploited immigrant laborers from the
Ukraine ….

 As a matter of fact, we are completely unware that the consumption of the

commodity ties us to lots of people and environments across the globe

 „We have to get behind the veil, the fetishism of the market and the commodity,
in order to tell the full story of social reproduction.“ (Harvey 1990: 423)

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Globalization and commodities

 The result of globalization and the ensuing increasing organizational and

geographical complexity of commodity production is that consumers are
largely ignorant of the geographical origins and histories of the commodities
they consume.

through monetary system

 Exchange of commodity for money serves to disconnect producers and
consumers, encouraging an abdication of responsibility on the part of
consumers for the terms and conditions under which the commodity was
made.
Why is that important?

 According to socio-economists, economics is the discipline that studies how

humans organize society and transform nature to create and distribute value in
order to meet human needs

 In other words, the social and environmental relations that are part of the process
of commodity production are of interest
 They include relations between individuals, firms, states, producers, consumers, family
members, etc.

 And if social (and, by necessity, environmental) reproduction is at the center

of economic research – and that includes freedom to make decisions about one‘s
life (positive notion of freedom) – then we have a responsibility to know how
our consumption habits affect other people‘s life chances and the planet

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 Example: Breakfast

 The more complex value chains

get, the harder it is to link
producers and consumers…..

?
 For instance, if you go to
MacDonalds and order a
breakfast, it will be difficult to
figure out where all the
components are coming from,
under what conditions they are
made, whether animals have
been kept according to basic
standards or not, etc.

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Getting behind the „veil“

 Commodity chain analysis

attempts to re-establish link

 We follow a commodity through

different stages from the
hatching plant to the breeders to
the supermarkets and/or
restaurants

 Case study approach: Even

simple products like chickens or
eggs are characterized by
incredibly complex value chains
….

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Result of the exercise

 ..In practice we can consume our meal without the slightest knowledge of the
intricate gegraphy of production and the myriad social relationships embedded
in the system that puts it upon our table (Harvey 1990: 422)

 Tracing back all the items used in the production of our meals reveals a
relation of dependence upon a whole world of social labor conducted in
many different places under very different social relations and environmental
conditions of production.

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Commodity chains

 Sometimes called production chains and increasingly value

chains…

 A value chain can be simply defined as the “full range of

activities that firms and workers do to bring a product
from its conception to its end use and beyond” (Gereffi
and Fernandez-Stark, 2011).

 Some people prefer value chain because a commodity chain

includes lots of activities other than production related ones…
Four dimensions of GCC

 an input-output structure, or sequence of interrelated

value-adding activities including product design and
engineering, manufacturing, logistics, marketing and
sales,
 a governance structure, or power relations that
determine how economic surplus is distributed within the
chain,
 a geographical configuration, referring to the spatial
dispersion or concentration of activities within and across
locations,
 and a social and institutional context, formed by the
norms, values, and regulatory frameworks of the various
communities within which firms operate. (Gereffi 1994)
 The basic commodity chain
Source: Dicken 2013

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Geographical structure of GCCs

 Geographical complexity has increased (more detailed technical, social and

spatial division of labour)
 Geographic configurations of GCCs are becoming more dynamic (because of
space-shrinking technologies,…)
 GCCs reveal dynamics of competitive upgrading strategies
 How can countries improve their economic situation through participation in GVCs?
 Process upgrading; production upgrading; functional upgrading; inter-sectoral upgrading
 GCCs link localized clusters (week 5) of economic activity
Governance/management structures

 Who controls the organizational structure and nature of the GCC?

 Who decides where inputs are purchased from, and where final goods and
services are sold?
 Who shapes the restless geographies of commodity chains?
Governance/management structures

 Often there is a primary coordinator that

drives the system as a whole
 Producer driven commodity chains
 usually large MNCs control the production
system; capital- and technology intensive
industries such as aircraft, automobile,
computer, semi-conductor, machinery -
corporate HQ dominate in terms of earnings,
profitability but also the backward linkages to
suppliers and the forward linkages to
distributors and retailers
 Buyer driven CC
 Large retailers (Wal-Mart, Ikea) and brand-
name merchandisers (Adidas, NIKE, Gap) play
central role in establishing and controlling
production; in labor intensive sectors such as
clothing, footwear, toys,..Also think of
retailers such as Sainsbury or Asda,..
 Only crude distinction: in reality different
models in between
Social/institutional context

 Formal institutional contexts such as rules, regulations that

determine how economic activity is undertaken in various
places (eg. tax policy, trade police, incentive schemes, health
and safety/environmental legislation,..)
 Informal institutional and social contexts such as place-
specific ways of doing business, entrepreneurial and political
cultures,…
Example: Coffee: Marketing

 Taking advantage of the „veil“: Selling by obscuring social relations in practice

We walked along the dirt road between rows of

coffee trees, a view of the hills, green with Mocha Sanani: “Ancient.
vegetation, in the background. The coffee Complex. Veiled in
pickers were singing - mostly women, with high centruries of ritual and
voices and not all together. It was beautiful… mystery. Sanani’s a coffee
They share such commitment, investing time that hints of wildness, fine
and care into the quality of the coffee before wine, dark chocolate, and
we ever see it… I want to let everyone who sun-blasted Bedouin tents
drinks a cup of coffee know about all the people where coffee ceremonies
who came before. Everything matters (in Smith are still performed”
1996: 521).

 Clearly there is an attempt to link the consumer’s experience of drinking a particular kind of
coffee to some exciting, exotic place and/or more or less obviously sexist images …
 But it really only links it to 19th century imaginaries of foreign places and not actually
existing places and conditions of work…

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Example: coffee: value chain analysis

 Re-establishing the links

 Identify key actors

Source: Coe et al. 2013

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Example: coffee: cost-revenue analysis

 Measuring exploitation

 Tracing surplus extraction across the chain

 Which actors gain most?

Source: Oxfam 2003

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Example: Coffee:
Changing Institutional context

 Changing in institutional context -> impact on value

distribution
 Also think of different scales (institutions at local,
regional, national, global level) – eg. International
Coffee Agreement (ICA) was managed by the
International Coffee Organization (ICO), a supra-
national organization, largely credited with
increasing and stabilizing coffee prices (link to cold
ward politics….)
Value added share
of consuming Links disappearing
The share of growers value countries‘s due to
added declined from 30% companies increased
in 1975 to 10% in 1991 to
liberalization
from 46.8% in
rebound to 20% in 1994 1975/6 to 83% in
1991/2
Example: Mobile phones
What do we learn from case studies?

 Reveals actual complexity of social and environmental relations between

producers and consumers along the value chaing

 Reveals power relations – who is in control? Who makes the money?

 Evaluation the impact of institutional changes on value distribution and

value chain structure

 Identify key changes in I-O relations, power relations, geography and

institutional structure - what is actually happening in a particular industry?

 Help design policies to address measures for social and environmental

sustaintability
The main points

 The most recent phase of globalization is characterized by complex GVC

integration – Tasks rather than whole industries are outsourced; New
International Divison of Labor
завіса
 GVC analysis is required „to look behind the veil“ of commodity
production, link customers with producers in order to unearth the social
and environmental relations of commodity production; commodity
fetishism

 Importance of GVCs is examined through product/industry/firm case

studies

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Further sources for the interested

 Case studies of GVCs –> see Dicken 2013 (lots of references to case study
papers)

 Aggregate, global analysis via Input-Output tables and detailed trade data ->
 See Slides on „Notes Globalization Value Chain Reporting“ and
 World Bank (2017) Measuring and Analyzing the Impact of GVCs on Economic
Development. World Bank: Washington DC.
 World Bank (2019) Global Value Chain Development Report 2019: Technological
Innovation, Supply Chain Trade, And Workers in Globalized World. World Bank:
Washington, DC

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Discussion

 After you have heard about the complexity of commodity chains, resulting
commodity fetishism and the problem for consumers to know anything about
the products they consume, what is the best way forward?
 Should we regulate? Should we consume ethically? Who are the key agents of
change? Should there be any change or should we let markets decide under what
social and environmental conditions our consumption items are produced? ….
QUIZ

 NOW – THEN BREAK

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Discussion: How do we best assure social and
environmental sustainability in a world of
complex GVCs?

 They will be held in the classroom and are about the material you were expected to view
and read

 After having read the articles/watched the talks, and submitted the documents, we will start
with the answering of the following questions:

 1.) What is each author’s/speaker’s take on ethical consumption? Where do they see
responsibilities and opportunities? Sum up each position.
 2.) Which texts refer to the marketization/commodification of nature. Please explain the
concept and its connection to capitalist economies.
 3.) Which of the authors/speakers talk about technological innovation and what role do they
give it?
 4.) If you were an Austrian policy maker, what would your policy recommendations be?
Where lies the responsibility and where/how can we initiate the much-needed changes?
Make sure to give reasons for your recommendations. (Think whether you would want to
act on the local/regional/national/global scale and if you want to address corporations or
consumers or both)

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References

 Baldwin, R. (2016): The Great Convergence. The Belknap Press of University of Harvard Press.
 Blaut, J. (1993). The Colonizer‘s Model of the World. Guilford Press.
 Brenner, R. (1976): Agrarian class struture and eocnomic development in pre-industrial Europe. Past & Present 70: 30-75.
 Dicken, P. (2013): Global Shift. Sage.
 Fröbel, F., Heinrichs, J., and Kreye, O. (1980) The New international Division of Labor. Cambridge University Press.
 Gibson-Graham, J.K. (2006) The End of Capitalism (as we knew it): A Feminst Critique of Political Economy. 2nd ed. University of Minnesota
Press.
 Hudson, R. (2005) Economic Geographies: Circuits, Flows and Spaces. Sage.
 Knox, P., Agnew, J., McCarthy, L. (2012). The Geography of the World Economy. Routledge.
 Massey, D. (1984) Spatial Divisions of Labor. McMillan.
 McKinnon, D. and Cumbers, A. (2014) Introduction to Economic Geography. 2nd ed. Routledge.
 Sheppard, E., Porter, P., Faust, D. and Nagar, R. (2009). A World of Difference. 2nd ed. The Guilford Press.
 Sheppard, E. (2005). Constructing Free Trade: from Manchester boosterism to global management. Transactions of the Institute of British
Geographers 30: 151-172.
 Sheppard, E. (2016). The Limits to Globalization. Oxford University Press.
 Peck, J. (2017). Offshore. Oxford University Press.
 Scott, A. (1988): Metropolis. California University Press.
 Rodrik, D. (2011). The Globalization Paradox.
 Rodrik, D. (2017). Populism and the Economics of Globalization. National Bureau of Economic Research. Working Paper 23559.
 World Bank (2017) Measuring and Analyzing the Impact of GVCs on Economic Development. World Bank: Washington DC.
 World Bank (2019) Global Value Chain Development Report 2019: Technological Innovation, Supply Chain Trade, And Workers in Globalized
World. World Bank: Washington, DC

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