THEME 9 : Production internationale et échanges
International Production and Trade

Contribution by Bernadette Madeuf

The development of a global economic system is now considered as a generally accepted fact. However, this consensus does not imply that everybody is agreeing not only on what reality is actually under the words "global economy" or "globalisation" but also on what are the possible outcomes, be they positive or negative, of the ongoing process of "globalisation".
To begin with we propose to discuss the more common views about what "globalisation" means (part 1). Then we are going to introduce a few possible issues -among many others- which are the starting points for discussion and future projects (part 2).
There is a main thread underlying this paper, in line with the general purpose of Pekea project : understanding globalisation as a multifaceted process integrating economies and societies all around the world needs to "rebuild a new knowledge on economic activities" which incorporates analyses provided by other social sciences.

The globalisation process

"Globalisation", a new catchword appearing in the 1980s, has since then successfully spread all around the world through newspapers, business press, academic journals or international organization reports. This "global" success of the word is contrasting - or maybe explaining - its rather blurred definition, or should we preferably say its various definitions. According to R. Boyer no less than 32 meaning may correspond to the concept. It is probably useless to run throughout these 32 meaning, since they can be classified into a few large categories. In order to limit this paper to a reasonable length we are going to focus on the economic dimension of the globalisation. This choice does not imply that we consider other dimensions of the process of globalisation as meaningless : political life and institutions, military or strategic concerns, sports and entertainment, consumption patterns, to take only a few examples, all show the growing tension between universal standards and local or ethnical/cultural pecularities, and are wholly concerned and transformed by the globalisation process.

In the economic area, definitions of globalisation may be related to four main topics : international trade and formation of global markets, development of global enterprises with transnational production networks, global finance market and interdependence, domination of the liberal discourse as the "one best way" either in politic or in economic matters. The following is not to be read as the "state of the art" of the globalisation issue, but rather as an introduction to foster discussion.

Considering that other themes of the PEKEA project are concerned with the global finance (theme 10) and with economic institutions and rules (themes 1,2, 5 and 6), this introduction is focusing on the first two topics forming the core of theme 9. Theoretical aspects have been voluntarily left aside, taking into account that existing theoretical analyses are generally dealing with only one aspect of globalisation (trade or finance or global firms) because of the trend in specialisation in the various academic fields of research. Even before trying to relate economic analysis with approaches from other social sciences, there would be a first task in combining the specialised economic analyses one with another.

Trade and the global market

Development of trade flows and the trend to unified international markets are leading to a growing interdependence of national economies. Considering the growth of international trade, compared to the growth of the world production, considering also the decreasing level of trade barriers since the second world war, one could conclude that national economies are more highly open to imports and dependent to export markets than they have ever been during the XXth century. Even if both trends are confirmed by data (as long as we do not look to earlier evidence in the century, 1913, just before WW1) the conclusion is misleading for 3 reasons.

International trade flows are still concentrated in trade areas formed by advanced countries. Although the expansion of exports exhibited by a few industrialising countries has been extremely fast, the part taken in world trade by advanced countries is exceeding their part in the world production. Furthermore, thinking of the world market as one single unified market is largely delusive : the formation of regional formal trade agreements and the trend of trade flows to polarize inside regions around dominant economies lead to the constitution of three major areas. Each of them is formed by a core, consisting in one or several countries in a regional agreement, surrounded by less advanced and with progressively less intensive trade relationships (in the shape of Russian dolls). Therefore some consider that we are facing more a "triadisation" than a globalisation process. The same pattern of geographic distribution of trade flows is also exhibited by foreign direct investment flows (see below).

Furthermore, the intensity of international trade and the openness degree of national economies is nowadays reaching levels which have already been reached at the end of a preceding period of internationalisation during the XIXth century. There seems to be long waves of economic growth accompanied, and stimulated by international trade expansion. The first part of the XXth century, including two "world" wars and an economic disaster, appears then as a contracting wave in a long term cycle. But, unless if a new contracting phase appears very soon and spreads largely, disrupting trade flows, there is still slight evidence of alternate phases of pulsation in the globalisation.

Anyway, leaving aside this cyclical aspect, one should take into account that structural changes have occurred since the end of the expansion period culminating before 1914. The products and services content of trade flows are not of the same nature, the economic agents responsible for the exchanges have also changed. Particularly important in this respect is the role of transnational (or global) firms, and the relation between two dimensions of the internationalisation : trade flows and direct investment flows.

International production and firms

Among the first appearances of the "global" corporation in the early 1980s, is the description by M. Taylor and N. Thrift of multinational firms growing in "formidably complex international networks". Also in the early 1980s "global" market and "globalisation" were connected with technological change by T. Levitt, a Harvard Business School marketing professor (in 1983). Emergence of global markets for standardised consumer products was the condition for global firms operating for the world forming one "single entity". Economies of scale in production, distribution, marketing and management would be the rationale behind the rise of global firms. The trend towards globalisation is reinforced by the second factor, i.e. technology allowing for further standardisation of production. The success of the notions of globalisation and global firm has accompanied the rise of Japanese direct investment abroad and the expansion of Japanese multinationals, presented by Japanese analysts as parangons of the "global firms"(Ohmae, Masuyama, Tanaka). But it is when the OECD itself recognized the change in international supply structures where value and wealth are produced and distributed within "world-wide corporate networks" that globalisation and global production was fully accepted as describing the economic world.

One could naturally ask whether the change from "multinational" (or "transnational" in the UNO System) to "global" is purely rhetoric or related to new structures and organisation within firms and markets. Internationalisation of production, with multinational corporations controlling foreign affiliates abroad, is not a new phenomenon since such corporations were already operating in the beginning of the XXth century. But the last 20 to 30 years have witnessed a growing number of companies coming from a larger number of countries, and moreover, expanding flows of foreign direct investment, particularly in the second half of the 1980s and the 1990s, financing international mergers and acquisitions and greenfield investments also . Therefore a quantitative change may lead to a qualitative leap characterised by the generalisation of international networking productive systems and markets operating under oligopoly competition at the world level.

To mention only but a few consequences of these changes we could stress the development of production by foreign affiliates of global firms compared to the volume of international trade (fig), the part of international trade corresponding to flows of goods or services determined more by the strategic decisions of global firms than the comparative advantages of locations, the part of international trade consisting of intra-firm flows (fig) with their transfer prices set according to fiscal, monetary or legal considerations.

One could also emphasize the networking, as a pervasive organisation structure within the firms that allows to balance concentration of powers in strategic areas such as finance and technology and local responsibility for every day management in affiliated business units or in independent sub-contractors. But the networking is also to be found among firms which are taking part in international strategic agreements, for technological innovations or market/production sharing. The old views of self regulated markets operating through a multitude of (point-like) agents interacting only with price signals is largely condemned, even if it is still maintained as a backing assumption for trade liberalization and competition policy.

The global firm is also able to rationalize the location of activities along the whole business chain from research-development, engineering, manufacturing, to marketing, and services. This flexible location, which tends to be the more flexible for the more footloose activities, corresponds to the different degree of mobility of resources : since financing and secondly technical knowledge and competences (at least some of them), are more mobile at the international level than natural resources or labour, there are consequences linked to the relationship between territories (at national or regional level) and firms. Public policies, concerned with the economic growth of territories, may compete one with another in order to attract foreign investment (or prevent national investors from investing abroad) at the price of tax reductions or public subsidies. Or they may also reduce the social costs of labour to prevent the location of labour intensive production elsewhere. But all these policies have their costs in loss of public finances and destructive effects on the institutions of the welfare state ( the competition among territories could be analysed as no co-operating games resulting in Nash equilibrium ??? to check).

Main issues

In this second part we are suggesting some issues related to the understanding of the globalisation and its consequences. It is clearly an open list : many other topics could be added.

2.1. Networking : global and local, trade and production

Market versus network : intra et inter-firm networks and capture of externalities
Relationship among various levels of activity an decision : local/regional/national/global
International trade impulsed by global firms : comparative advantage what is left ?

2.2. Regulation of the global finance (see theme 2)

Capital mobility and risks
Internationalisation of savings (pension and mutual funds)
Determining influence of the finance on new governance models

2.3. Asymmetrical effects and domination

Geographic concentration of trade flows and foreign direct investment
Concentration of production and property of new technologies
Fair trade (?) and public subsidies and market protection in advanced countries (subsidies to the food production = 300 billions $ which is 5 times equal to the amount of public aid to developing countries)

2.4. Governance and regulation : what institution

Nation State weakening powers : opening of markets, growing interdependence, public debt, ….
International Institutions : competences and competition
Governance level : from local to national, regional, global

2.5. National solidarity and competition among social systems

Competition among territories and the end of the welfare state
Education, wealth : market (international) or public procurement

2.6. Global risks and (international or) global public goods

Environment, health, climate, exhaustion of natural resources
Industrial and technological risks

2.7. Demographic unbalance and pressures

Aging population in advanced countries (consequences on retirement systems and economic growth)
International Migration