Differences between Two Waves of Globalization
The first wave of globalization was driven by falling transportation costs and came to an end due to war and increasingly protectionist trade policies. By contrast, the second wave of globalization has been driven by a reversal of trade policies and increasing trade liberalization.
According to the data, contemporary globalization in the goods market has passed the highs of the first wave of globalization to reach unparalleled levels. By contrast, while immigration has recently increased, it has not yet reached the levels of the end of the nineteenth century. Capital markets, on this measure, are of a similar scale, size, and role to those of the first wave of globalization.
There are other differences between these two waves of globalization. In the earlier wave, trade tended to be rather simple, with raw materials and agricultural goods going in one direction and finished manufactured goods in the other. The value-added chain today is, however, far more complex and involves many more stages. To exploit the comparative advantage of different countries, firms have sliced up the production process and located different stages in different countries. As a consequence, it is estimated that around one-third of all trade is intrafirm—that is, multinational enterprises (MNEs) with production distributed across many countries shipping products at various stages of completion to different parts of the company around the world. Not only does this make the structure of trade today different from the past but the existence of MNEs and strategic alliances amongst major companies creates large and powerful economic entities that governments have to deal with.
The removal of trade restrictions, or trade liberalization, has been the subject of much criticism, and we shall review in the next section these arguments against globalization. For now we focus on the alleged advantages of trade liberalization.
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