Globalization Investment and Technology

Investment globalization is defined, in principle, as the proportion of all invested capital in the world that is owned by non-nationals (Chase-Dunn, 2000). The growth of investment within the world economy is simply one facet of the modern world-system, part of the triumvirate of trade, economic, and investment globalization, which combine to contribute toward transnational economic integration. Thus, investment globalization is part of the growing trend toward globalization in all sectors. This trend is due to the constant striving on the part of capitalists to accumulate more capital. As the economy goes through periods of stagnation and/or decline (as it inevitably must), the incentive for exploitation becomes ever stronger. With every new period of economic decline, capitalists find new ways of intensifying exploitation in order to retrieve their lost profits, leading to an overall increase in the amount of exploitation. According to Immanuel Wallerstein, this increase has manifested itself in two forms; “broadening,” and “deepening.”

Globalization has resulted in greater inter-connectedness among markets around the world and increased communication and awareness of business opportunities in the far corners of the globe. More investors can access new investment opportunities and study new markets at a greater distance than before. Potential risks and profit opportunities are within easier reach thanks to improved communications technology.

Countries with positive relations between them are able to increasingly unify their economies through increased investment and trade. Products and services previously available within one country are made more readily available to new markets, resulting directly in improved economic opportunities for workers in those economies and leading to improved household incomes.

For investors, these opportunities present a wider range of investment options and new ways to profit. Investment in global markets is possible for the investing public through stock purchasing, as most brokerage firms are able to access international stock markets and provide their clients with the opportunity to purchase shares in companies around the world.

•  Globalization refers to the way businesses and organizations develop an international presence or start operating in a variety of countries.
• The rise of globalization has led to more connections among financial markets and businesses around the world, as well as increased opportunities.
• Globalization has influenced international investing, making it easier than ever before, historically, for market participants to invest in companies, industries, or other financial instruments abroad.
• Market participants can buy stocks, mutual funds, exchange-traded funds (ETFs) or American Depositary Receipts (ADRs) to gain access to the shares of internationally-based companies.

Broadening

Broadening refers to the encroachment of capitalist exploitative practices into new parts of the world. The world-system as it first existed started out occupying only a portion of the world’s geography. By use of broadening, it gradually expanded to encompass the entire globe by the end of the nineteenth century. Broadening took place by means of incorporation, a three-step process. Firstly, a sector of a peripheral economy emerged which produced goods that were in demand elsewhere in the world-system. Secondly, workers in this peripheral sector lost control over their labor power, which passed into the hands of those who accumulated the surplus generated by the workers’ labor. Thirdly, this surplus ended up in the possession of capitalists in core states. Political mechanisms such as colonization were used to further incorporation.

Deepening

The second form of exploitation, deepening, refers to the increased application of capitalist economic relationships to more facets of life within societies already in the world-system. Five methods of this application can be identified (Hopkins, Wallerstein, et al., 1982:104-106). The first, commodification, is the process of making more goods available to be bought, sold, and owned as property. According to Wallerstein, the two most important forms of commodification have been the commodification of land and labor because both increase the economic factors of production available for capitalist exploitation. The second method of deepening, mechanization, is the practice of using machinery to maximize worker output, increasing the value of technological innovation. The third form of deepening, contractualization, refers to the increasingly legalistic nature of economic and social relations. The fourth form of deepening, interdependence, involves the growth of a highly specialized division of labor, which must exchange goods, leading to less and less self-sufficiency. The fifth form of deepening consists of the polarization of levels of wealth and political organization between core and periphery states; as the world-system expands, more and more core workers become full proletarians (whose wages are sufficient to reproduce their labor), and, conversely, more peripheral workers become super-exploited semi-proletarians. Wallerstein argues that this transition within the periphery has in fact resulted in lower living standards than existed previously.

Economic Cycles

These exploitative processes of broadening and deepening have not developed at a constant rate; instead they have followed the pattern of economic cycles. Most world-systems theorists believe that the world economy has gone (and is still going) through times of growth alternating with periods of stagnation. In addition to relatively brief cycles of prosperity followed by recession (business cycles), Wallerstein and his associates argue that there have been two main kinds of economic cycles in the history of the world-system: “Kondratieff (or long) waves,” and “logistics” (Shannon, 1996:131).

Kondratieff Waves

Kondratieff waves consist of a period of economic growth followed by a period of stagnation. The typical Kondratieff wave lasts between forty to sixty years. Wallerstein calls the growth period “phase A” and the stagnation period “phase B” (Wallerstein, 1984). Wallerstein argues that Kondratieff waves are necessary to the process of capitalist development, as periods of economic expansion and high profits provide a setup for periods of economic stagnation and declining profits. In his view, this is because economic expansions are based on the creation of new economic activities and/or production techniques. The very newness of these techniques guarantees high prices for them. The growth in this new sector then provides a boost for the rest of the economy, and phase A of the Kondratieff wave is set in motion. This sudden prosperity attracts new firms to the sector. However, the demand for the sector cannot continue unlimited, and so as more and more firms enter the market, it becomes saturated. An overcrowded market leads to intense competition, which in turn leads to declining prices and, therefore, profits. The resulting lack of forward impetus from the new market produces the beginning of economic stagnation, setting off phase B of the Kondratieff wave. The conditions of this phase B create incentive to capitalists to increase exploitation through broadening and deepening, creating new surpluses with which to begin the next phase A.

Kondratieff waves are associated with many different national and world events. Joshua Goldstein (1988) has found a relationship between Kondratieff phase A and the severity of wars between core states. He finds that 90% of major wars between core states have occurred close to or at the end of a phase A, leading him to theorize that core states are more likely to wage war following a period of economic growth that allows them the resources to mobilize. Investment globalization, as part of the overall trend toward globalization, is also affected by Kondratieffs. Chase-Dunn (1989: 164), argues that the peak period for a core war is one in which the end of a phase A has begun to reduce the opportunity for productive investments and capitalist investors face declining rates of return, moving the capitalist class to turn to the state to protect and/or expand market share and investment opportunities.

Data Splicing

The second problem faced when dealing with the measurement of investment globalization, lack of complete data, requires a careful approach. Data for investment flows are not available in a complete form until the year 1949, when the International Monetary Fund started compiling data on most major investing countries. Investment data becomes more and more complete and accurate as it nears the present day; data are available from the IMF now for over 250 investing countries, as compared to just 10 from the League of Nations in 1921.

Before the Second World War, data exist in various forms and measures; the available data reflect loans made from one government to another and some investments made by a select few firms. Because of this inconsistency of data series, any long-term measurement of investment globalization would do well to include these inconsistent measures along with more complete measure as more complete measures become available. This prevents some of the biases and inaccuracies inevitable to the measurement process, and provides a more comprehensive picture of investment globalization.

Globalization Technology

Technological progress is a key driver of improvements in incomes and standards of living. But new knowledge and technologies do not necessarily develop everywhere and at the same time. Therefore, the way technology spreads across countries is central to how global growth is generated and shared across countries.

Indeed, during 1995–2014, the United States, Japan, Germany, France, and the United Kingdom (the G5) produced three-fourths of all patented innovations globally. Other large countries notably China and Korea have started to make significant contributions to the global stock of knowledge in recent years, joining the top five leaders in a number of sectors. While this suggests that in the future, they too will be important sources of new technology, during the period under study, the G5 constituted the bulk of the technology frontier.

Globalization boosts technological development

The increasing intensity of global knowledge flows points to important benefits of globalization. While globalization has been much criticized for its possible negative side effects, our study shows that globalization has amplified the spread of technology across borders in two ways. First, globalization allows countries to gain easier access to foreign knowledge. Second, it enhances international competition including as a result of the rise of emerging market firms and this strengthens firms’ incentives to innovate and adopt foreign technologies.

The positive impact has been especially large for emerging market economies, which have made increasing use of the available foreign knowledge and technology to boost their innovation capacity and labor productivity growth. For instance, over 2004–14, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labor productivity growth per year. This amounts to about 40 percent of the observed average productivity growth over 2004–14. We find that one important factor behind the build-up of innovation capacity in emerging market economies has been their growing participation in global supply chains with multinational companies, though not all firms have benefitted as multinationals sometimes reallocate some innovation activity to other parts of the global value chain.