AGT (1) Globalization.pdf

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    ANALYZING GLOBAL TRENDS

    for Business and Society

    Week 1

    Globalization

    Mauro F. Guilln

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    Mini-Lecture 1.1

    Whats this class about?

    Manifestations of globalization.

    Whats the global economy?

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    Welcome to

    Analyzing Global Trends! Global trends and their effects on:

    Consumer markets.

    Labor markets.

    Financial markets.

    Politics.

    Geopolitics.Natural resources.

    Global relationships.

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    Im Mauro Guilln

    Professor at the Wharton School.

    Director of the Lauder Institute at the

    University of Pennsylvania.

    I am originally from Spain.

    I have a passion: analyzing global trends.

    Ive written 10 books and myriad articles on

    various aspects of globalization.

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    Trends

    Global trends affect regions,countries, industries, and even

    firms in heterogeneous ways.

    They are tornadoes, not tsunamis.

    Trends entail both challenges and

    opportunities. Uncertainty will be a key feature of

    the 21st century: the new normal.

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    Whats needed?

    New programs, new products?

    New business models?New decision models?

    New mindset?

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    Some Initial Discussion Questions

    As of today, do more people in the world

    live in cities or in the countryside?

    Are there more people suffering from

    hunger or from obesity?

    Are the largest consumer markets, in the

    U.S. and Europe, or in China and India?

    Is the number of failed states greater or

    smaller than the number of dictatorships?

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    Some answers

    More people live in cities than in the

    countryside since 2009.

    There are more people suffering from

    obesity than from hunger since about 2010.

    The largest consumer markets are in Europe

    and the U.S. today, but within 20 years they

    will be in India and China.

    There are more failed states than

    dictatorships since the late 1980s.

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    What you will learn

    Concepts and tools to analyze how the

    world is changing.

    The direction and intensity of trends in the

    global marketplace.

    The relevance of the main risks threatening

    businesses and societies around the world.

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    How to Take this Class

    1. Take each weeks opinion survey. I willpost the results 24 hours after the deadline.

    2. Watch the mini-lectures.

    3. Try to answer the discussion questions.4. Consult the powerpoint presentations.

    5. Do the readings.

    6. Answer the quiz or test at the end of eachweek.

    7. Participate in discussion forums and social

    media.

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    Manifestations of Globalization

    Increased cross-border activity.

    Supra-national organizations and forums.

    Attempts at supra-national political

    organization.

    Spread of ideas and practices.

    Awareness.

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    What is the Global Economy?

    Increasing flows of labor, money, goods, services,

    and information.

    It is notjust a discrete linking of nation-states. Its an economy with the capacity to work as a

    unit in real time on a planetary scale.*

    It is very different from the world economy ofthe 14th, 16th, and 19th centuries.

    In its present form, it came into being during the

    1980s.

    * Manuel Castells, The Rise of the Network Society. Cambridge, MA: Blackwell (1996), p. 92.

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    Why so Fascinating?

    Because it puts two kinds of liberalism on a

    collision course:

    Liberalism of the market, which is boundary-transgressing. The division of labor is limited

    by the extent of the market.

    Liberalism of citizenship, which seeks toestablish and maintain boundaries. Relationship

    between an individual and a state, with

    associated individual rights and obligations.

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    Join the international anti-globalization movement.

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    Mini-Lecture 1.2

    Can we measure globalization?

    Basic definitions and conventions.

    Making projections into the future.

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    Two Approaches to Measurement

    Aggregate indicators such as trade,

    investment, Internet use, tourism, etc.

    Networks: Data on dyadic relationships.

    A t Gl b li ti I di t

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    Aggregate Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

    A. Economic:

    Exports + imports of goods & services, % world GDP

    38.4 37.8 38.0 41.8 48.8 53.7 56.0

    Developed countries, % GDP

    39.5 39.1 38.0 40.9 48.1 52.0 55.9

    Emerging & Developing countries, % GDP

    32.8 31.2 38.1 46.4 52.5 62.0 56.7

    Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

    Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

    Emerging & developing economies:% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

    % of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

    % of global foreign exchange reserves 32.9 37.1 51.9 66.6

    B. Financial:

    Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8

    4.6

    k 6.3

    Cross-border banking external assets, % world GDPb 13.7 19.9 28.1 28.5 34.2 54.0 47.9

    Cross-border bank loan & deposit stock, % world GDPb 13.9 19.9 34.3 33.1 37.6 39.1 34.9

    C. Internet:

    Users, % world population: 0.1 0.8 6.7 16.0 30.2Developed countries, % population 0.3 3.7 30.5 59.4 73.4

    Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

    D. Demographic:

    Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

    Refugee population, % world population 0.3 0.2 0.1 0.2Workers remittances, % of world GDP

    E. Political:

    0.41 0.39 0.42 0.36 0.43 0.63 0.75m

    Nation-states with membership in the United Nations

    International organizations, number:

    154 159 159 185 189 191 192

    Intergovernmental 337i 378 300

    j 243 244 253

    Non-governmental 4265i 4676 4621

    j 6357 7412 8198

    F. Social & Cultural

    International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

    Books on the topic of globalizatione

    577 1107 2152 4853 10525 22405 38440

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    Notes: Data not available. a Data are for 1979, 1984, 1989, 1995, 1998 and 2004.b Data

    are for 1981, 1986, 1991, 1995, 2000, and 2006.d Excludes international calls using cellular

    phones or private networks.e Books with the subject or title keywords global or

    globalization, published in any language until each year, as searched on August 20, 2010.f

    1991. g 2002. h 1998. i 1981.j 1989. k2004. l 2007.m 2009.

    Sources: World Development Indicators; World Investment Report; Bank for International

    Settlements; United Nations; International Monetary Fund; International Telecommunication

    Union,Key Global Telecom Indicators; Yearbook of International Organizations; Bowkers

    Global Books in Print.

    For background information, see Mauro F. Guilln, Is Globalization Civilizing, Destructive

    or Feeble? A Critique of Five Key Debates in the Social-Science Literature.Annual Review

    of Sociology 27 (2001):235-260.

    Compiled by Mauro F. Guilln, The Wharton School of the University of Pennsylvania,

    [email protected]

    mailto:[email protected]:[email protected]
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    How Fast is Fast?

    Variable

    Index 2010

    (1980=100)

    Exports plus imports 146

    Foreign direct investment stock 457Daily currency exchange turnover 900

    Nongovernmental international organizations 192

    International migration stock 141

    International tourism 391

    Books in print on globalization 6662

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    Global Internet Traffic

    Source: TeleGeography : www.telegeography.com.

    Reproduced by permission.

    http://www.telegeography.com/http://www.telegeography.com/
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    Submarine Cables

    Free reproduction allowed: https://github.com/telegeography/www.submarinecablemap.com

    http://www.submarinecablemap.com/http://www.submarinecablemap.com/
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    Definitions

    Gross Domestic Product:

    The total value of goods and services produced

    in an economy during a given year.

    The economy consists of:

    Households.

    Firms.Financial institutions.

    Government.

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    Simple Calculations: Ratio

    Ratio: one number divided by another.

    Example: The total dependency ratio is the

    ratio of the sum of the population aged 0-19 andthat aged 65+ to the population aged 20-64. For

    China, it is about 0.5 nowadays but is predicted

    to grow to 1.0 by 2075.

    A ratio can also be expressed as a percentage

    (%) by multiplying it by 100.

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    Simple Calculations: Rate

    Rate: is the pace or rhythm at which amagnitude changes over a certain period of

    time. Typically expressed as a percentage.

    Example: The GDP growth rate in 2012 was7.8% in China, compared to just 2.2% in the

    United States.

    Example: The inflation rate in China during

    2012 was 2.6%.

    Nota bene: The unemployment rate is more

    properly called the unemployment ratio.

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    Simple Calculations: Index Number

    Index number: reveals the change in a

    magnitude between two points in time. The

    first of those two points is called the base.The base is typically set at a value of 100.

    Example: If Chinese GDP grew by 7.8% during

    2012, then the index number for the end of theyear is 107.8.

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    Simple Calculations: Proportion

    Proportion: A measure of a part with respect

    to the whole. Typically expressed as a

    percentage (%).Example: The income of the one-percent richest

    Americans was 7.8% of total income in 1970.

    By 2012, it had grown to 19.3%.

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    Large Numbers

    In the United States:

    1 billion = 1,000,000,000

    1 trillion = 1,000,000,000,000

    In your part of the world, perhaps:

    1 billion = 1,000,000,000,000

    1 trillion = 1,000,000,000,000,000,000

    In this class, we will use the U.S.

    convention.

    W ld l ti j ti

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    World population projections2011-2100 (in billions)

    Source of the data: United Nations Population Division, World Population Prospects: The 2012 Revision.

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    Discussion Question

    Which of the four projections do youbelieve is least likely?

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    Mini-Lecture 1.3

    International trade.

    Foreign investment. Multinational firms.

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    International Trade

    Cross-border flows of goods &services.

    Why does it take place? Theory of

    comparative advantage. Free trade may be good overall, but

    it does generate winners & losers.

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    Absolute Advantage

    Adam Smith (1776)If a foreign country can supply us with a

    commodity cheaper than we ourselves can

    make it, better buy it of them with some partof the produce of our own industry, employed

    in a way in which we have some advantage.

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    Relative Advantage

    David Ricardo (1819)Unit Labor Costs Cloth Wine

    Britain 100 110Portugal 90 80

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    Other Considerations

    Transportation costs.

    Other costs of trade.

    Scale economies.

    Product differentiation.

    Aggregate Globalization Indicators

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    Aggregate Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

    A. Economic:

    Exports + imports of goods & services, % world GDP

    38.4 37.8 38.0 41.8 48.8 53.7 56.0

    Developed countries, % GDP

    39.5 39.1 38.0 40.9 48.1 52.0 55.9

    Emerging & Developing countries, % GDP

    32.8 31.2 38.1 46.4 52.5 62.0 56.7

    Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

    Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7

    Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

    Emerging & developing economies:% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

    % of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

    % of global foreign exchange reserves 32.9 37.1 51.9 66.6

    B. Financial:

    Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8

    4.6

    k 6.3

    Cross-border banking external assets, % world GDPb 13.7 19.9 28.1 28.5 34.2 54.0 47.9

    Cross-border bank loan & deposit stock, % world GDPb

    13.9 19.9 34.3 33.1 37.6 39.1 34.9

    C. Internet:

    Users, % world population: 0.1 0.8 6.7 16.0 30.2Developed countries, % population 0.3 3.7 30.5 59.4 73.4

    Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

    D. Demographic:

    Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

    Refugee population, % world population 0.3 0.2 0.1 0.2Workers remittances, % of world GDP

    E. Political:

    0.41 0.39 0.42 0.36 0.43 0.63 0.75m

    Nation-states with membership in the United Nations

    International organizations, number:

    154 159 159 185 189 191 192

    Intergovernmental 337i 378 300

    j 243 244 253

    Non-governmental 4265i 4676 4621

    j 6357 7412 8198

    F. Social & Cultural

    International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

    Books on the topic of globalizatione

    577 1107 2152 4853 10525 22405 38440

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    How Important are MNEs?

    There are 104,000 MNEs in the world.

    They control about 790K subsidiaries.

    71% of all MNEs are based in richcountries.

    The 500 largest MNEs account for 25% of

    world product, and 50% of world trade. MNEs receive 80% of all payments for

    technology royalties and fees.

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    Multinationals as Citizens of the World

    The Tommy Hilfiger Corporation [is] headquartered

    in Hong Kong, incorporated in the British VirginIslands, listed on the New York Stock Exchange,

    owned primarily by international institutional

    investors, held its annual meeting [of shareholders]

    in Barbados, sourced production to manufacturers

    in Mexico and Asia, licensed its name to producers

    globally, and retailed its classic American

    clothing in Europe and North America.Gerald F. Davis, in theHandbook of Economic

    Sociology, pp. 480-481.

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    Discussion Questions

    Which do you think is the country whose

    firms have invested the most abroad right

    up to the present time? And the country ranked in second place?

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    Firm Country Industry Global Market Position

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    Arcor Argentina Confectionery #1 candy manufacturer

    Bimbo Mexico Food processing #1 in bread

    JBS Brazil Food processing #1 in meat

    Modelo Mexico Beverages #1 import beer brand

    Vale Brazil Mining #3

    Tenaris Argentina Steel #1 in seamless tubes

    Bharat Forge India Metals #2 in forgings

    Cemex Mexico Cement #1 in ready-mix concrete

    Haier China Household appliances #1 in white goods

    Braskem Brazil Bioplastics #1

    BYD China Batteries #1 in Ni-Cd batteries

    Acer Taiwan Personal computers #2

    Lenovo China Personal computers #4

    Samsung Electronics S Korea Consumer electronics #1 in chips & LCDs, #2 in phones

    Embraer Brazil Aircraft #1 in regional jets

    Cosan Brazil Energy #1 in biofuels

    Tata Communications India Telecom operator #1 wholesale voice carrier

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    Mini-Lecture 1.4

    Financial globalization.

    Financial interconnectedness.

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    Global Financial Markets

    Foreign portfolio investment.

    Currency markets:

    Only 10% are commercial transactions.

    Discussion Question: What accounts for the

    other 90%?

    Financial globalization has grown fasterthan economic globalization.

    Globalization Indicators

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    Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

    A. Economic:

    Exports + imports of goods & services, % world GDP 38.4 37.8 38.0 41.8 48.8 53.7 56.0

    Developed countries, % GDP 39.5 39.1 38.0 40.9 48.1 52.0 55.9

    Emerging & Developing countries, % GDP

    32.8 31.2 38.1 46.4 52.5 62.0 56.7

    Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

    Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7

    Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

    Emerging & developing economies:% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

    % of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

    % of global foreign exchange reserves 32.9 37.1 51.9 66.6

    B. Financial:

    Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8 4.6 6.3

    Cross-border banking external assets, % world GDP 13.7 19.9 28.1 28.5 34.2 54.0 47.9

    Cross-border bank loan & deposit stock, % world GDPb 13.9 19.9 34.3 33.1 37.6 39.1 34.9

    C. Internet:

    Users, % world population: 0.1 0.8 6.7 16.0 30.2

    Developed countries, % population 0.3 3.7 30.5 59.4 73.4

    Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

    D. Demographic:

    Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

    Refugee population, % world population 0.3 0.2 0.1 0.2

    Workers remittances, % of world GDP

    E. Political:

    0.41 0.39 0.42 0.36 0.43 0.63 0.75m

    Nation-states with membership in the United Nations

    International organizations, number:

    154 159 159 185 189 191 192

    Intergovernmental 337 378 300

    243 244 253Non-governmental 4265 4676 4621 6357 7412 8198

    F. Social & Cultural

    International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

    Books on the topic of globalizatione

    577 1107 2152 4853 10525 22405 38440

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    Economic & Financial Governance

    Capitalism needs certain institutions: Protection of property rights.

    Rule of law.

    Stable payment system and financial system.

    Can global capitalism exist in the absence ofglobal governance?

    Options:

    Multilateral organizations: IMF, World Bank. Hegemonic economic power (USA, China, etc.).

    G5, G7, G8, G20?

    Global body with elected officials.

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    Financial

    Interconnectedness

    http://www.imf.org/external/np/pp/eng/2010/100410.pdf

    Cross Border Bank Lending

    http://www.imf.org/external/np/pp/eng/2010/100410.pdfhttp://www.imf.org/external/np/pp/eng/2010/100410.pdf
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    Reproduced with permission. http://www.imf.org/external/pubs/ft/wp/2011/wp1174.pdf

    Cross-Border Bank Lending

    The Great Recession

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    The Great RecessionProportion of OECD Countries

    with at least two consecutive quarters of GDP decline

    Source: Figure 2.2 in Guillen and Ontiveros, Global Turning Points (Cambridge Univ Press, 2012).

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    Mini-Lecture 1.5

    Globalization and the concept of

    isomorphism.

    Drivers of globalization.

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    Isomorphism

    Is the tendency of actors, organizations or

    other types of entities to become more

    similar or to adopt common patterns ofbehavior over time.

    Isomorphism can result from several

    dynamics, which we shall call drivers.

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    Examples of Isomorphism

    The modern nation-state. The ministry of foreign affairs.

    Prohibition of child labor.

    General schooling. Tourism promotion offices.

    Newspapers.

    Blue jeans.

    Pop music.

    Drivers of Globalization:

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    Drivers of Globalization:

    Isomorphic PressuresDriver: Mechanism: Examples:

    Normative Shared ideologies, worldviews,

    frameworks, or templates

    Keynesianism, neo-

    liberalism, democracy,

    legal traditions, culture

    Coercive Power, dependency Hegemonic states,multilateral organizations,

    multinational firms

    Mimetic Frequency-based imitation to

    cope with uncertainty and/or

    secure legitimacy

    Bandwagons, fads,

    fashions

    Emulative Trait-based imitation driven by

    the legitimacy of the source

    Hegemonic states, states

    considered to be

    successful or innovative

    Competitive Performance Markets

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    Boundary Conditions

    Certain countries are more exposed to

    isomorphic pressures:

    Dependent states.States more embedded in trade.

    Democratic states.

    States with smaller levels of public spending. Discussion question: Why are countries

    with smaller levels of public spending more

    exposed?

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    Mini-Lecture 1.6

    The paradoxes of globalization.

    Three Paradoxes

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    Three Paradoxes Paradox of predictability:

    The global system is highly structured and predictable.

    It is also prone to unpredictable disruptions, crises, and even

    systemic breakdown.

    Paradox of coupling:

    Tight coupling among system components, especiallyfinancially, economically, environmentally, and

    demographically.

    There is increasing institutional decoupling between adoption

    dynamics and outcomes.

    Paradox of differentiated convergence:

    Isomorphic pressures towards convergence.

    Differentiation and specialization.

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    Mini-Lecture 1.7

    The consequences of globalization.

    Winners and losers.

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    Effects of Globalization

    Civilizing.

    Destructive.

    Feeble.

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    Discussion Questions

    Is there more or less inequality in the world

    today compared to, say, 10, 20 or 30 years

    ago? Is globalization responsible for changes in

    inequality?

    Income Inequality Across Countries

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    Income Inequality Across Countries

    Gini coefficients measured vertically. Mauro F. Guilln. Source: World Development Indicators.

    Inequality Within Countries:

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    Inequality Within Countries:Income Gini Coefficients: Developed Countries

    Mauro F. Guilln. Data Source: All the Ginis Dataset, World Bank.

    Inequality Within Countries:

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    Inequality Within Countries:Income Gini Coefficients: Developing Countries

    Mauro F. Guilln. Data Source: All the Ginis Dataset, World Bank.

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    Winners & Losers (?)

    Capital.

    Educated workers.

    Strong states. Economy ministry.

    Rich countries.

    Labor.

    Unskilled workers.

    Weak states. Labor & social ministry.

    Poor countries.

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    Mini-Lecture 1.8

    Tensions and institutions.

    Systemic global disruptions.

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    Key Tensions

    They occur at the border between the four

    key subcomponents:

    Economic (including financial).Socio-Demographic.

    Political.

    Geopolitical.

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    Key Institutions

    Labor market.

    Political representation system.

    The state.

    The international system of states.

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    Week 1 Suggested Readings

    Mauro F. Guilln and Emilio Ontiveros,

    Global Turning Points, chapter 1.

    ALL READINGS ARE FREE ANDAVAILABLE ONLINE.

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    Global Literacy Test

    Now that we have covered the basics,

    please take the Global Literacy Test.

    I will ask you to take it again uponcompletion of this course.