Skip to 0 minutes and 8 secondsYou've been listening to voices, many different voices, about globalisation-- what it means, whether it helps them, whether it hurts them. It's a global phenomena. It's very confusing. If you ask yourself now, what does globalisation mean, it's really hard to know. In this step, we're going to work towards a definition of globalisation that allows us to sort of narrow things down, so we can focus. Now, when we do this, I want you to keep one thing in mind. Taking account of everything lets you understand nothing. This is a basic way economists look at social problems. We look at a vast complexity of reality. And we try and boil it down to something that we can get our minds around.
Skip to 0 minutes and 53 secondsBut before I do that with globalisation, I want to tell you a little parable about that'll help you understand why economists do this. It starts out a little bit differently than you might think. The question is, what falls faster, a cannonball or a feather? Now, most of you have heard this before and will say a cannonball and a feather fall at the same speed in a vacuum. But why do we teach our students that sort of thing? There is no perfect vacuum on Earth, so if you ever did drop a feather and a cannonball on Earth, they would not fall at the same pace.
Skip to 1 minute and 32 secondsAnd the only place where there is a perfect vacuum is in the middle of space, and there's no gravity. So it is a completely useless exercise, one might think. But we use it in science to do what you might call a thought experiment. And that is we're trying to get the student, you, in this case, to focus on the essentials and get rid of all the complicated factors. So that way you can really understand how gravity affects falling bodies. Now, we're going to do the same thing with globalisation. We're going to get rid of vast masses of detail and important things to focus really on the key. So here's a definition I want to start with, the working definition.
Skip to 2 minutes and 14 secondsGlobalisation is all the things that happen when goods, idea, people, services, and capital move from one nation to another. Now, that is much simpler than what you've been listening to. But it still has five different elements. And I want to simplify it a bit further. What I'd like to do is simplify to clarify. To start with, I'm going to take services. And I'm going to argue that a service, when it crosses a border, can either be thought of as ideas or goods. So, for example, if a Brazilian company designs a logo and sells it to a company in Switzerland, when that service, which is design service, crosses the border, it's really just ideas crossing the border.
Skip to 3 minutes and 4 secondsOr, for example, if an Italian designer designs a really nice BMW, when his design crosses the border, it's embedded in a good. So what I want to do is cross off services, just have goods, ideas, people, and capital. Now, I want to cross one more off. I want to cross off capital. Capital is incredibly important in the world of globalisation. It was responsible for the global crisis in 2008. It leads to eurozone crisis in 2010, banking crisis, super important. But it requires a very different set of tools to understand it and a whole different set of concerns-- indeed, concerns that are somewhat more distant to the things we've been listening to, who wins and loses from globalisation.
Skip to 3 minutes and 57 secondsSo I'm going to put capital aside for a second, actually forever. And what we're going to do is look at some causes. We're going to focus on three costs that form three constraints on globalisation's advance. As you can see, trade costs, which is a cost of moving goods, communication costs, which is a cost of moving ideas, and face-to-face costs, which is a cost of moving people. Now, globalisation, you should keep in mind, has a very flexible definition. People use it to talk about more things crossing the borders, especially trade. But they also talk in the same word about the impact of that on domestic economy. So keep in mind that it's basically two things.
Skip to 4 minutes and 47 secondsIt's the causes and the effects with the same word, which is one of the reasons it's a little bit hard to define. Now, a couple of key points on globalisation. The first thing is globalisation is all about things moving from where they're abundant and therefore typically cheap to where they're scarce and therefore typically expensive. That's what it's all about, stuff moving from one place where there's lots of it to one place where there's less of it. Now, this movement has a very important effect on the country that it's moving into. First of all, it creates new opportunities. It's opening up new markets.
Skip to 5 minutes and 29 secondsAnd typically, the most competitive citizens and firms in a country are the ones who can take advantage of those new opportunities. But at the same time, globalisation is creating new competition. And that competition typically hits the firms and citizens who are the least competitive. Now, what this means is that globalisation will always create winners and losers. There's no way around this. Hopefully, the winners win more than the losers lose. But there's no way around the fact that globalisation is going to be disruptive. This is how I'd like you to think about globalisation in a nutshell-- more opportunities, more competition. For a nation as a whole, if you can keep the winners and losers together, it opens up opportunities.
Skip to 6 minutes and 18 secondsOpening yourself to the world is in general a good thing for a nation that can keep the winners and losers together. In countries like the United States and the UK, there's been a problem of the last couple of decades where the winners and losers didn't seem to share it. And as a consequence, it's been very controversial. But in any case, globalisation in a nutshell is more opportunities and more competition. And that's the way I want you to think about it.
A definition of globalisation
Globalisation is all the things that happen when goods, ideas, people, services & capital move from one nation to another.
This video proposes a working definition of globalisation and progressively simplifies the definition to clarify the main issues.
It also points out that globalisation is a flexible word that some people use to refer to the causes – more things crossing borders – and the effects of those flows on national economies.
Finally, it notes that as globalisation advances, things flow more easily from where they are abundant to where they are scarce. These new flows create new opportunities for a nation’s most competitive citizens and companies. But they create more competition for its least competitive citizens and companies (competitive when compared to foreign nations). The winners tend to win more than losers lose, and maintaining social cohesion in the face of globalisation requires government to lend a hand.