Assess the causes and consequences of accelerating globalisation and financial integration in the late twentieth century

What this dot point is asking

SEAB wants you to assess the causes and consequences of the accelerating globalisation and financial integration of the late twentieth century. The central analytical tasks are twofold: to weigh the drivers, distinguishing the enabling role of technology from the active role of liberalising policy, and to evaluate the contested consequences, the gains in growth and poverty reduction against the risks of instability and inequality. A strong answer treats globalisation as driven by policy and technology together and judges its effects as real but unevenly distributed.

The answer

What globalisation meant

Globalisation in this period meant the deepening integration of national economies into a single, increasingly interdependent world economy. It went beyond the trade expansion of the early postwar decades to include the integration of production across borders by multinationals, the dramatic growth of cross-border capital and financial flows, and the increasing mobility of money, information and, to a lesser extent, people. By the end of the century, events in one part of the world economy could be transmitted rapidly to others, and national economies were more tightly linked than ever before. This deepening interdependence is what distinguishes late twentieth-century globalisation.

The driver of technology

One major driver was technological change. Continuing advances in transport, building on earlier innovations like containerised shipping, kept the cost of moving goods low. More importantly, revolutions in communications and computing dramatically reduced the cost of moving information and money across the world, almost to nothing and almost instantly. This made it feasible to coordinate production across many countries, to manage globally dispersed operations, and above all to move capital around the world at great speed. Technology thus made a far deeper integration possible than ever before by collapsing the cost of distance.

The driver of liberalising policy

The other major driver was political choice. Technology made deeper integration possible, but it was deliberate policy that turned possibility into reality. Governments progressively reduced barriers to trade through successive rounds of liberalisation. Crucially, after the collapse of the Bretton Woods system of fixed exchange rates and capital controls, many countries freed up cross-border capital flows, allowing money to move far more freely than under the postwar order. The market-oriented turn in economic policy from the 1980s, with its emphasis on deregulation and openness, accelerated this liberalisation. Without these choices, the technological potential for integration would have remained only potential.

The consequences: growth and poverty reduction

The consequences of globalisation are genuinely double-edged. On the positive side, deeper integration is associated with strong aggregate growth in the world economy and with dramatic poverty reduction, especially in those parts of Asia that integrated successfully into global trade and investment. Access to world markets, foreign investment and technology allowed some developing economies to grow rapidly and to lift hundreds of millions out of poverty. For these economies, integration into the global economy was a powerful engine of development, and the optimistic interpretation rightly stresses these gains.

The consequences: instability and inequality

On the negative side, globalisation also spread instability and uneven gains. The freeing of capital flows, while bringing investment, also made economies vulnerable to sudden reversals, as money could flood in and then rush out, transmitting financial crises rapidly across borders. The gains from globalisation were unevenly distributed: some countries, regions and groups benefited greatly while others were left behind or suffered, and inequality widened in many places even as aggregate growth rose. The critical interpretation stresses these costs, the volatility of footloose capital and the unevenness of the benefits. A balanced judgement recognises that globalisation produced both real gains and real risks, distributed unequally.

Examples in context

Example 1. Asia's integration and poverty reduction. The rapid growth and dramatic poverty reduction in the parts of Asia that integrated successfully into global trade and investment is the strongest evidence for the optimistic reading of globalisation. By gaining access to world markets, foreign investment and technology, these economies turned integration into a powerful engine of development, lifting hundreds of millions out of poverty. This illustrates how globalisation could deliver real gains where economies were positioned to seize them.

Example 2. The volatility of capital flows. The freeing of cross-border capital flows illustrates the risks of globalisation as clearly as Asia's growth illustrates the gains. Capital that flooded into an economy seeking returns could reverse suddenly when confidence faltered, transmitting financial crises rapidly across borders and inflicting severe damage. This volatility is the key evidence for the critical interpretation and explains why financial integration, though it brought investment, also brought instability.

Try this

Q1. Explain how technology drove late twentieth-century globalisation. [4 marks]

• Cue. Cheap transport and revolutions in communications and computing collapsed the cost of moving goods, information and money, making integrated production and rapid capital movement feasible.

Q2. Explain why financial integration increased after the 1970s. [12 marks]

• Cue. The collapse of Bretton Woods ended fixed exchange rates and capital controls; the market-oriented policy turn from the 1980s freed cross-border capital flows, and technology made moving money fast and cheap.

Q3. "Globalisation did more to spread instability than to spread prosperity." How far do you agree? [20 marks]

• Cue. Weigh aggregate growth and poverty reduction in successful integrators against financial volatility and widening inequality; judge that gains and risks were real but unevenly distributed.