Global Economy

"Global economy" has become more than an ambiguous catch phrase in the post-industrial 21st century. It is a way of life that is vital to the success of most industries and industrialized societies. This paper takes an extensive look at the global economy and its implications for 21st century societies and various national and local economies.

Keywords Corporate Responsibility; Global Economy; Globalization; Multinational Corporation; Outsourcing; Trade Deficit

Work & the Economy > The Global Economy

Overview

Industrialist and automotive wizard Henry Ford was not known for his political activism. Still, during the first World War, Ford decided to assemble a group of pacifists to bring aboard on a "peace ship." The delegation would travel to Europe to help coax world leaders to cease their fighting and help bring American troops home. When he and the peace ship returned to the United States, Ford was asked how his peace mission went. "I didn't get much peace," he said, "but I learned that Russia is going to be a great market for tractors."

A well-trained businessman or businesswoman will always seek out the best market for his or her goods or services. When the second World War came to an end, the nations of the world became closely linked politically, socially and economically. Suddenly, new markets emerged across oceans and borders and savvy entrepreneurs could take advantage. After the fall of the USSR and the end of the Cold War, this trend became a phenomenon, as countless corporations focused on expanding their business to markets in virtually every corner of the planet.

The "global economy" has become more than an ambiguous catch phrase in the post-industrial 21st century. It is a way of life that is vital to the success of most industries and industrialized societies. This paper takes an extensive look at the global economy and its implications for 21st century societies and various national and local economies.

The Evolution of the Global Economy

Trade

Throughout human history, trade has been a staple of existence. As humanity settled into geographically defined regions and, later, nation-states, the exchange of goods and currencies has remained a consistent element, regardless of borders. In the 13th century, Marco Polo reported a thriving international relationship between the Chinese city of Hangzhou and the rest of the region — a trade industry that operated according to an oft-repeated saying: "Vegetables from the east, water from the west, wood from the south, and rice from the north" (Griswold, 2002). In the 15th century, the King of Denmark ordered a "toll" be established in the Oresund Strait (the gateway to the Baltic Sea), ensuring that the multitude of Western and Eastern European trade ships paid a small tax to travel to and from their trading partners. Sparse records indicate a thriving trade network that operated as early as the 16th century in the sprawling Ottoman Empire (Katsumi, 1999).

National/Political Development

Inter-regional trade is a practice that dates back millennia; thousands of years before the birth of Christ. Trading parties evolved — from nomadic tribes to civilizations to nations and onward to the modern "nation-state" — and as they changed, so too did the nature of such relationships. Arguably, one of the most significant political developments was the centralization of systemic power — the establishment of central governments, economies and other social institutions under singular leadership structures — introduced after the Treaty of Westphalia in the mid-17th century. With the definition of these independent countries came the determination of their individual goals and interests, including their economic needs.

It may be said, therefore, that the international community's political development over the last four centuries has coincided with the evolution of economic systems. In fact, it may be said that political systems and their respective economic systems are linked. In this vein, evolutionary transitions to one will inevitably influence the other. During the course of the last few decades of the 20th century and continuing into the early 21st century, such transformations have occurred. However, whereas most of the previous developments have been initiated on the political front, the impetus is economic in nature, necessitating concurrent political modification.

Obsolete National Economies

As transportation, communication and manufacturing technologies have made it easier than ever to conduct business around the globe, many view the concept of a national economy as something of a dinosaur. A truly modern economic system, it has been argued, is one that does not use nationality as its root (Suter, 2006). In this sense, the nation-state is likely in need of a major evolution of its own to accommodate for this significant economic change — the merger of sovereign national economies into one, singular "global" economy.

Spurred by a continuing system-wide trend of moving away from nationally-based commerce and toward a unified worldwide market system (known as "globalization"), a global economy may be defined as an integrated international economic system characterized by unrestricted cross-border movement of goods, services and labor ("Define global economy," 2008). This paper next takes a more in-depth look at the characteristics of a global economy and its impacts on the international community.

Characteristics & Benefits of a Global Economy

As stated earlier, the evolution of international political systems and the globalization of economic institutions and practices have become extensively connected. The changing face of the nation-state, coupled with the increased tendency for business enterprises to eschew governmental processes and instead connect directly with overseas partners, provide evidence of the strong link between the global economy and the relevance of the modern state. An important characteristic of this connection is the fact that in many cases, the forces that make one side strong rely on the flexibility of the other side. Arguably, one of the most visible examples of this concept is the market.

Political Stability

In general, markets are barometers of the strength of a given system. They are also delicate environments, capable of strong reaction to sound (or detrimental) public policy. Even in the most stable of political systems, the introduction of a new statute, regulation or administrative change may trigger a significant positive or negative market response. This volatility is enhanced when the market is not localized to one system but instead is expanded to include multiple states and systems. Therefore, globalized market stability and/or growth relies on political stability. In light of this fact, the health of a given market requires that participating governments demonstrate fiscal discipline and sound economic policy (International Monetary Fund, 2007). In other words, globalization fosters political stability.

Greater Options & Diversity

In addition to a sense of political equilibrium, the global economy also presents options. It is only logical that with more actors participating in a market system, more products and services are available. With more players, more choices exist for participants. Many markets are dominated locally by one or two major players. In the eyes of many market experts, for example, the US has shown great power in high technology and information technology, while one of Europe's greatest assets is financial management institutions.

In a global economy, however, many more options become manifest. The continued jelling of the European Union, for example, means greater competitiveness in the global economy. European telecommunications, transportation and environmental protection systems have burst into the international spotlight, giving direct competition to regions that had previously enjoyed dominance in such industrial arenas. The European Union, however, is not alone — China and India have also entered the global marketplace, providing their own competitive financial planning, technological and other commercial goods and services that are comparable with those of participants who had previously held a strong advantage (Bogdanova & Orlovska, 2008).

Lower Prices

Competitive markets also have a benefit for the consumer. In addition to providing a greater number of high quality products, the very fact that there are more such goods and services on the market means lower prices for the consumer. Additionally, the fact that participants in global markets do so to ensure greater returns (and avoid the burdensome regulations and restrictions experienced in more local economies) means that the global economy manifests lower tariffs, greater regulatory flexibility and, as suggested above, more stable policymaking practices (Fisher, 2006). In the end, not only is the quantity of products and services increased, but the availability of such products and services is enhanced for the long-term.

Poverty & Discrimination Relief

There is a sociological benefit to an increasingly globalized economy as well. In many cultures, some subgroups are left in a disadvantaged position. In many countries, women, ethnic minorities and other social groups have often been left behind as more established, phallocentric or majority-led industries and business groups continue to develop and flourish. With new technologies, communications networks and, most significantly, minority-friendly clientele, the global economy is far more diverse and in many ways, profitable for all entrepreneurs who participate therein.

Such diversity means that entire populations have the potential to extricate themselves from situations of extreme poverty. Over the last 20 years, 200 million people have emerged above the poverty threshold of less than one dollar per day. Because of increased access to medications, health care and food distribution networks, many people are living longer lives. The World Health Organization estimated in 2011 that the average life expectancy at birth for the world’s population is seventy.

As indicated earlier, the development of the global economy has created the imperative for nation-states to demonstrate even-handedness and conservative policies that will do little to rock the boat of economic development. The same can be said of the global economy's impact on social justice and order. Indeed, as more participants in the global economy come from diverse backgrounds, greater attention is paid by the entire international community to the plight of ethnic minorities and other previously persecuted social groups.

Corporate Responsibility

In addition to the call for greater access to economic development mechanisms, societies are also calling for "corporate responsibility" (a mode of business that takes into account a company's impact on the society and environment in which it operates). Companies are increasingly introducing codes of conduct regarding the protection of the environment, labor and basic human rights in areas in which they do business. In fact, many multinational corporations, such as Disney, Nike, Gap and Levi, have been targeted by human rights groups for allegations of child labor and substandard wages. Those participants of the global economy that put forward a corporate philosophy that takes into consideration the plight of the workers and the environment are likely to see success — a benefit of globalization that serves both the company and society alike (Seyfang, 2002).

The global economy, transcending the institutions of national economies, is clearly impacting the development of the post-industrial world. As shown above, this departure from the economic framework of inter-state commerce has great benefits both for those who conduct such business, the regions in which they operate and for the consumers. Then again, there are limitations and negative elements that demonstrate the weaknesses of the global economy as it currently stands. This paper next turns attention to these factors.

The Downside of Globalization

While the idea of a global economy as the new stage in international commerce offers a great deal of benefits for humanity, there are a number of issues that either remain despite the development of this economic regime or must be modified during the course of its evolution. As this paper next discusses, many of these issues are reflective of preexisting conditions made worse by increased globalization.

Effects on Class Stratification

Throughout modern history, nations have been divided largely based on economic terms. Some identified these "classes" in stratified terms — the wealthier nations were the "first world," moderately wealthy nations were known as the "second world" and poor nations were known as "the third world." In the minds of others, the world was a much simpler place, divided amongst two strata — the north (wealthy nations) and the south (poor nations). Still others wax more colloquial in their terminology, referring to these strata as the "haves" and the "have nots."

Many believe that the global economy and globalization may be seen as a potential benefit to narrowing the gap between these "haves" and "have nots." Conceptually, this expectation is not without merit. After all, as this paper has discussed, the prevalence of new technologies, transportation capabilities and other physical attributes of the global economy have done a great deal to empower previously impoverished populations. Then again, the extensive impact of globalization on the fiscal health of participants still seems to service the wealthier populations in greater proportions than it does those at or below the poverty line. In fact, many argue, the global economy has in many ways contributed to a widening gulf between the wealthy and poor as opposed to remedying it.

Security as a Divider

In one study, this issue was analyzed within the framework of security. Indeed, the increased prevalence of enhanced technologies designed to create strong (and profitable) networks between nations and institutions necessitate a heightened sense of security among participants. With the potential for dual use of these technologies (as a weapon), many among the "haves" camp seek to implement security measures to prevent such use by those who would destabilize the new world order. In doing so, the authors of this study conclude, the gap between wealthy and impoverished communities continues to grow due to the exclusion of the poor populations from whence such security issues come (Watson, 2006).

Techno-Imperialism

There are also those who believe that the technologies that have given rise to the global economy do little more than solidify the dominance of wealthy nations and keep less wealthy regions in a state of isolation and, therefore, poverty. Some argue that these technologies simply allow multinational corporations to continue what they call "techno-imperialism." In fact, there have been many instances of nations who view the Internet and the global economy as tools of the wealthy West — many of these regions see the seemingly ubiquitous international presence of products and services among their own societies as a threat to cultural identity. As a result, they eschew participating in globalization as a means to the survival of their cultural heritage (Shabazz, 1999). In short, these societies place their own traditions ahead of the adoption of a global, cosmopolitan system.

Job Outsourcing

There are also concerns from those among the wealthier participants of the global economy that the systems and practices of this new order may in fact do great damage to their own citizens. In the United States, for example, a great deal of debate has been paid to the loss of American jobs to less-developed countries, where wages and the cost of living are far lower than they are back home. There have been a number of industry trends that would suggest the veracity of such claims — substantial losses in information technology, retail and manufacturing industries in the face of job "outsourcing" (a business practice whereby jobs in the home country are eliminated and replaced with workers in lower-income areas overseas) and plant transfers have fostered a common call for domestic worker protections and protectionist trade practices in the face of increased globalization (Kletzer, 2005).

Trade Deficits

Popular opinion asserts that the global economy wreak havoc on a workforce by sending jobs and factories to lower-paying, lower-cost countries. However, there is evidence that supports another theory relative to such job losses — trade deficits (an imbalance between the amount of goods imported and goods exported), spurred by free trade agreements prevalent in the global economy, are the true culprits. In the US, 2.3 million Americans lost jobs due to its trade deficit with China. In 2007, 366,000 Americans lost $19.4 billion in wages due to a $262 billion trade deficit (Scott, 2008). The common theory that only low-wage manufacturing jobs are being lost to factories overseas does not seem to be complete — when one reviews trade deficits, it becomes manifest that higher-paying, new technology jobs are also being lost, due largely to a growing imbalance between imports and exports.

The argument may be made that the issues described here are akin to "growing pains" — in other words, the relatively dramatic shift from an inter-state commercial system based on sovereign economies into a much broader and somewhat amorphous worldwide economic system will inevitably create inequities, imbalances and confusion. Globalization may indeed be the next phase of socio-politico-economic evolution of human civilization, but participants expecting a worldwide return must take such imperfections into consideration as the global economy continues its development.

Conclusion

In the mid-1850s, poet Ralph Waldo Emerson wrote that nations "have lost their old omnipotence," adding that "Nations are getting obsolete, we go and live where we will" (Columbia University, 1996). While Emerson was railing against patriotic ties to geographically defined nation-states, even a century and a half later, his central message makes an interesting point about the ongoing political and economic evolution of human society.

Throughout history, societies have consistently reached out to each other by way of commercial enterprise and trade. However, politically and socially, people have naturally gravitated inward to form nations and, later, nation-states, creating within those systems centralized economic institutions. Then again, the introduction of new technologies have opened to entrepreneurs a multitude of business potential. Commercial institutions from every corner of the globe have taken advantage of the global marketplace, and new participants are joining their ranks every day. The world is increasingly becoming integrated into a global economy, one in which the participants are more and more co-dependent on one another.

As illustrated in this paper, globalization and the international economy it has fostered has brought not only fiscal strength to business entrepreneurs — it has generated great promise for every level of human civilization. By virtue of its natural need for political stability and responsible public policy, the global economy is helping contribute to national order and equilibrium. It is also empowering previously disenfranchised and underserved minorities and poor populations.

Then again, it is also evident that there are a number of issues that remain, either unresolved by the global economy or created by that very trend. Divides between socio-political strata are either being maintained or enhanced, largely by a lack of access and/or decisions to eschew participation. Even the so-called "haves" are experiencing difficulties; losing jobs and experiencing crippling trade deficits.

It remains to be seen whether the global economy as it is will continue to serve human civilization in the beneficial manner in which it has over the last several decades. It also remains to be seen if the evolution that has initiated the establishment of the global economy will help bridge social and economic gaps. The global economy is still in a relatively nebulous stage — there is still much evolution to take place.

Terms & Concepts

Corporate Responsibility: Mode of business that takes into account a company's impact on the society and environment in which it operates.

Global Economy: An integrated international economic system characterized by unrestricted cross-border movement of goods, services and labor.

Globalization: Economic trend of moving away from nationally-based commerce and toward a unified worldwide market system.

Multinational Corporation: Commercial enterprise that operates, conducts business and sells goods and/or services in more than one nation-state.

Outsourcing: Business practice whereby jobs in the home country are eliminated and replaced with workers in lower-income areas overseas.

Trade Deficit: Imbalance of imports and exports between two nation-states.

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Suggested Reading

Fatehi, K., Veliyath, R. & Derakhshan, F. (2008). Emergent realities of global competition. International Journal of Commerce and Management, 18, 77-92. Retrieved August 20, 2008 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=32204467&site=ehost-live

Hanson, R. (2008). Economics of the singularity. IEEE Spectrum, 45, 45-50. Retrieved August 20, 2008, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=32652267&site=ehost-live

Lane, P.R. & Milesi-Ferretti, G.M. (2008). The drivers of financial globalization. American Economic Review, 98, 327-332. Retrieved August 20, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=32543750&site=ehost-live

Olejnik, P. & Juskova, K. (2008). Slovak Republik and transnational corporations. Economics and Management, 130-131. Retrieved from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=32562955&site=ehost-live

Reuveny, R. & Thompson, W.R. (2008). Uneven economic growth and the world economy's North-South stratification. International Studies Quarterly, 52, 579-605. Retrieved August 20, 2008, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=26960566&site=ehost-live