Global Economy, America and the

Global Economy, America and the. The terms “global economy” and “international economy” refer to the growth of integrated free markets worldwide.The Bretton Woods Conference of 1944 created a multilateral postwar trading system with strong nationalistic characteristics, including bank regulation, use of the U.S. dollar as the global monetary standard, and reliance on Keynesian national planning. But the Bretton Woods agreements also included features that facilitated the emergence of a global economy, including an international reserve bank (the International Monetary Fund), cooperation among the central banks of member nations, and an array of international agencies such as the General Agreement on Tariffs and Trade (GATT) and the International Trade Organization. Between 1953 and 1973, world trade increased 15 percent a year, promoting prosperity in many national economies and facilitating the development of others.

As economic rivalries resumed and international competition sharpened following World War II, the United States developed a negative trade balance, exacerbated in the early 1970s by a tripling of oil import prices. The resulting dollar glut on world currency markets terminated the Bretton Woods system in 1973. Stagflation (a combination of business stagnation and inflation) characterized domestic economies in which Keynesian stabilization policies no longer worked. The post‐1973 decline in national economic power and the proliferation of multinational enterprises gave rise to the idea that a “global” economy was emerging. Central to the evolution of this global economy was the communications revolution based on microchip computers and fiber‐optics networks that facilitated instantaneous economic transactions worldwide. Capital, labor, information, and technology reorganized themselves on a cost‐efficiency basis without regard to national boundaries.

The first and most thoroughly integrated movement toward a global economy occurred in banking and finance. The floating exchange rate that followed the collapse of the Bretton Woods agreements together with the deregulation of the U.S. banking system facilitated the growth of offshore financial institutions (for example, London's Euromarket) not subject to U.S. government regulation. Coincidentally, as financial instruments and national stock markets proliferated, capital roamed the world in search of both long‐term investment opportunities and fractional profits on interest or exchange‐rate differences. Currency values fluctuated despite governmental stabilization efforts, and nations competed for favorable treatment from capital. Global pressure forced the United States to attack the large budget deficits of the 1980s, leading successive administrations to levy higher taxes, curb spending increases, and, in the 1990s, move credibly toward a balanced budget.

The United States also led in restructuring the debt of developing economies and strengthening international bank reserves. After the 1982 recession, world exports of goods rose 50 percent faster than output. In the later 1980s and 1990s, 40 percent of the U.S. gross national product (GNP) was estimated to have come from exports. Both trends suggested the increasing integration of the United States into the global economy.

The second area of globalization was in corporate organization. Deregulation and access to foreign capital helped American entrepreneurs bypass Wall Street as they engaged in raids and hostile corporate takeovers. Once again, the new fiber‐optics technology intensified global economic competition, enabling multinational corporations to replace middle‐management workers with computers and to decentralize and disperse production and trading units. While the new technologies transformed the organization of all economic activity, some 40 percent of “international” trade involved the exchange of goods and services among units of multinational corporations and was thus “global” without being truly international.

Responding to new opportunities for economies of scale, Japanese, European, and American corporations followed a three‐continent strategy to secure markets through direct investment or partnerships in Asia, Europe, and North America. Such global integration among regions weakened American hegemony and fostered multipolarity. For example, Japanese and European direct investment poured into the United States, in areas including real estate, publishing, the mass media, Hollywood, and even the automotive industry, once a fortress of American industrial supremacy.

The third area of globalization was in the generation of marketable knowledge, or information. The most profitable firms exploited advanced technologies. As readily communicable information comprised a growing proportion of the value added to products, integration of the factors of production for these goods proceeded on a global basis. Nations adept in these value‐added techniques increasingly benefitted from the prosperity of the global economy, while those that were not fell behind.

In the new global information age, the main economic mission of the U.S. government and other national governments became one of organizing domestic resources for world competition. In this process, the United States enjoyed some advantages over many nations, including relative political stability, a well‐developed infrastructure, and access to vast amounts of capital. Human resources, essential to economic flexibility, were promoted in the United States by a superior health‐care system and an accessible public‐education system from grade school through university. Since adaptation to the global economy requires high‐income workers skilled in symbolic manipulation (converting information into useful knowledge), workers’ concerns about the quality of life assumed political significance. Economists and public policy‐makers began to explore how sustainable “quality of life” standards could be introduced into traditional measures of economic growth and well‐being.

As the twentieth century ended, the public debate over the role of the United States in the global economy focused, first, on the devolution of power from Washington to state and local governments, whose flexibility might prove advantageous in addressing quality‐of‐life issues, and, second, on global trade policies. Organized labor and its allies called for trade controls to protect American workers and reverse the large foreign‐trade deficit. These groups also advocated a government‐guided industrial policy for capital investment in order to increase the world market share of American products. In contrast, “free” marketeers argued for further reduction of trade controls to stimulate the international integration necessary to realize the full potential of the new technologies. Hence they favored the regional integration promoted by such measures as the 1994 North American Free Trade Association (NAFTA) agreement, by which Mexico, the United States, and Canada created an integrated trading region. The passage of the NAFTA agreement signaled the continuing support of U.S. policy‐makers for the worldwide march toward free markets and further economic globalization.
See also Business; Education; Federal Government, Executive Branch: Other Departments (Department of Commerce); Foreign Relations: The Cultural Dimension; Foreign Relations: The Economic Dimension; Foreign Trade, U.S.; Keynesianism; Labor Markets; Labor Movements; Monetary Policy, Federal; Energy Crisis of the 1970s; Productivity; Stock Market; Tariffs.

Bibliography

U.S. Senate , Hearings before the Committee on Foreign Relations: The United States in a Global Economy, 99th Cong., 1st sess., 1985.
Martin Feldstein, ed., The United States in the World Economy, 1988.
Bill Orr , The Global Economy in the 1990s, 1992.
Martin Carnoy et al., eds., The New Global Economy in the Information Age, 1993.
Marjorie Deane and and Robert Pringle , The Central Banks, 1995.

Paul P. Abrahams