Global Economy

Implications of Globalization

A small group of countries, principally those whose economic policies were integrated under the auspices of the Group of Seven (G7), played the leading role in the process of economic globalization. The overwhelming majority of nations, meanwhile, had to adapt to economic conditions shaped almost entirely without their participation. At the same time, globalization began to undercut the economic primacy of the nation-state. The power and influence of multinational corporations grew during the 1990s, so much so that they rather than nation-states became the driving force of globalization. Eight of the top twenty-five economic entities in the world, measured in terms of market value, were corporations. According to figures compiled for 1999, the economy of the United States continued to dominate the world, with a market value in U.S. dollars of $15.013 trillion. Japan ($4.244 trillion) was a distant second, followed by the United Kingdom ($2.775 trillion), France ($1.304 trillion), and Germany ($1.229 trillion). Seven U.S. companies and one Japanese company ranked in the top twenty-five. Microsoft occupied tenth place, with a market value of $546 billion. General Electric ($498 billion) was twelfth, ahead of Australia ($424 billion) and Spain ($390 billion), Cisco Systems ($355 billion) was fifteenth, leading Taiwan ($339 billion) and Sweden ($318 billion). Intel ($305 billion), Exxon-Mobil ($295 billion), and Wal-Mart ($289 billion) ranked eighteenth, nineteenth, and twentieth respectively, ahead of South Korea ($285 billion) and Finland ($276 billion). Nippon ($274 billion) ranked twenty-third and AOL Time-Warner ($244 billion) twenty-fourth, ahead of South Africa ($232 billion).

World Government?

Much of the economic power formerly vested in nation-states also came to rest with such international institutions as the European Union (EU), World Trade Organization (WTO), and International Monetary Fund (IMF), These entities gained substantial control over the national economies of sovereign states. Critics of this development, such as Ralph Nader and Patrick J, Buchanan, raised the specter of world government, sensing an alarming concentration of power in multinational and international hands. The triumph of the WTO, Nader complained, "means foreign regulation of America.… It means secret tribunals can rule against our laws." Defenders of globalization, on the contrary, believed that it was an inevitable change and that the only question remaining was what sort of world economy and government would be established. Nations have always traded with one another for their mutual benefit, argued Robert Wright in New Republic. They will doubtless continue to do so. He contended, however, that when leaders at last recognize the advantages to eliminating grievances and animosity they will submit to common governance and adjudication. The benefits of this arrangement, Wright speculated, will far outweigh the costs, preserving economic order, dispensing justice, eliminating inequitable advantages, and inhibiting destructive competition.

Difficult Transition

Globalization, nonetheless, caused serious problems, especially in so-called developing countries with transitional economies. Advocates of globalization, such as Wright, insisted that the environmental problems, exodus of low-skill jobs from high-wage nations, and human-rights violations, which led many to oppose change, "are just about impossible to solve without … the power of sanction that the WTO, more than any other world body, has to offer." "Globalization is great," Wright concluded, "on balance, it makes the world's poor people less poor.… And it fosters a fine-grained economic inter-dependence that makes war among nations less thinkable." In an address delivered at the World Economic Forum in Davos, Switzerland (December 1997), Mexican president Ernesto Zedillo Ponce de León expressed similar views. "In order for developing nations to overcome their state of poverty," Zedillo asserted, "they need to open their borders and participate in globalization. Those interested in protecting workers' rights—-and in pressuring the World Trade Organization to do so—must realize that this is an honorable but long-term goal that will not be achieved with any immediacy. Commerce is the most powerful tool in ensuring that the international rights of laborers in developing countries are protected."

Globalization in Action

Thanks largely to the North American Free Trade Agreement (NAFTA), many advocates of the global economy cited Mexico as the model to persuade developing countries to pin their markets and their hopes to free trade and economic competition. Since NAFTA went into effect in 1994, proponents of globalization such as President Zedillo point out that impoverished Mexican cities have reaped the benefits. Ciudad Juarez, located directly across the Rio Grande from El Paso, Texas, has gained more than $4 billion in foreign investment and 150,000 manufacturing jobs. Yet, a study conducted by the Labor University of Mexico found that the purchasing power of Mexican workers declined considerably since 1994 and eroded by 86 percent since the 1970s. In 1995, for example, the average daily minimum wage of Mexican workers was enough to purchase 44.9 pounds (20.36 kilograms) of tortillas or 2.24 gallons (8.5 liters) of milk. In 1999, after operating under NAFTA for five years, the same workers could purchase only 16.9 pounds (7.65 kilograms) of tortillas or 1.4 gallons (5.3 liters) of milk. The study also indicated a large increase in unemployment in agriculture and small business, sectors of the economy that could not compete with subsidized U.S. imports entering the country as a result of NAFTA. Many Mexicans, nevertheless, were happy for the opportunity to work in the maquiladoras, the foreign-owned factories in which imported parts are assembled for export. Despite low pay and poor working conditions, factory work represents a vast improvement from the sugar cane and corn fields in which they formerly labored. President Zedillo argued that "most people fail to realize … that the low salaries and poor conditions to which most workers are subject is their only alternative to extreme rural poverty." Alternately, Bob Jeffcott of the Maquila Solidarity Network (MSN), located in Toronto, Canada, maintained that "there's always a place that will have lower wages. There's always a place that will have lower economic standards. It's leading to 'de-development.'" Whether in favor of or opposed to globalization, economic and political leaders had to begin paying closer attention not only to the distribution of goods, money, and services in the global marketplace, but also to the costs and benefits among various countries. They could not afford to be unaware of who thrived and who suffered as a result of this monumental economic transformation.

The Perils of Globalization

The advocacy of the international free market favors developed countries and powerful multinational corporations. Already the wealthiest nation, the United States gained the most from economic globalization, the progress of which failed to eliminate, and in some respects even enhanced, the divergence in economic growth and development between rich and poor countries as well as the economic, social, and political inequalities within nations. Nor did the advocates of globalization adequately address the crucial problems of environmental standards and workers' rights. Environmentalists, union organizers, and human-rights activists brought many of these issues and concerns to worldwide attention with the violent demonstrations that disrupted the meeting of the WTO held in Seattle, Washington, in December 1999. Becoming ever more mindful of the problems that globalization created, members of the economic, political, and corporate elite began to speak out against them, even if they had not yet found the means of solving them. Michel Camdessus, managing director of the International Monetary Fund (IMF), declared in the keynote address delivered at the Tenth United Nations Conference on Trade and Development (UNCTAD) in Bangkok, Thailand (February 2000), that "the greatest concern of our time is poverty.… It is the ultimate systematic threat facing humanity. The widening gaps between rich and poor within nations," Camdessus continued, "is morally outrageous, economically wasteful, and potentially socially explosive. If the poor are left hopeless, poverty will undermine the fabric of our societies through confrontation, violence, and civil disorder." Similarly, Klaus Schwab, founder and chairman of the World Economic Forum (WEF), called for "responsible globalization," "leadership based on values," and "common ethical and moral standards" that will include in the movement toward globalization all those currently being left out. To do so, Schwab acknowledged, will require the reform of the leading international economic and financial organizations.

Sources:

Oleg Bogomolov, "A Challenge to the World Order," Nezavisimaya Gazeta (27 January 2000), reprinted in World Press Review, 47 (April 2000): 7-8.

Martin Carnoy, and others, The New Global Economy in the Information Age: Reflections on Our Changing World (University Park: Pennsylvania State University Press, 1993).

Franklin Foer, "Protest Too Much," New Republic, 222 (1 May 2000): 21-23.

Jeffrey E. Garten, ed., World View: Global Strategies for the New Economy (Cambridge, Mass.: Harvard Business School Press, 2000).

Pierre Haski, "The Bosses Grow Rich on Vocabulary," Liberation (31 January 2000), reprinted in World Press Review, 47 (April 2000): 9.

William J. Holstein, Steven D. Kaye, and Fred Vogelstein, "One World, One Market," U.S. News and World Report, 123 (10 November 1997): 40-43.

"March Madness," New Republic, 222 (1 May 2000): 9.

Dani Rodrik, "The Global Fix," New Republic, 219 (2 November 1998): 17-19.

Robert Samuelson, "Global Boom or Bust?," Newsweek, 130 (10 November 1997): 35.

John Stackhouse, "Happy to Be Exploited," The Globe and Mail (2 December 1999), reprinted in World Press Review, 47 (April 2000): 10.

Joseph Stiglitz, 'The Insider: What I Learned at the World Economic Crisis," The New Republic, 222 (17 & 24 April 2000): 56-60.

Robert Wright, "Continental Drift," The New Republic, 222 (17 January 2000): 18-23.

GLOBAL ECONOMY

Global Economy was a concept associated with the twentieth-century evolution of financial markets and institutions, where traditional geographic boundaries did not restrict economic transactions and consumer activities. The global economy applied to the increasingly international transaction characteristics of banks, industries, businesses, and other economic institutions. A global economy of financial markets was attributed to international deregulation of financial markets; technological advances to provide for the careful monitoring of world markets; and increased institutionalization of worldwide economic institutions. In a global economy investors and lenders viewed international loans and securities as comparable to domestic or local transactions. Banks and other financial institutions in a global economy participated in both foreign and domestic markets. A global economy was encouraged by advances in data-processing and telecommunications monitoring, liberalization of worldwide capital funds, deregulation of local capital markets, and increased international competition among markets and economic institutions.