Global Economy

The term Global Economy refers to an integrated world economy with unrestricted and free movement of goods, services and labour transnationally. It projects the picture of an increasingly inter-connected world with free movement of capital across countries, also. The concept of a global economy cannot be understood in isolation. For this, globalization nees to be defined first. Globalisation may be defined as the integration of production and consumption in all markets across the world.

It is a widely accepted view that globalization would not only benefit all countries across the world but would also work towards the betterment of the economy as a whole. Country specific economic and political decisions are being taken on a global scale in today’s world with global considerations becoming more important than narrow provincial ideals.

A global economy is characterized as a world economy with an unified market for all goods produced across the world. It thus gives domestic producers an opportunity to expand and raise capacity according to global demands Likewise, it also provides an opportunity to domestic consumers to choose from a vast array of imported goods. A global economy aims to rationalise prices of all products globally. A computer or a cup of coffee would cost the same amount of money in both the USA and India in real terms if identical units of both the goods are purchased. With the reduction in the level of tariffs and quotas under new WTO (World Trade Organization) restrictions, free flow of goods between the developed and the developing countries has become a distinct possibility. The emergence of Trans National Companies or Multi National Companies has been due to the direct impact of globalization. Globalisation has boosted productivity and capacity of these companies to astronomical highs because of the stiff competition at the international level. Improvement in technology in the developed countries such as USA and Japan has permeated to those of the less developed economies of Asia, Africa and Latin America. This has enabled the people of the developing countries acquire requisite technical skills and knowledge for operating sophisticated equipments. These skills percolate throughout the economy and improves the general productivity of the labor in these countries thereby raising the income levels

While a global economy or globalization has the distinct advantage of raising world productivity and incomes and bringing about an improvement in the standards of living for all people at a global level, it has the dangerous side effect of growth with inequality. This has been evidenced in the less developed economies of India, China and Brazil where the benefits of globalization have not percolated to the lowest levels. This has brought about a wide divide between the have-nots and the have-lots.

A Global Economy also leads to a shifting of jobs from the developed countries to the Third World Countries as wage rates are much lower here. This allows companies of the advanced nation to grow exponentially. For example, we might find computer chips produced in China be exported to USA for designing which may be subsequently used in Japanese computers supplied across the world. This process is called “outsourcing” and leads to exploitation of workers in Third World economies where income inequalities already exist.

Nonetheless, a global economy may be beneficial for the world at large. This may result in the economies of the world fighting issues such as global warming, climate change and environmental degradation collectively and effectively.

From Global Watch

What Is Globalization?

Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.

Globalization is not new, though. For thousands of years, people—and, later, corporations—have been buying from and selling to each other in lands at great distances, such as through the famed Silk Road across Central Asia that connected China and Europe during the Middle Ages. Likewise, for centuries, people and corporations have invested in enterprises in other countries. In fact, many of the features of the current wave of globalization are similar to those prevailing before the outbreak of the First World War in 1914.

But policy and technological developments of the past few decades have spurred increases in cross-border trade, investment, and migration so large that many observers believe the world has entered a qualitatively new phase in its economic development. Since 1950, for example, the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. Distinguishing this current wave of globalization from earlier ones, author Thomas Friedman has said that today globalization is “farther, faster, cheaper, and deeper.”

But policy and technological developments of the past few decades have spurred increases in cross-border trade, investment, and migration so large that many observers believe the world has entered a qualitatively new phase in its economic development. Since 1950, for example, the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. Distinguishing this current wave of globalization from earlier ones, author Thomas Friedman has said that today globalization is “farther, faster, cheaper, and deeper.”

This current wave of globalization has been driven by policies that have opened economies domestically and internationally. In the years since the Second World War, and especially during the past two decades, many governments have adopted free-market economic systems, vastly increasing their own productive potential and creating myriad new opportunities for international trade and investment. Governments also have negotiated dramatic reductions in barriers to commerce and have established international agreements to promote trade in goods, services, and investment. Taking advantage of new opportunities in foreign markets, corporations have built foreign factories and established production and marketing arrangements with foreign partners. A defining feature of globalization, therefore, is an international industrial and financial business structure.

Technology has been the other principal driver of globalization. Advances in information technology, in particular, have dramatically transformed economic life. Information technologies have given all sorts of individual economic actors—consumers, investors, businesses—valuable new tools for identifying and pursuing economic opportunities, including faster and more informed analyses of economic trends around the world, easy transfers of assets, and collaboration with far-flung partners.

Globalization is deeply controversial, however. Proponents of globalization argue that it allows poor countries and their citizens to develop economically and raise their standards of living, while opponents of globalization claim that the creation of an unfettered international free market has benefited multinational corporations in the Western world at the expense of local enterprises, local cultures, and common people. Resistance to globalization has therefore taken shape both at a popular and at a governmental level as people and governments try to manage the flow of capital, labor, goods, and ideas that constitute the current wave of globalization.

To find the right balance between benefits and costs associated with globalization, citizens of all nations need to understand how globalization works and the policy choices facing them and their societies. Globalization101.org tries to provide an accurate analysis of the issues and controversies regarding globalization, without the slogans or ideological biases generally found in discussions of the topics. We welcome you to our website.

From Globalization101