THE GLOBAL ECONOMY

The rise of technology has allowed our environment to be characterized as a global one. “'The global economy'" gave business the ability to market products and services all over the globe. It has also allowed them to develop partnerships and alliances throughout the world, which has become essential for success in today’s business.”^[1] Prior to Globalization, the United States dominated the global economy. In recent years, however, the U.S. share of the global economy has shrunk to approximately 25%. This trend is expected to continue as the economies of many newly industrialized countries continue to grow at a faster rate.

Contents

Advantages

Disadvantages

The Global Economy

Historical Origins

Notes and references

See also

External links

Advantages

There are numerous advantages in the shift to a global economy including the possibility to increase benefits from economies of scale. The breaking down of global barriers allows companies to benefit from the largest and cheapest workforces, raw materials, and technology. For example, “many North American publishers actually write and produce much of their software in countries such as India.” Other advantages that companies benefit from include: the opportunity for smaller companies to quickly expand globally, having more choices when recruiting a workforce and the opportunity to target a larger customer base (which translates to greater earning potential).
Many have argued a global economy also helps in promoting international cooperation and peace. If countries are dependent upon one another's economic success then armed conflict would be less likely. For instance, India and Pakistan are often in dispute over land territory such as Kashmir. It is likely that these two countries will not enter into combat for the severe negative effects on their economies. Essentially it would be mutually assured destruction (MAD) on a financial level.

Disadvantages

One disadvantage of a global economy is the increased need for transportation due to less local production. Increased transportation leads to increased emissions of greenhouse gases.
Another disadvantage of a shift towards a global economy is the argued loss of domestic jobs. Certain labor-intensive industries (like textile and even parts of the software development industry) tend to shift their production from developed countries to developing countries where wages are lower. This shift, it is argued, not only increases the unemployment rate in the developed countries, but in some cases leads to exploitation of third world workers, in particular, children. In contrast, many economists believe that the loss of domestic jobs is a temporary state, which will be offset by other industries if the barriers of trade are kept low. Lending support for this belief is the fact that the United States has seen its sharp decline in the number of domestic jobs in the textile industry mirrored by a similar decline in its unemployment rate.
Other disadvantages include: increased instability as was seen during the Asian crisis; the inability to create globally uniform regulations and legislation, which leads to phenomena like tax havens.

The Global Economy

This increase in globalization has created many new opportunities, such as niche markets, and requires everyone to keep up with globalization in order to stay competitive. As David Shane points out in his article entitled "Youth must learn skills to succeed in Global Economy", ''“Technology and trade separate the economy into two camps -- those with the skills to participate in the global economy and those who lack them.”'' Shane indicates that advances in technology are giving developing countries the ability to compete directly with developed countries in terms of education and skills. With the ever increasing Global Economy and widespread use of the internet, people and businesses are realizing that they are often competing with people around the world for contracts and business deals.
The global economy has created an environment in which many large corporations are becoming transnational firms. Critics of this trend say it has caused a worldwide ‘race-to-the-bottom’ where companies are so focused on staying competitive that they often outsource production to developing countries with the lowest labor, environmental and economic standards.^[2][3]
While these business practices allow companies to save money, leading to larger returns for investors and more affordable products for their clients, at the same time balancing the world economy, some believe they also serve as a motivation for governments in developing nations to keep their legislation lax when it comes to labor and environmental laws. These transnational corporations often lobby governments in order to gain access into these developing countries. Still, many developed countries have protectionist policies that do not enable developing countries to export their goods into developed markets. While some believe these activities should be curtailed with increased government legislation, proponents of economic liberty argue that the governments themselves are the reason for most of the economic problems attributed to globalization.
Trade barriers more often hamper economic development in the Global South, as compared to the North. New technologies like the internet may speed up the reduction of trade barriers. Critics of the expanding global economy argue the reduction of trade barriers will create harder competition for the previously protected companies in developing countries, while its advocates point to the new possibilities in global markets for emerging market companies such as Haier (China) and the Tata Group (India).^[4]
In 2006 the global economy continued to expand so that most individual, corporate and government borrowers are making good on their obligations, which in turn has kept financial markets in clover.^[5]

Historical Origins

Although a global economy is generally associated with the late 20th century and early 21st century, it may be argued that a global system of exchange existed before that.
Some possible dates for its origins are:
- The Phoenician global trade system,
- The Roman to Han dynasty trade system, Silk Road (1st century AD),
- The Arab global trade system (10th century AD),
- The Great navigations (15th to 17th century AD),
- The New Imperialism (19th century) & Neo-colonialism (20th Century)

Notes and references

1. Management Information Systems, , Stephen, Haag, , , ISBN 0-7600-1091-9
2. A "Race To The Bottom": Globalisation and China's labour standards, , Anita, Chan, China Perspectives,
3.
4. Emerging Giants Pete Engardio
5. 2006 takes a soft bounce Tom Petruno

See also

★ World economy

★ Globalization

External links

★ "The global economy: organization, governance, and development", by Gary Gereffi

★ "The ABCs of the Global Economy" from Dollars & Sense Magazine

★ The United economic encyclopedia