Transcript A Global Economy—or Not?

A Global Economy—or Not?
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The genuinely global economy is different from an
assembly of national economies
If mainly national, then governments retain a fair
amount of control over their economic destinies
They can have primary influence on domestic
production, employment, prices, and income in the
context of their own culture, history, and policies,
even though global forces can affect the prices of
their imports and the demand for their exports.
An economy becomes global when flows of
goods, services, money, investment, and
people (as workers and tourists) dominate
influences affecting production and prices
within its national borders.
 Powerful forces are creating a new global
economy for the 21st Century that holds
enormous potential for improving peoples’
lives, but not without new challenges and
risks.
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Driving Forces Behind Globalization
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First, improvements in technology, especially in
transportation and communication. In this new
era:
 Brains matter more than brawn—what you
know is more important than what you can lift.
 Innovation means more than mass production—
the weight of ideas are more important than
material weight.
 Information matters most of all—how easily it
can travel throughout the economy and how
much it is used.
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Second, a desire by people to take advantage of
the opportunities provided by interactions with
other societies through trade, migration,
investment, or the acquisition of knowledge.
Third, in recent decades, the lowering of barriers
to international trade and capital flows resulting
from the liberalization of policies.
 Enabled by the spread of market forces
 Based upon proper balance of central
coordination of activity and the motivation of
individual talent and ideas
 At the level of individual businesses and
national economies, flexibility is winning out
over rigid controls.
Problems with Globalization
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Fickle global financial markets may collide with
entrenched national practices (poor bank lending,
corruption, “crony capitalism”) producing
unstable capital flows into and out of developing
countries.
No single country can resolve the crisis and there
is no political, intellectual, or institutional
framework to impose a genuinely global solution.
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A successful economy depends on common
customs, understandings, laws and rules that foster
certainty, promote social and commercial
relations, and lower the costs—both economic and
psychological of doing business.
Most national economies share common cultures,
laws, and governments, but when they venture
across borders to do business, they face new
political institutions, cultural values, business
customs, and legal practices.
Resolving the Tensions
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The tension is inescapable.
Either global business must accommodate local
and national differences, or nations must surrender
some of their cultural, commercial, and political
distinctiveness to the dictates of global business
and financial markets.
Some countries once eager to join the global
economy are now withdrawing, either by choice or
necessity.
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Countries still crave the higher living standards
that they identify with global trade and
investment.
Multinational companies and global investors still
seek new markets and high returns.
But countries want to protect their cultural,
commercial, and political values and to control
their own economic destinies.
The future of the global economy depends on how
well compromise may be achieved and how well it
can be tolerated or regulated.