9.4 Economics in the Global Age

How did the global economy change and remain the same from 1900 to the present?

  • Global Trade Surge After the Cold War

    • The end of the Cold War led to a big increase in global trade.

    • Leaders like Ronald Reagan (USA) and Margaret Thatcher (UK) supported free market economies.

    • They encouraged lowering taxes, reducing business regulations, and cutting government help to boost economic growth.

    • Result: More wealth for some people, but many marginalized groups faced difficulties.

  • Economic Liberalization

    • This is when a country moves towards a free market economy.

    • Since the 1970s, the global economy has become more integrated.

    • Former Eastern Bloc countries began trading with capitalist democracies; India also opened up its trade in the 1990s.

    • Critics say globalization can result in poor working conditions and environmental harm.

Economic Liberalization in Chile

  • Pinochet's Rule (1973-1990)

    • U.S.-supported coups led to Pinochet's strict control after overthrowing Salvador Allende.

    • Pinochet shifted Chile from state control to free-market policies aimed at privatization and fighting high inflation.

    • His plans faced pushback because they didn’t address poverty and social issues.

    • Chicago Boys: Economists from the University of Chicago helped with these changes.

    • Later governments tried to create a balance to reduce poverty.

Chinese Economic Reforms

  • Deng Xiaoping's Leadership (1981)

    • Shifted focus from equality in Communism to growth through market reforms.

    • Key strategies:

    • Peasants were allowed to farm their own plots instead of working on communes, leading to more food.

    • Factories increased output aimed at consumer markets.

    • Foreign companies were attracted to special economic zones because of low costs.

    • The Shanghai stock market reopened, and private ownership was allowed.

    • Tiananmen Square (1989): Calls for political change were met with government force, showing the tension between economic growth and political freedom.

Economic Change: Knowledge Economies

  • Knowledge Economy Definition

    • An economy focused on creating, sharing, and using knowledge and information.

    • Job sectors include design, engineering, and education.

  • Case Study: Finland

    • Transitioned from farming to tech-driven economy after the Soviet collapse.

    • Created policies to encourage technology and innovation, leading to significant economic growth in the mobile phone sector.

    • Investments in education created a highly skilled workforce.

  • Japan's Economic Development

    • After World War II, Japan adopted policies focusing on exports.

    • Managed trade through subsidies, tariffs, and strong labor education.

    • Economic growth helped big companies but raised costs for workers.

    • Developed into an international banking and information technology hub.

Changes in Manufacturing

  • Moving Manufacturing Locations

    • As knowledge economies grow, manufacturing is increasingly moved to Asia and Latin America (e.g., Vietnam, Bangladesh).

    • Especially notable for textile and electronics exports.

  • Vietnam and Bangladesh

    • Dominant in clothing exports; significant labor issues continue despite slight wage increases.

    • For example, 80% of Bangladesh's exports are clothing.

  • NAFTA Impact

    • The 1994 agreement created factories in Mexico allowing U.S. businesses to use low-wage labor without tariffs.

    • Criticisms arose regarding worker conditions and job losses in the U.S.

Transnational Trade Organizations

  • Global Economy Development

    • Formation of regional organizations like the European Economic Community, Mercosur, and ASEAN.

    • GATT Agreement: Reduced tariffs from an average of 40% to below 5% by the 1990s, helping trade grow.

    • WTO Establishment (1995): Took over from GATT, managing most international trade but often criticized for favoring corporate interests over ethical concerns.

Multinational Corporations (MNCs)

  • Definition and Role

    • Companies that are based in one country but operate in many others.

    • Historically linked to imperialism and resource extraction.

    • Today’s MNCs connect knowledge economies and traditional manufacturing.

  • Positive and Negative Aspects

    • MNCs like Microsoft and Google generated investments in knowledge economies, boosting consumer cultures.

    • Criticisms include ethical issues and potential harm to local economies.

    • Example: Mahindra & Mahindra is known for socially responsible practices, while Nestlé has faced issues regarding labor practices and environmental ethics.