Economics in the Global Age

Economics in the Global Age

Introduction

• A market economy is to economics what democracy is to government: a decent, if flawed, choice among many bad alternatives (Charles Wheelan).
• Essential Question: How did the global economy change and remain the same from 1900 to the present?
• Global trade exploded after the Cold War, emphasizing market-oriented policies advocated by leaders like Ronald Reagan and Margaret Thatcher.
• These policies included cutting taxes, regulations, and government assistance to promote economic growth, but resulted in greater wealth for some and hardships for others.
• Revolutions in information and communications technology led to the growth of knowledge economies, while industrial production shifted to Asia and Latin America.

Acceleration of Free-Market Economies

• Globalization is interaction among peoples, governments, and companies around the world, with increased integration of the global economy since the 1970s.
• Eastern Bloc nations and countries like India relaxed trade restrictions, a process known as economic liberalization.
• Ronald Reagan and Margaret Thatcher promoted free markets, economic systems based on supply and demand with minimal government control.
• Corporations moved jobs to countries with lower wages, taxes, and regulations, leading to criticisms of labor exploitation and environmental damage.

Economic Liberalization in Chile

• In 1973, Augusto Pinochet took power in Chile via a U.S.-backed coup.
• Pinochet's rule (1974-1990) involved a shift from state control to a free-market approach, privatizing businesses and taming inflation.
• Economists known as the Chicago Boys (influenced by Milton Friedman) designed Chile's economic reforms.
• The reforms were unpopular due to their failure to address poverty and social concerns, leading to repression.
• Subsequent administrations balanced economic growth with government programs to reduce poverty.

Chinese Economic Reforms

• In 1981, Deng Xiaoping became the Chinese leader, shifting the Communist Party's focus to economic growth.
• Deng's policy: "Let some people get rich first."
• Reforms included:
  • Replacing communes with peasant-leased plots.
  • Allowing factories to produce more consumer products.
  • Encouraging foreign companies in special economic zones due to low wages and lax environmental laws.
  • Reopening the Shanghai stock market and allowing private ownership of some businesses.
• Some advocated for political reforms alongside economic changes, but the Tiananmen Square demonstration in 1989 was suppressed by the government.

Economic Change: New Knowledge Economies

• In the late 1900s, revolutions in information and communications technology led to knowledge economies.
• A knowledge economy creates, distributes, and uses knowledge and information.
• Examples include Silicon Valley in the U.S., where workers use knowledge to create technology, communication, innovation, and collaboration.

Knowledge Economy in Finland

• Finland transitioned from an agrarian economy in the 1950s to an industrialized nation after World War II.
• The collapse of the Soviet Union led to an economic crisis.
• In the 1990s, Finland entered the global marketplace, encouraged competition, and established the Science and Technology Policy Council.
• Finland invested in research, education, innovation, and technological infrastructure, leading to the development of mobile phones and software companies.
• The country outsourced hardware production to countries with lower labor costs.

Japanese Economic Growth

• After World War II, Japan implemented mercantilist policies to increase exports and decrease imports.
• Policies included:
  • Government coordination with large corporations and subsidies to encourage exports.
  • High tariffs and trade restrictions to discourage imports.
  • Emphasis on rigorous education to create productive workers.
• Large investments from the U.S. and other countries turned Japan into a manufacturing powerhouse.
• Low-wage workers could not afford the products they made.
• Japanese unions negotiated higher wages, and international pressure relaxed trade restrictions.
• Japan diversified into a knowledge economy and an international center of banking, finance, and information technology.
• Despite slowed growth after the 1980s, Japan remained a major global economy.

The Asian Tigers

• Hong Kong, Singapore, South Korea, and Taiwan closely followed Japan's economic model.
• These states prospered through government-business partnerships, high exports, intense education, and a low-wage workforce, raising millions out of poverty.

Economic Continuities: Shifting Manufacturing

• As knowledge economies developed, industrial production and manufacturing declined in regions like the United States.
• Manufacturing plants are located in Asia and Latin America.
• Countries in Asia and Latin America are known for their contributions to the textile and apparel industries.

Vietnam and Bangladesh

• Importers shifted from China to Vietnam and Bangladesh due to lower labor costs.
• Both countries are known for clothing exports.
• Clothing accounts for 80 percent of exports from Bangladesh.
• Phones are the largest export from Vietnam, worth approximately 45 billion in 2017, with apparel and electronic goods each bringing in 25.9 billion.
• Workers in Vietnam and Bangladesh have protested low wages and poor working conditions, leading to slight pay increases that have failed to keep up with rising costs of living.

Manufacturing in Mexico and Honduras

• In 1994, NAFTA encouraged U.S. and Canadian industries to build maquiladoras in Mexico.
• Maquiladoras used low-wage Mexican labor to produce tariff-free goods for foreign export.
• Many factories hired young women and exposed them to harsh working conditions.
• Labor unions complained that NAFTA led to the export of thousands of U.S. jobs to Mexico, where wages, benefits, safety, and environmental standards were lower.
• Honduras seeks to upgrade manufacturing using sustainability principles and fair labor practices.

Transnational Free-Trade Organizations

• Organizations post-World War II fostered global economic growth.
• Examples include the European Economic Community, Mercosur, and ASEAN.
• The General Agreement on Tariffs and Trade (GATT) lifted restrictive barriers to trade.
• Protective tariffs decreased from an average of 40 percent to below 5 percent, promoting international trade and lowering prices.

World Trade Organization (WTO)

• In 1995, the WTO took over GATT's operations, governing more than 90 percent of international trade.
• The WTO became controversial due to closed meetings and favoring corporate interests, and prioritizing trade over moral concerns.
• Member nations that refused to buy clothing made by sweatshop labor could suffer trade sanctions.

Multinational Corporations

• A multinational corporation is legally incorporated in one country but operates in others.
• Early examples include the British East India Company and Dutch East India Company.
• Modern corporations take advantage of knowledge economies and traditional manufacturing.
• They employ leading-edge workers and low-wage workers and have a global market.
• Multinational corporations produce gains for developed and developing countries.
• India's opening of markets led to a thriving consumer culture and a swelling middle class.
• In 2014, the Indian middle class exceeded 350 million people.
• India-based Mahindra & Mahindra operates globally and is known for socially responsible practices.
• Some multinational corporations lack a strong national identity and avoid taxes.
• Swiss-based Nestlé faced controversies over child labor and its view on drinking water but invests in sustainable agriculture programs.