Technology has enabled the business to be carried out in a way that market products and services are traded all over the globe. Alliances and partnerships have been formed between and among countries throughout the world. This is the contemporary nature of a globalized economy as opposed to an international one. More and more countries like China, India, and Brazil are coming out as major players in the global economy. United States dominance in the global economic arena is shrinking and currently stands at twenty percent. In the International economy model, countries rely more on trade agreements made between them but the globalized economy behaves in a manner that countries trade without many regulations. A globalized economy is expected to bring some balance or equilibrium as more countries try to assert themselves as major contributors to international trade. These countries include the Newly Industrialized Countries like Singapore, Malaysia, and South Korea.
The three major financial centers today are to be found in Tokyo, London, and New York with Asia, North America, and Europe as the key regions of business and finance. Whereas governments played a significant role in business in the international economy model, the globalized has seen a substantial reduction of government activities in international business. Multinational companies dominate the world economy and the country with the biggest and most profitable companies is ranked as the richest. The global nature of the economy has also led to stiff competition among multinational companies. These companies are also involved in lobbying third-world countries in order to gain access to their markets. The globalized economy has seen trade barriers within many countries being eased so as to create or make a better environment for the free market. Many developing nations, the majority of the in the global south, are usually blamed for having protectionist policies and trade barriers, a factor believed to hamper their economic progress. Critics of the globalized economy say that the removal of trade barriers will impose unfair competition on companies in developing nations (Ayal, p. 330).
International economics has three major categories namely international finance, international trade, and monetary economics. Within international trade, emphasis is laid on the flow of goods and services within countries or across international boundaries. This is studied using the supply and demand economic model. This model demonstrates the effects on price and quantity in the market. Price is determined or dictated by the quantity demanded by the consumers plus the quantity available or supplied by producers (Ayal, p. 330). This results in a price and quantity economic equilibrium. This model also applies to other markets as well such as wages and interest rates. Availability of labor in abundance would mean that wages will be lower and vice versa. The second discipline of international economics is monetary economics which deals with monetary flows across nations. International finance on the other hand looks at the flow of capital across international markets and how these movements affect the exchange rate (Ayal, p. 328).
The globalized economy is mainly affected by the market economy which is based on specialization or division of labor where prices are dictated by a free price system set by demand and supply. This is in contrast to a planned economy where governments control prices through a fixed price system. This form of economy has not come into existence in its pure form but much lobbying is being done to minimize the number of government regulations. In the international economy, protectionist tariffs are considered to be a hindrance to a vibrant international market economy. Tariffs on imported goods, quotas, other regulations are seen to discourage imports and prevent multinational companies from conducting business, especially in developing nations as they would wish. Developing nations often accuse developed nations of giving high direct subsidies to their companies (of which they cannot afford to give to their own) therefore resulting in unfair competition. Developing nations also justify protectionism as a move to protect their infant domestic industries arguing that they cannot do so within the current globalized environment. Recent international treaties and directives from organizations such as International Monetary Fund and the World Bank have seen free trade policies being more and more implemented (Ayal, p. 335).
In my view, countries should adopt the globalized economy model since it is the dominant one right now on the world stage and seems to be the way for the future. Most countries that restrict themselves to trade with a selected few (mainly through economic integrations) and continue to enact or uphold protectionist policies such as Cuba are experiencing economic stagnation. This way domestic development is hampered by the failure to appreciate modern trends of business and globalization. Previously developing nations such as Malaysia and South Korea that adopted the current trends have emerged as Newly Industrialized countries. Even though capital is dominated by foreign companies domestically, these countries have enjoyed considerable development and the alternative is not enviable. China on the other hand, though having a communist structure domestically, is a major player in the global finance market today and with companies like Haier, it is bound to benefit a great deal from the current global economic system.
Governance structures of the global economic system
The last few decades have seen numerous changes in the world economy with international finance taking the bulk of it. Technology especially in information, telecommunication, and transport has resulted in the emergence and tremendous growth of globalized financial markets. Some of the problems that have affected the current system include:
- Vulnerability of the current financial and banking system.
- Instability of monetary and financial systems.
- The governance structures of institutions like WTO and Bretton Woods such as the World Bank and International Monetary Fund are outdated and not compatible with the current global economic system.
- The current global economic recession.
- Rising inflation of all major currencies including the dollar, the Euro, the Pound among others.
- Current voting patterns in governance institutions and Bretton Woods institutions are seen to favor some countries especially those seen as powerful. For instance, developing nations which are the majority account for thirty-nine percent of votes in World Bank and thirty-eight percent in International Monetary Fund.
- The institutions have recently been faced with transparency doubts and scandals, for instance, the one surrounding the former president of the World Bank (Altvater, p. 238).
The International Monetary Fund and World Bank were set up to provide financial support to individual countries so that they can meet their policy aims. The global economic environment has experienced considerable changes since this institution’s formation, their structures though have not changed leading to failures in the performance of their intended purposes (Altvater, p. 238). In my view, the governance structures have indeed failed but are not beyond repair. A clear failure is seen in financial instability especially in developing nations though developed nations have by and large been able to deal with their problems. In this area, the Bretton woods institutions have not managed to bring a balance between developing and developed nations and the gap is expanding. The International Monetary Fund has failed in dealing with the problem of balance of payments and its effort to deal with the debt crisis has been largely ineffective. Both institutions have failed to improve the living conditions of those from the third world, especially in Sub-Saharan Africa. Another field that maybe has contributed to the failure of the World Bank and International Monetary Fund to have a major impact on third world countries’ economies is the voting process. A country’s vote is weighted according to the size of its economy. This means that the richer the country is the more valuable its vote is and the poorer the country is the lesser is the value of its vote is (Bordo and Eichengreen, p. 60).
One area I think these institutions are doing really well is in influencing the policies and governance styles of their recipient developing nations. In the last two decades, the International Monetary Fund and the World Bank have been imposing conditions on their recipient nations. This has seen more and more developing nations adopt democracy and the liberal nature of markets as their political and economic systems. Though this is debatable, democracy in developing nations has contributed to peace in the respective countries. Developed nations amount to barely 15% of the world population but in the International Monetary Fund, they control more than sixty percent of the votes. Picture this; France alone has about five percent of votes in the Integration Monetary Fund while the whole of Sub-Saharan Africa has about 4.5%. The United States has a whopping 17.14% compared to Ethiopia, with a population of more than sixty-seven million having a mere 0.18% (Bordo and Eichengreen, p. 59).
In conclusion, ongoing reforms in the governance structures of these institutions and a better understanding of the current state of the global economy are bound to enable them to get a better grip on the running of their policies. Changes in the voting system will see more and more developing nations take part in decision-making since their informed input will count. Improvements in the areas of democracy, transparency, and accountability will in due course be achieved. More staff members from the third world or developing nations should also be included in the institutions. Their governance structures should be reconstituted so that they can more fairly their global membership.
Power and its influence
Power always plays an important role in many issues and especially those concerned with the economy and money. Outgoing President George W. Bush has used his position and power to aggressively campaign for and push countries to adopt free trade. At his State of the Union speech, President Bush emphasized the need for the United States to open more markets for what Americans make and grow. According to him if free trade is put into play, no other country can outproduce or out-compete the United States. His support for free trade though has been questioned due to the fact that he imposed tariffs of up to thirty percent on imported steel. But over the years president Bush repealed most tariffs introduced during the Clinton regime. President George Bush gets his power from his office, the most powerful in the world, which he then uses to implement his policies. Among other things George Bush supports:
- He is in full support of China and its breakaway province Taiwan being admitted in the World Trade Organization.
- He is opposed to linking labor and environmental issues with trade. This way the United States has played a considerably less significant role in combating global warming taking into consideration that it is among the major contributors to pollution and consequently global warming.
- He wants to see the North America Free Trade Agreement(NAFTA) expanded throughout the Americas
- He supports the enforcement of anti-dumping laws so as to get rid of unfair trade. A move is seen to be mainly directed to China.
- He has been interested in making global financial institutions such as International Monetary Fund and the World Bank more transparent and accountable. His appointment with Paul Wolfowitz was not seen to meet these standards.
- Though things have not worked his way in many sectors, he nevertheless asserted his support for free trade during one of his last international speeches as president in an APEC meeting.
President George Bush will indeed leave a legacy or a mark if you may, on the present and future nature of free-market not only in the United States but globally as well.
The Chinese President Hu Jintao should be a man to watch closely since he will have (and is already having) a substantial amount of influence on global financial markets. President Hu Jintao has managed to make China achieve tremendous economic growth (over 8% annually) while still maintaining a communist governance structure in his country. In a recent speech, Hu Jintao called on countries to harmonize coordination of policies so as to deal with the current financial crisis. He also noted that the United States financial crisis will have a serious impact on world economic development. China has its reasons to get worried about the United States economy taking in consideration that US already owes China more than five hundred billion dollars. Thus, according to him, countries should strengthen policy coordination and cooperate more closely so as to face the global challenges. Hu Jintao is seen as a very important force not only in China and Asia but also throughout the whole world. His government has experienced phenomenal growth with some predicting that China will be a superpower by the year 2020. (Moore)
In a move similar to the similar to United States bail out, President Hu Jintao’s government injected four trillion Yuan (more than 500 billion dollars) to counter the financial crisis facing the Asian markets. Compared to the United States bail out, the Chinese bail out is seen to be wider and more comprehensive. The Asian stock market responded well to the bail out and is expected to increase Chinese economic growth by at least two percent. China is not expected to massively suffer from the current global financial crisis since Hu Jintao’s government has maintained significant proportions of companies if not wholly owning them. Hu Jintao’s government had maintained a twelve percent economy growth but economists are predicting that this would fall to at least six percent due to the global recession. (Moore)
A leader, especially a political figure can have immense influence on a country’s development. Former Cuban president Fidel Castro had had enormous influence in his country’s social, political, and economic development. Since Castro declared that Cuba is a socialist republic in 1961, the United States government carried out a number of policy measures against the Cuban administration. In 1962 the government of United States imposed a commercial, financial, and economic embargo on Cuba. This happened after the Cuban government took over properties belonging to American citizens. (Bremmer 9) The United States government stated its motivation as the need to bring democracy to the people of Cuba. Up to now the embargo, which restricts Americans from conducting business in Cuba, is still in effect. The embargo has resulted to considerable economic damage to Cuba which has experienced endemic food shortages, transport problems, medical crisis, and lack of clean water among other things (Bremmer, p. 9). The impact of this in development is pretty negative; therefore Fidel Castro has contributed a great deal to his country’s economic problems. Leaders especially political leader continue to exert a lot of influence on trade, finance, development among other things.
- Ayal, Eliezer B. (1998) Components of Economic Freedom and Growth. Journal of Developing Areas, Vol.32, Spring, Western Illinois University. pp. 327-338
- Altvater, E. (1993). The Future of the Market: An Essay on the Regulation of Money and Nature After the Collapse of “Actually Existing Socialism. pp. 237–238.
- Bordo, Michael D.; Eichengreen, Barry (2000) A retrospective on the Bretton Woods system: lessons for international monetary reform pp. 56-78
- Bremmer, Ian (2008). “Don’t look for change quite yet; Cuba after Fidel”, The International Herald Tribune pp. 9-10
- Moore, Malcolm: China’s bail-out package hailed as a ‘New Deal’ for its people.