Global Economy and Politics - Coursework Example

___________ ____________ ____November 2006 Global Economy and Politics The mention of global economy conjures up the concept of globalizationwhich is a term referring to the process of freeing of domestic barriers to movements in trade and capital amongst countries ,and actual cross border movements of such goods and capital. The concept of globalization rested on the unprecedented advances registered in the fields of communication and information technologies which immensely helped shrink the world into a compact global market place. With these advances the information is available on momentous scale on the World Wide Web. Internet selling through websites and portals has broken all limits and definition of a domiciled corporation. Now corporations are not only selling to foreign nationals over the internet but are also actually relocating their production facilities in search of overseas markets. Since 1990s the concept of globalization has brought in revolution in the manner we trade internationally. However this new global economy has redefined the political equations in the globe and is continuing to do so with changing balance of economic power. This paper essentially examines this phenomenon. Globalization The globalization aligned attitudes of IMF and World Bank are exemplified with clarity by Jean-Claude Trichet, President of the European Central Bank, when he says that," The key aim of today's policy makers has not changed compared to those at the Bretton Woods times - it has been, and still is, global prosperity and stability - but the environment in which we are acting has changed profoundly......Today we are striving for stability of the international financial system in a world of free capital flows with a growing importance of private flows and increasing trade and financial integration"(Trichet, 2004). Devetak and Higgott explain how globalization has brought about a weakening of an intra national social bond. They further posit that ongoing process of globalization causes constant disruption in existing social bond. It is their view that "under conditions of globalization, assumptions made about the social bond are changing; .... the article concludes that the prospects for a satisfactory synthesis of a liberal economic theory of globalization, a normative political theory of the global public domain, and a new social bond are remote"(Devetak & Higgott 1999). As Roby says," world-wide output and trade have grown apace with market openings and the rise of efficient global business networks these past 15 years. An entrepreneurial class is energizing once-stagnant command economies" (Roby, 2005). It is at once apparent that this 'entrepreneurial class' is essentially limited in number the globe over and its population effectively determines the contours of globalization. This entrepreneurial class is in fact dictating the world polity as well. Major changes in the global eco-political map Dismantling of communist political regimes in the erstwhile iron curtain countries was the foremost change to occur as globalization, as explained above, ran concurrently. This worked to open huge markets of emerging economies for the multinational corporations of West. Second major development was comprised in strengthening of regional economic and trading blocks. Whether it was the European Union (EU)or NAFTA or ASEAN al such trading blocks rationalized and redefined heir duties and strengths to present combined large markets that were ready to respond to new paradigms of international trade set in place by globalization. Quick illustrations would reveal the changed face of the globe. Take the episode of China's accession to WTO.Nobody could have imagined till two decades back that China would make such a move and be agreeable to WTO prescriptions to open its trade contours. Now China has emerged as one of the foremost economies which has benefited from globalization immensely. China has emerged as a new eco-political power ,on the one hand ,and EU is making another bid for a countervailing eco-political power status in the west. Where does this leave the US-the reigning single country eco-political power in the globe The US Factor Global trade is run with constant reference to the US economy. Now the US is entirely in a different role when compared to about a decade back when it used to be a rather self reliant economy. Globalization helped the US economy to open its portals t the world, at large, with flows of goods and capital initially being both ways. However of late these trends have been reversed. Now the US is net buyer from the rest of the world and is importing obligatory capital as never before. Since 1995 the US imports have risen from 12% of its gross domestic product (GDP) to a whopping 17% of GDP in 2006.Foregin money now finances a worrying 32 % of the domestic investment, up from a mere 7% I 1995. (Businessweek,2006).Fed has raised short term interest rates 17 times since 2004 as a measure to restrain economic growth and to subdue real estate bubble that still froths after its first burst. It is projected that around Christmas 2007 the US will, for the first time, achieve the milestone of its imports' cost exceeding its federal revenue collections. This would imply that Americans would be paying more to the foreigners than to their national government. In fact a view prevails that globalization led opening up of the US economy is uncontrollable and could lead to a wholly compromised situation. In the presence of foreign capital and imported goods even macro policy prescriptions of the Fed are not taking the requisite path to ensure recovery. Take for instance, the recent massive tax cut of the Bush administration did not lead to perking up of the economy and job creation remained more or less subdued.Cuting across party divisions the happenings brewed consternation in the US with democrats shouting their solutions and republicans sticking to their own brand of economics. (Business Week, 2006) Given a deep hole in the pocket it would be very difficult for the US to continue to write the blue print of the world trade. This would also weaken its political relations and nations with richer pockets would tend to raise their voices in geo-political maters as well. Evidence of Rich Pockets Again, in a slightly different context, Phillip W.Jones makes a statement which is extremely relevant to the definition of globalization in present context. Jones states that," The logic of globalization contrasts markedly with that of internationalism. The latter, with its intrinsically democratic foundation, looks to a world ordered by structures supportive of that functionalism which is embedded in accountability. Globalization, by contrast, implies few logical imperatives in favor of accountability, but rather looks to the pursuit of interest on the global level through the operation of unfettered capitalism"(Jones,1998).However evidence is quite on the contrary. Unfettered capitalism -if globalization is to be termed in that manner-has actually benefited many that were languishing thus far. Take for instance the case of emerging economies of East Europe. After 8 years of globalization emerging economies are much less dependent on foreign capital and rather free of precarious influences of foreign investors. They, as a group, are in the eighth year of enjoying a current account surplus; having been in the deficit for the previous 20 years. Their foreign debt to exports rato has improved sharply from a staggering 174% in 1998 to a decent 75% this year. Compare this with the troublesome US figures as discussed above. In addition their foreign exchange reserves have swollen to nine months of imports and most emerging economies have done away with pegging their curries in overvalued fashion. In fact Chinese and some other Asian currencies appear to be undervalued. (Economist,2006). The Economist further says that," Brazil, Russia, India and China are the four biggest emerging economies, grouped together under the acronym BRIC, created by Goldman Sachs in 2001.These four economies account for over two-fifth of the total GDP of all emerging economies. China and India are generally seen as he two giants among them. This is true in purchasing power parity terms; but in current dollars both Brazil and Russia produce more than India. At market exchange rates only Brazil and China rank among the top ten world economies, but in purchasing power terms all four BRICs make it. Goldman's economists predict that if Governments stick to the policies that support growth, by 2040 China will be the world's biggest economy at market exchange rates. By then thee will be five emerging economies in the top ten; the four BRICs plus Mexico.Together, they will be bigger in dollar terms than the G7 economies.(Economist,2006) With this economic scenario in support of them it does not take much stretch of logical reasoning to focus on attitudes of these countries on geo-political issues. In fact countries like China are still determining several such issues by the dint of their political stature which has not suffered much after the opening of the iron curtain. With a strengthened economy such efforts are likely to find more authoritative voice in world for a like the UN and the Security Council. This is given the fact that US and EU does little to undo their worsening economic indicators by then. However a more democratic globe is in the offing riding the wave of globalization and changed global economic relations. Work Cited Trichet, Jean-Claude.The international financial architecture - where do we stand Speech by Mr. Jean-Claude Trichet, President of the European Central Bank, at the Conference "Dollars, Debt and Deficits - 60 Years after Bretton Woods". Madrid.14 June 2004. Devetak ,Richard & Higgott ,Richard.(1999).Justice Unbound Globalization, States and the Transformation of the Social Bond. International Affairs. Volume 75.Page 483. BusinessWeek Online.(2006).Can Anyone Steer this Economy.November 20,2006. Jones, Phillip W.(1998).Globalization and Internationalism: democratic prospects for world education. Comparative Education.Volume 34. Number 2.pp 143 - 155. Economist.(2006).Emerging at Last.September14,2006. Read More