Change in Global Economy Governance - Essay Example

Name: Professor: Course: Date of Submission: Change in Global Economy Governance Introduction Governance of the global economy has remained in the hands of few Western countries owing to their economic strength at the time of establishment of the world political order after the World War II. However emerging economies such as China, India and Brazil have shown great potential in revolutionizing the manner in which the global economy is governed. The rapid growth of these economies as opposed to most western countries that have shown slow or significant stagnation has invited great influence on the global economy. Global economist have predicted that the emerging economies could result in a great revolution in the governance of the world economy similar to that caused by industrialization of some European nations and the United States, which now exert significant control in the global economy. These emerging economies have began to show significant influence in the global economies through assertion of their position in the world trade as well as various organizations that play a great role in the governance of the global economy such as the World Bank and the World Trade Organization (Bourguignon 2006). China, Brazil, and India’s emergence as some of the most powerful modern economies has posed great tension among some western nations with the view that such economies could topple the existing political and economic order. The rapid growth of the Chinese economy that is characterized by socialist fundamentals could see future transformation of the existing global economic system that has been built around industrial capitalism. With the increased globalization, which promotes free flow of capital, foreign direct investment, mergers, establishment of the fair and free rather than the industrial capitalism mainly based on exports, strengthening of national market, and exploitation of the developing countries, the governance of the global economy could assume a new trend (Keohane 2005). Despite the three economies sharing similar socialist ideologies in building and strengthening their national economies, they have opened their economies resulting into significant impact in the global economy. This paper will discuss the emerging economies and how their continued growth in the global perspective may influence the how the current global economy is governed. Overview of Current Global Economy Governance The governance concept of the world economy has its origin from the hegemonic war period when scholars and diplomats formulated innovative ideas pertaining world order. This was perceived to be imperative to restrain another World War from happening. The increased trends in trade liberalization and economic expansion may have significant impact towards the governance of world economy. Governance of the global economy has for a long time been dominated by European nations that account for about 40 percent of the total votes with United States accounting for 25 percent of the total votes alone (Schifferes 2009). The high U.S. percentage of votes in the governance of the global economy has given U.S. significant mandate to challenge any decisions reached by the economy governors. The most ridiculous thing in the global economy governance is that the IMF voting structure does not recognize emerging economies like China, Brazil, and India. Globalization has an impact towards the interregional networks of interaction and the exercise of power (Held and Antony 2002). Economic activity has been the principle driving force on the contemporary globalization. In addition, the global financial crisis has played a big role in reshaping the way the world economy is governed. The developing economies such as China and India are growing in fast pace compared with the advanced economies, an issue that is raising concern on the global economic governance. According to Gilpin and Gilpin (2001), instantaneously connected international financial markets have the potential of creating large amounts of virtual money and power to a given state especially where production processes are entirely controlled by the corporate owners of intellectual property. Over the years, the governance of the world economy has been the preserve of the super powers in terms of policy formulation and international relations. The existence of free trade policies in the world markets has influenced countries like China to engage in capitalist-style of exploitation of workers in order to promote cheap export. The increased assertion of emerging economies such as China, India and Brazil could see the significant changes in the voting structure of the IMF where emerging economies may demand recognition as respectful states owing to their impact on the global economy. The Chinese Economy China being one of the emerging economies has shown the greatest potential in transforming the global economy through its assertion in the both the global economy and political arena. Following the country’s decision to change from its traditional socialist economy through abandonment of protection of domestic enterprises, and opening up of its market to foreign investors, great number of foreigners has focused on exploiting the country’s emerging markets (Held and Antony 2002). This trend has resulted in rapid expansion of the Chinese economy that has caught the attention of the super power states. Although Chinese as an emerging market has made significant changes in the manner in which it governs its economy in order to accommodate other global economies, the government has remained shown great efforts to retain overall control of the nation’s economy. This implies that despite changes towards the capitalist economy highly practiced in most of the European nations, China through its leaders still retains some of its legacy economic system. China as a nation has refrained its economy from the controls by the international monetary fund, which brings about loss of capital control and exposure to financial speculations for the member states (Held and Antony 2002). In the event of entering to the global economy, China’s future impact on the global economy can be predicted through its current trend where it shows great potential in replacing U.S. and Germany as the top exporters. This has been indicated by a past logistics that have seen china account for more than half of the global export growth. China has also competed countries like the U.S. and Japan to become the world’s largest manufacturer as well as trading partner in the global market (Banga 2006). Many of the Asian countries have changed their focus from the European market and instead formed increased trading partnership with China as a result of the country’s rapidly growing economy and emerging markets for different commodities. Such trading partnerships have seen China reclaim most of the business previously transacted with U.S from the Asian countries thereby boosting its economy against that of United States. With China’s dominance in export and consumption of certain raw materials such as coal, tin as well as being one of the leading markets for vehicles, the Chinese economy shows the potential of toppling the so called ‘super powers’ mainly comprising of the European nations. Industrial revolution in China, which has taken a new dimension resulting into high demand for raw materials and oil products, has seen increased direct investment in the country that plays an important role in the rapid growth of its economy (Harris 2004). China’s increased trading partnership with oil producing countries has seen significant diversion of oil business from the European nations to the Chinese market. China has also not spared the European nations in challenging their information technology sector where it has began to dominate the global market through production of highly innovative gadgets at affordable prices. Despite the increased interest from foreign investors in the Chinese market, the Chinese government has imposed certain restrictions in its financial sector as a way of retaining full control of its economy. The move to put restrictions on foreign investors in its financial sector can be attributed to the significant influence impacted on a country’s economy through its financial sector. In this case, foreign investors in the financial sectors are only allowed to invest in the Chinese financial sector through partnership with local banks to allow significant control by the Chinese government. Indian Economy The current trend in globalization has seen the Indian economy begin to grow at an extra ordinary speed as business owners begin to discover the emerging Indian markets. The huge and diversified population has particularly contributed to the development of great interest in the market by foreign investors. Indian’s impact on the global economy has been attributed to its advancement in information technology and the growth of its pharmaceutical sector (Bottelier 2007). India has attracted large numbers of expertise from countries like United States due to the relatively wage base compared with China. The rapidly growing urban economy in India has also been instrumental in its assertion in the global economy as that has enlarged its consumer base for different commodities. The country’s world-class education especially in information technology, business and healthcare, have also impacted immensely in the growth of its economy (Bottelier 2007)). Studies have shown the current status of the Indian IT sector would see the economy of the country get a major boost through IT outsourcing to United States that will see the IT sector account for more than six percent of its GDP (Bottelier 2007). Advancement in the India’s IT sector could see countries like U.S. lose most their IT outsourcing contracts to Indians thereby boosting its economic impact in the global market. India has also joined global leaders in supply of auto components such as China, Mexico and Brazil, which has caused significant impact in boosting its economic growth. India has also shown a great potential in influencing the global economy through its increased number of trading partners following globalization. Since China, Brazil, and India share common political and economic ideologies, they have formed strong trade partnerships that have seen them assert their place in the global economy especially through bodies such as the World Trade Organization. Forecast International Economic Governors With China and India continuing to assert their positions in the global economy through reduction of dominance by some super economies in the various sectors of the global market, changes in the manner in which the global economy is governed will be inevitable. Since these states share common political and economic ideologies, their involvement in the governance of the global economy will result in introduction of some of their socialist fundamentals that differ with the capitalist ideologies that characterize governance of the global economy. The move by the Chinese government leadership to avoid financial manipulations exposed to other countries under the international monetary fund (IMF), has seen the Chinese economy retain full control of their economy. This move has been critical in ensuring that its economy remains free from manipulation by the existing giant economies that seek to continue impacting control on the global economy. Despite China’s entry into the global economy, the government has chosen to do so with create caution through retaining some of its economic ideologies that have seen it experience the tremendous economic growth (Harris 2004). In this respect, the Chinese government has chosen integration of its economy with the existing global capitalistic economy as independent members thereby retaining full control of their economy. The Chinese government has demanded recognition of its economic ideas and strategy in the existing capitalistic economic class, a phenomenon that poses great threat in changing the governance of global economy. Chinese leaders have chosen to transform their domestic economic institutions from the inside rather than allowing foreigners to implement such changes. Although China has seen a significant shift from the socialist ideologies, it has failed to embrace fully the capitalist principles but instead transformed such ideas to suit the globalist approach. This implies that its approach though different from the traditional socialist ideology still differs from the capitalist systems that reign the current global economy. With the existing super power still deeply rooted in the industrial capitalism characterized by increased dependency on exports, China has posed a great threat to the U.S. and Germany as it continues to show the potential of becoming the best export platform around the globe (Bottelier 2007). Although United States and Germany still continue to have significant dominance in the export business, China has contributed over half of the global export growth in past few years thereby posing signs of outdoing the capitalists in their own game (Banga 2006). Entry of China and India in the governance of the world economy will see increased contributions in the global economy by developing countries and reduce the dominance of the existing European nations that govern the current global economy (Banga 2006). Furthermore, the continued influence by the emerging economies will result into significant reduction of the capitalist class dominance in the global economy and strengthen the globalist ideas that have been applied by China and India in changing their internal economic institutions to fit into the changing the economic strategies amidst globalization. Adoption of free and fair trade as in the case of globalist economic ideas will see reduced exploitation of other developing countries by the long time dominants in the global economy. In case one of the emerging states manages to oust the U.S. as the global economy leader, changes in the in the global political order may be inevitable resulting into significant economic wars among the countries that govern the global economy. Continued assertion of the emerging economies in the global economy will force change in the IMF voting structure, which does not recognize countries like India, China, and Brazil. With U.S as the only country capable of stopping any decisions made by the G20, continued growth in economic capacity of China in the global market could see America losing the power to block decision made by the global economy governors since it will be compelled to give up some of its voting rights to the emerging economies (Schifferes 2009). Conclusion The emerging signs of inclusion of developing economies in governance of the global economy can result into a great revolution of similar global extent as the one caused by industrialization of some European nations and United States that now exerts significant control in the global economy. Emerging economies such as China and India have began to show significant influence in the global economy characterized by rapid growth in terms of world trade as well various organizations such as the World Bank and the World Trade Organization that play a great role in the governance of the global economy. Although Governance of the global economy has for a long time been dominated by European nations, which account for about 40 percent of the total votes with United States accounting for 25 percent of the total votes alone, emerging economies could decimate the voting power vested in U.S. In addition, emerging economies such as China, India, and Brazil, have shown great potential in revolutionizing the manner in which the global economy is governed. Despite China showing a significant shift from the socialist ideology, it has failed to embrace fully the capitalist economic principles but instead transformed such ideas to suit the globalist approach. This connotes that its approach though different from the traditional socialist ideology still differs from the capitalist forms that reign the current global economy. Moreover, continued presence of the emerging economies in the global economy will result into change in the IMF voting structure that does not recognize countries like India, China, and Brazil. References Banga, R 2006, ‘The export-diversifying impact of Japanese and U.S. foreign direct investments in the Indian manufacturing sector’, Journal of International Business Studies, vol. 37, no.4, pp. 558-568. Bottelier, P 2007, ‘India’s growth from China’s perspective’, The Journal of Applied Economic Research, vol.1, no. 1, pp 119-138. Bourguignon, F 2006, Global economic prospects: managing the next wave of globalization, The World Bank: Washington. Gilpin, R. and Gilpin J 2001, Global political economy: understanding the international economic order, Princeton University Press: Princeton. Harris, J 2004, Emerging third world powers: China, India and Brazil, viewed 13 September 2011, from: Held, D. and McGrew, A (eds) 2002, Governing globalization: power, authority and global governance, Polity Press: Cambridge. Keohane, R 2005, After hegemony: cooperation and discord in the international political economy, Princeton University Press: Princeton. Schifferes, S 2009, ‘Who runs the global economy?’ BBC, viewed 13 September, 2011, from: < http://news.bbc.co.uk/2/hi/8253987.stm> Read More