Globalization and World Economic Challenges
Globalization and the World Economy
Item 2
Globalization and the main shifts of the world economy:
- Internationalization: Economic relations among countries, with nations holding the primary role.
- Globalization: Economic relations, in general, escape from the hands of nations, with companies operating globally emerging.
Features:
- Liberalized and fully integrated markets.
- Independent national economies.
- Full freedom of capital movement.
- Economic policy beyond national control.
- Development of global strategies for both purchases and sales.
Conditions Favoring Globalization:
- A homogeneous market.
- Existence of economies of scale.
- Low transport and/or storage costs.
Implications:
- Expansion favors transnational corporations.
- Boosting the emergence of global companies.
- Increasing competition in power and costs.
- The creation of SMEs as a result of outsourcing.
The Distribution of World Income: Underdevelopment
One of the largest problems that exists in the global economy. Since the 1950s, it has been attracting much interest. Two different views appear:
- Orthodox liberal vision: Developing countries must continue advancing, reaching developed ones.
- Unorthodox vision: Developed countries are to blame for the underdevelopment. The solution: a new international economic order.
Differentiate between economic growth and economic development. The difference in capital between rich and poor countries is increasing. Rich countries are becoming richer; the poor are stagnated.
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Vicious Circle of Underdevelopment
The vicious circle determines the causes that provoke stagnation in underdeveloped countries. The main principals lack investment, lack of education, and instability. It is called a vicious circle because it is self-reinforcing. Lack of investment can come from a lack of savings; therefore, not investing causes production stagnation. Instability, such as a dictatorship, can be caused by a lack of liberty, which ends in corruption. Therefore, the lack of education and resignation ends in emigration.
The Environmental Problem
Next to underdevelopment and democratic imbalances, this is one of the main problems. These problems are caused by the economic and political system, and by the lack of control of resources. First, we must distinguish: regional problems, when neighboring countries share resources; global problems, when all countries share a resource; and national problems, where a concrete country is important to all. From the 1960s, awareness of these problems increased due to ecological movements. In the 1970s, the report “Limits to Growth” proposed limiting economic growth, but it was criticized and ignored. In the next decade, the concept of sustainable development emerged, enlarged in the Rio de Janeiro conference. Also, the problem of gas emissions appeared, leading to the Kyoto Protocol, which the U.S. did not sign, and China, Brazil, India, and Russia were against. Developed countries should start reducing emissions, leaving developing countries initially free.