Global Economies

GLOBAL ECONOMIES Part 1 Reflection Despite the attempted global empires that have existed and flourished to greater or lesser extents throughout the history of human civilization, the creation of multinational and multicultural economies generated by those empires was a secondary effect of the consolidation of territorial leadership.

The increased economic prosperity that common currencies and trade regulations within such past empires fostered, however, has shown that despite the inefficiencies, folly and occasional downright brutality or genocide that may be fostered by an empire seeking world dominance, the effect of a global economy is desirable without the connection to global political dominance.

Internationally traded commodities have emulated a global economy in past history, such as silk and spices from the far east or gold from the new world, but the modern phenomenon of a global economy based solely on international flow of non-hard currencies is a much more modern occurrence. Particularly, it has been a growth trend in the re-making of the world since the conclusion of hostilities in the Second World War.

European nations, victors and vanquished alike were greatly damaged by the conduct of the war and desperate both to rebuild their infrastructures and economies as well as insure that the world they were remaking would take extreme caution to organize itself such as to avoid ever entering such a global conflict again. Of course, the advent of the cold war, and in many ways there were actually two cold wars. One between the NATO powers and the Soviet Union’s totalitarian communism in Europe and the other between the United states and a few capitalist allies and the more practical communist leadership of China in Asia.

The Soviet bloc effectively tried to opt out of a world economy and to maintain a separate artificial economy with only the most practical application of currency as a means to conduct basic transactions of consumption (buying goods and expendables) but never inclusive of ideas such as public investment in production. “The Soviet view of their own economy was not vastly different, as far as the economic mechanism was concerned, from the western model of ‘planning under a dictator’ (later renamed the ‘command economy’), and in western writings this concept fitted well with the totalitarian model of the Soviet regime.

“ Davies, R. (1992) Production of necessary goods was a state function and the vastness of the Soviet Union and its international satellite nations was envisioned as being fully selfsustaining without any need to attract true foreign free trade or investment. Similarly in China, initial efforts in the post WW2 decades focused on internal development 2 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013

GLOBAL ECONOMIES and establishment of an autonomous nation state charged with a mission of bringing its technology and infrastructure up to date with the modern world. Throughout my own life since 1966, many of the initial post-war aims of the western capitalistic powers as well as Soviet and Chinese communism have either progressed to natural conclusions and evolved into new directions or fallen by the wayside and been abandoned altogether as ill-advised and unworkable.

What has arisen in the place of these incongruous and incompatible competing world visions has been the emerging new age of trans-global industry and commerce. A leveling of the playing field, a dropping of nationalistic jingoistic posturing, and a cultural cross pollination and amalgamation the likes of which would have been unthinkable to all but the most astute and hopeful futurist of 1945. Truly within my lifetime, I have witnessed the birth of a new paradigm that is the global economy. 3 Kelly Eugene Higgins I.

D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES Part 2 A Brief History of Today’s Global Economy Any reasonable consideration of modern economics must be grounded to a starting point roughly corresponding to the end of the Second World War. While components and factors of the modern economic climate definitely existed prior to this point, no discussion of world economics can exist without due consideration of how intrinsically it is tied to the world political climate.

Indeed, within my lifetime I have experienced a significant change in the world economic climate that was precipitated by the dissolution of the former Soviet Union and the Eastern Bloc of satellite nations. That being said, the overall paradigm precipitated by the aftermath of WWII, remains intact and what we have actually experienced is the former Eastern Bloc’s incorporation into the existing and ongoing western model of the modern global economy.

In the years following the conclusion of World War One, there was some serious talk about forming regionalized trading pacts and possibly even a multi-national currency, but the model of the times still saw distinctive national economies as sacrosanct and intimately required to establish a nation’s sovereignty. Despite the unfathomable depth of the war’s toll from a military prospective, an organization largely proposed to prevent any such recurrence of continent-wide hostilities, the League of Nations, was unable to gain ground and faded into obscurity.

It is further ironic that the absence of economic and trade stabilizing bodies, and in-fact the deliberate imposition of severe economic punitive measure on the defeated Germany, actually went on to become one of the key forces responsible for WWII. It may also well be that the previously unheard of scope of “The Great War” combined with the fact that it was ended and peace restored may have created a false belief that a conflict of such magnitude could never possibly happen again, earning the very historically ironic designation “The War to End All Wars”.

In-truth much of public perception about WWI was created and shaped by vast propaganda operations on all sides. “World War I, historically significant as the beginning of contemporary mass propaganda, failed to be the “war to end all wars” but it marked a significant break with the past. The public lies about national aims, the wasteful policy of attrition, and the breaking down of social barriers as the costly, bloody conflict continued helped explain the onset of postwar disillusionment…….. ” Wyatt, C.

(2011) So the absence of sensible, economically stabilizing and trade-promoting monetary policies after WWI generally helped to cause WWII and the absence of a world diplomatic organizational and administrative body (League of Nations) prevented 4 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES possibly effective early intervention to stop, or at least give pause, to fascist empirical ambitions in both hemispheres.

The ensuing WWII was fought on a truly world-wide scale that made WWI seem more like a very large regional conflict confined to Europe. If one were apply the term good to any aspects of the conclusion of WWII, other than the obvious cessation of hostilities, it would well include the nearly universal belief that the nations of the world must be in constant diplomatic contact, that richer nations must share a portion of their wealth with poorer ones and that military conquest and outward territorial ambitions could no longer be acceptable means by which nations could develop their economies.

In this newfound desire for mediation of inter-national relations and finances, many entities were created to facilitate the process, with varying success. While few doubted the need for their existence, old habits of nationalism and associating one’s currency with national identity continued to dog the efforts of truly interconnecting and uniting the global economy. Typically, if the international entity were invested with autonomy in its own governance, the support, both political and monetary, given by member nations was lukewarm and served undermine the perceived, and actual, respect accorded the actions of the body.

Conversely, when these entities have been given strong mandate to facilitate economic activity, it has invariably led the primary financing nations to retain an extremely strong say in the body’s representative actions. It is a conspicuous example of nations privately claiming belief in the multinational organization while simultaneously acting against that goal, often to placate international nationalists and citizens afraid of ceding national sovereignty.

Historically, the world's great powers have been reluctant to allow the emergence of strong, independent multilateral organizations. When they are strong, they have not been independent, such as the IMF pre-1973, and when they are independent, they have been largely irrelevant vis-a-vis the United Nations General Assembly. Rajan, R. G. (2010) 5 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES Part 3 A Knowledge Economy.

Arguably, the single most paradigm-changing aspect of the evolution of the new economy is the emergence a knowledge economy. To be sure, good ideas and skills have always been marketable commodities throughout time but with the incredibly increased scope of global communication almost universally available to all persons, combined with a diminished role for old concepts such as employee loyalty and commitments to single companies, originators of intellectual capital will not be bound to bring the fruit of their efforts to-bear only within their home nations.

As capital investment tends, without sentimentality, to flow towards the highest return on that investment, so too does intellectual capital flow to the highest market price within the world knowledge economy. “With knowledge resources, humankind can minimize the use of physical resources. Information and communications technologies, ICTs, enable more efficient monitoring and control of production processes, reducing wastage in the conversion of nature-made to human-made re-sources.

This is one side of the so-called “substituting data resources for physical re-sources” (Boisot’s Principle of Least Action) through changing the social forces of production. ” Nguyen, T. (2010) Traditional obligations even to one’s own country and culture may be diminish as knowledge workers begin to see themselves as true free agents in the global marketplace. Therefore older concepts of nationalism and state pride may not factor into the ethos of those who work globally, and hence efforts to affect and shape actions of globally operating entities will undoubtedly continue to lose potency in a knowledge economy.

Knowledge based economies of today share some common factors with the various cultural and ethnic displacements and migrations of the past. Cultures of peoples who were subject to possible expulsion from lands that they had previously called home, drove many nomadic peoples to stress occupations which could be literally carried within one’s mind and body, rather than being based on requisite tools, infrastructure, or even intimate familiarity with the land and environment in which they currently lived.

If your population has lived for several generations in an area whose economy was heavily based on olive production, it would still behoove you to seek you profession in a more knowledge based occupation than producing olives. After all, if you were ejected in a few years because of some social uprising or change in government, the place you might have to flee to may not be suitable for 6 Kelly Eugene Higgins I. D.

: UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES olive growing and hence your knowledge of that topic would not be a valuable commodity. Learning to be a physician, merchant entertainer may provide you with transportable knowledge skills of great value. Transportable skills are considered part of a broader common platform, which is simply a common system extending across a large area or globally that provides a common framework that bridges cultures.

This was greatly broadened throughout the world by the Roman Empire, who by not only conquering a large portion of the known world but also by introducing common platforms within each new territory, such as: the Latin language, Roman Common Law, common currency and dispersion of common cores of learning in subjects such as engineering, architecture and medicine. Persons who gained expertise in any of these areas could move about widely within the empire and find a going market for their skills throughout.

“Most platforms can adapt themselves over time to particular needs without taking away from their usefulness as platforms for other people. Adaptability and general ease of use are prerequisites of a platform” Ohmae, K. (2005) An unfortunate downside of the current explosion of the knowledge economy is that traditional nations that have a climate or culture suited to certain particular skills, are now producing larger and larger portions of their population who pursue higher education in fields that will have to be plied outside of their geographic homelands in order to reap the benefits of the knowledge economy.

Persons now prepare more thoroughly to sell their skills on the world market than to maintain traditional occupations and regional specialties of expertise within their home countries. 7 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES Part 4 The Global Supply Chain “Customers increasingly are demanding products with added value, but at lower cost, and hence the new competitive imperative is to seek out ways to achieve precisely that. ” Waters, C. D.

(2010) Supplies for global business operations are increasing de-coupled from the country or region in-which they will be utilized. This phenomenon came to the fore in the 1980s when American car companies were struggling with severe competition from Japanese manufacturers, whose products were generally more fuel efficient, cheaper to purchase and of higher quality and reliability. A patriotically inspired mantra of Buy American” arose throughout the country but upon closer inspection of US autos, a significant percentage of their components were of foreign origin.

Some “US made” automobiles had over 50% foreign components. Compounding this further was the fact that some US manufacturers were unable to produce economy cars of any quality and chose instead to partner with Japanese manufacturers to simply import their existing models and re-label them under the American firm. Chrysler Corporation famously paired with Mitsubishi Motors, which did not, at that time, have a large sales and distribution in North America for its vehicles.

This led to the sometimes odd occurrence of seeing two identical cars parked side by side with one badged as a Mitsubishi Mirage and the other as a Dodge Colt (Dodge is a Chrysler brand). That phenomenon also led to the embarrassing discovery by the US manufacturer that the Mirage held higher re-sale value after four years than did the identical car when it was sold as a Dodge. Ford similarly paired with Mazda for some small trucks and drive-trains and General Motors did likewise with Toyota. Often the likelihood is that the most labor intensive or lowest tech resources are more likely to be sourced locally.

For example, during reconstruction efforts in Iraq aimed at returning the Iraqi military to a functional state, many international companies worked together to produced the finished bases. The major contracting company “primes” were of US, British and French basing and they provided the overall design and program oversight. Beneath them they brought in skilled laborers (electricians, plumbers etc) from South Africa and manual laborers from places such as India, Pakistan, Sudan, The Philippines.

Due to the risk of potential terrorist insurgency infiltration, Iraqi nationals were prevented from providing the manual labor. Instead, the raw materials of low-tech nature (also involving the most manual labor to produce) such as bricks, concrete, fill materials were acquired locally. More 8 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES sophisticated raw materials, such as pipe, wiring, plumbing and electrical fixtures were generally brought in from Turkey.

So, something as central to a nation’s identity as a base for its military ultimately contained less than 15% locally produced content. Of course there are situations where a production or construction effort will dictate that the basic raw materials be brought in because they simply cannot be obtained locally, such as lumber and stone for construction in desert conditions like the UAE, Kuwait and Saudi Arabia, but typically the thing that makes low-tech input the chosen source locally is simply the reduced cost of transportation.

Resources such as intellect can be sourced from throughout the world through the World Wide Web and near universal high-speed telecommunications. So too, shipping has improved in efficiency, economy and performance in the last decades. Much of this has been brought about through a combination of the advent of super-efficient container ships (with universally standardized containers) and computer analysis of shipping routes and demand patters to optimize the location of hubs. More material is moving greater distances with less fuel than ever and delivery is occurring at a faster rate.

“For genuine lean supply chains, the value proposition to customers on the demand side is one of providing a standard, consistently reliable, low-cost service [or product], one which customers can always bank on. They know what to expect, and plan accordingly. ” Gattorna, J. (2009) At the fore of catalyzing this global supply chain is the reduction and elimination, in many cases, of prohibitive protectionist tariffs. The USA has led much of this through its policy of “most favored nation” or MFN trading status.

Without flat-out eliminating import taxes, they were developed on case-by-case bases and when the tariff on a particular item was lowered because there was internal pressure on the US government to make such a lowering, say the importation of electronic components from Japan, any nation enjoying MFN status could expect to be able to begin producing such a product and not be subject to any higher rate than the MFN. In return, the US had the ability to influence other nation’s policies and impel them to remove their own protectionist barriers by either extending MFN or threatening its withdrawal from the non-compliant state.

Some third world countries have sought, with a fairly good record of success, to circumvent this by charging special noncompliance taxes on the grounds of public safety but based on capriciously stringent specifications, such as the axle width on cars to within 1 cm, so that only their domestically produced products are compliant and exempt from said tax. “In short, the issue is whether efficiency and profitability for businesses also translate into efficiency and economic well-being for the country as a whole. Do the benefits of 9 Kelly Eugene Higgins I.

D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES greater business efficiency and profitability trickle down to society in general in the form of higher pay and more jobs created? ” Caldwell, A. (2010) Still, the confusion that the conflicting concepts of a complex product’s national origin may present if anything has faded over the decades to the point that national origin is seldom considered in supply chain decisions. The modern economic model merely considers quality, cost and availability.

In sourcing products in a global perspective, companies typically have to assess 3 main questions. 1. What is our company’s true strength, aka core competency? If the item is aligned with that strength, we produce it in-house. If not, it is better to outsource. 2. Where should the components all come together for the final product? Final assembly and packaging can be outsourced as well as acquiring component parts. Having a wholly foreign assembled product shipped directly to distribution centers or customers is known as drop-shipping and is becoming increasingly more common.

3. Should the company build and invest in its own manufacturing capabilities (facilities, machines etc. ) or should that capability be wholly owned by the suppliers? 10 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES Part 5 Global Capital Flow Similar to the global supply chain considering only price, quality and availability, the global flow of capital increasingly regards only return on investment and security of the same. Consistent grown results will tend to garner increased global investment.

Additionally, as countries are currently developing by region rather than nationally, regions are beginning to attract their own capital investments with little or no regard as to the country into which the investment is being directed. Across the European Economic Community (EEC) the unified currency of the Euro and common economic laws across national boundaries makes the phenomenon even more pronounced. “But foreign investment is an inherently and intensely political issue, where narrow economics won’t be enough.

Each country will want to maximize the value of its resource endowment over time and spend the wealth in ways that will be equitable between generations. But there will also be non-economic objectives. ” O'Brien, J. , McKibbin, W. J. , & Fry, R. (2011) Countries simply are not as relevant to the economies that occur within them today. Only rogue states and pariah economies drive investments away from successful zones of the economy within them. And, as the two conditions are almost mutually exclusive, a region or zone of rapid economic growth is not likely to occur within such a rogue nation to begin with.

The global economic slowdown which began in 2008-2009, and which is showing every indication of being a decade-long event, does not mean that there is not a great deal of investment capital out in the world seeking opportunity. Far from in, in fact, for some of the causes of the slowdown relate directly to potential investors becoming gun-shy about entering new investment positions and choosing instead to hold their capital and wait for opportunity to present its self in the future.

As a corollary to this, much of the downturn and failures that characterized the beginning of this worldwide recession were sector specific; banking, technology, real estate etc.. Investors have taken note of this and in future investments will likely no longer target their investments at sectors of the economy but rather geographic regions of the world that are experiencing robust economic activity despite the overall state of world finance. China currently has several industrial zones that are enjoying robust economic productivity while the overall Chinese economy.

is in a state or largesse. With the doubt in financial institutions so firmly entrenched and the current returns being offered for traditionally safe investments, savings and bonds, being at record low levels, more and more capital investors will be turning directly to specific regions 11 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES or directly investing in the companies within these regions. Much of this investment is made through the medium of Sovereign Wealth Funds.

As the name implies, they exist completely independent of national allegiances, motivated only by rational analysis of economic investment opportunities they are able to identify. “Sovereign wealth funds (SWFs) have grown rapidly in recent years in both number and assets, emerging as significant and sometimes controversial players in global capital markets. Before 2000, almost two dozen SWFs existed around the world, investing state-owned profits from fiscal surpluses; official foreign currency operations; the proceeds of privatizations; or receipts resulting from exports of commodities such as oil, diamonds, and copper.

Estimates in 2009 indicated that more than 50 SWFs are in operation, representing 35 nations from Brunei to Botswana, from Kuwait to Kiribati, and from the United Arab Emirates to the United States. Together, they held US$3. 2 trillion in financial assets at the end of 2008—an amount that will increase over the next five years in almost any scenario for the global economy. ” Hoorn, H. , Mazarei, A. , Das (2010) As the numbers show, the financial clout wielded by such entities rivals that of the richest nations of the world, yet few people even are aware of their existence. 12 Kelly Eugene Higgins I. D.

: UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES Part 6 Maintaining a Nation’s Middle Class Amid Global Competition One of the most ultimately frightening prospects faced by workers, particularly those lower on the intellectual capital side of the work spectrum, is the employment threat posed by competing in an international workforce. Old standard protections for bluecollar and non-management white-collar workers no longer seem to be able to protect the middle class of the developed world from having to compete with trained workers from the developing world.

“Historically, free trade has not been a consistent policy priority of the United States, but since the 1960s, the U. S. government has generally moved in the direction of trade liberalization. Indeed, the United States has become a leading proponent of globalization,……………In a wealthy industrialized nation like the United States, free trade’s losers tend to be low killed, less educated workers who, in some sense, must compete against workers in the Third World which can be loosely defined as an international system allowing for the unrestricted movement of goods, capital, and id eas across national borders.

Many observers are convinced that the increasing flow of certain types of imports into the United States, combined with increased rates of immigration in recent years, has contributed to the growing gap between rich and poor in the United States. ” Gilbert, G. (2008) The force of this threat is not simply a fear of wage competition either. While the compensation required to employ a worker of a certain education level in the developing world may be a fraction of that in the developed world, other obstacles to outsourcing are falling quickly.

Global information and telecommunications has made proximity and time zones irrelevant considerations. Large work forces in countries such as The Philippines, India and Pakistan already speak English as a secondary language. – {“Secondary” as opposed to ‘second’ language because they begin learning English directly alongside of their native language almost as soon as they begin learning language itself, whereas a traditional second language is one learned after one has already achieved fluency in their native language.

} A local industry has become established in these, and similar countries, to teach workers how to reduce or eliminate their accents in English or even how to adopt accents from the countries in-which their services as phone support personnel will be utilized. So the perceived protection of sounding like a native speaker is removed as is the geographic isolation. Another perceived protection that has greatly diminished is the belief that 13 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013

GLOBAL ECONOMIES only a technical education from a western/developed world university could create the technically savvy cadre required to create an offshore competitive workforce. That is a rapidly fading factor as first, more and more persons from the developing world are pursuing their post-secondary education in the west and more of the west’s design of production facilities is being built around the consideration that the assembly machinery and components will not be operating in an environment where western-educated technical support will not be readily accessible.

Trade policies, as described in the earlier chapter on the global supply chain, make it very difficult for a country to respond to an outcry from its shrinking middle-class for protectionist laws since such laws would invoke international repercussions for violating the spirit of keeping trade barriers low to non-existent. 14 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013.

GLOBAL ECONOMIES Part 7 Conclusion The new paradigm of the global economy is an inarguable fact of modern life. It has come upon the world incrementally and many persons and countries who are in states of bewilderment or fear of the new climate that has become undeniable reality around them often have no-one to blame for their discomfort than their own failure to notice, recognize or admit the changes that have been in-progress since shortly after the cessation of hostilities in WWII.

People across the globe, but especially in the developed world have ample time and resources to prepare for the inevitable changes occurring. Unfortunately, those nations who came out of the second world war in the most favorably conditions; the victors, in-general, but most particularly the USA, which had no damage done to its industrial facilities or infrastructure and was working at the peak of world technical capability and capacity.

The victors falsely believed that their pre-eminent position as the economic and quality of life powerhouse of the world was a permanent position and the third world that was now opened up to serve merely as a source of cheap raw materials and perhaps some low-tech assembly work that would serve to augment the opportunities open to the western workers without ever actually creating a serious competitive threat. Politicians collectively worsened this reality blindness by pursuing several tacks of strategy, none of which given to honest discourse of the reality of the situation or preparedness to face it.

They either simply rallied the public around jingoistic patriotism and reassured the middle class that the past greatness of (insert your preferred industrialized western nation’s name here) assures that they will continue to occupy a similar position in the world and enjoy a comparable standard of living to what they have known in the past for the nearly infinite future. Deny the problem with a deep sense of patriotism, to the point even of vilifying any other persons, public or private, who may speak the reality of a genuine overseas economic threat being posed.

The other dangerous tack taken by a very cynical faction of the elected leadership held that the well to do would continue to be the well to do regardless of what the global economy did to shift investments and workforces. They pushed for dramatic lowering of trade barriers and posited that ultimately the increased outsourcing of commerce from the country would ultimately cause the domestic economy to become more efficient, ultimately more profitable and ultimately pass that prosperity on to its workers.

Big business and big money lined up behind platforms like this because fundamentally, they did have unique positions in the economic hierarchy that allowed them to ultimately increase their own fortunes while the overall global economic shifts would have serious negative impact on the lower 15 Kelly Eugene Higgins I. D. : UD17818BIN25641 Atlantic International University, Honolulu, HI 8 June 2013 GLOBAL ECONOMIES classes and most specifically on the middle class.

The middle classes had been a thorn in the side of big money for decades already. Unions and government crusaders had imposed work restrictions, safety standards, minimum pay requirements on industry. Middle class children were attaining a university education at an ever increasing rate and forcing the power of intellectual enlightenment from the exclusive grasp of the economic elite and placing it in the hands of the middle class and the poor.