The first answer to the question may be the integration of economic and cultural activities around the world based on communications technology. The second may reflect the efforts of the World Bank and the International Monetary Fund to create an integrated global financial system to reflect the global theoretically free market for goods and services. A third may be simply the virtually free global communications network provided by the Internet. It is not only possible, but also common; to have "virtual friends" around the world that one has never met in person, only via a computer screen and keyboard. Along this line, it is also possible to commit, or attempt to commit, crimes globally. Who has not received a "SPAM" e-mail offer from a Nigerian banker to share a multi-million US$ fortune with the sender only for providing a US or UK bank account to receive the funds and putting up a few dollars or pounds as "good faith money."
The world has been shrinking for centuries. It took the last few men that sailed with Magellan almost exactly 3 years to circumnavigate the world. It would now be possible to duplicate the voyage in about 3 days including fuel stops. With the proper aircraft and a more direct but equatorial route, the trip would include only two fuel stops and take slightly more than 2 days. Why anyone would want to spend 2 or 3 days in an aircraft to get back to the point of departure is outside the scope of this project. Even including server routing and switching any two points on earth are at most seconds apart. This has clearly impacted world trade and world politics.
The IMF and World Bank political/economic projects are significant. However, they are potentially damaging for many less developed and poor nations. These are the suppliers of the raw material that is exported and then processed in more developed nations. It is not the same, but similar to the colonialism of earlier times. These projects are really a means to exploit the larger process. (Smith & Doyle, 2002)
Globalization is, in reality, simply the sense of connectivity in economic and cultural life that has been growing for centuries around the world. It destroys the "comfort zone" of many cultures and this is part of the socio-political problems between many less developed nations and the more developed West. Speed of communication and exchange, the complexity and size of the networks involved, and the sheer volume of trade, interaction and risk give what we now label as 'globalization' is a peculiar new force, different from any force that has gone before. Increased economic interconnection has produced deep-seated political changes.
The development of the so-called 'knowledge economy' implies that economists must look past land, labour and capital as the factors of production. An additional factor has become equally important, technology. Paul Romer and others argue technology (and the endemic knowledge base) has evolved as a third factor of production in advanced economies. (Romer, 1986) (Romer, 1990) Global finance, thus, becomes just one of the force driving economies. (Smith & Smith, 2008)
The less developed 'peripheral', countries have developed greater dependency on the activities of 'central' economies such as the USA and Japan where capital and technical are located. Some argue further that there has also been a shift in power away from the nation state and toward multinational corporations. (Smith & Doyle, 2002) The banking industry typifies this in a way that no other industry does.
The International Banking Industry It has long been said that if the American economy sneezes the world economy catches cold. There is another old say that, "If you owe the bank $10,000 and can't repay it you have a problem. I you owe the bank $10 million and can't repay the bank has a problem." The underlying truth in both of these sayings is being demonstrated graphically to the world on a daily basis. The only modification is when the US owes you $10 trillion everyone has problems. The current banking crisis demonstrates more graphically the globalization of the world's political systems and economy that any other event possibly could.
The assignment calls for, "Analyse the key social, political and economic factors impacting upon specific business sector as a result of globalization". At the turn of the century, the US economy was suffering a problem based at least in part on the bursting of the so-called "dotcom" bubble. There were signs of economic slowdown and this was not satisfactory to just elected US President George Bush. He called upon his economic advisors, and they explained the theories of monetary economics developed by Milton Friedman. (Friedman, 1971) His chairman of the Federal Reserve responded enthusiastically and pushed reserves into the US banking system and pushed interest rates down. Mortgage rates fell, home building boomed, and the prices of US real estate soared. So was born the US housing boom.
At the same time, US mortgage banks were purchasing the newly created mortgages as rapidly as the banks and mortgage brokers could churn them out and guaranteed payment of what could generously be called mortgages of questionable quality. These were combined into packages to collateralize securities, which were in turn sold to banks looking for high yielding "safe" investments. Similar things were going on in other Western economies like the UK, which had it own housing bubble and mortgage crisis. The results are a series of serious problems in the world banking industry and financial market.
The pressure to maintain employment rates and economic growth in the US put the entire global banking system under strain. The growth of the manufacturing segments of the Asian economies with their low labor costs and other advantages created huge outflows of money from US and other Western banks into Asian banks. With these dollars they even purchased some of the mortgage backed securities alluded to above and their European counterparts did the same.
Eventually, it was discovered that the emperor really had no clothes. The securities given high credit ratings by the rating agencies while they turned their eyes away from the emperor's nakedness were virtually worthless in that they could not be sold at any price. US banks, while acting in their rolls as investment banks under the liberalized US banking law had billions of dollars worth of this paper on their shelves and no market.
The resulting "write downs" of assets resulted in major depletion of bank equity accounts as profits earned over the years were absorbed in a period of months. The banks outside the US suffered the same problems plus a few of their own, and the global banking industry was suddenly stampeding toward financial disaster. When US banking authorities made the ill advised decision to allow the collapse of Lehman Bros, a 150 year old US firm, banks around the world were afraid to lend to each other, let alone clients. No one wanted to lend to anyone, and the credit markets "froze." The panic was worldwide and not localized to the US or any other single economy.
The refusal to lend meant that auto buyers had difficulty financing their purchases and auto sales collapsed. The already unprofitable US auto companies Ford, General Motors and Chrysler all are on the edge of bankruptcy with their hundreds of thousand of workers out of work and unemployed. This problem is not limited to the US companies; Japanese giants including Toyota and Honda will have problems. If they have problems Nissan will have similar problems, but French auto company Renault Is the effective owner of Nissan. Volkswagen profitability has been marginal for years. The recent up tick will probably disappear rapidly as even BMW profits fell.
The European and other auto companies will all have problems. Even more disastrous for the financial system, there is the potential loss of billions more on loans to the auto companies. This is still further compounded by auto loans to customers and the situation of the US auto company pension funds. Chronically under funded, these pension funds are another card in the collapse of the financial house of cards. In addition to the hundreds of thousand of unemployed auto workers and workers for part suppliers there will be millions of pensioners whose pensions are worthless and whose savings have been destroyed by falling real estate and stock prices.