The global economy refers to the increasing economic interdependence of the countries and regions of the world. The most recent form of the global economy emerged in the 1970s as a result of advancements in information technologies combined with expanding neoliberal, political-economic philosophies and policies. The extent of the global economy is very uneven, with some regions of the world largely bypassed by the process.
A functionalist perspective of the global economy views these trends as virtuous because of the economic efficiencies gained through the global division of labor based on comparative advantage combined with the advancement of democracy worldwide. From this perspective the global economy is a natural evolution of the modernization of societies. This evolution reduces social inequality and enhances the living standards of people across the globe.
A conflict perspective views these trends as vicious, as transnational corporations adopt flexible accumulation strategies to avoid democratic protections, resulting in a “race to the bottom” as countries deregulate to attract foreign direct investment. This process results in the decreased ability of nation-states to coordinate their internal economic and political affairs and in a reduction in substantive democracy. From this perspective, the global economy has led to an increase in stratification within countries of the North, as well as between the North and South.
The global economy is grounded in a long historical process of increasing political and economic integration of the countries and regions of the world. The spice trade of the 1400s led to the first global economy. Technologies such as the sextant, ocean sailing vessel, and cannon/musket allowed the European nations to embrace their “manifest destiny” and send out their fleets in the name of church, king, and country. This process accelerated in the 1700s as a result of the industrial revolution in Europe and the accompanying colonization of much of the non-European world. The international division of labor consisted of a manufacture-based system in the core countries and a mining/agriculture-based system in the colonies. At its peak in the early 1900s, this global economy divided the globe into a system of two unequal components based on asymmetrical power relations of trade, imperialism, and racist ideologies. Capitalist development in the core countries produced underdevelopment in the periphery.
The second global economy was linked to World War I and the Russian Revolution of1917. As the core countries focused on the war, liberation movements grew in the old colonies. The Soviet Union served as a model and ally for colonial nations to challenge their core counterparts. These events began a reversal of the global concentration of capital, power, and manufacturing in the core. World War II accelerated this process. Italy and Japan lost their colonies and England, France, Belgium, and the Netherlands realized that they could not quell the rising liberation movements. Several former colonies tried collective ownership and centralized planning. It was in this setting that China embraced the path of communism. By the 1960s close to one half of the world’s population lived in communist countries. Several other former colonies did not reject markets but abandoned most of the laissez-faire doctrines of the colonial system and adopted a variety of state-managed interventionist measures to support development. A decentralization of power occurred, resulting in the second global economy centered on the bipolar communist and capitalist models of development.
After World War II numerous events set the stage for the current form of the global economy. First, in 1946 political and economic officials from the United States and Great Britain developed a management plan for the postwar global economy. The Bretton Woods Agreement led to the creation of the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT) and linked the U.S. dollar to the gold standard as the basis for international currency exchange rates. Second, the United States created the Marshall Plan to rebuild Europe and the McArthur Plan to rebuild Japan. Both of these plans instilled neoliberal economic policies and democratic political systems in these regions. Similar initiatives were taken in Korea in the 1950s, Vietnam in the 1960s, and other countries throughout the world. The creation of the North Atlantic Treaty Organization cemented the military alliance between the United States and the rebuilding countries in Europe to counter the growing power of the USSR. This “global development project” became the major mechanism utilized by the capitalist countries to ensure that communism did not take root in these areas. From the 1950s through the 1980s, the “cold war” was the label given to this contest for world domination. In the late 1980s the USSR broke apart due to economic bankruptcy and social unrest; the capitalists won.
The Bretton Woods system of global management, based on neoliberal economic policies, laid the groundwork for the blossoming of the current global economy. The World Bank provided loans for infrastructure development projects and the IMF provided loans to stabilize developing countries’ currencies in the South. At the same time the GATT worked to decrease trade and tariff barriers and foster increased foreign direct investment. Over time these loans included requirements that developing countries liberalize their political and economic systems. This neoliberal restructuring peaked in the 1980s, as debt crises led to structural adjustment programs that included the deregulation of national protectionist policies and a privatization of national industries, two processes that facilitated increased foreign direct investment by the transnational corporations of the North.
A similar process also occurred in the North, especially in the United States. In the 1960s and 1970s, the rigidities of the Fordist system of socioeconomic development fostered a fiscal crisis of the nation-state and an accumulation crisis of capital. The long run of economic prosperity that began after World War II weakened, as the Fordist system of mass production linked to mass production coordinated via an interventionist state could no longer provide for economic accumulation and societal legitimation. Profits for corporations in the North were constrained by powerful labor unions, environmental regulations, growing competition from Asia (Japan and Korea), and the rise of a third world social movement in the form of OPEC (Organization of Petroleum Exporting Countries). Additionally, the high costs of the cold war (Vietnam and other venues) and the War on Poverty generated a fiscal crisis of the state in the United States, as well as a legitimation crisis, as anti-war, environmental, and civil rights movements protested government policies. In 1973, the “dollar linked to gold standard” was abandoned, and global currencies began to fluctuate wildly. The fluctuations led to currency speculations that became a central aspect of the current global economy.
In response to the more tightly regulated economies and strength of unions in the North that limited corporate profits, many major corporations expanded their global business ventures in an attempt to revive economic accumulation. Capital flight, the decentralization of production, the informalization of labor, and global sourcing became the dominant strategies of transnational corporations. Information technologies allowed for the development and coordination of global-commodity chains. The sphere of influence of the polity no longer matched that of the economy. Through the hypermobility of capital, the economy went global, but the nation-states remained constrained within their jurisdictional boundaries.
In the 1980s the Thatcher and Reagan administrations introduced neoliberal restructuring programs centered on deregulation of government policies and privatization of government-owned enterprises, thereby weakening unions and environmental protections while lessening regulations limiting corporate expansion and concentration. These actions were attempts on the part of the highly regulated nations in the first world to open their economies to re-attract capital investment to the North.
The final pieces of the current global economy are the emerging global governance structures. In 1995, the GATT was reconfigured as the World Trade Organization (WTO), the supranational state-like coordinating mechanism for the global economy. The WTO continues the function of the GATT in lowering tariffs but also acts as a governance body regarding trade disputes. Similarly, the European Union, North American Free Trade Agreement, and Association of South East Asian Nations are examples of the emergence of regional state-like entities that emulate the historical functions of the nation-state in mediating economic accumulation and societal legitimation. Anti-globalization activists resist both the regional organizations and the WTO.
- Agnew, John. 2001. “The New Global Economy: Time-Space Compression, Geopolitics, and Global Uneven Development.” Working Paper No. 3. Los Angeles: Center for Globalization and Policy Research, School of Public Policy and Social Research.
- Alam, M. Shahid. 2003. “A Short History: The Global Economy since 1800.” Counterpunch, July. Retrieved March 24, 2017 (http://www.counterpunch.org/2003/07/23/the-global-economy-since-1800/).
- Harvey, David. 1990. The Condition of Post-modernity. Oxford, England: Basil Blackwell.
- International Monetary Fund. 2001. “World Economic Outlook: December 2001—The Global Economy after September 11.” Washington, DC: International Monetary Fund.
- McMichael, Philip. 2004. Development and Social Change: A Global Perspective. Thousand Oaks, CA: Pine Forge.
- Piore, Michael J. and Charles Sabel. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books.
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