Global Economy Essay

This paper sets out global scenario of state of affairs of different major national economies of the world. The emergence of a global economy indicates or presupposes interconnectedness of the different national and regional economies. The formal opening a global economy was started by formation of International monetary fund soon after the world war. Because of this, giving of surplus resources of the wealthy countries to the needy ones supplemented by free trade among nations became a reality thus fostering international brother hood and extenuating war possibilities. After all, wars were mostly for economic reasons though there were ideological excuses being argued for the wars so far held. After seeing that global economy is mainly to reduce regional imbalances, it has been concluded that because of some ideologies though may be real and inevitable due to natural laws, the present tempo of globalizing the economy should not be given up. Global Economy Global economy is what emerged as result of unified free markets of the world following the Bretton Woods Conference by which multilateral trading system characterized by banking regulation and dollarization of the monetary standards and Keynesian economics came into being. International Monetary Fund, International Reserve Bank and other international agreements of the Breton Woods Conference also paved way for growth of Global economy. The General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) also made Global economy an inevitable development. The world trade witnessed an increase of 15 percent each year during the period between 1953 and 1973 which resulted in betterment of individual national economies. Since there was a set back for the United States’ economy after the oil crisis in 1973, Bretton woods system and Keynesian policies lost their importance. After 1973, multinational business organizations started emerging all over the world thus making global economy an irreversible phenomenon. Subsequent revolutions in communications, emergence of computers and fiber-optic technology that facilitated instantaneous international transactions made global economy with practically no national boundaries keeping in view the cost-efficiency alone as the guideline. Globalization and Foreign Direct Investments made global economy as a concomitant feature. (Abrahams) Global Economy signaled transition from economic activity in agriculture to services. Because of this, GDP grew at a rapid rate for OECD and advanced counties. Before the advent of Global economy which gives power to market goods and services across nations, United States of America was controlling the entire economy of the world. Now the power of the U. S. A has been reduced to 25 % of what it was before the emergence of world economy. (economywatch) Hence Global economy is no longer driven by the U. S. though slow down of its economy will hurt some countries according to the economist Ed Yardeni of Yardeni Research, New York. Many countries from China to Persian Gulf States have strengthened their economies by paying off their external debts and built up their huge cash reserves to boldly absorb any future shocks to their economies as opined by Maria-Laura, Deutsche Bank, Frankfurt. The BRIC (Brazil, Russia, India and China) countries are busily engaged in acquiring consumer goods from Cell phones to Cars more than the U. S. as reported by Jim O’Neil of Goldman Sachs. This has been a blessing for Japan and South Korea that supply to these countries steel, heavy equipment and construction materials. In particular, China has been building steel mills and petrochemical plants reflecting in the order books of Seoul based Hyundai Heavy Industries. Europe is no exception. It supplies cars and machines tools to Asia and Middle East as observed by Daimler Chrysler’s Chief Executive. India which is not export oriented as China, however wants a stable global economy in general and a stable U. S. economy in particular as opined by the Chief Executive of Mahindra and Mahindra Ltd who manufacture cars and tractors in India with $ 4. 5 billion annual turnover. In a way all-round growth in global economy would be good for the U. S. also in due course because of its earnings that come from its overseas enterprises. In fact the recession in the Housing sector of the U. S. is being offset by the 29% of its current trend of corporate profits as against the 20% at the beginning of this decade. Hence America’s reduced direct role in the global economy need not be viewed with dismay. (Reed Staley 2007) G8 Summit 2007 The Summit Declaration of 7 June 2007 by G 8 countries has announced its agenda for Global Growth and stability. Para two of the declaration says that though global economy is in sound condition, readjustment of imbalances has not been fully achieved as it would take equally longer time for readjustment as it took for building up. As in Para 3 of the declaration, the strategy of G8 for readjustment of global imbalances has resulted in the U. S having stepped its drive for augmenting domestic savings to reduce its federal budget deficit, Canada and Europe having been witnessing growth in employment, domestic demand and budget surpluses besides structural reforms in Europe in particular. In Japan too, there has been ongoing structural reforms and consolidation of fiscal measures for a sustainable economic growth. As for Russia, it has for the last seven years achieving domestic consumption resulting in sound economic development due to its macroeconomic policies and fiscal management. The declaration further says in Para 4, that outside member countries in Asia have also set in motion flexible exchange rate systems and financial strengthening conducive to readjustment of global imbalances. Oil exporting countries have stepped their investment on oil production and have considerably increased their imports also. The declaration states that as cross-border investments are the key to the development of global economy, the members are committed to maximizing the said investments. The G8 will meet again in 2009 to review the progress it has made towards achieving these objectives. Leaders from the countries of Brazil, China, India, Mexico and South Africa who had attended the G8 summit at Heiligendamm, were taken into confidence by G8 member countries that global imbalances should be rectified by their joint efforts recognizing that individual efforts will not yield results. The new partnership between G8 and the above said countries have agreed on a ongoing dialogue on four issues namely 1)promotion and protection of innovations, 2) making available an open investment conditions towards improving the freedom in investments couples with social responsibility commitments, 3) adopting a common responsibility towards development of Africa, and 4) knowledge sharing in the areas of reduction of CO2 emissions, tackling the effects of climate change in line with conference talks at Gleneagles and St. Petersburg. (G8 Summit 2007) Advantages Global economy enables achieving large-scale economies with the industrial sector enjoying the advantages of obtaining labour, capital and technology at low cost. Besides it has brought about global peace and peaceful coexistence. (economywatch) Disadvantages Because of proliferation of transportation across the world, environmental problems such as increased carbon emissions, noise levels have arisen. Domestic labours lose their jobs due to comparative advantage reasons. (economywatch global economy) Global economic trends This economy largely revolves round advanced countries such as U. S. , U. K. , France, Germany, and Japan. In addition neo-rich countries and emerging economies like China, India, Brazil, Mexico and Argentina have also been causing ripples in the world economy. Recession in the U. S. economy is still continuing though it is being down played. During the period of 1970 to 2001 agricultural activities fell by 2% in advanced countries and by 11% in developing countries. Though 55% of the population is engaged in agriculture in developed countries, due to excessive labour and low productivity, contribution to total output is low. On the other hand in the case of China, a developing country where though 45 % of the population is engaged in agriculture, contribution to the total output i. e. GDP is 12 %. ( economywatch-global economy)