Wednesday, 24 October 2007

The Global Economy


The world's economies have developed ever-closer links since 1950, in trade, investment and production.
Known as globalisation, this process is not new, but its pace and scope has accelerated in recent years, to embrace more industries and more countries.
There have been losers as well as winners from globalisation, with China the biggest winner, and blue-collar workers the biggest losers.
The changes have been driven by liberalisation of trade and finance, changes in how companies work, and improvements to transport and communications.


Since 1955, the volume of the world trade has grown much faster than the world economy as a whole, and for many countries it has been the engine of growth.
The gains of trade have been unevenly distributed, as first Europe, and then Asia joined the world trading system.
Other poor regions, such as Africa, dependent on commodities, have been left behind.
Trade talks helped boost trade in manufactured goods between rich countries as tariffs were cut.
Countries which aimed at export-led growth, such as Japan, Korea, and China, have benefited.
But liberalising trade in services - such as accounting - or agriculture has proved harder.
Now talks aimed at opening up markets in agriculture to benefit poor developing countries have stalled.

The way manufactured goods are produced has changed dramatically in the last 50 years as the cost of transport and communications has fallen.
More and more goods are produced by global multinational companies with production plants around the world.
This set-up enables them to take advantage of cheaper labour and gives them better access to local markets.
More recently, "virtual companies" have outsourced their production to other firms around the world. These use the internet to manage their global supply chain, or their IT services like billing.


As well as the free movement of goods, there has also been a dramatic increase in the flows of money (capital) around the world.
Banks and private investors now hold trillions of assets invested overseas since the liberalisation of world capital markets in the l980s.
These capital flows are highly concentrated among rich countries and a few developing countries, and can fluctuate from year to year.
While some big developing countries like China have benefited from capital flows, smaller countries have been vulnerable when capital flows suddenly reversed, as in the 1997-8 Asian crisis.


The world distribution of wealth and income is highly unequal. The richest 10% of households in the world have as much yearly income as the bottom 90%.
Wealth - total assets rather than yearly income – is even more unequal. The rich are concentrated in the US, Europe and Japan, with the richest 1% alone owning 40% of the world's wealth.
Poverty, on the other hand, is widespread across the developing countries - which have five-sixths of the world's population. But it has fallen sharply in China.

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