Summary
Highlights
After 1900, globalization led to an interconnected global economy. While governments played a significant role during World Wars and the Great Depression, the 1980s saw a shift towards free market policies known as neoliberalism. This involved lowering trade barriers, deregulating industries, and privatizing public sectors. Examples include Ronald Reagan's policies in the US (decreasing taxes on the wealthy, reducing business regulations, cutting social welfare spending) and Margaret Thatcher's similar approach in the UK (deregulating businesses, reducing income taxes, privatizing state-owned assets). Both leaders' policies reduced inflation and fostered economic growth but also undermined labor unions and increased the wealth gap. Another example is Chile under Augusto Pinochet, whose regime, heavily influenced by the 'Chicago Boys,' moved the economy towards free market principles, addressing inflation and privatizing state businesses, often with brutal enforcement.
A key development post-Cold War is the changing geographical distribution of economic activity. Historically, industrialized nations had factories and labor within their borders. However, by the 1970s, the cost of domestic manufacturing increased, leading to a new global division of labor. Wealthier, developed countries became characterized by 'knowledge workers' (engineers, teachers, lawyers) whose capital was their intellect. Finland, for example, invested in communication technology and education in the 1990s to become a leader in cell phone and software development. Japan also transitioned from a manufacturing powerhouse (with mercantilist policies) to a knowledge economy focusing on banking, finance, and IT in the late 20th century. Conversely, manufacturing increasingly moved to developing countries (like Vietnam, Bangladesh, Mexico, Honduras), where businesses could leverage lower labor costs. This shift was facilitated by advancements in communication and transportation technologies.
Global economics necessitates global economic institutions. The World Trade Organization (WTO) is a prime example, regulating global trade by assisting in trade negotiations, mediating disputes, and supporting developing countries. Its existence both stems from and fosters globalization. Additionally, regional trade agreements have proliferated. The European Union (EU) began as an economic agreement between six European countries to integrate coal and steel operations, eventually evolving into a political and economic bloc of 27 nations. Similarly, the Association of Southeast Asian Nations (ASEAN) facilitates trade among its member countries by keeping trade barriers low, leading to significant economic growth for its members.
The globalized economy has also seen the rise of multinational corporations. These entities are incorporated in one country but manufacture and sell goods in others. They typically employ knowledge workers in their home countries, manufacture goods in other nations, and sell them globally. This model, while reminiscent of historical joint-stock companies, has become far more complex after 1900. Examples include Nestle, headquartered in Switzerland, which sources and manufactures chocolate in West Africa (sometimes controversially using child labor) and sells it worldwide. Another is Mahindra and Mahindra, an Indian company producing automobiles and farm equipment, with operations across North America, Australia, Europe, Africa, and Latin America.