Topic 9.4 Notes – Economics in the Global Age

What Economic Globalization Was in the Late 20th Century

Economic globalization means national economies became more tied together through flows of goods, services, capital, technology, information, and even different stages of production. A company could design in one country, manufacture in another, and sell worldwide.

This was a change in degree, not a brand-new system. Before 1900, the world already had:

• Global trade through imperial and commercial networks
• Foreign investment from industrial powers into other regions
• Multinational business
• An unequal division of labor, with some regions exporting manufactured goods and others raw materials

The first half of the 20th century interrupted that system:

• World War I and World War II disrupted trade
• The Great Depression led governments to protect domestic economies
• Communist command economies and state-led development gave states a larger economic role

After the 1970s, and even more after the Cold War, many governments turned toward free-market economics. That meant more reliance on private ownership and competition, but not the disappearance of government.

Economic liberalization included:

• Privatization of state-owned industries
• Deregulation of business and finance
• Trade liberalization such as lower tariffs
• Financial liberalization
• Lower taxes
• Reduced subsidies and public spending
• Openness to foreign direct investment
• Special economic zones and export-processing zones

Governments That Encouraged Free-Market Policies

What ties these cases together is that liberalization spread across very different political systems.

United States under Ronald Reagan

• Reagan pushed tax cuts, deregulation, and pro-business policies.
• His firing of workers in the 1981 air traffic controllers strike became a symbol of organized labor losing power.
• Government did not simply shrink. Military spending and budget deficits grew.

Britain under Margaret Thatcher

• Thatcher privatized industries like British Telecom and British Gas.
• She weakened trade unions, cut some taxes, and promoted competition.
• This broke with Britain’s postwar system of broad public ownership and welfare-state consensus.

China under Deng Xiaoping

• After 1978, Deng’s reform and opening changed China’s economy.
• The household responsibility system gave farm families more control over production.
• Private and cooperative enterprise expanded, and China welcomed foreign investment.
• Special economic zones like Shenzhen became export hubs.
• China stayed under Communist Party rule, so this was a hybrid economy.

Chile under Augusto Pinochet

• Pinochet’s dictatorship used privatization, lower tariffs, pension reform, spending cuts, and foreign investment.
• The Chicago Boys influenced these policies.
• Chile had growth, but also severe problems, especially the 1982 crisis. Liberalization could happen under authoritarian rule too.

Knowledge Economies and the New Geography of Production

New technology made global coordination much easier.

Computers, telecommunications, the internet, digital networks, and container shipping let firms manage production across borders in real time.

A knowledge economy depends heavily on:

• education
• research
• innovation
• technical expertise
• finance
• design
• intellectual property

Examples:

• United States with software, finance, universities, biotech
• Japan with electronics, robotics, advanced manufacturing
• Finland with education, telecom, high-tech industry

Manufacturing shifted more toward Asia and Latin America because wages were lower, governments wanted export growth, foreign investment expanded, and special zones offered favorable conditions.

Key terms:

• Offshoring = moving work to another country
• Outsourcing = hiring another firm to do the work

Examples:

• Vietnam after Đổi Mới reforms produced garments, footwear, electronics
• Bangladesh expanded garment exports, often with women workers and labor safety controversies
• Mexico used maquiladoras for autos and electronics near the U.S. border
• Honduras built apparel and textile export-processing industries

Corporations, Trade Agreements, and the Rules of the Global Economy

Multinational corporations operated in multiple countries and organized global production. Examples include:

• Nestlé in food and beverages
• Nissan in automobiles
• Mahindra & Mahindra in vehicles and machinery

They moved capital and technology, created jobs, and linked local producers to world markets. They also had leverage over workers and governments.

World Trade Organization

Founded in 1995 as the successor to GATT, the WTO set trade rules, monitored policy, and settled disputes.

North American Free Trade Agreement

NAFTA began in 1994 between the U.S., Mexico, and Canada. It reduced barriers and strengthened regional supply chains, especially in autos, agriculture, and electronics.

Association of Southeast Asian Nations

ASEAN was founded in 1967, and economic cooperation deepened over time. The ASEAN Free Trade Area began in 1992.

Also remember the IMF and World Bank, which often pushed market-oriented reforms through loans and structural adjustment.

Continuities, Changes, and Limits

Some things stayed the same:

• Capitalism and international trade continued
• Multinational business already existed
• States still shaped economies
• Global inequality and division of labor remained

What changed:

• Liberalization spread widely
• MNCs became more powerful
• WTO, NAFTA, and ASEAN helped regulate freer trade
• Knowledge economies grew
• Manufacturing expanded in Asia and Latin America
• Coordination became fast and global

Benefits included growth, urbanization, export earnings, consumer choice, industrial development, and larger middle classes in some places.

Costs included deindustrialization in older industrial regions, dependence on global demand, low wages, unsafe factory conditions, and inequality within and between countries.