Global Economy

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 [Page 411]development in the core countries produced underde-velopment in the periphery.

The second global economy was linked to World War I and the Russian Revolution of 1917. 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.

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