The Structure of the Global Economy

Readings for this past week

• Zakaria, “The Rise of the Rest”• Marber, “Globalization & Its

Contents”• Friedman, “It’s a Flat World, after

All”• Ghemawat, “Why the World Isn’t

Flat”• Mahbubani. “The Case Against

the West”• Skinner, “A World Enslaved”

What is included in the “global economy”

• Those who organize & sustain it– States & governments– International organizations &

associations

• Those who play a role in it– Capitalists & investors– Int’l financial institutions (IFIs)– Production managers– Consumers– Labor

• Those marginal but connected to it– The global poor, small farmers– Grey & black marketeers

• Transborder flows of goods, information, money, people & other things

There have been/are several “goals” in constructing this economic system

• National enrichment by– Facilitating trade & jobs– Maintaining stability– Pursuing comp advantage– Shaping political economy

• Relative global peace by– Fostering integration– Fostering dependencies– Happy consumer-citizens

• There are contradictions in all of this

Global North

Global South

As a whole, the world is richer (in money terms) than ever before in history

This shows “Others”—note the wedge at the upper left

The Global South is growing very rapidly, mostly via Asia and especially in China and India

According to some scholars, this recapitulates historical patterns

Which raises the question: what happened?

On a per capital basis, extreme differences in wealth are evident across the world

This shows the relative fraction of people in each country living on $10/day or less (around 2 billion live on $2/day or less)

The distribution of income within a country is measured by the Gini coefficient: 1 = perfect equality; 0 = complete inequality (one person receiving 100% of income)

• "The richest 1 percent of people in the world receive as much as the bottom 57 percent, or in other words, less than 50 million richest people receive as much as 2.7 billion poor." (Milanovic, 2002)

• The three richest people possess more financial assets than the poorest 10% of the world's population, combined.

• "The top 10 percent of the US population has an aggregate income equal to income of the poorest 43 percent of people in the world, or differently put, total income of the richest 25 million Americans is equal to total income of almost 2 billion people."

Numbers obscure a great deal: “There are three kinds of lies: lies, damned lies and statistics” (Mark Twain quoting Disraeli)

These unequal distributions are also a function of factors such as race, gender & religion—why?

How might we account for these disparities?

There are conflicting explanations

• The conventional wisdom is that capitalism has made the North wealthy

• Reinvestment, innovation & industriousness have all made capitalism “work”

• Just as an ambitious individual can “get ahead” through hard work

• So countries can do the same

• This sounds a lot like Weber’s Protestant Ethic & the Spirit of Capitalism

A second account is World Systems Theory

• Through colonization & exploitation, the Core (Europe & the US) has systematically pillaged the world

• Using its advantage in tech. & capital, it has forced the periphery into a subordinate position

• This has resulting in relative poverty for the periphery, and an inability to progress to core status

• Do the BRIC countries constitute counter-evidence?

• Not altogether clear

A third is based on the notion of “uneven development” in capitalism

• Capital seeks to produce in low-factor cost regions

• It injects money into the local economy

• It retains control of any technology it uses

• Goods are exported to zones where high profits can be realized

• If this is the same location in which capital is based, profits are retained there

• This generally benefits rich countries and people

• And constrains the options & possibilities for the poor