3.1: Introduction - Our Global Economy

Learning Objectives

By the end of this section, you will be able to:

• Recognize global dimensions of contemporary economic life, including the global circulation of goods, people, services, and finance

Introduction

Think about your most recent meal, perhaps the lunch that you packed this morning before leaving for work or the cold sandwich that you pulled from the refrigerator at a local convenience store before logging into class. Perhaps it was the breakfast that you ate on the go on your commute to campus. Or maybe your most recent meal was the dinner that you prepared for your family before driving to an evening class on Introduction to Global Studies. Whatever your meal looked like, there are global dimensions to it. These include the sourcing of ingredients, the international origins of the components in the cookware used to prepare the food, even the packaging of the food portions. To break things down even further, the molecules of energy which brought the food to you have global origins. There is the diesel fuel powering long-haul trucks, natural gas pumping through restaurant ovens, electricity running through home stovetops. The money that you used to purchase your food circulated through a bank, which in turn was likely invested in global financial markets to earn people money for financial services rendered.

Something as fundamental and basic as the food we eat is one way to begin thinking about the many aspects of the global economy which pervade and penetrate our lives. Consider, for example, a humble bowl of noodles. Wheat was first cultivated in the Fertile Crescent, which today comprises Jordan, Palestine, Lebanon, Syria, Turkey, Iraq and Iran, approximately 12,000 years ago (c. 10,000 BCE). During the Columbian Exchange of the Fifteenth and Sixteenth Centuries, when the world first experienced sustained global contact across the continental masses of Afro-Eurasia and the Americas, European colonizers brought wheat from the Fertile Crescent to the Americas for cultivation. Today, wheat competes with rice as the most commonly consumed food worldwide (Nunn & Qian, 2010). Wheat is a truly global crop, with production throughout the world.

Looking beyond the global production and circulation of wheat, the bowl of noodles was made via the labor of many individuals. This labor is the product of the global circulation of people, often in search of better jobs and economic security. If you are consuming the noodles in the United States, and they are served with a tomato sauce or diced vegetables, the agriculture workers who cultivated, harvested, and packaged these ingredients were likely not born in the United States; an estimated 3 out of every 4 agriculture workers in the country are immigrants (National Center for Farmworker Health, 2022). Even if you cooked the noodles at home, the noodles were transported to you by some of the 1.2 million long-haul truck drivers in the United States, of which 1 in 5 are immigrants (Kahaner, 2017). When you bought the bowl of noodles, the credit or debit card that you used was part of a global financial services sector estimated to be one-fifth to one-fourth of the global economy, valued in the tens of trillions of dollars.

Even though there is much more to explore about the global dimensions of this meal, let’s abstract away from our bowl of noodles and describe in more general terms the forces of economic globalization. Economic globalization refers to any economic activity that is global in scope. We begin by exploring four distinct but related aspects of the global economy: the global circulation of goods (trade), labor, services, and finance. While all of these forces are truly global in scope and may seem too distant and abstract at times, it is important to remember that they affect our daily lives in concrete ways, down to fundamental aspects of our existence.

Global Trade in Goods

Trade volume in goods has increased markedly in recent decades. World trade volume increased 45 times (or a whopping 4,500 percent) from 1950 to 2022. Note that trade volume grew gradually following the Second World War, then began picking up and growing sharply from the 1990s onward. This upward trajectory was interrupted twice, during the 2008 global financial crisis and the COVID-19 pandemic that consumed much of 2020 and 2021. In 2022, global trade was estimated to reach a record valuation of 32 trillion USD (United States dollars). To put this in perspective, the total size of the U.S. economy in 2022 was 25.5 trillion USD, so the value of global trade was about 25 percent greater than the largest national economy in the world.

Figure 3.1.1: Trends in world trade volume (public domain; WTO via WTO)

 

The above trendline (see Figure 3.1.1) indicates that an increasing amount of goods in our lives have been produced outside of the United States and imported for domestic consumption. Everything from cars to computers circulate globally today, not to mention the individual components of these complex consumer goods. Supply chains have become increasingly global. Apple Inc., among the largest companies in the world, relies on workers in more than 50 countries to make its eponymous iPhone and Mac computers.

The politics surrounding the globalization of trade are fraught with contradictions. While some argue that global trade results in lower costs for consumers, others note that outsourcing production results in job loss for domestic workers, especially those in higher income countries. There are also important debates regarding the violation of labor rights and environmental standards in places where production costs are relatively low. In a globally competitive marketplace, with pressures to produce the cheapest product, firms may locate their businesses, and consumers may purchase goods, from workplaces where there is a “race to the bottom” in which working conditions and environmental stewardship are of secondary importance to maximizing profits.

Globalization of Labor

There is a positive correlation between economic growth and the movement of people across borders. When the global economy grows, as has been the general trend since the tracking of world Gross Domestic Product (GDP) by the World Bank, people have been on the move in search of economic opportunity. In 2019, the estimated number of migrant workers worldwide was 169 million, equivalent to about 2.2 percent of the world population at the time (McAuliffe & Triandafyllidou, 2021). The top five sending countries of global migrants in 2020 were India, Mexico, Russia, China, and Bangladesh. The top five destination countries were the United States, Germany, Saudi Arabia, Russia, and the United Kingdom. Top destination countries are all high income (or score “very high” on the Human Development Index), which highlights how economic considerations are a key part of the mix of motivations behind international migration.

Many forces shape the global migration of workers, not least global population and income trends. Workers migrate abroad when they are able to bear the costs of migration and when they believe that they can enjoy higher wages and a higher quality of life in a host country. Compounding this are demographic trends. Since the populations of lower income countries are growing more quickly than the populations of higher income countries, especially working-age segments of the population, there is pressure for migration from lower- to higher-income countries. This pressure decreases as wages rise in lower income countries. India, for example, is predicted to experience robust economic growth through 2050, which will likely decrease labor migration from this populous country.

With migration on the rise, there is often backlash against migrant labor in receiving countries. Conservative politicians in top immigrant destination countries, from Donald Trump in the United States to Boris Johnson in the United Kingdom, have whipped up popular anger against immigrant workers despite robust evidence that immigration benefits host country economies in both the short and medium terms (Piazza et al., 2020). As with the politics of trade, the politics of immigration are heated and deeply felt due to the sense of livelihood and identity at stake for those on all sides of the issue.

Globalization of Services

While trade in goods and the migration of workers are more observable aspects of the global economy, there has also been a significant globalization of services. With the advent of new communication technologies, lower communication costs, and the rise of the internet since the 1990s, various services have been unmoored from geographic constraints. One particularly visible example is the rise of international customer service call centers. Consumers who require assistance with a broken appliance or credit card-related inquiry might call a toll-free customer service number and reach a “customer care” associate on the other side of the world. India became the global leader of such services in the 1990s. Entrepreneur Pramod Bhasin, who established India’s first international call center in 1998, recalled, “You know, I think when you’re in the throes of it, you don’t realize what you’ve got. And what we had was a tiger by the tail. Many cities have been built around this industry,” (quoted in Burns, 2015). By the mid-2000s, India’s call centers employed over 170,000 workers, many of whom were trained to speak in American-accented English and who adopted new call center work names so as not to seem too “foreign” to callers in North America and Europe. The Philippines, where labor costs are low and youth learn English from an early age, has also become a major call center hub, with over one million employed in the “business process outsourcing (BPO)” industry, a global industry valued in the billions of dollars (Bajaj, 2011).

Figure 3.1.2: Call center workers in Cainta municipality, Rizal province, Philippines (CC BY-SA 3.0; TitanOne via Wikipedia)

 

The controversies discussed previously with regard to global trade and labor are also evident in the outsourcing of services. When leveraging lower labor costs abroad, global entrepreneurs are able to connect relatively wealthy firms and consumers in high income countries with skilled, but low cost, labor abroad. Indian call center entrepreneur Pramod Bhasin reminisced, “It seemed so obvious that it was almost surprising nobody had started it earlier. … Its economics was so compelling that the skill and the costs at which you could hire people were incredibly low compared to international salaries for the same qualifications. … You could hire [someone with] a master’s degree for 5,000 [to] 6,000 dollars. You know, it’s like being able to walk around on the streets and find gold dust,” (quoted in Burns, 2015). Some are quick to critique this attitude, noting that these global workers are subject to poor workplace conditions, with little protections, in dead-end careers (Reeves, 2005).

Beyond call centers, many other professional services can now be sourced globally, including services such as accounting, design, software coding, and tutoring, to name just a few. There is the quip that everything can be outsourced except for a haircut. New technologies are forcing adjustments, however. Artificial intelligence (AI) and machine learning are challenging many industries and reshaping the geography of global labor and services. The customer service at the core of the global call center industry is increasingly handled by AI systems. A wide range of industries are affected by AI and other technologies, including those requiring significant professional training, such as airline piloting, and those predicated on human creativity, such as design and writing. Global labor will no doubt adjust, but the implications remain murky.

Global Finance

Finance refers to the management of money and investments, and this has been an expanding, global industry since the birth of capitalism. The interconnectedness of global financial markets and institutions gained public attention in 2008, when the collapse of the U.S. subprime mortgage industry (which had begun in 2006) reverberated globally as international banks and hedge funds were exposed to the U.S. crisis. With the collapse of major global investment banks such as Bear Stearns, central banks such as the U.S. Federal Reserve and European Central Bank moved quickly to contain the fallout. China’s government attempted to reverse the economic downturn at home through major infusions of public monies, equivalent to 4 trillion yuan (12.5 percent of China’s GDP in 2008), which amounted to the largest stimulus package in the world at the time (Wong, 2011).

More recently, financial flows have rebounded and reached unprecedented volumes. Though the United States was ground zero for the 2008 global financial crisis, by the early 2020s the top five global investment banks were all U.S.-based. In 2022, for example, global investment bank JPMorgan reported revenues of 6.2 billion USD, just ahead of number two Goldman Sachs (investment banking revenues of 6.0 billion USD). Turning to trade in equities, the total world value of stocks traded has increased from 298 billion USD in 1975 to an astounding 61 trillion USD in 2019 (World Bank, 2020b). This is represents an increase from 6.1 percent of world GDP in 1975 to 83.9 percent of world GDP in 2019 (World Bank, 2020a).