Business and the World Economy
Globalization is Exaggerated
Most people will report that today the world has become a global village. As a result of globalization and technology advancement in the 21st century, moving from one corner of the globe to another is easy (Miller, 2007). However, this phenomenon is not just limited to borderless movement of people. In this case, a person travelling to a foreign country must have a valid visa card which at times is hard to get. While the idea of globalization may be true, the surprising thing is that this process is limited (Miller, 2007). To be more precious, even the most advanced countries with regard to the issue, such as Netherlands trades, only a fraction with the rest of the world. For the world to be fully globalized there must be a free flow of trading activities and cultures. Regional trading blocs are common characteristics of the present day globalization (Miller, 2007). This shows that globalization has not yet gotten rid of divisional lines whether national, religious and cultural. In addition, the phenomenon has been exaggerated because protectionism has become a general trend. In other words, various countries are failing to develop since these trading blocs promoting protectionism are locking them out. Regional trading blocs such as European Union will only trade with various states but within this bloc. This evidence shows that true globalization has not yet been achieved (Miller, 2007).
- Key Elements of the International Monetary Regime Embodied in the Bretton Woods Institutions in the Decades Immediately After World War II
The Bretton Woods system is the international monetary administration that resulted from World War II in the early 1970s (Mikesell, 1994). All elements contained in the system were aiming at regulating the international monetary system. It is through the Bretton Woods system that the International Monetary Fund and International Bank for Reconstruction and Development were born. Even today, this monetary system has been referred to as a good example of fully negotiated order. It is the monetary regime that subsequently helped to govern currency relations among different independent countries (Mikesell, 1994). Key elements embroiled in the Bretton Woods System were designed to combine binding the legal obligation with the international decision-making conducted through the international organization. One of the core components in the Bretton Woods system was the issue of exchange rates and gold standard. In relation to this element, member-states were obligated to declare a par value for their national money. Member-states were also required to intervene in the currency markets so as to limit exchange rates fluctuations (Mikesell, 1994). Another part in the Bretton Woods system was that all states approved that if exchange rates were to float liberally, governments would need the assurance of a sufficient source of monetary reserves. A third element in this system was that all states agreed that it was important to avoid the recurrence of economic warfare. The fourth component in the Bretton Woods System was the necessity of an institutional medium for the global cooperation on monetary purposes. From the Bretton Woods system, all nations were required to adapt monetary policy that maintained the exchange rate (Dormael, 1978). In 1971, the Bretton Woods system came to an end.
With respect to the exchange rates, monetary policy, international credit and policies for handling the international payment imbalances and adjustment of Keynes philosophy reversed the mainstreaming assumption of the time. He brought about a greater awareness of structural inadequacies. According to Keynes, problems such as joblessness do not necessarily result from laziness. He thought that these problems happened whenever there was an imbalance in the economy. These issues according to Keynes were dependent on the contraction or expansion of the economy (Moggridge, 1976). Keynes saw the economy as unable to maintain itself to full employment. He believed that it was essential for the state government to come in and ensure that there is a good use for any under-utilized savings. During that time, Keynes advocated that government should increase their expenditure and lower the taxes. He said this could trigger an increased demand and liberate the world economy from any depression (Moggridge, 1976). According to the Keynesian economics, the concept of optimal financial or economic performance could be achieved easily. Economic slumps, such as the one experienced after World War II, could be prevented. This could have been done through the economic intervention policies and activist stabilization by the government (Moggridge, 1976).
Agglomeration and Why It Happens
Agglomeration is the clustering or bringing together of several industries that are interrelated. In agglomeration, industries become located together, and this leads to geographic concentration. Although there is no single reason to explain how agglomeration happens, there are several theories that clarify what causes agglomeration (Glaeser & National Bureau of Economic Research, 2010). Agglomeration can be as a result of the increased accessibility of natural or human resources. The benefit associated with agglomeration ultimately reflects gains that occur when the proximity reduces costs. Industries are always aiming to make higher profits and reduce their costs (Knepper, 2003). This can be one theory explaining how agglomeration happens. For example, picture and modeling industry is concentrated in California, petroleum industry is centered in Texas, and fashion industry is in New York. When industries involved in the same line of production cluster in one place, production costs are lowered.
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Industries or companies aim at reducing three types of transport costs: (a) the first cost is one for moving goods; (b) the second is the cost of moving ideas; (c) finally, the third cost industries will be aiming to reduce is the cost of moving people (Glaeser, 2010). These three costs can be decreased by the industrial agglomeration. Therefore, agglomeration occurs when industries or firms want to be located near their customers or suppliers. Another approach that explains how agglomeration happens is the theory of labor market. Agglomeration is also experienced when companies want to understand the mysteries of the trade. Firms, such as those located in the Silicon Valley, became agglomerated because the industries wanted to learn from each other and, in the process, increase their rate of innovation (Glaeser & National Bureau of Economic Research, 2010). Many industries across the world are experiencing substantial variations due to globalization, liberation, and technological changes. For this reason, many firms are not willing to be left behind, and the only solution to this is the agglomeration.
- Is Free Trade Always The Optimum Trade Policy? Assess the Arguments on Both Sides
There is no consensus on the free trade, and this has generated a series of debates. Since the end of the Second World War, the Western world has been on the lead in the quest for the free trade among nations (Hanson & Zott, 2013). Whenever people think of free trade, they almost invariably believe that the increase in economies will be efficiency stimulated by free trade. In this way, free trade can be described as the optimum trade policy. The point is that the purpose of any trade is to increase profits. Free trade thus becomes amazing in its ability to allow an economy to specialize in a comparative advantage. Opponents of free trade give three reasons as to why free trade is ineffective (Hanson & Zott, 2013). They say that this process stimulates the unbalanced development, economic dependence and environmental problems. Conversely, proponents of free trade cite more advantages of this phenomenon. According to the proponents, free trade increases the efficiency and production. Free trade ensures that different countries focus their resources to what they can make best. Another point raised by proponents of the free trade is that it stimulates economic growth and brings more employment in the economy (Hanson & Zott, 2013). If a country is short of labor, another state can freely provide the labor without any limitation. One more benefit associated with free trade is that it raises consumer satisfaction. Consumers are able to appreciate inexpensive and a range of goods from around the world. Therefore, it can be concluded that free trade is the optimum trade policy that can take the global world economy to the next level (Hanson & Zott, 2013).
Liberalization of International Capital Flows
In the early 1990s, emerging markings such as those in Asia and Latin America experienced an increase in the international private capital flows (Nunnenkamp, 2001). An expansion in capital flows helped these countries to get the improved investments and generate welfare gains. However, crises in the international capital flows in the 1980s-2000s have offered the way forward on liberalization of capital flows (Nunnenkamp, 2001). Liberalization could be the major driving force and trend on countries’ financial reform. In the recent decades, capital flows have intensified and have become the crucial feature of the global monetary systems. Liberalization of international capital flows can offer significant benefits to different countries. Nevertheless, a country’s volatility and size can bring increased risks (Nunnenkamp, 2001). International capital flows may promote countries’ financial competitiveness, enhance efficiency and encourage investment. On the other hand, when international capital flows become liberalized, a country is exposed to financial risks, especially if there are gaps in the financial and institutional infrastructure. Rapid capital inflows or disruptive outflows can also bring policy challenges (Nunnenkamp, 2001). Liberalization of the international capital flows requires well timed, planned and sequenced policies to ensure benefits outweighing the costs.
- United States Provision of Benign Leadership for the Common Interests of Global Capitalism
Capitalism is a system, in which ownership and investment of the factors of production, circulation and conversation of prosperity is in the hands of a few people (Hutton & Giddens, 2000). With the end of the Cold war in 1989, national priorities changed, and the western allies assigned a higher priority to their own economic and national interests. At the begging of the twenty first century, the pervasiveness and power of the American capitalism has become a common wisdom. The equation that links open markets to democratic institutions has become a concept that is commonly accepted in the world. The United States has been the force behind the development of capitalism in the modern world (Hutton & Giddens, 2000). Capitalism has been cited as the most effective system in the allocation of resources to promote economic development and grant individual liberties. The US has played a role of an informal empire that is helping to promote capital movements and free trade. United States has promoted free trade and financed global capitalism. It has achieved this by controlling world officialdoms like the World Bank (Hutton & Giddens, 2000).
Eurozone is an economic and geographical region consisting of all European Union countries that have fully adopted the euro as their state currency. Currently, Eurozone has 17 member states (Lapavitsas & Kouve?lakis, 2012). In the early 1990s, major European countries decided to have a common currency. For a long time, this economic bloc has been criticized as a system that does not serve all nations and social interests, but one that offers privileges to some nations (Lapavitsas & Kouve?lakis, 2012). This region shows an exceptionally complex economic system characterized by great divergences. This is especially evident in the responses of governments to crisis such as that between Germany, Spain and France. The European Central Bank is the determiner of the monetary policy in the Eurozone. The Federal Reserve has two mandates of controlling inflation and unemployment (Lapavitsas & Kouve?lakis, 2012). However, the European Central Bank has only one goal of controlling inflation. This facility is mandated with inflation control because the Eurozone has internal competitiveness. Wages in countries like Italy, Spain, Greece and Portugal have combined too high relative to wages is a country like Germany. This has made goods made in accordance with the global investment performance standards (GIPS) costly to compete with goods made in Germany (Lapavitsas & Kouve?lakis, 2012). This has turned some countries in the Eurozone into net importers of predominantly Germany exports. A country like Germany never cares about the high rate of unemployment in Spain. Denying the European Central Bank in the control of the monetary system or spending system has made conditions worse for some countries. Germany is interested in achievement of its social interests at the cost of other countries (Lapavitsas & Kouve?lakis, 2012).
Major Imbalances in the Contemporary World Economy
International imbalances are large current account discrepancies and excesses that reflect trade and monetary flows in an international scale (Eckes, 2011). Global imbalances can also mean external positions of systematically important economies that reflect dissertations or entail risks for the global economy. In the contemporary world, global imbalances have been characterized by some countries having more assets than others (Eckes, 2011). Globalization and greater macroeconomic interconnectedness have increased the wealth of many nations. However, in the last few decades, globalization has been accompanied by growing financial and account imbalances. While the financial crisis has always been associated with a narrowing of imbalances, recent data has shown that this development has started to go into reverse. Many people have said that global imbalances have been caused by the financial crisis in the world. Nonetheless, global imbalances do not cause these crises (Eckes, 2011).
The crises are predetermined by deficiencies in the financial system, and global imbalances only accelerate and intensify the crises. Many of persistent high current account positions that have emerged over the past decades are not benign or stable. The large United States deficit is outstanding to low national savings. In contrast to this, the current account surpluses of major emerging economies are the outcome of the exchange rate policies that helped merchandise exports to grow (Eckes, 2011). Instead of investing the financial surpluses domestically, countries like China continue to accumulate foreign exchange reserves in the US dollars. This contributes or makes the world vulnerable to adverse shocks. Additionally, excessive capital flows resulting from the private and public debt constraints due to the absence of guidelines have been a main source of trade or global imbalances (Eckes, 2011). Persistent and large current account deficits in a number of nations on the geographic boundary of the euro area are the outcome of a mixture of robust growth in demand, higher inflation and deteriorations in price. The immediate consequence of global imbalances is an adverse effect on a country’s export and economic growth. Another consequence of persistent current account surpluses is an explosive growth of foreign exchange reserves held by regional central banks (Eckes, 2011).
- Keynes Critique and Alternative to Classical Liberal Orthodoxy With Regard To International Economic Policy Prescriptions
The suggested refutation of Keynesianism is clarified at least in portion by a varying universal political economic setting. In this economic context, Keynes economic policies are decreasingly compatible. There is a pessimistic account from the assumed centrality of liberal orthodoxy to credibility and changing national economic policies. Keynes is only concerned with pursuing full employment especially by means of fiscal policy (Moggridge, 1976). For Keynes, full employment and the accompanying economic security was undoubtedly central to his approach. However, some contemporary phenomena in his thinking show that his argument is still very much alive. Keynes gave an illustration of how an economy can be stimulated to bring out the desired impacts. This is true even today because some analysts focus on the possibilities of redistributive policies. This was something that Keynes thought could help develop the economy of any country (Moggridge, 1976).