By Richard C. Longworth
Most analysts believe the global economy is the result of several reinforcing trends, which have only recently come fully into view. Taken together, these trends are creating increasingly open and unfettered markets that stretch around the globe.
One trend is the emergence of instant global communications, made possible by technological breakthroughs such as the semiconductor and the communications satellite. The ability to send messages around the world in a split second enables corporations to manage far-flung operations and currency traders to make their trades anywhere, anytime. Communications technology literally makes the global corporation and global markets possible.
A second trend is the wave of deregulation, which began in the late 1970s and weakened the control of national governments over economic activity. Governments once controlled the flow of currencies, held corporations to stern labor laws, and limited imports through tariffs and quotas. Most of these rules and regulations, and many others, have now been dismantled or weakened to enable markets to function more freely.
A third trend is the growth of enormous global capital markets, the first of which emerged in the early 1970s when the Bretton Woods system of fixed currencies collapsed. After the Bretton Woods Conference in 1944, all national currencies were assigned a fixed exchange rate against the United States dollar, which was backed by gold. When the Bretton Woods system broke down in 1973, currencies began to “float” against each other: in other words, they were worth only what the market said they were worth at any given moment. Suddenly, there were vast profits to be made by speculating on the market value of currencies, and so the great global capital markets—linked by instantaneous global communications—were born.
The global economy is far from complete. It is still much easier to do business between Illinois and California, for example, than between the United States and Poland or between the United States and Japan. All countries have some limits on trade and foreign investment. If jobs can move from country to country, people seldom do. Even in this mobile age, only about 2 percent of the world’s population lives outside its own country, and most of these people are refugees, not workers chasing jobs.