Transcription
All right, let's just keep right on going with globalization and talk about how it has affected economics after 1900, baby. So, if you're ready to get them brank cow's milked free market style, then let's get to it.
And just for poops and giggles, let's begin by observing the trend of the spread of free market economics in our globalized world. Now, recall that the conditions of globalization have created an increasingly interconnected global economy that, in some ways, is new and, in other ways, continues trends that we've considered in previous units.
And you know, let me explain. Now reach way back into those brain folds that you developed in Unit 7 and remember that during the World War and the Great Depression, a common trend in many places was that big daddy government took more of an active role in directing economic decisions of states. However, by the 1980s, this trend was rejected in several significant states in favor of the free market policies of neoliberalism. And that just refers to an economic emphasis on free market policies that include the lowering of trade barriers like tariffs and the deregulation of industry and the transfer of public sector industries to private parties. In other words, neoliberalism is all about the government getting its filthy hands off the economy.
Now you're going to need to know some examples of this trend, and lucky for you, I got some. So first, you've got the liberalization of the US economy under the leadership of Ronald Reagan. Now, Reagan was elected as a staunch antagonist of New Deal policies and government spending on public services, and so, to that end, he led the government to decrease taxes on the wealthy, reduced government regulations of businesses, and cut spending on social welfare programs. However, I should mention that since Reagan was in power during the Cold War, his squeamishness about government spending did not apply to military spending, because under his presidency, that number spiked tremendously.
And then second, you you've got a similar trend in the United Kingdom under the leadership of Prime Minister Margaret Thatcher. And just like Reagan, Thatcher emphasized the deregulation of businesses, a reduction in income taxes, and the privatization of state-owned assets. And you know, the legacy of both Reagan and Thatcher on the economy is kind of mixed, depending on which variables we consider. Yes, both leaders' policies did help reduce inflation and create the conditions for the economic growth of both countries, but their policies also worked, for example, to undermine the power of labor unions so that more power was in the hands of business leaders. Additionally, under both leaders, the gap between the wealthy and the poor increased significantly.
Before I tell you about the third and final example, let me just pause here to mention that if you need help studying for that National exam, then you should for sure check out my AP World History review guide, which has everything you need to study as fast as possible. It's got whole unit review videos that you won't see here on YouTube, notes guides to follow along, practice questions, practice exams, and answer keys for every dang bit of it. So if that's something you're into, check the link in the description.
Okay, now a third example of this trend is Chile under the leadership of Augusto Pinochet. Now, despite being a great authoritarian turd, Pinochet did lead the Chilean economy away from state control and into the area of the free market. And most responsible for this change was a group of economists known as the Chicago Boys, who graduated from the University of Chicago and set out to solve the economic problems in Chile. Now, the Chicago Boys were able to address Chile's rampant inflation and privatize state-run businesses. And the truth is, the reforms were fairly unpopular because Pinochet enforced them with brutality, like the nasty authoritarian that he was. But even so, with this free market groundwork laid, later Chilean leaders were able to guide Chile into a fairly balanced economy.
Okay, now another major development of globalization, especially after the Cold War, is the unique geographical distribution of exactly where economic activity occurs in the world. So, for several centuries before this period, the most powerful nations in the world were those that had industrialized, and you know this by now. And especially early on, one of the main features of that industrialization is that the factories and all the laborers that made those factories work were located within that country itself. So Great Britain was a political and economic world power because they had the factories within the boundaries of Great Britain. But beginning in the 1970s, the cost of domestic manufacturing began to increase significantly, and corporate investment in factory infrastructure no longer seemed to be a good investment. And so this development led to a new global distribution of work. And here's what I mean.
So wealthier developed countries became more characterized by knowledge workers whose main capital for work was not their bodies but rather their minds. Essentially, workers in a knowledge economy aren't people who make things; they're people who think about things—for example, engineers and teachers and lawyers and bald, bearded, gap-toothed men who make AP World History videos on YouTube. This kind of work has quickly become a major player in the globalized world. For example, let's talk about the knowledge economy in Finland. In the 1990s, Finland invested heavily in communication technology and education, and a big part of what that investment yielded was a healthy share of the world's cell phone and software development markets. And this was a massive shift for Finland since, as late as the 1950s, it was mainly an agrarian society.
Okay, a second example is Japan, who also invested heavily in education in order to transition into a knowledge economy. However, there was some drag because Japan's economic policies, in many ways, resembled the old mercantilist economies, which emphasized exports above imports. They did this by subsidizing manufacturing in order to keep costs low and enacting steep tariffs to stifle imported goods. But workers were the ones who paid for this progress since their wages were kept low enough that they couldn't even afford to buy the things that they were manufacturing. And as a result, labor unions began gathering strength and were able to agitate for themselves an agreement for higher wages. The point of all this is that during the 20th century, Japan became a churning engine of manufacturing, but they eventually diversified their economy and, in the later part of the 20th century, became a world leader in the knowledge economy by focusing on banking and finance and the development of information technology.
So, in the new globalized economic landscape, wealthier developed countries are doing most of the thinky-thinky work, but manufacturing, on the other hand, was now increasingly being located in developing countries where international businesses could save money by paying lower wages to foreign workers than was legal in their own countries. And so the highest concentration of the world's manufacturing sector is now located in Asia, in places like Vietnam and Bangladesh, and in Latin America, in places like Mexico and Honduras. And all of that has been made possible because of the communication and transportation technologies that we talked about in the video for 9.1.
Okay, now let's talk about the fact that global economics requires global economic institutions to make everything run. Important note here: the rise of these institutions were both caused by globalization and have further fostered globalization by their policies. Now there are plenty that you can know here, but I'm just going to give you one of these organizations, namely the World Trade Organization, which exists to regulate trade on a global scale. Essentially, the WTO promotes global trade by assisting in the negotiation of trade deals, acting as a moderator for various trade disputes, and creating initiatives to assist developing countries along the scale of development. So, to my previous point, the WTO was caused by globalization and increasing economic interconnectedness, but by creating the conditions for increased global trade, it has also fostered further globalization.
But in addition to global economic institutions, the globalized economy has also created the conditions for the proliferation of smaller regional trade agreements. And I'm in the mood to give you two examples. First is the European Union, which today represents a complicated conglomerate of many European nations into a political and economic bloc. However, it began as a simple economic agreement in the post-World War II era between six European countries. They agreed to integrate their coal and steel operations by removing barriers to trade between them. Anyway, that arrangement evolved over time and included more and more countries until 1993, when the European Union was officially formed. And today, 27 countries are members. And without getting too far into the weeds, that means that those 27 countries have essentially merged into a kind of singular economic unit, which is far more economically powerful than any one of those countries could be on their own.
And then across the world, you have another regional economic agreement known as the Association of Southeast Asian Nations. And like the EU, this agreement facilitates trade among Southeast Asian countries by keeping trade barriers like tariffs low. And as a result, the member nations together have experienced significant economic growth beyond that of non-member nations like Japan or India.
Okay, now let's talk finally about the rise of multinational corporations in this globalized economy. Now, by definition, a multinational corporation is an entity which is incorporated in one country but manufactures and sells goods in other countries. And the architecture of these corporations is as follows: they employ knowledge workers in their own countries, and then they manufacture goods for sale in other countries, and then they sell those goods on a global market. Now maybe that sounds familiar because we've witnessed this kind of organization already during the age of imperialism with joint-stock companies like the Dutch East India Company. But after 1900, the complexity and geographical distribution of these companies became far more complex.
Now one example of a multinational corporation is Nestlé. Now this company is headquartered in Switzerland, and then they purchase and manufacture their chocolate with low-wage workers in West Africa and, in some cases, child and enslaved labor, and then they sell that tasty treat on the world market. And then another example of this kind of company is Mahindra and Mahindra, which is an Indian company that makes automobiles and farm equipment and many other things. And while they're based in Mumbai, they have operations in North America, Australia, Europe, Africa, and Latin America.
Okay, click here to keep reviewing for Unit 9, or you can click here to grab my AP World History review guide. And I'm glad we got to hang out, and I'll catch you on the flip-flop. I'm L out.