[original assignment essay submitted to course "Approaches to Globalisation" in LSE, 13/2/2003. Course Tutor: Leslie Sklair]
Is There A Global Economy?
Global economy, as an ideal type, exists in the minds of those who see the world through this frame. The question of it existence, therefore, should be answered by examining whether this concept helps us grasp certain aspects of the empirical world otherwise indiscernible. In the past decade, there emerged many radical elaborations of this concept, such as the notion of an emerging ‘borderless’ world where ‘national’ is no longer relevant (Reich 1991, Ohmae 1995a), as well as much criticism, such as the claim that global economy ‘is much a myth’ (Hirst and Thompson 1999). Contrasting the views from both sides, I found those skeptical voices valuable in pointing out some empirical errors of the radical elaborations prevailing previously, but faulted in confusing the radical elaborations with the concept of ‘global economy’ itself. Instead, I will argue that the concept ‘global economy,’ though often over-stated, still has its merits in helping us understand today’s world.
The term ‘global economy’ entered the core lexicon of academic and public discussions in 1990s in the discourse of globalization debate. Its popularity reflected the wide-accepted notion that, with the huge surge of international trade and foreign direct investment (FDI) through transnational corporations (TNCs) and global financial system, we are moving toward a world economy qualitatively different from the past. Carnoy and his colleague (1993) stress the geographical scale of economic interdependency and defined global economy as a world economy in which ‘all aspects of the economy are integrated or interdependent on a global scale’. Castell (1996) further incorporate the temporal aspect by defining it as 'an economy that works as a unit in real time on a planetary basis.' This concept soon became a handy phrase widely used among opinion leaders with different degree of implications. Sometimes it was applied to refer to the increased international economic inter- dependence, or one step further to mark certain fundamental change in the economic order, but some went as far as to claim the irrelevance of national economies and domestic policies in the face of powerful global market force. Such perspective, later labeled ‘globalism’ by critiques, were politically consequential that it soon became widely cited to justify some less favored governmental policies (deregulation) and corporate decisions (outsourcing and layoffs).
Partly in response to the more radical views and their political consequences, various skeptical voices emerged, primarily from the perspective of state-centrism, which see the nation-states as continuing to play important roles. Hirst and Thompson (1999:2) proposed the following argument challenging the global economy thesis: (1) The present highly internationalized economy is not unprecedented. (2) Genuinely TNCs are rare, and most companies are based nationally. (3) FDI is highly concentrated among the advanced industrial economies, hence is does not produce a massive shift of investment and employment to the developing countries. (4) Most international economic activities are concentrated in the triad of Europe, Japan and North America, less from truly global. (5) Some nation states (especially the G3) still have the capacity ‘to exert powerful governance pressure over markets.’ As an alternative ideal type, they developed a model of ‘inter-national economy’ to explain the empirical economic trends, in particular the increase in international trade and capital flow. By doing this, they aimed to ‘emphasize the possibilities of national and international governance (ibid: 3).’
The challenges Hisrt and Thompson presented are valuable in correcting some popular over-statements and stress the possibility of governance. Also the alternative model they propose can really account for some major economic trends. However, this view failed to grasp certain aspects of contemporary world economy that can only be described with the phrase ‘global.’
First, while their ‘inter-national economy model’ can illustrate the increase in the cross-border trade and investments, it fails to capture the spatial extensiveness and complexity of the network of such links, which goes beyond regional scale and can only be best described as ‘global’. It is true that this network is concentrated in the triad of Europe, Japan and North America. But this ‘triad diagram,’ drawn from the first-world perspective based on the absolute amount of trade and capital flow, fails to show, from the perspective of the peripheral countries, how important the cross- border economic activities are as relative to their GDP. In other word, while people in the core countries can hardly feel the influence from these peripheral countries, the people there may experience a great influence from the core countries. Hence, excluding them from the world economy map and claim the absence of a global economy is not only problematic but ‘first-world-centric.’
Secondly, skeptics in this vein overlook the qualitative change in the nature of world economy. While the international economy before 1960s is only shallowly integrated through short distance inter-firm trade and portfolio investment, now we are living in a world that is deeply integrated by TNCs through the intra-firm division of labor in the production process. It is true that ‘genuinely TNCs are rare’ in number, but their importance can be seen in the fact that TNCs accounts for two third of world trade in 1990s, among which half is actually intra-firm trade (UNCTAD).
Thirdly, such claims underestimate the impacts of information network. The network of modern communication have made the worldwide dissemination of knowledge, technologies, ideas and news much more comprehensive and easier. Of the information shared in these global networks, a considerable portion may bring economical consequence (for instance, economy forecasting, technological innovation, and the news of war). Such effects, in term of their geographical coverage and scale, are of course ‘global’.
In sum, the concept of ‘global economy’ has its merits in capturing some aspects of contemporary world economy, and hence should be refined rather than be rejected by the empirical critiques proposed by the skeptics. Two clarifications are needed here. First, the concept of global economy, in this sense, should not be taken as an exclusive term that represents an economy entity independent from regional and national economies; rather, I use it as and inclusive term which embrace the later two. Second, by recognizing the merits of this phrase, I do not assume it to be unprecedented. The study of the contemporary may sometimes lead us to rediscover the past from a new perspective. If we find this new concept useful in making sense of a part of history, e.g. the period between 1870-1913, it is not a threat to the validity of this concept.
Who Controls It?
Can we really claim that any group of people is controlling global economy? It depends on what implication we hold for the term ‘control.’ By definition, ‘control’ lies somewhere between ‘determine’ and ‘have nominal influence’, but there is not a clear guideline for how much influence is considered control. In one end, surely no one has the absolute power as to determine the whole global economy. In the other end, if we talk about any influence, literally everyone involved in global economy may have his share. The later view can be seen in neo-classical orthodox, which claims that the economic outcome in a market-mediated system is controlled by our individual decisions collectively. This argument could be valid from certain aspect, but is irrelevant here because it totally ignores the unequal power distribution in influencing global economy. Hence, the question of ‘who controls global economy’ should be answered by identifying a group of people, who, relatively and collectively, has more power than others in shaping the outlook of global economy.
In this sense, there could be many answers, and indeed there were many answers proposed – the westerners, the American, the well educated, male, or a bunch of CEOs -each group of people has a different degree of control, on perhaps different aspects, over global economy. A noteworthy point of these grouping frames is that they are identified by some well-established social categories. This is quite understandable because people tend to think in terms of existing mental constructs. More often than not, we talk about some institutions as key actors. In such discourses, what is discussed could be the institution per se, its administration team, or the people bounded in the institution. What I observed, however, is the confusion of the three in most cases. Two prime examples relevant here are the United States and the TNCs, which deserve some discussion.
The United States’ political and economic domination is well reflected in the global economic order after 1945 (Dicken). From the Bretton Wood, GATT, APEC to WTO, the US has always stood at a unique position and played a dominant role in settling the economic agenda and order, hence it is not hard to see why many people see global economy as a by-product of US-led economic ordering (e.g., Gilpin). This notion is especially popular in Asia and France, where ambivalence toward the penetration of American dominance is often felt.
In the other hand, the major TNCs are also said to be the major force behind the global economy. Consider the scales of the TNCs, many of which have assets and revenues far more than the GDP of most countries (Sklair 2002), their decisions could really impact the lives of thousands. It has long been argued that TNCs, by deciding where to invest, can trigger ‘race to the bottom’ between countries competing in low-wage labor, lower tax-rate and less regulated environment (Beck 2000).
The notions of US and TNCs dominance were actually derived from two opposite underlying perspectives, namely globalism and state-centrism, and each provides a partial and exaggerated account. If restrictedly elaborated, the two notions are of merits in highlighting the pivotal role the US and TNC (as institution per se) in global economy. But it need to be stressed that the real world is shaped by a set of complicated political-economical interaction between various parties, each exerting different degree of control of some aspect of the overall outcome, and the stress of any single power is incomplete.
Further, when applied on identifying those who have more power in global economy, the two notions are misleading. Assuming a collective will for each institution in analysis, the two views overlook the heterogeneity of the compositions in both parties. For instance, when claiming ‘US is imposing neo-liberal rules’, whom do we really refer to as subject, the authority, the Republic, the media, the public, or some other people? When we talk about TNCs as actors, are we talking about their employee, their manager, CEO, board, or the shareholders. The US and TNCs were taken as analysis unit because they are part of our widely shared mental construct, but they seem not map well the target we intend to identify. Hence, we need a more sophisticated grouping frame that can fit better with the profile of those who dominate the power in shaping global economy.
In order to obtain a more-balanced and better-mapped account of who are controlling global economy, Sklair (2000) proposed the concept of transnational capitalist class (TCC), which contains the four fractions: (1) owners and controllers of TNCs and their local affiliates, (2) globalizing bureaucrats and politicians, (3) globalizing professionals, (4) consumerist elites (merchants and media). The new grouping strategy was not taken from any given social category, but rather was developed by tailoring several smaller categories to meet the analysis purpose. In a way, this strategy provides a much accurate grouping frame than most of the previous claims, but meanwhile, such a frame is less clear in its boundaries and sometimes vague in practical analysis. In comparison, while conventional grouping frames are partial, inaccurate but clear defined, the grouping frame of TCC is more-balanced, arguably more accurate but less clear.
Here, we saw a trade-off between precision and accuracy in the attempt of formulating the grouping frame, which seems to signify a theoretical limit, given the existing social categories, for the answer to the question ‘who controls global economy.’ From the previous discussion, we find that: (1) There are numerous frames for grouping up a people that are more powerful in controlling global economy than the rest, yet there does not exist a single, definite line to separate those who have control and those who have not. (2) The describable frames based on existing terms may not match with those conceptual frames, and hence misleading in some way.
In sum, the real world is shaped by a set of complicated political-economical interaction between various parties, each exerting different degree of control of some aspect of the overall outcome. Throughout the pursuit of this question, from neo- classical orthodoxy, notion of US-dominance and TNCs dominance, and the TCC proposed by Sklair, what we got it a gradient of a set of frames, each grouping up a set of people, who have different level of control of global economy, with various degree of precision and accuracy. From this basis, it seems that we should move forward from asking ‘who controls’ toward a more sophisticated exploration by asking ‘who, in what way, control what to what degree.’
Reference
Beck, U. (2000). What is Globalization MA: Polity Press
Castell, M. (1996). The Rise of Network Society. London: Blackwell
Dicken, P. (1998). Global Shift, 3rd ed. London: Paul Chapman.
Hirst, P. and Thompson, D. (1999). Globalization in Question. London: Polity Press.
Sklair, L. (2001). ‘The transnational capitalist class and the discourse of globalization.’
Sklair, L. (2002). Globalization: Capitalism & Its Alternative. 3rd ed. London: Oxford.
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