Question

How is economic globalization certain or uncertain in this information society?

Answer 1

Economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It reflects the continuing expansion and mutual integration of market frontiers, and is an irreversible trend for the economic development in the whole world at the turn of the millennium. The rapid growing significance of information in all types of productive activities and marketization are the two major driving forces for economic globalization. In other words, the fast globalization of the world’s economies in recent years is largely based on the rapid development of science and technologies, has resulted from the environment in which market economic system has been fast spreading throughout the world, and has developed on the basis of increasing cross-border division of labor that has been penetrating down to the level of production chains within enterprises of different countries. The advancement of science and technologies has greatly reduced the cost of transportation and communication, making economic globalization possible.

Moreover the development of the networking-based economy has given birth to a large group of shadow enterprises, making the concept of national boundaries and distance for certain economic activities meaningless.

If technological advancement and IT development were assumed as the technological driving force for economic globalization, then the market-oriented reform carried out throughout the world should be regarded as the institutional driving force for this trend. Under the framework of GATT and WTO, many countries have gradually cut down their tariff and non-tariff barriers, more and more countries open up their current accounts and capital accounts. All of these have greatly stimulated the development of trade and investment. Moreover the transition of the former centralized planned economies to market economies has made it truly possible to for the world’s economies to integrate into a whole. Multinational corporations (MNCs) have become the main carriers of economic globalization. They are globally organizing production and allocating resources according to the principle of profit maximization. And their global expansions are reshaping macroeconomic mechanisms of the operation of the world economies. In 1996, there were altogether only more than 44,000 MNCs in the whole world, which had 280,000 overseas subsidiaries and branch offices. In 1997, the volume of the trade of only the top 100 MNCs already came up to 1/3 of the world’s total and that between their parent companies and their subsidiaries took up another 1/3. In the US$ 3,000 billion balance of foreign direct investment at the end of 1996, MNCs owned over 80%. Furthermore, about 70% of international technological transfers were conducted among MNCs. This type of cross-border economic activities within same enterprises has posed a challenge for the traditional international trade and investment theories.

The process of economy globalization is also the process of global industrial restructuring and readjustment. With the development of science and technology and increase of income level, industrial structures of all the countries have been also undergoing readjustment and upgrading. In recent years, developed countries in the west are gradually entering the era of knowledge economy and have started to shift to developing countries many labor-intensive industries of weak international competitiveness. This process of cross-country shift is pushing forward an in-depth development of economic globalization. On the other hand, there has existed a surplus of productivity since the end of the cold war. Due to this fact, economic globalization has intensified the competition at the international market among enterprises from different countries. In order to raise their positions and improve their competitiveness at the international market, both domestic enterprises and those from other countries have been resorting to mergers and acquisitions one after another, which has resulted in tides of industrial restructuring. Take a few cases just as a demonstration: the most recent acquisition of Mannesmann by Vodaphone, acquisition of MCI by British Telecom, acquisition by Deutsche Bank, and the amalgamation of Citibank with Travelers and that of Daimler-benz. All of these restructuring activities will exert far-reaching influence on the world’s industrial competition pattern.

At the microeconomic level, the government should play the major role in establishing incentive and constraining mechanisms in line with enterprise system and corporate governance so as to improve enterprises’ efficiency and competitiveness. As for industrial structures, the government should focus their efforts on stimulating rapid scientific, technological and education development and increasing investment in developing human capital for the purpose of pushing forward upgrading of industrial structures.