AMSCO 9.4 Economics in the Global Age Notes

Overview

AMSCO Topic 9.4, "Economics in the Global Age" (AMSCO p. 657 - p. 663), covers how the global economy changed and stayed the same from 1900 to the present, the heart of Unit 9's globalization story. The big changes: governments embraced free-market policies and economic liberalization after the Cold War, and revolutions in information technology created knowledge economies in places like Finland, Japan, and the United States. The big continuity: manufacturing still drives the global economy, it just moved to Asia and Latin America. This chapter is your one-stop source for examples like Reagan, Thatcher, Deng Xiaoping, Pinochet, NAFTA, the WTO, and multinational corporations.

Timeline of Economic and Political Transformations Post-Cold War. Image Courtesy of Isaiah Penny

Acceleration of Free-Market Economies

Globalization means interaction among peoples, governments, and companies worldwide. It's not new (think Indian Ocean trade), but the term usually refers to the increased integration of the global economy since the 1970s. When the Cold War ended, former Eastern Bloc nations could suddenly trade with capitalist democracies, and nonaligned countries like India relaxed trade restrictions in the 1990s. Opening up a country's economy this way is called economic liberalization.

• Ronald Reagan (US) and Margaret Thatcher (Britain) pushed free markets, which are economic systems based on supply and demand with minimal government control. Their playbook: cut taxes, cut regulations, cut government assistance to the poor.
• Corporations used this shift to move jobs to countries with lower wages, lower taxes, and fewer regulations.
• Critics charged that globalization led to labor exploitation and environmental damage. Wealth grew for many; hardship grew for others.

Economic Liberalization in Chile

Free-market reform in Chile came through a dictatorship, not a democracy.

• In 1973, Augusto Pinochet took power in a U.S.-backed coup against the democratically elected socialist government of Salvador Allende. He ruled from 1974 to 1990, when citizens ousted him over his violent tactics. Indicted for kidnapping, torture, money laundering, and murder, he died in 2006 before conviction.
• Economists called the Chicago Boys (they studied under free-market economist Milton Friedman at the University of Chicago) designed Chile's reforms: privatizing state-run businesses and taming serious inflation.
• The reforms were unpopular because they ignored poverty, and Pinochet used repression to enact them. Later democratic governments took a balanced approach, pairing free-trade growth with government programs that significantly reduced poverty.

Chinese Economic Reforms Under Deng Xiaoping

Deng Xiaoping became China's leader in 1981 and pulled the Communist Party away from its commitment to economic equality toward economic growth. His slogan: "Let some people get rich first." The government opened up the economy while keeping overall control:

• Replaced communes with peasant-leased plots where peasants grew and sold their own crops, producing agricultural surpluses instead of famines
• Allowed factories to make more consumer products
• Encouraged foreign companies to build factories in special economic zones, drawn by low wages and lax environmental laws
• Reopened the Shanghai stock market and allowed some private business ownership

Economic reform did not mean political reform. When students led a large, peaceful demonstration in Tiananmen Square in Beijing in 1989 demanding freedom of speech and an end to the Communist Party's political monopoly, the government sent in soldiers with guns and tanks, killing hundreds. That's the pattern to remember: China liberalized its economy without liberalizing its politics.

New Knowledge Economies

A knowledge economy creates, distributes, and uses knowledge and information instead of relying on factories and farms. Designers, engineers, and teachers all work in the knowledge economy. In the US, the clearest example is Silicon Valley in California. Governments building knowledge economies pour resources into research, education, innovation, and technological infrastructure.

Finland

Finland is the textbook case of a country reinventing its economy.

• Agrarian in the 1950s, Finland industrialized after World War II.
• When the Soviet Union collapsed, Finland lost a main customer for manufactured goods and hit an economic crisis.
• In the 1990s, it entered the global marketplace, encouraged competition, and created the Science and Technology Policy Council to steer growth through technology and innovation.
• Finland led in mobile phone development, then built software companies. These industries needed highly educated workers, while hardware production was outsourced to lower-wage countries.

Japan and the Asian Tigers

After World War II, Japan used policies similar to 18th-century mercantilism: increase exports, decrease imports.

• To boost exports, the government coordinated finance and labor policies with large corporations and subsidized them to keep costs low.
• To discourage imports, it used high tariffs and trade restrictions.
• It emphasized rigorous education to produce productive workers.

Aided by big investments from the US and others, Japan became a manufacturing powerhouse, but at a cost. Low-wage workers often couldn't afford the goods they made (Japanese cars cost more in Japan than in the US). Over time, unions won higher wages and international pressure loosened trade restrictions. Japan diversified into a knowledge economy and a center of banking, finance, and IT. Even though growth slowed after the 1980s, Japan was still the world's third-largest economy in 2014, behind only the US and China.

Four states known as the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) copied Japan's model: government-business partnerships, high exports, intense education, and a low-wage workforce. The success of the Asian Tigers and China lifted hundreds of millions of people out of poverty.

Continuity: Manufacturing Shifts to Asia and Latin America

Here's the continuity-and-change answer in one line: manufacturing still anchors the global economy, but it moved from the US and Europe to Asia and Latin America. As knowledge economies grew in some regions, industrial production there declined, and factories relocated to where labor was cheaper.

Vietnam and Bangladesh

• Importers who once bought from China found even lower labor costs in Vietnam and Bangladesh.
• Both became known for clothing exports. Garment compounds the size of small villages, often funded by foreign investors, produce the clothes sold in developed countries.
• Clothing accounts for 80 percent of Bangladesh's exports. Vietnam's largest export is phones, worth about $45 billion in 2017, with apparel and electronic goods each bringing in $25.9 billion.
• Workers in both countries have gone on strike over low wages and poor conditions. Pay rose slightly, but not enough to keep up with the cost of living.

Mexico and Honduras

• In 1994, the US, Canada, and Mexico negotiated NAFTA (the North American Free Trade Agreement). It encouraged US and Canadian industries to build maquiladoras, factories in Mexico that used low-wage Mexican labor to assemble raw materials into tariff-free goods for export.
• Many maquiladoras hired large numbers of young women and exposed them to harsh working conditions. US labor unions complained NAFTA exported thousands of US jobs to Mexico, where wages, benefits, safety standards, and environmental rules were weaker.
• Honduras, the second-largest textile exporter in the Americas, has tried to upgrade its manufacturing with sustainability (recycling or treating waste) and fair labor practices like housing and education plans for workers. Much of the investment in Honduras, Vietnam, and Bangladesh comes from South Korean and Taiwanese businesses.

Transnational Free-Trade Organizations

International institutions made the post-WWII trade boom possible by tearing down trade barriers.

• Regional organizations: the European Economic Community, Mercosur (South America), and the Association of Southeast Asian Nations (ASEAN).
• GATT (General Agreement on Tariffs and Trade): an international accord that lifted restrictive trade barriers. Protective tariffs (taxes on foreign imports) averaged 40 percent worldwide before GATT; by the 1990s the average had sunk below 5 percent. That eased goods across borders, lowered consumer prices, and helped rebuild war-ravaged Europe.
• In 1995, the World Trade Organization (WTO) took over GATT's operations and made rules governing more than 90 percent of international trade. The WTO became controversial: meetings closed to the public, board members representing mostly corporate interests, and rules that favored trade over moral concerns. A member nation that refused to buy sweatshop-made clothing could face WTO trade sanctions.

Multinational Corporations

A multinational corporation is legally incorporated in one country but makes or sells goods or services in others. The earliest examples were Commercial Revolution joint-stock companies like the British East India Company and Dutch East India Company, and multinationals were how imperialist nations extracted colonial wealth. Today's multinationals get the best of both worlds: knowledge-economy workers (software designers, engineers) at home and low-wage manufacturing workers abroad, plus a global market to sell in.

• India: after opening its markets in the early 1990s, India's highly educated, English-speaking workforce made it a software and IT powerhouse. Microsoft and Google invested heavily, and corporate wealth built a thriving middle-class consumer culture. By 2014, India's middle class was estimated to be the world's largest at more than 350 million people.
• Mahindra & Mahindra: headquartered in Mumbai, it makes cars, farm equipment, military vehicles, and electrical energy, with operations in South Korea, China, Australia, the US, South Africa, and elsewhere. It has won awards for socially responsible practices.
• Nestlé: the Swiss-based multinational, the world's largest food company, has faced criticism for buying cocoa from suppliers using child labor and farming protected lands, and for treating drinking water as a product rather than a human right, even as it funds sustainable agriculture research.

The general critique of multinationals: weak national identity (so no home-country ethical standards), worker exploitation, and structuring operations to avoid taxes.

Key Terms to Know

Practice and Next Steps

Pair these notes with the Fiveable 9.4 Economics in the Global Age study guide for the course-topic version of this material, then continue to AMSCO 9.5 Calls for Reforms and Responses to see how people pushed back on the problems globalization created. The full chapter lineup lives on the AMSCO notes page.

To check yourself, drill Unit 9 questions with guided MCQ practice, look up any fuzzy vocab in the key terms glossary, and try writing about economic continuity and change with FRQ practice and instant scoring. The continuity-and-change framing of this topic (manufacturing persists, but its location shifts) is exactly the kind of reasoning the long essay question rewards.