PART AIn the previous four decades, the world has evolvedeconomically at a rate which history has never seen before. The vast level ofglobalization and connectivity amongst countries and their workforce hasbrought forth tremendous changes to the economic world, ultimately shaping itinto the world today. With a worldwide integration, there has an emergingchange in the economic landscape and with it three trends are sprouting.
Thethree major changes observed were: a significant downturn in real laborearnings in advanced economies, a significant drop in real interest rates and acatastrophic increase in the inequality found amongst the citizens of a nation.These trends combined to create the “largest ever positive labor supply shock”. Boundless globalization through the World Trade Organization,allowed for tremendous expansion in Eastern European and Asian countries,especially China. After the 1980s, there was a major shift in manufacturingtowards the continent of Asia, mostly to mainland China. The thesis beingpresented in this paper is that the changes that were brought forth andessentially shaped the global economy in the past few decades are now startingto regress and ultimately reverse.
The fall of interest rates, decline in wagegrowth and stagnant wages all led to a dramatic change in inequality levelshowever these patterns and their effects are soon to be inverted and broughtback to the proper levels. Often in economics, there are major changes thatoccur however through different means, the market has a way of correcting thereverberations to a normal state. Although at times the market tends to correct any extreme outliers,there is a large possibility that it simply will not. The thesis banks offthree trends being reversed which of course triples the difficulty in theoverall change occurring especially such a positive one. The biggest threat asproposed by the author is the low interest rates. The low interest rates haveresulted in tremendous debt which in turn starts the cycle of continuing toimplement the low interest rates.
Low interest rates result in debt financinghowever the author proposes through policy changes that the debt finance can beultimately transformed into equity finance. There has been an astounding levelof research done on each trend, however the critique against the research isthat it was conducted separately from one another and not collectively. Theauthor strongly believes that the trends are possibly intertwined and thereforeshould be researched and analyzed as such. The author, going off the analysis conducted on the trends aswell as their own research and ideas places heavy importance on the role Chinanot only played in the past but will continue to play into the imminent future.From the last four decades there has been a dramatic shift in the demographicdynamics globally and with that is coming an equally as dramatic reversal ofsaid demographics. Real interest rates will rise from their low levels dueageing.
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Along with that, the low levels of wages and inflation will also riseand the level of inequalities amongst nations will fall. PART B PART CCompetitive advantage boils down to thepositive differences an organization has over another. It is essential for allparties involved in economic activities to adapt competitive advantage in orderto sustain economically for the future. One study using one hundred and fiftySpanish firms, shows that the firms that are willing to acclimate to the everchanging foreign markets are better off and will therefore perform stronger inboth domestic and international markets.
The competitiveness a nation possessesis contingent upon the nation’s ability and willingness to adapt, evolve andenhance all aspects of the organization. Through increasing globalization thelevels of global competition has simultaneously increased which has changed thepreconceived notion and image of what constitutes as a nation and hasultimately altered the balance of power for nations, making them more importantin the process. Countries are constantlylooking to gain competitive advantage and this process is devised and preservedthrough various means including culture, national values, economic institutionsboth in the private and public sector. In the economic world, it is unfeasiblefor an entity to achieve ultimate success over all factors and thereforenations try to dictate and plan which strengths they want to achieve and workto achieve them.
On many levels nations and companies are run in the samemanner in an economic sense. The main backbone of profits and losses isconsistent on both levels however do have their differing factors as well. Inthe private industry, companies tend to gain competitive advantage over theircounterparts through various methods dealing with labor costs, economies ofscale, technological advancements. These adjustments allows for a company toexcel and out compete another.
Nations however topossess a competitive advantage have to set up a framework of factors to bespecialized in and constantly develop and advance upon these factors.Singapore, longs to be the world leader in biomedical technologies and put intheir resources to recruit the best and brightest of the field from all overthe world to advance the field in Singapore. Denmark, who is constantly studyingand treating diabetes is the world’s leading export of insulin due to theirextensive application of resources to two hospitals. Italy, is the majoritysupplier to the entire world of gold and silver jewelry. This is achievedthrough refining and perfecting the art-making of the jewelry and by alsomanufacturing and supplying the machinery, therefore controlling both themanufacturing process and finished products. These nation’s reign on theirrespective industries allows them to prosper however new ideas and advancementsmust be made to continue to be at the forefront which is achieved throughconsistently increasing the competitive advantage levels.
In the world ofeconomics, it is not feasible for an entity to perform and perfect every singletask. For an entity to prosper, it must perfect a few processes and exchangethem with other entities which will provide them with the most beneficialoutcome. Trade is not only advantageous for entities to strive but isnecessary, and this is no different for nations. When broken down, there isultimately two ways in which the trade between companies from different nationscan occur, heavy government intervention between the nations of the companiesinvolved or the more lackadaisical approach, laissez faire. Free trade amongstnations have been shown to increase competitive advantage amongst competingparties, increases social welfare of the nations, and allows for constantadvancements. Nationsare constantly looking to advance their economic standings.
As the economictone of the nation is more positive, the overall well-being of the nation andthe people who inhibit is strongly positively correlated. Nations howeverdiffer from private companies in that it is also their responsibility to keepthe citizens, who placed them in power, satisfied and content with the ways inwhich the country is run whereas if the citizens are not pleased with the waysin which a private company is being run they simply boycott and not purchasefrom there, which will drive them out of business. The difference between thetwo concepts of trading in turn ends up affecting the consumers overall.Placing a tariff on imported goods only increases the cost of the good to theconsumer by the cost of the tariff. The nation or the entity exporting the goodwill not absorb the costs of the tariff, ultimately hurting the consumer whichthen puts the government at risk of disapproval by their people.
Theworld was evolving dramatically from the turn of the 1980s and every year thatprogressed after that brought forth economic changes the world simply has notseen before. In 2008, an international financial crisis occurred starting withthe United States of America and rippling throughout the entire world.Multinational conglomerates went under, industries were completely overhauledand nations were on the brink of bankruptcy.
Many entities nationally andinternationally were enjoying much success with massive growth from thebeginning of the 2000s up until the recession point. Entire markets were put indisarray and the rapid expansion projects occurring internationally were notonly stagnated but completely abandoned even furthering the economic collapsethe entire globe was facing. International businesses were shrinking day by dayas domestic consumption increased dramatically causing an inverse effect onimporting and exporting goods and services.
Inorder to resist and reverse the negative effects of the international financialcrisis, many international entities resorted to tapping into their cashreserves and buying out many regional companies and bank on the success of themto offset the tremendous losses happening on an international level. Companiesoriginating from China were buying out companies situated throughout Africa andcompanies originating from the United States were gaining their European marketexposure through purchasing large stakes in various European companies.
