The Global Economy as Harbinger of Global Peace - World History

By the 1990s electronic communication and worldwide investment and marketing had created a genuinely global economy. Giant transnational companies dominated finance and production. Yet the gulf between rich and poor nations remained, and the developing world relied on the developed world for aid, investment and export markets.

IN 1992 AN AMERICAN STATE Department official, Francis Fukuyama, published The End of History, in which he argued that the collapse of the Soviet bloc signalled the final worldwide triumph of modern fee-market capitalism over all other systems. In the former Communist bloc capitalist free-market reforms had been introduced. Even in China, the remaining Communist superpower, the economy was liberalized and Western capital and technology introduced. By the end of the decade an integrated global economy had emerged.

However, world economic development still dependent in part on the central management of key economic factors by groups of states, and on collaboration between them. Representatives of the largest industrial economics met regularly as the Group of Seven to co-ordinate financial and trade politics. Additionally, regional agreements sought to expand trade between small groups of states.

Regional and global integration

The most successful of these groupings was the European Union, which grew from the original six members of the EEC in 1957 to embrace 15 states by 1996. Gradual economic integration culminated on 1 January 1999 in the introduction of a single currency, the Euro. Economic groups elsewhere were looser associations aiming to enhance regional economic integration. In 1994, for example, the USA, Canada and Mexico joined together in the North American Free Trade Association (NAFTA).

Integration was also encouraged by the rapid growth of multinational (or transnational) enterprises and high levels of foreign direct investment. In the early 1990s it was estimated that the 37,000 multinationals employed 73 million people. The 100 largest companies controlled one-third of all foreign investment most of it in developed world. The existence of multinationals, many with assets larger than the GDP of smaller states, acted to stabilize the world economy, though at the cost of lack of supervision by sovereign states.

Global inequality

The fruits of the global economic success were spread very unevenly. Sustained expansion in Asia, Europe and the USA was accompanied by economic decline in Africa, Latin America and the former Soviet bloc. The Russian economy in particular faced serious crisis by 1998 as the rush for capitalism failed to generate the wealth to sustain employment and welfare at the level achieved under communism. Even in east Asia, which grew faster than anywhere else in the world from the 1960s to the mid-1990s, the boom turned sour in 1997. Burdened with debt, high population growth and excessive dependence on a cluster of manufacturing exports, the new Asian economies generated a financial crisis which threatened the health of the whole global economy.

Outside the growth areas there was persistent reliance on and investment from the developed world, much of it supplied by the International Monetary Fund or the Organization for Economic Co-operation and Development (OECD). The per capita GDP of the poorest states in 2005 was around $600-700; for the richest states the figure is over $30,000. For many sub-Saharan African states aid represented more than half of the value of total GDP. This pattern of aid-dependence has altered little in recent decades, and the gulf between the poverty of the developing world and the vast wealth of the developed industrial core remains one of the unresolved issues of global economics.