Economic Interdependence of Mexico and China - Case Study Example

Economic Interdependence The world is globalized and the spread of capitalist inspired consumerism has paved the way for global economic interdependence. Interdependence is a feature of the global community and it helps explain the bonds and linkages between various states in the international system. Although the focus of this essay will be on capitalist global economic interdependence, it is important to remember that the formerly socialist states of the Soviet Union were economically interdependent in their own right. Following the collapse of the Berlin Wall in 1989 and the resulting implosion of the Soviet Union less than two years later, the global spread of capitalism has finally made inroads into the formerly socialist states of Central and Eastern Europe. Today, the globalization phenomenon has been propelled by the internationalization of the capitalist economic system and the establishment of complex economic interdependence throughout the world. Seeking to understand global economic interdependence in the twenty first century, this research paper will begin with an introduction to development and then explore the issues surrounding the global spread of capitalism. Following this, we explore economic interdependence and the spread of neoliberalism in the late 1980s until today. Looking at how the global economy is managed, we discuss the World Trade Organization, the International Monetary Fund and the World Bank and discuss the important roles that each actor plays in our era of economic interdependence. This will be followed by two case studies, one which has embraced neoliberal economic reforms and another which is cautiously embracing capitalism and developing its economy in line with statist principles of economic development. Mexico and China provide excellent examples of the interdependent nature of the world capitalist economy. Following this, we conclude with synopsis of the research and an overview of the issues studied with respect to economic interdependence in the twenty-first century. 1. What is Development? The United Nations has established the UN Human Development Index, a measure of different levels of development which focuses on a variety of characteristics and attributes and not focused exclusively upon economic matters. The UN Human Development Index, or HDI, examines development using a wide range of factors including important social indicators in its index. These indicators are to account for a variety of measure of development including life expectancy, literacy rates, Gross Domestic Product per capita, educational opportunities, standards of living, and opportunities for the advancement of women. The HDI is used to measure the stages of development of a particular country and it focuses upon a series of indicators in order to do so. Sustainable development, the belief that development can and should sustain itself, promotes development today and also in the future. Accordingly, economic and social development which is long-term and focuses not only on the immediacy is said to be sustainable. The UN HDI examines the sustainability of economic and social development and accordingly views issues of development through a wide lens. Since the purpose of this research paper is economic development however, the following will focus more thoroughly on economic modes of development, while keeping in mind the important indexes put forth by the United Nations. Since global economic interdependence in the twenty-first century is predicated upon the spread of global capitalism, the following will discuss capitalist development as the primary engine of economic growth in today’s globalized world (United Nations, 2008). 2. Capitalist Development Capitalism has changed the ways in which billions of people around the world live, work and do business and is arguably one of the most important motivations behind the current spread of the globalized economic system. Accordingly, capitalism is the most well known model for economic development and growth. This mode of economic development is responsible for the globalization of international trade, the internationalization of foreign capital and development of much of the Western world. Capitalism promotes free-market economic principles of development and believes in deregulation, a belief in the invisible distributive hand of the markets as well as the promotion of a market-oriented society. From this perspective then, the role of the state is to promote economic development through policies which are beneficial to market-oriented, as opposed to state-led, economic growth. Capitalism has been the driving forced behind the recent spread of economic globalization and the tremendous economic development exhibited by the countries of the modern Western world. Today, capitalist economic development is presently being embraced as a developmental model by the formerly socialist countries of Eastern and Central Europe (such as the former states of the U.S.S.R. and its satellites). Furthermore, capitalism is responsible for tremendous economic growth across the world. We now turn to an exploration of neoliberalism, a stream of capitalism which has a driving force behind globalization in the twenty-first century. 3. Economic Interdependence and the Spread of Neoliberalism Globalization is an economic, social and political phenomenon with consequences in a variety of important geopolitical realms. The current state of global economic affairs dates back to the in the American social revolution in the 1960s, a series of economic crises in the 1970s culminating the collapse of the New Deal and the OPEC oil crisis, as well as the emergence of neoliberalism as the driving political and economic force in the 1980s. Accordingly, the globalization phenomenon, as it presently exists, rests on the shoulders of neoliberal economics and the global entrenchment of capitalism as the dominant and most important economic system in the world. As has been mentioned above, capitalism is at the heart of the globalization movement and the complex economic interdependence found around the world today. Accordingly, neoliberalism is a stream of capitalist economics which more specifically explains globalization in the twenty-first century. Furthermore, neoliberalism, the belief in laissez-faire capitalist economics, is most frequently associated with Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States during the 1980s. Accordingly, American President Ronald Regan famously remarked that “government was not the solution but the problem” (Hobsbawm, 1994, 203). From an economic perspective, neoliberals put all of their faith in the distributive capabilities of the invisible hand of the free market, believe that business was inherently good and that excessive government is inherently bad. Furthermore, the government was longer interested in providing social welfare but existed to stimulate the capitalist economic market. Accordingly, the United States under President Ronald Reagan was described by renowned economic historian Eric Hobsbawn as the head of the “greatest of the neoliberal regimes” (Hobsbawm 1994, 204). Accordingly, The essence of neo-liberalism, its pure form, is a more or less thoroughgoing adherence, in rhetoric if not in practice, to the virtues of a market economy, and, by extension, a market-oriented society. While some neo-liberals appear to assume that one can construct any kind of ‘society’ on any kind of economy, the position taken here is that the economy, the state and civil society are, in fact, inextricably interrelated (Coburn, 2000, 137). Globalization today has been driven by capitalism and the internationalization of the capitalist economic system. One of the major effects of globalization is the worldwide spread of neoliberalism as an economic force and the global entrenchment of capitalism as the dominant – some would say sole – viable economic system for the world economy. Enthusiastically promoted by the Reagan and Thatcher governments in America and Britain, neoliberalism was given a huge boost following the collapse of the Berlin Wall and the fall of communism in Eastern and Central Europe at the end of the twentieth century. Entrenched as the dominant economic ideology throughout the world, neoliberalist capitalist economic principles are the underlying force behind the current wave of globalization today. Despite detractors on all four corners of the globe, globalization remains an important force in modern society, accounting for economic interdependence and sustained and sustained economic growth on a global scale. How is the global economic interdependence managed in today’s era of globalization? 4. Managing Global Interdependence As we have shown, the international economic system is predicated on the principles of capitalism and neoliberal economic development. The global capitalist community is in effect managed through multilateral economic organizations such as the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank (WB). Established to liberalize trade and promote international trade and economic growth, the WTO has succeeded in creating free trade regimes throughout the world. Through the adherence of capitalist states to WTO agreements and resolutions, this organization has been particularly successful in enforcing the neoliberal economic agenda. Aimed at tackling tariffs and trade policies between states, the WTO is the largest private organization of its kind in the world. Currently, the WTO provides a dispute settlement mechanism whereby it is arbiter on all things economic. Thus, the World Trade Organization has a special role to play in the perpetuation as well as the management of the global economy. The free trade regime advocated by the WTO is one in which borders are porous, tariffs are overcome and neoliberal economic principles remain supreme (Harvey, 2007, 33). The International Monetary Fund (IMF) and the World Bank (WB) have succeeded in managing the international financial system by creating the “rules of the game” for the global economic system. They also apply the principles of the Washington Consensus to countries in need of developmental aid. The IMF is a multilateral international organization which ensures the compliance of its member states with the economic principles of this organization. Managing exchange rates and balance of payment between member states, the International Monetary Fund lends money and applies stringent macroeconomic conditions to its loans. Structural Adjustment Policies are a controversial component of the lending practices of the IMF. As with the International Monetary Fund, the World Bank is an international financial organization which engages in the controversial practice of Structural Adjustment and exists primarily as an international lending organization. Critics of globalization argue that this phenomenon is thinly disguised neo-imperialism and actually represents a negative attempt to spread the Western concepts of capitalism, exploitation and greed across the globe. World systems theorists would argue that the economic policies of the IMF and World Bank do nothing more than entrench the dominant economic position of the developed countries of the West while perpetuating an unequal global distribution of wealth. They ensure the continued subservient status of the developing countries of the world within the current global economic system. Global institutions like the World Bank and the International Monetary Fund often bear the brunt when it comes to criticizing the global economic system. We now turn to an example of economic interdependence by looking at the case of Mexico, a junior partner in NAFTA, and the economic ramifications of increased interdependence in the modern era (see Coburn, 2000). 5. Case Study: Mexico Importantly, economic interdependence and globalization have raised the standard of living in Mexico. For many countries around the world this rings true and the benefits of economic interdependence and liberalization can be throughout the globe. Mexico has embraced free trade and economic growth in partnership with the United States and Canada and is an important member of the North American Free Trade Agreement (NAFTA). Due to the interconnectedness of global economic markets today, more people are employed, more money flows between countries and subsequently the standards of living of people throughout the world are raised. Mexico, a developing country which has embraced economic liberalization and is now a member of NAFTA, has exhibited incredibly economic gains since joining this regional North American trade block. With a population of 108.3 million and a Gross Domestic Product of $839 billion USD, Mexico has benefited tremendously from macroeconomic liberalization and market-oriented growth. In response to its inclusion in NAFTA, employment has risen consistently over the past decade and a half and annual GDP growth over a ten year period from 1997 to 2007, is estimated at 3.7%. This level of steady and consistent growth over a period of ten years is remarkable for a country which has remained underdeveloped relative to its North American counterparts since its creation nearly two centuries ago. Accordingly, as a percentage of its labour force, the average Mexican unemployment rate from 1995 to 2006 stood at a low 2.8%. Compare that with Mexico’s neighbor to the south, Columbia which still does not have a free trade agreement with the world’s largest economy, the United States, and the results are astounding. Over the same period, Columbia had an average unemployment rate of nearly 15%. As with the interconnectedness of the globalized world demonstrates, Mexico has managed to develop in line with neoliberal economic principles and has strengthened its economic outlook (The Economist, 2009). 6. Case Study: China China has cautiously embraced the principles of capitalist economic development while maintaining true to its socialist credentials. Today, China is the home of literally thousands of jobs which were once staples of the American and Western manufacturing world. In contrast to its early development, which promoted state=planning and socialist development above all else, in the many years since the Chinese Revolution, China has begun to embrace economic liberalization and the capitalist economic ideology. While China maintains its authoritarian nature with a strong role for the state in stimulating economic development and growth, China today has the fourth largest economy in the world behind the United States, Japan and Germany and its economy is estimated at a total $2,645 billion per year. While China has a population of more than 1.3 billion and is growing everyday, this country remains quite rural; despite this, 25% of its economic force is employed in industry while a further 32% if employed in the service sector. Industrial development has been a focus of the leaders in Beijing since the days of revolution and an industrial economic growth has been at the forefront of Chinese development. The Economist magazine reports that industrial production accounts for 49% of China’s total $2,645 billion USD Gross Domestic Product. Furthermore, over a ten year period, from 1996 to 2006, China witnessed an average growth rate of 10.5%. This is astonishing, particularly in an age of contracting economies and the global economic crisis. Why such high growth? Many feel that China’s low wages and the high demand for productive labor in the country have been the secrets to China’s success. Furthermore, much of China’s growth can be attributed to China’s role in the new global economy and the role that China plays today in economic international affairs in an era of economic interdependence (The Economist, 2008). China remains true to its authoritarian character while embracing capitalist forms of economic development. Thus, China has followed economic liberalization but with a strong role for the state. Embracing statist ideas about a command economy and the role that the state can play in augmenting economic growth, China presently engages in state-led development and a strong orientation for the state in capitalist economic growth. China’s developmental model is nowhere near neoliberal but it was witnessed tremendous growth through key policies aimed at attracting business and creating incentives for interdependent development. Thus, China has created free trade zones which cater to foreign investors, foreign development and large multinational corporations. China remains true to its officially socialist political doctrine by stimulating far reaching development in a variety of economic realms. China’s developmental model is predicated on the notion that the government should have a strong hand in determining the level of growth and development this country experiences. China remains Asia’s economic powerhouse and this country has implemented statist principles of capitalist development which involve the creation of free trade zones to attract foreign investors and thereby shape the economic development of the country. China encourages direct foreign investment and the role of multinationals by providing tax incentives for businesses to set up shop in the economic zones as well as by providing labor which is quite cheap by global standards. China’s model has embraced capitalism but has negated the neoliberal agenda promoted by international organizations such as the IMF and World Bank. Industrialization is the focus of Chinese development and the stimulation of national growth is based upon the concepts of export-oriented development and the use of foreign investors to make the economy function as the Chinese authorities see fir. Harnessing the forces of global economic capitalism through state-led development, China has focused on key macroeconomic concerns such as raising the national Gross Domestic Product and decreasing the unemployment rate. By utilizing the resources of already established multinational corporations to stimulate widespread growth, China advocates this developmental model throughout Asia and around the world. As has been mentioned earlier, from 1996 to 2006, China’s annual GDP growth rate was an incredible 10.5%. For China, both the private and public sectors play an important role in promoting economic growth and economic development in the twenty-first century (The Economist, 2009; Clark and Kim, 1995, 49-65). While in East Asia, Hong Kong, Japan, South Korea and Taiwan, continue to be important economic actors, the most dynamic and rapidly growing economy of the globe after the fall of Soviet communism was that of Communist China, leading Western business-school lectures and the authors of management manuals, a flourishing genre of literature, to scan the teachings of Confucius for the secrets of entrepreneurial success (Hobsbawm, 1994, 145-146). The Chinese state has been a beneficiary of increased economic interdependence and has decided to cautiously embrace capitalism and economic development in its own way. With a strong manufacturing center, China has succeeded in shifting employment away from the Western world and traditional manufacturing centers in the United States such as Detroit, Michigan. The Chinese state is the world’s major challenge to American economic control as Chinese wages remain low products created in China flood the world’s marketplace. While slowly embracing capitalism, China has continued to remain competitive and is responsible for one of the world’s largest economies. China today is an example of authoritarian capitalism but also an example of how a state can develop in the global interdependent world through its own means (Gat, 2007, 30-34). Concluding Remarks We live in an era of economic interdependence. Globalization is the confluence of forces of capitalism, neoliberalism and global economic interdependence. Accordingly, the spread of capitalist inspired consumerism has paved the way for economic interdependence on a global scale. Following the collapse of the Berlin Wall in 1989 and the implosion of the Soviet Union, capitalism has spread throughout the world, mainly in Asia as well as in Central and Eastern Europe. The globalization phenomenon has been propelled by the internationalization of a uniform economic system and the establishment of complex economic interdependence throughout the world. This research paper will begin with an introduction to development and explored the issues surrounding the globalization of capitalism. The history of economic interdependence was analyzed, as well as how the global capitalist economy is managed in the twenty-first century. Our case studies have demonstrated how China and Mexico have developed in an interdependent global world and while Mexico demonstrates the importance of neoliberal economic leanings, Chins shows that capitalism and the interdependent economic world need not follow set principles of neoliberal development. Mexico has been a major beneficiary of its relationship to the United States and Canada and in particular through its involvement in the North American Free Trade Agreement. China provides an excellent example of the interdependent nature of the world capitalist economy despite the fact that it developed its own mode of development. Are neoliberal reforms the only way that a state can develop in line with capitalist principles of growth? The case of China emphatically states no. In an era of complex economic interdependence, there are a variety of means through which capitalist-inspired growth can occur. Accordingly, economic interdependence in the twenty-first century is here to stay and remains an important force in the international system. References Clark, G.L. & W. B. Kim. 1995. Asian NIEs & the Global Economy: Industrial Restructuring & Corporate Strategy in the 1990s. Johns Hopkins University Press, New York, 1995. Coburn, D. 2000. Income inequality, social cohesion and the health status of populations: the role of neo-liberalism, Social Science & Medicine, vol. 51, no. 1, pp. 135-146. Gat, A. 2007. “The Return of Authoritarian Great Powers” Foreign Affairs, July/August, 30-34. Harvey, D. 2007. A Brief History of Neoliberalism. Oxford University Press, London. Hobsbawm, E. 1994. Age of Extremes: The Short History of the Twentieth Century: 1914-1991. Abacus, London. The Economist. 2009. Pocket World in Figures, 2009 Edition. Profile Books, London. United Nations. 2009. Human Development Report, 2008. Accessed October 30 2009, http://hdr.undp.org/en/media/HDI_2008_EN_Tables.pdf Read More