1)
Growth in
world economy is based on increase in trade because:
a)
Fall in
transportation costs
i)
Age of
discovery to today
ii)
19th
century US transportation costs fell by a factor of 10
b)
Advances in
communications
i)
Rapid
reaction by transnationals to changes in
local
markets
ii)
Paperless
international trade
iii)
New
type of global organization
c)
Growth of
trade: Increased by more than a factor of 10 since WWII
2)
Role of
government in world economy
a)
Historical
perspective: More government up to 1980
i)
Great
Britain and the industrial revolution
ii)
US
iii) Japan
iv)
Soviet Union
b)
Since 1980
less government
i)
Maggie
Thatcher and Great Britain
ii) Communist world
iii)
Minor
reversal because of world recession and reckless business policy
towards risk.
c)
World
Organizations
i)
United
Nations
ii)
World Bank
and International Monetary Fund
iii)
World Trade Organization
(1) Move towards free
trade, but individual countries frequently use neomercantilism
when in their advantage
iv)
G8 to G20
3)
Common
Markets and Big Countries
c)
Other
d)
Brazil,
China, India, Russia, US, and EU
4)
General Equilibrium
a)
Economic
theory: Adjustment to changing prices
b)
Economic
fact: Constant adjustment to advancing technology
i) Education
i)
Research universities
ii)
Finance of research
iii)
Corporate R&D and stealing patents and trade secrets (industrial
espionage)
iv)
Firm
(1)
First firm to bring new
product to market that is reliable at a
reasonable cost tends to capture the world market
(a)
Industrial 'arms' race
(b)
Example: Integrated
circuits
(2)
Innovate in production
to increase profits
v)
Government
(1)
Voting with feet
creates strong incentive to innovate in
governmental procedures
(a)
The lower the level of
government the greater the incentive
5)
Nature of
world country competition: Up the food chain
a)
Less
developed world
i)
As countries
develop, their labor costs rise forcing them to move to more
technologically
advanced products
(1)
This requires better
education and move towards research universities and
corporate R&D.
ii)
Developing
countries are generally focused on selling more goods and services
abroad
b)
Developed
world
i)
Must constantly create
new industries to replace those lost to less developed world
ii)
Research and
transfer of research to new industries
iii)
Developed world
countries are more focused on consumption that
trade
6)
Rich and transnationals
a)
Transfer of
technology
b)
Managers are
becoming international
c)
New type of
international organization: IBM
d)
Interests of
rich and national interests