9.4: Economics in the Global Age
Free Market Economics
Around the world, during, and then accelerated by the end of, the Cold War, many governments started to encourage free market economic policies. A free market economy is one with generally privately-owned businesses and property, with little to no government interactions with the markets.
As we discussed in unit 8, specifically thinking about the Cold War across the world, the United States of America tried everything that it could to prevent countries from falling to communism in a containment plan. In countries like Greece and Turkey, the Truman Doctrine sent monetary aid to countries it felt were at risk of becoming communist, to encourage a free market/capitalist economy.
This image is courtesy of Apprend.io and demonstrates the purpose of the Truman Doctrine, which was to throw money at Europe to prevent the spread of communism.
Economic Liberalization is a free market policy that became popular in the post-Cold War era, where countries' governments removed their own political controls over their markets. This policy was used famously by the United States under Ronald Reagan, Britain under Margaret Thatcher, China under Deng Xiaoping, and Chile under Augusto Pinochet. The College Board says that you must know at least a couple of these examples listed above, so make sure to read their overviews in this guide and dig deeper into their economic liberalization policies!
Who are they?
Free Market Actions
The “Iron Lady”, Longest Serving GB Prime Minister of the 20th century
New government spending policies had to be created to focus on inflation; less regulation
Anti-Communist President, De-escalated Cold War Tensions with USSR: Détente
Supply-Side/Reaganomics to create lower prices and lower taxes; Decrease of inflation and unemployment
“The Architect” of socialist thinking; made China more Socialist/less Communist
Southern Tour: Price reforms, tax reforms, new private ownership of previously state-owned companies
Assumed power in Chile after a US-backed coup; Ended civilian rule until 1990
Miracle of Chile: Privatization of publicly-owned (state-run) companies, stabilization of inflation
The United States was one of the world’s biggest manufacturers from the 1860s-1960s, but this started to change after the sixties. The US economy in the 1980s continued to transition from having more industrial jobs to having less, as more manufacturing jobs were outsourced or became automated. This transition into a post-industrial economy especially hurt industrial cities in the midwest like Pittsburgh, Toledo, Detroit, and Indianapolis. They made up the new Rust Belt, a group of cities with new depressed status as factories closed. This increased the demand for university education, since new and growing fields like healthcare, engineering, or computing often required college degrees.
The Knowledge Economy
Since the Industrial Revolution, many MDCs (More Developed Countries) have progressed past a manufacturing-based economy, as described above with the Rust Belt, to a more knowledge-based economy. Knowledge economies are based in communication technology, the spread of information, and globalization! There are three major countries with big knowledge economies that the College Board say you should know:
United States of America
The best example of a knowledge economy is in Silicon Valley, in the US. Companies like Apple have a phrase on the box that your iPhone comes in that says “Designed by Apple in California. Assembled in China.” This phrase exemplifies how the work of creating the designs and plans and software for an iPhone, a high-level economic activity, takes place in a knowledge economy, while the manufacturing of those ideas into reality takes place in a more industrial economy.
The nodes of industrial production and manufacturing, today, are generally found in the regions of Latin America and Asia. The major Latin American manufacturing countries are Mexico and Honduras, while the major Asian manufacturing countries are Vietnam, Bangladesh, and China. China, though, is becoming a more post-industrial economy at about the same time that economic liberalization is occuring.
For example, Japan and other “Asian Tiger” countries have created export-processing economies through nationwide education, low wages, and intensive manufacturing centers.
Most of the business that occurs and has occurred across the world from 1900 to today is through the new global system of business dominated by giants in every industry, also known as multinational corporations. These MNCs, for short, are companies that operate on a global scale but are mainly headquartered in a country in each region of the world. Some common examples of multinational corporations are Exxon, Nissan, and Nestle, but you can choose any number of them as good examples for your AP exam!
Multinational corporations work in highly developed knowledge economies to expand worker growth (software designers, engineers, technology jobs) while promoting low-cost manufacturing of knowledge economy products in other, less developed countries. Access to world markets makes transnational corporations into global entities, which means they aren’t confined to the laws of any single country.