Trade Lessons from the World Economy
The world economy is changing profoundly due to the enormous growth of services exports, the forging of new kinds of business alliances and the merging of transactions of different types. Effective policies will recognize the deficiencies of both managed trade and outright protectionism. Needed is a deliberate and active policy that gives the demands of the external economy priority over domestic policy demands and problems. Integration is the only basis for an international trade policy that can work and the only way to rapidly revive a domestic economy.
Peter F. Drucker is Clarke Professor of Social Science and Management at the Claremont Graduate School in Claremont, California.
ALL ECONOMICS IS INTERNATIONAL
In recent years the economies of all developed nations have been stagnant, yet the world economy has still expanded at a good clip. And it has been growing faster for the past 40 years than at any time since modern economies and the discipline of economics emerged in the eighteenth century. From this seeming paradox there are lessons to be learned, and they are quite different from what practically everyone asserts, whether they be free traders, managed traders or protectionists. Too many economists, politicians and segments of the public treat the external economy as something separate and safely ignored when they make policy for the domestic economy. Contrary lessons emerge from a proper understanding of the profound changes in four areas--the structure of the world economy, the changed meaning of trade and investment, the relationship between world and domestic economies, and the difference between workable and unworkable trade policies.
The segments that comprise the world economy--the flows of money and information on the one hand, and trade and investment on the other--are rapidly merging into one transaction. They increasingly represent different dimensions of cross–border alliances, the strongest integrating force of the world economy. Both of these segments are growing fast. The center of world money flows, the London Interbank Market, handles more money in one day than would be needed in many months--perhaps an entire year--to finance the real economy of international trade and investment. Similarly, the trades during one day on the main currency markets of London, New York, Zurich and Tokyo exceed by several orders of magnitude what would be needed to finance the international transactions of the real economy.
This is a premium article
You must be a Foreign Affairs subscriber to continue reading. If you are already a print subscriber, click here to activate your online access.
Log In
Buy PDF
Buy a premium PDF reprint of this article.Related
The Middle Ages ended when the rise of capitalism on a national scale led to powerful states with sovereignty over particular territories and populations. Now that capitalism is operating globally, those states are eroding and a new medievalism is emerging, marked by multiple and overlapping sovereignties and identities -- particularly in the developing world, where states were never strong in the first place.
The view that nations compete against each other like big corporations has become pervasive among Western elites, many of whom are in the Clinton administration. As a practical matter, however, the doctrine of "competitiveness" is flatly wrong. The world's leading nations are not, to any important degree, in economic competition with each other. Nor can their major economic woes be attributed to "losing" on world markets. This is particularly true in the case of the United States. Yet Clinton's theorists of competitiveness, from Laura D. Andrea Tyson to Robert Reich to Ira Magaziner, make seemingly sophisticated arguments, most of which are supported by careless arithmetic and sloppy research. Competitiveness is a seductive idea, promising easy answers to complex problems. But the result of this obsession is misallocated resources, trade frictions and bad domestic economic policies.
