Charting Trade Routes

Presidents & Prime Ministers, September-October 1997 | Go to article overview

Charting Trade Routes


... Before Christopher Columbus's time the oceans divided the world. Now they unite us. Thousands of miles of fiber optic cables weave oceans and continents together, as do millions of sound waves and electromagnetic Signals crisscrossing the atmosphere above our planet. Twenty four hours-a-day this global network carries the world's business contracts, currency transactions, medical information, and educational resources, instantaneously across time zones, borders and cultures. The new trade routes of the 1990s are laser flashes and satellite beams. The cargo is not silk or spices, but technology, information, and ideas.

This interconnected economy is transforming the world in more fundamental ways than is implied by the globalization of goods and investment alone. An information technology revolution -- whose roots are here in the laboratories of Silicon Valley -- has greatly increased the flow of information across the planet, making knowledge a more important production factor than labor, capital, or raw materials. Its influence will shape more than productivity growth -- it will shape a new relationship between advanced and developing economies, a new compact between governments and citizens, and new ties among people that transcend cultures, classes, and nationalities.

No one can predict with certain where these deep structural changes will lead us. What is clear is that this new information-based economy, free of many of the limitations of distance, time and resources, has the potential to add a new dimension to economic integration -- a "borderless" dimension that could dramatically accelerate the growth and development dyanamic in much of the world. What is also clear is that many of our old policy tools will no longer apply in this borderless economy -- so that new instruments of international economic cooperation which transcend borders, like the WTO, will become all the more important. It is because we are entering a new world and a new kind of economy -- with great benefits as well as risks -- that we are "Inventing the Future".

Broadly speaking, the world economy has passed through two phases of development in the last fifty years, and is now entering a third, each of which is moving us towards a more integrated and -- in some sectors -- even borderless global economy:

The International Economy. The three postwar decades can perhaps best be defined as an international phase in the world economy -- by that I mean, an era of growing trade among a set of interlinked but still predominantly national economies. In 1950 the vast bulk of economic activity still took place within the borders of the nation state -- in fact, the ratio of trade to global output was only 7 per cent. International trade was mostly limited to raw materials or finished products, and investment was mainly limited to establishing foreign affiliates -- or "branch--plants" -- in otherwise protected national economies.

The Globalized Economy. Beginning in the 1970s and accelerating in the 1980s, the world economy entered a second phase of development -- what is now typically referred to as a phase of "globalization". Rapid advances in information technologies and communications, together with the systematic reduction of global trade barriers, have allowed global firms to break up the production process and to locate its various components in different markets around the world. The surge in foreign investment flows represents the most unique feature of the globalization phase. Trade is no longer the sole or even the main vehicle for delivering products and services across borders; investment has become an even more powerful force for integration, as transnational corporations extend their global reach by establishing a direct presence in foreign markets. The cumulative assets of foreign investment have tripled since 1987 -- to over $3 trillion -- while the annual sales which these assets generate have overtaken the value of world trade. …

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