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Guia de globalización y apoyo para desarrollar la materia.
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Keywords : globalization, first level country, second level country, third level country, nation, State.
Economic processes Economic evolution Economic freedom
Surely, globalization is a concept that you have listened recently, although, this concept is not new. According to the Business Dictionary (2018), globalization is a worldwide movement toward economic, financial, trade and communication integration. The first wave of this movement started in 1870 and ended with World War I. After this period, the world started a protectionism era with high tariffs and trade barriers. Later, after World War II, countries started to rebuild their economic processes, to raise the cities that were devastated by the war, this led to a second wave of globalization to emerge that lasted from 1950 to 1980. The main goal was to restore the commercial relations between Europe, North America, and Japan. Many institutions were created to ease economic integration, such as the World Trade Organization, the World Bank, and the International Monetary Fund, among others. Did you know that…?
The third wave of globalization appeared due to the advances in technology, communications, and transportation, as well as the reductions of the trade barriers which made it easier for countries to exchange goods in the form of exports. Also, the industrial revolution had a great impact in globalization, because of the changes it brought to the economies, becoming a driven force of modern global economies (Fink, 2013). Colombia started its globalization process in 1991 and it has changed the country’s economic processes making it more competitive and advanced. Nowadays, countries are being measured in different aspects, not only economically, but also in terms of education, wellbeing and social development. This evaluation is done by the World Economic Forum (WEF), a special branch of the World Bank in charge of ranking the economies of each country. Every year, the WEF publishes the Global Competitiveness Index in which they evaluate 12 pillars to determine the competitiveness landscape of 138 economies, providing insight into the drivers of their productivity and prosperity. The 2018 Report (Schwab & World Economic Forum, 2017) showed the following results:
Global competitiveness index Basic requirements sub index Pillar 1. Institutions Pillar 2. Infrastructure Pillar 3. Macroeconomic environment Pillar 4. Health and primary education Innovation and sophistication factors sub index Pillar 11. Business sophistication Pillar 12. Innovation Efficiency enhancers sub index Pillar 5. Higher education and training Pillar 6. Goods market efficiency Pillar 7. Labor market efficiency Pillar 8. Financial market development Pillar 9. Technological readiness Pillar 10. Market size Figure 1. Global Competitiveness Index Framework: the 12 pillars based on information from World Economic Forum Source: Schwab & World Economic Forum (2017) Globalization has been spreading all over the world thanks to the need of the countries to enter inter- national markets as a way to contribute to their economic processes.
Suppose you are planning to export shoes to France, ¿does the Colombian government has control over your money? ¿Are you free to receive the payment of the export process? This has to do with what is called economic freedom, the ability of the people to make economic decisions. Economic freedom includes trade, business, investment and property rights. Colombians have power over their own money. For example, if you want to buy a car, a house or just go on vacation, you don’t need to ask permission to the president to use your money. That is because Colombia, as a second level country has developed economic freedom policies.
Did you know that…?
2.1. First level countries The term first level countries, or first world countries, normally refers to the countries that have reached a high level of human development in terms of life expectancy, quality services, health and education. This concept appeared after World War II, referring to the allies of the United States during the cold war. Nowadays, the first level countries are those who have high levels of industrialization, technology, and developed economies. Countries like Canada, United States, Japan and Europe are considered first level countries. 2.2. Second level countries This term was first used when speaking about socialist countries such as Russia and China. After World War II, when United States and Russia divided the German territory, Russia established a socialist economic model based on protectionism. Today, this term is used by the economists to refer to the so-called emerging markets or developing countries, such as India, Brazil or Mexico. These countries are none for their geographical position and developing economies. Among this type of countries, China, Russia, and Brazil stand out thanks to their market size. 2.3. Third level countries The term third level country was first used by the French economist Alfred Sauvy in 1952 when referring to the developing countries. Nevertheless, this term is referred today to poor countries that are found in Africa and some Asian and Latin American countries like Bolivia or Haiti.
3.1. Economic variables Along with the economic evolution, the economic variables used to measure the economies also changed. For many years, economies were measured through its Gross Domestic Product (GDP), that defined if a country produced enough goods to satisfy their population’s needs. In recent years, an economist named Joseph Stiglitz contradicted the theory that the economy can only be measured using the GDP. Stiglitz proposed that other economic variables should be included, such as access to education, health, personal safety, property rights, among others (Stiglitz, 2002). In consequence, many other indexes were taken to account to measure economic development, such as the Gini Index, Human Development Index, Social Innovation Index, Environmental and Sustainability Index, and Peace Index. Each one measures countries’ economies in different aspects rather than only in the financial one. 3.2. Economic models The modern economy is complex and difficult to understand. Its job is to distribute the limited resources among the individuals within a country. This isn’t an easy job. That’s why economists try to interpret economies and predict their behavior. Modern economists build models to try to understand the factors that affect the economies, but what is exactly an economic model? “An economic model is a simplified description of reality, designed to yield hypotheses about economic behavior that can be tested” (Ouliaris, 2011). On these bases, you can find two economic models: the theoretical and the empirical. The theoretical model, for instance, will show a positive relationship between the customer’s expenditure and income. The empirical model, on the other hand, will show a dependent relationship between the variables: if the income increases, the expenditure will increase, but if the income decreases, the expenditure will do so. But what makes a good economic model? Before answering is important to know that an economic model is not perfect, but it can help economists to predict economic scenarios, like the economic crisis in 2008, which had repercussions until 2010 for most of the economies. When an economic model forecasts errors, economists must check the model and recalculate. No economic model can give a perfect description of reality, but the very process of constructing, testing, and revising models forces economists and policymakers to adjust their views about how an economy works (Ouliaris, 2011).
Globalization is a worldwide integration process that affect everyone all the time. Every decision made by one country will have a positive or negative influence on lives and economies of another country. Technological advances contribute to make some countries more globalized than others. The fact that you can listen to foreign music, read international books, or watch movies from overseas makes you part of this globalized world. Knowing this, countries cannot be measured only with economic variables, because there are other aspects that influences people’s lives. First level countries, for example, surely will have better access to high quality education and health than third level countries. Do not be surprised if first level countries are developing better economies by promoting the use of high added value product and services to improve their quality of life. Colombia needs to become a first level country, but to do so it needs to promote among their citizens the culture of the competitive advantage, rather than the absolute advantage. To summarize…
TECHNICAL INFORMATION Module: Globalization and Competitiveness First Teaching Unit: Introduction and historical background First Learning environment: Economic evolution of the countries Author: Sandra Milena Chicas Sierra Academic advisor: Claudia Rocío Puentes Mendoza Graphic designer: Brandon Steven Ramírez Carrero Assistant: Eveling Patricia Peñaranda Izquierdo This material belongs to the Politécnico Grancolombiano. Total or partial reproduction is prohibited.
