A Rising Tide, Floats All Boats

Globalization means countries are working together for mutual success
Globalization means interdependence between countries and regions, opening up Foreign Direct Investment flows between participating countries. Image courtesy of: www.wittenborg.eu

by John Brian Shannon

As the world economy improves, national economies are being lifted up by a rising tide of success in other countries.

Now that we are living in an evermore globalized world, nations are no longer entities unto themselves. While they were once insulated from the economic successes or failures of other nations, that is profoundly no longer the case.

A recent example is the United States financial crisis of 2008 which was at first confined within the U.S., but later spread to Europe, Japan and China, with those countries experiencing varying degrees of economic malaise directly attributable to the original fall of the U.S. sub-prime mortgage segment.

Had a financial crisis of this sort taken place within the 1950-1980 timeframe, it would have been seen as an ‘America only’ affair as the (then) economic islands of Europe and Asia had little interest in the internal workings of the American economy.

How the world has changed in the 21st century

Recently, ‘America sneezed’ and most of Europe along with Canada ‘caught the cold’ – and while Asia felt unwell, it didn’t miss a day of work.

Globalization is a process. Every year, countries are harmonizing their diplomatic relations, international trade and laws, walking through the remaining issues towards true interdependence between nation-states.

Along the way, we have seen dramatically lower prices for consumers within the participating nations and a strong downward pull on inflation within the globalized community. Foreign Direct Investment (FDI) flows toward nations with lower land, factory and labour costs, while competition ensures that prices reflect those newfound cost savings.

One of the unfortunate effects of globalization from the Western perspective are the jobs that have fled the West to Asia. Over the span of (almost exactly) four decades, millions of manufacturing jobs have gone to the nations which feature low cost land, factory, and labour rates.

The transition of trillions of dollars from the West to the Emerging Market economies and Frontier Market Economies has spawned a rising economic tide in the Middle East, much of Asia, and in India. In fact, the rise of the BRICS nations are easily traced by the FDI inputs into their nations, as a welcome effect of, (but certainly not the primary cause of) their success.

Since 1998 China and India have been described as the two economic engines of Asia, and during recent recessionary times were noted as the economic engines of the entire world. Even as some nations were falling away from their traditional economic rankings, the unprecedented demand for raw resources and high-tech originating from the ‘rising tiger’ economies, slowed the fall of the Western economies and have even spurred their quicker recovery.

Historically, it was axiomatic that when the United States was doing well, Europe, Japan, Canada, Australia and New Zealand were doing well — as the U.S. economy had the power to float those economies no matter the ‘local’ economic conditions.

America is no longer alone with this power

Now, not only can American demand float the economies of countries or entire regions — the combined demand of the BRICS nations can float national economies and regions.

The U.S. population seems ‘torn’ at this juncture, with some in that country lamenting the loss of the unipolar world which was theirs since the end of the Cold War, whilst others welcome the strengthening and broadening-out of the world economy into a truly interdependent and open economic model.

For those Americans who believe in the open economic model (which is the name given to the ‘free enterprise’ system by economists) the strengthening and broadening-out of the world economy is exactly in line with their beliefs and is seen as an adjunct to American economic and political clout.

“We told you the open economic model was the way to prosperity, and now you are ‘our firm converts’ to that, and to the democracy which necessarily accompanies successful free enterprise systems.”

For those Americans who secretly or publicly wish for a closed economic model (known as the ‘communist’ or ‘statist’ economic model by economists) globalization is the root cause of all American economic woes — when in fact, America’s recent economic problems were caused by a perilously-lacking regulatory environment in but one segment of the U.S. economy and poor decision-making by a handful of individuals.

As nations advance towards interdependence they will see rising demand in their own countries from other partner nations (as at any given time, certain of them will be experiencing growth) thereby helping to balance-off the occasional lack of demand in their own country.

De-facto; Interdependence between nations means facilitation of effort, FDI, and countless other forms of assistance towards whatever is the weakest link of the chain.

This contrasts with the decades of ruthless competition which played itself out (even between allies) and ruled every diplomatic and national economic decision. De-facto, that was a ‘sink all the other boats first, before we get sunk’ game, played out in the global economy.

Wherever interdependent nations are working together to improve upon an open economic model, they are in effect working to create a rising tide for all of the participants within that interdependency, because it is simply and profoundly in their best interests to do so.

Interdependency is creating the incoming tide that will float our boats.

From Wikipedia, the free encyclopedia

“The aphorism “a rising tide lifts all boats” is associated with the idea that improvements in the general economy will benefit all participants in that economy, and that economic policy, particularly government economic policy, should therefore focus on the general macroeconomic environment first and foremost. The phrase is commonly attributed to John F Kennedy,[1] who used it in a 1963 speech…”

JOHN BRIAN SHANNON

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