Page 20 - Global Political Economy_Understanding The International Economic Order

THE NEW GL OBAL E CONOM IC ORD ER
complexity and the instability of international finance. It is obvious
that international finance has a profound impact on the global
economy.
This financial revolution has linked national economies much more
closely to one another and increased the capital available for develop-
ingcountries. As many of these financial flows are short-term, highly
volatile, and speculative, international finance has become the most
unstable aspect of the global capitalist economy. The immense scale,
velocity, and speculative nature of financial movements across na-
tional borders have made governments more vulnerable to sudden
shifts in these movements. Governments can therefore easily fall prey
to currency speculators, as happened in the 1992 European financial
crisis, which caused Great Britain to withdraw from the European
Exchange Rate Mechanism, and in the 1994–95 punishing collapse
of the Mexican peso, as well as in the devastatingEast Asian financial
crisis in the late 1990s. Whereas, for some, financial globalization
exemplifies the healthy and beneficial triumph of global capitalism,
for others the international financial system is “out of control” and
must be better regulated. Either way, international finance is the one
area to which the term “globalization” is most appropriately applied.
The term “globalization” came into popular usage in the second
half of the 1980s in connection with the huge surge of foreign direct
investment (FDI) by multinational corporations. MNCs and FDI have
been around for several centuries in the form of the East India Com-
pany and other “merchant adventurers.” In the early postwar dec-
ades, most FDI was made by American firms, and the United States
was host to only a small amount of FDI from non-American firms.
Then, in the 1980s, FDI expanded significantly and much more rap-
idly than world trade and global economic output. In the early post-
war decades, Japanese, West European, and other nationalities be-
came major investors and the United States became both the world’s
largest home and host economy. As a consequence of these develop-
ments, FDI outflows from the major industrialized countries to the
industrializingcountries rose to approximately 15 percent annually.
The largest fraction of FDI, however, goes to the industrialized coun-
tries, especially the United States and those in Western Europe. The
cumulative value of FDI amounts to hundreds of billions of dollars.
The greatest portion of this investment has been in services and espe-
cially in high-tech industries such as automobiles and information
technology. Information, in fact, has itself become a “tradeable,” and
this raises such new issues in international commerce as the protec-
tion of intellectual property rights and market access for service in-
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