Page 21 - Global Political Economy_Understanding The International Economic Order

CHA PTER O NE
dustries. In combination with increased trade and financial flows, the
increasingimportance of MNCs has significantly transformed the in-
ternational economy.
Although the end of the Cold War provided the necessary political
condition for the creation of a truly global economy, it is economic,
political, and technological developments that have been the driving
force behind economic globalization. Novel technologies in transpor-
tation have caused the costs of transportation, especially transoceanic
travel, to fall greatly, thus opening the possibility of a global trading
system. In addition, the computer and advances in telecommunica-
tions have greatly increased global financial flows; these developments
have been extremely important in enablingmultinational firms to
pursue global economic strategies and operations. The compression
of time and space resulting from these technological changes has sig-
nificantly reduced the costs of international commerce. Globalization
has also been produced by international economic cooperation and
new economic policies. Under American leadership, both the industri-
alized and industrializingeconomies have taken a number of initia-
tives to lower trade and investment barriers. Eight rounds of multilat-
eral trade negotiations under the General Agreement on Tariffs and
Trade (GATT), the principal forum for trade liberalization, have sig-
nificantly decreased trade barriers. In addition, more and more na-
tions have been pursuingneoliberal economic policies such as deregu-
lation and privatization. These developments have resulted in an
increasingly market-oriented global economy.
Many observers believe that a profound shift is takingplace from
a state-dominated to a market-dominated international economy.
Humanity, many argue, is moving rapidly toward a politically bor-
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derless world. The collapse of the Soviet command economy, the
failure of the Third World’s import-substitution strategy, and the out-
standingeconomic success of the American economy in the 1990s
have encouraged acceptance of unrestricted markets as the solution
to the economic ills of modern society. As deregulation and other
reforms have reduced the role of the state in the economy, many be-
lieve that markets have become the most important mechanism deter-
miningboth domestic and international economic and even political
affairs. In a highly integrated global economy, the nation-state, ac-
cordingto this interpretation, has become an anachronism and is in
retreat. Many also believe that the decline of the state is leadingto

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The evolution and increasingimportance of the market is the subject of John Hicks,
ATheory of Economic History (London: Oxford University Press, 1969).
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