The Hindu Business Line : From `absolute advantage' to `Yunus, Muhammad'

The pillars of globalisation include `the free cross-border movements of goods and services, foreign direct investment, financial capital, labour and technology.' At a broader level, globalisation `also embraces international flows of ideas, political and social values, language, and other aspects of culture.'

It is reassuring to know from Rodrigo Rato, managing director of IMF (International Monetary Fund) that the global economy is likely expand by five per cent, with China and India continuing to be `engines of growth'.

But, as if to outmatch the positive, the phrase `global economy' appears in many gloomy contexts too. For instance, from among more than 4,000 news reports referring to `global economy', at the time of writing, here are a few: `Global economy could face turbulence ahead,' as Taipei Times reports, citing Forbes; `Global economy often leaves workers behind,' on www.yesweekly.com; `Wrinkles in global economy,' as www.azcentral.com states; and `Investor jitters build over slowing global economy,' a headline from Reuters South Africa.

What is global economy? David E. O'Connor helps with answers in a two-volume Encyclopedia of the Global Economy, from Academic Foundation (www.academicfoundation.com). The books provide an A-Z of the big picture, of all countries and economies, which should help `students and researchers'. But do you know that in 2004, `there were 192 countries in the world and 208 economies'?

How so? The author's note explains: "There are more `economies' mainly because a number of largely autonomous territories or regions within countries are counted as separate economies by multilateral organisations such as World Bank and IMF." Examples are Hong Kong SAR (Special Administrative Region) and Macao, which are counted as separate economies in spite of being regions within the People's Republic of China. So are Puerto Rico and the US Virgin Islands, reckoned as economies separate from the US.

"The global economy is the international network of individuals, businesses, governments, multilateral organisations, and civil society groups, which collectively make decisions about the production, consumption, and distribution of goods and services," defines O'Connor in the preface. "The two modern phases of globalisation occurred from 1850 to 1914, and 1946 to the present," he outlines.

Pillars of globalisation

The pillars of globalisation, according to him, include `the free cross-border movements of goods and services, foreign direct investment, financial capital, labour, and technology.' Well-known, these are, but at a broader level, globalisation `also embraces international flows of ideas, political and social values, language, and other aspects of culture,' points out the author.

Begin, therefore, your alphabetic exploration of the world economy with `absolute advantage'. A phrase that found use in the 1776 classic by Adam Smith, `An Inquiry into the Nature and Causes of the Wealth of Nations'. You may remember the traditional examples about bushels of wheat and bottles of wine. Contemporary examples are about the advantage that nations enjoy by investing in education and skilled labour force. An investment in human resources that can result in "the nation's absolute advantage in the production of sophisticated manufactured goods, such as computers and software, and commercial services in the realms of banking and finance, insurance, consulting, and so on," explains O'Connor.

B begins with `balance of payments' or BOP, which is `a record of one country's transactions with the rest of the world in a given period of time.' Venezuela's GDP is up, but BOP is in the red, informs www.vcrisis.com in a report dated August 19. And www.scoop.co.nz wonders in a recent posting if New Zealand's BOP and debt are a `time bomb'!

The financial component of BOP accounts for `cross-border sale or purchase of assets'. And traded assets include `corporate stocks and bonds, government securities, long term FDI (foreign direct investment) — including money spent on M&As (mergers and acquisitions) and greenfield investments'.

Interestingly, in 2003, the US had a $546 billion surplus in its financial account, one learns. "This surplus resulted from foreign investors' willingness to buy $829 billion worth of US financial and physical assets, while US investors purchased just $283 billion in foreign assets." Worth studying what our numbers are, in the wake of the gush in cross-border M&A activity closer home.

C takes off with `capital flight', that is, "excessive cross-border transfers of financial capital rather than the normal purchases of foreign securities, properties, or other assets that investors make to diversify their investment portfolios," as O'Connor explains.

A burning issue because it drains scarce financial capital from developing countries, he adds. "The currency conversion and capital flight that occurred during the first two weeks of Israel's 29-day-old military campaign have almost come to a halt and the local currency remains stable," opens Lysandra Ohrstrom's article dated August 10, in The Daily Star, Lebanon. And the Left has been opposing FCAC (full capital account convertibility), by highlighting `the damage that can be caused to the economy by large-scale capital flight'.

The section on D begins with `democracy', which, as we know, is "a type of political system in which political authority is derived from the people."

D ends with `dumping', an illegal trade practice that happens when "a company from one nation sells its output in a second country at a price lower than its production costs, or lower than the price charged in its own domestic market."

Catch up also with: Entrepreneurship and external debt, factors of production and free trade area, good governance and G77, highly indebted poor countries (HIPC) and human development, informal economy and ICT (information and communication technologies), and more...

`Banker to the Poor'

The last entry is `Yunus, Muhammad' - the Bangladesh development economist and social reformer, the founder of the Grameen Bank. He introduced microcredit as a viable antipoverty and development strategy, writes O'Connor.

A concept that he introduced 30 years ago to fit the local conditions, and today the bank is "the world's largest microfinance institution."

A fitting close to the encyclopedia, rather than close with W, as in `Glossary of globalisation, trade and health terms' on www.who.int. For, on Wednesday the `Banker to the Poor', as Yunus is known, was selected for the 2006 Seoul Peace Prize.

"His tireless endeavour to root out poverty and create a new model of giving credit to the poor will bear fruit in terms of greater peace in the world," the Seoul Prize Cultural Foundation has said.

Right read to help patch up gaps in your `global' knowledge.

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