market approaches to tailor them toward the political and economic priorities for a given country (or at least for those who hold much of the power). Friedrich List, a German political and economic theorist who began his career in 1817, posited (in contrast to those who push always for freer and more open trade) that in relatively underdeveloped economies, nascent industries may need state protection from foreign competitors in order to allow them to grow to the point where the country could truly exploit its competitive advantage in a given economic endeavor.44 Some have even credited Friedrich List with first proposing the concept now known as “human capital,”45 a concept often used by those who argue that states with less developed economies need to invest in their citizens, to ensure a healthy and educated workforce that can participate meaningfully in the economy.
Decentralized regulation: a catalyst fortechnological innovation?
In evaluating why the United States pioneered innovation in fracking technologies, Dan Merrill concluded that decentralized regulation was key to enabling innovation. In the article “Four Questions about Fracking,” Merrill considers how governance structures impact innovation:
Why does decentralized regulation promote innovation? The theory that explains this might go as follows. All regulators tend to be risk averse. If things go well, they get no credit. If things go badly, they get blamed. But the degree of risk aversion of regulators falls along a spectrum. Some are more risk averse than others. Where regulation is decentralized, a new technology like fracking can find at least one or two states where it is allowed to get going. This sets in motion a natural experiment. If the results are good, and the risks do not seem too great, then risk‐averse regulators in other states will give it the green light to go ahead there, too. If the results are not so good, or the risks seem too large, then the regulators in other states will throw up roadblocks to the new technology, and the experiment will wither away. In a more centralized regulatory environment, which tends to be the norm in other parts of the world, the experiment is less likely to get off the ground in the first place. This is because the median regulator is risk averse. And being the only regulatory game in town, the risk aversion of the median regulator is likely to translate into hostility to technological innovation.
Please see Chapter 9 later in this book for more discussions on the role of technology in development.
Source: Case Western Reserve Law Review, 63 (4) (2013) (internal citations omitted).
One relatively modern example of this blended approach is South Korea. From the 1960s through at least the 1980s, South Korean economic growth was predicated on massive government investment in its infrastructure and citizens, as well as heavy government intervention in the economy (through regulation, subsidies, and government‐granted monopolies) that allowed certain family‐controlled firms, such as Hyundai and Samsung, to become economic powerhouses that could drive the national economy.46 While South Korea has now adopted a much more market‐oriented approach, these nationally prioritized firms benefited directly from the state approach.
Trade and Global Economic Interdependence
After the killing in World War II ended in 1945, a number of world leaders asked, “What should be done to prevent a person like Adolf Hitler coming to power again?” One of the answers given was to prevent an international economic collapse, such as the Great Depression, which created the conditions that led to the rise of Hitler. With that idea in mind, it was agreed that trade among nations should be encouraged so that, it was hoped, prosperity would spread and economies would become more interdependent. In 1947, under the sponsorship of the United Nations, the General Agreement on Tariffs and Trade (GATT) was signed by about 20 countries. These countries, later joined by about a hundred others, conducted a series of negotiations to promote free trade by reducing tariffs and other barriers to trade such as import quotas. The success of these efforts is clearly shown in Figure 2.8, which shows that from 1950 to the turn of the century world trade rose from about $500 billion to nearly $6 trillion, then more than doubled in just ten years. By 2017 exports had risen to US $17.73 trillion, while trade in services reached US $5.28 trillion.47
Figure 2.8 World trade: merchandise exports, 1950–2015
Source: Based on data from World Trade Organization.
In 1995, GATT evolved into the World Trade Organization (WTO). The WTO was given the task of implementing the many agreements reached under the GATT negotiations and of setting up an arbitration mechanism to resolve trade disputes among its members.
The great expansion of international trade has created a highly interdependent world economy. That integration of the economies of many nations, combined with the proliferation of communication technologies that transcend national borders, and other factors, has been the main force in creating a new situation in the world called globalization. Globalization is mainly fueled by economic forces and sustained by new political, social, and technical integrative forces in the world today. Politically, international governmental organizations such as the United Nations, the International Monetary Fund, and the World Bank, along with regional organizations and agreements such as the European Union and the US‐Mexico‐Canada trade agreement, are playing an increasingly important role in global governance.
In 2000, part of the package of the adoption of the Millennium Development Goals included a need for rich countries to help poorer countries by reducing tariffs and quotas on the poor country’s exports. This push for “freer” trade was viewed as an opportunity to increase the extraction and production of materials, thereby increasing GDP.
Global Interdependence
The global economy is leading to the growing interdependence of the world’s people. Like many things, if not most things in life, it has positive and negative aspects and a critical reader should appreciate the implications of both.48
Positive aspects
The global economy has brought more wealth to both rich and poor nations. Although all nations have not benefited from the liberalization of international trade, “since 1950 there has been a close correlation between a country’s domestic economic performance and its participation in the world’s economy.”49 The United States had an unprecedentedly long period of economic growth and non‐Western countries and areas such as China, the Republic of Korea, Taiwan, and Singapore that also embraced global trade as an economic development opportunity have obtained relatively high levels of prosperity.
The formation of a global community has started. Nations around the world now face common problems, both economic and environmental, that they are working together to solve. More and more individuals are taking advantage of the new communication and transportation technologies to learn about and enjoy the whole planet.
As nations prosper in a global economy, economic interdependence helps promote peaceful societies
