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What is the Global Economy?

Whenever the topic of the local economy is brought up, economic pundits quickly remind us that we live in a “global economy,” but what exactly does that mean? Does it mean that economic activity now takes place across the globe whereas it previously did not? Does it mean that economic activity occurs much more rapidly than it previously did? Does it mean that human society has changed to the point where the economies of different countries with different cultures are irrevocably linked together? The answer to each of these questions is no.

Global economic activity has been around for over 2,000 years. The speed at which economic activity takes place is certainly faster, but this increased speed is of little to no consequence to the small and medium-sized business—in other words the overwhelming majority of businesses in the world. In what way have our economies become linked together that the failure of a small percentage of the mortgages in the USA resulted in a world-wide economic crisis, the consequences of which are still affecting us after four years? Is this link something that is irrevocable? What does it really mean when economists talk about the “global economy,” and why is it brought up as some sort of argument against supporting the local economy?

I submit that the global economy is really nothing more than the fact that the banking industry and some very large companies have expanded to the point where they don’t really have any national loyalty. Any claim to a national identity is merely a facade; they hold no national allegiance and their only interest in any country is the ability to make a profit. The large international companies make claims of nationality, their headquarters have to be somewhere, but their operations, offices and factories span the globe. Their national claims often appear to nothing more than marketing in their countries of origin. They love free trade agreements because these allow them to lay off more expensive workers in their country of origin and replace them with less expensive workers in another. This increases their profits without regard to the impact in their home country or to their employees.

The only interest the international banks seem to have in any country is the ability to give it loans. It is true that some of them perform a specific function within a country that is integral to that country. The U.S. Federal Reserve controls the currency in the United States. Likewise with the Bank of England and the European Central Bank. However, all of these institutions participate in the funding of governments all around the world. When they do not do so directly, they act through an intermediate financial institution like the International Monetary Fund. They do not function for the benefit, even in a primary sense, of their supposed country.

Because so many countries have relinquished their sovereign right to control their own currencies to these international entities, and have become so indebted to them, they have become completely dependent on them. The claims that these banks have become “too big to fail” raises the question of why they are too big to fail. If they fail, the governments dependent on them fail with them. Without the seemingly endless lines of credit to fund them, governments would have to stop making promises to provide programs they cannot afford. That is a reality no politician wants exposed to the public. If a government had its loans called, it would be shown to be bankrupt. This is why the giant banks, rather than small businesses, had to be bailed out. In the case of global corporations, the ones “too big to fail” were those with extensive ties to the government through contracts and political influence (lobbying and economic power) that they could exert.

The “global economy” is nothing more than near complete dependence of governments on the global banks and international corporations. No State is prepared to operate without them. In other words, the “Global Economy” is not about providing for the economic needs of the community, the region, or even the state. It is not about the production of wealth for the people of a country. It is mainly about finance, which is only one part of economics, and maintaining the consolidated state of wealth on which governments depend so that they can redistribute that wealth through social programs. This may explain why the efforts to solve the economic crisis are ineffective and inadequate for the average family and business. Interest rates are not kept artificially low so that people can get out of debt, but so that they can remain in debt to the banks.

This situation, regardless of how emphatically the economic pundits would like us to believe otherwise, is not a necessary one, and it is certainly no argument against advocating for the local economy. After all, why should the cost of the groceries in your local market be influenced by something that happens in another country? The reason is that we have forgotten the value of the local economy, and, consequently, have lost the local economy itself. I am not discussing city planning and budgeting, that is not “the local economy.” The local economy is the ability of the local community to be self-sufficient and to support its own productive economic activity. It is the next logical expansion of the root meaning of economy in general—which is home management.

Take a look at the typical large city of today. From where do the products needed for daily life come? How would the families and businesses cope if a disaster in another region cut off their normal supply chain for food? For example, The city of Seattle is surrounded by smaller cities (urban areas) and suburban areas which do not produce anywhere near the amount of products used by its population. Seattlites sit in chairs and work at desks made in other cities and even other countries. They drink from cups, use pens and pencils, and wear clothes that are all made somewhere else. The surrounding rural areas do not produce anywhere near the amount of food needed to support the area. Seattlites are dependent upon remote suppliers, typically large industrialized farms which are the central providers for many large cities around the country and the world. When a production problem occurs on one of these giant farms, the ramifications are wide-spread. When another city experiences a disaster, the extra resources sent to assist them can create a shortage in other regions. The widespread dependence on centralized providers of basic necessities creates a situation where continued access to those necessities is more tenuous than most of us would like to believe.

Another example of widespread dependence on centralized production can be seen by a recent issue for the computer industry. Global free trade was supposed to make the market more diverse and ensure that we had a ready supply of needed items from anywhere in the world. What actually happened is that production of parts needed around the world became centralized, not just to single countries, but to single regions in those countries. The case to which I am referring is the manufacture of hard disks for computers. Flooding in one region of one country resulted in a worldwide shortage of hard disks, which impacted the ability of businesses around the world to maintain existing servers or install new ones.

In the past, a city viewed the surrounding rural community as an integral part of its life. The city provided goods and services for the rural community, and the rural community provided the basic necessities of food and other agricultural products needed by the city. In other words, each functioned as the primary market for the other and their combined economic activity established a complete, self-sufficient community in which families were able to provide for their needs and wants. Every producer and service provider in the community viewed the other members of the community as their primary customers. Rather than looking for cut-throat prices, they understood it was in their best interest to give their custom to local businesses. The best way to ensure their own economic success was to ensure the economic success of their customers. This works to make the local economy stable because most economic activity ends up being circular and self-supporting. I buy from you and you buy from me. By being each others’ customers, we keep each other in business, which allows both of us to remain each others’ customer.

Am I, by saying this, arguing against global trade, or trade in general? Not at all. The merchants in the city engaged in trade, which not only brought in desired goods from distant lands, but also opened up those distant markets to any excess production of the local community. Because most economic activity was local, it was also resilient. Not only would a problem in another community have little impact on the overall local economic situation, but the local community could more directly assist that other community. This could circumvent the need for state or federal assistance for all but the most wide-spread of disasters.

If economic activity across the country was primarily local, the overall economy of the country would be self-sufficient because the local economies would be self-sufficient. The overall economy of the country would be stable because the local economies would be stable. The overall economy of the country would be resilient because the local economies would be resilient. There would still be regional and global trade because the desire for other goods would still be present, but there would not be a dependence on those goods.

By David W. Cooney and originally published in The Distributist Review on August 18, 2012 and can be found here.

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