The economy What drives the world economy? The simplest answer to this question is ‘consumer spending’. And what drives consumer spending? Some combination of the factors below is generally considered to provide a reasonable answer. GDP growth for different countries Gross domestic product (GDP) measures the size of a ‘country’s economy. It represents the total value of all goods and services produced over a specific time period. Growth in GDP is one of the primary indicators used to gauge (© measure) the health of a country’s economy. Usually, GDP is expressed! as a comparison to the previous quarter or year Government trade policy ‘The two poles of government policy are liberalization and protectionism, ‘Liberalization’ is associated with free markets, open borders, deregulation and the free movement of capital around the world. “Protectionism’ is associated with government intervention, subsidies, quotas and tariffs, and restrictions on the movement of capital. National governments do have some genuine choices here, even if they are constrained by the policy of their regional trading bloc (eg the EU, NAFTA, ASEAN). In the end most countries have a mixed economy which is somewhere between the two extremes. Generally speaking, free markets promote growth in the ‘world economy, and protected markets slow down the process (although they may have a beneficial effect on particular industries inside a country). Consumer confidence If consumers are confident about tomorrow, they will spend more, The main factors affecting consumer confidence are the level of unemployment ~ if people's jobs are at risk, or they don’t have a job, they will spend less ~ and house prices = if people's houses are worth more than they paid for them, they feel rich and will spene more freely. Interest rates Interest rates are set by Central Banks. When interest rates are low, consumers and businesses can borrow money cheaply and there isa stimulus to the economy. But the cheap credit also causes inflation and too much liquidity in the system. This liquidity leads to bubbles in stock markets, housing markets, etc. When the Central Bank sees the need {0 control inflation and cool growth alittle it raises interest rales, Exchange rates Currencies fluctuate against each other: the curo against the dollar the yen against the yuan. This is due to many complex factors such as the underlying strength of the economy, interest rate differentials and speculation. Having a strong, currency makes imports cheap for domestic consumers, but hurts exporters (whose products become more expensive overseas), The business cycle Economies go through cycles of growth and contraction (€ slowdown). This is covered in unit 2. Effects of globalization Economic Financial Political Worldwide supply Worldwide Closer chains, markets financial markets; relationships and products easier access to between external financing | governments of Arguments in favour of globalization ‘* General prosperity: lower prices, more employment, higher standard of living. ‘+ Increased opportunity and social / personal mobility. ‘+ Improvernents for poor countries: life expectancy, infant ‘mortality literacy, participation of women in society. Informational Cultural Ecological Rapid tlow of Cross-cultural Global information contacts; travel environmental ‘across the globe and tourism; challenges immigration; needing access to foreign international products and co-operation ideas © Arguments against globalization + inequality of wealth within nations ~ not much “trickle down effect’ (when financial benefits are passed down, ‘rom big business to consumers and ordinary people) ‘© Human costs injustice due to increased power of local elites, erosion of traditional cultures. + Environmental damage.Exercises 4.4 Find a word in the text opposite that matches each definition below. The words appear in order. 11 makes something work; provides the power for something 2 removing the rules and laws that control business activity 3 money that the government pays to support industries oF reduce the cost of products official limits on the amount of something ‘taxes on goods coming into a country limited, restricted the amount of money in circulation periods of time when people pay more than the real value ‘of something; balls of air in aliquid 9 with an important effect, but one that isn’t easy to notice 40. (formah the degree of difference between things ‘effects of, Now do the same for the words globalization’ opposite. 11 when people have money and everything they need for 2 good life 42 the ability to read and write 4.2 Make phrases by matching an item from each column. movement of capital and contraction consumer free growth lite — spending 1 2 3 borders 4 5 open of Iving 6 standard expectancy 7. environmental rates 8 goods strength 9. interest ‘and services 10 cheap mobility 11. social damage 42. underying credit 4.3 Use phrases from 1.2 to complete the sentences below. The phrases are not in order. 1 The economy will graw if consumer spensiing_is rising 2 Consumers and businesses can take on too much debt if there is easy access 10 3 Economic growth brings material comforts, but also higher prices for the basic necessities of lif, n other words, your ‘goes up, but so does your cost of living 4 Economies go through cycles of fe ‘boom and bust 5 The main tool available to a Central Bank is its ability to set 5 Over the long term, exchange rates depend on the of the economy. 1 THE ECONOMY 4.4 Read the article about the US economy, then answer ‘the questions below. Check any unknown words in 2 dictionary. M anufacturing in the US stowed more than forecast in October as factories received fewer orders and production contracted, an industry report showed today. Manufacturing is on the verge of staling as the deepening housing slump weakens demand for construction equipment, furniture and appliances. But, on a more positive note, the weaker dollar is boosting exports and helping companies that do much of their business overseas. “These figures make it clear why the Fed cut interest rates by a quarter point last week. In their statement, Fed policy makers said that, ‘the outlook for the economy is Uncertain, even after solid growth last quarter” They added that, ‘upside risks to inflation roughly balance the Gownside risks to growth.” Find a word in the text that means: 1. (ive words) nearly stopping in its progress 2. period when something is much less successful t 3. helping something to increase 4 (short form) Central Bank of the USA 5 approximately See page 146 for some discussion topics. Db iit fr me forte coe.” The business world 7Global issues for the 21st century Geopolitics and the world economy What big-picture issues are likely to dominate geopolitics and the world economy in the coming decades? Here are some suggestions: Management and business Managers were asked, ‘What do you think will be the key business issues of the 21st century? Read their replies below. 16 ‘The growth of the BRICs The big story of the 21st century isthe growth of Brazil, Russia, India and China (plus the Middle East) This is certain to translate into increased geopolitical influence for these countries, ‘The decline of the dollar One impact of the previous trend is that the dollar will lose its status as the world’s reserve currency. Central banks will hold fewer dollars, and oil will be priced in a range of currencies. But what else will happen in the currency area? Will a common Asian or Latin American currency emerge? And what about the internal conflict over the euro — should it be strong to fight inflation or weak to help exporters? Climate change Global warming is happening, However, any solution that holds back the progress of developing countries is likely to be resisted. Developing countries can accuse the developed nations of hypocrisy ~ westem, countries have already been through their industrial phase and now have the luxury of thinking about sustainable growth. Developing nations don’t have this luxury. Peak oil Global oil production is going to peak very soon ~ there's just not enough left in the ground. So supply is shrinking, Also, developing nations are hungry for ofl ~ for transport, industry, ete. So demand is rising, Put ‘together falling supply and rising demand and you ‘get one thing: much higher prices for the foreseeable future, 5 Energy security and alternative energy ‘Some countries have a lot of energy resources, others don’t. And if you don’t, you have a major geopolitical problem. It's called dependency. Put this issue together with peak oil, and it points in one direction: alternative energy. But some green activists are unrealistic about this ~ solar, wind, tidal, ete can only ‘mest a fraction of the world’s energy needs. The one technology that might make a difference is nuclear. ‘And that, of course, is controversial. Shortages of other resources and commodities ‘The bad news continues. As well as a shortage of cenergy, we're also short of water (in China, Southern, Europe and the Middle East). And as living standards rise, we'll find that many agricultural commodities (eg wheat, corn, meat) are in short supply as well For me, branding and design are the key issues. Customers can easity find good quality and value-for-money ~ all our competitors offer this. To survive, you need more than this, you need branding. Without a strong brand, you have no Customer loyalty and no pricing power. And linked to branding is design ~ customers will pay for design. These are the major battlefields in modern business, not cost or quality. In our organization, finding and developing talent is going to be a major issue. There's a declining birthrate, and the increased mobility of labour means that workers can choose where they work and for whom. So talent is going to be in short supply. And that’s particularly true for knowledge workers, and creatives. We will need to find ways to motivate them and retain them inside our organization. In the modern workplace, managing diversity is going to become increasingly complex. We've got issues of gender, ethnicity and age. We try to make equal opportunities work, but we haven't done as well as we'd like. And now we have new problems of multicultural management: across national borders. Imagine the problems when team members from different cultural backgrounds hold virtual meetings on the web without the chance to get to know each other in person, The issue that we talk about more and more these days is CSR ~ corporate social responsibility. I'm talking about fair trade, tthe environmental impact of business, the effect on local communities, sustainable development, labour practices and stuff like that. Campaigns by activists can affect your profits ‘and destray your brand. ‘In many industries @ major issue is the threat caused by the Internet. Basically, if it can be digitized, it can be pirated. The music and software industries have already been hit badly by this, the film industry is next and publishing will follow. Generally speaking, globalization has been good for business. But now there is a backlash against globalization amongst the public. This is creating political pressures for protectionism and for local sourcing to protect jobs. For us that means reduced access to world markets and higher costs. 7] 99Exercises 6.1 Make phrases by matching an item from each column. 1 geopolitical warming 2 climate — influence 3 global growth 4 sustainable change 5 peak activists 6 green standards 7 major cil 8 living battlefield 9. pricing worker 10 declining power 11 knowledge impact 12. environmental birthrate 6.2 Complete the beginning of each phrase with its correct ending. 1. be short —— supply 2 be hungry future 3 be in short decades 4 have a common Asian of resources 5 price oil in for resources 6 accuse someone of hypocrisy 7. in the coming to world markets, 8 for the foreseeable a virtual meeting 9 hold currency 10 have access dollars 6.3 Find a word from the section ‘Management and ‘business’ opposite that matches the definitions below. The words appear in order. 1 good quality (or quantity) in relation to the price 2 being faithful always giving support 2 people who use their imagination or skills to make things 4 (human resources) keep someone —__ 5 the fact of being either male or female § capable of continuing fora long time atthe same level 7 a strong, negative reaction to something that was previously popular getting a product or component from somewhere 6 GLOBAL ISSUES FOR THE 21ST CENTURY 6.4 Fill in the gaps with a different form of the word in brackets. The new form may be a noun (singular or plural), verb or adjective. Some words are not in the text. 1 Global (warm) and the (destroy) of the environment are (threat) the planet, 2 Green (active) and other pressure (groups are becoming increasingly 2 (influence) in determining the (environment) policies of large companies. 3 Genetic (engineer is very (controversy), but many developing nations see it as the only way to ensure continuing (grow) in agricultural (produce) 4 Their government's (economy) strategy is one of rapid (industrilize). This has both (strong) and (weak) 6.5 Complete the text about fair trade with the words in the box. access gender overproduction poverty premium principles standards subsidy Farad i an organize soil moverent which emotes for labour, social policy, environmentalism and sustainable development. Key? of fair trade are: Creating opportunites for economically disadvantaged producers by paying fa price. t's a strateay fo reducing ? » Developing produces independence by opening to new markets and building management sil. Safe and healthy working conditions. 5 equality Good environmental practices and responsible methods of production, But fair trade has its critics, People say that too much of the ‘ price paid by consumers goes to the retailers. And over the long term fair trade operates 2s hidden 7 It puts a price floor under 2 commodity and therefore encourages * » This can eventually lead to lower prices for growers everywhere. See page 146 for some discussion topics. The business world 17