14 Characteristics of the Global Economy

 John Spacey, August 27, 2020

The global economy is the system that produces and distributes

goods and wealth for the population of the planet. The following
are its basic characteristics.
Globalization
Globalization is the process by which systems become
integrated across borders. This is a long running process that has
been underway for thousands of years but it currently
accelerating due to factors such as technology and political
stability. For example, air travel is an integrated system of travel
that connects most countries.
Global Trade
Global trade is the exchange of goods, services and capital
across borders. This allows each nation to concentration its
resources on producing goods that it is efficient at producing and
trade for things that it is inefficient at producing. This is known
as a comparative advantage. For example, if America is efficient
at producing wheat and Vietnam is efficient at producing rice,
both countries benefit by trading wheat for rice.
Money
Money is a medium for storing wealth and exchanging value.
Primitive societies used commodities such as tea for money. It is
now common for money to be a paper, metal or digital entity
that is backed by governments and their ability to collect future
taxes. Without money, economic systems would breakdown as
the alternative, known as barter is hopelessly inefficient.
Global Financial System
A system of interconnected banks, markets and other financial
institutions that offer services such as bank accounts, foreign
exchange, investments, credit and transaction processing.
Markets
The global economy functions as a market for goods, services,
labor, credit and investments. For example, producers offer
goods and consumers buy goods. This is efficient as it sets
prices and allocates the resources of the world according to
supply and demand. For example, if a producer makes a good
that nobody wants it will not sell or will only sell at a very low
price. This sparks innovation and efficiencies whereby
producers constantly improve their offerings.
Competition
Markets create competition. For example, if you want to offer
your labor to the labor market you must compete with others for
the same job. This gives workers incentives to pursue education,
talents and experience that employers need. Likewise, firms
compete for customers and this drives quality improvements and
price reduction. Without competition, firms could offer low
quality items that consumers would simply have to accept due to
a lack of alternatives.
Protectionism
Competition isn't complete in global markets due to laws,
policies and practices designed to shield the economy of a nation
from competition. For example, competition for jobs is limited
by the need for a work visa to work in a particular nation. This
lowers economic efficiency but arguably makes sense in some
situations to protect culture or improve resiliency.
Productivity & Efficiency
Productivity is the amount of value a worker creates in an
hour. Efficiency is the amount of value a resource such as an
acre of farm land creates in a period of time such as a year.
These are the foundational measurements of economies. For
example, an economy with high productivity and efficiency will
produce a great deal of income and wealth.
Capital
Capital is property that is expected to produce future value such
as a tractor, field or factory. Money and other liquid assets are
also considered capital as they can be used to buy productive
assets. Capital such as infrastructure increases productivity. For
example, a farmer with access to large machines such as a
tractor is likely to be far more productive than a farmer working
in hand tools.
Labor
Labor is the work of people. The productivity of labor is related
to their talents, knowledge and access to capital.
Automation
Automation is the ability of capital to replace labor. Historically,
automation has mostly replaced toil and freed people to do work
that requires human talents such as strategy, knowledge,
creativity, social skills and craft.
Quality of Life
The global economy is the basis for quality of life for global
populations. In 1800, global life expectancy was around 29
years with no country with a life expectancy over 40. Due to
global economic growth people have access to improved living
conditions such as food, water, housing, health care and
education. As a result, global life expectancy was 72 years in
2016 with no country having a lower life expectancy than the
highest life expectancy in 1800.
Inequality
The global economy not only produces value but also distributes
it. This distribution tends to be extremely uneven such that some
people are very poor and others very rich. Taxation is one means
for redistributing wealth to those who are in need where it is
used to fund government services such as education and
healthcare or entitlements such as retirement and disability
pensions. However, it is common for the rich to have access to
complex tax structures and strategies such that they pay little
tax.
Economic Bads
An economic bad is a negative result of the production
of economic goods such as air pollution. The markets for
economic goods are very efficient but markets for economic
bads are missing. As such, it is common for firms and
individuals to produce economic bads without paying any cost.
This creates huge amounts of negative value that represent a
large scale risk to quality of life on a global scale. There are two
basic solutions to this problem: create markets for economic
bads or create a system of extended producer responsibility.
Notes
Markets for economic bads is a flexible system that allows
consumers and producers to pay to create damage but this is
capped at some sustainable level. Extended producer
responsibility is an inflexible system that requires producers to
reduce the end-to-end impact of their products and services
towards zero. For example, requiring plastic producers to
recollect all of their plastic and recycle it so that it doesn't end
up floating in the ocean or getting burned in an open air pit.
Overview: Global Economy Characteristics
Type Global Economy
Definition The system that produces, distributes and
consumes goods for the population of the planet.
Related Global Economy »
Concepts
Globalization »
Comparative Advantage »
Money »
Barter »
Resilience »

World Economy
This is the complete list of articles we have written about world
economy.
Capital

Development

Economic Bads

Economic Relations

GDP Per Capita

Global Issues
Quality Of Life

Standard Of Living

World Economy

World GDP

World Population

References
Riley, James C. "Estimates of regional and global life
expectancy, 1800–2001." Population and development review
31.3 (2005): 537-543.
World Health Organization, Global Health Observatory Data,
Life expectancy, 2020.