The International Writers Magazine - Economics 101 - Linkage

---

THE GLOBAL ECONOMY – PART II The weakest link • James Skinner continues his world economics primer

‘If my elementary physics doesn’t fail me I believe that the strength of a chain is directly proportional to that of the weakest link. I’m sure that most secondary schools worldwide use this basic theory, time and time again in a plethora of examples to explain the complexity of human life. If it is applied to economics, the subdivisions can be as numerous as the principles themselves. In fact, the whole worldwide economic system is entirely based on this theorem. The difference lies in that it is composed of a set of many vibrant chain circles with constantly varying links, each one contributing in run to either strengthen or weaken the entire global economic structure.

In Part I, I wrote about the composition of the global economy with an overall picture that involved stock markets, multinationals, governments and oil as some examples. I summed it up by stating that the pace of evolution, taking into account these ingredients was the reason for the malaise that is causing so much economic strife the world over. If we now take a look at some of these economic chains, compare their interaction and then introduce a few time factors we can visualise present and future patterns as well as predictions of the future survival of our planet.

Lets start with transport involving oil and the internal combustion engine. Middle Eastern countries (governments) exploit the extraction of the crude from the ground. The oil companies then process it, read (multinationals) into gasoline to be finally used by humans driving cars, trucks or buses, in other words the (general public). This is what is considered a basic economic chain. Add to this the transport and distribution, the factories that manufacture the vehicles and finally taxation, the basic chain becomes more complex. Each link however, is completely dependent on the others for the system to function. Up the price of oil or reduce it and the chain’s strength is affected. Introduce regulatory implications, such as international environmental laws and we have yet another link which could alter the structure of the chain completely. Enter the mass-production of hydrogen driven electric motor vehicles and bang goes the whole economic structure of this particular example.

Another example is worldwide tourism. National and international transportation systems are based on the forms, land, sea and air. Concentrating on air travel the chain is made up of aircraft, airline companies, air routes, destinations, resorts and passengers. The passenger initiates the reaction by buying a ticket from a particular company to travel via certain route to a chosen destination. Involved in this process are advertising companies, travel agents, land connections and local holiday amenities as well as governments taxing as usual. A drop in value of a particular currency, such as the dollar may alter the strength of the whole chain by considerably changing travel patterns. Blow up a nightclub in Bali and the whole world tourism chain is turned upside down. People are scared to go abroad on holiday.

There is amore complex chain that is also having a dramatic effect and that is the weapons market. I remember a speech years ago by some Greek agnostic on Speaker’s Corner in Hyde Park who said, ‘the manufacturing price of a Kalashnikov rifle in Russia is about $150 dollars. By the time it reaches the rebels in Angola the cost is around $2000’ The guy was preaching about the need for ‘Peace on Earth’. But picking up on this particular point, the billions upon billions of dollars, euros – who cares – that make up the world’s budget on armaments is a frightening nightmare and an economic world problem. The cost of maintaining US and other troops around the world, not to mention Iraq, added to the continuing development of more and more sophisticated weaponry is mind-boggling. Yet applying my weakest link to this particular equation what would happen if the world suddenly reverted to a much sought after peaceful state? Just looking at Africa alone, if the number of burning fires were placated over the next 5 years, what would happen to the many links that start with manufacturers and arms dealers and end with ‘on-the-dole-armies’ throughout the continent? Would they all go back to farming or some other peaceful pastime? I dare not even mention weapons of mass destruction. It certainly is food for thought.

To complete the main paragraphs of my mini thesis I call upon the worldwide health and food situation. Agricultural policies, genetic manipulation of crops, fish farms and trade barriers are just a few of the numerous links in ‘ironically’ the economic food chain that keeps some of us on this planet alive. The amount of vulnerable variables is beyond cataloguing and yet any dramatic change to any one of them could throw the delicate balance of mankind’s subsistence straight out of the window. From a positive point of view, if agreements were finally reached on the safe and effective distribution of genetic food to satisfy world hunger it would certainly have a positive impact on the global economy. If we now consider the main link between health and food we have our first interaction between two economic chains. Each one affecting the other. Upheavals such as ‘Mad Cow’ disease, the sinking of the ‘Prestige’ off the coast of Spain and the recent Vietnam poultry-flu and last years Sars epidemic are cases in point. The main effect has been a dramatic move to control a health problem. But to make my point, each one of the above health cases has had an effect on the world food chain. Both, in turn have affected the tourism chain, and finally the transport one. People stopped eating beef and ceased to travel to and from the Far East.

I now come back to my original statement of interaction and time. Most of the above examples have had a knock-on effect on the others and all have caused hiccups to the world economic status. This is because they are all connected to the movement of money. They will affect stock market movements that react to any crisis, and more mundane effects such as large layoffs of workers due to a drop or suspension in trade. As far as time is concerned and provided the economic links such as the massive slaughtering of cows, or the restoration of confidence in air travel are restored, the disruption is temporary. The global economy reverts to its usual sluggish but steady pace.

Picture the world as large open bowl full of water. Each molecule of H2O is a link. Try moving around holding the bowl without spilling a drop; any brisk movement would upset thousands of them. If you run, well there is my analogy of the world global economy. But beware the Ides of March! A major hit at any one such as the triggering off of a ‘small’ nuke war, an earthquake in California or even worse, continuing to turn a blind eye to global warming will upset the global economy to such an extent that it may take years, decades or even centuries to repair.

© James Skinner. Feb 2nd 2004.
jamesskinner@cemiga.es

If you agreee email the author

Globalisation Part One here

US Primaries here

Oil



Home

© Hackwriters 2000-2004 all rights reserved