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3. Globalization and the Pace of Change
  1. The State of Globalization in a Fragile World
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There is substantial empirical evidence backing this causal mechanism. If trade leads to growth in average incomes, what does this mean for poverty? In a much-cited academic article, David Dollar and Aart Kraay empirically showed that on average, the income of the poorest grew one-for-one with average national incomes over the last four decades of the 20th century. More recent articles have confirmed the original findings from Dollar and Kraay. When taken together, the evidence thus tells us that globalization has contributed to reducing poverty around the world.

That globalization is good for the poor is a statement that is true on average. In some countries and in some periods the poor did better than average, and sometimes they did worse. Looking at the long-run average effect is very helpful to form an opinion regarding broad trends. However, these broad trends are not necessarily informative about how trade has affected the distribution of incomes generally; nor about how trade has affected specific groups of people in specific periods.

The same economic principles that suggest we should lend serious consideration to the efficiency gains from trade, suggest that we should do likewise for the distributional consequences from trade.

The State of Globalization in a Fragile World

If globalization generates growth by allowing countries to specialize in the production of goods that intensively use locally abundant resources, it is natural to expect that differences in the way resources are endowed will translate into differences in the way benefits are reaped. If we take a look at the data, we observe that the process of globalization and growth that led to historical achievements in poverty reductions went along with a substantial increase in global income inequality.

The chart below shows this by comparing the global income distribution at three points in time: , , and We can see that the world today is both much richer and more unequal than it was in There are two forces that can drive global income inequality : within-country differences in incomes, and between-country differences in incomes. Which of the two is driving the trend we observe in this chart? The evidence suggests that it is the latter—global inequality increased in the period because the countries that industrialized earlier grew faster. In , only a few countries had achieved economic growth while the majority of the world still lived in poverty.

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In the following century, more and more countries achieved sustained economic growth, and the global income distribution became much more unequal: there was a clear divergence between early-industrialized countries where extreme forms of poverty were virtually eradicated and the rest of the world.

In the following decades and up until today, early-industrialized countries have continued growing, but the biggest changes have taken place at the bottom of the distribution. Today, global income inequality is lower than it was in So, what does the data tell us about globalization? Over the last century, the gains from international trade were substantial and generally equally distributed within countries, but global inequality increased because for a long period early-industrialized countries had larger gains to distribute among their citizens.

The above conclusion that globalization has not had substantial effects on global inequality may seem paradoxical to some people—there is substantial evidence of growing inequality in many countries, including countries that have vehemently pursued trade liberalization. You can read more about these within-country trends in our entry on Income Inequality.

How can we reconcile these two empirical facts? In a recent article, Elhanan Helpman provides an answer informed by a meta-analysis of the available evidence: factors such as automation, technological changes, and market frictions, have contributed to the rise of inequality more than growth in international trade has. If this is the case, then why has the view that globalization is bad for the working class captured the political debate in rich countries? Part of the answer has to do with the fact that people are misinformed about the evidence.

Both right-wing and left-wing populist parties have been rising across Europe—as leaders of political parties in France, Greece, and the Netherlands, for example, criticize established organizations for failing to protect the livelihood of European residents. South America has had its own waves of populism, as have the Philippines and Thailand.

Nationalist and Some Religious Identities. A close cousin to populism, nationalist appeals will be prominent in China, Russia, Turkey, and other countries where leaders seek to consolidate political control by eliminating domestic political alternatives while painting international relations in existential terms. Similarly, exclusionary religious identities will shape regional and local dynamics in the Middle East and North Africa and threaten to do so in parts of Sub-Saharan Africa between Christian and Muslim communities.

In Russia, nation and religion will continue to converge to reinforce political control. How governments govern and create political order is in flux and likely to vary even more over the coming decades. Governments will increasingly struggle to meet public demands for security and prosperity. Fiscal limits, political polarization, and weak administrative capacity will complicate their efforts, as well as the changing information environment, the growing stock of issues that publics expect governments to manage, and the proliferation of empowered actors who can block policy formation or implementation.

This gap between government performance and public expectations—combined with corruption and elite scandals—will result in growing public distrust and dissatisfaction. It will also increase the likelihood of protests, instability, and wider variations in governance.

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  • International institutions will struggle to adapt to a more complex environment but will still have a role to play. They will be most effective when the interests of the major powers align on issues like peacekeeping and humanitarian assistance, where institutions and norms are well in place. Future reforms of international and regional institutions will move slowly, though, because of divergent interests among member states and organizations and the increasing complexity of emerging global issues. Some institutions and member countries will continue to cope on an ad hoc basis, taking steps to partner with nonstate actors and regional organizations and preferring approaches targeting narrowly defined issues.

    The risk of conflict, including interstate conflict, will increase during the next two decades due to evolving interests among major powers, ongoing terrorist threats, continued instability in weak states, and the spread of lethal and disruptive technologies.

    The decline in the number and intensity of conflicts during the past 20 years appears to be reversing: conflict levels are increasing and battle-related deaths and other human costs of conflict are up sharply since —if not earlier—according to published institutional reports. Furthermore, the character of conflict is changing because of advances in technology, new strategies, and the evolving global geopolitical context—all of which challenge previous conceptions of warfare. More actors will employ a wider range of military and non-military tools, blurring the line between war and peace and undermining old norms of escalation and deterrence.

    Future conflicts will increasingly emphasize the disruption of critical infrastructure, societal cohesion, and basic government functions in order to secure psychological and geopolitical advantages, rather than the defeat of enemy forces on the battlefield through traditional military means.

    Noncombatants will be increasingly targeted, sometimes to pit ethnic, religious, and political groups against one another to disrupt societal cooperation and coexistence within states. Such strategies suggest a trend toward increasingly costly, but less decisive conflicts. Disruptive Groups. Nonstate and substate groups—including terrorists, insurgents, activists, and criminal gangs—are accessing a broader array of lethal and non-lethal means to advance their interests.

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    Groups like Hizballah and ISIL have gained access to sophisticated weaponry during the last decade, and man-portable anti-tank missiles, surface-to-air missiles, unmanned drones and other precision-guided weapons are likely to be more common. Activist groups like Anonymous are likely to employ increasingly disruptive cyber attacks. These groups have relatively little reason to restrain themselves. War From Afar. Meanwhile, both state and nonstate actors will continue to develop a greater capacity for stand-off and remote attacks. Growing development of cyber attacks, precision-guided weapons, robotic systems and unmanned weapons lowers the threshold for initiating conflict because attackers put fewer lives at risk in their attempts to overwhelm defenses.

    The proliferation of these capabilities will shift warfare from direct clashes of opposing armies to more stand-off and remote operations, especially in the initial phases of conflict. New WMD Concerns. The threat posed by nuclear and other forms of weapons of mass destruction WMD probably will increase in the years ahead due to technology advances and growing asymmetry between forces. Current nuclear weapon states will almost certainly continue to maintain, if not modernize, their nuclear forces out to The proliferation of advanced technologies, especially biotechnologies, will also lower the threshold for new actors to acquire WMD capabilities.

    Internal collapse of weak states could also open a path for terrorist WMD use resulting from unauthorized seizures of weapons in failing or failed states that no longer can maintain control of their arsenals or scientific and technical knowledge. Once the domain only of major powers, space is increasingly democratic. As budgets for national space agencies plateau, private industry will fill the void and pursue serious programs such as space tourism, asteroid mining, and inflatable space habitats.

    Full realization of their commercial potential, however, is probably decades away. An increase in space activity brings risks as well, and international action may be necessary to identify and remove the debris most threatening to an expanding global space presence. The immense strategic and commercial value offered by outer space assets ensures that space will increasingly be an arena in which nations vie for access, use, and control.

    The deployment of antisatellite technologies designed to purposefully disable or destroy satellites could potentially intensify global tensions. A key question will be whether spacefaring countries—in particular China, Russia, and the United States—can agree to a code of conduct for outer space activities. Strong-arm diplomacy, media manipulation, covert operations, political subversion, and economic coercion are longstanding pressure tactics, but the ease and effectiveness of launching cyber disruptions, disinformation campaigns, and surrogate attacks are heightening tensions and uncertainty.

    A changing climate, increasing stress on environmental and natural resources, and deepening connection between human and animal health reflect complex systemic risks that will outpace existing approaches. The willingness of individuals, groups, and governments to uphold recent environmental commitments, embrace clean energy technologies, and prepare for unforeseen extreme environmental and ecological events will test the potential for cooperation on global challenges to come.

    Globalization (article) | s America | Khan Academy

    Climate Change. Changes in the climate will produce more extreme weather events and put greater stress on humans and critical systems , including oceans, freshwater, and biodiversity. These changes, in turn, will have direct and indirect social, economic, political, and security effects. Extreme weather can trigger crop failures, wildfires, energy blackouts, infrastructure breakdown, supplychain breakdowns, migration, and infectious disease outbreaks.

    Such events will be more pronounced as people concentrate in climatevulnerable locations, such as cities, coastal areas, and water-stressed regions. Specific extreme weather events remain difficult to attribute entirely to climate change, but unusual patterns of extreme and record-breaking weather events are likely to become more common, according to the Intergovernmental Panel on Climate Change IPCC. The bold curves represent averages in global surface temperatures determined from computer modeling, but the actual trajectory will have many peaks higher than average and valleys lower than average.


    The peaks are qualitatively important because they probably represent snapshots of future average climate conditions. Past greenhouse gas emissions already have locked in a significant rise in global mean temperatures for the next 20 years, no matter what greenhouse gas reduction policies are now being implemented. Most scientists expect that climate change will exacerbate current conditions, making hot, dry places hotter and drier, for example. Climate change—whether observed or anticipated—will become integral to how people view their world.

    Many ecological and environmental stresses cut across state borders, complicating the ability of communities and governments to manage their effects. The urgency of the politics will vary due to differences in the intensity and geography of such change. We expect to see increased popular pressure globally to address these concerns as citizens in the developing world gain awareness and a growing political voice.

    Spring Global Attitudes survey.

    The Great Convergence: Information Technology and the New Globalization

    Q32, Q41, and Q Climate change and related natural disasters, policy decisions, and new abatement technologies will create new investment and industry winners and losers, too. One large financial consultant forecasts that developed country equity markets will see sustained declines in most sectors over the next 35 years due to concerns about climate change. Meanwhile, most of the sectors in developing country equity markets will see investment gains. Agriculture, infrastructure, and real estate sectors in wealthy countries are also expected to benefit through Financial costs from droughts, storms, floods, and wildfires have risen modestly but consistently since at least the s, according to research by development and humanitarian relief agencies worldwide—and are set to increase with more frequent and severe occurrences in the coming decades.

    Climate change will drive both geopolitical competition and international cooperation as well. China, poised for global leadership on climate change, would likely keep to its Paris commitments but could weaken its support for monitoring mechanisms and gain favor with developing world emitters like India. Tensions over managing climate change could sharpen significantly if some countries pursue geoengineering technologies in an effort to manipulate large-scale climate conditions.

    Bangladesh became the first country to try to slow climate change by releasing a metric ton of sulfate aerosol into the upper atmosphere from a modified Boeing airplane in the first of six planned flights to reduce the warming effects of solar radiation. Other approaches focus on removing carbon dioxide from the atmosphere. Given the lack of international standards or regulations for such activities, any efforts to test or implement large-scale geoengineering techniques would raise tensions over the risks and potential unintended consequences.

    Environment and Natural Resources. Institutions overseeing single sectors will increasingly struggle to address the complex inter-dependencies of water, food, energy, land, health, infrastructure, and labor. A growing number of countries will experience water stress—from population growth, urbanization, economic development, climate change, and poor water management—and tensions over shared water resources will rise.

    Historically, water disputes between states have led to more sharing agreements than violent conflicts, but this pattern will be hard to maintain. Dam construction, industrial water pollution, and neglect or nonacceptance of existing treaty provisions aggravate water tensions, but political and cultural stress often play an even larger role.

    Moreover, many existing agreements are not sufficiently adaptive to address emergent issues such as climate change, biodiversity loss, and water quality. Ongoing disputes in key river basins, such as the Mekong, Nile, Amu Darya, Jordan, Indus, and the Brahmaputra, will illustrate how water governance structures adapt in an era of increasingly scarce resources.

    Human and animal health will increasingly be interconnected. Increasing global connectivity and changing environmental conditions will affect the geographic distribution of pathogens and their hosts, and, in turn, the emergence, transmission, and spread of many human and animal infectious diseases. Unaddressed deficiencies in national and global health systems for disease control will make infectious disease outbreaks more difficult to detect and manage, increasing the potential for epidemics to break out far beyond their points of origin.

    Together, these global trends will make governing harder while altering what it means to exert power. The number and complexity of issues beyond the scope of any one individual, community, or state to address is increasing— and doing so at a seemingly faster pace than decades ago. Issues once considered long-term will more frequently impose near-term effects. For example, complex, interdependencies like climate change and nefarious or negligent applications of biotechnologies have the potential to degrade and destroy human life. Cyber and information technologies—complex systems on which humans are increasingly dependent—will continue to create new forms of commerce, politics, and conflict with implications that are not immediately understood.

    The notion of whom we compete with has changed. Today, Canadian firms compete against others not only in their city or region, but also across Canada, the continent and the world. Globalization has increased the incentive for firms to search out the lowest-cost suppliers of materials and services, no matter where they are located.

    For the most part, multinational enterprises need no longer establish separate production facilities within a country to overcome tariff barriers. They base activities in a country or purchase materials and services from independent suppliers in a country only where this contributes to the overall efficiency of their operations. The Canadian wine industry had long been relying on hardy native species of grapes, producing low-quality wines that were protected from foreign competition. They uprooted the native grape varieties and planted high-quality European grapes.

    Canadian vineyards became tourist attractions and promoted new, unique products, further building the world-class reputations of Canadian wineries. Increased foreign competition can drive innovation and enhance competitiveness. The transition to a larger marketplace has been foreshadowed for a generation. For Canada, the Auto Pact with the US signalled the evolution of economic activity from a national to a continental scope.

    As a result, Canadians began to compete not only with other Canadians, but also with firms and workers from across North America. They opened up huge new market opportunities and increased global competition. As firms and countries rethink their strategies for achieving success, they must recognize the following key trends arising from the current wave of globalization.

    1990s America

    International migration has increased markedly as people seek the best jobs and opportunities. The US , Germany and Canada are expected to be the top three net recipients of international migrants over the next half-century. The availability of skilled talent is a key determinant of investment decisions and the location of economic activity. Many countries have increased their focus on immigration to acquire needed skills. The availability of skilled labour is a key to ensuring sustained growth in all regions and sectors. Slowing population growth and the aging of the population in developed countries will become an important factor in labour mobility.

    In the future, new skilled labour will come increasingly from developing economies. Global foreign direct investment FDI flows have grown a hundredfold from to Going forward, being an attractive destination for skilled immigrants and foreign investment will be a critical success factor for developed countries. Accelerating global growth has increased world demand for raw materials ranging from food to base metals. Prices have increased rapidly over a broad range of commodity groups. In industries that benefit from economies of scale, large multinational enterprises increasingly dominate because they are able to achieve scale on a global basis.

    This scale in turn permits global operations, attracts talent and increases each firm's capacity to make investments and take political risks. For example, the mining sector has recently experienced major structural change, with consolidation at all levels and the emergence of very large privately owned diversified corporations. For them, acquisitions are critical for securing new projects and diversifying portfolios in terms of commodities and geography. Companies that have built global efficiencies often establish global and regional product mandates within their enterprise.