write essay on globalization and 21st century
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As the turn of the 21st century, liberalization of capital markets and technological innovation resulted in the development of an increasingly complex “financial network”, where the speed, value and volume of financial transaction had increased sharply both domestically and internationally. In particular, the pace of change and innovation in financial markets between 1998 and 2007, known as the “Golden Decade”, saws the explosive growth of sophisticated financial instruments such as credit default swaps, collateralized debt obligations and an increase in resale markets for capital. Whereas the trading of derivatives had been marginal in the three previous decades, by the turn of the century the global over the counter derivatives market had reached $1 billion of outstanding deals. By the end of the “Golden Decade” in 2007, the market had expanded to $6 billion; 16 times the global equity market capitalization and 10 times the global gross domestic product. Global integrated markets and innovation had led to a transformation of the financial landscape. (Ian Goldin, 2010)
The financial crisis can be described as a systemic risk that began with the advent of an unregulated subprime mortgage market in the US, which ultimately destabilized the market for credit default swaps, collapsed markets for securitized instruments across global financial systems and triggered a globe liquidity crisis. Despite increasing capital markets liberalization since the Second World War, lobbyist and new economist theories convinced government that global finance required only limited regulation. As the governance gap widened, private financial institutions began taking advantage of these lighter regulations. “The regulatory system in the US, UK and other G8 countries fell victim to regulatory capture by large international banks, which allowed these institutions to influence and lobby regulatory outcomes to their individual advantage to the detriment of systemic financial stability.” (Shah, 2010)
Many blame the financial crisis on the real estate market tanking; however few have explored how a deregulated environment with economic integration and financial innovation could create a financial network vulnerable to systemic risk. “Governance gaps at all levels of the financial system, from global to individual actors allowed regulatory arbitrage, bonus gouging and other corporate governance failures to spiral out of control. The failure at all levels of financial governance reflects the inability to understand the deep structural changes in globalization and how increased integration and innovation have given rise to new systemic instability.” (Ian Goldin, 2010)
Trade growth to slow
In the beginning of 2011 forecaster’s prepared the world to expect a significant slowdown of trade expansion for the coming year. Due to multiple economic setbacks throughout the year growth dampened beyond expectations leading to a greater than anticipated reduction by year end. Following two years of anemic and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably, especially in the developed countries. The baseline forecast foresees continued anemic growth during 2012 and 2013. Such growth is far from sufficient to deal with the continued jobs crisis in most developed economies and will drag down income growth in developing countries. The World Trade Organization (WTO) has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness. Even this somber outlook may be too optimistic. (Nations, 2011)
A looming persistent weakness in the major developed economies has effectively is re-surging a global downturn relating to problems left unresolved in the aftermath of the great recession of 2008-2009. The continued jobs crisis and the declining prospects for economic growth are the most pressing challenges, especially in the developed countries. As unemployment remains high, at nearly 9 percent, and incomes stagnate, the recovery is stalling in the short run because of the lack of aggregate demand. But, as more and more workers remain out of jobs for a long period, especially young workers, medium term growth prospects also suffer because of the detrimental effect on worker’s skills and experience.