Economic Activities, Globalization, and Market Trends
World’s Economic Activities
It consists of satisfying human needs through goods (materials) and services (activities).
Three Stages of Economic Activity
- Production: The producer offers goods or services to the market.
- Distribution: Products are transported to customers or shops.
- Consumption: The total amount of goods and services that people are willing to buy (demand).
Three Economic Sectors
- Primary Sector: Includes livestock farming, fishing, and agriculture.
- Secondary Sector: The main activity is industry, such as factories.
- Tertiary Sector: Includes transportation to shops, health services, and education.
GDP (Gross Domestic Product): The value of all products and services in a territory. GDP per capita is calculated as GDP divided by the number of inhabitants.
Economically Active Population
The economically active population is the people of working age who are working or want to work.
Active Population
People who have a job:
- Employed (Salaried): Employed by a company or by a public administration in exchange for a salary.
- Self-Employed or Freelance: Work on their own and don’t belong to a company.
Inactive Population
Adult population that is not seeking employment. This includes:
- Retired people
- People who perform unpaid social work
- Disabled people who cannot work
- Homemakers
- Students
- People who have lost hope and are not looking for a job
How Does the Labor Market Work?
The labor market is determined by the relationship between the active population and the total number of employed individuals. (Supply equals the active population, and demand equals the employers).
If the supply of people available to work is greater than the demand for jobs, unemployment will rise. People will stop buying because they will have less money due to unemployment, leading to factory closures and further job losses. If companies demand more workers than are available in the market, they will try to encourage the inactive population to work. Developed countries can regulate the labor force to solve these problems, but underdeveloped countries often cannot.
Economic Globalization
Economic globalization is the process of progressive liberalization of international trade. It has led to better integration of the economies of different countries and greater interdependence.
Liberalizing trade means removing or reducing the barriers to free movement that countries often impose to avoid competition from outside. Impediments to free trade in goods include:
- Tariffs: Taxes that have to be paid on imported goods when they arrive at the destination country. These taxes increase the price of exported goods, encouraging consumers to prefer local goods.
- Subsidies: Financial aid from governments to domestic companies, giving them a competitive advantage so they can sell products at a lower price and still make a profit.
- Quality Standards: These make it difficult for foreign goods that don’t meet these standards to enter the market.
- Limitations on Imported Items: Restrictions from the government that limit the monetary value of goods that a country can import in a specific period.
Globalization would be impossible without the development of efficient infrastructures to support trade in goods, services, and capital, such as Information and Communication Technologies (ICT).
The Effects of Globalization
- Increased Trade and Greater Economic Integration: Between 1950 and 2008, international trade caused GDP growth to triple. Countries’ economies are dependent on exports, imports, and foreign investment.
- Offshoring of Production: Increased competition has forced companies to increase their investments, be more efficient to reduce prices, and innovate.
- Economic Growth in Developing Countries: Many developing countries and new economic powers have higher rates of economic growth (e.g., China and India). Their fast growth has made them popular offshoring destinations for production.
Slowing or Changing Trends?
At the end of 2018, world trade began to decline slightly because of protectionist measures taken by the USA and China. This decline accelerated in 2019 and 2020 due to the pandemic. Another important factor has been that since 1989, much of the industrial production of the more industrialized countries had moved to developing countries to save costs. However, the 2008 financial crisis dramatically slowed offshoring.
- Sharp Rise in the Growth of Transport: Problems associated with dependence on products manufactured in distant countries have sometimes led to supply shortages.
- Trade and Technological War Between the USA and China: China has become a major global economic power. The USA has taken protectionist measures to stop China from manufacturing products for US companies. The USA also refuses to accept that China should be allowed to control the flow of global information, fearing it could be used by the Chinese government.