Andrew Grove, the legendary founder of Intel, called an "inflection point" an event that changes the way we think and act. Well, the world economy stands at such an inflection point. The event is the transformation of a synchronous global downturn into a simultaneous global recovery. But the inflection point is not the welcome return of worldwide growth. No, it's that going forward swings in the business cycle will be global in nature, says James McNerney, head of 3M, the $17 billion multinational tech company.
The links between nations have been strengthening for a long time. In the 19th century, declining shipping costs spurred a dramatic increase in world trade, while improved communications systems facilitated a massive flow of international capital. But global commerce was disrupted by war, depression, and beggar-thy-neighbor policies in the first half of the 20th century. Global commerce picked up again after World War Two, spurred once again by declining transportation and communications costs, as well as by the rise of multinational corporations. Still, the Cold War and the pursuit of economic autarchy by many developing nations limited the degree of global integration.
Today is different. The global economy opened up with the fall of communism in the late 1980s. Governments everywhere began focusing on a set of policies designed to improve economic growth. Technological advances forged bridges between nations as real computing and communication costs plummeted by 99 percent over the past three decades. And it seems that everyone watches CNN. It's hardly surprising that the international business cycle is emerging as a major economic force considering the freer flow of goods, capital, ideas, and people at the beginning of the 21st century.
Certainly, large parts of globe sank into recession along with the United States, including Japan, Malaysia, and Singapore in Asia; Argentina, Canada, Brazil and Mexico in the Americas; and Germany in Europe. The revival is also striking. U.S. consumer confidence is surging, and German business confidence is at an 11-month high. Canada's economy is expanding at a blistering pace. South Korea is improving, and Taiwan is emerging from its worst downturn in half a century. The Japanese economy remains a deflationary mess, but exports are picking up smartly, the first optimistic sign in years.
The business cycle is alive and well. But in coming years, the major swings in economic activity confronting policymakers, consumers, and business will be global in scope rather than domestic.
