Where In The World Are You?

By John Tulac

We are all part of the global economy.  Our collective purchasing decisions determine what is produced around the world.  You may think that you don’t matter or that your small Main Street business is not connected to the global economy, but the reality is that you are vitally important.

Think of the butterfly effect from Chaos theory, which describes the almost undetectable, but nevertheless real displacement of air, with each flap of a butterfly’s wings.  Now imagine countless thousands of butterflies happily cavorting in and above the canopy of the rain forest.  Chaos theory predicts that, however small, they have an impact on not only the local eco-system but contribute to broader weather effects.

You have much more impact than the butterflies.  Picture yourself at the center of the global economy.  As a consumer, all that the world produces surrounds you.  Producers want to please you.  If you live in a relatively free trade country like the United States, you actually have a bewilderingly large number of potential choices.  Many U.S. companies rely on goods or parts from overseas to serve you, their customer.  What will you choose?  And why?

The United States is interconnected with the world in ways unimaginable only a decade ago.  It is the world’s largest consumer but it is also one of the world’s largest producers, even though less than 20% of the U.S. economy is devoted to manufacturing.  It is even more amazing that the U.S. is a major exporter, even though 80% of U.S. manufacturers do not export.  Thus, it is highly likely that your business can find a profitable place by embracing the global demand, not merely the local one, for whatever you produce.

Of course now you may be thinking that you don’t make anything, so you are not a producer and therefore have nothing to export.  However, this is way too narrow a view of international trade.  You may be seeking to recall your basic economics course and are thinking about land, labor, and capital and are thinking that other than I work too hard in my labors, I don’t have anything else.  Give yourself an “A” for remembering classical economic theory, but today’s principles of economics are described in much more detailed, sophisticated ways.  There are six components of the global economy that I describe as flows. They are:

1. Goods
2. Services
3. Capital
4. People (human resources)
5. Natural resources/environment
6. Information

Most people think only of goods when they think of international trade.  This is obsolete.  All six flows are part of international trade and the balance of trade statistic does not capture these flows, except for goods and a small basket of services.  The balance of trade data is flawed because it measures only a very small portion of the U.S. participation in the global flows and gives both policymakers and the public a misleading picture of how well the Untied States is doing.  And the United States does quite well as the leading country by far in the global economy when all six flows are considered.  China is not even close.

Today many services are exportable.  There is demand for our sophisticated legal and accounting services, architectural and engineering design services, and many other services, even, ahem, hairstyles that are the cutting edge in fashion.  Many services can be delivered here to the benefit of the purchasers of those services outside the United States.   Where that is not possible, people travel to deliver their services.

People also travel to enjoy other places.  The hospitality industry depends on the flow of people from ne place to another.  So too does much of our entertainment depend on the temporary visit of the entertainer to a local venue.  Where in the world, indeed, would we be without the Rolling Stones rolling into town every decade or so?

Did you think I forgot capital?  Capital is what makes the world go round.  The United States financed its industrial revolution by attracting capital from other countries, primarily England and the Netherlands from the mid-1800s to the first part of the 20^th Century.  Trillions of dollars of capital pass through the U.S. system every day and at least some basis points are made on every movement of capital. The United States is the center of the world when it comes to capital.

Natural resources, like the air we breathe and the water we drink, are not contained by national boundaries, at least not naturally.  How natural resources are treated in one country may have profound environmental impacts, good or bad, on neighboring countries.  We all have a role in making sure that our use of natural resources is sustainable.

Finally, there is information, the most important one of all in the modern post-services U.S. economy.  The constant flow of information is simply staggering and growing exponentially.  The United States, at least for now, remains the nerve center of the information revolution.  Our strong protection of intellectual property will keep the United States at the center of information flows.

So, think again:  Where in the world are you?

Now think: Where do you want to be?

John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law, and Lecturer Emeritus (retired) at Cal Poly Pomona. He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory. He can be reached at (909) 445-1100.