Economics and Politics Are Local - and Global
“Local and Global: The Unavoidable Connection — and Interconnection”?
by Arthur I. Cyr
“All politics is local,”? was a favorite phrase of Tip O’NeillO'NeillBio, a notably successful politician and Speaker of the U.S. House of RepresentativesU.S.House. Today, a complementary statement could be “All economics is global.”? The international economy regularly provides enormous new challenges to preserving the distinctiveness — and independence — of local community. One consequence is to underscore the importance of looking beyond the locality.
The $11.8 billion deal for the Chicago Mercantile ExchangeThe Merc to acquire the Chicago Board of Trade Board of Tradeillustrates dynamics between location and finance. The principal other bidder, IntercontinentalExchange Inc., is based in Atlanta. Initially, ICE made the more attractive financial offer. But the Merc received a grace period.
Legendary trader Richard Dennis stresses the sophistication of the electronic trading platform of the Merc, an important asset. After intense meetings, the Merc board on Friday agreed to increase their offer by 7%, enough to secure victory.
The tumultuous commodities industry reflects a more comprehensive technological revolution. Since the early 1970s, telecommunications and transportation changes have vastly increased global economic integration. The speed as well as scale at which financial value can be transmitted has grown exponentially. The Bretton Woods system of fixed currency exchange rates also ended.
Chicago commodities exchanges have worked hard to grasp resulting opportunities, moving beyond agricultural contracts to include financial futures. Under the executive leadership of Clayton Yeutter and others, the Merc has become a global beacon in such trading. Geographic location was crucial to initial development of the Chicago exchanges. Technological innovation has been crucial to maintaining Chicago’s eminent role in the new global context. The Merc remains the number one trading center in the world for financial derivatives, well ahead of Frankfurt/Zurich, London and New York.
Just as technological change undercuts local economic advantages, regional perspectives are to some extent reinforced. In Kenosha Wisconsin, County Executive Allan Kehl has organized the second “Economic Summit”? on the future of the area. To a notable degree, technology was featured. The twin themes of the conference were telecommunications and transportation.
The featured speaker was Paul O’Connor, Executive Director of World Business Chicago, an economic development and analysis organization that integrates business, government and education.
O’Connor’s presentation highlighted regional technology-based commerce to the future growth and strength of Chicago as well as Kenosha and other surrounding communities. Chicago, far distant from either coast, nonetheless is the fifth largest intermodal container port in the world, after Hong Kong, Singapore, Shanghai and Shenzhen. Key to this statistic is the regional integration of rail and truck with water transport systems, which requires very sophisticated communications as well as handling infrastructure.
Transporting people is another important dimension, with strong regional implications. Migration of firms and jobs from city to suburbs has reinforced the importance of a regional perspective. Kenosha, an attractive relatively low cost place to live, has enjoyed substantial population growth over the past two decades.
A large percentage of the new residents work in the transportation corridor which runs south to Chicago. The largest employer in Kenosha is Abbott Labs, just over the border in North Chicago. Expansion of commuter rail promises to further regional integration, and meanwhile has generated considerable political debate.
At the start of the Industrial Revolution, political economist Adam Smith identified the crucial importance of the division of labor, while David Ricardo stressed comparative advantage, contrasting the British advantage in cloth manufacture to the Portuguese edge in wine production.
Our contemporary global economy drastically reduces the inherent advantages of any particular location. Technology overcomes old requirements for worker proximity and earlier relative advantages. Chicago long ago lost any edge provided by nearness of pork belly traders to the farmers who actually raised the pigs.
One of the first callers to congratulate Merc Executive Chairman Terrence Duffy on the deal to acquire the Board of Trade was Chicago Mayor Richard Daley. The Mayor well understands the political importance of effective response to economic change.
Arthur I. Cyr is Director of the Clausen Center for World Business at Carthage College in Kenosha and author of ”˜After the Cold War’ (NYU Press and Palgrave/Macmillan). He can be reached at acyr@carthage.edu
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The Commodity Fiction
Prof. Cyr,
Recently, my comparative politics class discussed the importance of the Commodity Fiction - the idea that labor, rent, and land can be produced and sold just as goods can. Naturally, this is a physical impossibility, but this theory has been one of the wheels that's been keeping the global economy running. In your blog above, you mentioned the development of communications, technology, and transportation. What effect do you think that modern developments in these arenas will have on the development and definition of the Commodity Fiction, especially in how it is put into practice in the market on the regional and local levels? Thank you.
The reality, I believe, is
The reality, I believe, is the reverse. Dramatic reduction in cost and vastly greater use of communication and transport technologies have facilitated globalization, in part through much easier movement of investment. Hence, labor and land do not have to be moved to be used. Corporations constantly press for even more access and advantage. The pressure for a single market in the EU, for instance, is dramatic evidence of the drive for more labor mobility. At which institution are you a student?
In answer to your question
I attend Carthage College. I took your Philosophical Foundations of Political Economy class as a sophomore. Now that I'm working with comparative politics, especially with an Asian bent, I'm very interested in these sorts of issues and the interaction between the economy and the body politic.