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Global Economy

15 January, 2016 - 09:14

Since the modern digital networks that the new paradigm emphasizes have no geographical limitation, the information economy is largely characteristic of global economy. The global economy can be defined as a network of financial transactions, production sites, markets, and labor pools on a planetary scale (Castells, 2000b, p.695). This definition places emphasis on the linkages between economic agents, which are essentially horizontal and flexible relationships in which the operating economic agents, as nodes in networks, enact a project (Fields, 2002, p.56). Thus, these linkages are not really firms, but instead can be seen as networking nodes.

The nature of technologies and networks generally affects the structure of the economy. The flexibility of modern business organizations reflects the flexible nature of new networks, so that the linkages are occasionally transformed and reconstructed for its profitability. Since current networks have few physical limitations and open systems, they can increase their value exponentially as they add nodes (Castells, 2000c, p.698) and can create infinite linkages among other agents for their goals. Thus, the structure of information economy is not constrained by geographical restrictions. At the definition of the global economy, the planetary scale does not require highly internationalized organizations or wide geographical ranges. Rather, in terms of the space of flows made of bits and pieces of places, global economy exists in the reconstructed time and space. Gupta (2003) uses the example of NASDAQ, an electronically wired stock market, for the case of global economy. The global economy is a concept that values the speed with which knowledge, goods, and people are transacted. Spatial distance is no longer significant.

On the contrary, rails and telegraph have also influenced the structure of the past industrial economy. Richard R. Jone (2000) estimated that new digital revolution in the past half century is comparable to the role of railroads and telegraphy in the 19th century, in terms of information infrastructure (pp. 68-86). In the case of the 19th century, the railroad and telegraph, as new networks, contributed to compress geographical distance, which accelerated industrial development. However, since the networks were less flexible under their physical limitations, the industrial structure, based on the networks, was less flexible than today. In the 19th century, the structure of business was generally vertically integrated, relying on mass-production systems, and mass-distribution networks. In sum, new technology alters the structure of society and industry by its inherent nature, so that the structure in the new economy is flexible and horizontal with production and consumption relying on the new global and digital networks.