How Globalization affects Equity
January 12, 2013 Leave a comment
How Globalization affects Equity
Joshua Konov 2010
In times of Globalization some economies and markets build equity, however some not only cannot use their equity to improve their standard of living but lose their equity to lack of business that provokes deterioration of equity or at least discount of equity.
Equity is in the foundation of the economy and the market: in the past most of the equity consisted to physical property but gradually more intellectual property and subjective market securities have become equity. Thus when individual or corporate equity is evaluated plus the physical equity if any the intellectual property, the hold securities and the projected economic growth are considered equity. The trend toward intellectual property and market valued securities instead of physical equity is more than obvious for private and corporate equity equally. However, private equity for the majority in the world consists of physical property equity when intellectual and market securities equity is more possessed by very wealthy individuals and individuals living in the most developed economies.
There is direct correlation between market individual income and equity value, because equity value reflects general market value of a property which relates income financial statement. A property value supported by higher income statement is higher than a property value supported by lower income financial statement. In some cases -as it happened before the last Great Recession- market property value became uncontrollable prompted by pure speculations and compromised lending practices. Consequently the exasperation of property value burst bringing financial losses and lost of properties to many. Seemingly equity of property values should well reflect the real market property values which reflect general income level in this market. Talking about equity not related to physical property but could be intellectual property, market security, or projected economic growth with very high subjectivity in the real economy the market value of such equity is more related to security of intellectual property, market securities and certainty of projected economic growth. Factors that directly affect these equity are scrutinized historical development of the market, most recent economic indicators showing the direction of this market and consistent indicators of the direction of proximal development, factors that indirectly affect these equity are the level of real acting rule of law and contracting laws of such market, the clarity and accountability of the marketplace and trading exchanges, the clarity and accountability of intellectual property laws, and the level of personal liability of the risk management of corporate structures, the fiscal stability and the respective infrastructural maintenance and improvement, and social and medical security in this market.
Globalization has invoked the need for individual markets of using Social and Infrastructural expanses for balancing “demand-to-supply” when in the past these expenses were functioning as stoppers toward economic growth because the overall productivity was lower and there were many closed for globalization markets, now the conditions are changing the productivity is rising constantly and the almost all markets are eager to globalize. Other major changes at the moment are the China’s entering WTO and the global competition and the consistent economic growth for the last 20 years China has succeeded. By attracting the majority of global investment and by becoming economy to which outsourcing and new startup manufacturing China become the industrial power that might well tip-off “supply-to-demand” into “demand-to-supply” market configuration; such processes shorten already shortening employment in manufacturing to the rest of the world. Manufacturing, industrial production could well be considered in the foundation of the modern Capitalism that adds the most to fiscal reserves of most of global economies by highly paid employment; the most advantageous return of investment and the most secure buildup of equity: the higher growth of industrial production the higher level of equity value.
The Most Developed Economies are considered the Most Industrialized Economies.
In such market environment of Globalization (outsourcing and moving industrial production to less expensive economies) and rising Productivity (improvements in high technologies and shrinking employment marketplace cause this rising productivity) industrial employment is shrinking fast at US. Very few are the economies of Most Developed ones that have succeeded under current forces of industrial competition to sustain industrial production and keep up their industrial leadership: Germany and Japan are the few. The value of equity as stated closely relates industrial production of the modern day economics therefore overall such value will deteriorate in markets with deteriorating industrial production.
Modern economics does not take in consideration the value of already succeeded equity if economic industrial economic growth is not maintained and only short term self-adjustments are project-able. Such positions of equity directly relate the financial system of individual markets and the global financial system which lends on relatively high interest rates and short term, and in which corporate structures are run on short term profitability. Indeed equity related intellectual property and equity related market security are long term corporate equity however the fluctuations of overall market equity value often fluctuate and reflects corporate equity values violently.
In the past when supply was leading and most developed countries were firmly holding onto the global industrial production such fluctuations of individual and corporate equity values were productive because of prompting concentration of capital than prompting consecutive economic growth, then also less developed economies were more like satellites to the most developed ones being able to support fiscal reserves for social and infrastructural expenses. Even some parts of such industrial production was developed here and there in different countries the majority was still kept by the most industrialized economies. The equity values in most industrialized markets were therefore higher than these of in less developed markets and these still are, except that under the new arousing conditions of globalization and rising productivity industrial production has been gradually moved and outsourced to China, and now India, Brazil and Vietnam which are vastly populated countries with inexpensive labor force and some good industrial structures, therefore in terms of value of equity related industrial production the most definitive becomes the issue of lack of such industrial production to many economies and if such is reduced or lost what consequently would be their value of equity. Intellectual property and market security values are much more flexible and adaptive than the real estate equity value because intellectual property and market security equity reflects an economy, country, marketplace achievements in education, social and infrastructural development that requires long term development thus countries as US that very well represents such succeeded development will be hard to be shut away as holders of such equities. However such superiority is a short term prospective even to the mighty US because of the Internet and the constant exchange of information and technologies, because of the outsourcing and moving industrial production the new emerging economies would pop-up if these themselves develop required infrastructure, social structures, and education to respond to the changing realities. In case of China when in the past its communist social policies were counter productive to its industrial growth and development under the most recent globalization and rising productivity China’s Social and Infrastructural expenses proved to be very productive in balancing its “demand-to-supply” and thus succeeding consistent economic growth even when the rest of the world went through the Great Recession, thus China’s equity has risen much because of its economic growth.
Equity values are very sensitive economic indicators more like currencies; the difference between them is that currencies’ values are more related to short term global adjustments and fluctuations when equity works in longer terms. Equity values are harder to built: real estate, infrastructure, intellectual property, market security equity values are to be used in the future as economic indicators for a country, economy, market evaluation and underwriting. To use equity values, economics must change the ways these values are preserved and enhanced even when industrial production is not going to be the main economic indicator as it has been for some time. Economic “tools” are to be used to sustain equity values in a “as it comes: as it goes” basis and approach, that approach differs from country, economy, market to country, economy, market because of their level of development, mentality and tradition. In some Social and Infrastructural expanses should be reduced in short term to prompt economic development in some the Social and Infrastructural expenses should be well enhanced to prompt such economic development. There are some economic “tools” that are for all and these are the expanses for preventing pollution and implementing renewable energies, these are economic “tools” for balancing “demand-to-supply” on a global scale and are to be financed by the global financial structures of the World Bank, IMF and WTO through Commercial Banks on a marginal interest rate or subsidies. For such lending paramount should be the enhancement of businesses security: of business and contracting laws, of personal liability to corporate structures, of corporate bonding. The global financial structures should be given the controlling functions over global balance of “demand-to-supply” to prevent from inflation, the issuing of monetary quantities power to keep interest rates low, the targeting countries, economies, markets weak points for building equity, the controlling over countries, economies, markets compliance with the guidelines and underwriting, the controlling over commercial banks’ execution of these guidelines and underwriting matrix.
The existing equity of countries, economies, markets should be the foundations for low interest lending therefore overall security should be enhanced thus countries, economies, markets could become eligible for financing.
In the new century of market economics industrial production should not be the only way for fiscal reserves but ones equity that could be built by properly balancing its “possible demand-to-supply” and properly and pragmatically using all economic “tools” to raise its “security”.
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