The Global Role of Aviation

Consultant says industry often overlooks its role, impact on world commerce


We are in the midst of profound economic changes known as globalization; and yet, the topic is rarely discussed at any length at
aviation conferences or in trade journals. Globalization is the movement to a more connected world -- a world organized around nation-states and yet increasingly conjoined in a global marketplace. Globalization is an economic development platform supported by three legs:
1) global security,
2) global finance and trade, and
3) global connectivity.

On 9/11, terrorists attempted to knock the legs out from under the globalization process. Terrorists typically use high-concept, low-technology methods when operating their missions. Explosive-laden rafts strike a U.S. warship; truck bombs attack embassies; hijacked civil aircraft kill thousands. Such attacks are intended to drive the globalization movement from their part of the world.

One of the unique aspects of the new global economy is a public policy shift, primarily at the macro level, from supporting less government intervention to encouraging more private enterprise and, simultaneously, reducing barriers to trade and investment. Since the 1970s many countries have decided to remove restrictions on capital flows.

Coupled with other domestic policies designed to promote competition among firms, these types of market liberalizations in trade and investment have helped reduce costs to consumers and promote technological innovation.

Since the 1980s, market-oriented ideas (deregulation, privatization, and competition) are replacing the "government managed economies" paradigm. (Remember China's "jobs for everyone" program?) The result is greater confidence in the ability of competition and markets to deliver better outcomes, thereby encouraging businesses to expand abroad through foreign direct investment (FDI).

FDI occurs, for example, when an investor sets up an enterprise in a foreign country or obtains a large enough share in an existing foreign enterprise to influence managerial decisions. FDI flows not only from a developed country to an undeveloped country but also from one developed country to another, particularly through multinational companies (MNCs). The share of total investment in the U.S. economy that is financed by FDI now reaches close to 20 percent, while in the 1970s it averaged 5 percent.

MNCs undertake FDI when they establish overseas operations through foreign affiliates. They also engage extensively in international trade. Worldwide, some 60,000 parent operations of MNCs and their 500,000 foreign affiliates account for roughly 25 percent of global output, one-third of it in host countries. U.S.-based MNCs account for a large share of U.S. production, trade, and employment. They produce about 19 percent of U.S. GDP through their parent operations.

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