3.2 political and economic decision making Flashcards
A ) what has led to an increase of world trade
a number of organisations have helped to promote free trade and end ‘protectionism’
in the past:
many countries protected their own industries by demanding taxes and tariffs on imported goods making them more expensive, using quotas to limit vol. of imports and restricting forge in companies from investing.
free trade is the opposite and aims to INCREASE total trade volume, international organisations promote this
A ) significance of international organisations
international political and economic organisations have contributed to globalisation through the promotion of free trade polices and FDI.
!!!FDI= ‘ENERGY SOURCE’ FOR GLOABLISATION!!!
Bretton Woods Agreement (end of WW2, in USA)
the
World Bank
IMF
WTO
were set up with the economic objective of rebuilding the world economy post WW2, politically they wanted to promote free- market democracy in the face of the looming cold war against one- party communism
A ) world bank
role of lending money and giving grants to the developing world to fund economic development and reduce poverty
it requires strict conditions on its loans and grants, requiring recipients to adopt trade liberalisation policies and to open up FDI by removing legal restrictions and capital controls.
has helped developing countries develop deeper ties to global economic but :( has been criticised for having policies that put econ. development before social development and :( countries may not be able to afford loan repayments and become further in debt
A ) international monetary fund (IMF)
:) role of aiming to maintain a stable international finance system, offers loans to countries in debt (encourages more open economies)….
:) stable global currency enables easy trade!!
EG Greece in 2008 received a series of IMF loans when its foreign currency earnings were insufficient to pay its existing debt
:( recipients must agree to strict conditions before loan is agreed (eg SAPS which can cause unemployment and further poverty), economy must be opened up to FDI and free trade
A ) world trade organisation (WTO)
:) role of aims to promote global trade by reducing trade barriers- protectionist policies eg tariffs (import tax) and quotas (max import limit), since WTO global trade has increased massively
:( no real power to enforce regulations eg it can’t control what individual countries do
A ) (example Q) how do the politics and economics of free trade accelerate globalisation? (4 steps)
- govs take away barriers that make trade more difficult/ costly
- as costs are reduced TNCs will see profit and have incentive to invest in nations (increasing FDI) and bringing new ideas/ projects/ cultures etc. to nations
- as an economy has more TNCs there is an increase in wealth and connectivity which will increase standard of life and demand for foreign products
- this then increases global links further
B ) how can national governments accelerate globalisation
- by joining/ promoting free trade blocs
- free market liberalisation
- privatisation
- encouraging business start ups
B ) trade blocs
a group of countries that agree to reduce trade barriers them creating economic strength and security to the nations that join.
they promote fee trade between members increasing economic globalisation as members are asked to trade more frequently and in greater quantity
:( however can lead to cultural erosion and sovereignty loss as well as short term unemployments
C/S the EU
composed of 28 members and a popn of 512 million
original political aim was to integrate economies, interdependence prevents war
it guarantees the free movement of goods, capital and people: the ONLY group of nations that grants ALL CITIZENS of member states FREEDOM OF MOVEMENT
- The Schengen area (26 countries) have removed barrier controls (national borders)
single currency, the euro, has been adopted by 19 members
2004: ten new member states, poorer countries ‘let in’ including Poland and Hungary
lead to an influx of cheap labour (in UK, Brits believed they were undercut)
C/S ASEAN
(association of SE Asian nations)
est. in 1967, it’s a free trade area with 10 members and a popn of 625 million
uniform low tariff applied between members for specified goods (working towards tariff elimination sector by sector)
aimed to create a single market (similar to EU) in 2015 however this was not achieved
political globalisation (more political than economical) ASEAN aims to co-ordinate response to regional political issues EG member nations pledged to remain nuclear weapons free in 1995
- avoids public criticism of member nations
B ) free market liberalisation and privitisation
promotes free markets and reduces government intervention
—- initially promoted by 1980s UK prime minister Margaret Thatcher, ending monopoly provision of services like telephones and electricity
creates competition between firms leading to innovation and lower cost production= higher output, lower prices and greater choice
foreign competition is encouraged too ( removal of legal restrictions and removal of capital controls ) which increases efficiency further and promotes globalisation
PRIVATISATION, also falls into this… post 1980s many govs sold off industries: in UK steel, car, gas and water industries were all state owned but are now privately owned. (but in france gov still owns big slices of industry)
:) may increase efficiency as profit motive minimises loss (gov reluctant to sack workers= higher labour costs etc)
:) permitting foreign ownership allows injection of foreign capital through FDI, introduces new tech and promotes globalisation
B ) encouraging business start ups
grants and loans are often made to new businesses esp. in areas that are seen to be globally important eg ICT development or renewable energy
low businesses taxes, well enforced contract law as and minimum regs could also be in place to encourage new firms
creates innovation and completion in new production techniques, erodes excess profit of monopolies and lowers prices
C ) attitudes to FDI
decolonisation period (50s- 70s) saw many newly independent countries rejecting international trade as exploitive (with exception of the Asian Tiger econ.)
by 1980s, attitudes had changed, FDI viewed as POSITIVE!! creating new jobs, reliable wages with better working conditions, new tech introduced as well as reliable tack contributors
as a result FDI by developed country TNCs expanded to new areas
C ) what are subsidies
payments by the gov to a company to promote a particular activity
gov may provide subsidies to attract FDI (eg subsidy to cover relocation costs)
WTO usually prohibits subsidies to domestic firms as this acts as a trade barrier (gov payment allows a firm to accept lower market price, undercutting price of imports)
C ) the role of SEZs
special economic zones are areas where investors receive incentives to attract them to the area.
!!!50 million people in more than 100 countries work in such locations!!!
attractive to FDI:
tariff and quota free
unions usually banned (workers cannot strike/ complain)
infrastructure provided by gov (lowering cost for investors)
all profit can be sent back to company HQ overseas
taxes are very low
little- no environmental regulations
C ) C/S china’s open door policy (1978)
prior to 1978, china= isolated and switched off from global economy. most ppl. lived in poverty in rural areas.
1978= introduction of the ‘Open Door Policy’ introducing economic liberalisation and opening up to FDI whilst remaining under a strict one party authoritarian rule
over next 30 years, largest migration in history took place: 300 million people left rural areas in search of better life.
creation of SEZs has led to an urban mega region of 120 million people around the Pearl River Delta
—- worlds largest TNCs were quick to establish trade relationships with Chinese-owned factories in new SEZs (China has incredibly cheap labour: $3-4 an hr vs USA $10-15 an hr)
by the 1990s, 50% of Chinas GDP was being generated in SEZs… today, china is worlds largest economy!!! 90% OF THE WORLDS ELECTRONICS ARE MADE IN SHENSEN
400 million people have escaped poverty
China still has a closed approach to certain global interconnection: information flows are limited: google and facebook have little access to china’s market!
cultural erosion is limited to try and prevent encroachment of western ideas: only 34 foreign films allowed per yr in cinemas
