3.2 - Political And Economic Decision Making Flashcards
1
Q
What is the role of the world bank
A
- Lends money on a global scale
- Gives direct grants to developing countries
- The World Bank requires recipients to adopt trade liberalisation policies and to open up to FDI by removing legal restrictions and capital controls. It also requires them to adopt structural adjustment programmes to reduce government budget deficits.
- Developing countries may therefore prefer to borrow from China, or the Chinese-led Asian Infrastructure Investment Bank, which doesn’t impose such conditions.
- Deals with flows of capital
- Has helped developing countries develop deeper ties to the global economy but has been criticised for having policies that put economic development before social development.
- Controversially, all World Bank presidents have been US citizens
2
Q
What is the role of the International Monetary Fund
A
- Transfer loans from HICs to countries that have applied for help
- Recipients of the loan must agree to run free market economies so TNCs can locate there easily
- Strict conditions on governments borrowing which may result in the governments reducing spending on healthcare, education etc.…
- The IMF has been criticised for promoting a ‘western’ model of economic development that works in the interests of developed countries and their TNCs.
3
Q
What is the role of the world trade organisation
A
- An international organisation that works to reduce trade barriers (both tariff and non-tariff) and create free trade.
- Promotes trade liberalisation e.g., for manufactured goods
4
Q
How do free trade blocks accelerate globalisation
A
- A free trade bloc is an agreement between a group of countries to remove all barriers to trade, e.g. import/export taxes, tariffs and quotas.
- Benefits: Companies grow as they gain access to more customers, a bigger market increases demand of products and services, smaller companies can merge to form TNCs reducing production costs
- Drawbacks: cultural erosion, short term employment
- The EU is an example of a trade block
5
Q
What is ASEAN
A
The Association of South East Asian Nations (ASEAN): A free trade area with 10 members with a population of 625 million, a uniform low tariff is applied between members for specified goods, It’s working towards the elimination of tariffs sector by sector, agreed to create a single market by 2015, however this was not achieved, ASEAN aims to co-ordinate response to regional political issues. It’s more political than economic, ASEAN pledged to remain nuclear weapons free in 1995, ASEAN way incorporates a culture specific approach to conflict resolution. Seeks consensus and avoids public criticism of member nations.
6
Q
How does free market liberalisation accelerate globalisation
A
- lifting restrictions for companies and banks reducing the costs for TNCs to locate and operate in these countries
- Competition between firms leads to innovation and lowest cost production
- Outcome is higher output, lower prices and greater choice
- It has created competition in once restricted markets.
- It involves removing price controls, breaking up monopolies (e.g. trade union monopolies of labour supply) and encouraging competition - including foreign competition, which increases efficiency further and promotes globalisation.
- Foreign competition can be encouraged by removing legal restrictions on foreign ownership and removing capital controls, allowing inflows of FDI (and outflows)
7
Q
How does privatisation accelerate globalisation
A
- allowing companies to take over important national services e.g., railway and energy supply to reduce government spending. This is attractive to TNCs as they would gain a stake in vital services
- It may increase efficiency as the profit motive minimises loss (government reluctant to sack workers, leading to higher labour costs)
- Permitting foreign ownership allows an injection of foreign capital through FDI, introduces new technologies and promotes globalisation.
8
Q
How does encouraging business start ups accelerate globalisation
A
- aims to increase profits for businesses by using strategies such as low business taxes and changes in the law, for example the UK became more attractive to TNCs when Sunday trading was introduced in 1994
9
Q
How have attitudes to FDI changed
A
- Attitudes to FDI have changed in developing and emerging countries.
- During the period of decolonisation many newly independent countries rejected international trade as exploitative, they preferred self-sufficiency.
- By the 1980s, most countries had changed their attitudes towards FDI and globalisation.
- They no longer viewed FDI as exploitative: paying low prices for resources, low wages to workers, demanding low taxes and polluting the environment
- Instead they viewed FDI as positive - creating new jobs and better working conditions, which introduced new technology and contributed to tax.
10
Q
What are subsidies
A
- Subsidies are payments by the government to a company to promote a particular activity.
- Governments may provide subsidies to attract FDI
11
Q
What are special economic zones
A
- the industrial areas, near the coast, where favourable conditions have been created to attract TNCs
- They are tariff and quota free, allowing manufactured goods to be exported at no cost.
- Unions are usually banned, so workers cannot neither strike nor complain.
- Infrastructure such as port facilities, roads, power and water connections are provided by the government, providing a subsidy for investors and lowering their cost.
- All profits made can be sent to the company HQ overseas.
- Taxes are usually very low, and often there is a tax-free period of up to 10 years, after a business invests.
- Environmental regulations are usually limited.
12
Q
What is chinas open door policy
A
- In 1978, Deng Xiaoping introduced the ‘Open Door Policy’, slowly introducing economic liberalisation and opening up to FDI while maintaining a strict one party political system.
- SEZs were created on the coast, such as the Pearl River Delta Zone, the Shanghai Economic Zone, attracting a rapid inflow of FDI.
- In 1980 it created the Shenzhen Special Economic Zone.
- Information flows are controlled. Google and Facebook access is limited. The Chinese Youku is the social media provider.
- Cultural erosion is limited - a quota of 34 foreign films per year in Chinese cinemas.
- FDI restrictions in some sectors. Coca-Cola’s attempted acquisition of Huiyan Juice was blocked in 2008.
- In many Chinese SEZs wages are now high and countries like Vietnam are more competitive.
- Rapid urbanisation occurred with over 300 million people leaving rural areas which lead to an increase in low-wage factories in urban areas
- SEZs were created which attracted TNCs, leading to rapid economic growth
- China is the world’s largest economy but is still not entirely open to global flows
