3.2 Political and Economic Decision Making Flashcards
3.2a International Organisations
World Trade
the amount of world trade increased fairly slowly from the 1970s
there was a huge growth in export trade after 2002
a sharp dip in 2008-2009 due to the global recession/ global financial crisis
world trade returned to ‘normal’ levels in 2011, but growth has been slow ever since
in 2014, there is about US$19 trillion world trade in goods, compared with less than $1 trillion in the early 1970s
3.2a International Organisations
protectionism
demand payments of taxes and tariffs on imported goods, so making them
3.2a International Organisations
the role of international organisations
contribute to globalisation through the promotion of free trade (ending ‘protectionism’) and FDI
3.2a International Organisations
The Bretton Woods Institutions
The Bretton Woods Conference in the USA in 1944, Allied Powers agreed to set up three IPEOs, the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO)
these were not founded until 1995
their economic objective was rebuilding the world economy following WW2
their political objective
3.2a International Organisations
World Bank
Has the role of lending money and giving grants to the developing world to fund economic development and reduce poverty.
In 2014 it gave a US $470 million loan to the Philippines for a poverty reduction programme and a $70 million grant to the Democratic Republic of Congo for the Inga 3 mega-dam HEP project.
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.In 2010 China loaned $110 billion - more than the World Bank
Deals with flows of capital
Often involves government spending cuts, privatisation of state owned firms and opening up to foreign competition.
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.
In theory it had the least to do with free trade, but in practise it requires people to open up to it.
3.2a International Organisations
International Monetary Fund (IMF)
The IMF aims to maintain a stable international financial system, promoting free trade and globalisation.
The IMF provides loans to countries facing short-term balance of payment difficulties.
Recipients must adopt structural adjustment and trade liberalisation programmes, including measures opening up the economy to FDI and free trade.
The IMF has been criticised for promoting ‘western’ model of economic development that works in the interest of developed countries and their TNCs.
The IMF deals with flow of capital.
IMF encourages government spending cuts, however these might slow economic growth, making the country less able to pay debts. Cuts are inappropriate for developing countries, since they need to invest in health and education.
3.2a International Organisations
World Trade Organisation (WTO)
an international organisation that works to reduce trade barriers (both tariff and non-tariff) and create free trade
headquartered in Geneva, Switzerland
a series of global agreements has gradually reduced trade barriers and increased free trade, although the latest round of talks begin in Doha in 2001, seeking to reduce tariff on agricultural products, to benefit developing countries, and have not been agreed yet
3.2a International Organisations
Foreign Direct Investment (FDI)
FDI is the financial capital flow from one country to another for the purpose f construction physical capital, i.e. building a factory in another country
3.2a International Organisations
free trade policies
a
3.2b National Governments
accelerating globalisation by joining/promoting free trade blocs
A free trade bloc is an agreement between a group of countries to remove all barriers to trade (import/export taxes, tariffs and quotas).
Trade blocs lead to globalisation through specialisation because countries specialise in goods being produced which have comparative advantage (e.g. can produce at the lower cost) and trade these products for other members’ specialism. Firms producing a country’s specialisation become TNCs as they sell outputs through the bloc.
ASEAN and EU
3.2b National Governments
accelerating globalisation by free market liberalisation
This involves promoting free markets and reduces government intervention in the economy.
Competition between firms leads to innovation and lowest cost production.
Outcome is higher output, lower prices and greater choice - higher SOL.
It was initially promoted in the 1980’s by UK Prime Minister Margaret Thatcher and US President Ronald Reagan, to have a positive multiplier effect through ‘trickle down’ effect.
It means ending the monopoly provision of some services like telephones, broadband, gas and electricity, so you can choose your supplier based on quality and price. This encourages competition of TNCs, 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).
3.2b National Governments
accelerating globalisation by privatisation
Since the 1980s many governments have sold of industries they once owned (so-called ‘nationalised industries).
In the UK the steel, car, electricity, gas and water industries were all state-owned but are now privately owned.
However, many governments still own big slices of industry, even in big countries like France.
It may increase efficiency as the profit motive minimises loss.
Permitting foreign ownership allows an injection of foreign capital through FDI, introduces new technologies and promotes globalisation.
3.2b National Governments
accelerating globalisation by encouraging business start-ups
Grants and loans are often made to new businesses especially in areas that are seen to be globally important growth areas such as ICT development, pharmaceuticals or renewable energy.
There could also be low business taxes, well-enforced contract laws, minimum regulation and efficiency bankruptcy procedures, which encourage new firm creation.
It creates innovation and competition in new production techniques, erodes excess profit of monopolies, lowers prices and increases household purchasing parity.
Where legal restrictions on foreign ownership and capital controls are also removed, foreign new businesses will be attracted to start up, promoting globalisation.
e.g. The UK Government’s support for ICT start-ups in Tech City (Silicon Roundabout) in the Old Street area of London.
3.2b National Governments
trade blocs
trade bloc is a group of countries that agree to reduce trade barriers between them
trade blocs promote free trade between members, increasing economic globalisation
trade blocs range from a free trade area where tariff barriers are removed between members (but a common external tariff is adopted) to a single market (where all tariff and non-tariff barriers are removed, and there is a common external tariff and free movement of people)
there are all non-tariff barriers (e.g. limiting number of Japanese cars imported); the euro prevents changing currency rates affecting deals.
3.2b National Governments
problems with trade blocs
trade distortion:
imposition of common external tariff makes goods from non-members expensive
trade distorted as the switch from cheaper non-member producer to more expensive member producer
short-term unemployment:
specialisation shift resources to industries which have a comparative advantage
firms being specialised away from will shut down and workers’ employment is lost
new jobs in the expanding specialised industry and in new demand areas from increases purchasing power
new jobs are likely to benefit new workers but older workers are less likely to retrain
cultural erosion:
cheap uniform products across the bloc replace more expensive local variants
sovereignty loss:
nation gives up determination of some areas of economic policy
