Global Systems Flashcards
Define Globalisation
Widening, deepening and speeding up of interconnevity between countries.
What does the International Monetary Fund do?
IMF: Intervenes in situations of financial crisis to provide loans and conditions for restructuring the economy to avoid future crisis.
What direction are high value manufactured goods moving?
HICs > LICs
HICs > NICs
What direction are low value manufactured goods moving?
NICs > HICs
What direction are raw materials moving?
LICs > HICs
LICs > NICs
What is Primary Product Dependency?
A country’s entire economy is reliant on the production of one product for exports, usually raw materials.
Advantages of International Trade
- Comparative advantage
- Economies of Scale
- Fewer domestic monopolies
- Purchasing power
- Multiplier effect (in terms of job creation and increased services)
- Technology transfer
Disadvantages of International Trade
- Decline of local industries
- Protectionism
- Deskilling
- Exploitative work practices
What are Economies of Scale?
Increasing production causes lower cost per unit. Greater profits, lower prices.
What is Comparative Advantage?
Countries specialises in producing a good that can be produced more efficiently and at a lower cost than other areas Higher profits.
Why might specialisation in one product be problematic?
They will be dependent on supply, which can be finite, and can’t adapt or develop.
What is Deskilling?
As goods produced elsewhere, quality and usage of (traditional) knowledge and skills decreases.
Positive of Primary Product Dependency
- Comparative advantage
- Low upfront investment
- Attracts FDI
Negative of Primary Product Dependency (Issues caused by it)
- Supplies are finite
- Resource curse
- Discourages investment in other areas/ less diversification of manufacturing
- Volatile prices as supply fluctuates but demand remains the same
What is Fair Trade?
Provides a fair price to producer as their is a common minimum price. Includes Fair Trade Premium, which is additional money for investment in Socioeconomic Welfare. Involves a compliance with environmental standards and Human Rights control.
Positives of Fair Trade
- Minimum prices set
- Social premium
- Human Rights consideration
Negative of Fair Trade
- Minimum price encourages over supply creating a Fair Trade dependency. Producers prices then fall
- Fair trade is on primary products so there is no encouragement to diverse.
- Inefficient > money stys in HICs
- Farmers in HICs benefit more than LICs
What are the SIX Barriers to Trade?
- Tariffs
- Quotas
- Subsidies
- Import Licensing
- Voluntary Export Restraint (VER)
- Embargoes
What are Tariffs and why are they a barrier to trade?
Tax on imports. Imports are more expensive therefore people buy domestically. E.g. Smoot-Hawley tariffs 1930 > tit for tat retaliation.
What are Quotas and why are they a barrier to trade?
Physical limit of imports. Reduce imports so people buy domestically which increases consumer prices.
What are Subsidies and why are they a barrier to trade?
Grants to domestic products and producers to cover the costs. This lowers prices. E.g. US Cotton Subsidies. However, LICs often lose out.
What is Import Licensing and why is it a barrier to trade?
License to import. Prevents countries from importing so buy domestically.
What are Voluntary Export Restraints and why are they a barrier to trade?
Reduce exports agreement. Very politically based.
What are Embargoes and why are they a barrier to trade?
Ban imports of a certain good/ or from a certain country.
What is the World Trade Organisation?
WTO: Deals with the rules of trade between nations at a global or near global level. Has 164 members, representing 98% of World trade.
What are the FOUR WTO rules of trade ?
- Countries promote free trade
- Countries cannot give special access to certain countries
- Countries should act predictably in their trading
- There should be fair competition
Strengths of the WTO
- 164 members. Democratic
- No major trade disputes
- 1930s- 65% tariffs. Now 9%
- Successful introduction of free trade.
What is Free Trade?
International trade left to its natural course without the presence of tariffs, quotas or any other restrictions.
Weaknesses of the WTO
- Free Trade means LICs can’t develop infant industries.
- Can’t protect against TNCs. No developed country has become so without protectionism.
- Race to the Bottom. To compete they exploit workers to get prices down.
- There are trade agreements outside the WTO
- Patents unfair. Prevents LIC developing. Indigenous knowledge.
What is Ethical Investment?
Investors make a deliberate choice to invest capital based on the activities of the firm/organisation.
Strengths of the IMF
- Provides loans to countries in need of a bailout. E.g. Iceland $1.6 bln Iceland after eruption
- 290 members > inclusive
Weaknesses of the IMF
- Conditions attached to loans exacerbate financial problems.
- Decline of public services as a result of spending cuts
- Removes political sovereignty
- Total staff from 185 countries always elect a European director
- Voting power based on capital contribution
What is the World Bank?
WB: Provides loans for developing countries to reduce poverty. Funds a variety of projects either ‘bottom-up’ or ‘top-down’.
What is a Top-Down project?
Decision to undertake projects or developments made by a central authority. Little or no consultation with the local people who may be affected.
What is a Bottom-Up project?
When local people are consulted and supported in making decisions to undertake projects based on their specific needs.
Strengths of the WB
- Long term investment and development
- Low interest
- Promotes private businesses/infrastructure
Weaknesses of the WB
- Top-down > little consideration of local people
- Conditions may cause more problems
- Always had an American Director
What are FOUR Global Institutions?
- New Development Bank
- G 7/8 and G20
- Organisation for Economic Cooperation and Development
- Organisation of the Petroleum Exporting Countries
New Development Bank
BRICs countries alternative to Bretton Woods institutions. Increasing swing of political power towards the East.
G 7/8 and G20
Since 1975, groups of the World’s most powerful nations met to coordinate responses to shared economic challenges, but the traditional G 7/8 countries are of declining importance
Organisation for Economic Cooperation and Development
36 high and middle income countries aiming to improve social and economic well-being across the globe.
Organisation of the Petroleum Exporting Countries
Cartel of 15 oil-producing countries, global oil dependency gives these countries power on a global scale
What are Trade Agreements?
Two or more countries agree on terms that help with trade.
What are the Trade Blocs?
Group of countries with a common agreement that promotes and manages trade. Removes barriers between members, while keeping common barriers with non-members.
FOUR forms of Trade Groupings
- Free Trade areas
- Custom Unions
- Common Markets
- Economic Unions
What are Free Trade Areas?
Lower barriers to trade between members
Common Markets
Free trade of goods, services, people, capital
Economic Unions
Shared currency
THREE examples of Trade Blocs
- Transatlantic Trade and Investment Partnership (TTIP)
- NAFTA
- EU
What is the North American Free Trade Agreement?
NAFTA:
- It’s an agreement between Mexico, USA and Canada
- Responsible for making N. America one of the most active trade regions and accounts for 19% of global exports ad 25% of imports
Advantages of NAFTA
- Has quadruples trade. Three countries trade went from $290 billion to $1.23 trillion from 1993 to 2019
- Lower tariffs reduced import prices
- Increased FDI
Disadvantages of NAFTA
- U.S jobs lost
- Suppression of wages
- Deteriorated Mexico’s environment
Positives of Trade Blocs
- Larger captive market for businesses
- Economic growth due to increased trade
- Economic peaks and troughs are filtered through the group.
- Increased output > greater employment opportunities
- Can set higher environmental standards
- Greater negotiating power
Negatives of Trade Blocs
- Trade diversions as members products are artificially cheaper. Negative impacts on non-members
- Declining domestic capacity to produce certain food, manufactured goods or services > over-specialisation
- Spacial division of labour: manufacturing moves to lower costs within the same bloc as manufacturers can still benefit from lower tariffs E.g. factories moving from the US to Mexican Maquiladora along the border
- Loss of sovereignty/ some financial control (European Central Bank)
- Trade disputes between blocs E.g. EU & US Estradiol
- Expensive E.g. EU cost $960 bln approx between 2004-14
- Issues with shared resources E.g. Scallop wars in the UK
What are Transnational Corporations?
TNCs: Companies that produce, sell or are located in two or more countries. On 2013, 80% of global trade was linked to TNCs. They operate in all forms of industry/don’t just originate in HICs anymore.
Different types of TNC spatial organisation?
- Global Supply chain HQ
- Subsidiary HQ
- Research and Development
- Production
Global Supply Chain HQ in relation to TNC spatial organisation
Mostly in HIcs. Good Infrastructure. With highly skilled population.
Subsidiary HQ in relation to TNC spatial organisation
On other continents to access market. Involves glocalisation.
Research and Development in relation to TNC Spatial Distribution
In HICs due to good education.
Production in relation to TNC Spatial Distribution
Primary: in NICs/LICs as not overused resources but tech changes
Secondary/Tertiary: In NICs as labour costs are low. Good education and same languages
How do TNCs promote globalisation?
- Spatial organisation
- Organise production to take advantage of the global supply chain
- Investment, spreads new techniques and promotes cultures.
Examples of Global Production Networks
- Subtractors (outsourcing)
- Offshoring
- Mergers
- Acquisitions
- Joint Ventures
What are Subtractors (Outsourcing)?
Use of foreign companies to manufacture products without actually owning the businesses. Race to the Bottom. Reputational Risk.
What is Offshoring?
TNCs move parts of their own production process to other countries to reduce labour and other costs. E.g. Dyson
What are Mergers?
When two companies (usually of the same or similar sizes) agree to become one bigger company. E.g. BP and Amoco
What are Acquisitions?
One company buys another. Unequal flows of money.
What are Joint Ventures?
Two companies form a partnership to handle business in a particular territory bu without actually merging to become a single entity. Legally binding. E.g Indian Investment Laws. Glocalisation > local businesses know local people.
Vertical Integration
Supply chain of a company is owned entirely by that company from raw material to finished product.
Horizontal Integration
Company buys other companies at the same level on the supply chain.
Issues surrounding TNCs
- Tax Avoidance
- Horse Meat Scandal
- Pakistan & Bangladesh
Tax Avoidance issue surrounding TNCs
Companies have found many ways to avoid paying higher tax. They do this by relocating parts of the company countries with looser tax rules (transfer pricing)
What is Transfer Pricing?
Buying from other area of the same TNC in lower tax country
Horse Meat Scandal issue surrounding TNCs
Traces of horse and pig meat were found in frozen beefburgers. There was a crunch down on government control of food safety. This was hard to track down due to many suppliers and extensive supply chain.
Pakistan and Bangladesh scandal surrounding TNCs
Series of fires, usually due to illegal activity, lead to worker deaths both from the fire itself and building collapse.
THREE risks of interdependence to TNCs
- Geopolitical Risks
- Reputational Risks
- Physical risks
Geopolitical Risk of Interdependence to TNCs
- Government sanctions (E.g. EU & Russia)
- Conflict and Political Instability (E.g. Arab spring 2011)
- Resource Nationalism (E.g. Venezuela-Hugo Chavez
Reputational Risk of Interdependence to TNCs
Unethical treatment of worker and environments by outsourcing companies jeopardises TNCs reputations
Physical Risk of Interdependence to TNCs
Natural Hazards E.g. Eyjafjallajokull eruption
what is reshoring?
TNCs adapt to increasing human and physical risks by building more resilient supply chains and spreading operations less thinly over few countries.
Example of Reshoring
Apple: invested $100 million into making some products in the USA
What direction are Flows of Labour going?
LIC/NIC > HIC
What direction are Flows of Capital going?
Profit repatriation: NIC > HIC
Everything else: HIC > LIC
What direction are Flows of Ideas going?
HICs > LICs/NICs
What direction are Flows of Tech going?
HIC > LIC/NIC
What is Interdependence?
Societies, states and businesses have become mutually dependent on one another due to complex ways global systems have evolved.
Different types of Economic Interdependence
- Trade
- Technology Advances
- Employment
- INternational Economic MIgration
- TNCs & Investment
- Supply chains
Different types of Political Interdependence
- IGOs
- Security & Stability
- World Peace
Different types of Social Interdependence
- Education
- Culture (Diaspora)
- Remittances
Trade as Economic Interdependence
Specialisation in comparative advantage. Dependence on primary products that bring profit.
Technology Advances as Economic Interdependence
Driven by consumers > TNCs
International Economic Migration as Economic Interdependence
20% of total population in 48 countries are migrants > remittances
IGOs as Political Interdependence
Relationship between global systems
World Peace as Political Interdependence
Golden Arches theory Thomas Friedman.
Culture as Social Interdependence
Social ties. Ireland > 70 million claim heritage
Education as Social Interdependence
Foreign exchange
How do HICs have more power in a global system than LICs/NICs?
- More likely to be part of a trade bloc
- High value manufactured products > Triadic/intraregional structure
Positive impacts of TNCs
- Generates jobs
- New tech/infrastructure
- Multiplier effect (upskilling)
- Lower costs > more profits
- Lower price for consumer in country of origin
Negative impacts of TNCs
- Loss of culture
- Exploitation
- Pressure on government > low environmental regulations
- Profit repatriation
- Reputational risk
- Structural unemployment
What is Market Access?
How easily countries and companies can trade with one another as determined by the extent of export and import barriers.
Factors affecting access to market
- Wealth
- Inclusion in trade blocs/agreements
- Unfair trade rules
- TNCs
Wealth as a factor affecting Market Access
Pay higher tariffs/ pay subsidies to your domestic producers limits others access to the market. Investment inside a trade bloc.
Inclusion in trade blocs/agreements as a factor affecting Market Access
Larger market share
TNCs as a factor affecting Market Access
Can pressurise government to lower barriers
What is Preferential Trade Agreements?
Trade pact that reduces tariffs between participating countries for certain products.
What is Differential/Special Trade Agreements
Special provisions that give developing countries special rights and gives the ability to treat developing countries more favourably.
Economic impacts of Poor Market Access
- Difficult to establish new industries
- Dependence on low value primary products and limited access to markets for manufacturing products
- Not attractive to FDI > Lack of infrastructure development
- Fewer employment opportunities > 70% of under 25s unemployed
What is the Paris Agreement?
2015:
- Carbon emissions reduction target
- Aim to reduce net emissions to 0% by 2100
- Green Climate Fund
- Track progress in emissions
Strengths of Paris Agreement
- 190 countries pledged
- Progress track means pledges are strengthened every 5 years
- Uk aim to get zero emissions by 2050
Weaknesses of Paris Agreement
- Voluntary pledge/ not enforced
- Already 1C increase > reached tipping point
Positives of Special/Differential Trade Agreements
- Boost economies. Development of poorer nations
Negatives of Special/ Differential Trade Agreements
- 10 LDCs are not WTO members and it takes 8-10 years to join
- HICs aren’t fans > as non-reciprocal so separate agreements needed
- Some countries removed due to political grounds
Strengths of the UN
- Peacekeeping successes e.g. Kuwait and Iraq
- Best vehicle for cooperation. Legitimacy to decisions
- Successful interaction with many poorer UN member countries. G77
Weaknesses of the UN
- Decision paralysis due to veto power in Security Council
- General assembly can only make recommendations
- No permanent military of their own > reliant on member states compliance.
What is Glocalisation?
Product developed and distributed globally but adjusted to be specific to local consumers
What is a global shift?
Movement of manufacturing from developed countries to lower wage economies
How have changes to financial systems promoted globalisation?
- Deregulation of financial markets
- High speed electronic trading systems/ global exchange connectivity
How have changes to production promoted globalisation?
- Global shift/decentralisation of industry from HICs > NICs/LICs
- FDI for construction of factories from HICs > LICs/NICs
- Outsourcing/offshoring
- Global supply chain of TNCs
How have changing technology promoted globalisation?
- Development of the internet (movement of information/capital)
- High speed electronic trading systems/global exchange connectivity
- Improvements in travel (increased movement of goods/people)
- Containerisation
Argument for importance of changing technology in promoting globalisation
Containerisation: Reduced transport costs by 70%. Boost trade as transport costs less, likely to cancel out gains from comparative advantage
Internet: global reach/ access to all markets/ increased capital movement/ increased sharing of culture
Argument against importance of changing technology in promoting globalisation
Containerisation: concern for re-atmospheric pollution > may need to introduce green taxes on shipping
Internet: LICs still excluded due to high costs of internet infrastructure. Censorship laws also exclude some countries
Argument for importance of trade blocs in promoting globalisation
- Common external tariffs and lower internal barriers > trade within bloc is more competitive and trade increases e.g. after NAFTA exports from USA to Canada and Mexico tripled from $142 million to $452 billion
- Increase movement of labour
- Increased negotiating power of members
Argument against importance of trade blocs in promoting globalisation
- Trade diversion e.g. 70% of EU trade is within the EU
- Trade disputes between blocs
- Trade blocs can break down and have disputes between themselves
What is Outsourcing?
Companies arrange for goods to be produced by other companies usually at lower cost locations
What are the impacts of outsourcing?
- Deindustrialisation of HICs > loss of jobs (UK lost 50& of manufacturing jobs 1983-2003)
- Structural unemployment
- Race to the bottom in LICs
- Exploitative work conditions/ LICs have less stringent environmental laws
How have unequal flows of labour created inequality?
- Brain drain from LICs
- Conflict between migrants and locals (low skilled migrants often happy to work for less money)
- Rural urban migration increasing poverty in rural areas
- Dependence on remittances and lack of alternative income
How have unequal flows of capital created inequality?
- Foreign aid dependency with little development of manufacturing
- Dependency aid/remittances can cause issues if it stops
- Aid can fund armed groups/conflict
- ## FDI can cause conflict between TNCs and local people
Why do HICs have better market access?
- Infrastructure is similar and well-developed
- High-value products
- High-market volume - wealthy middle classes
- Geographical proximity
- Literacy rate is high and similarly high skill level
What are social impacts of poor market access?
- Less employment opportunities and less disposable income
- Less money invested in health/education/infrastructure so lower quality of life
- Often poorly paid work and workers exploited
In what ways have global trade patterns changed since the 1980s?
- Increased by 8x
- Increase in intra-corporate trade (40%)
- Developing nations still dominate but emerging economies now challenge G7
- Trans-pacific trade is now growing faster than trans-atlantic trade
- Dominated by TNCs (70%)
In what ways have world investment patterns changes since the 1980s?
- Increased ($400 bn in 1996 to $1500 bn in 2016)
- 1980s HIC > HIC but now increasingly HIC > NIC/LIC
- Increasing NIC investment in NIC/LIC
Positives of Free Trade
- Specialise on comparative advantage
- Increased access to raw materials/resources
- Increased economic growth
- Increased FDI
- Weaken domestic monopolies
NEgative of Free Trade
- Widening wage inequality
- Infant/domestic industries can’t develop
- LICs may have primary product dependency
- Westernisation/loss of cultural identity
- Degradation of natural resources
Who is involved in NAFTA?
US, Mexico, Canada
Who is involved in TPP (Trans-Pacific Partnership)?
USA, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam
Who is involved in TTIP (Transatlantic Trade and Investment Partnership)?
EU/ USA
