p2 Flashcards
IMF
Based in Washington, DC, the IMF channels loans from rich nations to countries that apply for help.
In return, the recipients must agree to run free market economies that are open to outside investment.
As a result, TNCs can enter these countries more easily.
The USA exerts significant influence over IMF policy despite the fact that it has always had a European president.
Evaluation
IMF rules and regulations can be controversial, especially the strict financial conditions imposed on borrowing governments, who may be required to cut back on health care, education, sanitation and housing programmes.
world bank
World Bank
The World Bank lends money on a global scale and is also headquartered in Washington, DC.
In 2014, a US$470 million loan was granted to the Philippines for a poverty reduction programme, for instance.
The World Bank also gives direct grants to developing countries (in 2014, help was given to the Democratic Republic of the Congo to kick-start a stalled mega-dam project).
evaluation:
cIn total, the World Bank distributed US$65 billion in loans and grants in 2014.
However, like the IMF, the World Bank imposes strict conditions on its loans and grants.
Controversially, all World Bank presidents have been American citizens.
WTO
The WTO took over from the General Agreement on Trade and Tariffs in 1995.
Based in Switzerland, the WTO advocates trade liberalisation, especially for manufactured goods, and asks countries to abandon protectionist attitudes in favour of untaxed trade (China was persuaded to lift export restrictions on ‘rare earth’ minerals in 2014).
Evaluation:
The WTO has failed to stop the world’s richest countries, such as the USA and UK, from subsidising their own food producers.
This protectionism is harmful to farmers in developing countries who want to trade on a level playing field.
Foreign direct investment:
A financial injection made by a TNC into a nation’s economy, either to build new facilities (factories or shops) or to acquire, or merge with, an existing firm already based there.
Different types of foreign direct investment
Offshoring:
Foreign mergers
Foreign acquisitions:
Transfer pricing:
Offshoring:
Some TNCs build their own new production facilities in ‘offshore’ low-wage economies. For instance, US guitars - maker Fender opened its Mexican plant at Ensenada in 1987
Foreign mergers
Two firms in different countries join forces to create a single entity. Royal Dutch Shell has headquarters in both the UK and the Netherlands.
Foreign acquisitions:
When a TNC launches a takeover of a company in another country.
In 2010, the UK’s Cadbury was subjected to a hostile takeover by US food giant Kraft.
The UK has few restrictions on foreign takeovers. In contrast, the Committee on Foreign Investment in the USA closely scrutinises inbound foreign takeovers.
Transfer pricing:
Some TNCs, such as Starbucks and Amazon, have sometimes channelled profits through a subsidiary company in a low-tax country such as Ireland.
The Organisation for Economic Cooperation and Development (OECD) is now attempting to limit this practice.
National governments become key players in globalisation when they adopt policies that allow TNCs to grow in size and influence
- These government policies include:
- Free-market liberalisation:
- Privatisation:
- Encouraging business start-ups:
Free-market liberalisation:
Also known as neoliberalism, this governance model is associated with the policies of Margaret Thatcher’s UK government during the 1980s.
Essentially, they followed two simple beliefs.
Firstly, government intervention in markets impedes economic development.
Secondly, as overall wealth increases, trickle-down will take place from the richest members of society to the poorest.
In practice, this meant restrictions being lifted on the way companies and banks operated.
The deregulation of the City of London in 1986 removed large amounts of ‘red tape’ and paved the way for London to become the world’s leading global hub for financial services and the home of many super-wealthy ‘non-dom’ billionaires.
Privatisation:
Successive UK governments have led the way in allowing foreign investors to gain a stake in privatised national services and infrastructure.
Until the 1980s, important assets, such as the railways and energy supplies, were owned by the state.
However, running these services often proved costly: they were sold to private investors in order to reduce government spending and to raise money.
Over time, ownership of many assets has passed overseas.
For instance, the French company Keolis owns a large stake in southern England’s railway network and the EDF energy company is owned by Électricité de France.
Since the global financial crisis, the UK government has approached Chinese and Middle Eastern sovereign wealth funds (SWFs) to help fund new infrastructure projects
Encouraging business start-ups:
Methods range from low business taxes to changes in the law allowing both local and foreign-owned businesses to make more profit.
When Sunday trading was introduced in 1994, the UK became a more attractive market for foreign retailers, from Burger King to Disney Store.
Italy has eased restrictions on Chinese investors wanting to start up textile companies inside the EU; as a result, the city of Prato now has the largest Chinese population in Europe
Trade Blocs
This is a type of intergovernmental agreement, where barriers to trade in a world region are reduced or eliminated among the participating states.
They can be stand - alone agreements between several states such as the Association of Southeast Asian Nations or part of a regional bloc such as the EU.
Governments within trade blocs recognise that innovation and branding add value to secondary and tertiary products over time.
