Week 8: The emergence of global production, multinational corporations Flashcards
Describe the Spatial transformations in the global economy over the time:
- FIRST: people moving out from Africa (following food- hunting/gathering)
-SECOND: innovations made it possible to settle down (consumption and production in the same place)
-THIRD: innovations made it possible to split consumption from production (mass trade, specialization, The north-south divide) - FOURTH: innovations made it possible to transfer ideas and knowledge from one place to another
Define the Second Unbundling:
- It is the emergence of multinational corporations and the growing importance of global supply chains.
- Transport got cheaper and better organized
- Cross-border transactions got easier
- Technology advanced and the wage gap increased between developed and developing countries
- Input into the economy was much more diversified with more countries participating - decolonization of value chains
How was it BEFORE the Second Unbundling?
- MNCs used as a form of foreign dominance and exploitation
- Many primary sectors were in hands of MNCs
- The response to it was nationalization or dislodging (desalojo) foreign firms
- Only substituted imports they were missing
How was it AFTER the Second Unbundling?
- Positive effects on MNCs
- They became the source of capital, technology and connections
- Started investment promotion programs
- Export processing zones - designated areas where governments offer tax breaks, lower tariffs, and simplified regulations to attract businesses that produce goods for export. Aim to boost a country’s economy by increasing exports, creating jobs, and encouraging foreign investment.
- First used in South-East Asia
Describe Decolonization of Value Chains:
- The process of restructuring global economic networks to reduce dependency on former colonial powers and promote a more equitable distribution of wealth and resources among countries
- Involves empowering formerly colonized nations to take greater control over their own production processes, from raw materials to finished products, thereby reducing reliance on external actors and promoting economic self-sufficiency and autonomy
What are the dilemmas of multinational corporations and global production in IPE?
- The effect of multinationals on countries – regulations, dilemmas
- The structure of global value chains
- International regulations
Define Bargaining
- To negotiate the terms and conditions of a transaction
- Influenced by: (1) location - low wages, skilled labor, other factors such as infrastructure, (2) low taxes, (3) incentives, (4) regulations
What is Bargaining power?
- the ability of a state or actor to influence the outcomes of negotiations in its favor by abusing its relative advantages or resources.
- At first, firms have the bargaining power especially in case of low skilled production -> later MNCs can’t remove their factories that easily and it becomes a battle between the host countries regulations and the investors protection
- Often leads to corruption as a way to settle the differences
What is “race to the bottom”?
- A situation where countries or regions compete with each other by lowering labor standards, environmental regulations, or taxation to attract investment or maintain competitiveness
- This can result in a downward spiral of standards as countries seek to undercut each other, leading to negative consequences such as exploitation of workers, environmental degradation, and reduced government revenues and control
What are the legal principles of International regulation?
- National Treatment
- Right to expropriate
- Right to compensation
- Jurisdiction: The right to appeal to the home country versus the Calvo doctrine
Define National Treatment principle in International Regulation
- A principle that requires a country to treat foreign individuals, companies, or products no less favorably than its domestic counterparts once they are within its jurisdiction.
- declares if a state provides certain rights and privileges to its citizens, it also should provide equivalent rights and privileges to foreigners who are currently in the country
Describe Right to expropriate principle in International regulation
- A government’s authority to confiscate the assets or operations of foreign-owned companies within its jurisdiction
- This can occur for various reasons, such as nationalization of strategic industries, changes in regulatory policies, or disputes over contractual obligations
Describe right to compensation principle in International regulation
When an MNC’s assets or operations are expropriated by a foreign government, the MNC has the right to receive fair and adequate compensation for the expropriated property
Describe the Right to appeal to home countries vs Calvo doctrine
- Concerns the debate on jurisdiction in international regulations and MNCs
- Right to Appeal to Home Countries - MNCs seek intervention from their home countries for support or advocacy in disputes or expropriation abroad, often through diplomatic channels or international arbitration
- Calvo Doctrine - asserts that foreign investors should rely solely on local legal systems and remedies without recourse to diplomatic intervention or extraterritorial protections from their home countries, emphasizing respect for national sovereignty and equality among states
What was the Bretton Woods conference in 1944?
- Led by the US and UK
- Proposed the creation of the International Trade Organization (ITO) to incorporate the unwritten rules and legislations of MNCs and to correct the world economy
- Only the negotiations concerning monetary issues were entirely successful
Although there was some bargaining, the rules represented mostly the interests of the United States
What was the Bretton Woods SYSTEM 1946-73?
The Bretton Woods System (1946–1973) was an international monetary framework established after World War II to create economic stability and foster global trade. Named after the 1944 Bretton Woods Conference in New Hampshire, USA, it laid the groundwork for the post-war economic order and remained in operation until its collapse in 1973.
Achievements in the Bretton Woods System?
- Creation of Key Institutions:
- International Monetary Fund (IMF) to ensure exchange rate stability and provide financial assistance to countries in need.
- World Bank to fund post-war reconstruction and development projects in war-affected and developing nations. - Promotion of International Trade: Facilitated the expansion of global trade by reducing currency volatility and ensuring predictable exchange rates.
- Anchor Role of the US Dollar: Established the dollar as the central reserve currency, simplifying international transactions and fostering confidence in the monetary system.
- Balance-of-Payments Flexibility: Allowed countries to temporarily adjust their currency values or borrow from the IMF to address short-term financial imbalances without resorting to destabilizing measures.
What was the role of the US in the bretton Woods System?
- The US played a central role, with the dollar serving as the key reserve currency
- Costs included maintaining the par value of the dollar and limited monetary policy flexibility
- Benefits included other countries’ willingness to hold dollar reserves and the ability for the US to delay and deflect adjustment of its current account deficit
- The US possessed significant monetary power within the system.
Challenges of the Bretton woods system and collapse:
- In the late 1960s, costs increased, leading to the eventual abandonment of the Bretton Woods system by the US
- Some countries engaged in free rider behavior, notably Germany and Japan, contributing to system instability
What is the UN Resolution on Permanent Sovereignty over National Resources - 1962?
Affirmed the principle that each country has the right to full control and ownership over its natural resources, without external interference or exploitation, emphasizing the importance of sovereignty in resource management and development
What is the UNCTAD - Code of Conduct for Transnational Corporations (TNCs) ?
- Outlining principles and guidelines for the behavior of TNCs in relation to host countries, covering areas such as investment, employment, technology transfer, and environmental protection, aiming to promote responsible and sustainable corporate conduct and balance the interests of TNCs with those of host countries and local communities
