Topics 1 through 3 Readings
Topics 1 through 3 Readings BADM 1004
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This 27 page Study Guide was uploaded by Kate Notetaker on Saturday September 24, 2016. The Study Guide belongs to BADM 1004 at George Washington University taught by Maurer, N; Rehman, S in Fall 2016. Since its upload, it has received 226 views. For similar materials see The Age of Globalization in Business Administration at George Washington University.
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Date Created: 09/24/16
Topic 1 The Anthropocene Globalization, Growth and Sustainability: Chapter 12 Imperialism and Military Competition: 1900 to 1950 o Dominated by global conflicts on an unprecedented sale o Most states had ruled primarily through the use or the threat of force Rather than through economic levers of the market o Managing and encouraging growth in a capitalist society meant achieving a difficult balance between direct government intervention and nonintervention Twentieth century government try to find new balance Governments became wealthier o Growing support for protectionism excluding potential rivals from valuable markets Through tariffs or force o Adam Smith argues that fee trade and rapid growth would benefit everyone Raising productivity and lowering costs o Radical socialists saw limits to growth Capitalism would eventually collapse o Declining international trade in the first half of the century linked to declining growth rates o Fascism expressed the social Darwinian ideologies of the age of imperialism in particularly stark forms Portraying international relations as a merciless battle between races and nations o 1929 The Great Depression Banks loaned much of the money used to maintain the system of reparations Led to economic breakdown in most of the capitalist world o Bolsheviks in Russia Determined to build the first socialist society Inequalities would be reduced and working class would own and administer society’s resources Saw themselves as the leaders of the oppressed classes of the world o Colonial vs imperialist societies Colonial and anti-imperial US and the Soviet Union Inspired anticolonial movements in Asia and Africa o Japan industrializes rapidly in the late nineteenth and early twentieth centuries Limited raw materials o Three large regions capitalist, Communist and a large amount of countries that go between Reintegration, Renewed Growth and New Forms of Conflict: 1950 to 2010 o Economic growth the capacity to mobilize more resources than your rivals to build military power and raise standards of living o US emerges as the most powerful and wealthiest of capitalist governments o US believed that international trade could benefit everyone Reigniting international trade and rebuilding the economies of other countries was the best way of sustaining growth for itself o 1944 World Bank is created along with the International Monetary Fund Establish a new and more stable capitalist financial order o 1945 United Nations is created o Japan became one of the world’s leading industrialist capitalist economies o Second half of the century eve the poorest nations experienced some degree of industrialization o Newly independent nations faced new problems Confusing borders can cause civil wars Corrupt governments or money would go to service foreign debts Colonial governments rarely did anything to develop the economies of their colonies in a balance way o Soviet Union would give economic, technical and sometimes military support to allies in the former colonial world o During the 1970’s, Soviet claims for the superiority of Communism began to fall flat Growth rates were slowing generated mostly by exports of oil and the sale of liquor Living standard ceased to grow They were falling behind the capitalist West technologically and militarily Soviet command economy was not very good at stimulating Collective Learning and innovation Saw the electronic revolution and its products as a threat o Collapse of Communist command economies highlighted importance of competitive markets in the modern world Finding the right balance of government authority and market freedom More Humans Consuming More o Average consumption of each individual was rising Rates of innovation accelerated o Increase in human control of the Earth’s energy and resources o New technologies had the effect of cheapening production and therefore, expanded markets o Innovation in Food Production Productivity of a given area of arable land increased by about three times Agriculture became dependent on massive investment and advanced science New equipment reduced costs and made production easier Industrial chemists raised agricultural productivity chemicals to kill of pests Genetically modified grains were more productive o Innovation in Health and Longevity Improved knowledge about dangers of infection and importance of cleanliness Wastewater treatment and supply of clean drinking water New and improved medicines o Consumption New, global middle class is emerging that enjoys unprecedented wealth Electric cables and oil and gas pipes have brought energy of fossil fuels into our homes What once would have been luxury items began to be produced so cheaply can be purchased by a majority of consumers Money and credit became cheaper o Transportation and Communications Improved transportation cheapened consumer goods Reduced costs to move them from producer to consumer Communication further improved by the invention of the computer and internet o Warfare and the Technology of Destruction Atomic weapons Increased control of energy and increased control over innovation itself o Energy Invention of generators that could supply cheap electricity Oil easier to transport than coal o Making Innovation Systematic: Science and Research Innovation has become a primary goal of human societies The Impact of Growth and Industrialization on Lifeways and Societies o Decline of the Peasantry Industrialization destroyed peasantries outcompeted by commercial farmers Change for peasants was often destructive and brutal Would eventually raise material standards of living o Capitalism Evolving Consumer capitalism afford to sell cheap goods to the wage workers who produced most of its wealth Celebrated consumption and extravagance Productivity rose faster in the twentieth century Made it possible to spread wealth to larger sections of the middle class First advertising agency 1870s o Demographic Changes Modern urbanized industrial societies Improved sanitation, food production and health care Incentive to overproduce children diminished New forms of birth control also lowered fertility rates Demographic transition Fertility rates kept falling and these changes created a new world of low mortality and low fertility o Human Rights and Increasing Living Standards Improved relations between men and women Women found more opportunities to take up roles outside the family The absolute numbers of people living in modest comfort and the proportion of all humans living in modest comfort are both greater than ever before The Anthropocene and the Human Impact on the Biosphere Is Growth Sustainable? o Human activity also began to destabilize nonliving geological and meteorological systems o Growth for humans meant a decline in resources for other species o Nuclear weapons can cause great damage to the biosphere o Synthesizing of chemicals hurting the ozone layer UN sponsored agreement to faze out use of CFCs o Human use of water increased by 9 times in the 20 century o Rates of decline of biodiversity Current rates of extinction are around 1000 times more rapid o Since 1800, carbon dioxide has begun to rise beyond the range that was normal “The Past, Present, and Future of Economic Growth” Fundamental improvements in capabilities and narrower policies target at rapid structural change o Produce sustainable, longer term growth Convergence with wealthy economies o Requires the accumulation of human capital and the acquisition of high-quality institutions Quickest way to become rich is to deploy policies that help build modern industries o Employ an increasing share of the economy’s labor resources o Overlap with policies needed to build up fundamental capabilities Excessive focus on fundamentals may slow growth if it distracts policy makers Excessive focus on industrialization may set the economy up for an eventual downfall o If the requisite skills and institutions are not built up over time The global economy is likely to be significantly less buoyant than before Rules have become stricter for developing countries o WTO prohibits a range of industrial policies o Restrictions do not apply to the poorest developing countries With or without the WTO, Europe and the US will exhibit greater willingness to shield their industries in import surges “Currency manipulators” developing countries that undervalue their currencies through intervention in foreign currency markets or controls on capital inflows Smaller developing countries o Likely to enjoy greater policy space than larger ones o Hard to imagine policy markets getting worked up over their industrial policies o Vast majority of the world’s developing countries will remain relatively free of external encumbrances Large and systemically important economies continue to house much of the world’s poor o Continued growth of these countries is important to global poverty reduction Technological changes rendering manufacturing more capital and skill intensive o Reduces employment-elasticity of industrialization o Reduces capacity of manufacturing to absorb large volumes of unskilled labor Global supply chains o Facilitate entry into manufacturing for low-cost countries that are able to attract foreign investment o Reduce linkages with the rest of the economy o Reduce potential for the development of local upstream suppliers Many manufacturing industries becoming more like natural resource enclaves o Skill and capital intensive o Disengaged from domestic economy and transitory New entrants into standardized manufacturing activities face greater global competition o Burdens placed on government policy to develop domestic manufacturing firms are correspondingly heavier Producers everywhere will be under pressure to use technologies that generate less pollution and greenhouse gas emissions o Capital and skill requirements of green technologies are higher Future of growth unlikely to look like its recent past o Rate of convergence between poor and rich countries Likely to fall considerably o Developing countries will still grow faster but largely because of the slowdown of advanced economies Growth depends primarily on what happens at home o Desirable policies will continue to share features that have served successful countries well in the past Stable macroeconomic framework Incentives for economic restructuring and diversification Social policies to address inequality and exclusion Continued investments in human capital and skills Strengthening of regulatory, legal and political institutions over time Main policy implication is that future growth strategies will need to differ from the strategies of the past in their emphasis o Reliance on domestic markets and resources substitute at the margin for reliance on foreign markets, finance and investment o Upgrading of home market will necessitate greater emphasis on income distribution and health of middle class o Social policy and growth strategy will become complements Healthy world economy healthy national economies and societies o Global rules that restrict domestic policy space counter productive Narrow the scope for growth and equity producing policies Undermine the support for an open global economy o Design an architecture that respects the domestic priorities of individual countries Ensuring that major cross-border spillovers and global public goods are addressed “Globalization and Convergence” Globalization of the economy does not necessarily imply global convergence Development of a club of convergent economies o Periods of expansion of transport and trade and flows of capital and migrants Countries outside these convergent economies have fallen behind o Not just relatively but absolutely in terms of income levels and structural development Sharp division between the average experience of countries and average experience of people Failure to join the convergence club is not just a consequence of a country turning its back on the global economy and sheltering behind tariff barriers and capital controls Beginning of the twentieth century hard to see openness to trade and migration o As promoting convergence outside a small charmed circle End of the twentieth century growth benefits of opening up appear substantially lower than before Little reason to be confident that opening doors to the world economy will guarantee a place at the high table o Poor countries remain poor Purchase of investment goods from overseas that embody technology and assist in technology transfer remains expensive Finding the resources to support mass education remains difficult The world’s poorest countries have still not successfully completed their demographic transitions o Failure to have shifted to a regime of low populations growth o Puts pressure on resources and capital accumulation that will continue to feed the poverty trap “The Future of Convergence” There is under conditional convergence after all o In manufacturing industries instead of entire economies Key to growth is getting the economy’s resources to flow into those convergence industries Sustained convergence is not as easy as we had thought in the past o Continued rapid growth in the developing world will require pro- active policies o Foster structural transformation and spawn new industries o Kind of policies that today’s advanced economies employed themselves to become rich Added obstacle of an external environment likely to become increasingly less permissive of their use Biggest beneficiaries of the last two decades of globalization have been countries that have ignored its rules o Like China and India Played the game by Bretton Woods rather than post 1990 rules o As these countries became large players and turn into targets for emulation Tensions become too serious to ignore The way we handle those tensions will determine the future of convergence “The Role of State Capacity in Economic Development” Differential patterns of leaning by doing and human capital accumulation related to openness Many states in less developed parts of the world lack the capacity to: o Enforce law and order o Regulate economic activity o Provide public goods like human capital Challenges to pinpoint the role of state capacity in promoting economic development State capacity is multi dimensional o Involves the ability to establish a monopoly of violence o Involves the ability to raise resources and implement policy Conceptualize “state capacity” as the presence of state functionaries and agencies o Represents the central aspect of “infrastructural power” of the state Building state capacity is a strategic choice for each municipality o If municipalities find it harder or less beneficial to build state capacity, they will be strategic complements There are powerful causal effects of state capacity on economic development Topic 2 Globalization: Chapter 1 What is Globalization? Globalization shift toward a more integrated and interdependent world economy Globalization of Markets o Merging of historically distinct and separate national markets into one huge global marketplace o Falling barriers to cross-border trade easier to sell internationally o Tastes and preferences of consumers start to converge By offering same basic product worldwide, they help create a global market o More than 286,000 small and medium-size firms exported in 2010 o Most global of markets markets for industrial goods and materials that serve universal needs Commodities like aluminum, oil and wheat o Same firms confront each other If a firm move, the competitor will move with it to stop them from gaining the advantage Greater uniformity replaces diversity Globalization of Production o Sourcing of goods and services from locations around the glob Take advantage of national differences in the cost and quality of factors of production Factors of production labor, energy, land and capital o Lower their overall cost structure or improve the quality or functionality of their product Compete more effectively o Global web of suppliers yields a better final product o Internet has allowed companies to outsource service activities to low cost producers in other nations Compress time and lower costs Emergence of Global Institutions Institutions are needed to help manage, regulate and police the global marketplace o Promote the establishment of multinational treaties to govern the global business system General Agreement on Tariffs and Trade o Succeeded by the WTO World Trade Organization o Policing the world trading system o Makes sure nation-states adhere to the rules laid down in trade treaties o Facilitating the establishment of additional multinational agreements between WTO member states o Promoted the lowering of barriers to cross-border trade and investment o Create a more open global business system unencumbered by barriers to trade and investment between countries International Monetary Fund o 1944 o Maintain order in the international monetary system o Often seen as the lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value o Cope with some of the effects of the 2008-2009 global financial crisis o Loans come with strings attached In return, they require nation-states to adopt specific economic policies aimed at returning their economies to stability and growth Some thing that they are inappropriate, some think they are usurping the sovereignty of nation-states The World Bank o Promote economic development o Less controversial than the IMF o Focused on making low interest loans to cash strapped governments that wish to undertake significant infrastructure investments The United Nations o Preserving peach through international cooperation and collective security o 193 countries o States agree to accept the obligations of the UN Charter International treaty basic principles of international relations o Four purposes Maintain international peach and security Develop friendly relations amount nations Cooperate in solving international problems and in promoting respect for human rights A center for harmonizing the actions of nations o One central mandate promotion of higher standards of living, full employment and conditions of economic and social progress and development G20 o Finance ministers and central bank governors of the 19 largest economies o 90 percent of global GDP and 80 of international global trade o Originally to formulate a coordinated policy response to financial crises in developing nations Became the forum through which nations attempted to launch a coordinated policy response to global financial crisis Drivers of Globalization Declining trade and investment barriers o International trade when a firm exports goods or services to consumers in another country o Foreign direct investment what a firm invests resources in business activities outside its home country o Barriers to international trade high tariffs on imports of manufactured goods Protect domestic industries from competition Consequence countries progressively raises trade barriers against each other o After WWII, the West removed barriers Goal was enshrined in the General Agreement on Tariffs and Trade 8 rounds of negotiations worked to lower barriers Uruguay Round extended GATT to cover services as well as manufactured goods Provided enhanced protection for patents, trademarks and copyrights Established the WTO to police the international trading system o WTO launches talks at Doha Cutting tariffs on industrial goods, services and agricultural products Phasing out subsidies to agricultural producers Reducing barriers to cross-border investment Limiting the use of antidumping laws o Many countries progressively removing restrictions to foreign direct investment o Lowering of trade and investment barriers Allows firms to base production at the optimal location for that activity o International trade in services has been driven by advances in communications o Firms increase cross-border investments foreign direct investment plays an increasing role in global economy The role of technological change o Microprocessors and telecommunications Microprocessors enabled the explosive growth of high power, low cost computing Increasing the amount of information that can be processed Underlies many recent advances in telecommunications Satellite, optical fiber, wireless technologies and the Internet Rely on the microprocessor Cost continues to fall, while power increases (Moore’s Law) o The Internet Developed into the information backbone of the global economy Emerged as an equalizer Rolls back some of the constraints of location, scale and time zones Makes it easier for buyers and sellers to find each other Allows businesses to expand their global presence at a lower cost Enables enterprises to coordinate and control a globally dispersed production system o Transportation Technology Economic terms most important are commercial jet aircraft and super freighters and the introduction of containerization Simplifies transshipment from one mode of transport to another Shrunk the globe Containerization lowers the cost of shipping goods over long distances Transportation costs have plummeted more economical to ship goods around the globe Helps drive the globalization of markets and production o Implications for the Globalization of Production Dispersal of production to geographically separate locations became more economical Real costs of information processing and communication have fallen dramatically Developments make it possible for a firm to manage a globally dispersed production system Worldwide communications network has become essential for many international businesses The Changing Demographics of the Global Economy Four facts described the demographics of the global economy either changed or are now changing rapidly o US dominance in the world economy and world trade picture o US dominance in world foreign direct investment o Dominance of large, multinational US firms on the international business scene o Roughly half the globe was off limits to Western International businesses Changing world output and world trade picture o By the end of the 1980s, the US position as the leading exporter was threatened o As emerging economies such as China, India and Russia continue to grow Further relative decline in the share of world output and world exports for the US seem likely o Reflects the growing economic development and industrialization of the world economy o Predict a rapid rise in the share of world output accounted for by developing nations And a commensurate decline in the share enjoyed by rich industrialized countries Changing foreign direct investment picture o As barriers fell, non-US firms increasingly began to invest across national borders Caused by the desire to disperse production activities to optimal locations and build a direct presence in major foreign markets o Stock of foreign direct investment total cumulative value of foreign investments o Sustained growth in cross-border flows of foreign direct investment o Importance of developing nations as the destination of foreign direct investment o The sustained flow of foreign investment into developing nations is an important stimulus for economic growth in those countries Bodes well for countries like China, Mexico and Brazil Changing nature of the multinational enterprise o Multinational enterprise any business that has productive activities in two or more countries o Two notable trends in the demographics of the multi-national enterprise The rise of non-US multinationals The growth of mini-multinationals o Non-US multinationals 1960 US dominated global business activity Globalization of the world economy has resulted in a relative decline in the dominance of US firms in the global marketplace Firms from developing nations can be expected to emerge as important competitors in global markets Shifting the axis of the world economy o Rise of mini-multinationals Growth of medium-size and small multinationals Increasingly involved in international trade and investment Rise of Internet is lowering the barriers that small firms face in building international sales The changing world order o Many former Communist nations share a commitment to democratic politics and free market economics Once closed to western businesses Many are still relatively undeveloped Risk of doing business in such countries are high o China continues to move progressively toward greater free market reforms Changes in China are creating both opportunities and threats for established international businesses o Substantial opportunities are accompanied by substantial risks The global economy of the twenty first century o The world is moving toward an economic system that is more favorable for international business o Does not mean globalization is inevitable Countries may pull back from recent commitment to liberal economic ideology if their experiences do not match their expectations o Greater globalization brings with it risks of its own o Globalization is not all good The risks associated with global financial contagion are also greater The Globalization Debate Antiglobalization protests o Against job losses in industries under attack from foreign competitors Downward pressure on the wage rates of unskilled workers Environmental degradation The cultural imperialism of global media and multinational enterprises Globalization, jobs and income o Falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies Allows firms to move manufacturing to countries where wage rates are lower o Enormous expansion in the global labor force when coupled with expanding international trade depressed wages in developed nations o Popular feeling is that when corporations outsource service activities to lower-cost foreign suppliers, they are exporting jobs Contributing to higher unemployment and lower living standards in their home nations o Supporters say critics miss the main point benefit outweighs cost Although some lost jobs, the economy is better off in the long run o If critics of globalization are correct, three things must be shown Share of national income received by labor should have declined in advanced nations as a result of downward pressure on wage rates If economic growth and rising living standards in advanced economies have offset declines in labor’s share The decline in labor’s share of national income must be due to moving production to low-wage countries As opposed to improvement in production technology and productivity o Data suggests that over the past two decades, the share of labor in national income has declined o Share of national income enjoyed by skilled labor has actually increased Fall in labor’s share has been due to a fall in the share taken by unskilled labor o Wage gap between developing and developed nations is closing as developing nations experience rapid economic growth Globalization, labor policies, and the environment o Free trade encourages firms from advanced nations to move manufacturing to less developed countries Lack adequate regulations to protect labor and the environment o Protestors say that it would lead to pollution Supporters argue that tougher environmental regulations and stricter labor standards go hand in hand with economic progress Free trade enables developing countries to increase their economic growth rates and become richer Should lead to tougher environmental and labor laws Globalization and national sovereignty o Concern today’s increasingly interdependent global economy shifts economic power away from national governments Toward supranational organizations like the WTO, the EU and the UN Globalization and the World’s Poor o Argue that the gap between the rich and the poor nations of the world has gotten wider Doesn’t necessarily have to do with free trade or globalization Best way for these countries to improve is to lower their barriers and implement economic policies based on free market economics o Many of the world’s poor nations are being held back by debt burdens Managing in the Global Marketplace International business any firms that engages in international trade or investment Task of managing an international business differs from that of managing a purely domestic business in many ways o Countries are different International businesses should vary its practices country by country Managers decide where to site production activities to minimize costs and to maximize value o Decide how best to coordinate and control globally dispersed production activities o Decide which foreign markets to enter and which to avoid o Choose the appropriate mode for entering a foreign country o Deal with government restrictions on international trade and investment o Find ways to work within the limits imposed by specific governmental interventions o Develop strategies and policies for dealing with such interventions Money has to be converted from currency to currency “How to Save Globalization from its Cheerleaders” Deep economic integration is rendered infeasible by the fragmented nature of political sovereignty o Jurisdictional discontinuities impose transaction costs on international trade and finance Stays in place even when conventional barriers are removed Deep integration could still be attainable if national sovereigns were to restrict their actions o Only to those that are fully compatible with its requirements o Rules out democracy requires that political authorities be unresponsive to national policy imperatives and domestic needs Gold standard era of the 19 century o Collapsed following the expansion of mass franchise and spread of democracy in the major industrial powers Combine democracy with deep integration by eroding national sovereignty and carrying democratic politics to the global level o Global federalism model o Does not seem practical anytime soon Bretton Woods compromise o After the golden era of 1950-1973 world economy achieved unprecedented economic growth under shallow model of economic integration o Main challenge is to recreate this compromise o Design a global architecture that is sensitive to needs of countries for policy space o Move away from a market-opening mindset o Recognize what nations ned to do in order to maintain social peace and spur economic development Only way to save globalization is to not push it too hard “Why is Africa Poor?” Current poverty of African societies is explained by the nature of their institutions o Not their geography or cultures No part of the world had the type of economic institutions required for sustained economic progress The Black Death helped to precipitate the collapse of serfdom in Western Europe o Change to a non-patrimonial state took place in the context of rapid economic change induced by the discover of the Americas The African path of institutions strongly resembles that which is suggested for Eastern Europe Where initial institutions were relatively better, they improved o The opposite is true for places where institutions were worse o Made gaps between places even greater Africa was more isolated and experienced much more malicious institutional dynamics o With respect to slavery and its legacies and colonization Africa is poor today because it went through cycles of development of political and economic institutions Broken BRICs Rise of the rest economies of many developing countries swiftly converging with those of their more developed peers BRICS four major emerging market countries o Brazil, Russia, India and China Chinese growth is slowing sharply Brazil’s annual growth has dropped as well as Russia and India Hard to sustain rapid growth for more than a decade A lot less foreign money flowing into emerging markets Only 35 out of 180 countries tracked by the IMF are considered developed Only a third of the emerging markets have been able to grow at an annual rate of five percent or more Failure to sustain growth has been the general rule Mid-1980s Wall Street started tracking emerging markets as a distinct asset class o Emerging market countries were then opening up their stock markets to foreigners for the first time 1994 through 2002 Stock markets of developing countries lost almost half their value BRICs unlikely to grow in unison o Limited trade ties with one another The acronym may muddle the way we think about these markets o Russia’s economy has been among the weakest of emerging markets but yet it continues to be a part of BRIC China’s population is simply too big and aging too quickly for its economy to continue growing as rabidly as it has “The Lewis turning point” point at which a country’s surplus labor from rural areas has been largely exhausted China o Result of both heavy migration to cities over the past two decades and the shrinking work force that the one-child policy has produced During the boom of the last decade average trade balance in emerging markets nearly tripled as a share of GDP The economic performance of the emerging market countries will be highly differentiated in the future o It will revive the self-confidence of the West o Dim the economic and diplomatic glow of recent stars o Casualty will be the notion of the demographic dividend China’s boom was driven in part by a large generation of young people entering work force o Consultants looking for similar population bulges o Demographic determinism assumes that the resulting workers will have the necessary skills to compete in the global market Makes no sense to compare countries in different income classes o Easier to grow rapidly from a low starting point “Why Did Financial Globalization Disappoint?” Kose argues that one should look for gains not in enhanced access to finance for domestic investment o Instead in indirect benefits that are hard to detect with macroeconomic data Consumption volatility actually rose in emerging market economies Countries grow more rapidly if they rely less and not more on foreign capital o Foreign capital tends to go to countries that experience low productivity growth Developing countries suffer from multiple distortions and constraints o Inadequate access to finance o Inadequate investment demand low social returns or low private appropriability Capital inflows exacerbate the investment constraint through effect on the real exchange rate o Appreciation of the home currency reduces the profitability of investment in tradable lowers the private sector’s willingness to invest Priorities have to be selected carefully not all distortions can be removed simultaneously o Emphasis on strengthening financial regulation and governance challenging in countries that are struggling with problems of underdevelopment Solow growth model permanent decreases in the cost of capital o Increases in the ratio of investment to GDP only have a temporary effect on growth Empirical work does not distinguish between effects of financial globalization on developing countries Financial globalization indicators are measured with considerable error Endogenous growth models enable policies to have long run growth effect Check directly to see whether capital account liberalization results in higher investment ratios o The evidence available either suggests no relationship between financial integration and investment rates or a negative relationship Cross-country framework has generated reasonable evidence of economically and statistically significant effect o Respect to human capital, macroeconomic stability and exchange rate undervaluation o Subject to measurement error Collateral benefits argument effects of financial globalization operate not so much through the cost of capital and investment o Instead, indirectly through macroeconomic discipline and financial and institutional development Doubt that there is anything specific to financial globalization that makes it inherently harder to detect its long-run effects “Check is in the mail” argument o Gains from financial globalization are huge and if they are not reaped yet, it is only because we have not undertaken the complementary reforms yet Case for financial globalization Mishkin o Improved finance is key to unleashing economic growth in developing countries o Integration with international financial markets is especially effective in making finance work for development o Complementary reforms required are doable in the relevant context of developing countries Cross-country evidence shows aa strong associated between economic growth and measures of financial depth International finance works differently with respect to the real exchange rate o Improved domestic financial intermediation tends to depreciate the real exchange rate o Improved access to foreign finance has the opposite effect on the real exchange rate If poor countries could develop strong property rights, strengthen the legal system, reduce corruption, improve the quality of financial information, improve corporate governance and get the government out of the business of directing credit o They would no longer be poor In countries that were more open to various forms of capital flows, sectors that were more dependent on finance o Grew lower in countries with less than average level of financial development o Foreign financing seemed to worsen rather than improve access to finance In countries that receive more aid, sectors that are more exportable grow slower Development happens different through a sequence of relatively small scale changes o Tackle the most binding constraints to growth over time In a savings constrained economy o Real interest rates will be high o Borrowers will be chasing after lenders o Any increase in resource transfers from abroad will finance mainly investment rather than consumption In economies constrained by investment demand o Real interest rates will be low o Banks will have much liquidity o Lenders are running after borrowers Domestic finance will come under closer scrutiny Benefits of financial globalization are hard to find o Hasn’t generated increased investment or higher growth in emerging markets o Has not led to better smoothing of consumption or reduced volatility Countries that have grown most rapidly have been those that rely less on capital inflows The appropriate role of policy will be as often to stem the tide of capital inflows to encourage them “Should we Still Support Untrammeled International Capital Mobility? Or are Capital Controls Less Evil than We Once Believed?” Many external costs associated with financial crises Capital seems to want to flow to where it is already abundant Neoliberals see three important reasons for removing capital controls to improve life in poor countries o Resulting capital inflows would directly boost production and productivity Higher investment boosts a country’s capital stock and thus directly raises labor productivity and wages o With capital controls removed, developing countries industries and people would enjoy benefits that flow from technological advances o Capital controls created large scale opportunities for corruption A well functioning market economy needs to minimize incentives and corruption Capital did not flow from rich to poor but instead from poor to rich o US rate of capital inflow is now the largest of any country One third can be attributed to inflows from the developing world o First world investors feared investing in developing countries US investments seemed more stable o Central banks sought to keep the values of their home currencies down Workers could gain valuable experience in exporting manufactured goods o Third world rich, Deutsche Bank account would be good to have if something went wrong They had to flee the country Increased vulnerability of peripheral countries with open capital flows to financial crises o Important to first establish an effective system of financial regulation o Regulation is ineffective because of disparity 1960-85 development was to be financed by public lending by institutions like the World Bank o Market failures and distrust of governments made it hard for poor countries 1985-2004 development financed by private lending o First world investors to countries with free market policies Plausible that reverse capital flow is economically efficient o People investing in US, expecting high returns Topic 3 “The WTO at Fifteen” Imported goods and services are all around us WTO created in 1995 o Expands on a system of trade among nations Achieved since its creation o Rules for exchanges between nations o Members negotiate new rules for trade and space for imported goods and services Sometimes focuses on just one sector Also can cover a wide variety of issues ex. Doha o 2008 members got close to a deal in many areas no consensus so they keep working on it o Dispute settlement stable trading world Step 1: Talk to figure out a solution between nations If there is no solution, they can launch an appeal if they aren’t satisfied o More and more countries are a part of the global economy Newcomers quickly find their position in the organization 2/3 are developing countries now WTO oversees the aid for trade initiative improve infrastructure Transparency is vital o Each member informs trading members of any changes and answer questions from other countries o When recession hit, it examined its impact on trade Timely information helped governments keep protectionism at bay WTO has become more open o Promoting debate and reaching out o Inviting critics and the public to follow dispute hearings o Putting trade in context o The environment is not part of negotiations Does Globalization Increase Inequity Globalization reinvents itself every few years in the economic arena India is seen as one of the fastest growing economies o However, has the largest number of hungry people in the world land is being diverted for mining, car companies and high ways o Agriculture is being diverted for luxury crops for the rich o Epidemic of farm suicides So deeply indebted, related to corporate seed monopolies Protests being mutated into protests about religion or related to terrorism and extremism Common lands which were pastoral are handed over to industry to grow bio-fuel o Pastoralists are now without land Argument that corporate globalization has become a dictatorship o Drawing states into implementing it destroying democracy One of the most radical revolutions of our time is adopting biodiversity saving open-pollinated seeds and practicing organic farming o Solution to climate change Ten times more water is used in industrial chemical agriculture o Water as a limiting factor will become more of a crisis with climate change Food prices have doubled also see the corporate profits driving the food system double Natural biodiversity increases population growth and thereby increases poverty Green Revolution in 1965 o India has a drought, needed to buy grain o US government says they cannot have higher imports unless they changed agriculture to new seeds and new chemicals o Commercializing and making agriculture more dependent on purchases would create a capitalist alternative to the spread of communism o Pushed farmers into debt and left the land desertified, destroyed variety We are in the midst of the fastest period of poverty reduction the world has ever seen o Falling across all regions and most countries o Driven by rapid economic growth across the developing world China’s economic reversal 30 years ago, 16% of its population lived above the poverty line, by 2005, only 16% were living below it Possible reasons why sustained high economic growth in developing countries took hold: o Investment boom triggered by rising commodity prices o High growth spillovers originating from large open emerging economies o Diversification into novel export markets o Spread of new technologies o Increased public and private investment in infrastructure o Cessation of a number of conflicts and improved political stability o Abandonment of inferior growth strategies Thought that the fate of the worlds poor largely depend on progress in three fronts debt relief, more aid and freer trade o Significance of each was overhyped Is the Global Economic Crisis a Failure of Capitalism? “The Great Recession” o Sheer speed of the collapse was unprecedented Direct result of technological advancement o Centrality of money not productivity in the global economy is a unique phenomenon o When economies spiral as a result of risky monetary leveraging by banks and hedge fund managers only entities large enough to intercede are governments o Government bailouts create enormous budget and debt pressures Three critical contradictions make up the contemporary world crisis from capitalist development: o Current Great Financial Crisis and stagnation/depression o The growing threat of planetary ecological collapse o The emergence of global imperial instability associated with shifting world control and struggle for resources The Return of Depression Economics o The outstanding faults of the capitalist economy Enormously unequal division of income and inability to maintain a full employment equilibrium Produced instability in the investment process of capitalism o As investment outlets vanished, capital turned to speculation Gives rise to asset bubbles that generate financial instability Say’s Law Supply creates its own demand o Dominant tendency in modern capitalism was the veering toward unemployment equilibrium and substantial excess capacity Keynesian revolution o Proposals related to stimulating effective demand through civilian government spending Mainstream economists came to the conclusion that capitalist economy could be effectively managed by monetary and fiscal policy fine tuning o Economy was once again implicitly assumed to act in accordance to Say’s Law Bernanke Great Depression was no longer of theoretical interest o What needed investigating were the reasons for the effective end of the business cycle attributed to more sophisticated monetary policy Capitalism is an inherently contradictory historical system o Displays increasing irrationality in its later stages The “Golden Age” decades immediately after the Second World War o The US and other advanced capitalist economies experienced a period of prosperity o High level of consumer liquidity immediately after the war o Rebuilding of the war-devastated European and Japanese economies o Second great wave of auto mobilization o Growth of the sales effort in the form of the expansion of advertising and other forms of sale related waste o High military spending associated with two regional wars in Asia o Eventually there was aa rapid slowing down of the economy Stagnation and the Financial Explosion symbiotic embrace between the two o Magdoff and Sweezy o Economy became increasing dependent on the inflation of one financial bubble after another Role of the dollar as the hegemonic world currency o Critical element in development of US as center of worldwide financialization of capitalism o Allows the US economy to print dollars as needed and to borrow on an large scale from the rest of the world o Turns the US into consumer of last resort and the center of debt buildup for the world economy Emerging economies are finding their export markets drying up o China currently experiencing the sharpest deceleration in economic growth in thirty years Declining US power and US attempts to restore this global domination o Threatens wider wars and nuclear holocausts Common denominators accounting for all of these crises current phase of global monopoly-finance capital Mercantilist countries are accused of carrying out beggar-thy-neighbor policies at the expense of the deficit countries and the entire world o Plausible core of a new global multilateral currency Capitalism has an almost unlimited capacity to reinvent itself All prosperous societies are capitalistic in the broad sense of the term o Organized around private property o Allow markets to play a large role in allocating resources and determining economic rewards Neither property rights nor markets can function on their own o Property rights rely on courts and legal enforcement o Markets depend on regulators Capitalism is not self-creating, self-sustaining or self stabilizing Mixed-economy model of the twentieth century o New balance between state and market o Broken down due to globalization We need to reinvent capitalism for a new century Women and Development Women play a critical role to the development process of a society Women lag behind men in access to health care, nutrition, education and legal protection o They also face formidable social, economic and political barriers Female children in the developing world are valued less than male offspring o Higher female infant and child mortality rates Women are particularly vulnerable to human rights abuses Educated women have fewer and healthier children o Greater emphasis should be put on educating women o They contribute more to their families and are less likely to subject their daughters to female genital mutilation Women make up a significant portion of the agricultural workforce o However, they frequently do not have access to advances in agricultural technology or benefits of extension and training programs o Discriminated against in land ownership Industrialization that accompanies the globalized production means more employment opportunities for women o Often low tech, low wage jobs o Women are recruited to fill production jobs because employers can pay them less o Even if they are paid less, the opportunities still contribute to family income o Only employment option due to family responsibilities or discrimination Women play a critical role in the economic expansion of developing countries o When employment opportunities decline women lose jobs and face increased competition from males o Cuts in spending on health care and education women already receive fewer of these benefits Women essential to successful environmental protection policies o Are overlooked in planning projects International Conference on Population and Development o Focused on women’s health and reproductive rights Fourth World Conference on Women o Women’s rights are synonymous with human rights Convention on the Elimination of All Forms of Discrimination against Women o Turning point in women’s struggle for equal rights Multinational corporations are increasingly seeking to empower women and enhance their status
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