Study Guide for Exam 2
Lecture 4 (Last Part)
Cultural Convergence Theory
Cultures are subject to many of the same global flows and tend to grow more alike
∙ Emphasizes weakness of barriers
∙ Leads to global assimilation in direction of dominant groups ∙ Does NOT argue that local cultures are all disappearing
∙ Some cultures or elements survive
o e.g. dabbawalla system
Aspects of Cultural Convergence
Cultural imperialism when one cultures imposes itself (more or less consciously) and tends to destroy at least part of another culture
∙ Indian (silk) sari weavers threatened by machinemade (polyester) sarisloss of cultural product, practice, and practitioner
∙ Indian professional letterwriters threatened by cellphones/texting o Creative destruction?
Mcdonaldization process by which the principles of the fastfood restaurant are coming to dominate more of the world
∙ Five basic dimensions:
1. Efficiencybest means to the desired end. Workers/ customers must be efficient
2. Calculability emphasis on quantity over quality. Aspects are timed and customers expect to be in and out
3. Predictability things are more or less the same from nation to nation (employees follow a script and customers are expected to know what they want, order, pay, and leave in a timely manner
We also discuss several other topics like What is the market in which the currency of one country is exchanged for the currency of another?
4. Control through substitution of technology for people (ex. Customers are controlled by the employees because the employees are restricted by the technology)
5. irrationality of rationality efficiency replaced by inefficiencies (e.g. long lines at fast food; dehumanization
McDonaldization: Beyond Fast Food
∙ McDonald's very successful global force
∙ Others include WalMart, Blockbuster, Starbucks
∙ Other countries have developed their own variations of McDonald's type restaurants (e.g. Mos Burger in Japan, Nirula's in India [mutton burgers]
∙ Some now exported to U.S., e.g. UK Body Shop
∙ To other industries, e.g. higher education We also discuss several other topics like Who are george keppel and underwood?
o ViagraMcDonaldizes sex. Global phenomenon. E.G. Spain: recreational drug bought legally and illegally.
Need to know Definitions
Development Economic growth in a nationstate/country
o Based on:
∙ Gross National Product (GNP) total dollar value for all final goods and services produced by citizens for consumption in
society regardless of location
∙ Gross Domestic Product (GDP) output generated through production by labor and property physically located within the confines of a country
∙ Gross National Income (GNI) measure of GDP+net income here and overseas with exception of foreign workers
NonEconomic/mixed Measures of Development
∙ Physical Quality of Life Index (PQLI)
o Infant mortality, Adult literacy rate, life expectancy at birth o Measures "quality of life " or wellbeing of a country
∙ UN Human Development Index (HDI)
o Life expectancy, literacy rates, and GNI
o To find a balance that measures economic output and quality of life
o Used to shift the focus from purely economics to policies that are more people centered Don't forget about the age old question of What are the main purposes of fat?
∙ World was divided into three geopolitical segments* after world war II (1945)
First worldCapitalist Western (west plus Japan)
Second World Soviet blocalternative to First World
Third worldprimarily former European colonies
Fourth World(1980)marginalized nations
∙ After fall of communism, nomenclature changes
Developed countries (formerly known as first world/second world) Developing countries (mainly former colonies, industrializing
Least developed countries (poorest)
Immanuel Wallerstein World System Theory (totally economic) Economic zones
o Developed countries with the strongest states, markets, and capitalist firms
∙ Semi Periphery:
o Less developed countries; positioned between core and periphery countries; bear features of both core and periphery
o less developed countries, with weak state institutions; dependent upon and/or exploited by core countries
Capitalism an economic and social regime in which capital, the source, of income, does not generally belong to those who make it work through their labor (Robbins:35). We also discuss several other topics like What is the relationship between state and society?
Neoliberal economic policies: "Privatization of public functions and the "freeing" of markets, for labor, money, goods, and services." (Philip McMichael)
∙ Involves the cutting of government intervention in the economy (J Timmons Roberts and Amy Hite)
∙ Nongovernment regulation
∙ Free flow of goods across borders because of low tariffs
∙ Privatize industry
Revives beliefs that "free trade" and laissezfaire capitalism will solve economic and social problems (Alejandro Portes)
Economic globalization “…the increasing interdependence of world economies as a result of the growing scale of crossborder trade of commodities and services, flow of international capital and wide and rapid spread of technologies
Three waves of Globalization
Wave 1. colonialism/sugar production in Jamaica
Slaves from West Africa who worked on plantations; capital from British financiers to fund infrastructure; metal equipment from Europe; food from Europe / American colonies
Wave 2 (19th century). Railroads, settlement of U.S. frontier/wheat production (1800s)
1 Factory farms, specializing in monoculture (wheat), borrowing of capital, conversion of subsistence farms into businesses that competed in the global market If you want to learn more check out What are the crystals used for?
Wave 3 (1970s) Introduction of McDonald's restaurants in East Asia starting with Japan
The Global Economy After WWII
∙ Lechner: world was becoming more economically integrated before 1970s ∙ WWII: allies sought to avoid economic errors that led to the end of Wave 2 Three that led to wave 2 collapse We also discuss several other topics like How can an experimenter verify the results of his experiment?
o Barriers to trade
o Monetary instability
o Limited investment
make trade flow more freely
Stabilize the world's financial system
Encourage international financial investment
Bretton woods Institutions and the Global Economy
∙ Main purpose to rebuild European countries
∙ Formation of three institutions: international monetary fund, World Bank, and the GATT
∙ 1944 at Bretton Woods: leaders from 44 nations to rebuild warravaged economies and outline a global economic agenda through:
∙ International Monetary Fund – IMF (shortterm loans to help with balance of payment difficulties, stabilize currency exchanges)
∙ World Bank – WB (loans fund infrastructure – roads, bridges, dams, irrigation systems, etc.), given to one European country before turning attention to the third world
∙ General Agreement on Tariffs and Trade – GATT, later, World Trade Organization – WTO 1995 (regulate trade)
o Reacts to claims that countries use unfair trading policies
∙ 1995 the World Trade Organization (WTO) was finally established. ∙ WTO can react to claims by member nations that other nations are using unfair trade policies to give businesses in their countries and unfair advantage
∙ The IMF, the WB and the GATT/WTO became the three key institutions organizing the world economy.
∙ Initially, the institutions granted states the power to impose capital controls.
∙ Laid the groundwork for a partially closed, statemanaged “embedded liberalism” approach granted states a great degree of autonomy and the freedom devise social policies without fear of repercussions from the international financial community
∙ Therefore, economic ties among countries tightened a bit – but only modestly. Also, such autonomy permitted the rise of closed economies (e.g. in China and some Latin American countries), resulting in a global economic system that was not fully liberal.
∙ By the 1980s, however, the institutions (IMF/WB) had expanded their roles in the global economy through structural adjustment programs programs geared toward helping debtor states “live within their means.” And states
gradually, often reluctantly and under duress, decided to open up …seek new capital, new technology, and new opportunities.
∙ Outcome of activities of World Bank – debt crisis (1980s) ∙ World Bank loans to developing/peripheral countries
∙ 1960s and 1970s $953 million in loans to India, Mexico, Brazil, and Indonesia (for largescale hydroelectric projects, roads, industrial parts )
∙ Problem: net negative transfers:
∙ Countries’ inability to pay could lead to the Bank going out of business.
∙ Bank’s solution: lend more. (Increased from $953 million to 12 billion)
∙ Result: many developing countries with staggering debt burdens. ∙ Loans initially helped some countries do well
∙ BUT, recession in core countries, led to rising interest rates ∙ Brazil, Mexico, Indonesia could not repay debts
∙ Problem also for lending institutions
∙ WB/IMF rescheduled debt repayments/offered short term loans; but with structural adjustment programs
Structural Adjustment Programs
∙ Conditions to qualify for loans
∙ Reduce government spending on social programs such as welfare, health, education, etc.
∙ Devaluation of local currencies
∙ Increase their focus on production for the purpose of export ∙ Privatize government industries
∙ Reduction of wages
Integrating the Economy
∙ IMF/WB/WTO’s recipe for growth: Liberalization (opening up) ∙ Goal was to generate more income
∙ Privatized state companies; business unencumbered by politics; competition in the financial sector; lower trade barriers
∙ Common ingredient: the market works best
∙ Solutions to problems caused by:
∙ 1970s oil crisis
∙ Latin America: Import substitution industrialization (ISI) “infant” industries to reduce imports. ISI needed more capital which meant they needed more technology and therefore their development was stalled
∙ Second World: Limits of centralized planning. Couldn't provide enough resources for their citizens
∙ Europe: welfare/full employment despite low growth
∙ For different reasons, states feeling they had no choice, replaced ISI with liberalization
Integrating the Global Economy
Global commodity chains/ global value chains and foreign direct investment International trade
1 Global commodity chains
∙ 1970s McDonald's in Tokyo and Honk Kong revolution in consumerism McDonald's Icon marker of diffusion
∙ As global markets expanded, more and more people all over the world liked, bought, and consumed the same things
∙ Sneakers from simple commodity to object of desire
∙ Swoosh a global emblem
o Globalization of production (American consumers wearing sneakers made by Indonesian women, supervised by South Korean men) o Globalization of consumption
∙ Global “commodity chain”: different activities take place in different places to turn an idea into a commodity/saleable item.
∙ Nike: buyerdriven networks (horizontal)
o Apparel companies deal with contractors who steer work to subcontractors
∙ Dell: producerdriven networks (vertical)
o Supplies (for electronic products, e.g.) from many sources are assembled at one site into a final product
∙ Foreign Direct Investment (FDI)
∙ A company from one country makes a physical investment into building a factory in another country
∙ In the last decades of the 20th century, FDI by 50,000 companies outstripped growth in trade/income:
o World GDP increased at a pace of 2.5%
o Exports increased at a pace of 5.6%
o FDI inflows increased at 17.7 %
∙ International Trade
∙ More important than FDI($14 trillion vs $1.3 trillion) ;the lifeblood of small countries
∙ Trade – large portion of GDP – growing faster than overall GDP every year for 25 years
∙ Trade is in “things” AND “services”
∙ Result: “a new global trading system” with “an intensive network of trading relations…”
∙ Role of the WTO
∙ Uruguay Round – meetings 1986 to 1994
∙ Formation of WTO – most important outcome
o Larger organization with several councils/committees o More power to impose sanctions
o More comprehensive
o Authority to organize the trading system
o 2000s – a framework of rules – another mark of integration
∙ Four protocols of the WTO – regulating trade
1. The Agreement on Agriculture [or AoA]
1. Reductions in trade barriers, farm subsidies
2 Traderelated Investment Measures [TRIMs],
1. Manage crossborder trade of goods and services/reduce performance requirements
2 TradeRelated Aspects of Intellectual Property Rights [TRIPs] 1. WTO protects property rights
2 General Agreement on Trade in Services (GATS)
1. Rights to corporate presence in member countries for delivery of service (finance, telecommunications, transport)
∙ Controversy: Who can really claim rights of ownership over certain products?
∙ Indigenous people who discovered its uses long ago?
∙ Scientists/Industrialists who convert into marketable product?
Fact: the global South contains 90 % of global biological wealth while scientists/corporations of the North hold 97 percent of patents*.
Root: 19th century economic concept “comparative advantage”
∙ economic growth linked to optimizing trading advantage through economic specialization.
∙ countries exchange their most competitive products on the world market/ find their “niche” in the market
Expected result: national and international economic efficiency
∙ Why go global?
1. Not going global would have been worse for some countries 2. Potential gains: opening up to the world market might work better
3. High rates of interaction allows for more innovation, sharing of information about technology, etc.
1. Integration. Globalization triggered more globalization
2. Vast increase in output
∙ Critique – David Harvey and Joseph Stiglitz
∙ IMF and “market fundamentalism” – absolute (quasireligious) faith that laissez faire (free) market capitalism can solve all economic and social problems
o IMF structural adjustment policies – demanded further liberalization in Mexico, Thailand, Argentina, Ethiopia etc.
Unwise lending in Asia; inability to pay; unemployment
o Onesizefits all policies – ignoring specific challenges of individual countries
Origins of Corporation
∙ Corporation A social invention of the state [government]. State grants corporate charter providing massive economic and political power to accumulate private wealth, while protected from legal liability for public consequences
∙ Corporate charter originated in 1500s
∙ Corporations gained control of state legislatures
∙ 1886 Supreme Court ruling – declared private corporations ‘natural persons’ with rights/protections given to humans by Bill of Rights
Ideology: neoclassical, neoliberal, libertarian economics; market capitalism David Korten: Corporate libertarianism
∙ Rights and freedoms of corporations > the rights and freedoms of individuals
Principles and assumptions of this ideology:
1 Sustained economic growth – measured by gross national product (GNP), is the path to human progress
2 Free markets, unrestrained by government, generally result in the most efficient and socially optimal allocation of resources
3 Economic globalization, achieved by removing barriers to the free flow of goods and money anywhere in the world, spurs competition, increases economic efficiency, creates jobs, lowers consumer prices, increases consumer choice, increases economic growth, and is generally beneficial to almost everyone.
4 Privatization, which moves functions and assets from governments to the private sector, improves efficiency.
5 The primary responsibility of government is to provide the infrastructure necessary to advance commerce and enforce the rule of law with respect to property rights and contracts.
Origins of Transnational Corporations
∙ Transnational corporations, our reading tells us, began as part of colonial expansion. At first the scale of operation was modest. E.G. British traders who penetrated the mouth of the Niger River in west Africa and immediately began trading with local chiefs.
∙ Eventually they were able to persuade the British Crown to grant them a charter legitimating their activities and the Royal Niger Company was founded.
∙ A soap manufacturer, W. H. Lever, in Britain, bought the company, amalgamated it with another trading company (United Africa Company), and it was thus that the wellknown giant Unilever, one of the largest UKbased TNCs’ was born.
∙ It was not only in Europe that TNCs emerge:
o There were several less visible but very important trading networks of Chinese, Japanese, and Indian merchants all over South and East Asia. They started off on a small scale but ultimately resulted in very large international companies.
Teochiu – a large trading clan in China – that advanced a loan to a refugee who eventually developed a chain of factories that made plastic flowers, buckets, towns, etc. and amassed a fortune.
Also, Japanese TNCs had their origins in giant trading companies (sogo shosha). They have engaged in numerous services including finance (credits, loans, etc.), information services, organizational and auxiliary services (translations, legal contracts, transport, paperwork and
∙ Control economic activities in two or more countries
∙ Maximize the comparative advantage between countries, profiting from the differences in factor endowments*, wage rates, market conditions, etc.
∙ Have geographical flexibility: ability to shift resources and operations between different locations on a global scale
∙ Greater financial, component, and operational flows between segments of TNCs than a country
∙ Spread individualism and consumerism around the world ∙ Enjoy significant economic and social power (“good” and “bad” effect.)
*Factor endowments: In economics, a country's factor endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.
Characteristics of TNCs
∙ Exploit petroleum (Shell, BP, Exxon, Mobil, etc.)
∙ Make motorcars; banks, insurance companies, IT companies ∙ Operate in more than one country, because:
o Raw material (oil, timber, gold, etc.) extraction
o Plenty of cheap labor
o Newly industrialized countries provided freedom from planning and environmental controls, cheap health and safety standards, tax holidays and other incentives.
o Sites of production need not be near the end market
o Lax environmental control
o Availability of female workers who were likely to remain unorganized
∙ Contrasting views:
∙ Emphasizes globalizing capacities of TNCs
∙ TNCs have fostered the international economy but have not established a global economy.
∙ What’s the difference?
∙ International: any activity that involves two or more countries/nation states
∙ Global: suggests greater integration, virtual obliteration of national divisions