ins3003 exam 2

globalization 3.0

WWII-now, Pax Americana, age of the internet, individuals can do what only banks or MNCs could previously, shrank world from small to tiny, world flat

globalization 2.0

1800-WWII, Pax Britannica, Britain economic hegemony through colonial power, global markets, multinational trading, MNCs (British East India Company), shrank the world from medium to small

globalization 1.0

1492-1800, age of mercantilism and colonialism, search for wealth and power through exporting cheaply with exploiting colonies, shrank the world from large to medium

mercantilism

trying to increase exports while limiting imports, increasing a state's relative wealth and power

post Cold War predictions

Mearsheimer - bipolarity, stability

Huntington - predicted class of civilizations

Fukuyama - collapse of communism signaled “end of history” with new age of democratization and prosperity

liberals - optimistic

globalization (Howard Wiarda)

"the increasing scale, extent, variety, speed, and magnitude of international cross-border social, economic, military, political, and cultural interrelations"

audience costs and democratic culture

we don't want our government going out and threatening war, we value peace and expect transparency

democratic peace 3 points

democracies don't fight each other (Britain and US and France, value peace, have constitutions and respect international rule of law), democracy solves the security dilemma created by anarchy, democracies prefer each other in trade and diplomacy (trust, shared values, deeper engagements, transparency)

Immanuel Kant's "Toward Perpetual Peace"

when citizens get to choose, they will choose peace and reject war, in democracy, the citizen is the primary stakeholder

democratic peace

best strategy to ensure security and build durable peace is to support advance of democracy everywhere

liberal democracy

consent of the government + limited government + capitalism, the individual is the fundamental basis of society, end of ideological evolution, recognized as best system

Hegel

3 components to mankind - survival, ability to reason, natural spiritedness that desires recognition (drives us to compete, represents prestige not power, states go to war for desired prestige)

democracy grants prestige and recognition, “Great Equalizer” gives us *all* self worth, if we all have prestige we don't need to compete = less war

Fukuyama's End of History

the endpoint of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government (history is coming to an end ideologically, democracy grants everyone voice so we don't need anything else)

3rd wave of democracy

end of the Cold War, major expansion of democracy everywhere but Arab world

2nd wave of democracy

end of WWII, increasing number of democratic countries

1st wave of democracy

1800's, natural expansion of democracy

"The World is Flat"

Thomas Friedman, everyone can participate now, nothing inaccessible

comparative advantage

David Ricardo, ability to produce goods at the lowest cost (efficiency, specialization, free trade), example of Portugal should produce wine and England should produce cloth because less labor hours necessary, more goods should be available at cheapest rate possible, increases global output and makes best use of world’s resources

dependency

the higher the share of the GDP, the greater the dependency on trade, former colonies have trouble breaking free and being independent, dependent on aid, trade, markets, security, protection

complex interdependence

US and Mexico trading a lot and dependent on each other along with Canada and China

risks of trade

vulnerability (import/export dependency and market volatility), comparative advantage (support is going to specialized good and not to agriculture meaning jobs are lost there), trade deficits (import more than exporting)

classical gold standard

a currency that everyone agrees has value, makes it easier to trade, rigid, operated by Bank of England (London financial capital), brought down by Great Depression

economic impact of currency fluctuations

rising/strong currency - good, more spending power, imports more accessible, hurts business/industrial/export sector

declining/weak currency - goods we have to import are more expensive, dollars don’t go as far internationally, exports are more competitive

China - export driven economy keeping prices artificially low and competitive, not good for US or domestic consumers

U.S. Gold Reserve Act (1934)

nationalized gold, all gold transferred to US Treasury (even removed from Federal reserve, private holding, use, and exporting of gold illegal), readjusted price of gold devaluing USD by 69%

lower value currency = our goods cheaper, boosts exports

USD was a very stable currency making it circulate internationally

US held 70% of world's gold supply

beggar-thy-neighbor protectionism

policies were hurting others, trade stops, implementing high tariffs and devaluing currency blocking imports and making exports more competitive

dollar/gold standard

US created system to facilitate trade, pegged USD to gold at and everyone else pegs to the USD

U.N. Monetary and Financial Conference - Bretton Woods (1944)

44 countries in attendance (including USSR), Harry Dexter White and John Maynard Keynes introduced Keynesian economics concept, compromise between US free market and UK socialism

4 Agreements of Bretton Woods

(1) Dollar/Gold Standard officially adopted

(2) International Monetary Fund (IMF) - emergency bank for the global economic system, countries that pay more have more of a voice

(3) International Bank for Reconstruction and Development (IBRD) - loans that would go towards reconstruction and development through assessment, changed to World Bank

(4) General Agreement on Tariffs and Trade (GATT) - goal to reinvigorate trade and investment, reduced protectionism, eliminated most favored nation (reducing tariffs on one country would mean you have to reduce tariffs for everyone, changed to World Trade Organization

options during convertibility crisis

devaluation - to boost exports but didn’t have industries to do so, France devalued their currency by 80%

deflation (reducing price levels) - to help domestic consumers but high wholesale prices, not productive because it slows economy

restricting the economy (scaling back on expenses - austerity) - but Europe needs to rebuild

protectionism - but then everyone selling and no one buying, would just hurt Europe, previously trying to move away from this

The Marshall Plan

political focus - economic and political stability linked, wanted to stop spread of communism (in Western Europe)

economic focus -  Europe's economies were a mess, IBRB couldn't provide enough money, Europe needed money to rebuild

asked European countries how much aid they need and US provides $4 billion to 16 countries (mostly to UK, France, and Italy), Soviets wouldn’t allow satellite states to participate

conditions - get rid of communism, trade with US

results - success for democracy and capitalism in stopping communism, success economically in helping Europe rebuild, trade, and industrialize

The Long Boom

1950-1973, low unemployment, nutrition levels growing, GDP per capita increasing, Bretton Woods system started working, IMF, IBRB and GATT started working, participation in and expansion of global trade, developing powers growing faster than developed powers

France and Charles de Gaulle

France withdrew from NATO and had run on gold supply, no one would raise the value of their currency so we could compete

Nixon Shock (1971)

Nixon pulls US off the dollar/gold standard, devalues USD twice to be more competitive, gold prices skyrocket

Oil Crisis and Yom Kippur War

originated from problem with the devalued and floating dollar because oil priced in USD

between Egypt Syria and Israel, Israel had taken Sinai Peninsula but Egypt and Syria wanted it back, US sides with Israel, OPEC (Iran, Iraq, Saudi Arabia) responded by raising price of oil (400%) and oil embargo

ended long boom and showed that our economies aren’t doing well

end of long boom

stagflation - stagnant economy and high unemployment rates combined with inflation

end of Keynesian economics - big spending, in with neo-liberal free market and deregulation

Reaganism and Thatcherism

the dollar now

floating, fiat currency, USD remains cheap reserve currency

fiat currency

money had no intrinsic value (just paper/metal)

Chicago Schools of Economics

created a neo-liberal economic approach, that challenged Keynesian economics, focused on US and forms we need to implement domestically

F.A. Hayek

leader of neo-liberal approach coming out of CSE

problems with Keynesian model

government was too big, thought that government could back off and system can function on its own after economic growth, however the opposite happened (high spending, inflation, protectionism), neo-liberals wanted deregulation to allow businesses to be more competitive, removed tariffs, and raised interest rates

Washington Consensus (John Williamson)

similar to neo-liberal views, formed for Latin America in 1989 (not all countries, not at all times)

fiscal discipline, reordering public expenditure priorities, tax reform, liberalizing interest rates, competitive exchange rate, trade liberalization, liberalization of Inward FDI, privatization, deregulation, property rights

DC based institutions (IMF, Word Bank, US Treasury) backed this

market-oriented model focused on trade and non-tariff barriers, allowed FDI

dependency theory

marxists approach, issue with the argument that poor countries are poor because they are doing it wrong and argues that bad economies are product of economic exploitation during colonialism, says that neo-liberal approach only works well for wealthy, developed countries (NASCAR vs kid)

liberal response to dependency theory

argue that overtime, this should've corrected itself, maybe there are things within the system that are unattractive for investment (corruption, instability)

neo-colonialism

defined as a system of post-colonial domination of developing countries by predatory governments and multinational corporations through indirect means (economic imperialism)

newly industrialized countries (NIC's)

countries that were colonies or exploited through imperialism (Brazil, China, Mexico, South Africa) but succeeded in development, have a lot of state regulation

import substitution industrialisation (ISI)

substituting goods they used to have to import with goods they make themself, used in Latin America and elsewhere, structuralist (promoted by dependency theorists)

Latin America ISI

state-led development model, protectionist, main goal to increase self-sufficiency because of history of heavy reliance on developed powers (manufactured goods), implemented high trade barriers, prohibited FDI, and artificially high currency (not competitive, agriculture expensive)

the lost decade (1973-1987)

oil crisis (high oil prices isn’t being offset by exports, trade deficit, had to take out loans and cut off imports which hurt industries), neo-liberal reforms in the US (reaganomics) (involved raising interest rates making debt in Latin America bigger), inflation and unemployment rising (consumption decreasing), Washington Consensus (set of policy prescriptions for Latin America such as deregulation, privatization, and liberalizing trade

export-led growth

state-guided, protectionist with high trade barriers to sell not spend, used ISI but market oriented, pushed comparative advantage, and development driven, Asian Tigers, industrialized, diversified, traded, pursued comparative advantage, artificially low currency pegged to high currency (competitive)

crony capitalism

authoritarianism, corrupt, the governments got to choose which industries and individuals received contracts and subsidies, smaller countries more vulnerable

Asian Financial Crisis (1997-1998)

started with Thailand’s risky real estate investment, couldn’t maintain peg and fluctuation of USD, Baht then floated with the market rapidly devaluing it and spreading, IMF and World Bank jump in to try to stabilize economies in liberal way making financial recession and backlash

pros of economic globalization

exchange between countries and democratization, interconnectedness and interdependence

north-south gap

north - 90% of industry, 4/5 of all earned income, 25% of global population

south - 1/5 of all earned income, 75% of global population, site of world's greatest poverty

India, China and Brazil skewing data

GDP

private consumption + gross investment + government spending + exports - imports

problems of GDP

doesn’t tell us about distribution of money (not everyone is better off even if its rising, accumulated wealth and illegal markets not factored into it, government spending doesn’t equal wealth

abject poverty

not having sufficient food, clothing, shelter

GINI coefficient

measures income inequality, want to be closer to 1, Scandinavian countries perform best, US and poor countries uneven

human development index

focuses on quality of life people have (looks at GNI per capita, gross enrollment ratio, adult literacy rates, life expectancy), highest in Switzerland, Norway, Iceland, lowest in South Sudan, Chad, Niger

humanitarian aid

short-term aid meant to alleviate specific problems at that moment after natural disaster (water, food, medicine)

development aid

long-term aid projects (infrastructure)

Millennium Challenge Corporation

ensuring countries receiving aid have anti-corruption measures, North Korea leverages aid for not creating nuclear war, aid coming in without assistance of state means government doesn’t need to try to improve quality of life of its citizens, farmers face competition from aid suppressing local economy

hand-up approach

partnership focus, help them to succeed on their own

cash crops

a crop produced for its commercial value rather than for use by the grower (coffee, tobacco, corn not used for domestic consumption) affected by climate and natural disasters

the resource curse

an abundance of natural resources creates political and economic disruption

authoritarianism

government controls everything, tied to corruption, zero sum, example of Venezuelan success until Hugo Chavez

Shaxson

the poorer or weaker a country is when it discovers oil, the more likely oil will be a curse, it will likely increase the risk of conflict, create great inequality, inhibit democracy, and contribute to corruption

dutch disease

the direct relationship between the exploitation of one's resources and a corresponding decline in manufacturing (focus on oil rather than industrialization)

preeminence

ideas are the driving force of histrory

teleological history

linear evolution through time, can be traced, like a story

beginning - primitive life to systems of domination

middle - progression, we need a better system (liberal democracy)

end - liberal democracy wins (challenged, may not end all wars)

challenges to Fukuyama’s approach

story of the west, capitalism has some flaws, no new ideologies, China, religious regimes

modernization theory

modernization led to democracy by transforming society and thus political systems

industrialization

democracy is a byproduct of development and wealth

bourgeoisie

owners of means of production, businessmen, new class, pressures system for rights not overthrow

proletariat

work all day in bad conditions, exploited, strong when united pressuring system

urbanization

city/industrial job search, relocation, identity changing from localized to new exploited and united group

education

expanded, drives world further,  intelligent people lead revolutions because they can see worlds flaws

civil society

have a stake in the system

democratic stability theory

not cause and effect, wealth doesn't cause democracy, it helps democracies achieve greater stability

liberal perspective on democratic peace

supporters through cooperation, IOs, agreements, interdependence, rule of law, promoted diplomacy

realist perspective on democratic peace

supporters of democracy and cooperation, but it doesn’t *guarantee* that conflict won’t erupt

constructivist perspective on democratic peace

ideologies a determining factor in our friendliness towards powers, looks at values, ideas, norms, identity, perception, and social constructs, 500 British weapons less threatening to US than 5 NK weapons

Iran Operation Ajax

US used to be close allies with Iran, developed democratic system, Prime Minister concerning (nationalizing oil - communist tactic, engaging with Soviets), used CIA and propaganda to work against him, Shah removed him from power in 1990s ruling as authoritarian monarchy

Guatemala Operation PBSuccess

had democratic election, leftist leaning president implementing policies worrisome for US (nationalized United Fruit Company land and distributing it in communist way), used CIA, propaganda, and trained Guatemalan operatives (480) to stage invasion, was successful because he didn’t know what was coming next, stepped down, ended with military dictatorship (US ally with Guatemalan military)

reserve currencies

typically usd and euro, old foreign currency in reserve to stabilize economy (savings account)

death of the dollar/gold standard

Bretton Woods working for everyone but US, US deficit and trade imbalance

Joseph Stiglitz

critic of one-size-fits-all model, a lot of developing countries like Asian Tigers developed by using their own model (strong government guiding development)

race to the bottom

FDI attracted to poverty because it’s cheap to do business there, countries want to be poor to attract FDI

foreign direct investment (FDI)

borrowing money to develop faster, success depends on success of the industry (need to repay loans), problems = unable to pay debt back, some companies come in and bring technology, experts, and build factory themself giving developing country instant access but then foreign company has ownership and profits

Latin America ISI Problems

authoritarianism (corruption), only worked in beginning in resource rich countries, comparative advantage (cars produced but not enough and through imports, expensive), role of agricultural goods (everything they did hurt this industry), not competitive and declining exports

cons of economic globalization

vulnerability, smaller businesses can't compete with corporations, environmental degradation, harmful effects of interconnectedness, cultural and identity loss, competition over

extreme poverty

anyone who lives below the international poverty line and survives on less than $1.90 per day, deprived of basic human needs and often don’t have access to service aids, typically lack access to adequate education, work in agriculture, under 18, live in rural areas

individual corruption

individuals want to accumulate power and wealth

systematic corruption

everyone wants wealth citizens don't follow laws to get ahead, everyone knows there is no rule of law

global corruption

where companies and governments offer special deals and tax havens (China to Venezuela)

poor governance

how resources are managed leading to poverty and lack of development (Norway - resource rich, developed export market, has oil, high HDI and GINI coefficient, good management)

blood diamonds in Angola

money being made from blood diamonds and used to finance war, not build infrastructure, UN implemented sanction

oil in Iraq

distribution of oil revenues and resources (pipelines) in conflict, ISIS focussed on gaining control of Mosul and Kirkuk where oil is

implications for local economy

dutch disease, commodity price fluctuation (unstable, cheaper to buy foreign goods), debt accumulation (loans, resource can lose value), corruption (revenue not divided evenly, focus on acquisition), taxation (no taxes creates lack of vertical legitimacy)