U3: Economic Globalization

United Nations (UN)

After WWII, representatives of many countries found an organization to work together to avoid another global conflict -> UN

• Support people who want to choose their own gov 

• Help countries cooperate on trade issues 

• Protect smaller countries against invasion of larger countries 

• Ensure that no single country owns the world’s oceans

Race to the bottom 

• To describe the gov deregulation of business regulation or reduction in corporate tax to attract economic activities 

• In this globalizing world, companies/ countries compete with each other by cutting wages, living standards of workers and remove environmental regulations, etc

Talisman energy and corporate responsibility

• a Canadian transnational - oil and gas producers

• controversial operation in Sudan → the company developed an oil field during a brutal civil war

• critics accused Talisman of supporting a GOV committing genocide against civilians

How does economic globalization grow?

• trade: mercantilism → capitalism

• transportation: containerization

• the media: commercials

• communication tech: the printing press, phones, etc

• the knowledge economy: more educated society → more developed country

• privatization: GOV privatized services to eliminate operating cost and raise cash

WWI / WWII affected global economy in 7 ways

1. Death toll: millions of people died, decline in workers available during post WW

2. Destruction: European countries borrow money from US to make repairs

3. Decline in manufacturing: factories shifted to manufacture weapons and ammunitions

4. Reparation payments: Germany was blamed for WWI → had to pay other countries

5. Debt: wars were costly → increase in taxes

6. Pension payments: paying soldiers

7. Birth of communism: Revolution in Russia during WWI → Vladimir Lenin led people towards communism → USSR was formed

WWI & CA’s economy

• introduction of income taxes to pay for war

• shortage of workers during the war → soldiers returned home + weapon manufacturing stopped → unemployment rose

WWII & CA’s economy

• Thousands died or wounded

• GOV spending increased

• weapons, ships, airplanes manufacturing rose

• women joined the workforce → unemployment felt

outsourcing

a business strategy that involves reducing costs by using suppliers of products and services in countries where labour is cheaper and gov regulation may be les strict

economic globalization

the idea that the development of global trade, transportation and communication systems motivated by economic factors

factors affecting the global economy

• war (within or among countries)

• famine (affects people and international markets)

• natural disasters

• changes in investors’ confidence (affect share prices on local and global stock exchange)

• economic uncertainty (caused by the collapse of major industry, depletion of natural resources, or political change)

• GOV economic policies (tariffs, trade regulations, foreign aid, interest rates)

• energy and resource prices

Black Tuesday & The Great Depression

• worried investors started selling their shares → share prices plummeted, people panicked → the crash caused people have less money to spend → demand reduced, unemployment rise and many businesses bankrupted → the Great Depression

• countries increased tariffs on imports to protect their industries → international trade declined

• prairie communities in Can suffered the most

Reparation

• the act of making amends for wrongdoing

• ex: payments made by a defeated enemy to countries whose territory was damaged during a war, Germany had to pay reparations for The Allies countries after WW1

Communism

an economic and political system whose purpose is to eliminate class distinctions. Everyone would work for the benefit all and would receive help as he or she needs it

Communism (economic system)

• Karl Max

• often leads to dictatorships

• (in theory) everyone is equal → no economic inequality

• you get all the basic needs

• the rich is heavily taxed, high amount of GOV control

• revolution → temporary GOV/ political party → the society rules itself

Capitalism

an economic system that advocates free trade, competition and choice as a means of achieving prosperity

Capitalism (economic system)

• competition leads to innovations + lower prices → more choices

• low tax, minimum GOV control, consumers decide the market

• less social programs, economic inequality

• free market/ market economy / laissez-faire

• Adam Smith

• modern influencers: Milton Friedman & Friedrich Hayek

World Bank

an organization that provides long-term loans to countries

International Monetary Fund

an organization that provides emergency short-term loans to countries

Bretton Woods Conference

• July 1944

• 44 countries

• held in Bretton Woods, New Hamsphire

• 2 economics beliefs

  • Keynes (more Gov)

  • Hayek (less Gov)

• 2 organizations formed

  • World Bank

  • Int. Monetary Fund

General Agreement on Tariffs and Trade (GATT)

• 1947

• eliminate tariffs and trade barriers

• became WTO in 1995

World Trade Organization (WTO)

• increase international trade

• ensures that trade agreements are followed, settles trade disputes, conducts trade negotiations

• has a 1 country 1 vote system but decisions are made by coming to a consensus (=a general agreement)

Containerization

the transporting of goods in standard-sized shipping containers

Trade liberalization

a process that involves countries in reducing or removing trade barriers, such as tariffs and quotas, so goods and services can move around the world more freely

ex: NAFTA, EU, etc

Free Trade

the trade that occurs when 2 or more countries eliminate tariffs and taxes on the goods and services they trade with one another

North American Free Trade Agreement (NAFTA)

• free trade agreement between US, CAD & MEXICO

• eliminated half the trade barriers

Perspectives on NAFTA

Supporters

• cheaper + more products and services

• create high-paying jobs

• improve environmental and employment standards

• make Mexico into a developed country

Critics

• job loss in US/ CAD bc of outsourcing

• exploitation of Mexican workers (for lowest wages, safety standards)

• negative environmental impact

• member states unable to make their own decisions

US Mexico Canada Agreement (USMCA)

the new “NAFTA”

The European Union (EU)

• free trade agreement in Europe

• created a liberalized trading area

• goods, services and people move easily among country members (replace national currencies with the euro, EU citizens cross borders more freely)

BREXIT

• British and exit → UK’s withdrawal from the EU

• supporters: EU threatens sovereignty and stifles growth

• critics: EU strengthens trade, investment and UK’s standing in the world

Transnationals Corporations & expand globalization

• reduce costs and increase profits by outsourcing

• transnationals are able to move operations → GOV must compete to attract their business → some GOV reduce taxes, sell resources at lower prices, adopt free trade policies → transnationals are powerful → decision-making power of GOV are reduces

• smaller countries have a hard time → have to push wages down and reduce social spending

• some countries benefit from poverty reduction → transnationals invest in businesses and infrastructure

Sustain

to provide the basic necessities needed to support life

Sustainability

the degree to which Earth is able to provide the resources necessary to meet people’s needs

Gross Domestic Product (GDP)

• the value of all the goods and services a country produces in a year

• often used to measure the strength of a country’s economy

Knowledge Economy

businesses and individuals who use research, education, new ideas, and information technologies for practical purposes

Privatization

The selling of a public service, such as electricity delivery or health care, to a private company so that the service is no longer owned by the GOV

Foreign Investment pros

• encourages the advancement of economic development

• creates positive relationships between the countries

• share resources & developments between countries

Foreign Investment cons

• profits are taken out of the country and sent back to headquarters

• during times of economic stress, those industries dependent on foreign investment are at a greater risk

Structural Adjustment Plans (SAPs)

• policy changes implemented by the IMF and WB in developing countries

• = conditions for getting new loans/ obtaining lower interest rates on existing loans

• reduce spending on social services to focus on debt repayment

IMF/ WB cons

• poor countries must export more

• concentrate on crash crops + commodities

• reduce GOV spending

• the value of labor decreases, poverty increases

IMF/ WB pros

• reduce debt → allow social program to be stronger

• crash crops create a reliable income

• less GOV (if corrupted) → reduce corruption

• competition → active citizens

• GDP increases → foundation for further developments

Trickle down effect

concentrating on increasing GDP and hope that the benefits would trickle down to the whole society at large

Mixed Economy

• best of both worlds: competition + GOV regulation

• more rules and regulations, more taxes → more social programs

• less options than capitalist economy

Socialism

• a lot of GOV regulation, high taxes

• well-funded social programs: university, health care, day care, education, etc

• people benefit from the system → a higher educated society → a better, developed country (the knowledge society)

• less risk of the global market

• migrants aren’t qualified for the service

Adam Smith

• Father of capitalism

• challenged mercantilism

• the invisible hand of demand and supply

• free markets, competition, consumers’ choices

John Maynard Keynes

• more GOV involvement

• solution to unemployment + in bad times → increase GOV spending to

• in good times → reduce GOV spending to build surpluses

• “Keynesian economics”

Friedrich Hayek

• less GOV involvement

• GOV interference → a threat to freedom and makes men slaves

• central planning → a dictorial state

• spontaneous order (free trade) + “the knowledge problem” (no effective plan for an entire economy)

Milton Friedman

• less GOV + free markets

• Don’t rely on GOV → adapt to changes in the markets

  • “Monetarism” (excess money → inflation, decrease in money → deflation, banks should follow a steady, predictable monetary policy)

Perspectives on the WTO

Critics

• too much power over country members

• not democratically accountable (hearings closed to public/ media)

• not care about developing countries

• ineffective in environmental issues, child labour, worker’s rights, or health care

Supporters

• rules are written by member states (democracies)

• trade improvements raised living standards

Maquiladoras

• foreign-owned factories in the border length zone between US and Mexico

• provide jobs for poor Mexican people

• set up in 1965 by a special GOV programs that offered tax breaks to companies in the maquiladora zone

Maquiladora pros

• provide jobs for poor, unskilled Mexican people

• boost Mexican economy

Maquiladora cons

• exploitation of Mexican workers, esp. female (low wages, forced overtime, unsafe working conditions, child labour, health concerns)

• unstable employment → lay off workers during hard times

• companies dump hazardous waste illegally to save money → local GOV can’t intervene bc they can threaten to move