international econ final pt. 2

Foreign-direct investment

Direct investment made by a firm from a home country into a host country

Greenfield

Firm in home country establishing a new subsidiary in a host country

Brownfield

Firm in home country acquiring a firm in a host country

What is a UK-based example of Greenfield?

Nissan investments in the UK

What is a UK-based example of Brownfield?

TATA investments in the UK

Labor migration

The movement of labor from a home country into a host country

Points-based immigration policy

Migrants augment the domestic labor supply by filling shortages/skills gaps only; migrants need to apply and will need to exceed a points threshold, points are awarded on necessity of skills plus education level/language proficiency/clean criminal record

Free-movement immigration policy

Migrants can compete with the domestic labor supply (no constraints); usually granted only to citizens of a number of countries within a common market regardless of skills, education levels, language proficiency and criminal record; requires open borders (like the Schengen)

What is a UK-based example of points-based immigration policy?

Overseas doctors in British NHS

What is a UK-based example of free-movement immigration policy?

EU vegetable pickers on British farms

How has British immigration policy led to non-EU immigrant labor being - on average - more highly educated than EU immigrant labor?

Higher barriers to entry for non-EU citizens than EU citizens

What are the positive effects of FDI on host countries?

Industrialization or reindustrialization

What are the positive effects of FDI on home countries?

Helps to keep home companies profitable/competitive

What are the negative effects of FDI on host countries?

Asset stripping and compromised security

What are the negative effects of FDI on home countries?

Possible deindustrialization

What are the positive effects of Labor Migration on host countries?

Improved living standards and competitiveness and resource gain

What are the positive effects of Labor Migration on home countries?

Remittances and poverty reduction

What are the negative effects of Labor Migration on host countries?

Resource drain, weakens collective bargaining, suppresses wages, job displacement, impediment to technological progress

What are the negative effects of Labor Migration on home countries?

Brain drain

British Nationality Act 1948

Free-movement policy between the UK and the rest of its Empire/Commonwealth

What is the economic interpretation/rationale for the enactment of the British Nationality Act 1948?

Was established to resolve the labor market situation that had developed in the UK in response to the massive economic restructuring; was sold to the British public as a way to help facilitate the migration of Canadians and Australians into the UK (this continues to be the official state narrative on post-war immigration even though the claims are very easy to dismantle)

How did poor and rural South Asian migrants, primarily from Pakistan and Bangladesh, manage to overcome some of the barriers to migration?

British firms would often pay for the transportation costs or provide housing to migrant workers, which helped remove barriers to migration but also socially, economically and racially divided the working class from Pakistan and Bangladesh

Bank-based financial system

Industrial firms enjoy close relations with one bank which is both its majority shareholder and creditor (industry is privileged over finance)

What is a bank-based financial system’s impact on a firm’s management?

The firm’s management can secure long-term loans at low-rates of interest from connected bank (known as voice relations) and management is less concerned about generating high quarterly profits (due to patient capital)

What is a bank-based financial system’s impact on a firm’s competitiveness?

• Positives: ensures long-termism (building market share)

• Negatives: lack of scrutiny/transparency over firm delusions

Stock market oriented financial system

Industrial firm ownership is dispersed amongst multiple investors and corporate strategy is determined primarily by the stock market (finance is privileged over industry)

What is a stock market oriented financial system’s impact on a firm’s management?

The firm’s management is primarily concerned with generating high quarterly profits (for demanding capital) and management can access loans from banks but at high rates of interest and short-term duration (known as exit relations)

What is a stock market oriented financial system’s impact on a firm’s competitiveness?

• Positives: responsiveness to market fluctuations, ensures maximum efficiency

• Negatives: short-termism in firm strategies, problems adapting to broader market changes

Socialistic employment system

Relations are equally balanced between management and labor within a firm and wider society due to powerful unions (workers are privileged over shareholders)

What is a socialistic employment system’s impact on a firm’s management?

Management must consider how to offset higher wage labor/higher priced goods via increasing worker productivity and/or increasing the quality of goods

What is a socialistic employment system’s impact on a firm’s competitiveness?

• Positives: productive/skilled/versatile workforce, superior goods/services, ability to rapidly modify goods/services

• Negatives: impediment to firm flexibility in terms of layoffs/restructuring, higher priced goods

Capitalistic employment system

Relations between management and labor are weighted in favor of management due to weak unions (shareholders are privileged over workers)

What is a capitalistic employment system’s impact on a firm’s management?

Management can pay low wages to workers, enforce long shifts and short paid leave, and ignore worker safety/security

What is a capitalistic employment system’s impact on a firm’s competitiveness?

• Positives: maximum managerial flexibility so easy to make layoffs/restructure and produce lower priced goods

• Negatives: less skilled/productive/versatile workforce and inferior products/services

Why does modern Japanese capitalism have a bank-based financial system and socialistic employment system?

Bank-based financial system is rooted in Japanese history and the imperatives behind its capitalist revolution (the Meiji Restoration); privileging industry over finance facilitates rapid industrialization and, with it, the military power necessary to retain national sovereignty; socialistic employment system is rooted in the political situation in 1945 which boosted the power of labor unions; the United States increased union power in Japan to ensure a well-paid labor class and political stability, reducing support for communism inside Japan

Shareholder capitalism

Stock market financial and capitalistic employment

Stakeholder capitalism

Bank-based financial and socialistic employment

Misaligned capitalism

Stock market financial and socialistic employment

How and why did the British economy transform from shareholder capitalism to misaligned capitalism in 1945?

During WW2, war demands increased the need for manufacturing in the UK, which transformed proles into proletariat, increasing their overall class consciousness, which coupled with higher bargaining power meant the proletariat class had more political power

What were the problems faced by the management of British firms under misaligned capitalism?

Under misaligned capitalism, firms had to deal with competing ideals of the rentier and proletariat classes; the conflict between wanting to maximize profits and ensure worker safety, give them better wages and job security meant that there was a conflict of interest between both sets of ideals within a firm

Why did Thatcher win the 1983 election with a manifesto to return the UK to shareholder capitalism?

The struggling British economy, erosion of class consciousness and racial divides helped Thatcher win the 1983 election, the influx and changing racial identity began replacing class consciousness and drove white cultural alignment toward Thatcher

How did the British economy transform from misaligned capitalism back to shareholder capitalism 40 years later, with a focus on the strategy by which Thatcher defeated the National Union of Miners?

Enforcing monetary discipline, privatizing state assets, and deregulating financial market; the pivotal victory over the National Union of Miners in 1984-85 was achieved by secretly stockpiling coal, using police to counter picket violence, and weakening unions financial power, effectively breaking union leverage to facilitate this pivot

How did British capitalism and German capitalism influence the commercial strategies of British and German industrial firms from 1945 onwards? Why did German firms especially displace British firms from not only their traditional export markets in the Empire/Commonwealth but also the British market itself?

Between 1945 and 1985, British firms operated under misaligned capitalism and German firms under stakeholder capitalism, meaning they both had socialistic employment systems but operated under different financial systems. During the reign of the British Empire, British firms enjoyed privileged access to imperial markets (the imperial trade pact) but after the Empire, British firms lost their privileged access and needed to compete with other countries on a level playing field. Because before 1973 British firms had a privileged position within the UK market but after 1973 the UK joins the EEC and British firms now compete with German firms in the UK on a level playing field

Vertical trade pacts

Combine advanced economies and developing countries

Horizontal trade pacts

Members are all roughly of the same level of development

Free trade agreement trade pact

Free trade between members (i.e. NAFTA)

Customs union trade pact

Free trade between members and unified trade policy (i.e. MERCOSUR)

Common market trade pact

Free trade between members, unified trade policy, and free-movement of capital and labor (i.e. EEC)

Single market trade pact

Free trade between members, unified trade policy, free movement of capital and labor, and standardized regulations (i.e. the EU)

Monetary union trade pact

Free trade between members, unified trade policy, free movement of capital and labor, standardized regulations, and harmonized or common currencies (i.e. Eurozone)

Transfer union trade pact

Free trade between members, unified trade policy, free-movement of capital and labor, standardized regulations, harmonized or common currencies, and centralized government with tax raising powers (i.e. the USSR)

What are the key differences between NAFTA and the EU and how have these differences manifested themselves in the US and UK’s government’s approaches to each country’s steel crisis?

NAFTA does not include a unified trade policy and the EU does → the US could unilaterally implement trade protection against Chinese steel and the UK can implement trade protection against imports of Chinese steel if that decision is taken at the level of the trade pact, involving negotiations with and voting across all trade pact members on the need for such trade protection

How has the EU evolved from being a horizontal trade pact to a vertical trade pact?

By expanding eastwards

Why were workers in the UK concerned about the EU becoming a vertical trade pact?

Increased job competition because of workers willing to work longer hours for lower pay

Why do trade pacts tend to privilege the largest firms from the most industrialized nations?

Tariff free access to export markets, the ability to manufacture goods using cheap labor abroad with the ability to export back to domestic markets tariff-free, and greater access to cheap immigrant labor in domestic markets

What is Donald Trump’s explanation as to why US policymakers have signed trade pacts which he claims have been detrimental to the majority of the US population?

He just calls it stupid and referred to NAFTA as the ‘worst trade deal in the world’ but doesn’t mention that these countries are actually overseas subsidiaries of US firms because it introduces the notion of economic divisions and conflict within the US and could create class consciousness in the race-focused US population

What is the realist explanation as to why US policymakers have signed trade pacts which have been detrimental to the majority of the US population (according to Donald Trump)?

The US state serves the interests of the owning class who benefit disproportionately from these trade deals.

Why would the Rockefeller Family probably preferred Hillary Clinton as President of the United States in 2016 rather than Donald Trump or Bernie Sanders, based solely on their differing views towards trade pacts and open borders?

A more integrated global policy and economic structure is a top priority for the Rockefeller family, and that aligns better with Clinton’s stance on trade pacts then Trump or Sanders’

Brexit

The British exit from the EU following the Referendum on Membership of the EU in 2016. Both the voting in the referendum and the economic impact of Brexit had come under sustained assault by the British and international media which have simplified the narrative into two parts: racists and the stupid voted for Brexit and Brexit has been an economic disaster

Why did Prime Minister David Cameron include a commitment to an EU referendum in the Conservative Party’s 2015 general election manifesto?

There were so many Eastern Europeans arriving in the UK that the British steel industry collapsed, including the closure of the UK’s largest steel works in Redlar, with massive job losses, so the attitude towards the EU amongst the British working class was becoming increasingly negative during the 2010s. As a result, Prime Minister David Cameron included the commitment to help the Conservative Party win the 2016 election

How did the EU’s customs union influence referendum voters in British steel towns?

Both the US and the UK had been facing the destruction of their steel industries as a result of Chinese dumping of steel on the global markets in the 2010s but while the US could do something about it because they don’t have a unified trade policy, the UK couldn’t do anything without an EU-wide agreement, which wasn’t happening and so British steel industries collapsed, leading voters who lived in British steel towns and relied on the steel industry to vote for the referendum to leave the EU and save themselves

How did the EU’s common market influence referendum voters in British agricultural communities?

The EU’s transformation from a horizontal to a vertical trade pact resulted in the legal migration of more than a million Eastern Europeans into the UK by 2010, and the majority of people who lived and worked in British agricultural communities - that received the greatest influx of Eastern Europeans per capita - voted overwhelmingly to leave the EU

What happened to wage rates and employment levels following the EU referendum and why?

Went down due to shortages of cheap imported labor