CH2 Global Economy

Market Economy

The decision-making of private individuals is a determinant of a pure market economy. Economic freedom to purchase and sell products, services, and properties are key characteristics of an economy under the will and interest of the individuals.

Command Economy

A central economic planning body handles the entire decision-making in the operation of an economy.

Mixed Economy

a combination of market and command systems of economic planning and decision-making. Some sectors are under the direction of private individuals while other aspects of the economy are left within the interest and guidance of the government.

International Trade

the process and system when goods, commodities, and services cross national economies and boundaries in exchange for money or goods of another country.

Descriptive Theory and Prescriptive Theory

two types of trade theories explaining international trade

Descriptive Theory

deals with the natural order and movement of trade, describes the pattern of trade under the idea of laissez-faire, a french term for leave alone.

Prescriptive Theory

describes whether the government, an important economic insitution, should interfere and restrict with thee movement and restrict with the movement of goods and services. this theory views the government to have participation in deciding which countries to alter the amount, composition, and direction of goods.

Economic Liberals

explain the importance of free trade and the role of individual preference in choosing economic activity. It includes making decisions and choices on comparing the costs of products to be produced and traded, the availability of the product, and the efficiency of producing and buying the products.

an economic theory that emerged from about 1500-1800. This period was the emerging eras of nation-states and the formation of more central governments. This system flourished due to the following reasons: higher export than import, and export less high-valued products and import less valued products, the benefits of colonial powers.

Structuralists

The earliest wave of mercantilism was described as classical imperialism. The drive of European countries to explore and colonize underdeveloped countries originated from the aggressive mercantilist behavior of European economies. This idea was extended to the practice of the modern capitalist-imperialist approach by countries and economies that have immense resources through the use of hard power over developing and less developed countries.

Modern World System

developed by Immanuel Wallerstein, explains the contact of economies between core, semi-peripheral, and peripheral countries in the world (Baran, 2023). The core states have an absolute advantage over the others through unequal exchange and extraction of raw materials from the periphery and semi-periphery. This system as part of the structure of global capitalism, involves exploitation and transformation in some ways. The sixteenth-century core states of northwest Europe moved the agricultural sector to higher- skilled industries. Eastern Europe became the periphery economy where it heavily exported agricultural products to the core. While Mediterranean Europe served as an intermediary between the core and periphery through using its labor-intensive industry.

Use of Excess Capacity in Demand, Cost Reduction and increase of profit, cheaper supplies, addition to product line, reduction of risk, and foreign policy tool

Reasons why countries engage in international trade

Macroeconomic, Microeconomic, Governance, Exchange Rate, Trade Policies, Foreign Capital investment policy, and migration policies

Domestic and Foreign Economic Policies

Microeconomic Policies

. These are monetary and fiscal policies that directly affect the local economy.

Monetary Policy

is a decision of the central bank to change the money supply to influence factors affecting the economy like interest rates with the goal of managing price stability and full employment. On the other hand,

Fiscal Policy

focuses on the government’s revenue and expenditures. This policy represents the various national economic activities where the government concentrates on cutting its expenses to avoid budget deficits and attain budgetary balance.

Microeconomic Policies

. These government policies provide precautionary measures in price control, monitoring consumer behavior, and private firms' operations.

Governance Policies

. The stability of the economy is always associated with the ways the economy performs. Cultural influences, and strengthening networks and systems in governance are key indicators of a competitive economy. The international market looks for policies that are viable to support the working operation of the global economy. If governments are responsive in the execution of policies critical to the needs of domestic and international markets, healthy and economic sustainability will occur.

Trade Policies

. Economic managers are usually very keen on the potential impacts of the balance of payments, customs tax, quota, and tariff.

Balance of Payment

(BoP) is the record of all foreign transactions by an economy each year. BoP is an ideal criterion for identifying the international economic status of a country.

Foreign Capital Investment Policy

part of this policy is the influx of investments in the economy. A competitive economy usually attracts a number of foreign investors with the intention of establishing and expanding the business from its home country to the host or target economy. This

Foreign Direct Investment

(FDI), which occurs when a firm purchases or invests directly in facilities like factories, stores, or warehouses to produce or market a product in a foreign country.

Migration Policies

significant in determining the labor availability in the market. There are economies that restrict the movement of people due to economic and political reasons.

Transnational Corporations

refers to business organizations and firms that compete in regional or global markets. It operates in countries and makes investments in research, technology, facilities, distribution, and production. This can control and monopolize the global market especially if it has a huge pool of resources making it one of the most powerful economic actors in the world. A number of these from the north and west have business operations in the south where cheap labor and raw materials are available.

Free Trade Area

is a trading bloc that involves the reduction of internal tariffs to zero for member economies but retaining its different external tariffs. This policy aims to promote the free flow of goods and services as well as increase the volume of trade within the region.

unfair trade

is the conduct of trade by a business firm or government that violates and breaks international trade agreements that are unjustifiable and discriminatory. Examples of common trade practices are issues relating to price, labor, wages, health, and environmental concerns that failed to meet the regulatory standards of the body.

World Trade Organization, World Bank, International Monetary Fund, and the Asian Development Bank

major economic institutions major player in the operation and management of global trade, investment, and finance.

1. Implementation of the latest GATT agreements

2. A venue for trade organizations

3. A dispute settlement body responsible for resolving trade problems

4. Review and assess national and international trade laws and policies

5. Assist members and developing economies by providing technical assistance and training programs.

this economic institution used to be the GATT. It has the following functions:

> voting is by consensus, making its decision political.

> operates on one country-one votes, and not on the quota system or based on the economic size of the country and its share in the world’s trade.

> criticized for manipulating and interfering state sovereignty of its members

various weaknesses and criticisms of the World Trade Organization

World Bank (International Bank for Reconstruction and Development)

agency with 189 member countries operating in 130 countries worldwide. Formed by the Bretton Woods agreement in 1944 to finance the reconstruction of war- torn countries brought about by the devastation of World War II. composed of four associated agencies:

1. International Development Association (IDA). This agency focuses on poor and third- world economies in the world by providing financial assistance and loan programs.

Criticisms raised by members of some NGOs and civil society on the operation of the world bank

1. Its function is limited only to poverty which has some similarities with the IMF

2. It concentrates on macro-scale projects where micro and small projects affecting the lives of communities are excluded and not given proper attention

3. The organization fails to address the global problem of inequality

4. Rampant case of corruption in the organization

5. Employees and staff are overpaid; salaries are higher than a banker’s pay.

The International Monetary Fund or IMF

was created as the flagship institution of the Bretton Woods agreement with 189 member countries. This is responsible for supervising the exchange rate system, providing loan programs to economies experiencing balance of payments adjustments, and reviewing domestic monetary policies. It is mandated to ensure the stability of the international monetary system including exchange rates and international payments. keen on monitoring foreign monetary transactions as it has a direct effect on a country’s financial climate. It reflects on the amount owed by a country from another country as well as indicates the economic operation like what it produces, consumes, and buys with its money.

> operates through a weighted voting basis controlled by dominant contributors and funders to the organizations.

criticisms on IMF

European Union

guided by its core values, considered as an integral part of the way of life of its citizens. It believes in the following value orientations: (1) Human dignity, (2) freedom (3) democracy (4) equality (5) rule of law, and (6) human rights.

Euro

official currency of EU

what is referred to when global governance is mentioned?

this term refers to domestic institutions and governments on how large-scale problems and public-policy issues are being solved at a global level. It involves a range of actors including states, and national and regional bodies that have the willingness and commitment to confront a particular problem (WHO, 2015). Global governance involves management, authority, cooperation, and mechanisms that are aimed at attaining certain goals. This international process is bounded by consensus and agreements where members are expected to perform based on the guidelines and policies. The United Nations, World Trade Organizations, and World Health Organizations are examples of governments that operate globally.

Jurisdiction Gap, Incentive Gap, and the Participation Gap

the three existing gaps and issues in global governance in a study by the World Health organization

Political System

this means the system or the form of practice employed by the system. This has implications for the success of its economy and overall governance.

individualism and collectivism

democratic and totalitarian

the two dimensions of political system

Individualism

values the significance over collective goals. Freedom of the people is the primary consideration in an individualist society, government values the choices and preferences of its people at a very personal level.

freedom and self expression, pursuit of economic interest

this is where the idea of individualism is built on

Collectivism

a philosophy that stresses the importance of collective goals over individual freedom and interests. the state as the primary economic manager views collective action as the best strategy in establishing the welfare and interest of the nation.

Democracy

there is a practice of direct participation in the modern societies involving representation, where individuals periodically elect someone who has the ability to present them in government

• freedom of expression, opinion, and organization

• freedom of media and press

• the conduct of regular elections

• universal adult suffrage

• specific and limited terms for elected officials

• independent judiciary and court system

• nonpolitical and nonpartisan police force

• public access to information

9 common practices and description of an ideal representative democracy

Totalitarian (autocratic)

this is built on the idea that society and citizens have no right and freedom of expression. They do not recognize the conduct of fair and honest elections, the presence of media, and civil liberties. decision-making is exclusive.

• Communist

• Theocratic

• Tribal

• Right-wing Totalitarianism

four kinds of totalitarianism

Geopolitics

is defined as the focus and concentration of a country’s location, environment, and geography as the basis of its national interests (Nau, 2008). The United States and China have ideal geography because of their vast land and territory, Israel on the other hand, has struggles when it comes to defending the territory because it is surrounded by Islam majority countries. India enjoys its huge territory but has some challenges when it comes to territorial security and military relationships with neighboring countries Pakistan and China.

Unilateralism

a type of political layers where countries do not make decisions with regards to other countries.

Multilateralism

a type of political layer that considers alliances and coalition to make strong connections with other countries.

Bipolar and Tripolarity

two kinds of powers in multilateralism

Bipolar

this happens if there are only two great powers dominating the distribution of power. The cold war era as an example, the global power was highly congested between the us and the ussr.

Tripolarity

This happens if there are only three states dminating the distribution of the global order. Japan, US and Europe as an example.

Multipolar

this occurs when more states are involved in the distribution of global power. this is described as an alignment of the powerful and emerging powers in thw world.

Isolationism

believe that major powers and states exclude the use of force and military in the international system. War and attacking other nations are unethically acceptable in the international political economy as it is already enshrined in international law.

UN

is an international organization established in 1945 with the League of Nations as its original body. Currently, the organization has 193 member states performing in various capacities and divisions. As the world’s most powerful binding political organization, this can act on the issues confronting humanity in the 21st century, such as peace and security, climate change, sustainable development, human rights, disarmament, terrorism, humanitarian and health emergencies, gender equality, governance, food production, and more.

United Nations has a total of six General assemblys, the Security Council, the Economic and Social Council, the Trusteeship Council, the International Court of Justice, and the UN Secretariat.

organs of un

General Assembly

This is the UN's main deliberative and decision-making body represented by all its 193 members. The assembly holds general debate from September to December in its headquarters in New York. Two-thirds of the vote is required to decide the range of issues like peace and security, budget, and admission of new members to the organization.

Security Council

As enshrined in the UN Charter, this is responsible for the maintenance of peace and security. All member states of the UN are obligated to follow decisions made this body. In some cases, the council has the power to impose sanctions or punish members or other bodies for restoring international peace and security. Security Council is composed of 15 members, 5 are permanent members and 10 are non-permanent members elected for two terms. China, France, the Russian Federation, the United Kingdom, and the United States are the council’s permanent members.

Eonomic and social council

This body is commonly called ECOSOC. Its main function is to coordinate, review, and recommend policies relating to economic, social, and environmental issues. It serves as the main agency of the UN in monitoring and evaluating key results on sustainable development. The 54 members of ECOSOC, composed of experts from various fields and disciplines, are elected by the General Assembly.

trusteeship council

This UN organ was established in 1945 with the role of providing international supervision for 11 Trust Territories. These territories are placed under the administration of 7 member-states. The council provides support and sufficient steps to these territories to prepare them for independence.

ICJ

s the principal judicial body or court of the UN. Its role includes settling legal disputes among concerned states and providing opinions on legal matters. This is the only UN organ that operates outside the United States with headquarters in the Peace Palace, Netherlands.

The secretariat

headed by the UN Secretary-General who sits as its chief Administrative Officer. The appointment of the Secretary-General is done through the recommendation of the Security Council for a five-year term. This organ is responsible for the day-to-day work and operation of the UN including its peacekeeping mission and thousands of international staff stationed in different countries.