global econ midterm 3

3 types of banks

1. deposit banks

2. investment / merchant banks

3. central banks

deposit banks

take deposits and give loans to individuals & corporations

investment / merchant banks

make deals between rich individuals / companies to finance business investments and corporate takeovers

• more aggressive

central banks

tasked with printing & distributing money and controlling a country’s money supply

• run by the government

two key institutions established @ bretton woods

1. International Monetary Fund (IMF) 

2. International Bank for Reconstruction & Development (IBRID) 

OG role of the IMF

assist countries with short term balance of payments problems

expanded role of the IMF (post 1982 debt crisis)

act as a “stamp of approval” for countries undergoing structural adjustment

OG role of IBRID

assist with long term lending for reconstructing European countries post WW2 & developing poorer nations 

expanded role of IBRID

adapt strategies including large infrastructure developments to basic human needs and sustainable development

financial instability hypothesis

the idea that stability breeds instability

• during times of stability, firms take more risks with hopes of increasing profits

• views instability as a core feature of the system, viewing the gov’t as a “lender of last resort”

ponzi lending

interest is paid by continuous new borrowing which increases the risk

offshore financial markets (eurocurrency)

financial transactions in currencies other than the currency of the state that the business is conducted in 

• goal = escape regulations

financial liberalization

key states eliminated capital controls which allowed for the free movement of money  

• 1970s & 80s

derivatives

financial products like futures & options used to hedge against risks or to make money on betting on future prices

• encourage risk taking because large sums can be pledged without immediate need to pay 

sovereign wealth funds

investment companies created and controlled by national governments

hedge funds

financial companies that engage in complicated financial transactions largely operating beyond government control 

3 repeated crises

1. 1980 debt crisis

2. asian financial crisis - 90s 

3. 2008 financial crisis 

fixed exchange rates

US dollar was fixed to gold at a rate of $35 per ounce

other currencies exchange rates were….

fixed to the US dollar but with provisions for occasional adjustment

triffin’s dilemma

the world needed US dollars for international trade, but the outflow of US dollars would eventually be more than the US’ gold reserves which would undermine faith in the dollar being fixed to gold 

Mundell Fleming trinity

a country cannot have:

1. an independent monetary policy

2. stable exchange rates

3. free flows of capital

3 key points with mvmt from floating & regional currencies

1. floating exchange rates - NIXONS SHOCK 

2. the euro - created stability w a universal currency across the EU 

3. dollarization 

Nixon’s shock

President Nixon ended the convertibility of the US dollar to gold, leading to a system of floating exchange rates

dollarization

a country reducing or eliminating their national currency in favor of the US dollar in order to be more uniform

key issues w/ the future of the US dollar

the US dollar is currently the world’s reserve currency but…..

• Euro is potential rival - “currency w/o a state”

• Chinese Renminbi is potential rival - “currency w/ too much of a state”

example of a “currency w/o a state”

the Euro

example of a “currency w/ too much of a state”

Chinese Renminbi 

4 forms of global division of labor

1. international

2. global 

3. gendered 

4. racial & ethnic 

international division of labor

countries specialize in producing particular things for export

• typically geographic regions 

global division of labor

a form of organization that reaches worldwide and work isn’t confined to any given country 

• EX: software industry in India alongside subsistence agriculture 

gendered division of labor

societal ideas about what roles and employment are appropriate for men & women

• women are often clustered in poorly paid, insecure positions and rarely in positions of power 

• EX: women as majority of workers in export processing zones 

racial and ethnic division of labor

groups confined to specific forms of labor based on ethnic background or visible differences, often to justify economic exploitation 

liberal view on labor (Adam Smith)

The division of labor is beneficial, increasing productivity through specialization, saving time, and facilitating the application of machinery. Liberals argue that expanding the market (through international trade) increases the division of labor and benefits everyone (linked to Ricardo's comparative advantage)

dependency / critical view on labor

Rejects the idea that the division of labor is "natural," arguing it is shaped by power relations. Historical conflict (like the triangular trade and imperialism) locked countries into roles (e.g., raw materials producer).

3 key changes in the production process 

1. mass production (fordism) 

2. automation

3. digital platforms & the Gig Economy

mass production (fordism) - 3 key changes in the production process 

developed and supported by wealth redistribution & union wage negotiation

automation - 3 key changes in the production process 

use of AI & robots to replace low skills & repetitive tasks

• Ex: Foxconn

digital platforms & Gig Economy - 3 key changes in the production process 

digital platforms allow for disintermediation, connecting consumers & providers directly 

• EX: uber & air bnb 

gig economy - 3 key changes in the production process 

short term, casual, freelance work which provides flexibility but also intense competition, insecurity, & lack of regulation for workers

2 key issues with global restructuring & inequality

1. integration of China & India

2. growing inequality

integration of Chine & India - 2 key issues with global restructuring & inequality

China has excelled as an assembly plant, while India has succeeded in the business services sector (outsourcing. This has lifted millions out of poverty but created huge inequality within China (rural-to-urban migration) and put pressure on labor standards worldwide. Indian outsourcing challenges white- and pink-collar employment in industrialized countries.

growing inequality -  2 key issues with global restructuring & inequality

Global inequality has decreased due to the rise of a global middle class in China and India, but wealth concentration at the very top has rapidly increased. The top 1% captured 27 cents of every dollar of global income growth between 1980 and 2016. This accumulation is partly due to tax abuse (sheltering fortunes offshore) and changes in tax policy that favor the wealthy (e.g., lower capital gains tax). This has led to the rise of rightwing populism, which often blames foreigners for economic problems.

Aspects of the division of labor include (2)

• Geographic distribution - national, subnational, global, international

• Who is assigned to each task - gender, race, family associations, labor force

origins of the division of labor

may develop / evolve through tradition, be conferred by birth, by force, through law, or merit

5 key issues w/ the division of labor

1. foreign workers in a country’s economy

2. rise of asian powers (china & india) 

3. workers rights

4. inequality 

5. rise of the super rich

foreign workers in a country’s economy - 5 key issues w/ the division of labor

in some countries, foreign workers earn up to 10-25% of GDP 

rise of asian powers - 5 key issues w/ the division of labor

• china has become the manufacturing “factory to the world” w/ use of their 5 year plans

• india has liberalized (1990s)

workers rights - 5 key issues w/ the division of labor

ILO created in 1919 (WTO doesn’t address workers rights) & countries are generally reluctant to put laws in place that target other countries domestic policies 

• Attempt at market regulation through codes of conduct & boycotts 

• Some countries have enacted laws against specific kinds of labor abuse 

inequality - 5 key issues w/ the division of labor

• Global inequality has declined as millions of chinese & Indians have joined middle class 

• Wages of wealth of middle class in developed, high income states has been stagnant 

• Income inequality in some high income countries has increased significantly (US, UK) 

• Richest 1% and 0.01% has immensely increased their wealth 

rise of the super rich - 5 key issues w/ the division of labor

• Top 0.1% have as much wealth as the bottom 90% of families 

• Wealth can and often does buy power and political influence 

• Priorities of top 1% vary compared to majority of the population 

• Super rich have plenty of resources to develop strategies to shelter wealth & income from taxation (offshore tax havens) 

expatriate worker

a worker who works away from their home country

• for some countries, workers send home 10-25% of total GDP

international monetary system (IMS) purpose 

governs how currency is exchanged for another 

• Importers, exporters, and TNCs need a stable IMS to conduct economic activity across international borders 

global credit system purpose

determines who (companies or countries) get to borrow money and on what terms (loan length, interest rate, etc)

3 perspectives on the global credit system

1. liberal view

2. social democratic

3. critical perspectives

liberal - 3 perspectives on the global credit system

exchange rates and loan terms should be determined by private sector agents, not by the governments 

social democratic - 3 perspectives on the global credit system

private sector is important, but financial stability and redistribution are important and governments and supra national organizations should have strong determining actions 

critical perspectives - 3 perspectives on the global credit system

operation of the international capitalist financial system is destabilizing and it increases and reinforces inequality within countries and between them

money

a commodity that holds value and is exchanged for other commodities 

• Iron, tobacco, cattle, shells,  

• More efficient that bater 

main problem with money 

debasement & differing values of one place to another 

what do floating exchange rates enable? (1)

speculation & currencies are traded for profit 

• EX: oil price hikes & the oil embargo 

balance of payments

record of economic transactions between a country and the rest of the world 

2 parts of the balance of payments

• current account

• capital account

current account - 2 parts of the balance of payments

records payments for goods and services

capital account - 2 parts of the balance of payments

records movements of short and long term capital (money flows)

2 expectations in the balance of payments

1. Inflows and outflows should balance 

2. A deficit refers to a country being able to pay for goods and services that it imports

The global credit system is susceptible to…

financial scams

1 example of a financial scam

ponzi scam

Main continuing issue with global credit (1)

no effective regulation of the global credit system

• the countries asked to assist in solving international credit issues are tied to unsustainable debt & financial crises 

what organization is regularly called on to resolve international debt issues?

G20

issue of corporate and individual tax avoidance & abuse

many individuals & corporations shelter wealth in tax havens, & corps use profit sharing & transfer pricing to avoid paying taxes 

• Revenue lost to tax avoidance and tax abuse could go to education, healthcare, or other developmental programs 

worlds most important reserve currency & 3 runner ups

most important - US DOLLAR

runner ups:

1. the euro

2. chinese yen 

3. british pound 

global credit crisis 2007

began from investors purchasing bad mortgages bundled with good mortgages

• Contagion- economic crisis tied to financing of housing purchases resulting in consequences for “Main Street”

• G20 brought in to help solve the crisis

european sovereign debt crisis

newly elected greek government announced that its debt was much larger than previously thought, cost of debt skyrockets

• Unable to devalue, unwilling to leave the Euro, & the Greek economy collapses 

asian financial crisis

investors lost faith in the market and removed all of their money, resulted in the market crashing

transnationality index

top 100 non financial Multi National Enterprises

what 3 numbers is the transnationality index the average of ?

1. percent of assets that are foreign

2. percent of sales that are foreign

3. percentage of employees who are foreign employees

summary about the top 25 largest TNC host countries 

rich, early developed countries

summary about the top 25 TNC host countries EXCLUDING highly developed & wealthy countries 

mainly in Asia & dominated by China

What topic does the WTO not address?

workers rights, workplace standards, or workplace safety

summary about top 25 largest TNC activities 

mainly petroleum & related industries as well as motor vehicles

summary about top 25 largest TNC activities EXCLUDING highly developed & wealthy countries 

also mostly petroleum refining but followed up by everyday consumer goods (computer parts, food, motor vehicles, etc)

trans nationality index is the average of 3 percentages

percent of assets that are foreign, percent of sales that are foreign, percentage of employees who are foreign employees

top 3 countries ranked by amount of $ in foreign investment

1. Shell 

2. Toyota 

3. Volkswagen

the global compact

a response to the people who believe that TNCs are going against the desires of the people (asks people to volunteer to sign a compact regarding business activities, 10 standards)

summary about the Top 25 TNC host countries (dvpd countries)

rich, early developed countries 

summary about Top 25 largest TNC host countries (excluding high developed, wealthy countries)

mainly in Asia & dominated by China

main goals of China’s latest 5 year plan (2)

industrial modernization & self reliance

sustainable development goals (17)

1. no poverty

2. zero hunger

3. good health & wellbeing

4. quality education 

5. gender equality 

6. clean water & sanitation 

7. affordable & clean energy

8. decent work & economic growth

9. industry, innovation, & infrastructure 

10. reduced inequalities 

11. sustainable cities

12. responsible consumption & production 

13. climate action

14. conserve life below water

15. protect & restore life on land 

16. peace, justice, & strong institutions 

17. international partnerships for the goals

circular economy

process of diverting waste streams and re creating products as new ones that are useful for people

4 categories in the Ten Principles of the UN Global Compact

• human rights

• labor

• environment

• anti corruption

7 impact topics of B corps  

• Purpose and Stakeholder Governance

• Fair Work

• Justice, Equity, Diversity, & Inclusion (JEDI)

• Human Rights

• Climate Action

• Environmental Stewardship and Circularity

• Government Affairs and Collective Action

key monetary issue with TNCs

tax avoidance & sheltering of funds in offshore markets

purpose of being a certified B corp

signals to you customers, employees, and investors that your business is committed to making a difference

• companies that use business as a force for good, and demonstrate your company’s leadership in a changing economic landscape