North vs. South

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11 Apr 2012
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Globalization contd. and North-South Gap of
Inequality
International Relations Lecture 2/4/2012 10:49:00 PM
North vs. South
Why Does It Matter?
If capital does not like the local environment it now has a viable exit option
If capital owners do not like the exchange rates here for example, they can move their
capital elsewhere and do business elsewhere
Buy whatever you want, wherever you want
This creates pressure on governments to provide capital with a hospitable
environment by having very few regulations that will make it easy for capital to
operate
Capital likes places with good healthcare and education
Race to the bottom!
Walmart has bigger economy than many countries in the world *
If Walmart moves capital from one place to another, it has greater impact than many
countries doing the same
95 of the worlds largest economies are corporations *
We need to re-think relationship of state and MNC
State and the MNC
Is the state becoming powerless?
o This is unclear
o Most corporations like Walmart have a base in one country (USA)
What are the ethical implications?
o Think of occupy movement
Does it force us to reevaluate the winners/losers and with it the theory of free trade?
Anti-globalization: collection of different interest groups with a variety of concerns
and agendas; focus on redistribution, externalities, emphasis on democracy
o Think of G8 summit
Regulation of below?
o Corporations are powerful, states do not regulate themrace to the bottom
o Industry of certification *-
o We will create pressure on corporations to change their policies so it will be to
the benefit of those corporations to change their labor policies in third world
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countries or else we wont buy their products or services if they do no have the
―Fair Trade‖ certification
Think Go Green *
o Idea of regulating through our own decisions as consumers *
Is there an alternative?
o How would you structure the international political economy that will allow it
to work better?
o Think of Dani Rodrik
Rodrik’s Tilemma
Economic integration, Mass Politics, Nation State
You can only have two. Having all three is not possible
Pick two of the 3 components.
Nation state-
o Sovereignty
o National identity
Mass Politics
o Democracy
o Ability as society to decide what ideas and values will be reflected in our
borders
o How are we able to influence our own positions
Economic integration
o How free is the market? How integrated?
Giving up on each of these is quite a compromise *
Each decision we have brings us to a different kind of outcome
For Example: If you pick economic integration and nation-state over mass politics
o There is a race to the bottom
o There is an exit strategy
o And the state regulates the market and not the people
o People have no say in the economic structures in place
Example 2: Select economic integration and mass politics and giving up the nation-
state
o Integrated market and a democratic structure- you have to give up idea of
national boundaries
o This brings us to Global Federalism
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o Trade-off= lose the state
Example 3: Choosing nation-state and mass politics
o Select nation-state and mass-politics
o Sovereign countries exist and people within those countries can influence on
their own way of life
o The trade-off= give up on more integration
o This is the Bretton Woods structure *
These are 3 scenarios as choices for society and international system and he
highlights the different trade-offs, every choice we make comes with a price and we
have to be aware of them
Growing Inequality between North and South
A rising tide lifts all boats?
Not really!
Factor Price Equalization
When market forces are allowed to work and compete freely they will push towards
equilibrium
o Economists are fond of idea of equilibrium
o Overtime, if you let the market work, things will balance out
Factor Price Equalization Theorem (Samuelson): free trade will eliminate price
differences for commodities across countries; subsequently the prices of the factors of
production related to those commodities (capital and labor) will also equalize.
o Gap between prices in different countries shrink and equalize
For example: following the implementation of NAFTA unskilled labor wages
gradually fell in the Us, at the same time as they gradually rose in Mexico.
Does it work in practice? It depends on the index we examine
o Why is it that this economic theory is not working?
o Why are there poor countries that have still stayed behind? Why?
Some Statistics on Africa
65% live on under $1 a day
40% of kids do not attend primary school
o cannot read and write
28 million people have HIV/AIDS
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