A race to the bottom?
Capital is more free to cross borders, it has option to exit also. You can have less unions but it
pushes countries to compete for investment which pushes us to less protection, less security, etc.
You have more influence on state policies if you own capital. Realism & mercantilism is that the
state is the only important actor in economic relations.
The State and the MNC
-Is the state becoming powerless?
-what are the ethical implications?
-does it force us to re-evaluate 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, democracy
-Regulation from below? Through our own behaviour as consumers we can vagulate some of
these issues. Do you pay for cheap coffee, or more expensive coffee where more profit goes to
-Is there an alternative?
Roderik’s Trilemma (imagine a triangle)
Nation state (bottom left) mass politics(bottom right)
We get something but we lose something else, we can never have everything we want.
Economic trade & nation state = race to the bottom. If we choose to open up everything and still
maintain borders, capital can leave and threaten the gov’t so gov’t loses their ability to respond
to their own citizens. We lose mass politics. Trade off: a growing dramatic deficit.
Economic integration & mass politics = global federalism. if we stop caring about national
borders. Trade off: We lost the nation state. If we had world federal system who will run the
Nation state & mass politics = Bretton woods. Giving up some levels of integration, Bretton
woods was a compromise, allows states to keep their own capital markets closed. Trade off:
limited economic integration.
-A rising tide lifts all boats?
Factor Price Equalization Economic theory that leads us to believe that a rising tide lifts all boats.
-When market forces are allowed to work and compete freely they will push towards equilibrium
-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 labour) will also equalize. If the price of a book in CAN and
USA becomes equal the price for producing the book will become equal over time we will reach
an equilibrium. NAFTA, lower wages in Mexico, factory would be built in Mexico,
-for example: following the implementation of NAFTA unskilled labour wages gradually fell in
the USA, at the same time as they gradually rose in Mexico.
Some stats about Africa
-65% live on under $1 a day
-40% don’t attend primary school
-28m have HIV/AIDS
-average GDP per capita of $420
Modernization Theory (how do we explain what happens in Europe and in Africa?)
-An optimist theory that predicted post-colonial growth and development
-Industrialization->urbanization->rise of middle classes->democracy and adoption of modernity-
-the new countries will follow an accelerated version of European model of modernization
-minimal gov’t intervention;free trade (we want the liberal model to kick in and allow societies
-in practice; stagnation; a series of coups; instability; economic decline
Salvaging the modernization theory
-the theory is valid but the countries failed its prescription and hence flopped. The “blame” is
with local conditions in the LCD’s.
Economic Policies I -Import substitution industrialization (