GLBL ST 1 Lecture Notes - Lecture 12: Bretton Woods System, Autarky, Niche Market
Week 6 Lecture 2: continued
B: Multinational Firms and the Globalization of Production
● Beginning of “disorganized capitalism” or Post-Fordism (breakdown of government-business-labor
collaboration in the core economies)
○ Gov had been seen as the mediator between capital and labor→ wages were set across entire
sectors, legislation regulating the right of workers to organize across sectors, etc.
■ Began to collapse because of labor militacy (strikes, etc.) but more importantly
increasing wage rates and decreasing profit (due to failure of productivity to grow along
wage rises)
■ Inflation in 1970s: prices rises because cost of producing rises; cost of producing rises
faster than prices (wage-push inflation)
■ Less consensus about the role of government in economy;
○ Fall of vertical integration; firms began outsourcing by offshoring
● Recall: declining rates of profit, increased trade openness, and more permissive financial environment
following the collapse of the Bretton Woods
○ Idea of opening free world economy as opposed to autarkic (closed in) economies like Soviet
Union/China
○ Bretton woods agreement governing how world’s currencies were tied together
Dealing with the profits crisis
1. Invest in new technologies and new products (substitute capital or labor and more niche markets for
products--segmented labor and consumer markets)
a. Kind of waiting for new technology (schumpeterian)
b. Marketing old products as new and improved (using nostalgia as advertisement technique to
appeal to masses) and marketing new products as (market segmentation)
c. BMW: trying to identify consumers all over the world; cars can be exported internationally,
started advertising strategy to show that car is for a certain type of product for certain type of
person (upper/middle class); market class segmentation to match a niche market
i. Catering to specific audience (exhausted production--selling old product)t
ii. 1950s: massive reduction on tariffs allow this to be possible
2. Go multinational to benefit from different factor endowments/fiscal conditions (taxes, services) in
different countries to build foreign market shares (concentration/saturation in home country)
a. Story about foreign direct investment: building up assets in other countries
i. No longer just building up trade in foreing countries, but also investment flows
b. THREE MODES OF GOING MULTINATIONAL
i. Invest in foregn companies through merges and acquisition m&a
1. Notion of relatively equal companies coming together (vehicle sector)
ii. Set up strategic alliances w/ foreign partners to carry out some phases of production
offshore
1. Outsourcing (going to another company(?) to proivde part/service you used to
provide) through offshoring (doing so in foreign country)
iii. Set up wholly-owned subsidaries/branches in multiple locations
1. There were law that limited foreign ownership in other countries; US has
regulations regarding who can set up wholly-owned subsidiaries (for “national
security reasons”)
c. INCENTIVES
i. Lower production costs
find more resources at oneclass.com
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Document Summary
B: multinational firms and the globalization of production. Beginning of disorganized capitalism or post-fordism (breakdown of government-business-labor collaboration in the core economies) Gov had been seen as the mediator between capital and labor wages were set across entire sectors, legislation regulating the right of workers to organize across sectors, etc. Began to collapse because of labor militacy (strikes, etc. ) but more importantly increasing wage rates and decreasing profit (due to failure of productivity to grow along wage rises) Inflation in 1970s: prices rises because cost of producing rises; cost of producing rises faster than prices (wage-push inflation) Less consensus about the role of government in economy; Fall of vertical integration; firms began outsourcing by offshoring. Recall: declining rates of profit, increased trade openness, and more permissive financial environment following the collapse of the bretton woods. Idea of opening free world economy as opposed to autarkic (closed in) economies like soviet. Bretton woods agreement governing how world"s currencies were tied together.
