ILRIC 2350 Study Guide - Midterm Guide: Bretton Woods System, Non-Aligned Movement, Anti-Globalization Movement
13 Dec 2016
School
Department
Course
Work, Labor, Capital in the Global Economy
Module 2: Exam Study Guide
Globalization
• Definition of globalization: Globalization is the process in which people, ideas and goods
spread throughout the world, spurring more interaction and integration between the
world's cultures, governments and economies.
• There has been profound change in the global markets since 1970. The changes have
been driven by political and economic factors, not the free market. Multinational
companies emerged, seeing more opportunities, but also more uncertainty and intensified
competition. The expansion of MNC’s lead to a substantial reduction in bargaining power
for labor. The global financial crisis caused a dramatic drop in trade & capital mobility,
yet upward trends continue. Government have less bargaining ability, because companies
take advantage of the exit-strategy, leaving their home-country to take advantage of
better opportunities overseas.
• GATT, 1948: General Agreement on Tariffs & Trade
o The goal was to reduce tariff barriers and increase trade in goods.
o It was an agreement (between the US & European powers) to lessen trade barriers
in order to re-cooperate after the war. If Europe could get its economy going
again, the US could gain the exports from Europe and vice versa. It was a political
deal that had an economic and political motive → The end of WW2, continue
developing relationship between countries to continue receiving favorable goods.
If you gave preferred tax treatment to one country, then you had to extend that to
all countries you traded with.
o By the 1970’s a largely free trade zone existed for all OECD (democratic
countries that support free market economies *34 members) countries.
o Since the 1980’s, free trade extended to the former Soviet block, China, and
developing countries → prompting a massive expansion to a much larger footprint.
o Brought rapid growth, stability, and international integration.
• GATS, 1995: General Agreement on Trade in Services
o The goal was to increase trade in services (consulting, accounting, legal services,
tourism).
o Achieved its goal by reducing non-tariff barriers (government regulation, health &
safety rules, labor rules, environmental rules, etc.)
o Implemented with the World Trade Organization as the enforcer.
▪ The Battle for Seattle was a massive protest, the first anti-globalization
protest. The WTO body was appointed, and thus undemocratic. The way
the rules were written disadvantaged developing nations and people and
there were big hits in environmental impacts.
o The results were an expansion of trade in services, penetration of foreign MNCs
into local economies, and a bit more anti-globalization backlash.
• There are now two types of international trade.
o Inter-industry trade: efficiencies gained through specialization in production across
countries (comparative advantage). * Agriculture vs. machinery *
find more resources at oneclass.com
find more resources at oneclass.com
o Intra-industry trade: competition based on production and trade of the same
products (competitive advantage). * Ford vs. Toyota *
o Inter-industry → intra-industry → labor competes on wages
o Results in MNC penetration into local economies.
• There is almost universal participation in trade, but a rise of intra-industry trade
(intensified competition).
• There is also a heightened speed of trade due to new technologies.
• The WTO increasingly ensures common rules for trade.
• The ~China~ factor exists since 2000; with increasingly other emerging markets.
• Because of these changes in international trade, economic growth takes place, but
inequality, and uneven benefits are also impacts.
o The trade occurs predominantly among OECD countries and China. Some places,
like East Asia, India, and Latin America, have increasing roles. While other places,
like Africa and part of Latin America, experience marginalization.
▪ Capital Markets: Post-WWII
• 1st world system: Bretton Woods system (OECD)
o Fixed exchange rates: US was the guarantor, the US was
the fixed exchange rate, it was the strongest economy in the
world and people felt comfortable tying their currencies to
the US rate. (in the 1960’s the debt was growing though)
• 2nd world system: The Soviet block (COMECON) (closed system)
• 3rd world system: The non-aligned movement (attempts to
industrialize)
▪ Floating currencies: exchange rates went from fixed to floating
• A foreign currency is just like any other good: its price is
determined by supply and demand.
• A countries economic stability and interest rates affect supply &
demand in currency markets.
• Impacts are made by tourists, currency speculators, investors, and
companies. Governments can borrow to stimulate economies, while
also stimulating inflation.
• In the 1970’s some things went wrong. Economic instability in 1973 →
o Floating currency rates fueled inflation.
o The 1973 oil shock: OPEC cartel & the 1974-5: deep recession due to oil prices.
o Collapse in profits of major corporations ~ the crisis of capitalism in the 70’s.
• Governments responded in the 1980’s and 2000’s with market liberalization policies.
o Fiscal policy: tax cuts (supply side strategy)
▪ Reduce taxes, increase internal investment/spending
o Industrial policy: deregulation: airlines, telecoms, trucking
▪ Shifting the responsibility of the industry from the public sector to the
private sector
▪ Less restrictions, health/safety policies
o Capital market policy: deregulation of banking
~ The US & UK lead, followed by Europe, followed by the rest of the world ~
• Deregulation of capital markets:
o Most countries relaxed laws that prevented foreign investment in home countries
and domestic capital from leaving the home countries. The international monetary
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
The changes have been driven by political and economic factors, not the free market. Multinational companies emerged, seeing more opportunities, but also more uncertainty and intensified competition. The expansion of mnc"s lead to a substantial reduction in bargaining power for labor. The global financial crisis caused a dramatic drop in trade & capital mobility, yet upward trends continue. It was an agreement (between the us & european powers) to lessen trade barriers in order to re-cooperate after the war. If europe could get its economy going again, the us could gain the exports from europe and vice versa. It was a political deal that had an economic and political motive the end of ww2, continue developing relationship between countries to continue receiving favorable goods. Implemented with the world trade organization as the enforcer: the battle for seattle was a massive protest, the first anti-globalization protest. The wto body was appointed, and thus undemocratic.
