Ch 10.docx

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University of Toronto Mississauga
Gabrielle Sauter

Ch. 10: market led development Markets and Free Trade -market based approaches are based on the premise that most equitable and efficient way of distributing resources (such as food, land, housing, services, and labor) is the market. -tgis means that the price of a good, or the wage levels of a worker, will be determined by the relationship between supply and demand -if the supply goes up then price will go down. Supply goes down then prices go down -deman goes up, price goes up. Demand goes down, then prices go down -shifts in the supply curve may occur, for example, because of technological changes or fluctuations in input costs -shifts in the demand curve may occur if income goes up (family may now be more willing to pay for certain things) -same thing for wages -demand is the number of workers wanted -supply is number of workers wanting the job. -the wage is where the two curve cross -often termed laissez-faire -calls for reduced govt. intervention in economic affairs, free trade, and a division of labor -David Ricardo who developed the concept of ‘comparative advantage’ - He argued that if countries specialized in producing the goods in which their resource base gave them an advantage relative to other countries, then overall production would increase -free trade was vital to allow all nations to have access to the goods that they required to progress and weren’t producing themselves by specializing Development as an international prject in the postwar world -In the post- world war II period, ‘big D Development’ became the focus of international policy in the first world. -using the model of European or US economic dev. as the basis of dev. interventions in the south. Meant a focus on industrialization, urbanization, and greater use of scientific principles in agricultural production (all together generally termed modernization -Northern centric approach -while the states role was viewed as very important, aid and support from Western nations clearly relied on Southern govts generally following a capitalist, rather than communist, development path. -During the Cold War, aid was used as a way for the West and the Soviet Union to gain support from Southern Countries Neoliberalism -the grouping of ideas promoting greater market freedoms and a limited role for the state was termed neoliberalism -according to neoliberal ideas: the states role is to favor strong individual private property rights, the rule of law, and the institutions of freely functioning markets and free trade. Debt Crisis -neoliberal policies had begun to be implemented in Chile and parts of the Global North in the 1970s, but it was in the 1980s that processes of neoliberalization became more prominent in most parts of the Global South (and later in the transitional economies of Eastern Europe. THE CATALYST of these processes was the ‘debt crisis’ which unfolded following the Mexican government’s announcement in 1982 that it would not be able to meet its public debt repayments, although crisis had a much longer history. -During the 1960’s and 1970s, many Southern govts, keen to finance ‘modernization’ projects such as infrastructure expansion and industrial development, borrowed money from commercial banks. -seemed reasonable with low interest rates and improving economic growth. Seemed reasonable from banks with lots of money to lend from oil-producing nations -severe oil price rises in the 1970s had very negative impacts on the economies of non-oil producing nations -these oil price rises, combined with rises in interest rates and recession in the global economy, brought many indebted countries to the brink of economic collapse. Structural Adjustment Policies (SAPs) SUPER IMPORTANT*************** -in the context of high levels of national debt and an inability to meet debt repayments, national governments in the Global South were forced to turn to the IMF and World bank for assistance -Private banks would no longer lend to indebted govts, but govts still has massive expenditure commitments. -Further funding from the IMF and World Bank were conditional on govts adopting what termed SAPS. -SAPs were modeled on neoliberal ideas of reducing the role of the state and increasing the influence of the market. -With very few exceptions, by the mid 1980s, most countries in the Global South had no alternative but to adopt SAPs -SAPs forced govts. To implement policies to DECREASE expenditure, such as through reducing subsidies, privatization and the size of the public sector work force, as well as INCREASING income through improved tax systems and opening the economy to foreign investment through the removal or lowering of tariff barriers and devaluing the currency -such policies have helped expand and deepen forms of economic globalization and the incorporation of countries in the Global South into the global economy -While SAPs certainly allowed govts access to vital resources and economic stabilization usually ensued eventually, SAPs were frequently associated with increasing inequalities both socially and spatially. -For the poorest people, cuts in food subsidies and the implementation of ‘cost recovery’ programs within health systems, meant that daily struggles to meet basic needs were made more difficult -concerns that stop-gap measures would have long term implications on both household standards of living and national development, for example, through children’s non attendance at school, or levels of ill health -cut back on the public sector work force hits many middle class employees -entrepreneurs no longer protected against foreign investments -many claim SAPs a way for Global North to express dominance over Global South -AS WITH EVERYTHING THERE ARE TRADEOFFS World Trade Organization -free market relies on regulation, enforcement of the rule of law and respect for individual property rights. -within countries done through legislation and regulation bodies -WTO for the world market -prior to WTO it was GATT (General Agreement on Tarrifs and Trade) that was responsible for promoting free trade between nations. -Whereas GATT did not have any power to enforce rules, the WTO does. -Member
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