IDSB04H3 Chapter Notes - Chapter 9: Financial Crisis Of 2007–2008, Gross Domestic Product, Foreign Direct Investment


Department
International Development Studies
Course Code
IDSB04H3
Professor
Anne- Emanuelle Birn
Chapter
9

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IDSB04 Week 8 Reading
Chapter 9 Globalization, Trade, Work and Health
Globalization and Its (Dis)Contents
Key Questions:
- Which dimensions of contemporary globalization are old and which are new?
- What is neoliberal globalization and what are its key features? Where does capitalism fit in?
- Globalization = a process of greater integration within the world economy through movements of goods and services, capital,
technology and labor, which lead to economic decisions being influenced by global conditions
o Globalization might produce enhanced cultural understanding or political solidarity among oppressed groups
o There are clear winners and losers in terms of how globalization has unfolded and on whose terms
- Neoliberal globalization = Investment in and ownership of the means of production (property), distribution, and exchange of
wealth is made and maintained mainly by private individuals or corporations rather than cooperative or state-owned
arrangements
- Capitalism = the existence of and relations between a ruling class of owners, managers and a subordinate class of workers
(wage earners)
o The ueploed ae a esee a of potetial okes ad self-employed persons but must continue to buy
and sell good and services within the capitalist market
- The main goal of capitalism is profitablility so they extract, exploit and contaminate resources to ensure profits
- The US and Europe promoted global economic expansion as the key to progress
o The Great Depression the largest capitalism crisis
- Neoliberal ideology is linked to reorganization of state institutions, production processes, and state power, with the state
undergirding the market by privatizing and changing the favor of foreign and domestic elites
o This is seen with lowering taxes for corporates and the wealthy, corporate interests and trade at the expense of
workers
- Neolieal stage of apitalis ad it’s seeal phases
1. Rise of the neoliberal model rearranging the relations among the state, labor, and market
2. Financialization the growing role of financial motives, markets, actors, and institutions in the operation of the
domestic and international economies with profit and accumulation came from non-productive sectors of
banking, insurance, and real estate
3. The globalization of austerity following the 2008 global financial crisis; the crisis in 2008 reinforced the economic
and social inequality in HICs and LMICs
- Chang says that the free trade cornerstone of Washington Consensus policy is particularly detrimental to LMICs
o Wealthy nations and institutions that have been established such as the WTO and IMF, today insist that poorer
nations abandon measures and implement compregensive free trade policies, which invite foreign capital to take
part in local riches while leaving little behind
- How globalization affects the health of people around the world depends on who controls the flow of capital, labor, and
knowledge, and who benefits and suffers
Table 9-1 Key Definitions Relating to Globalization, Trade, and Work
Capital = wealth (financial and physical resources)
Currency devaluation; inflation = a reduction in the value of a currency with respect to other monetary units this may affect the purchasing power of groups,
particularly low-income groups
Deregulation/reorientation of the state = reduction of the role of the state in the labor market and in protecting health, safety, and the environment; at the same
time, reorientation and strengthening of state regulations to facilitate private capital accumulation
Foreign direct investment (FDI) = controlling ownership in a business enterprise in one country by an entity based in another country
Foreign reserves = the foreign currency deposits held by central banks and monetary authroities
Free trade = a market model in which trade in goods and services between countries flows unhindered tariffs, subsidies, or other government measure
Gross Domestic Product (GDP) and Gross National Product (GNP)
- GDP = personal and governmental expensitures, private domestic investment, and exports minus imports
- GNP = comprises GDP + income earned by residents from investments abroad minus income earned in the domestic economy by foreign residents
Informal sector = work carried out outside official legal and social institutions (not taxed, monitored, or accounted for)
Labor = work/workers
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Liberalization = policies allowing market forces to determine key elements of the economy, this includes exchange rates, interest rate, minimum wages, lifting
barriers to trade and investment
TNCs = legally incorporated enterprises that own, manage, or subcontract production and deliver goods and services in at least 2 countries
Precariet = class of workers with minimal job security or work predictability
Privatlization = selling of government assets and state-owned enterprises to private sector entities
Progressive taxation = a taxation policy in which the effective tax rate increases as income/earnings rise
Subsidies = governmental financial assistance, usually in the form of grants, tax breaks, or trade barriers, to encourage production or facilitate purchase of particular
goods
Tariffs and duties = tariffs are taxes on foreign goods upon importation; duties also refer to taxes on exports or goods in transit both of these can be set amount, a
percent of the total value of the goods, or vary according to weight or quantity of goods
Health Effects of Neoliberal Globalization
Key Questions:
- What are the major pathways through which neoliberal globalization affects health?
- How have LMICs been affected by debt, foreign investment (FDI), capital flight, tax evasion, and structural adjustment
remedies sice the s?
- How does the lead up to the  fiacial crisis ad the Great Recessio’s austerity easures i HICs copare to prior LMIC
experiences?
- What are the effects of WTO agreements and regional trade and investment treaties on public health?
- Assumptions of neoliberal globalization
1. Supporters of (neoliberal) globalization argue that at the aggregate level, global integration improves health thanks to
economic growth, alongside social and political benefits
o During the neoliberal globalization surge between 1980 and 2000, countries that experienced slower economic
growth had now experience net negative growth and a decline of real per capita GDP
2. The benefits of increased trade and foreign investment are shared across and within societies through wealth
distribution and sustain social services spending
o Neolieal gloalizatio’s oset i the s, ost outies epeieed a aked deterioration in public social
services and an increase in wealth and income inequality
Figure 9-3: Pathways of neoliberal globalization and effects on health
- 4 major pathways used to analyze how neoliberal globalization affects health and health inequities
1. Debt and financial crises, international financial instruments, including load conditionalities, policy implications, and
consequences such as privatization and austerity
2. Financial liberalization, currency speculation, capital flight and tax evasion
3. Trade liberalization, trade and investment agreements, and TNCs
4. Global reorganization of production/deregulation of worker and environmental protections
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Debt, Financial Crises, International Financial Instruments, Policy Responses, and their Consequences
Debt and Structural Adjustment
- Background story on the use of structural adjustment
o It starts with colonialism, where former imperial powers started a new form of dependence through a quid pro quo
arrangement that gave credit and loans to newly liberated countries in exchange for continued business investment
and access to their primary resources
o Within a few decades, most of the former colonies found themselves tied up by debt and dependency
- Structural adjustment loans (SALs) = aimed at restoring financial stability and ensuring the necessary economic growth and
revenues to repay loans owed to private banks in HICs
o These were designed to reduce the size of government, open domestic markets to foreign penetration, expand the
private sector and stimulate low-cost exports
- There were conditions that accompanied these loans, this included: large cuts in government spending, removal of trade
tariffs and of agricultural and other basic goods subsidies, labor market reforms, lifting of restrictions on foreign investment
in domestic industries
- Effects of SAPs on health and its determinants SAPs have induced declines in government spending which has decreased
availability and quality of public-sector health care, with acces further jeopardized by user fees and privatization
o SAPs have pushed for decreased or stagnated spending on health
o The IMF also imposed ceilings on public sector wages pushed many health health workers into the private sector or
to emigrate, leading to health worker shortages
Global Financial Crisis, Austerity, and Health
- The 2008 financial crisis may be seen as a direct result of the state separating itself from the financial market
o This fiaial seto self-egulatio opeed the doo to oe iskie and shadier lending and borrowing practices
o The threat of collapse of financial institutions across HICs led to stock market declines, which triggered the recession
in 2008-2012
- Austerity-driven social suffering in Greece and other countries involved drastic cuts to housing, disability, child, and
unemployment benefits in the UK had been magnified among the most disadvantaged groups
- What this crisis did was allow for a huge realignment of power and capital in the hands of private financial interests across
HICs
o In the US< taxpayers are underwriting ongoing government subsidies in secret, conditionality-free taxpayer bailouts
of big banks, whereas social programs face massive cuts now and in the future
o The government says that they are too short on money to ensure the basic well-being of the rest of the population
Financial Liberalization, Currency Speculation, Capital Flight, and Tax Evasion
Financial Liberalization and Currency Speculation
- Financial liberalization = reorienting the role of the state to favor private capital and opening up banking and financial system
to world markets
o This exposes national economies to the uncertainties that are created by large and unstable capital
o Many of the countries that are the most exposed to financial liberalization have experienced socially disruptive
crises (ex. Mexico, Russia, Argentina, Ireland etc.)
Capital Flight and Tax Evasion (illicit Financial Flows)
- This involves manipulation of accounting, trade, tax and investment rules, corporate-related activity constitutes the bulk of
global corruption
- Capital flight = fiaial outflos that ae ot offiiall eoded i a out’s alae of paets the money can be
acquired illegally (ex. Criminal activity), moved out of one country to escape economic instability, currency risk, or to pursue
higher returns
o Money laundering, unlawful bulk transfer of cash
o It’s affet o health ad its deteiats – it shrinks the size of public treasures through lost tax revenues, which
leads to more debt and external borrowing, less investment is then available for domestic spending, greater
inequality and governance problems
- Tax evasion = tax avoidance which refers to technically legal cross-border transfers of wealth to benefit from lower tax rates
o Countries try to lower their tax rates to try and attract or retain large corporate and individual investors
Trade Liberalization, Trade, and Investment Agreements, and TNCs
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