Download Global Economy: Politics and Capitalism

Global Economy: Politics and
Capitalism
Global Political Economy
Emergence & Development
of Capitalism
The 20th Century Debate on
Global Commerce
The North – South Divide
A Look Ahead
Global Political Economy
† A study of the concept of a global political economy
and the role of capitalism in international relations
confirms that Economics and Politics are inherently
tied to one another.
„ The idea of laissez-faire (French for "to leave alone")
is a political decision.
„ The term political economy means the intersection of
politics (or authoritative choice) with economics,
which is concerned with seemingly unlimited wants in
a world of relative scarcity of resources.
† Political economists are either economists who
understand the political nature of economics
or
† Political scientists who understand the importance of
economics.
Emergence & Development of
Capitalism
† Capitalism is
„ an economic system,
„ a form of political economy
or
„ a mode of production
† Capitalism emphasizes money, marketoriented trade, capital investment for
further production, and a set of values or
culture legitimating investment and
market-oriented behavior.
Emergence & Development of
Capitalism
† Capitalism replaced feudalism as the
dominant form of political economy in
the late Middle Ages.
„ Feudalism is an economic system
composed of a diverse group of
governmental units.
„ It is a prime example of pluralism.
Emergence & Development of
Capitalism
† Attributes of emerging capitalism included
markets and money, but both of these had
existed in a more limited state under
feudalism.
† The distinguishing feature of capitalism is
investment.
† Capital goods, or goods that have no value
in themselves other than their contribution
to the production of other goods and
services, required savings.
† If everything is consumed, there is nothing
left to purchase these capital goods with.
Emergence & Development of
Capitalism
†Gross National Product (GNP):
„ a measure of the aggregate size of a
national economy in a given year.
„ Its two important components are
annual consumption and investment
†how much is spent on goods and services
†how much is saved or set aside for capital
investment.
Government
Consumption + Investment + spending + exports – imports
GNP =
C
+
I
+
S
+
X
-
M
Emergence & Development of
Capitalism
„ Capitalist economies must sufficiently
invest to avoid decline or drops in
production, consumption, and living
standards.
„ Capital formation – new and continuing
investment in capital goods for
production and consumption
† is essential to maintain or expand
production, consumption, and living
standards.
Emergence & Development of
Capitalism
† Gross Domestic Product (GDP):
„ a more refined measure that subtracts
national earnings from foreign
investment.
„ GDP = GNP - foreign investment earnings.
† Neither GNP nor GDP accurately
account for all commercial
transactions. Excluded are
„ goods and services not traded in the
marketplace, i.e. in the underground or
black market
„ household production and consumption
Emergence & Development of
Capitalism
† Max Weber also pointed out another
feature of capitalism.
† He showed how the emergence of
capitalism was also accompanied by
a new set of social values that
supported market-oriented trade as
well as savings and investment.
† The culture of religion and the
"Protestant ethic" were central to his
ideas.
Emergence & Development of
Capitalism
† As capitalism gained a foothold in the world, states
became more and more central to the political picture.
† New World colonies were acquired in order to acquire
gold and silver and other resources.
† Mercantilism is the theory of early capitalism that saw
the wealth of a nation as a function of the amount of gold
and other treasure that it could accumulate.
† Mercantilism
„ Generally shares with realism the belief that each
state must protect its own interests at the expense
of others.
„ Emphasizes relative power: what matters is not so
much a state’s absolute amount of well-being as its
position relative to rival states.
„ Importance of economic transactions lies in their
implications for their military.
Mercantilism and Liberalism
† Mercantilism
„
„
„
„
„
Economics should serve politics.
Creation of wealth underlies state power.
Achieved prominence several hundred years ago
– Britain
Declined in the 19th century.
Favorable balance of trade: positive balance of
trade versus negative balance of trade
† Liberalism
„
Generally shares the assumption of anarchy but
does not see this condition as precluding
extensive cooperation to realize common gains.
Mercantilism and Liberalism
† Liberalism
„
„
Holds that by building international
organizations, institutions, and norms, states
can mutually benefit from economic exchanges.
It matters little to liberals whether one state
gains more or less than another – just whether
the state’s wealth is increasing in absolute
terms.
† Liberalism and mercantilism are theories of
economics and also ideologies that shape
state policies.
† Liberalism is the dominant approach in
Western economics, though more so in
microeconomics than in macroeconomics.
Classical Political Economists in the
economic liberal tradition:
† Adam Smith questioned this view in his book,
The Wealth of Nations.
„ Smith argued that wealth was not in gold,
but in the productive capacities of
economies.
„ He emphasized free markets and a laissezfaire approach to economics.
† David Ricardo argued for comparative
advantage, saying that states should
produce what they have an advantage in and
trade with other states.
Comparative Advantage
† The overall success of liberal economics
is due to the substantial gains that can
be realized through trade.
„ These gains result from the comparative
advantage that different states enjoy in
producing different goods.
„ Transaction costs
† International trade generally expands
by increasing the overall efficiency of
production.
Comparative Advantage
† Trade is not without drawbacks:
„ Long-term benefits may incur short-term
costs.
„ Benefits and costs of trade tend not to be
evenly distributed within a state.
„ Protectionism
† Two commodities of great importance
in the world are oil and cars.
„ Example: Saudi Arabia and Japan
The Progressive Globalization of
Capitalism
† Colonialism effectively spread the idea of
capitalism around the world. Today, the effects
of colonialism are still felt in neocolonialism, or
the fact that a number of former colonies are
still politically heavily influenced by their
former occupiers.
† The second wave of imperialism of the 19th and
20th centuries effectively spread capitalist
political economy throughout the globe to
Africa, Asia, and the Pacific with the same
European powers (British, French, Dutch,
Spanish, and Portuguese) and new powers
(Germany, Belgium, and the U.S.).
The Progressive Globalization of
Capitalism
† 1750, Britain had the world’s most advanced
economy
„ Industrialization
„ Free trade
† Today, the largest and most advanced
economy belongs to the United States.
„
„
„
„
„
Industrialization
Territorial expansion
Immigrant labor
Technological innovation
Great Depression and resultant protectionist policy
The Progressive Globalization of
Capitalism
„ Keynesian economics
„ WWII
„ Soviet bloc - centrally planned economy
† State-owned industries
† Shock therapy - Poland
† Transitional economies
† Today there is a single integrated world economy
that almost no country can resist joining.
„ Mixed economies
† Multinational Corporations (MNCs) – firms based
in one state that own and manage affiliated,
branches or subsidiaries in two or more countries
Multinational Corporations
„ Most important: industrial corporations
† Automobile, oil, and electronics
† Usually based in G7 states
„ Financial corporations
„ Service corporations
† McDonald’s
† AT&T
† MNCs do not just operate in foreign
countries; they also own capital (standing
wealth) there.
„ U.S. and German MNCs own some of the capital
located in Japan.
„ Japanese MNCs own capital located in the United
States and Germany.
Multinational Corporations
† Direct foreign investment involves tangible
goods such as factories and office
buildings.
† In general, an MNC cannot operate in a
state against the wishes of its government.
† In theory, an MNC operates in host
countries only when it is in the interests of
both the MNC and the host government.
† Conflicts may arise
„ Trade regulations
† Ex: NAFTA
„ Monetary policy
„ The host country - a state in
which a foreign MNC operates.
„ The home country – a state
where the MNC has its
headquarters.
Multinational Corporations
„ Monetary policy
„ Issues of international security
„ Corruption
† Conflicts with home governments
„ Taxation
„ Trade policies
† Security
„ Occasionally, MNCs can get their home
governments to provide security when host
governments fail to do so.
† Impact on liberalism rather than economic
nationalism
The Progressive Globalization of
Capitalism
† Cartels: An association of producers or consumers, or
both, of a certain product – formed to manipulate its
price on the world market
„ Can use a variety of means to affect prices
† Most effective is to coordinate limits on production by
each member so as to lower the supply, relative to
demand, of the good.
† Organization of Petroleum Exporting Countries (OPEC)
„ 40% of the world total
„ Saudi Arabia largest oil exporter
„ Headquarters in Vienna, Austria
† Consumers do not usually form cartels, but the major
oil-importing states formed their own organization –
the International Energy Agency (IEA)
The Twentieth-Century Debate on
Global Commerce
† The 20th century context is best understood through the
history of capitalism.
† In order to maintain a favorable balance of trade, many
states through the years have devalued their currency,
making it less valuable compared to others, and thus
making their exports relatively cheap.
† Such competitive devaluations contributed to the onset
of the world-wide economic depression in the 1930s.
† Attempts after World War II have also been made to
organize international trade and monetary regimes, such
as GATT, the WTO, and the IMF.
† Globalization is transforming not only trade, but money,
business, integration, communication, environmental
management, and the economic development of poor
countries.
The World Economy, 1750 - 2000
The World Economy, 1750 - 2000
The North – South Divide
† Today, there still is a divide between the North &
the South, or First & Third World countries.
† First World and the North
„ are used to refer to high-income states
„ has a much higher standard of living, consumes
much more, and are highly urbanized
† South and Third World
„ are used to refer to poorer, developing states.
„ has a much lower standard of living, consumes
much less, and are less urbanized
† Theorists, including world-systems theorists,
have looked at these realities in an attempt to
explain these differences.
The North – South Divide
† Globalization of the world economy has
created a backlash in many parts of the
world, including the U.S.
„ Growing nationalism
„ Competition from low-wage countries in the
global South
† Impact on wages in other countries
† Standards of labor regulation/worker safety
„ Labor unions have been among the strongest political
opponents of unfettered trade expansion.
„ Human rights
† Minimum wage issues, child labor, and worker
safety issues
„ Environmental issues
Glossary List:
†
†
†
†
†
†
†
political economy
capitalism
internationalization
feudalism
capital goods
GNP/GDP
Mercantilism
†
†
†
†
†
†
comparative advantage
protectionism
imperialism
neocolonialism
devalue
hard currency
This chapter examines the role of economics in
international relations. Clearly, the capitalist economic
structure of the world has a strong impact on the way
states behave.
Review – How much do you
understand?
1. Which of the following best
conveys the meaning of laissezfaire in economics?
A.
B.
C.
D.
economic inequity between nations
government control
a free market
none of these answers
Review – How much do you
understand?
1. Which if the following best
conveys the meaning of laissezfaire in economics?
A.
B.
C.
D.
economic inequity between nations
a free market
government control
none of these answers
Review– How much do you
understand?
2. The total aggregate of goods and
services produced in a state in a
given year is its?
A.
B.
C.
D.
capital accumulation.
Monetary reserves.
Per Capita Income (PCI).
Gross National Product (GNP).
Review– How much do you
understand?
3. Gross Domestic Product (GDP)
equals
A.
B.
C.
D.
GNP - returns on foreign investments.
GNP + returns on foreign investment.
GNP - returns on domestic investment.
GNP (i.e., GDP is the same thing as
GNP).
Review– How much do you
understand?
4. Neo-colonialism is a system of
dominance or exploitation by
A. multinational corporations, other
business firms, and their home
countries-typically the former colonial
powers.
B. Communist powers prior to the collapse
of the Soviet Union.
C. mercantilist powers.
D. local capitalists.
Review– How much do you
understand?
5. Who wrote The Wealth of
Nations?
A.
B.
C.
D.
David Ricardo
Max Weber
Adam Smith
Immanuel Wallerstein
Review– How much do you
understand?
6. What is meant by comparative
advantage?
A. Countries should export those goods which
they have an advantage in producing.
B. Countries should make colonies of those
countries that they have an advantage over.
C. Individuals will only buy goods that offer them
an advantage compared to other goods.
D. Individuals will only take part in capitalism if it
offers an advantage over other forms of
economics.
Review– How much do you
understand?
7. Which of the following is an
example of a hard currency?
A.
B.
C.
D.
Mexican Peso
U.S. Dollar
Turkish Lira
all of the above
Review– How much do you
understand?
8. Why might a country devalue its
currency?
A.
B.
C.
D.
to increase exports
to increase imports
to pay off a loan
all of these answers
Review– How much do you
understand?
9. Less developed countries are also
referred to as
A.
B.
C.
D.
periphery.
The East.
Third World.
none of these answers
Review– How much do you
understand?
10. A key organization in the trade
regime after World War II was
A.
B.
C.
D.
World Bank.
GATT.
IMF.
International Trade Organization.