Global Economy: Politics and Capitalism

Transcription

1 Global Economy: Politics and Capitalism Global Political Economy Emergence & Development of Capitalism The 20 th Century Debate on Global Commerce The North South Divide A Look Ahead

2 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.

3 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.

4 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.

5 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.

6 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

7 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.

8 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

9 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.

10 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.

11 Mercantilism and Liberalism Mercantilism Economics should serve politics. Creation of wealth underlies state power. Achieved prominence several hundred years ago Britain Declined in the 19 th 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.

12 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.

13 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.

14 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.

15 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

16 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 19 th and 20 th 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.).

17 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

18 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

19 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.

20 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.

21 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

22 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)

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24 The Twentieth-Century Debate on Global Commerce The 20 th 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.

25 The World Economy, The World Economy,

26 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.

27 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

28 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.

29 Review How much do you understand? 1. Which of the following best conveys the meaning of laissezfaire in economics? A. economic inequity between nations B. government control C. a free market D. none of these answers

30 Review How much do you understand? 1. Which if the following best conveys the meaning of laissezfaire in economics? A. economic inequity between nations B. a free market C. government control D. none of these answers

31 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. capital accumulation. B. Monetary reserves. C. Per Capita Income (PCI). D. Gross National Product (GNP).

32 Review How much do you understand? 3. Gross Domestic Product (GDP) equals A. GNP - returns on foreign investments. B. GNP + returns on foreign investment. C. GNP - returns on domestic investment. D. GNP (i.e., GDP is the same thing as GNP).

33 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.

34 Review How much do you understand? 5. Who wrote The Wealth of Nations? A. David Ricardo B. Max Weber C. Adam Smith D. Immanuel Wallerstein

35 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.

36 Review How much do you understand? 7. Which of the following is an example of a hard currency? A. Mexican Peso B. U.S. Dollar C. Turkish Lira D. all of the above

37 Review How much do you understand? 8. Why might a country devalue its currency? A. to increase exports B. to increase imports C. to pay off a loan D. all of these answers

38 Review How much do you understand? 9. Less developed countries are also referred to as A. periphery. B. The East. C. Third World. D. none of these answers

39 Review How much do you understand? 10. A key organization in the trade regime after World War II was A. World Bank. B. GATT. C. IMF. D. International Trade Organization.