Economic Globalization



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Economic Globalization

  • Sociology 2, Class 9
  • Copyright © 2010 by Evan Schofer
  • Do not copy or distribute without permission

Announcements

  • Announcements
    • Midterm in one week: Feb 9
      • Midterm review sheet handed out previously
        • Available on the course website
    • NO SECTION during week of midterm!!!
      • No section meetings Feb 8-12
    • One week 5 reading won’t be on the exam:
      • Brawley, Mark R.  2003.  “Globalization and Domestic Politics”  Pp. 107-130 (Chapter 5) in The Politics of Globalization.  Toronto, Ontario:  Broadview.
  • Agenda
      • Today: Taking stock: Consequences of globalization
      • Thursday: governance & more midterm review.

Midterm Info

  • Topic coverage:
    • All class lecture material
      • Lecture notes on course website
    • All readings up through Week 5
    • Commanding Heights video, Episodes 1 & 3
      • Available via course web page…
    • Exam Format:
      • Closed book / closed notes
      • Mix of short answer/multiple choice, medium length, and perhaps one short essay question.

Review: Barriers to Trade

  • Strategies for protectionism
  • 1. Tariffs – taxes on imported goods and services
  • 2. Quotas – a government-imposed numeric limit on imports
  • 3. “Non-tariff” barriersA government regulation that indirectly limits trade or makes it more expensive
      • Example: Agricultural subsidies.

Review: Barriers to Investment

  • Strategies for protectionism (continued)
  • 4. “Foreign ownership” laws – laws that limit the ability of foreigners to buy companies
      • Example: US government could require owners of corporations to be US citizens
  • 5. “Capital controls” – laws designed to prevent the rapid withdrawal of capital/investment
      • Example: Law requiring invested capital to remain in the country for one year
        • Thus, preventing rapid flows in and out.

Review: Problems With Trade Agreements

  • Rich/powerful countries have numerous advantages in negotiating trade agreements
        • See: Stiglitz, Chapter 3
      • Some points to consider:
  • 1. Advantages of rich/powerful countries are biggest in bi-lateral trade negotiations
      • Example: US vs. a small Latin American country
      • US can bully, bring great pressure…
      • Often, those turn out worse for poor countries than large multilateral agreements.

Review: Problems With Trade Agreements

  • 2. Rich/powerful countries disproportionately control the agenda of agreements
      • Topics addressed by FTAs benefit rich countries
  • 3. Government trade negotiators are often influenced by powerful groups
      • Rather than negotiating for terms that will benefit everyone in a country, negotiators may cater to big corporations.

Stiglitz: Making Trade Fair

  • Stiglitz, Chapter 3: Recommendations
    • 1. Developing countries should be treated differently from wealthy countries
      • Previously, most trade agreements focused on equal treatment, but poor countries can’t really compete…
    • 1. A. So, rich countries should simply open their economies to the poorest countries
        • This would have a much bigger effect than providing direct aid
        • NOTE: Europe has started moving in this direction
    • 1. B. Poor countries should be allowed to use subsidies to support “infant industries”
      • Rich countries have little to lose… but benefits are big.

Stiglitz: Recommendations:

  • 2. Rich countries should stop MASSIVE agricultural subsidies
    • Rich countries give huge amounts of money to (mainly) industrial farms
        • Norway: two-thirds of farm income is from subsidies
        • EU spends 80 billion US$; US spends
    • Consequences:
      • Farmers in rich countries can sell food at LOW prices and still make a profit
        • Often below the cost of farmers in poor countries
      • Farmers in poor countries can’t compete… go broke.

Stiglitz: Recommendations

  • 3. Escalating tariffs should be ended
      • Escalating tariffs: taxing manufactured products at higher rates than raw materials
        • Ex: Having no tariffs on raw agricultural goods, but high tariffs on higher-value processed goods
        • No tax on apples; high tax on applesauce
      • Issue: This prevents poor countries from industrializing
        • They are stuck farming
        • While rich countries have cheap source of produce for their high-value industries.

Stiglitz: Recommendations

  • 4. Remove barriers to unskilled services & migration
      • Rich countries have pushed to remove barriers for high-tech services (banking, accounting, software)
      • Barriers remain in low-skill services
        • Example: Shipping/trucking. Foreign companies aren’t allowed
      • This is one area that poor countries could actually compete…
      • Also, allowing more labor flows would provide a huge benefit to poor countries.

Stiglitz: Recommendations

  • 5. Restrict the use of non-tariff barriers
      • There are legitimate reasons for having them…
      • BUT, more often they are used by rich countries to protect their own markets
        • Despite claims of supporting free trade
  • 6. Restrict bi-lateral agreements
      • They are rarely advantageous to poor countries
        • Due to asymmetry in power between negotiators
      • And, they tend to undermine multilateral agreements

Stiglitz: Recommendations

  • 7. Reform governance
      • Change the rules of organizations like the WTO
      • Issues (p. 97):
        • How decisions get made
        • What gets put on the agenda
        • How disagreements are resolved
        • How rules are enforced
      • Currently, rules sometimes favor rich countries
      • System should be more open/transparent, more democratic, with better enforcement for small countries.

Globalization: Consequences

  • Taking stock… what are the consequences of economic globalization?
  • Overview: Greico and Ikenberry: Economic Globalization and Political Backlash
      • For peace
      • For the economy
      • For economic inequality
      • For governments
      • For cultures / cultural autonomy.

Globalization: Consequences

  • 1. Economic globalization and world peace?
      • Several views… no definitive consensus
    • A. Globalization as a source of peace
      • Globalization = interdependence
      • Argument: The more interdependent we are, the more we have to lose by fighting…
      • Example: War between the US and China = disastrous
    • B. Contrasting view: a source of conflict
      • Globalization creates potential for new disagreements
        • Ex: over trade, currencies, etc
    • C. Globalization is a source of peace, but only for democracies… which are accountable
      • Totalitarian rulers may not be deterred…

Globalization: Consequences

  • 2. Economic globalization and national economic welfare
    • Argument: Economic globalization increases the risk of “external shocks”
      • Complexity of global markets creates possibility for unforeseen disasters
      • Interconnectedness of global economy means that problems in one place may spread across the system
      • Example: Crisis in Asia due to rapid capital flows and “contagion”
      • Example: Collapse of LTCM (a Hedge fund) in the US due to economic crises in Russia and other places.

Globalization: Consequences

  • 3. Economic and Economic Independence
    • A. Globalization may worsen inequality
      • Trade may reduce demand for low-skilled workers
      • Ex: Imports from low-wage countries wiped out manufacturing jobs in the US.
    • B. The “Golden Straightjacket” (friedman)
      • Governments can’t pursue Keynesian policies… for fear that companies & investors will flee
    • C. The “Race to the Bottom”
      • An extension of the prior argument
      • Countries may compete to cut social services or environmental protections to attract foreign companies.

Globalization: Consequences

  • 4. Economic and cultural autonomy
    • A. American / Western domination of the global economy has prompted concerns
      • In short: American/global culture may be erasing local cultures
      • We’ll explore this more in future weeks.

Globalization and Governance

  • Issue: Can we do anything about the negative consequences of globalization
      • As Stiglitz recommends we “reform governance”
      • What does he mean?
  • Governance: Ruling, governing, or managing
  • Sovereignty: Supreme power over a body politic; freedom from external control (Webster)
      • Related term: autonomy

Video: Commanding Heights

  • Issue: Who “writes the rules” of global governance?
      • Episode 3, Chapters 15-17 (13 minutes)

Governance: Definitions

  • Treaty: An agreement among nations to follow certain rules
      • Ex: GATT: “General Agreement on Tariffs and Trade”
        • Set rules for global trade, prior to the WTO
      • Ex: Montreal Protocol on CFC emissions
        • An environmental treaty, in which countries agreed to ban the use of chemicals that damaged the Ozone layer.

Governance: Definitions

  • IGO: Inter-governmental Organization: An organization whose members are governments
        • Again, purpose is usually to negotiate or enforce agreements among governments
      • Ex: The World Trade Organization (WTO)
        • Members created it as a forum to manage world trade
      • Ex: The World Bank
        • Governments created it to reduce poverty and encourage development via loans and projects
      • Ex: European Union
        • An supra-national government that coordinates (and in some cases has the power to set) economic & trade policies for member countries
      • Ex: UNEP: The United Nations Environment Program
        • Branch of the UN; urges nations to address environmental issues

Governance: Global Civil Society

  • Issue: States and corporations are not the only players in global governance
  • Civil society: citizen activity in the public sphere that is not part of the state or business sector
      • Includes things like: Citizen participation in organizations, protest activities
  • Social movements: Sustained efforts by members of civil society to challenge existing governance and produce social change.

Governance: Definitions

  • Some components of civil society:
  • NGO: Non-governmental Organization
      • A domestic association
      • Also sometimes called “non-profits” or “associations”
  • INGO: International non-governmental organization
      • An association that is international in membership and (typically) scope
      • Ex: Greenpeace, WWF

Key Players in Global Governance

Video: Commanding Heights

  • Wrap up: Inequality, governance, and the future of globalization
      • Episode 3, Chapters 17-end (28 minutes)
        • If time allows…


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