9-11
THE Chapters CRISIS OF 2008
- Economic Crisis of 2008
* Downturn began in the US
* Home Mortgage Crisis
* Bank Crisis
* Led to global banking crisis
* Global stock markets tumbled dramatically as a result of the crisis
* Unemployment rate increased worldwide
- 9.7% in US by March 2010
* What began as a US financial market trouble ended as global financial
meltdown.
MONEY
- Money medium of exchange
* Precious metal (gold, silver,..) standard
- Currency
* Today, international monetary system is divorced from any tangible
medium such as precious metals
* State prints its own money a hallmark of state sovereignty
* Politics standard
- The inevitable inflation
* Value of currencies
- Taxation
- Exchange rate
CURRENCIES
- Convertible (hard) versus non-convertible currencies
* Need convertible currency for conducting international trade
- ex. Former Soviet Union, North Korea..
- Hard Currency
* Money that can be readily converted to leading world currency (which have
relatively low inflation)
* States maintain reserves of hard currency
INTERNATIONAL CURRENCY EXCHANGE
- Exchange rates often express in terms of the worlds most important (hard)
currencies:
* U.S. dollar
* Japanese yen
* EUs euro
* Other currencies (Brazilian reals) depends on the value of each, relative to
these world currencies
* Exchange rates that most affect the world economy are those within the G7
states U.S. dollar, euro, yen, British pounds, and Canadian dollars
CURRENCY EXCHANGE
- Changes in the value over time are meaningful
* Value of euro rises (or falls) relative to the dollar, because Euros are
considered more (or less) valuable than before, the euro is said to be
strong
(weak)
* Fixed exchange rates
* Floating exchange rates
* Managed float system snake in a tunnel
* Government intervention in the currency market
- Coordinated multinational intervention
- Pegging: Argentina, China, and Hong Kong
WHY CURRENCIES RISE AND FALL
- Short term, exchange rates depend on speculative demand and supply of currencies
- Long term, because of changes in the long-term real supply and demand of the
currencies countries current account balance
* Strong vs. weak currency
- Non-economic reasons
- Overvalued currency
- Devaluation
* As a policy: the case of china?
MONETARY AND FISCAL POLICIES
- Monetary policy: how much money to print
* Carried out by the state mostly through the central bank
* Interest Rate
- Fiscal Policy: how much to tax and how much to spend
* Government revenue and expenditures
* Tax rate
* States obligations
* Redistribution/entitlement
* Interference in the economy
* Deficit Spending
INTERNATIONAL FINANCIAL INSTITUTIONS
- Created near the end of WW2
* The Bretton Woods system (1944)
- International Bank for Reconstruction and Development (World
Bank)
- International Monetary Fund (IMF)
- ITO-GATT-WTO
THE WORLD BANK AND THE IMF
- International Monetary Fund (IMF)
* Coordinates international currency exchange, the balance of international
payments, and national accounts
- World Bank and the IMF are the pillars of the international financial system
* Special Drawing Rights (SDR)
- Used to replace gold as a world standard, new world currency
- Cannot buy goods, only currencies
- Owned by states (central banks), not by individuals or companies
NATIONAL ACCOUNTS
- The IMF maintains a system of national accounts statistics to keep track of the overall
monetary position of each state
* States balance of payments is like the financial statement of a company. If
summarizes all the flows of money in and out of the country
- Current Account
- Capital Flows
- Changes in foreign exchange rates
WEALTH VS. DEBT
- Economies contain standing wealth.
* Capital Goods
* Growth
- Real interest rates are the rates for borrowing money above and
beyond the rate of inflation
- Debts
* Standing wealth of the state is diminished as assets are sold off to pay debts
* Even with plenty of standing wealth, debt can encumber future creation of
wealth, and foreign lenders come to own a greater share of the states total standing wealth
INTERNATIONAL DEBT
- As a result of trade deficit (international borrowing) or inflow of foreign capital, or both
* Trade Deficit
* Income and consumption pattern among households and businesses
- Spend more than they take in
* Government spending relative to taxation
- Keynesian economics: deficit spending to stimulate economic growth
- Certain fiscal and monetary policies contribute to international debt
* E.G. Financing the war in Iraq
POSITION OF THE UNITED STATES
- The U.S. Position in the international economy has shifted over decades.
* Peaked after WW2
* Gradually eroded as competitors gained relative ground
* Budget deficit, Trade Deficit
* National Debt grew from about $1 Trillion (1980s) to $3 Trillion by the end
of the decade. (Now over $12 trillion or 87% of the GDP, or over $40K
per
every American)
* From worlds leading lender state to now worlds leading debtor (over #3.7
trillion public debt by 2010, or about $10 K per every American)
- China: over $900 billion
- Japan: over $700 billion
- Oil exporters: $207 billion
- UK: $178 billion
- Brazil: $169 billion
- Hong Kong $148 billion
THE POSITION OF ASIA
- Japans growth since WW2
* Success masked serious problems
* Stagnation since early 1990s
- Similarly for other countries in East and Southeast Asia from Asian miracle to
Asian flu
* Thailand, the Philippines, Malaysia, and Indonesia forced to let their
currencies be devalued.
* Stock market crashes and the impact on other emerging markets (notably
Brazil)
* The only great recovery under IMF: South Korea
* Excessive global liquidity of capital from Asia
RISE OF CHINESE FINANCIAL POWER
- Massive trade surplus
* Over 40% of it from US; 1/3 of the US trade deficit
* Largest creditor of the US ($4 K per every American)
- Over $900 billion in T-Bills
- Plus over $500 private debt
- Greatest foreign currency reserve: over $2.2 trillion
* Nearly 80% are in US dollars
- Why so much cash? For how much longer?
* We will take some courses on China later
- Can too much of a good thing is a bad thing?
MULTINATIONAL BUSINESS
- International economic transactions are carried out mainly by private firms and
individuals, not governments.
* Most important among these are multinational corporations (MNCs)
* Transnational corporations (TNCs)
FOREIGN DIRECT INVESTMENT
- FDI is the foundation of MNCs to invest in and also own capital (standing wealth)
in a foreign country
- FDI vs. Portfolio investment
* Equity investment
* Operational participation
* Transfer of technology, managerial skills, and personnel
* Transfer of norms, values, and ideals
MULTINATIONAL CORPORATIONS
- Companies based in one state with affiliated branches or subsidiaries operating in
other states
* Most important: industrial corporations
- Automobile, oil and electronics
- Usually based in G8 States
* Financial Corporations
* Service Corporations
- McDonalds
- AT&T
* Pros and Cons
- From home countrys point of view
- From host countrys point of view
MNCs and HOST-HOME GOVERNMENT RELATIONS
- Conflicts with home and host governments
* Taxation
* Trade Policies
- Security
* Occasionally, MNCs can get their home governments to provide security
when host governments fail to do so.
- Need for stable international security
- Corporate alliances: Impact on liberalism rather than economic nationalism
* Interests more intertwined
GLOBALIZATION AND INTEGRATION
- States cooperate to create international organizations that are supranational
* Global Market
* Technology from 60-day to less than 24 hours
* Convergence of ideas, values, and norms
- Supranational: subsuming a number of states and their functions within a larger whole
* United Nations limited supranational aspects
* European union regional integration
* Role of technological change
- Transnational Actors MNCs and NGOs
- Transnational issues
INTEGRATION THEORY
- The process by which supranational institutions replace national ones
* The gradual shifting upward of sovereignty from state to regional or global
structures
* Ultimate expression of integration; merger of several (or many) states into
a single state, or ultimately into a single world government
* In practice: integration has never gone beyond a partial and uneasy sharing
of power between state and supranational levels
THE EUROPEAN UNION (EU)
- Learned lessons from WW1 and WW2
- EU has gone through several waves of expansion in its scope, membership, and
mission over the past 50 years.
- EU has nearly over 500 million citizens
- EU together has GDP larger than the US GDP
THE TREATY OF ROME
- Six states of the ECSC created two new organizations with the Treaty of Rome (1957)
* Euratom: the European Atomic Energy community
* European Economic Community (EEC) renamed the European Community
THE EEC-EC
- Treaty of Rome created a trade-free area
* Lifting tariffs and restrictions on the movement of goods across (EEC)
borders
- Customs Union
* Participating states adopt a unified set of tariffs with regard goods
coming to in from outside the free-trade area
STRUCTURE OF THE EUROPEAN UNION
- European Commission
* Commission has 27 individual members one from each member state
- Chosen for 4-year renewable terms
* Lacks formal autonomous power except for day to day EU operations
* Reports to, and implements policies of, the Council of Ministers
- Council of the European Union (formerly Council of Ministers)
* Meeting of ministers of each member state
* Reflects states resistance to yielding sovereignty
* Voting is based on each states population, but in practice it operates by
consensus
* Has a rotating presidency (with limited power)
- European Parliament
* Not quite a full legislature to pass laws for Europe
* Partly as a watchdog over the EU Commission.
* Approves the Commissions budget but no item by item control
* European Court of Justice (Luxembourg)
MONETARY UNION
- A European currency, the euro, has replaced national currencies in 16 EU
members, as mandated in the Maastricht process
* Came into full circulation in 2002; national currencies ceased to exist
* Hard choices by states: Britain, Denmark, and Sweden opted to retain their
national currencies
EXPANDING THE EUROPEAN UNION
- Success has attracted neighboring states to join
* EU has expanded from 15 members to 27 since 2004
* Spain and Portugal, 1986 (11th and 12th Members)
* Austria, Sweden and Finland
* Norway and Switzerland
KEEP EXPANDING
- Current expansion guided by the 200 Treaty of Niece
* 10 new members joined in 2004
- Poland, Czech Republic, Slovakia, Hungary, Slovenia, Estonia, Latvia,
Lithuania, Malta, and Cyprus
* Expanded to 25 members
- New voting rules that move away from a requirement for consensus
* In 2007, Romania and Bulgaria entered the EU, bringing the total to 27
- Unlike previous members, Britain and Ireland imposed work restrictions
on citizens of new 2007 members
* Turkey continues to seek membership
- Would be the only Muslim country in the EU, a bridge to the Middle
East
EXPANDING TO??
- EU Constitution (late 2004 signed by 25 leaders)
* To establish a stronger president of the EU and a foreign minister, to represent
Europe as a global superpower in world affairs, majority vote rather than consensus in most
cases
* France and Netherlands rejected
- Lisbon Treaty - new proposed constitution
- A self-propelling process of EU expansion?
* Vested interest
- Will there be a United States of Europe?
* Let them expand!
FORCES FOR GLOBALIZATION
- Global telecommunications are profoundly changing how information and culture
function in international relations
- Technology advances are bringing the identity principle to the forefront as communities
can interact across distances and borders
- Creation of new transnational networks worldwide, bypassing states
CONNECTION THE WORLD
- New international political possibilities arise from technological developments in the
area of information dissemination
- The media with political impact:
* Television
* Radio
* Phones/fax
* Internet
TV AND RADIO
- Nearly 2 billion TV sets and 3 billion radio receivers in the world, reaches the poorest
areas of the global South
- Peasants who can not read, understand the radio
* VOA, BBC, Radio France, Radio Germany
- TV is especially powerful
* CNNI, BBC
* Al Jezeera, News Asia
- Satellite transmissions
* Bypass state controlled frequencies
TELEPHONE AND INTERNET
- Unlike TV and Radio, these are two-way media through which users interact amongst
themselves without any centralized information source
- Telephones make individuals international actors
* Explosive use of cell-phone usage bypass the expensive landlines
- Digital Divide
* Internet access and information highway
INFORMATION AS A TOOL OF GOVERNMENT
- Information has become an important instrument of governments power
* Access to information
* Coordination of information
- Security and counterterrorism
- Use by repressive regimes
* Use of information to influence domestic and international audiences
- Disinformation
* Ownership of media by government
INFORMATION AS A TOLL AGAINST THE GOVERNMENT
- Information can be used against the government
- Domestic use:
* Iran, China
* Global peace demonstrations following the 2003 Iraq War
- Government attempts to control information
- Empowerment of small fringe groups
**WORLD ECOLOGY
INTERDEPENDENCE AND THE ENVIRONMENT
- Interdependence has made ecological problems global issues
- Also make more difficult collective goods problems
* The High Seas
* Tragedy of the Commons
- Increasing interest in the environment
* First Earth Day in 1970
* UN Conference on the international environment in 1972
* Earth Summit 1992
SUSTAINABLE DEVELOPMENT
- Sustainable development refers to economic growth that does not deplete resources and
destroy ecosystems
* Earth Summit Plan and the 2002
- Grand trade-off between pollution and growth Who to bear the burden?
* China et al: to get rich first what about the West before?
- Dirty Coal
GLOBAL WARMING
- Global warming; global climate change
* Slow, long-term rise in the average world temperature
* Alterations of weather patterns
* Greenhouse gases
- So many sources of it... even the cattle
- Costs of reduction are high
- Distribution of the cost is highly uneven
PROBLEMS
- Are we sure??
* Not all are living by the beach
- Triple Dilemma
* Short-term and predictable costs vs. long-term and less predictable benefits
* Specific constituencies (i.e. industrial workers) paying the costs for the rest of
the society/world
* Benefits shared globally but costs born disproportionally by the states
- China and India
EFFORTS
- Framework Convention on Climate Change (1992 Earth Summit) Kyoto Protocol
(1997)
* United States
* 160 Countries in 2001 agreed to implement Kyoto
- Entered into effect in 2004, weak enforcement
- An Inconvenient Truth (2006)
- The Copenhagen Summit (2009)
* China
- Domestic Laws
OZONE DEPLETION
- Ozone: high level screens out harmful ultraviolet rays from the sun
- Certain chemicals break it down:
* CFS modest costs to replace
- Ozone produced by fossil fuels does not replace the high-level ozone but only pollutes
the lower atmosphere
- Increased radiation is the result of ozone depletion
- Montreal Protocol 1987
* Most important success yet achieved in international negotiations to preserve
the global environment
* Lessons
BIODIVERSITY
- To preserve diversity of plant and animal species
* Why preserve it?
* Issue of extinction
- Rain forests and the ocean
* Half of the species in Rain Forests
* Limited success on endangered species
* International Whaling Commission
* Inter-American Tropical Tuna Commission
- U.S. Marine Mammal Protection Act
POLLUTION
- More often a regional or bilateral issue
* The effects of pollution are generally limited and localized
- Acid Rain
* Often crosses borders
- Water pollution
- Toxic and nuclear waste
* Chernobyl
DEPLETION OF NATURAL RESOURCES
- A source of international conflicts
- Generally not collective goods problems
* Except for the high sea
- Supply and demand are unevenly distributed
- Worlds energy consumption
* OIL
WATER DISPUTES
- World water usage: 35 times that of a few centuries ago and grew twice as fast as
population
- 1/5 of the worlds population lacks safe drinking water
- 80 countries suffer from water shortages
- Fresh water supplies often cross international borders
* Rivers sources of conflict
POPULATION
- World population, 6.8 billion in 2009
- Grow by 80 million a year
- 96% of population growth in the global South
- Half of population growth occurs in six countries:
* India, China, Pakistan, Nigeria, Bangladesh, Indonesia
POPULATION POLICIES
- Key policy: birth control (contraception)
* Education and empowerment of women
- China at one extreme
* One child policy
- Pronatalist states at the other extreme
EPIDEMICS
- Varied health problems in the rich and poor countries
* Infectious diseases vs. cancer and heart disease
* Infant mortality rates as the indicator:
- 5% world, 1% in North, and 10% in the poorest
- Globalization leads to global epidemics and even pandemics
* Public health is no longer just a national issue
International Finance and MNCs
The crisis of 2008
Money and Currencies
Role of money and how currencies are linked to each other and different kinds of
currencies
Exchange rates/ hard currency?
Monetary and Fiscal Policies
Bretton Woods system and the institutions
Wealth vs. Debt
US and its foreign Creditors
FDI and MNCs
Regionalization and Globalization
Integration Theory
The EU
Evolution and expansion and meaning
Forces for globalization
The Role of Telecommunication
Information as a tool
Globalization and its critics
Cultural Imperialism
Global class division: Will Karl Marx be right after all?
World Ecology
Environmental issues become international/global
Sustainable development
Global Warming or climate change
Efforts to address problems
Environmental Problems
Ozone depletion, biodiversity
Pollution, resource shortages
Water disputes
Population
Largest nations, fastest growth