Unit 3 Economics and Environmental Impacts of Globalization

Foundations of Economic Globalization Chapter 10 - 11 What events led to the development of economic globalization? Economic globalization is a reality. Most of us take for granted that goods come from all over the world, we eat fresh fruit and vegetables year round, and the ability to communicate with other nations is very easy. A number of events have led to this phenomena: Establishment of a new international monetary system Creation of the World Bank Expansion of the free market into former Soviet-bloc countries New technologies Which have influenced the development the most?

Foundations of Economic Globalization A New International Monetary System After WWII, the Allied forces had to start rebuilding the world economy. The Bretton Woods Agreement established a system of rules, institutions, and procedures for the post war economy. The Bretton Woods Agreement effectively established a new International Monetary System (a global network of institutions to promote international trade and the regulation of currency among western countries)

Foundations of Economic Globalization The Gold Standard – During the Bretton Woods conference, 44 countries agreed to the common monetary system in which each country would maintain exchange rate for currency. In a fixed exchange rate the value of the countries currency is set by the government. This is based on the Gold Standard. This means that all printed money can be convertible to gold, granted there was enough gold in the countries reserves. (Countries can only print money comparable to gold reserves)

Foundations of Economic Globalization However, in times of a crisis such as war, famine, a country may need to borrow money. A country can simply print more money, but a debt is a debt and it must be paid. When a government has too much debt, the value of the country’s currency drops. The result is inflation – where a country ends up with more currency but each unit of currency buys less.

Foundations of Economic Globalization Floating Exchange Rates In the 1960’s the US was facing high inflation rates resulting from the Vietnam war and new social programs. 1971, President Nixon closed the gold window by making the dollar inconvertible to gold directly, except on the open market. This meant that the US dollar was no longer exchangeable for gold. By 1976, all the world’s major currencies had floating exchange rates – countries currency was no longer fixed by the government, but found it’s own value based on supply and demand.

Foundations of Economic Globalization The Value of Money The value of the Canadian dollar is not determined by the amount of gold held by the bank of Canada. The value lies in the wealth of the country and what the dollar can buy in other parts of the world. If your country has low international debt, then their value is higher, thus making the dollar worth more. The most powerful nations have the strongest economies and currencies. Japan, European Nation, US. The value of the Canadian dollar is based on these countries values compared to Canada. US dollar is the world standard, many Nations accept the US dollar instead of their own currency.

Foundations of Economic Globalization World Bank and International Monetary Fund The World Bank is an agency for the United Nations, but it is controlled by the 184 member countries. World Bank provides loans to less developed countries. To qualify for the loans countries are required to meet certain political and economic conditions Reducing corruption Increase democracy Free market style economies

Foundations of Economic Globalization World Bank and International Monetary Fund The International Monetary Fund (IMF) is designed to bring stability to international affairs and help expand world trade. World bank deals with long term loans, IMF deals with short term loans and monitors exchange rates. The IMF is an agency of the United nations. The IMF is funded through quotas (shares that member countries pay) A countries quota is based on it’s relative size in the world economy. US would contribute the most.

Foundations of Economic Globalization Expansion of the Free Market The end of the Cold War in 1989 was a driving force behind economic globalization. Cold War began in 1946 and lasted over 40 years, which divided the world between the powerful Soviet Union and the Western Democracies, led by the US. The cold war was an economic struggle between capitalists and communists.

Foundations of Economic Globalization At the end of the cold war, most communist countries quickly embraced the free market economy. They looked to the US for leadership. Free market further expanded when communist China opened it’s doors to western business. 2001, China joined the World Trade Organization which made them a major partner with other major economies. India, 2 nd largest country in the world, also entered the new global economy by outsourcing for many Western companies. 3 billion people were now added to the expanding global economy.

Foundations of Economic Globalization People of Economic Influence John Maynard Keynes – A British economist, developed theories after WWII that called for large government involvement in economy. He argued the falling wages resulted in decreased spending thus damaging the economy. He believed that direct government intervention in the economy was necessary to increase total spending and prevent a recession. Governments reduce spending and increase taxes when consumer spending is too great and inflation becomes a problem.

Foundations of Economic Globalization People of Economic Influence Friedrich Hayek – He believed that when governments plan or try to control societies, these societies are doomed to failure. Human societies are too complex to be planned and they can’t match the natural evolutionary wisdom that comes from a free society. We have the urge to gain economic freedom and prosperity. Based theories on Nazi Germany and the Soviet Union. (Both failed) Which system is the most effective?

Foundations of Economic Globalization = Free Trade Regulation of Freer Trade At the end of WWII, 50 nations created the United Nations. The General Agreement on Tariff’s and Trade (GATT) was established in 1947. 4 principles: Conducting trade in a non-discriminatory manner. Treating imported goods all the same from everyone. Protecting domestic industries All countries must make aware the trade restrictions they impose on other countries.

Foundations of Economic Globalization 1989, the FTA (free trade agreement) between Canada and the US was formed. Canada wanted the large market from the US, the US wanted access to our Natural resources. Canada still protects it’s cultural industries, health care, and education. Also excluded water. 1994, deal extended to include Mexico (NAFTA) North American Free Trade Agreement. A new Market of 360 million was created. Does free trade with the large American market hurt, or help Canada. ( Wal-Mart issue)

Expansion of Economic Globalization World Trade Organization The WTO works to improve trade relations among countries by removing tariffs and other trade barriers. Main purpose is to settle disputes and organize trade negotiations and meetings. Trade tribunals decide which country is wrong and organize an outcome. If a country disputes the findings they can be expelled from the WTO. Example (pg 230 -231) Canada – US Soft Lumber Dispute.

Expansion of Economic Globalization The Group of Eight (G 8) Informal group of 8 major democracies; Canada, France, Germany, Italy, Japan, Russia, United Kingdom, US. Union plays an important role in global governance because it is able to influence official global institutions. G 8 countries have 50% of the vote in the World Bank, and have considerably impact on policies. Critics argue that the G 8 is an elite group that doesn’t consider the needs of the rest of the world. China, India, Latin America, Africa, are not included but have large populations. Anti globalization protests occur because of the G 8

Expansion of Economic Globalization Other Important Organizations La Francophonie Protect and promotes the culture of French Speaking people. Canada is one of the wealthiest members. CIDA Canadian International Development Agency responsible for administering foreign aid to less developed countries. Mandate “to support sustainable development in developing countries in order to reduce poverty. Deals with natural disasters, short term loans, human rights.

Expansion of Economic Globalization Transnational Corporations In order to expand their business, many corporations set up shop in foreign countries, which involves numerous countries. Their marketing decisions are now based on global issues rather than domestic. Research and product development are based at the head office and marketing and distribution are regional. This process improves profitability.

Expansion of Economic Globalization Transnationals produce goods in other countries then sell them around the world. TNC can help to reduce poverty in less developed countries: Bring wealth through employment and investment. Provide jobs, either directly or through the growth of local businesses that provide goods and services to newly employed workers. Pass on expertise in a field to increase human capital. Pay taxes to a host government.

Expansion of Economic Globalization TNC can do harm in less developed countries: Employ managers from other countries but employ manual labour from local communities and pay them very little. Use capital intensive production (machinery) instead of labour intensive production. Ignore human rights. (No labour unions) Use influence over a countries government to gain subsidies and grants or exemptions from taxes or environmental laws.

Expansion of Economic Globalization Telecommunications and Transportation Technologies Advances in telecommunications allow people around the world to communicate instantaneously. Some developments in telecommunications are: ATM machines and Internet banking Computers allow business to share, process, and store huge info. Stocks, bonds, and other securities can be traded around the clock. Instant contact with anyone.

Expansion of Economic Globalization Transportation Improvements in transportation systems have allowed companies to set up production in a number of foreign factories. Intermodal transportation is when several types of transportation are used to move a product. Companies use standardized containers and move products by air, ship, train, and truck trailers. You tube video. Intermodal Freight – Blender Animation