STRUCTURING THE

GLOBAL ECONOMY
KRIZL KISH FLORIA DELIMA

9.24.XX
Objectives:
A . To k n o w t h e r e l e v a n c e o f t h e B r e t t o n Wo o d s
System on the economic globalization.
B . To a n a l y z e t h e r o l e o f t h e I n t e r n a t i o n a l
Organization in the global context.
Examine the global nature of MNC.
C . To e x a m i n e t h e r o l e o f r e g i o n a l c o a l i t i o n i n t h e
global economic system.
Understand the myth of economic globalization.
D.Examine the role of nation-state in the
economic globalization system.

2
GLOBAL ECONOMIC
SYSTEM

specifically a global capitalist

system, emerged in about 1896
and reached something of a peak
throughout the world by 1914.

3
 Before Bretton Woods
Structural Earlier Capitalist Similarities Today’s Capitalist
Development System System (21st century)
TRANSPORTATION RAILROAD AND STEAM AIRPLANE
SHIP
COMMUNICATION TELEGRAPH INTERNET
IMMIGRATION AND
REMITTANCES
GLOBAL ECONOMIC
SPECIALIZATION (I.E.
NORM)
LAW OF COMPARATIVE
ADVANTAGE
FREE TRADE AND
ELIMINATION OF
BARRIERS
PROBLEMS POOR NATION AND ITS PEOPLE ARE SUBJUGATED BY OPERATIONS OF THE
GLOBAL ECONOMY.
NOT ALL PARTS OF THE WORLD GAIN[ED] EQUALLY FROM THE GLOBAL ECONOMY.
LOSE OUT OF THE INDUSTRIES AND CLASSES.
THE POOR NATIONS TEND TO SUFFER WHEN THEY ARE FORCED TO REPAY THEIR
DEBTS TO OTHER DEVELOPED NATIONS.

4
Problems created due to Global Economic development:
(1) Poor nations and the peoples who inhabit them were and are subjugated by the
operations of global economy.

5
(2) Not all parts of the world
gain(ed) from the growth of the
global economy.

6
(3) Not only were/are there losers in this economic
competition among geographic areas, but also
certain industries and social classes lose out, at
least in comparison to the winners.
7
(4) Within nations the poor tend(ed) to suffer most when those
nations are forced to repay their debts to other, more developed,
nations. 8
In sum, the global
economy of a
century ago (and
much the same
could be said today)
“was not equally
good for everyone
and was bad for
many” (Frieden
2006 : 26)

9
Frieden sees the development of economic
globalization after WW II
 Autarky or the turn
inward of a nation in
order to create as
much economic self -
sufficiency as
possible.

Of particular importance in the 1930s was the movement of many countries – notably
fascist Italy and Germany – in the direction of AUTARKY. The US in the 1930s had a strong
tendency toward isolationism. US isolated itself for a long time. It only became known during the two world wars.
 Fears:

(1) Recurrence of the Depression (2) Fear of a resurrection

after the end of WW II especially
of barriers to trade and the
because of the difficulties those
societies would have in absorbing free flow of money that had
the massive manpower created by become commonplace prior
the demobilization of the military to WW II.
when the war ended.

12
A meeting was held in July 1944 at the Mount
Washington Hotel in Bretton Woods, New
Hampshire, which led to the beginning of the “
Bretton Woods System ”.

B r e t t o n Wo o d s M e e t i n g a n d t h e B r e t t o n
Wo o d s S y s t e m

13
THE FOCUS OF THE PLANNERS
WAS ON:
(1) reducing trade barriers and on creating
conditions necessary for the free flow of
money and investment. Another concern
was the
(2) creation of conditions needed for
financial stability around the globe.

14
5 KEY ELEMENTS (Bordo and Eichengreen1993: Boughton
2007:106-7)

1. Each participating state 2. The official monetary authority

would establish a “‘par in each country (a central bank
3. The International
or its equivalent) would agree to
value’ for its currency Monetary Fund (IMF) was
exchange its own currency for
expressed in terms of gold created to establish,
those of other countries at the
or (equivalently) in terms stabilize, and oversee
established exchange rates,
of the gold value of the US exchange rates.
plus or minus a one - percent
dollar as of July 1944 ” margin ”

4. The member states agreed

to eliminate, at least eventually,
5. The entire system was
“all restrictions on the use of its
based on the US dollar.
currency for international trade
”
15
BRETTON WOODS SY STEM had its powerful ef fect on ( Peet 2003):

Global Trade Monetary Order Global Investment

Key idea was unconditional most

favored nation requires governments The goal is to provide A key development in terms of
to offer the trade concessions to all. security, as well as flexibility, investment involved MNC’s.
(GATT and World Bank) to the monetary order. (IMF) (World Bank)

16
ECONOMIC ORGANIZATION
created directly or indirectly
through BRETTON WOOD

➢ World Trade Organization (WTO)-1995

➢ International Monetary Fund (IMF)-

1944

➢ World Bank (INTERNATIONAL

BANK FOR RECONSTRUCTION
AND DEVELOPMENT)-1944

17
Sequence of development:
ITO---»GATT---»WTO
 ➢ It is a multilateral organization
(involving or participated by more
than two nations or parties)
headquartered at Geneva, Switzerland.
WORLD TRADE ➢ Its focus on trade places it on the
ORGANIZATION heart of economic globalization.
➢ Each member (152 as of 2008 data)
has an equal vote.
➢ Agenda is to be voted on generally
flow from a number of more
informal groups

19
Trade - Related Aspects of Intellectual
Property Rights (TRIPS) :

WTO agreement to protect the interests of those that create ideas.

20
More recently, attention has shifted to such issues as “
international trade in services, trade - related international
property rights (TRIPS), and trade – related investment
measures (TRIMS)”. This involves intangible ideas,
knowledge, and expressions that require their use to be
approved by their owner. Involved here is a wide range of
intellectual property, such as movies, books, music
recordings, and computer software, which exists, or
whose value lies, largely in the realm of ideas.

21
Trade-Related Investment
Measures (TRIMs)"are a range of
operating or performance
measures that host-country
governments impose on foreign
firms to keep them from having a
distorting effect on trade in goods
and services"

22
Stresses and strains between developed and developing
nations in the WTO

(1) Meetings of the larger trading powers in

the so called “Green Room” and the
exclusion of smaller powers from these
meetings.
(2) No mechanism for involvement of
international non - governmental
organizations (INGOs) in WTO
decision – making.

23
WTO has been criticized for not
going far enough in countering
the trade barriers retained by
developed countries in such
domains as agricultural products
and some services
24
 Overall, WTO operations are
premised on the neo - liberal
idea that all nations benefit from
free and open trade, and it is
dedicated to reducing , and ultimately
eliminating , bar riers to such trade.
25
 Inter national Monetar y Fund (IMF) - 1944
OVERVIEW

❑ Managed the exchange

❑ Goal is macroeconomic
rates, balances of ❑ Fund of IMF was
stability for both
payments, international created on the basis of
member nations and ❑ Lender of the last resort QUOTAS for members
capital flows, and the nations. The quota was
more generally, the for developing countries
monitoring of member related to the limits on
global economy (1970-1980) its borrowing, as well as
states and their its VOTING POWER IN
(Cardim de Carvalho ❑ .
macroeconomic THE IMF.
2007: 658-63).
policies.
❑ .

26
IMF GOVERNANCE STRUCTURE AND
DECISION-MAKING POWER

• US with 17 % total IMF vote and a veto

power.
• DEVELOPED NATIONS control more
than 50% of votes.
• Managing director usually came from
WESTERN EUROPE and Deputy
managing director from US.
• Votes are a function of a fixed number for
each nation plus additional voting power
based on its nation’s quota of contributions
to the Fund.

27
❑The IMF was established
to:
✓Promote international monetary
cooperation
✓Promote exchange stability and
orderly exchange arrangements
✓To foster growth and high levels
of employment
✓To provide temporary financial
assistance to countries to help
ease balance of payments
adjustment
28
❑The most controversial aspect of the loans
that the IMF provided was that
‘conditionalities’ were attached to them. From
the 1980s onwards these conditions were
shaped in line with the thinking of the
Washington consensus.
❑This led to an application of a neoliberal
template based on the control of inflation
ahead of other economic objectives, the
immediate removal of barriers to trade and the
flow of capital, the liberalization of the banking
system, the reduction of government spending
on everything except debt repayment, and
the privatization of assets that could be sold to
foreign investors. 29
 PROBLEMS AND POINTS OF CRITICISIM
▪ IMF adopted general models of requirements for the operation of a market
economy and these tended to be imposed on developing economies
without regard to differences among and between their economies.
▪ US (with 17% of the total IMF vote and veto power over strategic decision)
dominated IMF governance structure and decision-making structure.
▪ Critics see IMF as a supporter of developed nations upon its imposition of
their policies to the less developed countries.
▪ As the Russian IMF representative described representative described it,
the resentment was over the traditional approach of the IMF— “you need
our money, we tell you what to do” (Weisman 2007b: C5).
30
 Structural adjustment
❑Cuts in public spending
❑Removal of price controls
❑Freezing of wages
❑Emphasis on production for export
❑Import liberalisation
❑Incentives for foreign investment
❑Privatisation of public sector services

31
Impacts of structural adjustment

❑Widening of inequalities
❑Reduced purchasing power for
the poor
❑Downsizing of public sector
❑User pays in health care

32
• was established in 1944 at Bretton
Woods and began operations in 1946.
Membership is open to all member
states of the IMF and as of this writing
it includes 184 nations.
• It provides funds to government –
sponsored or - guaranteed programs
in so - called Part II countries
(member states that are middle -
income or creditworthy poorer
nations). It also provides advice and
analytical services to such states
33
 Wo r l d B a n k ( I N T E R N A T I O N A L B A N K F O R R E C O N S T R U C T I O N A N D
DEVELOPMENT)
FUNCTION POWER STRUCTURE SOURCES OF FUND FOCUS ON

✓Membership is open to all member states of the ❖The resources of the o First it is focused on
▪ It provides funds IMF and as of this writing it includes 184 Bank include both projects involving
for government- nations. relatively small sum physical infrastructure
sponsored or ✓Each member state appoints a governor to the paid in by member
capable of generating
guaranteed in so Board of Governors which meets once a year. countries and much
called PART II ✓ There is also 24-member Board of Executive larger amount that can income.
countries (middle Directors empowered to handle most be called in by the
income or important functions (e.g. financing, operations, Bank if it finds it needs o Now it expanded into
creditworthy poorer budget) of the larger and more unwieldy (hard the money. issues related to
nations) to handle due to its complexities) Board of economic development.
▪ It provides advice governors.
and analytical ✓ The President of the Bank is the chief of the ❖The Bank depends on
services to such Bank’s operating staff. the ability of nations to
states The president is officially appointed to a 5 year which it has loaned
renewable term by the Board, but by tradition the money to pay back
president is appointed by the President of the those loans.
United States. 34
 Controversies of World Bank's
Operations
1. Bank is seen as dominated by rich-
developed countries.
2. There are concerns that the banks
serves certain interests and thereby
adversely affects those of others.
3. Bank is seen as having lost focus
and encroaching on the activities of
other agencies.
35
 “ W E R E G R E T F U L LY A N N O U N C E T H E N O T U N E X P E C T E D
PA S S I N G A WA Y A F T E R A L O N G I L L N E S S O F B R E T T O N
W O O D S , A T 9 P . M . L A S T S U N DA Y . B R E T T O N WA S B O R N I N
N E W H A M P S H I R E I N 1 9 4 4 A N D D I E D A F E W DA Y S A F T E R
H I S 2 7 T H B I R T H DA Y . ”

36
 The End of the Bretton Woods (August 15, 1971)

FACTORS OF THE DEMISE OF THE

BRETTON WOODS SYSTEM
When President
Richard Nixon took
International finance The agreement and
the US off the gold
was restored to major understandings that
standard that cause
importance after years support international The growing reaction
devaluation of the
of being subordinated trade and investment against FDI.
dollar and the end by
to a focus within also came under
which the currencies
national economies. attack.
of other nations
operated.

37
Critiques of the Bretton -Woods Era Organizations

World bank loaning to “It’s hard to see what (1)the World Bank has been loaning
“middle-income” good the World Bank
counties has done anywhere” large sums of money to
(Weisman 2007)
countries whose economies did
not need such loans.
CRITIQUES
(2)US Dominance. This has
become increasingly controversial
for various reasons including the
George Schulz, “If it fact that the US is not contributing
Issue of Leadership in disappeared tomorrow, I
these Organizations don’t think people
as much money as it used to, at
would miss it very much” least in comparison to other
nations.
38
EFFECTIVE CRITIQUES BY JOSEPH STIGLITZ

Removal of barriers to free trade and the closer

integration of national economies

Management of international trade

agreements

West: Elimination of trade barriers while

maintaining its own barriers to trade

Pressure developing countries to expand

economically

Neo-Liberalism resulting to the WASHINGTON

CONSENSUS
EFFECTIVE CRITIQUES BY JOSEPH STIGLITZ

IMF grew Imperialistic

IMF failed in terms of providing funds to countries

to create greater global economic stability

Global governance without global government

Lack of transparency
One-size-fits-all approach

I t t e n d e d t o a p p l y o n e s e t o f a n s w e r s t o e v e r y c o u n t r y. I t a l s o t e n d e d t o
i g n o r e t h e i n p u t s f r o m t h e c o u n t r i e s i t w a s o s t e n s i b l y h e l p i n g. A n d t h e
countries that were ignored had little recourse because they needed the
funds that the IMF was offering in exchange for str uctural changes and
reforms

41
 Other Important Economic
Organization

ORGANIZATION
NORTH
FOR ECONOMIC MERCOSUR ORGANIZATION
AMERICAN
COOPERATION EUROPEAN (SOUTHERN OF PETROLEUM
UNION (EU) FREE TRADE
AND COMMON EXPORTING
AGREEMENT
DEVELOPEMNT MARKET) COUNTRIES
(NAFTA)
(OECD)

42
 EU
The European Union
encompasses 27 member
Organization for states. The Euro zone Called the
Economic Cooperation consists of those nations Southern Common
and Development is a that use euro as their Market, was
broad group of 30 basic currency. However created by the
developed countries. It there are growing Treaty of Asuncion
oppositions to euro in
is the “most in 1991 with the
some of the nations that
encompassing ‘club’ of have accepted it. It is goal of a common
the richest countries”. believed to have led to market in South
While the OECD have a an increase in prices and America in 1995.
lit t le f o r ma l p o we r, th e y have depressed
are highly influential. economic growth.

43
The North America Free The Organization for
Tr a d e Agreement came Petroleum Exporting
into effect on January 1, Countries was formed in
1994. it was based on the 1960 and included all the
idea that the US, Canada major oil exporters of the
and Mexico were to day—Iran, Iraq, Kuwait,
eliminate most barriers to S a u d i A r a b i a a n d Ve n e z u e l a ,
trade and investment. Indonesia, Algeria, Libya,
Nigeria, Qatar and UAE.

44
“We have to get used to the fact that, thanks to the globalization
process, companies rather than states will be the leading actors in the
world economy (de la Dehesa 2006: 85). ”
▪ Multinational FORM OF MNC (measure Dickens reasons why
Corporations (MNC)- and mechanism) corporation became
corporations that operates in trans or multinational
more than two countries. • FDI- investment by one
fir m in another fir m that ▪ Greenfield
▪ Tr a n s n a t i o n a l exists abroad in a Investment- building
Corporations- involve different nation-state, by of totally new
operations in more than one the intention of gaining facilities in another
c o u n t r y. control. c o u n t r y.
▪ MNC’s are believed to be
▪ Merger and
more powerful than that of
• Por tfolio Investment-
the nation-state because purchase of equities in acquisition
they are increasingly companies in other
important on the global ▪ Strategic
countries for financial
scene, thanks to the collaboration
globalization process. gain, not control.
THE MYTH OF ECONOMIC
GLOBALIZATION
Paul Hirst and Grahame Thompson famously argue that
globalization, especially economic globalization, is a myth.

48
 The Myth of Economic Globalization (Paul Hirst and Grahame Thompson)
➢ The world economy maybe less open than the world economy during the period of 1870 to 1914. Most
companies are continued to be based in nations in terms of assets, production facilities, and sales (this is
also Dickens view)
➢ There is no massive shift of investment and employment from advanced to developing countries.
➢ FDI continues to involve mainly advanced industrial economies and not less developed countries.
➢ Trade mainly involve for the few rich economies wherein it is those nations that posses the ability to
govern the global economy (Hirst and Thompson 1999: 2).
Additionally:
✓There is no massive shift of investment and employment from advanced to developing
countries.
✓Foreign direct investment (FDI) continues to be mainly in the advanced industrial economies
and not in less developed countries.
✓Trade continues to involve mainly Europe, Japan, and North America (to this list enumerated
in 1999 would now need to be added China and perhaps India); it is not truly global Trade
continues to involve mainly Europe, Japan, and North America (to this list enumerated in 1999
would now need to be added China and perhaps India); it is not truly global. 49
 “Thus, economic globalization
maybe not as new and great as many
sees it. However, it does not
contradict the idea that today’s
economy that is globalized.”
Thank you!