Globalization

Global Economics

• we have already looked at some of the international institutions that deal with economic and trade issues in the Global Politics section

• although understanding the actors in the international political sphere (states, IGOs, INGOs) is important, no study of globalization would be complete without also

• whether socialist or liberal, left or right wing, having some understanding of how the global economic system works (or doesn’t work) and realizing its effects is crucial in politics

• the international political economy deals with

the interactions between sovereign states, which are territorial units, and the global economy, which is

• as seen in the realist model of analysis, the state is concerned with the pursuit of power

• the global economy, or market (the coordinating mechanism between sellers and buyers), on the other hand, is concerned with the accumulation of wealth, but as we discussed, economic strength is a form of power also

• sometimes the interests of the state can clash with those of the market as states try to preserve and protect national sovereignty while markets try to eliminate

• this, of course, seems to run counter to the free trade mantra of many states today that are looking to increase their economic ties to the global economy

• the idea being that increased trade benefits all involved and even if some amount of sovereignty has to be given up (as often occurs with trade pacts), the positives are seen to outweigh the negatives

• many civil society groups around the world

have begun to question who benefits if labour and environmental concerns are suppressed or ignored and how

• more than ever, states are competing against one another in the international market to be competitive and attractive to foreign investors

• this is the age of the multinational (or transnational) corporation (MNC or TNC) where businesses are no longer rooted, or as rooted, to specific states and may

• these MNCs often seek out the most business- friendly jurisdictions in which to base out of, build new factories, etc.

• national governments will often court these

corporations with the promise of low (or no) taxes, cheap land, infrastructural support, patent protection, and investment in research and development (R&D), etc.

• despite citizens’ concerns about special treatment for MNCs (e.g. lax labour and/or environmental laws), governments also realize that citizens are happiest (i.e. will support them electorally) when there are jobs and the economy is strong

• these apprehensions raise interesting questions

about how much emphasis should be placed on a healthy economy and to what point the needs for a strong

• the IPE is one of the main drivers of globalization (along with the internet, transport and telecommunication advancements, etc.) and is diminishing the importance of

• this is neither a good nor bad thing per se, but

it has meant that national lawmakers and civil society have had to adapt to the changes and new realities created by this situation

• some of these reactions have been to embrace the perceived benefits of the changes (e.g. cheap imported goods and international travel) while others have involved concern over the seemingly unchecked power of non-democratic organizations (i.e. MNCs)

• those in favour of a more integrated (and

deregulated) global economy are portrayed as being interested in profits alone whereas those against it are

DiscussionIn the age of ‘nationless’ corporations, is it right for

citizens to be concerned about corporate motives or is it left-wing paranoia?

Should governments be more concerned with a prosperous global economy or with domestic economic realities?

Is it hypocritical to enjoy cheap imported goods yet decry how the system under which they were produced?

• as discussed Global Politics, states are not the only actors in the global political sphere and this applies to the global economy as well with international economic organizations and trading blocs also playing large roles

• although such groups do not mean that

individual countries have ceased to seek a national economic advantage, even over fellow group members, they have allowed for more

• the pre-eminent of these groups within the IPE would be the EU, not only for the economic power it represents (which is considerable) but also for the amount of political integration that has occurred between EU members

• there is a considerable amount of

harmonization of national policy at various levels and of numerous portfolios, along with a common

• the World Trade Organization (WTO) is the main organization for global trade in the world today and, as of 2008, has 153 member states (with some notable exceptions like Russia)

• the WTO grew out of the General Agreement

on Tariffs and Trade (GATT) in 1995, which itself began in 1948 as series of

• the WTO, along with being a forum for national governments to debate trade issues and positions, also actively promotes what is known as the ‘Washington consensus’ and perhaps more importantly, has

Washington consensus: a term that denotes the

orthodox liberal belief that states can best achieve economic growth through free markets, a dominant private sector, democratic government, and trade liberalization

• the free trade vs. protectionism debate has been ongoing in the IPE for a long time but has heated up since the inauguration of the WTO

• free traders generally take a macroeconomic,

abstract view where economic principles like comparative advantage allow for the overall global economy to eliminate waste and potentially

• another advantage touted by free traders is that of complex interdependence, which is the notion that as states become more reliant on one another for goods and services, their ability or desire to engage in conflict decreases

• protectionists take a microeconomic, specific

view where domestic concerns such as jobs and local economies are seen as

• it is not seen as protecting Northern jobs at the expense of the South since the position is also against MNCs entering poor countries and undercutting whatever local initiatives may exist, retarding

• the position between these two ends calls for

selective reductions of tariffs and subsidies to stimulate international trade but in a strategic manner so as to lessen negative impacts on the national/local level (at either end of the trade deal)

• those taking this position are sometimes referred to as fair traders (this is related to the idea of when steps are taken to pay producers a ‘fair’ or living wage for globally traded goods, e.g. ‘fair trade’ coffee, etc.)

• tough political decisions about which route to

take means governments must consider not only citizens in an affected local economy but also the national economy, corporate interests, and if a member of the WTO,

• politicians in liberal democracies like the US, UK, and Canada have not always been consistent with their positions on free trade and often shift with the political winds, especially

• in the IPE, domestic economic decisions truly

do have global effects but questions have been asked about who benefits from economic prescriptions like the Washington consensus

• as stated above, those objecting to the weakening or absence of labour and environmental laws and standards in the dominant Washington consensus are also becoming increasingly organized and connected in a globalized world

• a belief that all barriers to trade (e.g. minimum

wages, unions, child labour laws, anti-pollution and environmental clean-up laws, etc.) are harmful to an economy, backed by a powerful trade body (WTO) that has enforcement capability is seen as

• opponents of WTO-style free trade and economic structuring envision jurisdictions weakening labour and environmental laws out of fear of WTO retaliation, or to attract

• these fears are not unreasonable as examples

of this scenario are already occurring in some countries (e.g. Mexico)

• it is also not (entirely?) fair to place the blame on MNCs, which are designed to earn profits for their shareholders and not to

• in the IPE, such responsibilities lie with

politicians who are to balance out what is best for their constituents, taking into account many things, among them the state of the economy

DiscussionAre free traders simply using the liberal model of

international cooperation and decreasing the chances of global conflict or are they pure capitalists seeking only profit?

Are protectionists utopians hoping for prosperous local economies while stifling global trade?

Is the ‘enforcement capability’ of the WTO a tool to bully non-compliant states or to maintain a smooth-running global economy?

• radical model adherents feel that certain economic models are imposed on weaker states by stronger ones benefitting only some

• despite the fact many states remain poor, it is

unfair to say that there has not been economic improvement in some formerly poor states (although not always for all within these states)

• many state economies across the globe continue to stagnate for a variety of reasons (political, environmental, etc.) yet some great economic progress has been achieved by countries as diverse as China, Brazil, and India

• these states and others like them are finding

they have increasing economic influence in IGOs such as

• this does not negate the fact that there is a significant amount of poverty that still exists in the world, even in the aforementioned ‘success stories’ (Brazil has one of the widest overall gaps between rich and poor)

• the approximate 1 billion people that live in

developed countries account for almost 80% of the global

gross domestic product (GDP): a measure of economic power that looks at the total value of goods and

• the other 5 billion or so people living in

developing countries account for the remaining 20% of global GDP (based on 2008 figures)

• although many critiques of the radical model are seen as dated or even conspiratorial today, there is nevertheless a huge gap in wealth between developed and developing countries (i.e. the North/South divide)

• those who study the IPE must ask hard

questions about why this sharp divide continues to exist (or changes so slowly), whether something(s) must change, and if so, how to go about structuring the global economy so

• some argue those pushing the Washington consensus have been too dogmatic in their application and that the prescription does not fit all economies/countries

• others view the lack of economic success in

many developing countries as evidence that the prescription has not been followed either

• in the IPE, however, political and other factors (e.g. environmental) must also be considered as reasons for weak economies, which potentially cannot be overcome by any economic model or outside interference

• paradoxically, the increased competitiveness of

the IPE has spawned both global

• currently, the global economy revolves around 3 economic blocs centred in Europe, North America, and East Asia

• Europe and N. America have had relatively strong economies for decades but several East Asian states such as S. Korea, Taiwan, and most notably China have

• China has been of particular interest to those who study the IPE for both its rapid development and increase in economic strength (surpassing the US in some respects) with its maintenance of a totalitarian form of government

• this reality has been puzzling to those who

believe that free-market capitalist principles

• some say that patience is necessary in transforming such a vast and complex society but China’s lack of respect for human rights had made business

• economically, China’s competitiveness (i.e. low

wages and environmental standards) make it an ideal place for investors (state and corporate)

• in a globalized world, however, consumers and citizens abroad have concerns about the conditions their goods are produced under and who their money is supporting

• several governments (including Canada) that

do business with China have attempted to broach the subject of human rights violations, usually only to receive

• many in the business community feel that economic matters should not be mixed with political ones yet numerous INGOs and civil society groups have

• the task of keeping a successful economy

linked to the needs of a healthy society is an increasingly complex one

• the fall of 2008 saw an almost catastrophic failure by those in charge of maintaining this equilibrium when US banks that took on bad debt and redistributed throughout the global financial sector

• although this crisis started when US banks gave

mortgages to people who should not have received them, it grew into financial institutions making profits in unsustainable ways that were not linked in any way to the ‘real’ economy (i.e. jobs create, factories built, etc.)

• this economic ‘meltdown’ has pushed governments of leading economies (the UK, EU, and US) to consider various methods of reigning in the risky behaviour of large financial institutions and

• one idea that has been gaining traction in the

political sphere is the Tobin tax (sometimes called the ‘Robin Hood’ tax

Tobin tax: an internationally uniform tax (between 0.05% and 1%) on all currency trades meant to discourage short-term speculative currency trades (which can devalue currencies and negatively affect economies)

• this tax would slow the almost $2 trillion in

daily currency trades, potentially provide between $100-500 billion a year in revenues for urgent global priorities (environment, poverty, disease, etc.) and arguably not affect the average citizen a wit

• proponents now include UK PM Gordon Brown and other EU members with even the Obama administration reviewing the idea in an effort to

• opponents such as Canada say that it would be too hard to work because every government would have to agree (or else create a tax haven) and, as economic liberals, believe taxes are never the solution

• once again, such issues highlight the complexities of the IPE and the difficulties in balancing strong economic growth for the global and national economies while meeting the needs of citizens everywhere, be they economic, environmental, etc.

DiscussionIs 5/6s of the world with only 20% of its wealth

acceptable or do the examples of China, Brazil, etc. show that progress is being made?

Should China be hailed as an model of economic success if its wealth has been obtained (arguably) at the expense of its citizens’ rights?

Does capitalism lead to democracy?Is the Tobin tax a good idea? Why or why not?If so, where should the collected money go?