Transcript Economic Globalization

Economic Globalization
One of the most obvious signs of globalization in our
lives is the vast array of products that are available to
us from all over the world. Vast trade networks
provide access to goods and services from all corners
of the globe. We look at the foundational ideas and
individuals behind economic globalization to examine
how these vast networks developed and how they
operate in contemporary society.
Japan: The Ukita family of Kodaira City
Food expenditure for one week: 37,699 Yen
or $317.25
Italy: The Manzo family of Sicily
Food expenditure for one week: 214.36
Euros or $260.1
Germany: The Melander family of Bargteheide
Food expenditure for one week: 375.39 Euros or
$500.07
United States: The Revis family of North
Carolina
Food expenditure for one week: $341.98
Mexico: The Casales family of Cuernavaca
Food expenditure for one week: 1,862.78 Mexican
Pesos or $189.09
Poland: The Sobczynscy family of KonstancinJeziorna
Food expenditure for one week: 582.48 Zlotys or
$151.27
Egypt: The Ahmed family of Cairo
Food expenditure for one week: 387.85
Egyptian Pounds or $68.53
Ecuador: The Ayme family of Tingo
Food expenditure for one week: $31.55
Bhutan: The Namgay family of Shingkhey Village
Food expenditure for one week: 224.93 ngultrum
or $5.03
Chad: The Aboubakar family of Breidjing Camp
Food expenditure for one week: 685 CFA Francs
or $1.23
Guiding Questions:
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How did economic globalization develop?
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Which economic ideas have most
influenced the development of
contemporary economic globalization?
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How did free trade emerge as the dominant
economic policy of most governments?
What is Economic Globalization?
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Integration of the world’s economies and the
freer flow of goods.
Is economic globalization a
new phenomenon?
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Some world historians attach globalization ‘big bang’
significance to 1492 and 1498 (exploration of the
“New World”). Such scholars are on the side of
Adam Smith who believed that these were the two
most important events in recorded history.
Other world historians insist that economic
globalization stretches back even earlier.
There is a third view which argues that the world
economy was fragmented and completely deglobalized before the early nineteenth century.
Modern Economic
Globalization
Historical and economic
globalization are not
new phenomenon's.
How? Remember the
Silk Road, mercantilism,
capitalism, and the
Industrial Revolution?
This is the evolution of
both historical and
economic globalization.
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In this unit, we will
examine modern
economic globalization.
John Maynard
Keynes
Governments
should play a
significant role in managing
economy
Government intervention in
economy is needed to increase
spending and prevent or end
recession.
“decadent” capitalism is not
intelligent, is not just and does
not work.
Friedrich Hayek
Less
government involvement
in economy means greater
economic freedom and
prosperity
Controlling the economy =
controlling every sector of
human life.
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How might government intervention limit economic
freedom?
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***end***
Foundations of Economic
Globalization
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During the 1930s, many of the world’s major economies
had unstable currency exchange rates.
As well, many nations used restrictive trade policies.
In the early 1940s, the United States and Great Britain
developed proposals for the creation of new international
financial institutions that would stabilize exchange rates
and boost international trade.
There was also a recognized need to organize a
recovery of Europe in the hopes of avoiding the
problems that arose after the First World War.
During World War II
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Democratic allied countries, led by the US
became concerned about what the global
economy after the war would look like.
1944, 44 allied countries met in New
Hampshire, US at Bretton Woods to discuss
post war-economic order.
UN Monetary and Financial Conference. Bretton Woods, New
Hampshire, U.S. 1 July 1944.
http://www.un.org/issues/gallery/history/earlypix5.htm
Bretton Woods Agreement
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The delegates at Bretton Woods reached an agreement known as
the Bretton Woods Agreement to establish a postwar international
monetary system of convertible currencies, fixed exchange rates
and free trade. This international monetary system was to be a
global network of institutions to promote international trade and the
regulation of currency ($$) among Western countries.
To facilitate these objectives, the agreement created two
international institutions: the International Monetary Fund (IMF) and
the International Bank for Reconstruction and Development (the
World Bank). The intention was to provide economic aid for
reconstruction of postwar Europe. An initial loan of $250 million to
France in 1947 was the World Bank’s first act.
Bretton Woods continued
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Common monetary system: each country would maintain
a fixed exchange rate for its currency. A fixed exchange
rate, the value of a country’s currency is set by the
government.
Each of the countries agreed that the fixed exchange
rate for its currency would be based on the gold
standard. This means that all printed money, such as
paper money, would be convertible to gold and could be
cashed in at any time for that gold.
What is the problem with this? Countries are limited to
printing money up to the value of their gold reserves?
Billion dollars worth of gold = billion dollar’s worth of
currency.
Hmmmm…..
However, in times of crisis such as war, famine or
the need to build infrastructure such as highways
and dams, a country may need to borrow $$. How
do they borrow money? As individuals, we rely on
our credit cards like VISA or MASTERCARD.
However, for governments and people, a debt is a
debt and it needs to be paid. Well, often
governments will print more money in order to pay
for the things they need. What happens when
governments print more money?
= debt and when it has too much debt, the value of the
country’s currency drops = inflation.
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Floating Exchange Rates
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1960’s USA - high inflation as a result of the
Vietnam War and massive new social programs.
Prez Nixon closed the “gold window”. This meant
that the US dollar was no longer redeemable for
gold by the US gov’t. A lot of countries followed suit.
1976, most world currencies had floating exchange
rates = country’s currency was no longer fixed by
the government. Found its own value on the foreign
exchange market. Currency’s value was decided by
supply and demand. = the number of people looking
to buy and sell it in the foreign exchange market.
The Value of Money
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What is the value of our Canadian dollar? How is it
determined? Why is it sitting at over one dollar in the
US the last number of weeks ? Why are people
buying cars and shopping to the South?
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The answer: the real value of the dollar lies in the
wealth of the country and in what the dollar can buy
here and in other parts of the world. Canada has a
strong economy presently and so our dollar is
valued more here and in other parts of the world,
like the US.
Bretton Woods creates the
World Bank and the IMF
World Bank
 theoretically, is an agent for the United
Nations, but in practice, is independent and
controlled by its 184 countries.
 provides loans to less developed countries
that are in financial difficulty. To get loans,
countries are usually required to meet certain
political and economic conditions. (ex.
Reducing corruption, reduce spending on
social programs like health care)
International Monetary Fund
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Work together with the World Bank to bring stability
to international monetary affairs and to help expand
world trade.
IMF is in charge of monitoring exchange rates and
providing short term financial assistance.
Agency of the United Nations.
Funded primarily through quotas that member
countries pay. A country’s quota is based on its
relative size. USA contributes most to the IMF
because it is the largest economy in the world. See
page 211 Fast Facts and Figure 10-5 on page 212.
Annual expenses of running the IMF are met mainly
by interest payments on loans and deposits.
The Expansion of the Free
Market Economy
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The Cold War: 1946 – 1989 between the US and the former Soviet
Union. It was a war between Communism/centrally planned
economies vs capitalist free market democracies.
With the end of this cold war, many former communist countries
began to embrace capitalist free markets. Ex. Poland, Russia, East
Germany.
China has recently opened its doors to capitalism and has become
trading partners with many other super world powers like USA and
Japan. India has also become a world leader (outsourcing)
The whole world is now part of the global economy.You can invest
anywhere in the world because we have access to computers where
we can invest in companies and governments all over the world.
You can buy stocks and bonds and make a profit!
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Contemporary Economic
Globalization
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When most people think of economic
globalization, they think of free trade.
To a large extent, this is accurate. The
economies of the world have become more
integrated over the past 20 years.
How did free trade emerge as the dominant
economic policy of most governments?
Regulation of Free Trade
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After WWII, United Nations was created
made up of 50 countries.
The General Agreement of Tariffs and Trade
(GATT) was established in 1947 as an
agency of the UN.
It began with a membership of 23 countries
Operated under 4 principles:
GATT
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Conducting trade in a non-discriminatory manner.
Treating imported goods from a member country in
the same manner as similar domestic goods.
Protecting domestic industries through tariffs (a tariff
is a tax imposed on imports to increase their price
and thus reduce competition with domestic
products)
Requiring any country that applied for membership
to present a list of tariffs and other trade restrictions
imposed on member countries.
GATT
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Between 1946 and 1995, GATT members agreed to
substantial reductions in trade barriers.
1995- membership of 131 countries, accounting for
more than 90% of international trade.
GATT was transformed into the World Trade
Organization in 1995.
How do the 4 principles of GATT, now WTO
contribute to and further economic globalization?
Free Trade between Canada,
USA and Mexico
Reasons for why each wanted to sign the
agreement. Read page 218 and complete the
following chart.
Canada
United
States
Mexico
What is being implied here?
The following cartoon is from Australia but it reflects many of the views that
Canadians hold about freer trade with the United States. What point of view
is being communicated by this cartoon? Do you share this view? Why or
why not?
Case Study: Canada and the
Wine Industry
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1.
How has freer trade affected Canadian
industry?
Read the case study on page 221-222 and
answer the following question in your notes:
What did the Canadian wine industry do to
adapt to the Free Trade Agreement? Were
these measures successful? Why?