Global Economy & Bretton Woods System

The Global Economy

• Economy is the basic foundation that influences society and politics
• A country's worldwide economic status indicates its economic mobility
• Economic mobility is a major factor in global competitiveness
• Historically, the Philippines bartered with China for porcelains, silk, etc.
• Spain implemented the Galleon Trade in the Philippines
• China introduced the Silk Road as the central Eurasian world trade route

Bretton Woods System (1944-1971)

• The system was created after World War II to prevent another Great Depression
• The Bretton Woods System established international economic cooperation
• The cooperation facilitated free capital flow worldwide
• The US dollar became the standard "global currency"
• The US dollar established stable international exchange rates
• The system led to global economic structures
• The General Agreement on Tariffs and Trade (GATT) sought to liberalize trade by reducing tariff barriers
• The World Trade Organization (WTO) replaced GATT
• The WTO focuses on reducing non-tariff barriers and ensuring free trade
• The International Monetary Fund (IMF) was created to stabilize global monetary systems

Economic Globalization & Trade

• Economic globalization involves trading and investing between countries
• Trade is a driving force behind international relations
• Trade impacts nearly every aspect of society
• The global economy involves the decentralization of production
• Command and control are simultaneously centralized within global cities
• Global trade operates through supply chains
• Global trade operates through international production networks
• Global trade operates through global commodity chains
• Global trade operates through global value chains
• Global value chains track value creation through different stages

Global Commodity Demand & Economic Disparity

• The demand for commodities is skyrocketing due to increased consumption in developing countries like China
• Oil scarcity leads to increased prices and geopolitical tensions
• Some countries lower prices and wages to attract investment
• Lowering prices and wages leads to "race to the bottom" competition
• Initially, countries like China and Mexico entered the world market with low-cost production
• China and Mexico moved to higher-value production at higher wages ("industrial upgrading")

Actors in Globalization

• Categories of Organizations in globalization can include:
  • Intergovernmental Organizations (IGOs)
  • Supranational Organizations
  • Non-Governmental Organizations (NGOs)
  • Multinational Corporations (MNCs) & Transnational Corporations (TNCs)

Intergovernmental Organizations (IGOs)

• IGOs are composed primarily of sovereign states or other IGOs
• Treaties establish IGOs, giving them international personality
• Examples are World Trade Organization (WTO), World Health Organization (WHO), and Asian Development Bank (ADB)

Supranational Organizations

• Supranational Organizations extend beyond the borders of multiple states
• They promote economic, political, or cultural unity
• Examples are United Nations (UN), International Labor Organization (ILO), and European Union (EU)

Non-Governmental Organizations (NGOs)

• NGOs operate independently of governments
• Advocacy NGOs influence governments on specific issues
• Operational NGOs provide services
• Amnesty International, International Red Cross, and International Chamber of Commerce are examples of NGOs

Multinational Corporations (MNCs) & Transnational Corporations (TNCs)

• MNCs operate in multiple countries and control goods and services production
• TNCs have substantial facilities and conduct business in multiple countries
• Both MNCs and TNCs are involved in importing/exporting goods and services
• Both MNCs and TNCs make significant investments in foreign countries
• Both MNCs and TNCs buy and sell licenses in international markets
• Both MNCs and TNCs engage in contract manufacturing with local producers
• Both MNCs and TNCs open manufacturing/assembly operations abroad

Market Integration

• Market integration is when related markets experience similar price trends
• Market integration can be intentional (government policies) or unintentional (supply-demand shifts)
• Market integration expands market coverage by selling local products in the global market
• Market integration reduces market failures
• Market integration equalizes prices across integrated markets

International Financial Institutions

• The IMF (International Monetary Fund) ensures monetary stability and manages exchange rates
• The World Bank provides funds for government-sponsored development projects
• The WTO (World Trade Organization) facilitates free trade agreements
• The WTO oversees trade-related aspects of intellectual property (TRIPS)
• The WTO manages Trade-Related Investment Measures (TRIMs)

TRIPS & TRIMS in Global Trade

• Trade-Related Aspects of Intellectual Property Rights (TRIPS) is a global agreement under the WTO
• TRIPS protects intellectual property rights, e.g., patents, copyrights, trademarks
• TRIPS ensures intangible ideas, movies, books, music, software, are protected worldwide
• TRIPS helps prevent unauthorized use of intellectual property
• Trade-Related Investment Measures (TRIMS) are rules imposed on foreign businesses
• TRIMS prevents unfair trade practices and ensures that foreign investments do not distort trade
• Some countries require foreign companies to use local materials or hire local workers to encourage domestic growth

Global Economic Integration Factors

• Privatization is the transfer of state-owned businesses to private ownership
• Deregulation is the removal of government restrictions on economic activity
• Foreign Direct Investment (FDI) is an investment by a foreign company in another country
• Trade Liberalization is the reduction or elimination of trade barriers like tariffs and quotas
• Regional Integration is when countries cooperate for economic, political, and social benefits

Attributes of Global Corporations

• Global corporations operate on a global scale
• Global corporations have huge assets and turnovers in multiple countries
• Global corporations are run by centralized management with headquarters in a single country
• Global corporations exert high economic influence over global markets
• Global corporations use advanced technology for production and marketing
• Global corporations employ top executives and managers for efficient operations

Advantages & Disadvantages of Global Corporations

• Advantages of global corporations include foreign capital investment, job creation, technological advancement, increased exports and healthy competition
• Disadvantages of global corporations include exploiting local industries, adverse effects on local business, cultural homogenization, influence on government policies and environmental concerns

Key Takeaways for the Global Economy

• The global economy is shaped by historical trade systems, post-WWII economic frameworks, and modern financial institutions
• Globalization is driven by organizations, corporations, and financial institutions
• Market integration affects price stability, trade liberalization, and investment flows
• Global corporations have both positive and negative impacts on local and global economies

The Global Interstate System

• The modern nation-state traces its origins to the Treaty of Westphalia (1648)
• This treaty led to the notion that nation-states are autonomous
• The treaty gave nation-states complete control over their domestic affairs
• Globalization has led to a loss of control over economic flows and transnational organizations
• A debate emerged over whether the "nation-state is dead"
• The nation state remains an important political structure despite its declining power

Porosity of the Nation-State

• With globalization, borders are becoming more open to trade, migration, and information

Benedict Anderson’s "Imagined Community"

• The nation is socially and politically constructed through print capitalism (e.g., newspapers, books)
• People identify with a shared culture despite never meeting all members of the nation
• The nation-state transcends geography, adapting to technology and immigration flows

The Nation-State

• The nation-state consists of two key concepts: State and Nation

State

• A country and its government has a defined territory, sovereignty (freedom from external control), and an organized government

Nation

• Benedict Anderson defined it as an "imagined community"
• A nation has boundaries, meaning not everyone can be a citizen
• A nation shares a language, traditions, and ethnicity

The Interstate System

• The interstate system is a system of competing and allying states
• The interstate system was shaped by the Treaty of Westphalia (1648)
• The Treaty of Westphalia ended the Thirty Years' War in Europe
• The Treaty of Westphalia established the principle of sovereignty
• The Treaty of Westphalia created that countries should not interfere in each other’s affairs
• The Treaty of Westphalia provided stability for European nations

Principles of the Interstate System

• Nationalism see nations as the basis of political structures
• Nationalism promotes national unity and interests above others
• Internationalism fosters cooperation among nations
• Internationalism involves political, economic, and social partnerships

Effects of Globalization on Governments

• Governments work with international organizations during political globalization
• Examples of international organizations are the United Nations (UN) and Non-Governmental Organizations (NGOs)
• These organizations help manage relief efforts, environmental protection, and immigration
• International Organizations (IGOs) are created by nation-states to handle issues beyond their borders
• IGOs operate on intergovernmental principles (agreements require unanimous consent)
• IGOs have supranational power, meaning members must follow their rules or leave
• Examples of IGO are European Union (EU) (regional level) and World Trade Organization (WTO) (global level)

The Decline of the Nation-State

• The power of the nation-state is weakening due to globalization
• While still sovereign, states are privatizing responsibilities like water, health care, and education
• While states are losing influence to transnational corporations (TNCs) and NGOs
• International organizations are becoming stronger, possibly evolving into a "global government"

Contemporary Global Governance

• Governance is the establishment of policies and monitoring their implementation
• Karns and Mingst defined Global Governance as
• A collection of governance-related activities, rules, and mechanisms, formal and informal, existing at a variety of levels in the world today."
• Global Governance deals with global issues such as armed conflicts, technology risks, economic stability, and climate change

Roles and Functions of the United Nations (UN)

• The UN is an intergovernmental organization
• The UN promotes international peace and order
• The UN replaced the League of Nations, which failed to prevent World War II
• The UN was founded on October 24, 1945, after World War II

Goals of the UN

• The UN wants to maintain peace and security
• The UN wants to foster friendly relations between countries
• The UN helps countries to solve problems together
• The UN promotes human rights worldwide

Main Organs of the UN

• General Assembly- The main decision-making body
• Security Council- Maintains international peace and security
• Secretariat- An administrative body led by the Secretary-General
• Trusteeship Council- Oversaw trust territories
• Economic and Social Council (ECOSOC)- Handles development and human rights
• International court of justice- Resolves legal disputes between countries

Achievements of the UN

• The UN has helped countries become democratic and peaceful
• The UN has addressed environmental issues (e.g., Earth Summit 1992 on climate change)
• The International Atomic Energy Agency (IAEA) monitors nuclear weapons
• The UN fights poverty, drug trafficking, and hunger

Challenges of Global Governance

• Weis (2015) identified five gaps in global governance:
• Knowledge gap: countries lack access to critical information
• Normative gap: need for universal rules and ethical standards
• Policy gap: lack of effective international policies
• Institutional gap: some institutions lack power to enforce rules
• Compliance gap: countries do not always follow agreements

Major Global Issues

• The world is facing terrorism
• The world is facing nuclear proliferation
• The world is facing humanitarian crises
• The world is facing climate change
• The world is facing human rights violations
• The world is facing global pandemics (e.g. Flu viruses)

Future of Global Governance

• The Global institutions need reforming (e.g. UN security council)
• There needs to be stronger enforcement of global rules
• Ensuring benefits of globalization reach all nations is important

Key Takeaways for Global governance

• The nation-state system emerged from the Treaty of Westphalia but is now challenged by globalization
• IGOs and NGOs are taking on responsibilities once held by nation-states
• The UN plays a critical role in global governance but faces challenges in policy enforcement and international cooperation
• Global governance must evolve to address modern issues like terrorism, climate change, and pandemics