Global Economy Mechanisms Lecture 4 - PDF

Global economy mechanisms – Lecture 4 Components of the global economy  Structure of the lecture The economic role of the national state in the global context The impact of globalization on the national state The role of the State in multi-layered governance...

Global economy mechanisms – Lecture 4 Components of the global economy  Structure of the lecture The economic role of the national state in the global context The impact of globalization on the national state The role of the State in multi-layered governance The role of the national state in promoting economic growth Triggering factors of economic growth  The economic role of the national state in the global context – Conceptual frameowrk ❑ A state is a territorial political community for which there is an independent organised Government. ❑ A nation state is a state whose primary loyalty is to a cultural self-identity, which we call a nation or nationality, and is now the predominant form of state organisation. ❑ Nation states possess sovereignty and legitimacy. ❑ It is not a voluntary organization. It is concerned not with maximization of profit or utility, but with public policy. ❑ It enjoys a monopoly of legitimate force, limited perhaps by democratic tradition, a written constitution or a bill of rights. The economic role of the national state in the global context – Conceptual frameowrk Impose regulations on and collect taxes from other sectors of the economy The role of the Produce goods and state services that it can either sell in the Distribute funds market or supply through transfers free of charge to individuals and the community  The impact of globalization on the national state Does globalization weaken the role of Will globalization the State? lead to the end of State sovereignty ”No State and no organization can solve all the global problems by acting alone. Nor however, should any State imagine that others will solve them for it, if its own government and citizens do not apply themselves wholeheartedly to the task. Building a twenty-first century safer and more equitable than the twentieth is a task that requires the determined efforts of every State and every individual„ (Kofi Annan, UN, 2000, Millennium Report, A/54/2000, para. 369)  The impact of globalization on the national state Will globalization lead to the end of State sovereignty Does globalization weaken the role of the State? The State remains the key actor in the domestic as well as international arenas. Economic and Globalization does not Globalization reduce the role of the modified the meaning social nation-State, it of sovereignty, but not interdependence redefines it. undermined it. Transfer of decisions to the Transfer of decisions international to local levels of government level  The impact of globalization on the national state State sovereignty transformation factors Voluntary Global threats reduction of and factors sovereign power Participation in Global financial Multinational Joining supranational international flows companies alliances organization Desire to gain Global media Internet extra prestige corporations and benefit Source: Leonid E. Grinin, State Sovereignty in the Age of Globalization: Will it Survive?, Globalistics and Globalization Studies 211–237 The role of the State in multi- layered governance "Globalization pressures, including economic integration, fiscal discipline and democratic governance, have forced governance institutions to redefine their role of universal provider as one that encompasses the roles of catalyst, enabler, gatekeeper, mediator and negotiator. As such, globalization has led to the development of new roles, relationships and partnerships among government, citizens and business, and heightened the influence of the public on governance policies and institutions” (UN, 2000, ST/SG/AC.6/2000/L.6). The economic role of the national state in the global context Governments increase efficiency by promoting 01 competition, curbing externalities like pollution and providing public goods. Governments promote equity by using tax and expenditure 02 programs to redistribute income toward particular groups. Governments foster macroeconomic stability and growth—reducing unemployment and inflation while 03 encouraging economic growth—through fiscal policy and monetary regulation.  The economic role of the national state in the global context Failure of Market Government Intervention Current Examples of Government Policy Economy Inefficiency: Monopoly Encourage competition Antitrust laws,deregulation Externalities Intervene in markets Antipollution laws, antismoking ordinances Public goods Encourage beneficial Build lighthouses, provide public education activities Inequality: Unacceptable inequalities of Redistribute income Progressive taxation of income and wealth income and wealth Income-support or transfer programs (e.g., food stamps) Macroeconomic problems: Monetary policies (e.g., changes in money supply and interest rates) Business cycles (high Stabilize through Fiscal policies ((e.g., taxes and spending inflation and unemployment) macroeconomic policies programs) Slow economic growth Stimulate growth Invest in education Raise national savings rate by reducing budget deficit or increasing budget surplus. Source: Samuelson Paul, Nordhaus William (1989), Economics, Thirteenth Edition,McGraw-Hill Internationl Edition, Economic Series  The importance of economic growth America 1888 : people worked on farms and a day's work lasted for 10 to 12 hours for 6 or 7 days a week. The average worker would earn about 1$ per hour in terms of today's prices. Local transportation was by foot or horse on unpaved pathways. Public health was rudimentary and only few effective drugs were available to combat the many dreaded illness of the time. The average home had no electricity, no telephone, no radio or television or stereo, no running water, no toilets and no central heating. Between 1929 and 1933, GDP fell from $104 billion to $56 billion. This sharp decline in the dollar value of goods and services produced by the American economy caused high unemployment, hardship, a steep stock market decline, bankruptcies, bank failures, riots, and political turmoil.  The importance of economic growth The vicious cycle of economic downturn Low rates of savings and investment Low average Low rates of capital accumulation incomes Low productivity Source: Samuelson Paul, Nordhaus William (1989), Economics, Thirteenth Edition,McGraw-Hill Internationl Edition, Economic Series, p. 890. Triggering factors of economic growth Human resources Natural resources (labor supply, (land, minerals, fuels, education, skills, environmental quality) discipline, motivation) Technological change Capital (factories, and innovation machinery, roads, (science, engineering, intellectual property) management, entrepreneurship) Triggering factors of economic growth What do you think? 1. What resources do you have personally? 2. What types of decision are you making which involve allocating these resources?  Triggering factors of economic growth Data analysis RANK COUNTRY PROJECTED POPULATIN IN 2050 (MILLIONS) 1 India 1,705 2 China 1,348 3 Nigeria 399 4 USA 389 5 Indonesia 321 Question: Discuss the significance of the above data. What are the implications for the countries concerned and for other countries? Triggering factors of economic growth Basic economic questions What to produce? For How to whom to produce? produce?  Opportunity cost Measures the sacrifice given up in the next best alternative. What would determine whether studying for a masters would be the right decision for you right now?  Solving the problems in economics Free market Planned economy Resources allocated by market sources Resources allocated by government directives Firms aims to maximize profits Social objectives: government decide what to produce in terms of what is best for the society Individuals make decisions to maximize Governments decide what is best for their own welfare individuals in terms of where there work, what they do, what they consume Competition can encourage innovation May lack competition in the market Individuals pursue own objectives and May be bureaucratic only need information on their options  Mixed economies ❑ To what extent should the government intervene? ❑ In what areas should it intervene? Should it provide transport, energy, postal services? ❑ How should the government intervene: does it have to provide products itself? Should it let firms provide some products, but regulate them, and if so, how?  Mixed economies Free market Command economy (planned) economy Resources allocated Resources allocated by supply and by the government demand Mixed economy: Part free and part planned The growth accounting approach Often, economists write the relationship in terms of an aggregate production function (or APF ), which relates total national output to inputs and technology. Algebraically, the APF is Q = AF (K, L, R ) where Q output, K productive services of capital, L labor inputs, R natural- resource inputs, A represents the level of technology in the economy, and F is the production function. As the inputs of capital, labor, or resources rise, we would expect that output would increase, although output will probably show diminishing returns to additional inputs of production factors. We can think of the role of technology as augmenting the productivity of inputs. Productivity denotes the ratio of output to a weighted average of inputs The growth accounting approach Growth in output or Q can be decomposed in three separate sources: growth in capital or K, growth in labour or L, and technological innovation itself. Suppose that L grows at 1 percent and K at 5 percent, Q will grow at 3%? Fundamental equation of growth accounting: %Q growth = ¾ (% L growth) + ¼ (%K growth) +T.C  Questions? Opinions / Suggestions?