Introduction to Globalization

1. Introduction to Globalization International Trade, the International Monetary Fund, World Bank, and the effects of trade on the world.

2. International Organizations • International Monetary Fund (1945 to Present) • International organization that first sought to assist in the reconstruction of the world’s international payment system* post-World War II. • Countries contribute to a pool through a quota system from which countries can borrow funds temporarily. • Works to improve the economies of its membercountries. • World Bank (1944 to Present) • UN international financial institution that provides loans to developing countries for capital programs. • Official goal: Reduction of poverty. • All decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment. *Sets of internationally agreed rules, conventions, and supporting institutions that facilitate international trade, cross border investment, and generally the reallocation of capital between nation states.

3. International Organizations • World Trade Organization (WTO)1995-Present • Organization that intends to supervise and liberalize international trade. • Deals with the regulation of trade between participating countries • Provides a framework for negotiating and formalizing trade agreements.

4. How do the World Bank & International Monetary Fund use debt as an instrument of control?

5. Subsidies • A form of financial or in kind support to an economic sector generally with the aim of promoting economic and social policy. • Commonly extended from the government. • Can relate to any type of support. • Various forms: • Direct (cash grants, interest-free loans) • Indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates) • Producer/Production Subsidies • Ensure producers are better off by supplying market price support, or payments to factors of production. • Consumer/Consumption Subsidies • Commonly reduce the price of goods and services to the consumer.

6. The Negatives ofSubsidies: Jamaica • Subsidies for milk farmers in the United States and the European Union remain low. • When milk is exported, prices for the product are artificially low. • Liberalization Policies, 1992 • Demanded that import taxes on milk be eliminated. • Subsidies to the local industries were removed. • Millions of dollars of unpasteurized milk were dumped. • Economic Policy Flaw? • 1987-1992 Jamaica produced > 25% of the nation’s consumption. • Today, the industry has sized down nearly 60% andcontinues to decline.

7. Pros and Cons of Free Trade Pros Cons • People have more access to cheaper products • Businesses have more access to buyers • Unrestricted trade promotes growth and wealth in the long run • Standards in rich countries improve conditions in poor countries • Dependency decreases the likelihood of conflict • Income disparity increases in the short run • Jobs are lost due to economic turmoil • Regional economic downturns quickly become global • It is difficult to enforce basic health, safety, and environmental standards • Dependency makes countries vulnerable

8. What is specialization? The social phenomenon of individual human beings/organizations each concentrating their productive efforts on a rather limited range of tasks. Entails focusing on a narrow area of knowledge or skill or activity. Involves adapting for the unusually effective/efficient performance of some particular function, often at the expense of the individual's/organization’s ability to perform most other functions for themselves.

9. Trade and the Global Economy • Why do people trade? • People trade because there are gains to be had. • Trade allows people to specialize in the production of goods and services in which they have the resources to be most efficient and successful. • Economic benefits: • Access to a variety of goods that may be less expensive, of better quality, or otherwise unavailable.

10. Guiding Question: In what ways do international organization and non-government agencies impact economic policy? What is NAFTA? [north american free trade agreement] • A trilateral free-trade deal that came into force in Jan. 1994 • Eliminates most tariffs on products traded among the United States, Mexico, and Canada • Tariffs were phased out gradually with the final aspects of the deal fully implemented on 1 Jan. 2008. • Swept away import tariffs in several industries: • Agriculture • Textiles • Automobiles • Also implemented: • Intellectual-property protections • Dispute-resolution mechanisms • Regional labor and environmental safeguards

11. NAFTA: Purpose and Effectiveness “NAFTA was designed to promote economic growth by spurring competition in domestic markets and promoting investment from both domestic and foreign sources. It has worked.” Gary Clyde Hufbauer& Jeffrey J. Schott

12. Congressional Budget Office, 2003NAFTA’s Economic Consequences • U.S. trade with Mexico was growing prior to NAFTA’s implementation and would likely have continued to grow with or without the deal. • The direct effect of NAFTA on U.S-Mexico trade is fairly small, and thus the direct impact on the U.S. labor market is also small. • Overall, NAFTA has only expanded U.S. gross domestic product (GDP) “very slightly” with a similarly small and positive effect on the Canadian and Mexican economies.

13. U.S. Trade with NAFTA Partners: 1993-2012

14. After NAFTA (pbs)

15. What is a NGO? [non-governmental organization] • Any non-profit, voluntary citizens’ group which is organized on a local, national or international level. • Activities: • Perform a variety of service and humanitarian functions. • Bring citizens concerns to Governments, advocate and monitor policies and encourage political participation through provision of information.

16. What is an NGO?