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The Global Economic OrderCharacteristics• Free flow of capital and technology • Global markets• Transnational corporations• Powerful international economic institutions• Large regional trading systems
The Great Depression 1929-1939• Lasted for a decade instead of a few years• Abnormally high unemployment • Lack of credit• Banking crisis• Financial crisis• Bankruptcies• Currency devaluations• Deflation• Less trade
The Global Economic Order
• What caused the Great Depression?– Free markets (Keynesians) vs. Government (Friedman)
• The Great Depression and International Trade– Smoot-Hawley (1930)– Average tariffs jumped from 25.9% in the mid-20s to 50% in 1931-1035– American exports: $5.2 Billion to $1.7 Billion
Bretton Woods System
• Expand international trade by removing these tariffs• Create a stable money exchange system
– Fixed exchange rate to the $US– $US pegged to the Gold Standard– Thus avoid the beggar-thy-neighbor policies
by currency devaluations to increasecompetitiveness or reduce deficits
=> US$ reserve currency; 3rd World subordinate
• Institutions– International Monetary Fund (IMF)– World Bank (WB)– General Agreement on Tariffs and Trade (GATT), later the World
Trade Organization (WTO)
International Monetary Fund
• Administered the international monetary system– approval for any change in exchange rates in excess of 1%; stabilize
international exchange rates – facilitate development through the encouragement of liberalizing
economic policies
• IMF supports members by providing– policy advice to governments and central banks – research, statistics, forecasts, and analysis based on tracking of global,
regional, and individual economies and markets; – loans to help countries overcome economic difficulties;– concessional loans to help fight poverty in developing countries; and– assistance and training to countries to improve the management of
their economies
World Bank• official goal is the reduction of poverty
– all of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capital investment
• provide low-interest loans, interest-free credits and grants to developing countries for a wide array of purposes that include – investments in education; health; public administration;
infrastructure; financial and private sector development; agriculture and environmental and natural resource management
• In 2010, voting powers at the World Bank were revised to increase the voice of developing countries, notably China. – countries with most voting power are now the United States
(15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), and France (3.75%)
World Trade Organization
• Originally, General Agreement on Tariffs and Trade (GATT) – global trade organization charged with fashioning and enforcing
multilateral trade agreements • supervise and liberalize international trade
– global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible
Neo-Liberalism• market is a self-regulating mechanism tending toward
equilibrium of supply and demand and thus achieving the most efficient allocation of resources
• specific policies – privatization of public enterprises– deregulation of the economy– liberalization of trade and industry– massive tax cuts– monetarist measures to keep inflation in check– control on organized labor– reduction of public expenditures esp. social spending– downsizing government– expansion of international markets– removal of controls on global financial flows
The Washington Consensus• Reforms required to receive loans from the WB and the
IMF:– fiscal discipline and a curb to budget deficits – reduction in public spending– tax reform: a system with a broad base and effective enforcement – financial liberalization: with interest rates determined by the
market – competitive exchange rates to assist export–led growth – trade liberalization, with abolition of import licensing and a
reduction in tariffs – promotion of foreign direct investment – privatization of state enterprises– deregulation of the economy – protection of property rights
Consequences• The imposition of a particular form of capitalism; is it a
new form of colonialism? how do citizens view these policies?
• The Emergence of Global Capitalism– institutions of capitalism be introduced in the economics of all
global participants– those participants allowed a wide range of economic interactions
to take place between them\
• Retreat is possible
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