CHAPTER 2:
The Global Economy
Objectives:
Overview of the Global Economy
Overview of the Global Economy
Export Subsidy
International Trade
Economic Integration
Economic Integration
Economic Integration
Economic Integration
Economic Integration
Sources of Global Capital:
Sources of Global Capital:
Sources of Global Capital:
Marshall Plan
How did the Marshall Plan stop the spread of
communism?
Set up network of global
The 01
financial institutions
Promote economic interdependence
Bretton Woods and prosperity
System Inagurated in 1944
02 During the UN Monetary and Financial
Conference
Influenced by John Maynard
Keynes
03 Economic crises occur not when
money is not being spent and not
moving
Global Keynesianism
04 When economies slow down-
governments have to reinvigorate
markets with infusions of capital
John Maynard Keynes
The 05 Two Financial institutions
Bretton Woods
System International Bank for Reconstruction and
Development (IBRD/World Bank)
06 Responsible for funding postwar
reconstruction projects
International Monetary Fund (IMF)
07 Global lender of last resort to prevent
individual countries from spiraling
intro credit crises
08 General Agreement on Tarriffs and Trade
Reduce tariffs and hindrances to free
trade
Where does the
World Bank get
its funds? Raises money for development at the
lowest rates by tapping the world’s
capital markets
Through contributions from wealthier
member governments
Issues bonds which are purchased by
member governments and private
sector institutions
Neoliberalism and 01
Its Discontents
Ideology and policy model that emphasizes
the value of free market competition.
Sustained economic growth as the means to
achieve human progress
Free markets as the most-effiicient allocation
of resources, minimal state intervention in
economic and social affairs, and its
commitment to the freedom of trade and
capital
Neoliberalism and 01 Keynesianism
Its Discontents
1940s to early 1970
Governments poured money into
their economies, allowing people to
purchase more goods and increase
demand for these products.
As demand increased, the prices of
these goods increased
Neoliberalism and 02 Organization of Arab Petroleum
Exporting Countries’ (OAPEC)
Its Discontents Early 1970s
Prices of oil rose
The Arab member-countries of the Organization of
Petroleum Exporting Countries or OPEC
Imposition of an embargo in response to the
decision of the United States and other countries to
resupply the Israeli military with the needed arms
during the Yom Kippur War.
The “oil embargo” affected the Western economies
that were reliant on oil.
Organization of Arab Petroleum
Exporting Countries’ (OAPEC)
Neoliberalism and Stagflation
A decline in economic growth and employment (stagnation)
Its Discontents takes place alongside a sharp increase in prices (inflation)
Neoliberalism
Economists Friedrich Hayek and Milton Friedman
challenged the Keynesian orthodoxy. They argued that the
governments’ practice of pouring money into their
economies had caused inflation by increasing demand for
goods without necessarily increasing supply.
Government intervention in economies distort the proper
functioning of the market.
Stagflation
Friedrich Hayek and Milton Friedman
Neoliberalism and Neoliberalism became the codified strategy of the
US Treasury Department, the World Bank, the IMF,
Its Discontents and eventually the World Trade Organization (WT0)
WTO, a new organization founded in 1995 to
continue the tariff reduction under the General
Agreement on Tariffs and Trade (GATT). The
policies forwarded came to be called the
Washington Consensus
Neoliberalism Neoliberalism is an economic and
political ideology that believes
society works best when there is:
free market competition,
limited government intervention,
privatization of businesses,
free trade,
and globalization.
It became highly influential around
the 1980s.
Main Ideas of
1. Free Market Economy
Businesses should compete freely with minimal government control.
Example:
Neoliberalism fewer business regulations,
less government interference in prices.
2. Privatization
Government-owned companies or services are transferred to private companies.
Example:
A government-owned water or electricity company becomes privately operated.
Supporters believe private companies are more efficient.
3. Deregulation
Reducing government rules on businesses.
Example:
Banks and corporations face fewer restrictions.
4. Free Trade
Countries should trade with fewer tariffs and barriers.
Example:
Trade agreements within ASEAN or the World Trade Organization (WTO).
5. Reduced Government Spending
Governments are encouraged to reduce spending on public services and welfare
programs.
World Trade
To help its members use trades
Organization as a means to raise living
standards, create jobs, and
improve people’s lives
Washington Consensus
Neoliberalism and Dominated economic policies from 1980s-2000s
Its Discontents Level of agreement between the IMF, World Bank,
and the US Department the Treasury
Advocates for minimal government spending to
reduce government debt
Privatization of government-controlled services like
water, power, communications, and transport
Pressured governments, particularly in the
developing world to reduce tariffs and open up their
economies
Economic
Globalization
Today
Economic Increased exports
Developed countries
Globalization Global growth rates
Growth that created the
are often
protectionists
Today large Asian economies
(Japan, China, Korea, Hong
Kong, Singapore)
Refuse to lift policies that
safeguard their primary
products
Beneficiaries of global commerce
Poorer countries can
are Transnational Corporations
do very little to make
economic globalization Not Governments.
TNC’s are concerned more with
Trade imbalances, profits than with assisting the
characterize economic social programs of the
relations between government.
developed and developing
countries
Conclusion
Globalization of International
International economic politics is largely policymakers should
integration is a central continent on trade thrive to think of ways
tenet of globalization relations to make trading deals
fairer.