Economic Growth

Globalization Study Guide 2

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Globalization Study Guide 2

1. How has Chinas rapid economic expansion in recent decades been beneficial to both China and the United States? Why does Lechner believe that, at the economic level, the relationship between China and the United States is characterized by a deep, mutual dependence?

Due to Chinas rapid economic expansion in recent decades, the country has become an important FDI destination. It has reduced poverty to a great extent and increased GDP per capita by nearly 10% annually. According to Lechner, access to the US market was a key to economic prosperity in China as the US used almost 40% of its exports prior to the 2000s. Their relationship is characterized by a deep, mutual dependence at the economic level: US dependence is based on Chinas economic resources while the latter is dependent on American customers. It means that China is spending money to finance US debt. Chinese authorities have bought Treasury securities in the US to prevent inflation and overheated economy in their country. It is beneficial to both states: US citizens generate demand for Chinese goods, paying in dollars that are finally used to fund American debt.

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2. What were Americas three goals for the post-World War II economic order? What institutions were established to achieve these goals? To what extent were the goals realized?

International investment encouragement, global financial system stabilization, and free trade flows were Americas three goals for the post-war economic order. The IMF and the WTO were in charge of foreign investment encouragement. Until the 1980s, they could not liberate international investment but succeeded later, leading to FDI increase. The IMF was also created to stabilize the overall financial system. Unfortunately, it did not reach the goal. In contrast, the global economy keeps suffering from financial crises that occur from time to time. As for free trade, the GATT together with the WTO was effective in realizing the goal, considerably reducing tariff barriers on non-agricultural products.

3. In exchange for loans, the International Monetary Fund began to ask debtor countries to implement structural adjustment programs in the 1970s. What were the changes that countries were required to make under such programs? According to Vreeland, is there any evidence to indicate that the IMFs structural adjustment program have succeeded in promoting economic growth? What effect have they had on income distribution and social spending?

The structural adjustment programs introduced by the IMF imposed demanded debtor countries to privatize state enterprises, eliminate state subsidies and price controls, open foreign investment and trade, balance budgets, and cut social spending. Vreeland states that they may have solved payment problems. However, there is no evidence to indicate that the programs have been successful in promoting the growth of the economy. Moreover, such policy aggravated income inequality, having a negative effect on social spending and income distribution.

4. What were the organizations that emerged after World War II to promote global free trade, according to Held et al., and what impact have they had in terms of reducing trade barriers? How much did world exports grown as a percentage of world GDP during the latter half of the 20th century? Why do the authors believe that trade is becoming regionalized rather than globalized?

After World War II, the GATT was established to promote global free trade. It was substituted by the WTO in 1995. Both organizations had a substantial impact in terms of reducing trade barriers. To illustrate, tariffs on non-agricultural products fell to 9% by 1967 and less than 5% by 2000. This fall clarifies international trade growth in the second half of the 20th century. For instance, developed countries exports rose from 8.3 to 23.1% as a percentage of world GDP between 1950 and 1985. Nevertheless, trade is becoming regionalized rather than globalized because three regions, such as Southeast Asia, North America, and Western Europe, still have the majority of total exports.

5. According to Lechner, why do most economists believe that international trade is beneficial in terms of promoting economic growth? What was the relationship between exports and real gross domestic product in developing and advanced countries between 1990 and 2007?

Most economists believe that international trade is beneficial in terms of promoting economic growth as it gives the opportunity for innovative and effective management practices and technologies to spread across the globe and allows states to specialize in those areas where they are competent to carry out business. The relationship between economic development and international trade assumes that globalization rewards countries for participation. The reason is that states that were not open to trade had a decline in GDP while those who were open mostly observed economic growth between 1990 and 2007. At the same time, the exports of developing countries usually increased more rapidly than the exports of advanced countries.

6. What is a global commodity chain? How does the manner in which the Nike Corporation produces and distributes athletic shoes fit the description of a global commodity chain, according to Korzeniewicz in Commodity Chains and Marketing Strategies.

The global commodity chain is defined as a series of connected distribution and production places and the product as a result of these links for sale on the global market. In recent decades, global commodity chains have grown in number. It depends on communication and transportation advances that have permitted companies to benefit from comparatively low costs of production in many countries. Korzeniewicz claims that the Nike Corporation could seizure a huge US market segment of sports shoes due to its overseas sourcing strategy. This manner fits the description of a global commodity chain.

7. What does neoliberalism mean according to Harvey? What were the political and economic threats to ruling classes worldwide that led to the implementation of neoliberal policies? What are the four main practices that restored class power to capitalist elites and how did each operate? What evidence does Harvey put forward to back up his claim that neoliberalism has restored class power? Why does he believe that neoliberalism has not resolved the problems of flagging capital accumulation?

From Harveys viewpoint, neoliberalism is considered to reinstate class domination in sectors that were in danger of the social-democratic initiatives due to the consequences of World War II. Later, the 1970s capital accumulation crisis threatened everyone through accelerating inflation and rising unemployment. Dissatisfaction spread widely, and social together with labor movements predicted a socialist alternative to work and capital accumulation. It was a strong political threat to upper classes worldwide. In addition, the economic threat became tangible. The restraining economic power of ruling classes was a condition of post-war regulation. It did not seem to matter while economic growth was significant, but ruling classes felt a threat with the 1970s collapse. To keep power from economic and political destruction, they had to act.

The four main practices that restored class power to capitalist elites were state redistribution, the manipulation and management of crises, financialization, and privatization. State redistributions were done through cuts in government spending aimed at social wage support and the schemes of privatization. The manipulation and management of crises meant an ideological attack on educational institutions and the media. Liberalization made the financial system one of the key redistributive activity centers via stealing, fraud, predation, and speculation. Through privatization, assets from common and public areas were transferred to upper-class and private spheres.

According to Harvey, a typical employee did not take advantage of economic globalization. Instead, profits related to global commodity chains formation, increased investment, and international trade accumulated mostly in the capitalist pockets. Though neoliberal policies pursued by the WTO and the IMF were effective in restoring the class power of capital owners, they mainly failed to bring economic prosperity. The process has not resolved the problems of flagging capital accumulation, resulting in the dismantling of institutions that encouraged more equal distributive measures previously.

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