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Global Political Economy. Economy – from the Greek word “household” – assets and activities for production and exchange Economics – how to organize.

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Presentation on theme: "Global Political Economy. Economy – from the Greek word “household” – assets and activities for production and exchange Economics – how to organize."— Presentation transcript:

1 Global Political Economy

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7 Economy – from the Greek word “household” – assets and activities for production and exchange Economics – how to organize production and exchange most efficiently (minimal cost, maximum gain) Political economy (Adam Smith) – “branch of science of a statesman or legislator” concerned with:  “providing a plentiful revenue or subsistence for the people”  “supplying the state or commonwealth with a revenue sufficient for the public service”

8 In other words, political economy is about:  the role of the state with regard to the economy,  interactions between political and economic processes,  distribution of social power based on property and wealth Global political economy, or international political economy – the same, applied to the entire world

9 Adam Smith ( ) Key works: “The Theory of Moral Sentiments”, “The Wealth of Nations”

10 Classical political economy (Adam Smith, David Ricardo) The economy is seen as a complex natural organism Human labour is a key source of wealth Seeking balance between self-interest and cooperation “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. “ (The Wealth of Nations”) Division of labour Key role of the market as an integrating force Harmony of interests between classes is possible Key role of the state in maintaining a market economy

11 Karl Marx ( ) Key works: “Das Kapital”, “The Communist Manifesto” (with Friedrich Engels)

12 Marxist political economy Market economies are social arrangements created by specific historical forces Private property is a social construct, not something created by nature Workers produce surplus value Owners of capital (capitalists) take all or most of it Accumulation of capital in the hands of capitalists Power is rooted in ownership and control of capital Impoverishment of workers Division of society into classes based on their roles in the economy and the state Struggle between classes for power – for control of the economy and the state Capitalism will inevitably collapse due to its inherent contradictions

13 The two great traditions have determined the bounds of political-economic thinking since the 19 th century  Whenever capitalism stumbles, Marxism gains attention and influence  Whenever capitalism recovers and shows its strength, classical political economy looks more credible Policies of governments oscillate between these two poles The key variables:  ability of the state to correct the inherent flaws of the market system  inherent flaws of the state (bureaucracy, waste, concentration of power, etc.) Capitalism continues to exist so long as the state and the market system complement each other effectively

14 Globalization Capitalism is historically rooted in international trade Division of labour on the international scale Movement of goods, money, people between countries creates a global network of economic ties A global capitalist economy gradually emerges as a result of integration of national economies into a single world system Key role of states in its creation and development First leader – Holland (17 th -18 th centuries), then - Great Britain (18 th - 19 th centuries) Challenged by others (France, Germany), displaced by the United States in the 20 th century

15 The Great Silk Road, 3d century BCE – 15 th century CE

16 Global trade and capital flows,

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19 Global trade in consumer goods

20 Trade flows among Western countries International trade flows, 28 OECD countries,1992

21 19 th century globalization led to World War I The Great War triggered off the global crisis of capitalism  The 1917 Russian revolution  The Great Depression  The rise of fascism  World War II Challenge to political leaders: restructuring the global system

22 John Maynard Keynes ( ), main works: “The Economic Consequences of the Peace”, “General Theory of Employment, Interest, and Money”

23 Franklin D. Roosevelt, US President

24 1944, Bretton Woods, New Hampshire:

25 United Nations Monetary and Financial Conference 730 delegates from 44 countries 2 global institutions created:  International Monetary Fund – to coordinate monetary policies of states and render financial assistance to governments  International Bank for Reconstruction and Development (now called the World Bank) – to help rebuild national economies on a capitalist basis proposed 3d global institution: International Trade Organization – would be set up as World Trade Organization in 1995

26 1940s-1970s: Government regulation of markets, welfare state, a relatively liberal regime of international economic relations Global capitalism was saved by government policies which regulated the market economy and redistributed wealth

27 The rise of global capital Transnational (or multinational) corporations The first in history was established in 1600 – British East India Company There are 63,000 transnational corporations worldwide, with 690,000 foreign affiliates 51 of the world's top 100 economies are corporations Three quarters of all transnational corporations are based in North America, Western Europe and Japan Ninety-nine of the 100 largest transnational corporations are from the industrialized countries Royal Dutch Shell's revenues are greater than Venezuela's Gross Domestic Product. Using this measurement, WalMart is bigger than Indonesia. General Motors is roughly the same size as Ireland, New Zealand and Hungary combined

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30 Success and growth of the global capitalist economy led to concentration of enormous power in the hands of multinational corporations Global capital was chafing at the limitations imposed on it by states From late 1970s: A shift in state policies toward deregulation of business activities and reduction of taxes on wealth “Triumph of freedom”

31 Milton Friedman ( ), main works: “Monetary History of the United States”, “Capitalism and Freedom”

32 Ronald Reagan, US President

33 “The Washington Consensus”, or Neoliberal Orthodoxy – dominant Western economic ideology since the early 1980s  Liberalization – maximum possible freedom of market interactions  Stabilization – balanced state budgets, limits on government spending  Privatization – selling off public enterprizes to private owners In sum: changing the balance of power between global capital and the state

34 Globalization seen as progress Import-export of goods Investment of capital in another country to produce goods there Creation of international production networks – the world as a factory Removal of obstacles to trade and financial flows Migration of workers to seek employment anywhere Capital is free to go anywhere to seek a higher rate of profit Global division of labour reaches unprecedented scale: everybody depends on everybody else

35 Globalization seen as disaster Concentration of capital on a global scale accelerates Capital acquires global control over production, exchange, government policies, people’s lives Downward pressure on wages Global demand for goods and services declines Solution: borrow money against future income Pyramid of debt grows to stimulate the global economy At a certain point, the pyramid collapses – inevitably (see current affairs)

36 The global economy: a snapshot Global population – over 6.85 bln. people Global labour force - 3,262 bln. (2010 est.) Global GDP - $79 trln. (measured by Purchasing Power Parity, 2011, est.) Composition:  agriculture: 5.9%  industry: 31.3%  services: 62.8% (2011 est.) Global GDP per capita (PPP) - $11,800 Household income:  lowest 10%: 2.7%  highest 10%: 27.7% (2007 est.) Taxes and other revenues:  29% of GDP (2011 est.) Public debt  60% of GDP (2011 est.) Source: https://www.cia.gov/library/publications/the-world-factbook/geos/xx.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/xx.html

37 2.8 bln. people (40% of the world’s population) live on less than $2 a day The richest 1% of the world’s people receive as much income as the poorest 57% (UN Human Development Report 2002, Overview, p.2) World’s 3 richest people have assets greater than 48 poorest countries combined Millionaires (US$):  10 mln. people (0.01% of the world’s population) Billionaires (US$):  1,210 people, total wealth - $4.5 trln. (up from $900 bln. 2 years ago, 38% of the world’s GDP) 40% - Americans, own 37% of global billionaire wealth

38 Chrystia Freeland, The Rise of the New Global Elite – The Atlantic, Jan/Feb 2011: “Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn’t succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.” – global-elite/8343/

39 Holly Peterson: “If you look at the original movie Wall Street, it was a phenomenon where there were men in their 30s and 40s making $2 and $3 million a year, and that was disgusting. But then you had the Internet age, and then globalization, and you had people in their 30s, through hedge funds and Goldman Sachs partner jobs, who were making $20, $30, $40 million a year. And there were a lot of them doing it. I think people making $5 million to $10 million definitely don’t think they are making enough money.” As an example, she described a conversation with a couple at a Manhattan dinner party: “They started saying, ‘If you’re going to buy all this stuff, life starts getting really expensive. If you’re going to do the NetJet thing’”—this is a service offering “fractional aircraft ownership” for those who do not wish to buy outright—“‘and if you’re going to have four houses, and you’re going to run the four houses, it’s like you start spending some money.’” The clincher, Peterson says, came from the wife: “She turns to me and she goes, ‘You know, the thing about 20’”—by this, she meant $20 million a year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.” Chrystia Freeland, Op.cit.

40 Patrick Wood, independent researcher: “There is a relatively small yet diverse group of global players who have been the planners and instigators behind globalization for many decades. The primary driving force that moves this "clique" is greed; the secondary force is the lust for power. In the case of the academics who are key to globalism, a third force is professional recognition and acceptance (a subtle form of egoism and power.) It is also important to understand that core globalists have full understanding of their goals, plans and actions. They are not dimwitted, ignorant, misinformed or naive. The global elite march in three essential columns: Corporate, Political and Academic. For the sake of clarity, these names will be used herein to refer to these three groups…

41 …In general, the goals for globalism are created by Corporate. Academic then provides studies and white papers that justify Corporate's goals. Political sells Academic's arguments to the public and if necessary, changes laws to accommodate and facilitate Corporate in getting what it wants. An important ancillary player in globalism is the media, which we will call Press in this report. Press is necessary to filter Corporate, Academic and Political's communications to the public. Press is not a fourth column, however, because it's purpose is merely reflective. However, we will see that Press is dominated by members of Corporate, Political and Academic who sit on the various boards of directors of major Press organizations.” -

42 Forbes’ lists, 2011: The world’s billionaires: The world’s most powerful people: The Life of the Super-Rich:

43 Global poverty: A crime against humanity? Global poverty indicators, the World Bank:

44 The world’s population can be divided into 3 classes Upper class: 11% (real income higher than the average income in Italy) Middle class: 11% (real income between the average income in Italy and the poverty line, adjusted for purchasing power) The poor: 78% (real income below the poverty line) Branko Milanovic, True World Income Distribution, 1988 and 1993: First Calculations Based on Household Surveys Alone. Economic Journal, Jan.2002

45 “When people observe each other and interact, it is no longer simply a national yardstick that they have in mind when they compare their incomes with the incomes of others, but an international or global one. What globalization does is to increase awareness of other people’s incomes, and therefore, the perception (knowledge) of inequalities among both the poor and the rich. If it does so among the poor, then their aspirations change: they may no longer be satisfied with small increases in their own real income, if they know that other people are gaining much more. Therefore, the process of globalization by itself changes the perception of one’s position, and even if globalization may raise everybody’s real income, it could exacerbate, rather than moderate, feelings of despondency and deprivation among the poor.”* *Branko Milanovic. Global Inequality: What It Is and Why It Matters? – DESA Working Paper No.26, August

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49 Key international organizations dealing with GPE issues: The International Monetary Fund (IMF) - The World Bank - The World Trade Organization (WTO) - International Labor Organization (ILO) - United Nations Development Program (UNDP) - Organization for Economic Cooperation and Development (OECD) - 1,00.html 1,00.html World Economic Forum (WEF) -

50 Role of the state – the key issue The state is the key intermediary between transnational forces and citizens How does it use its power? The state can totally yield to the logic of global capital Or it can try to influence its behaviour (tame it) though sticks and carrots Impossible to do on a national scale Need for concerted international actions Creation of a global political regime (norms, laws, regulations) to shape corporate behaviour

51 Who is defining the terms of this regime? Whose interests are shaping it? What kinds of interests are they? Profit maximization as the driving force of the global economy To what degree is this compatible with other human interests? Struggle for determination of policies Protectionism – predicated on the notion that each country is a body competing w. other bodies But – globalization, interdependence, integration present obstacles to protectionism The global economy needs effective and democratic global governance

52 Information and critical thinking on global political economy – a few sites to explore Multinational Monitor - Economic Policy Institute - Forum for a New World Governance - governance.org/spip.php?article172http://www.world- governance.org/spip.php?article172 Transnational Institute -


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