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Unit 2 – The Global Economy

Unit 2 – The Global Economy. CGW4U. Globalization. The ever-increasing flow and exchange of “stuff” internationally or around the world Goods & services People Information Ideas Cultures Technology Diseases Etc. Globalization. Positives and negatives Potential :

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Unit 2 – The Global Economy

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  1. Unit 2 – The Global Economy CGW4U

  2. Globalization • The ever-increasing flow and exchange of “stuff” internationally or around the world • Goods & services • People • Information • Ideas • Cultures • Technology • Diseases • Etc.

  3. Globalization • Positives and negatives • Potential : • to create a world based on interdependence and mutual aid • Downside : • promotes an economic system based on wealth accumulation that results in further inequity between rich and poor

  4. The global economy • An economy • A system for organizing resources • Value or income is typically measured in GDP • total value of goods and services sold in the country/region in a year • Today the largest economies are not countries…

  5. A short history of the global economy • At the end of WWII countries met to set new ground rules • Goal: to stabilize world economies, avoid another large scale crisis (ex. ) • 1944 – Bretton Woods meeting of world leaders, established • The International Monetary Fund (IMF) • World Bank (Int’l Bank for Reconstruction and Development) • General Agreement on Tariffs and Trades (GATT) – became the World Trade Organization (WTO) in 1995

  6. The International Monetary Fund (IMF) • Established to: • maintain currency stability & develop world trade • Created: • a multilateral system of payments between countries based on fixed exchange rates and complete convertibility from one currency to another • Acts as: • a “lender of last resort” to supply emergency loans to countries which ran into cash flow problems

  7. World Bank (originally the Int’l Bank for Reconstruction and Development) • Originally created to: • aid in post WWII reconstruction in damaged areas/countries (avoid repeat of post-WWI issues, ex. Germany) • Later extended goals to include developing countries • Increase low standards of living • Increase industrialization • Help countries “grow” their way out of poverty through economic development

  8. World Trade Organization (WTO) (originally GATT) • a set of rules to: • govern world trade • stop the “protectionist” policies (i.e. charging high tariffs on imports) that crippled the world economy in the 1930s • currently (WTO, as of 1995) govern the trade of both goods AND services • WTO can impose sanctions (like penalties) on countries that don’t follow its rules • Examples • BC lumber • Brazilian cattle • MMT additive to fuel

  9. The results of Bretton-Woods (1944) • Increased int’l trade, industralization of countries (Latin America in particular) • Higher standards of living on average • However, billions of $ in loans to developing countries, often misused, sometimes embezzled (corruption) • By the 70s… • western economies in recession (due to oil price jump in late 70s) • less money for loans, increase in interest rates

  10. Latin American Debt Crisis & Structural Adjustment Programs (SAPs) • By early 80s, Latin America owed 50% of GDP in external debt • Crisis began in early 80s, countries began to admit they could not afford to pay (Mexico - 1982) • Faced with developing countries defaulting on loans, IMF imposed conditions on further loans • Privatising public enterprises • Reducing government spending on social services • Liberalising trade • Increasing exports • Devaluing their currency

  11. Effects of SAPs • Countries struggled to “grow” • social programs (education, health) were sacrificed to pay debt • Result = lower levels of literacy, higher levels of malnutrition • increased exports (i.e. coffee) drove down prices, and reduced developing countries’ incomes (less money to repay debt)… • developed countries continued to grow wealthy while developing countries moved “backwards”

  12. Sources: • “Latin American Debt Crisis” http://en.wikipedia.org/wiki/Latin_American_debt_crisis • “Global Economy”

  13. Today’s topic • The global economy • Winners and losers • Why aren’t we all rich (comparatively speaking) and healthy? • How do we get there? • Can we all be wealthy and healthy?

  14. World GDP Over Time • source : http://en.wikipedia.org/wiki/Poverty

  15. What’s the trend here?

  16. Overall, extreme poverty (less than 1.25$/day) has decreased… Which countries in the world have increased their standards of living? Why? Which have not? Why? % of world’s population living in extreme poverty over time Who has benefited?

  17. World GDP Per Capita (2008) • Source: CIA Factbook

  18. How do you get out of poverty? • Ideas? • Issues?

  19. External debt • is the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay principal, with or without interest, or to pay interest, with or without principal. • very simply… how much you owe to people of other countries • i.e. like borrowing from your neighbours (instead of borrowing from your family) • What could you borrow for? • Why would they lend you money?

  20. What’s the trend here?

  21. Debt to GDP Ratio – Issues… • The graph shows Argentina and Brazil with increasing debt overtime; and therefore increased financial difficulty as more and more of the GDP is needed to pay the external debt. • Remember that by the early 80s, Latin American countries owed upwards of 50% of their GDP in external debt • Vicious circle… will countries ever be able to “climb” out of debt? • How?

  22. Foreign Investment as a pathway?

  23. Issues with Foreign Investment? • Who will receive investments? • Who will not? • Conditions attached? • Repayment schedules? • Corruption / embezzlement? • Remember structural adjustments? “Shock therapy?”

  24. Development Assistance as Solution? • idea of Development Assistance came out of the post-World War Two Marshall Plan to reconstruct Europe • or Africa, DA came out of the end of Western colonial rule and the beginning of the Cold War (strategic – align with U.S. or Soviet Union) • aimed at promoting economic and social growth through smallholder assistance, enterprises, and human development • can consists of loans, technical, and monetary aid • issues with aid? (hint: no more Cold War…)

  25. What’s the trend here?

  26. Is Aid Failing Africa? • Trend? Source: World Development Indicators Online

  27. What to Do? • Jeffrey Sachs: The End of Poverty (foreword by Bono!) • increase aid (to 1% of GDP); provide it unconditionally and consistently • deal with barriers to growth (trade barriers, health issues (malaria, HIV/AIDS), etc.)

  28. vs. Dambisa Moyo: Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa End aid as it: “spews” corruption creates bureaucracy Inhibits entrepreneurship Disenfranchies voters and leads to anti-democratic situations What to do?

  29. Clip: The National (CBC) – Interview with Dambisa Moyo (11 min) • http://www.cbc.ca/national/blog/video/politicseconomy/dambisa_moyo_1.html • Clip: Jeffrey Sachs – Hot Type (CBC) • http://video.google.ca/videoplay?docid=-2480932648571689047&ei=jfDVSoKlKoKmrALOmJCDBQ&q=jeffrey+sachs&hl=en

  30. Tomorrow… • Simulation of foreign trade and debt?? • GIS study of the global economy??

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