Evolution of Global Economic Governance

1. Evolution of Global Economic Governance

2. Global Economic Relations:A Historical Perspective • Rise of Modern State & IPE • The Treaty of Westphalia (1648) • Marking the end of the 30-year war (between the victorious Protestant countries in N Europe & the defeated Catholic Hapsburg countries) • Marking states’ recognition of each other’s sovereignty & territorial integrity • Establishing the supremacy of national government over political & religious matters within its territory. • Mercantilism & mercantilist states (1500-1750) • Mercantilists believed: • power & wealth are legitimate goals of the state. • Wealth could be used to enhance a state’s tangible power through arms buildup

3. Global Economic Relations:A Historical Perspective • Rise of Modern State & IPE • Mercantilism & mercantilist states (1500-1750) • Mercantilists believed: • wealth could also be used by a state to increase its intangible or soft power such as influence. • States should adopt policy to preclude the rise of competitors by restricting: • imports • export of technology to potential rivals • raw material export to potential rivals.

4. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • Evaluating the Mercantilist Thinking • Mercantilists & mercantilist states saw international trade as a “zero-sum” game benefiting one party at the expense of another. • Mercantilist policies were criticized as “beggar-thy-neighbor” policies by Adam Smith. • Mercantilism contributed to the rise of a strong state authority and territorial unification through its emphasis on national power. Thus, the fortification of the states as equal and independent actors of the international system.

5. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • Industrial Revolution & Rise of Free Trade • Britain rising as the pre-dominant economic power between 1780s and 1830s • By 1860, it represented 37% of European industrial production capacity, 20% of world industrial production, and 80% of world new technology industries • Britain was in search of more markets globally and raw materials for its expanding production • Britain championing free trade • Removal of most trade restrictions by 1830s • Abolition of its Corn Laws & lifting of agricultural import restrictions in 1846

6. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • Industrial Revolution & Rise of Free Trade • Britain championing free trade • Signing of the Cobden-Chevalier Treaty between Britain & France leading to the mushrooming of other inter-state commercial treaties pulling down trade barriers throughout the European continent. • The Interwar Years & British Decline • British Decline • Drop of British share in world trade (24% in 1870 to 14.1% in 19130 • Rise of German & US share in world trade (12.2% & 11.1%) • US emergence as the biggest economy in 1913, making up 32% of world industrial ouput • WWI ushered in the shift of financial preeminence from London to New York

7. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • The Interwar Years & British Decline • British Decline • US reluctance to back free trade in post-war years • Imposition of import restrictions on European goods • Raising of customs duties via the Fordney-McCumber Act (1922) • Raising of tariffs via the Smoot-Hawley Act (1930) • The Bretton Woods System • Creation: 1944, 44 nations • Objective: creation of an int’l economic system that would • prevent another economic & political collapse & another military conflict • Neutralize the force of economic nationalism • Foster a high-level of economic interactions.

8. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • The Bretton Woods System • Creation: • Objective: • Role of US: officially taking the leadership position in the creation of a liberal economic order • IMF • for monitoring a system of fixed or pegged exchange rates • to prevent competitive devaluation of one’s own currency that could trigger trade wars • Provide short-term loans to help states handle balance-of-payments deficits so that the fixed exchange rates can be kept

9. Global Economic Relations:A Historical Perspective Rise of Modern State & IPE • The Bretton Woods System • The World Bank (IBRD) • Created to provide long-term loans for post-war reconstruction and development in LDCs. • The General Agreement on Trade & Tariffs (GATT) • For lowering tariffs in multinational negotiations • Establishing rules for international trade • Forming procedures for settling trade disputes. The Bretton Woods institutions were aimed at neutralizing economic nationalism and trade protectionism.

10. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The North & Institutions • The North countries dominate world economic system • They provide most of the funding to IMF & World Bank loans and, as a result, • They have the most votes • USA, Japan, Germany, France & Britain • WTO has a one-nation one-vote system, yet it is dominated by the major trading powers • They set agendas in negotiations • They occupy leadership positions in these institutions.

11. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The North & Institutions • The North uses the institutions to • Propagate a liberal economic approach • Reinforce the North’s dominance from sole American leadership to collective leadership (from Group of Five to Group of Seven, etc.) • The OECD (Org for eco coop & dev) • A Paris-based organization with mostly industrialized countries as its members • Created in 1961 • Enlarged in the early 1990s to admit some developing nations • Designed to liberalize int’l transactions such as trade & capital flow

12. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The North & Institutions • The OECD • Designed as a forum for discussing economic policies, common problems & coordinating actions • Designed as a mechanism for applying peer pressure on each other for meeting their commitments • Designed as a way to minimize conflicts in economic relations

13. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The North & Institutions • The G-8 • Originally G-5 • Organized in the 1970s & superseded by G-7 in 1986 • Russia joined in 1991, thus G-8 • Russia involved in political matters rather than economic issues • Including the most powerful DCs in the global economy • Members working together flexibly & without formal constitutions • Delegations often headed by head of state or government • No members from the developing world

14. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The South & Institutions • Measuring development in the South • Per capita GDP or per capita income • A country’s national income converted into US dollars using the official exchange rates divided by its population • Problem: miss the differences in the purchasing power of US dollars and local currency • Purchasing Power Parity (PPP) • The number of units of a country’s currency required to buy the same amount of goods & services in the domestic market as a US dollar would buy in the US

15. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The South & Institutions • Measuring development in the South • Human Development Index (HDI) • UNDP publication since 1990 • HDI focuses on three dimensions: • Life expectancy • Adult literacy rate & school enrollments • Standards of living measured by PPP-adjusted per capita GDPs • Problems with HDI • Does not reflect the effects of rapid socio-econ & political change • Does not measure political aspects of human rights such as freedom of speech & voting rights • Does not show inequality within a country

16. Global Economic Relations:A Historical Perspective Contemporary Economic Institutions • The South & Institutions • Measuring development in the South • Group of 77 & South’s Response to the Global Economic System • 1964, 77 LDCs met to express dissatisfaction with the North dominated global economic system • March 1964, Group of 77 initiated the 1st UN Conference on Trade & development (UNCTAD) • UNCTAD, a permanent UN agency for • Allowing LDCs to set UNCTAD’s agenda • Encouraging GATT to give more priority to Southern trade interests • Supporting Southern protectionist policies • Serving as the voice for the South