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Global Political Economy: How The World Works?


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These are the slides which are displayed by the lecturer Jeffrey Harrod in the on-line Lecture Course "Global Political Economy: How the World Works" which is available free on his website

The purpose it to make the slides available to download which at the moment cannot be done from the on-line lecture. Many of the slides provide data which may be useful in presentations and research papers. Other slides are the points addressed in the lecture.

The course covers all the material conventionally found in courses on international political economy. The approach is critical and realist and seeks to understand or explain
power rather than functions which surround the world economy.

The lectures and slides cover investment, trade, finance , migration and labour paying special attention to the multinational corporation and the agencies of states as the central power players in the global economy.

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Global Political Economy: How The World Works?

  1. 1. COURSE: GLOBAL POLITICAL ECONOMY: How the World Works? 153 slides from the 16 lecture on-line course available at http://
  2. 2. 1/1 Session 1. Introduction The Lecturer – The Course The Subject The Lecturer Academic qualifications- usual academic degrees LL.B., MA. PhD • but warning on “déformation professionnelle” “if all you have is a hammer, everything looks like a nail” (after Maslow) Publications: IPE relevance : Trade Union Foreign Policy UN Under Attack Power,Production….
  3. 3. Selected Publications 1/2
  4. 4. The Course International Political Economy but Global Political Economy preferable Some History • different fori - different audiences • is a graduate course but adjusted for wider audience The Video Course why the adaptation? - no audience and interaction - no discussion of readings Structure of the Course The four great transactions money (finance and investment goods (trade) people (migrants and travelers) ideas 1/3
  5. 5. Selected Course Titles 1/4
  6. 6. Navigation Around the Course Each session has a number of: - structure slides indicating the development of the lecture - data-slides providing statistics and illustrative material and quotes slides are not stand-alone – designed for integration into the lectures Total of 16 Sessions - blocks of sessions can be used independently 1-3 theory 4-7 Structure, Investment and Corporations 8,9 Finance 10,11 Trade 12,13 Labour and Migration 14 Sector Analysis 15,16 Global Governance 1/5
  7. 7. What is Global Political Economy? 1/6 • course is about power - therefore realist and critical • in crude terms – joins two universals – greed and power • global political economy includes all sources of global power -the corporation -non-governmental organisations – civic, religious, social, political • global political economy as the study of: …….the material the interface between nations, peoples, and societies or…. the material underpinnings of international relations – conflict war and peace or … the joining of power and greed or … who gets what, when, how (at the global level) (H. Lasswell) The material aspects permits the three key questions of hegemony and power: Who benefits? why now? what’s missing
  8. 8. Flemish and French Speaking Communities in Belgium GPD and Unemployment 1860-2005 1/7 Flemish French Mixed (Brussels) Le Monde 15.9.2007p 23 Growth GDP Per Head Index Growth of Unemployment In %
  9. 9. George Kennan Policy on World Wealth Distribution - 1948 We have about 50% of the worlds wealth, but only 6.3% of its population.. in this situation, . . . our real job in the coming period is to devise a pattern of relationships which permit us to maintain this position of disparity.. . To do so, we have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives... We should cease thinking about vague and unreal objectives such as human rights, the raising of living standards, arid democratization. The day is not far off when we are going to have to deal in straight power concepts. The less we are hampered by idealistic slogans the better. George Kennan in US State Department Policy Planning Number 23, January 1948 1/8
  10. 10. 1/9 World Income Distributed by Percentiles of Population 1992 Richest fifth income: 82,7% world income 82.7% UNDP, Human Development Report Report 1992
  11. 11. “World Income Distributed by Percentiles of Population” 1992 and 2000 Richest fifth income: 82.7% of world income GNP 82.7% 1/10 1992 = 82.7% 2000 = 75% 1992 = 1.4% 2000 = 1.5% UNDP, 1992,2005 Human Development Report “ World Income Distributed by Percentiles” (2005, p,37)
  12. 12. Part of Consumption of Rich Country Citizens From the Global South (profits and interest) 2008 Part from Global South = 1.9% 4th Qtr 13% 1st Qtr 13% 2nd Qtr 17% 3rd Qtr 57% What’s missing: Unequal exchange? Royalty and Patents Fees Rich Country Consumption 1/11
  13. 13. Petro-Core Differential Accumulation and MiddleEast ‘Energy Conflicts’ 1966-2003 Percent Deviation from Fortune 500 Bichler, S. and Nitzan. J. 2004 “ Dominant Capital and the New Wars.” Journal of World-Systems Research 10(2) p.311 1/12
  14. 14. Session 2. Theory: The Global Level Problem
  15. 15. Untidy Combination of Power and Distribution Problems of Studying Global Political Economy - it is or should be the study of power - the dynamics are currently corporate driven if not dominated - which creates powerful popular myths and biased public intellectuals “the globalization industry” What is political economy ? Using definitions of the last lecture …….the material interface between groups, classes, peoples, nations … Lasswell’s - who gets what, when, how But to contrast with modern economic doctrine Political economy is concerned with the productive resources of a society and with the social, political, environmental impacts 2/1
  16. 16. Going With What We’ve Got - three areas National , International and Global National Level Theories - At the beginning there were only political economists • the divorce of economics from politics • started in 1920s • accelerated post WWII as part of Cold War and anti- Marxism - but what is politics in political economy? Smith politics between the rich and the poor but accepted public goods and inappropriate behavior of the rich Marx politics almost exclusively between two classes •While both claimed universalistic theories neither were very strong on global or international matters - 20th century continuation of political economy via Keynes, von Hayek, Ropke and “Austrian” school 2/2
  17. 17. International Level Theories 2/3 19 Century: Imperialist or International Most writers concerned themselves with imperialism (Lenin, Schumpeter) Ricardo and trade theory one of the few to address the international rather than imperial issues transfer of capital between independent nations was limited so discussion was about trade Second Half of 20th Century the international started to emerge John Maynard Keynes considered as an “economist” but can also be claimed as a political economist - aimed at solving unemployment directly increasing welfare
  18. 18. Global Level Theories Last Half of 20th Century and Contemporary GPE Theory - contemporary attempt to put power into international economics two approaches – a) economists recognizing power - Galbraith, Gilpin, Spero, Kindleberger b) political scientists and historians Susan Strange, Robert Cox, Braudel, Wallerstein Fukuyama What are we left with Some Analytical approaches and their prescriptions - neo-liberals = free play of market forces - neo-gramscians = counter hegemony to dominant ideology - marxists and neo-marxists – the dynamics, contradictions of capitalism - globalists = equity within global pluralism - materialists = distributional equity mediated by state sovereignty - global realists = multi-faceted power relations and conflicting interests 2/4
  19. 19. 2/5 Modern Global Political Economy Modern GPE combines concepts and approaches from at least three fields:international relations nation-state sovereignty diplomacy process levels realism idealism imperialism hegemony regimes international economics growth national income liberal model capital flows market logic comparative cost factor cost balance of payments exchange rate comparative politics/ political science state government interest groups ideology Civil society distribution industrial structure labour relations technology policy regimes organisation
  20. 20. Session 2. Theory: Imperialism Then and Now
  21. 21. 3/1 Power and Heterogeneity: Theories of Imperialism • The first two session stressed the material content of political economy the concern with power and the holders of it to control transactions goods , money production and distribution • but global political economy is by definition involved with differences in culture, ethnicity, language, religion and locale • The exercise of power and, in particular, resistance to it is enhanced or diminished by the interplay of these factors. • The body of theory which took account of the global nature of material transactions and their local impact were the theories of imperialism
  22. 22. 3/2 Theories of Imperialism • Theories of imperialism contrasted with international economics • theories of imperialism required reflection on the systemic causes of imperial expansion and contraction • Because earlier imperialism was about plunder and trade, theories were material • recognised resistance to material deprivation could also be based on “cultural" factors • the promotion of “globalisation” has lead to a re-considerations of “empire” and imperialism Consider popular works of the last decade M. Hardt and A Negri Empire (Harvard University Press) (2001) N. Ferguson Colossus: the Rise and Fall of the American Empire (2004) M. Mann Incoherent Empire ( Verso, 2003)
  23. 23. Disraeli, Rhodes, Lenin, Hobson, and Schumpeter, For these reasons the following cclassical theories of imperialism remain useful – Disraeli, Rhodes (c1845) imperialism was necessary to internally unite social classes for Empire and to expand economy and “civilization Lenin (1917) tried to found a Marxist theory of Imperialism in the pamphlet “Imperialism the Highest Stage of Capitalism” Used Hilferding’s idea of finance capital he says that the imbalance between industry and banks produce the expansion abroad Hobson (1902) argued that there were “sectors” who supported imperialism and who benefited from it but the main divide was between traders and investors the latter requiring the state to protect investments Schumpeter (1918) proposes that a military is created for defence but in order to keep itself in existence creates wars of imperialism (objectless expansion) and industries to support it “created by the wars that required it, the machine now created the wars it required” 3/3
  24. 24. 3/4 Contemporary Importance of Theories of Imperialism • all materially based – trade, investment economic imbalances • all disaggregated state • their world is filled with globally operating bankers, traders, corporations, military, elites and industries But they also identified some reasons why imperialism failed •Material and power imbalances in both metropolitan and colony • the stresses and contradictions which arise from attempts to command, influence or control at a cultural, political and, material distance.
  25. 25. Imperial Dysfunction • Sometimes called “imperial dysfunction” Any model, institution or arrangement or an order, command, policy derived from one circumstance may not function as expected or desired in another • two types (1) – imposition of a model it has been noticed historically and currently that any hegemon, be it state, corporation, non-governmental organisation, or church, acting globally tends to attempt to replicate itself 2) - dysfunctional/inappropriate demands the insistence that procedures and practices should follow the pattern of distant the power-holders produces dysfunction and stress • Contemporary rise of the corporation, regionalism, global economic governance and regimes change raises same problems 3/5
  26. 26. 3/6 Disraeli and Dutch Financial System 1689 “…: he (the Prince of Orange) introduced into England the system of Dutch finance. The principle of that system was to mortgage industry in order to protect property; abstractly nothing can be conceded more unjust: its practice in England has been equally injurious. In Holland, with a small population engaged in the same pursuits, in fact, a nation of bankers, the system was adapted to the circumstance which had created it ... All shared in the present spoil and therefore could endure the future burthen but applied to a country in which the circumstances were entirely different .... it has ended in the degradation of a fettered and burthened multitude.” B. Disraeli Sybil ,or: The Two Nations (1845) (Penguin 1954) p.30
  27. 27. News Analysis , 3/7 OPEL FIGHTS TO KEEP SEAT OF POWER Despite GM's vows,I fears remain that authority will stay in Detroit, writes Daniel Schafer "Opel's organisational structure is very dysfunctional. It loosely combines a design and' developmnent centre, a gearbox production, a car assembly operation and a sales unit," says Christoph Sturmer, analyst at IRS Global Insight. In the past, local managers often did not have much to say when it came to product decisions. One example is GM's decision a few years ago to sell in Europe the Antara - a sports utility vehicle built at the GM Daewoo joint venture in South Korea. Opel managers look back with anger at this decision, as they favoured reviving the German carmaker's Frontera, a sports utility vehicle that was sold until 2004. "The Antara does not fit the regional needs in Europe and was not accepted by many Frontera customers. Its driving quality bears too much resemblance to a pure off-road vehicle," one manager said. Opel's financing structure is another matter. Before March this year, the various European units did not even have their own cash management. "Every country unit was always on the verge of liquidation, as they depended on getting the cash needed to operate from Detroit each morning," Mr Sturmer says Financial Times 14.11.2009 p.12
  28. 28. 3/8 “ Countries where Shell operates that have Security Concerns” Source: Shell, Financial Times 5.10.2005 p.8
  29. 29. 3/9 20th Century Changes: Resource Needs and Cheaper Communications •Early 20th century writers anticipated many aspects of modern global political economy – such as global scope, expansion of trade and finance capital, internal imbalances and imperial dysfunction •But there were two “discontinuities” • modern industry and society needs raw materials over which “other” populations reside especially energy • the declining cost of global communication •“Resource dependency” gives us “energy politics” “blood diamonds” “water conflicts” •Global communications gives us increased corporate reach and global non-state organisations,
  30. 30. In Conclusion: Global Realism and Neo-Materialism Global realism rather than statist realism • so-called “private actors”, governments and parts of governments in the global political economy seek power for identifiable and often material purposes • the objects of power are distant, dislocated and less “known” at the global level and the unintended consequences are greater Materialism as production, goods, money and distribution • the acquisition of goods and money, the control of production and distribution at the global level is more direct and is less diluted than at other levels • perhaps “neo-materialism” to distinguish it from Marxist materialism and to avoid rational choice calculations and single objective determinism, 3/10
  31. 31. Session 4: Global Patterns and Political Economies: Model Competition
  32. 32. Power Indicators of Global Structures •The global political economy has some enduring structures which frame the politics the four great transactions • There are three basic sets of indicators of the structure of the global political economy 1) size 2) dependencies 3) models of political economy , 1 ) Size -for states and nations GDP the basic measure of size is national income -for the corporation key indicator of size and power is revenues (sales or turnover) -for international organisations inter-state and non-governmental the equivalent power proxy is the annual budget -there are a number of variables for models of political economy some of which cannot easily be quantified 4/1
  33. 33. 4/2 Economic Size of Nations 2007 Country GDP ($ trillions) POP (millions) USA Japan Germany 13.8 4.3 3.3 303.9. 128.3 82.7 Netherlands China Spain Argentina Kenya Thailand 0.8 3.2 1.4 .2.5 . 03 2.5 16.4 1.331.4 43.6 39.5 36.0 65.3 Source: Economist Pocket World in Figures 2010 GDP Per Head (thousands) 45.5 34.40.5 47.2.5 32.6.5 .6 3.8
  34. 34. The New Triad? 4/3 85% of World Consumption 3 Models of Political Economy? GDP by PPP *- Major Economies 2008 USA EU Japan Germany UK France Italy Russ India China Source: IMF, Graphic News as quoted Le Monde 15/11/2009 p.14 * PPP (purchasing power parity) tries to give economic size without the distortion of current exchange rate.
  35. 35. Multinational Corporations - revenues 2009 Shell Toyota Wal Mart McDonalds Nestle $458billion $204 billion $405 billion $ 23 billion $102 billion Non-Governmental Organisations Greenpeace (international) World Wildlife Fund OXFAM Vatican secret but International Confederation Of Trade Unions $51 million (2008) $664 million (2007) $347 million (2009) $55 million earning on assets 2005 $9.6 million International Organisations Total UN Budget (excluding peacekeeping ) World Health Organisations Food and Agricultural Organisation $2.5 billion (2009) $900 regular + $3.2billion $650 regular + $300million Sources: Economist Pocket World in Figures: 2010; Fortune Global 500, July 2009;Annual Reports; various websites. 4/4
  36. 36. 2) Dependencies: Trade and Energy (selected countries – calculated from US$ values (2007)) % Exports to GDP (2004) USA 14.3% Germany 40% France Consumption per head Economy 1000kg. oil equivalent f current energy consumption nearest 500 Imported (2004) 11.39% Japan The Hydrocarbon 21% UK 16% Netherlands 61% Italy 47% India 13% China 30% Kenya 16% Hungary 68% 81% 4.1 61% 4.2 50% 4.4 13% 3,8 24% 4.9 85% 3.1 90% 3.6 23% 0.5 38% Venezuela 7.7 24% Ireland 29% 7% 1,4 Source: Economist Pocket World in Figures 2010 214% 2.3 4/5
  37. 37. Dimensions of a Political Economy 4/6 3) Models of Political Economy The transactions in global political economy are between often highly differentiated societies which adhere to designated models economy At its most simple a model of a political economy is the specific manner in which production and distribution is organised within any one society. But a model may be influence by culture, historic structures, geography and all the variables which make distinctive societies. Currently discussion has been centered on :the Anglo-American Model, the European Model, the Asian Development Model And varieties as the Polder model (Netherlands) the Nordic Model (Sweden) , the core material aspects of a model can be considered as production, the manner, form and nature of it, and work the manner of it and the conditions of which it is undertaken
  38. 38. The Political Importance of the Organization of Work • 4/7 Labour productivity is one of the few “economic” indicators which is also a political indicator the productivity of labour = the wealth and development of the economy relative unit labour cost and labour productivity Comparative labour control/motivation and models of political economy material, normative and coercion (physical and economic) • the productivity of labour is an indicator of the morale, motivation motivation and organisation of the society and a substantial determinant of income distribution Other distinguishing features of Economies - production structure size of enterprise -sectoral balance - industry, agriculture, service and impact on labour force - corporate governance -stakeholders – shareholders, managers, producers owners/managers - income and wealth distribution ( a feedback loop?)
  39. 39. 4/8 Theoretical Attempts at Explaining Differences Between Models Three ways of dealing with these differences 1) institutionalists 2) neo-corporatism 3) modes of regulation institutionalist - concentrating on questions of economic growth and, institutional differences in labour and capital markets arriving at liberal and coordinated market economies neo-corporatism - system in which material interests are legitimized in relation to the state through formal and approved organizations – thus concentrates of the way the representatives of capital and labour are socially integrated s mode of regulation- neo-Marxist view that each stage of capitalism is characterized by a different form of capital accumulation defined as a different established ways of organising capital and labour
  40. 40. Current Model Competition • The reduction in diversity after 1989 to:Anglo-American neo-liberal European Social Partner Asian Developmental Authoritarian Indicative (???) • Different models produce: different income and wealth distribution which in turn produce: different political regimes and …. Different political regimes are the basis of international relations Thus models of political economies and their attributes create material create the material underpinnings of international relations 4/9
  41. 41. Models of Political Economy 1950-1989, 1989-2010 4/10
  42. 42. 4/11 Trade Unionist Warns of Toxic Model Export John Sweeny, President of USA AFL-CIO labour federation speaking at World Economic Forum (Davos) February 1997 in FT February 2,1997 p.3 . this assumption may be the fasting growing export of what is called the US model, but I am here to warn you. With all due respect, it is a highly costly, toxic export, dangerous to the health and welfare of working people and national economies across the world
  43. 43. National Income Distribution – Richest 10% to Poorest 10% Dates of surveys vary between 1998 -2006 Source: UNDP: Human Development Report 2009 pp.195-8 Above 12 times USA 15.9 United Kingdom 13.8 Australia 12.5 9-12 times Italy Spain Canada France Switzerland Netherlands 4-7 Times Sweden Germany Japan Note Brazil South Africa Malaysia Bolivia Philippines Hungary Poland 11.6 10.3 9.4 9.1 9.0 9.2 6.2 6.9 4.5 40.6 35.1 11 93.9 14.1 6.8 9.0 4/12
  44. 44. Employer’s Costs for Dismissal in Number of Weeks Wages (2005) 4/13 Source: World Bankl/Volkskrant 13/9/2005
  45. 45. Child Well-Being in Rich Countries 2007 UNICEF, Child poverty in perspective: An overview of child well-being in rich countries Innocenti Report Card 7, 2007 UNICEF Innocenti Research Centre, Florence. 4/14
  46. 46. Weeks of Paid Maternity/Paternity Leave Available for Parents (rich countries)2010) 4/15
  47. 47. Transfers of Financial Resources 1990 (US $billions) 4/16
  48. 48. Session 5: Investment: Adventures Abroad
  49. 49. 5/1 The Politics of Foreign Direct Investment Investment concepts - direct investment the purchase or building of assets abroad over which there is “controlling interest” - portfolio the purchase of foreign stocks and shares which does not result in a controlling interest note portfolio investment mainly in rich countries - dynamics of fdi - flows the flow of direct investment in any one time period - stocks the accumulated investment by country -
  50. 50. 5/2 North and South (2008) What is the Third World/South/Developing Countries/Poorer Countries “worth” to the North/Developed Countries/Rich Countries?. In Money Terms in Billion Dollars 1) Interest on Debt Total Southern Debt = $2,900 (2007) Official Interest payments plus arrears 2) Return on Investment Total Stock of Investment in South = $4275, (2008) Average return 15% = $203b = $641b ______ Total Interest and Profit $844 * Percentage Southern- sourced interest and profit to Northern GDP = 1.9% Other flows 1) Royalty and Patent Charges; estimate ??? 2) Unequal Trade and Arbitrary Resource Value: estimate = ???? 3) migrants remittances $150b (estimate 2007) Notes:* GDP of North = $42,100b (2004) (70% of total) * World GDP = $60,690b (2008) * Official Development Assistance (“Aid”) $119b (2008) Sources: UNCTAD World Investment report 2009; World Bank: Global development Finance 2005; Economist Pocket world In Figures 2010. OECD Development Report 2008
  51. 51. 5/3 Stocks of Multinational Corporation Investments Stocks of Foreign Direct Investment by Headquarter Country1985 and 2009 Stocks and Country % of Total 1985 Millions $ % of Total 2009 Millions $ % of Total World 707,786 USA 251,034 35 4,302,851 22 Japan 43,970 6 74,930 4 Germany 59,909 8 1,378,480 7 UK 100,313 14 1,651,727 8.7 Netherlands 60,731 8.5 850,554 4.5 South Korea 526 0.07 115,620 0.6 229,600 1.2 75,618 0.4 China 15 18,982,118 .002 Malaysia 414 Brazil 5,826 0.7 157,667 0.8 (1990) 109 na 26,221 0.13 8 0.001 6,438 0.03 663,456 97 Poland Nigeria Developed Economies 0.06 16,010,825 84 N.B Historically investment stocks in the global south have been between 25 and 40% of total Source: UNCTAD World Investment Report 2010; Annex Table 2 pp172-175; % to nearest;
  52. 52. Why Corporations Invest Abroad • remember the theories of imperialism • two reasons: - “liquidity reason” – a surplus of funds in headquarters countries - “investment reason” greater returns to be found abroad Investment Reasons • Depends on “investment climate” • Elements of investment climate - labour cost and labour laws - tax - infrastructure, - relative environment laws - relative health and safety laws - investment risk and political risk 5/4
  53. 53. 5/5 National Regulatory Changes in Favour of Foreign Investment
  54. 54. 5/6 Investment Risk or Political Risk • important element as one of few areas accepting political interest and involvement of corporation • Elements of political risk Corruption Social turbulence civil war hostile government – restriction, control, nationalisation
  55. 55. 5/7 Political Risk Table (selected Countries) 2006 (sample from internet (2006) Country Risk Guide (ICRG) The PRS Group,New York contains data from 1984 to the present. A = Government Stability B= Socioeconomic Conditions C= Investment profile D= Internal Conflict E= External Conflict F= Corruption Rnk G= Military in Politics H= Religious Tensions I= Law and Order J= Ethnic Tensions K= Democratic Accountability L= Bureaucratic Quality A B C D E F G H I J K L 12 12 12 12 12 6 6 6 6 6 6 6 Country Max. score Norway 1 6.5 10 11.5 11.5 11.5 5.0 6.0 5.5 6.0 4.5 6.0 4.0 Netherlands 13 8.5 10 12 10 12 5 6 2.5 6 4.5 6.0 4.0 USA 10 10 8 11.5 10.5 8.0 5 4 5.5 5 5 6 4 Mexico 65 6.5 8 11.5 10 11 2 4.5 5.5 3 3 6 3 Taiwan 19 7.5 9 11.5 10 8.5 3 5 5 5 3 5 2.5
  56. 56. Corporate Foreign Investment and Global Politics 5/8 • creation rather than assume investment climate is “given” - Investment climate as a given based on concept of “sovereign nation” - indirect creation of favorable investment climate - structural adjustment aid conditionality - direct creation of investment climate by corporate actions • investment dynamics and geo-politics - national interest concept in realist international relations national interest is public interest and security -neo-materialist view that national interest also includes protecting enhancing stocks of foreign direct investment
  57. 57. 5/9 Indirect Pressure on Investment Climate Members congratulated Jamaica on its structural reform, underpinned by prudent macroeconomic management…… in view of the large trade deficit, they also asked about competitiveness of Jamaica's exports, particularly given rising unit labour costs and real appreciation of the currency. Members sought assurance on the Jamaican policy response, including with respect to the investment environment. Trade Policy Review Board of World Trade Organisation , 2003
  58. 58. Direct pressure on Investment Climate The Chiapa’s autonomy movement in Mexico resulted in “peace negotiations” in 1995 with the Mexican government During the peace negotiations in 1995, for example, International paper Corporation sent a letter to the Mexican government voicing concern about “the high political risk” posed by autonomy and laying down a series of conditions for continuing investment in a paper-pulp and lumber plantation project that would include the planting of 300,000 hectares of eucalyptus on indigenous and communal lands in Tabasco, Campeche and Chiapis” The Nation, February 26 2001 p.22 5/10
  59. 59. United States Outward Direct Investment Position by Country of Affiliate at Yearend 2009 5/12 Source: U.S. Bureau of Economic Analysis: : M. Ibarra-Caton “Direct Investment Position for 2009: Country and Industry Detail” July 2010, pp20-35
  60. 60. 5/13 Petro-Core’s Differential Accumulation & Middle East ‘Energy Conflict’ Source: Bichler, S. and Nitzan. J. 2004 “ Dominant Capital and the New Wars.” Systems Research 10(2) p.311 Journal of World-
  61. 61. Session 6:Investment: Corporate Delivery Vehicles
  62. 62. 6/1 The Corporate Vehicle • models of political economy result in different income distributions, different institutions, history and therefore politics • In this session the subject is “the corporation” rather than a multinational corporation • different size and distribution of large corporations Slides 6/2 and 6/3) first in absolute numbers of corporations = USA but first relative to economic size of headquarters countries = Switzerland • corporate size – revenue/sales/turnover the key indicator for power multinational corporation versus transnational corporation there is more to a nomenclature transnational corporations = border dissolving multinational corporations = border exploiting
  63. 63. 6/2 Corporations and States 2009 Number of Fortune Global 500 largest Corporations by Top 12 Headquarter states State USA Number of Corporations 140 Japan 68 France 40 Germany 39 China 37 United Kingdom 26 Switzerland 15 South Korea 14 Canada 14 Netherlands; 13 Spain 12 Italy 10 * corporate size = of revenue * Top 12 States by Headquarters = 84% of Fortune Global 500 2009 Source: Fortune Global 500 2009
  64. 64. 6/3 Corporations and States 2009 by Economic Size Number of Fortune Global 500 largest Corporations by Top 12 Headquarter states per US$ 100 billion GDP Switzerland 3.5 Netherlands 1.8 France 1.5 South Korea 1.4 Japan 1.4 Germany 1.1 Canada 1.1 China 1.1 United States 1.0 United Kingdom .95 Spain .85 Italy .47 Sources: Fortune Global 500 2009 = corporations ; GDP 2007 Economist Pocket World in Figures 2010
  65. 65. 6/4 The Modern Corporation The modern corporation is a large productive organisation usually holding a dominant position in the sector in which it operates Transformation by Concentration • concentration in the different sectors has transformed the corporation in the last 30 years - concentration accompanied by market-fundamentalist ideology -sustained perception of corporate as a creature of the market and competitively sanctioned • Levels of concentration •From 90% control of global “market” e.g. Microsoft and disc-operating system to - “only” 20% for Michelin in car tires •Monopoly, duopoly ,oligopoly and monospony – the 4-40 concentration ration •Speight “oligopoly… better analyzed in terms of military strategy than in profit maximization and the marginal principle” (1960)
  66. 66. From profit-making to rent-seeking 6/5 • concentration almost alone has transformed the corporation from an enterprise to an organisation • Impact of this transformation 1. Classical theories of capitalism become outmoded • - Smith and maintenance of competition • - Marx and the organic concentration of capital 2. Competition v. market share maintenance and acquisition • -oligopoly price theory and market share maintenance 3. from profit-making to rent-seeking • - crucial to understand the political actions of the multinational • - economists use rent in relation to manipulation of prices in monopoly • - political economist emphasizes seeking changes in political legal environment • - changing the investment climate
  67. 67. Theories of Corporate Behaviour if market-based theories of corporate behaviour insufficient what are the alternatives A) international capital theories - classical theories rational location and profit maximization - theories of imperialism Hobson – Marxist-Leninist - new capital theories dominant capital and – Bichler&Nitzen B) technological and resource theories - product cycle theory (Vernon) shift from labour to capital intensive - geo-political-materialist – resource seeking - resource dependency and resource curse 6/6
  68. 68. Corporation as a Production Organisation C) organization theories - core of management literature Weberian bureaucracy in private sector? Veblen and managerial capitalism -organizational systemic Michel's iron law and goal displacement - stakeholders and distributional battles employees, shareholders, management • The corporation as an organisation corporate social responsibility v “the business of business is business” externalities, environment and corporate citizenship 6/7
  69. 69. Session 7. Investment: Corporate Power and Weaker States
  70. 70. 7/1 Intro: Multinational Global Power • now dealing with multinational corporations rather than corporation although some aspects of power are not different • differences between corporations - relative size to each other (Data slides 7/D 1, D2. D3) relative to headquarter state - sector concentration • corporate structure and models of political economy - history of corporate governance - of Germany and post WWII Japan - Anglo-American - German (European Social Partner model) - Japan (Asian developmental)
  71. 71. Fortune 100 Top and Bottom 15 by Revenue Rank Corporation Revenue $ billion Rank Corporation Revenue $ Billion 1 Royal Durch Shell 458,361 85 Nokia 74,224 2 Exxon Mobile 442,851 86 Marathon Oill 73,504 87 Hyundai Motor 72,542 3 Wal-Mart Stores 405,607 88 Costo Wholesale 72,483 4 BP 367,053 89 Rwe 71,851 6 Total 234,674 90 Home Depot 71,288 7 Conoco Phillips 230,764 91 AmerisourceBergen 70,594 92 Industrial & Comercial Bank of China 70,568 8 ING Group 226,577 9 Sinopec 207,814 93 Archer Daniels Midland 69,816 10 Toyota Motor 204,352 95 Munich re Group 67,515 12 General Electric 183,207 94 Vodafone 69,138 96 Nippon Life Insurance 66,621 13 China National Petroleum 181,123 97 Toshiba 66,239 14 Volkswagen 166,579 98 Robert Bosch 66,052 99 China Mobile Communication 65,015 100 Target 64,948 15 State-Grid 164,136 Compare Government Budgets Netherlands $372b; Colombia $72b; Indonesia $97b; Kenya $9b: Source: Fortune 500 2009; Budgets CIA World Factbook 2009 7/2
  72. 72. 7/3 Selected Corporations Sales and Employment Corporation Sales/Revenue $ billions Employees Bayer 48,149 108.000 Hoffman-La Roche 43, 970 78,000 Novartis 41,460 98,200 22,140 400.000 Michelin 16,540 117,000 Bridgestone 29,700 133,000 Goodyear 19,600 70,000 Pharmaceuticals Food McDonalds Tires/Rubber Sources: Fortune 500: Wikipedia Corporation Profiles,2009
  73. 73. 7/4 Top 100 Multinational’s Foreign Sales by Headquarter Country (2007) Headquarter Country No. MNC's in Top 100 GDP $ billions Foreign Sales $ Billions % Foreign Sales to GDP Netherlands 6 776 241 31 United Kingdom 16 2,772 678 24 Switzerland 4 424 186 22 Germany 12 3,317 642 19 Japan 10 4,384 507 12 USA 20 13,751 1,212 9 Italy 2 2,102 136 2 MNC data = The World's Top 100 non-financial TNCs, Unctad: World Investment Report 2009, p. 225 GDP = Economist: Pocket World in Figures 2010 Note: headquarters Netherlands/UK divided 50/50%; headquarters Australia/UK divided 30/70%; headquarters USA/Germany divided 50/50%:
  74. 74. 7/5 Multinational Corporate Power – Domestic Level • relationship to state crucial for both headquarter global power • the corporation as an institution of the 21 century the institutions of in state/society - the church – material power via spiritual service - the state – taxation and enforcement - the modern corporation – rent and manipulation • rationalities, ideologies and transformation formal relationship with state/government - private entity in “market” - production - civil society – state administration - importance of civil society as corporation free political space?
  75. 75. 7/6 (cont) Power relationship with state/government • how far does corporation, influence, control or dominate governments? - conclusive evidence difficult - by corporate resistance to investigation - the political divide – anti-corporate v pro-business • gradual merger of corporate and government elites - ex-corporate leadership examples: USA, Mexico, Italy, etc - increased interchange between corporate and government personnel • corporation has dramatically increased power over state policy starting in the last quarter of 20th century
  76. 76. 7/7 Multinational Corporate Power in Global Political Economy Direct exercise of Power • corporation to country via direct investment • corporation in unilateral, bilateral or triangular diplomacy •corporation in a regime a regime is a global political space in which a number of globally operating organizations and persons interact and produce practices, rules, norms, and information a sector regime involves corporations, sector associations, non-governmental organisation (ngo’s) , international governmental organisations (ingo’s), governments and governmental agencies, organised crime - dominant corporations in sector usually most powerful an issue regime typically involves corporations, advocacy groups, ingo’s, ngo’s, governments and governmental agencies, inter-state organisations, powerful individuals
  77. 77. 7/8 (Cont.) Indirect Exercise of Power: • through globally operating organisations International Employers Association International Chamber of Commerce Round Table of Industrialists “Clubs” and “meetings” Sector and Trade Organisations • in alliance with headquarter state or subsidiary state - corporate interest and national interest (FDI) - state-corporate alliance for strategic issues – resources - state-corporate alliance for global state expenditure defense development reconstruction destruction reconstruction cycle
  78. 78. Corporation in Global Governance What is Global governance two meanings 1) global governance as = global private authority – corporation in regime 2) global governance = inter-state organisations Multinational Corporations and Inter-state Organisation early beginnings - ILO and Employer delegates - FAO and corporate committees contemporary developments - United Nations Global Compact - WTO and Trips and TRIMS • core importance with IFI’s World Bank – constitution task to promote “foreign direct investment” IMF post 1982 – structural adjustment and corporate friendly models of political economy” 7/9
  79. 79. Session 8: Finance: Money, Finance and Politics
  80. 80. Introduction - Politics of Money and Finance • the politics of the financial transaction between states and societies • demystifying finance • finance is money transferred for the stated purpose of receiving interest dividends or capital gains - as “portfolio” investment • the global vehicle for these transactions are banks, stock-markets rather than multinational corporation (Slide 8/2) • the key player in global political economy is the investment bank commercial, retail and investments banking • flow and stock questions as with FDI - flows indicator of global integration – but volatile (Slide 8/3) - stock important as total foreign debt 8/1
  81. 81. Banks and Corporation Compared by Market Capitalisation June 2009 8/2 Transnational Banks Multinational Corporations Bank headquarters Market Capitalisation Multinational Corporation headquarters Market Capitalisation Ind Comm Bnk of China China 257.02 Exxon Mobile USA 341.2 HSBC Holdings United Kingdom 143.2 Microsoft USA 211.54 JP Morgan Chase USA 133.8 Wal-Mart Stores USA 188.8 Wells Fago USA 115.4 Petrobas Brazil 164.8 Bank of America USA 110.3 Royal Dutch Shell UK/NE 156.3 Banco Santander Spain 98.1 Proctor & Gamble USA 148.9 Mitibushi FC Japan 72.3 BP UK 147.5 BNP Paribas France 69.3 AT&T USA 146.6. Royal Bank of Canada Canada 57.7 Nestle Switzerland 144.4 Credit Swiss Switzerland 54.2 IBM USA 138.1 Source: Economist: Pocket World in Figures, 2010 market capitalisation = number shares x current price
  82. 82. Cross-Border Portfolio Flows (largest 30 Countries) 2008 Source: IMF, Haver, Barclays Capital via Vox Research-based Policy Analysis 8/3
  83. 83. 8/4 Money, Financialisation, and Finance • the politics of money money and exchange value: nominal real Inflation and redistribution inflation, social turbulence and conflict • Contemporary “financialisation” households: tax, profits and interest extraction through the finance channel • contemporary “international financial architecture” banks, global institutions IMF, BISFinance,
  84. 84. 8/5 Power and the Global Financial Transaction • two aspects of power - manipulations of exchange rates - leverage through debt • main focus of these sessions will be on foreign debt foreign debt as the political leverage for imposition of - models of political economy - improving the investment climate - hegemony and security
  85. 85. 8/6 The Politics of Foreign Currency and Exchange • The basics of foreign exchange • Automatic Balance of Payments Adjustments - situation 1 - goods exchange in balance 2 – deficit imbalance 3 - exchange rates change 4 – new prices for imports and exports 5 – restores balance what causes 2 : political and social decline in productivity social unrest inflation inflation as the outcome of distributional battles
  86. 86. 8/7 Exchange Rate Manipulation and Political Outcomes • governments unwilling to accept automatic adjustments • intervention to adjust winners and losers • state organized: exchange rates capital controls trade management cf • requirements of Import Substitution Industrialisation (ISI)v Export Oriented Industrialisation (EOI) • associated with state corporatist model • global backlash Washington Consenus “stabalize,privitize,liberalize” • weakened state intervention and transition to new model • larger states resisted India, China
  87. 87. The Politics of Lending and Borrowing •Three types of foreign debt for the stated objective of:to solve a balance of trade deficit to underwrite domestic (government, household debt) for growth and development purposes (Southern foreign debt) • the politics of lending and the politics of borrowing The politics of Lending . Generating exportable finance - savings and restriction of consumption - exporting bubbles 8/8
  88. 88. 8/9 Private and Public External debt as Percentage GDP (2009 ) Country Percentage of GDP UK 365 France 227 Germany 185 Spain 150 Italy 58 Japan 34 Russia 17 China 5 Portugal 188 Greece 153 Source: CIA World Fact book via Wikipedia List External Debt
  89. 89. 8/10 The politics of borrowing •. domestic and foreign debt • power actors in domestic debt – banks, governments, central banks • foreign debt alters the power constellations via entry of foreign banks, governments, individuals • why go foreign governments short term nominal politics – electoral promises and bribes fear of social conflict domestic income distribution banks, individuals, pension funds -short-term cash flows off-loading risk
  90. 90. Global Lenders and Borrowers 2007 Other Asian Source: IMF, Haver, Barclays Capital via Vox Research-based Policy Analysis 8/11
  91. 91. 8/12 Global Politics and the Debt Explosion - the conversion of debt it foreign debt “globalises” the local politics of borrowing, saving and debt Greek and austerity plan case USA sub-prime case Iceland bank case - enables power of globally operating banks and investor entities and “captured” inter-state organisations the IMF , international financial architecture and global homogenization - unintended consequences retarding development and provoking economic nationalism
  92. 92. Session 9: Finance: Debt and the Power of Creditors
  93. 93. 9/1 Introduction and In Memoriam * May 2010 – 3 persons killed in Greece in protests concerning the imposition of an austerity programme involving the International Monetary Fund (IMF) * March 1989 600 people killed in protests in Venezuela against IMF imposed austerity programme * May 2010 graffiti in Athens “IMF – get out!” * Jan-June 1999 placards Seoul South Korea “I’M Fired” * May 1984 graffiti in Kingston Jamaica “Help – we’ve been IMF’ed The IMF is an inter-state organisation in which the major capitalexporting states have an overwhelming dominant role and through them the major transnational investment banks. - it is an agent of global financial power
  94. 94. 9/2 The Basics of Debt Repayment and Austerity • borrowing money abroad can only be paid back with goods or services • the goods or services must be cheaper than from other countries they must be “price competitive” . austerity programmes are to reduce the price of exports and services unit labour cost, labor market flexibility, budget cuts improve efficiency = reduce cost of labour component in any good or service debt service and debt to GDP ratio’s - key statistic Examples: 1989 Chase Manhattan took 50,000 bags of coffee every four months in exchange for debt reduction 2004 Chile-USA FTA Agreement “ Each Party shall permit returns in kind relating to a covered investment “
  95. 95. Debt Repayment as Percent Exports – Selected Countries (Debt Service Ratio) Country 1997 2007 Argentina 58.7 13.0 Brazil 57.4 27.8 Pakistan 36.1 9 Bolivia 32.5 11.9 Mexico 32.4 12.5 Iran 32,2 4 Venezuela 31.3 7.4 Equator 31.0 18.7 Indonesia 30 10.5 Cote d'Ivoire 27.4 5 Jamaica 16.2 17.3 9/3
  96. 96. 9/4 Current Global Politics = Past Global Finance Events? • past thirty years three major global financial events beginning Mexican 1982 default and third world debt “crisis” 1997-8 Asian Financial “crisis” 2007/8 Sub-Prime Banks “crisis’ • losers in crisis third world debt = third world (global south) populations selected Asian country populations , some northern losses sub-prime – northern populations some ROW leakage • crisis for some success story for other “qui bono?” bonus takers – executive salaries (constant) fee takers (constant) shareholders and stockholders – banks, others = dynamic
  97. 97. 9/5 Southern Foreign Debt: Origins of Lending • anatomy of a “crisis” southern foreign debt – 1974-2010 - why increased northern lending - why increased southern borrowing • Four streams making the perfect surplus storm - MNC self-financing( one of the first effects of concentration) - recycled oil price rise money - Eurodollars surpluses in Europe • capital flight and hot money – escaping the “welfare” tax, garaging, loan-back, grey and black money • leakage – corruption, non-performing loans = more loans •. no risk – all loans private or government backed by government “sovereign debt”
  98. 98. 9/6 Southern Foreign Debt: Origins of borrowing • southern need for development finance - production + profit + interest + capital repayment • declining commodity prices - substitutes for southern raw materials - self-defeating desperation • borrowing for current consumption - the limits of the ISI model • deferring political decisions ( Eastern Europe) - centrally planned regimes in need of adjustment • leakage – corruption non-performing loans requires more loans • debt is on the basis of a nation and not the nature of a governmental regime
  99. 99. Global Debt Collecting: IMF 1 and IMF 2 IMF 1: Solving Balance of Payments through Short term Austerity • Bretton Woods – IMF loans for “temporary” balance of payments problems • 1980-1985 short term austerity IMF 2: Global Financialisation and Model-Promotion • 1985 - loan on condition of structural adjustment • Structural adjustment and the Anglo-American version what's there: Wage freeze, labour market reform, public sector cuts, privatization, what's missing?: land reform, capital flight regulation, progressive taxation, public sector expansion, support of social partners, enhancing solidarity, self-reliance • Reorganize the economy to deliver at the border in order to pay back the debt 9/7
  100. 100. African President on the IMF - 1980 9/8
  101. 101. Surpluses from the South – the Finance Phase Four phases * Plunder - appropriation * Plantation – slave and indentured * Manufacturing and unequal exchange * Finance – interest and control • interest on debt exceeds profits on direct investment in 1980 • previous phases often introduced and sustained militarily – colonialism weak state • debt phase associated with strong state involvement required for structural adjustment and austerity 9/9
  102. 102. 9/10 Issues of Global Financialisation • global surpluses increasingly secure through production • requires model conformity - institutional and model transfer always an extreme version of domestic variety - imposition through multinational and regional organisations reflect global power actors – mnc’s banks countervailing forces weaker alternative models national interest • attempted homogenization within diversity • distribution issue 21 century with 19 century distribution patterns - the repressive bias • the impossibility of global regulation • re-enter the state and inter state intermediation?
  103. 103. Session 10: Goods: Trade: The Ricardian Myth
  104. 104. 10/1 WTO Director-General on citizens loss of confidence in trade Director-General of World Trade Organisation, Pascal Lamy, in a lecture at the University of California, Berkeley, 29 October 2008 said "I would only say that restoring citizens' confidence in trade requires governments to ensure that sound domestic policies are in place. It is reassuring, however, to see that both Presidential candidates have indicated that concluding the Doha Round is an important economic priority and that both reject protectionist solutions to US economic difficulties.“
  105. 105. The Politics of Trade • In global political economy trade is not seen as a politically neutral economic transaction There are winners and losers in every trading transaction - the government and state in terms of security, alliances hegemony - the groups, corporations involved in the transaction • multinational corporations control directly or indirectly 75% of global trade • As an extensions of headquarter state power - trade dependency – indebtedness As a determinant of social/political structure and processes - which income group receives main benefit - which income group consumes goods 10/2
  106. 106. 10/3 Traditional Trade Theory: Comparative Cost •. Ricardo and Comparative Cost - static - dynamic problem - Ricardo writing 1817 of UK - Portugal trade - but Treaty Methuen 1703 fixed trade of wine for textiles - 1790 slave-produced cotton - 1810 UK industrial export cotton cloth • political assumptions of comparative cost - labour market - determined by supply and demand for labour - product market/industrial interest - rational choice of production - military/international relations not involved • power model of trade pattern development Data slide 10D/2
  107. 107. A Power Model of Trade Pattern Creation 10/5 Dominant Power over Both Political Economies Political Economy A Propensity to produce Propensity to consume Political Economy B Propensity to consume Propensity to produce
  108. 108. Power model of international trade • Thus combining created production with created demand • consider: colonial trade and mildly addictive drugs - tea, coffee, sugar, chocolate, opium – failed • How Free is “Free” Trade today? • Sector concentration by multinational corporation - commodity trade – banana’s and oligopoly Data Slide 10/D4 • one corporation trade - Wal-Mart and China Trade - 10% of Chinese exports to USA 8th largest “trading entity” greater than Russia • subsidized and promoted - coffee in Vietnam 10/6
  109. 109. 10/7 World market shares of banana companies 1966 1972 1980 1992 1995 1997 1999 2007 Chiquita 34 30.5 28.7 34 >25 24-25 25 25 Dole 12.3 18 21.2 20 22-23 25-26 25 26 Del Monte 16 1.1 5.5 15.4 15 15-16 16 15 Top 3 54 65.3 69 62-64 65-67 65 66 2-3 7-8 6-7 7-8 8 12 13 11 12 82 86 84 86 47.4 Fyfes Noboa Top 5 70 80 Source: The World Banana Economy, 1985-2002, FAO (data from 1966 to 1999), Banana link (for 2007 data) The whole process, Sir Leon Brittian, then EU Trade Commissioner, told BBC2’ s the Money Programme. “Is being driven by politics in the United States. It is driven by the fact that Chiquita is a company that gives money to the political parties, that the president of Chiquita is very close to Senator Trent Lott.” (1999)
  110. 110. 10/8 Coffee Exporters 19902000 With World Bank help Vietnam went from 2% to 10% of total world exports in 10 years
  111. 111. Moving Towards Managed Trade • combination of:multinational direct and indirect control sector concentration, international financial institutions assistance/demands multinational bilateral free trade agreements regional arrangements • results in a “managed trade” bargaining, politics, power and hegemony prevails over comparative cost The Ideological Power of the “Free” Trade Argument - “free trade” promotes, open society and exchange of ideas - protectionism means authoritarian rule - “free trade” and internationalism • reality is now power bargaining in which the ideology is a part 10/9
  112. 112. Session 11: Goods: Trade as Power
  113. 113. 11/1 The Power Dimensions of Trade Power • Three indicators of trade power - trade dependency - direction of trade - size of trade potential (current imports and exports) - composition of trade (resource dependency) • dependency as percentage of economic size - two of the top 4 economies not trade dependent (10/2) • direction of trade - major trading partners – special relationship? • power of importing - USA imports over 15% of total world exports (10/D2) • resource dependency – energy (10/D3) - political versus economic dependency
  114. 114. Trade Dependency 2007 (selected countries – calculated from US$ values) 1 % Exports to GDP (2004) USA 11.39% Main Export Destination Canada 24% USA 20% Japan 14.3% France 9, USA, 8% Germany 40% Germany 15% France 21% USA 14% Germany 29% UK 16% Netherlands 61% Germany 9 France 11% Italy 24% UK Ireland 47% India 13% China 38% Venezuela 30% Kenya 16% Hungary 68% 18 , USA 17% USA 14% USA 19% USA 53% Uganda 16% Germany 28% Source: Economist Pocket World in Figures 2010 11/2
  115. 115. Direction of World Exports 2008 15-20% Total World Exports 11/3 TO 20 -25% TO 30-35% TO 1 country = USA population +/-350m +/- 53 Countries = Asia population +/- 4 billion 24 countries = Europe population +/- 735 million Source: Britannica Yearbook Data 2009, various trade statistical sources
  116. 116. Resource Dependency: Energy ( 2007 ) Country Size of Economy Percent Current Energy Imported Consumption per head (kg oil equivalent) USA 29 7.7 Japan 81 4.1 Germany 61 4.2 7 1.4 UK 13 3.8 France 50 4.4 Italy 85 3.1 Brazil 8 1.2 India 23 0,5 Kenya 21 0.5 Hungary 63 2.7 Chile 67 1.8 China NB Source: Economist Pocket World in Figures 2010 11/4
  117. 117. 11/5 Trade Policy and Political Regimes • trade association with political liberalism has meant a coincidence policies towards the world and trade policies • 1930’s concept of “economic nationalism” = protectionism mercantilism • the lack of legitimacy of both isolationalism and nationalism resulted in greater efforts at trade liberalization and increased global power of those involved (11/6) Trade and Models of Political Economy – Development and Industrialisation - Import Substitution Industrialisation (ISI) versus Export Oriented Industrialisation (EOI) - forms of corporatism and forms of neo-liberalism - the dynamics of trading income - bipolar society? - resource curse
  118. 118. Law, Trade and Politics: Vocabulary and Relationships 11/6
  119. 119. Current Use of Trade Power - boycotts, sanctions and selective sanctions - as penalty or coercion in global governance - WTO – and the TRIPs and TRIMs - bilateral and regional uses - Free Trade Agreements with links to investment and patents - regional dominant power e.g. China in Asean. - natural resources and the “Resource Curse” - the impact of domestic winners and losers and the transmission to foreign policy - state and corporation in trade relationships increasingly state represents corporation in inter-state negotiations 11/7
  120. 120. Session 12: People: Cheaper Labour
  121. 121. Current Arguments About Cheaper Labour 12/1 • Cheap labour, or more accurately cheaper, labour major media discussion of the past decade • Arguments that are made a) that the rich countries exploiting the cheaper labour of the poor and are therefore richer b) that multinationals are mainly concerned with seeking cheaper labour c) that high-waged rich countries labour must compete and adjust with low–waged countries d) that cheaper labour costs represents “unfair” competition with high wages and must be constrained
  122. 122. 12/2 How Accurate are These Arguments? • there is some degree of accuracy in the arguments but usually not significant or substantial as already noted in other sessions a) that the extraction from the south is not substantial even if “unequal exchange” in labour was counted b) multinational corporations invest mainly in high-waged countries c) income losses in rich countries greater from job loses through “outsourcing” and production transfer • This session objective to consider these issues
  123. 123. Labour Cost – The Basics •. productivity and unit labour cost 12/5) • wage determination - classical, - Marxist, - Polyani and the institutionalists • labour market segmentation gender, race, religion, caste and skill • conditions of work – health and safety work and labour at the core of models of PE and politics 2/3
  124. 124. 12/4 Definition of Labour Cost – World Bank 12. Unit labor costs, which are used here to assess labor competitiveness, are defined as the total labor cost associated with producing one unit of a given good. To facilitate international comparisons and competitiveness analysis, unit labor costs are measured in a common international currency, usually the dollar. Unit labor costs are calculated as the ratio of wages (expressed in dollars) to average labor productivity (expressed in physical output per worker). In order for a country's labor to be competitive in the production of a good, its unit labor cost must be at least as low as that of other countries World Bank Bangladesh: Labour Market Policies for Higher Unemployment: 1995, paragraph 12 .
  125. 125. Hourly Compensation Costs Production Workers in Manufacturing 2004 Source: US Department of Labor 2005 NB China = $ .67 or 3% USA 12/5
  126. 126. Employer’s Costs for Dismissal in Number of Weeks Wages (2005) 12/6 Source: World Bankl/Volkskrant 13/9/2005
  127. 127. Health Loss Compensation Costs Apartheid South Africa 1973 Source: J, Harrod and V. Thorpe, Asbestos: Politics and Economics of a Lethal Product ,Geneva, ICEM 1984: p.52. 12/7
  128. 128. 12/8 Infamous 1991 “Dirty Industry” Memo from L. Summers then a World Bank Chief Economist now Chief Economic Advisor to President Obama DATE: December 12, 1991 TO: Distribution FR: Lawrence H. Summers Subject: GEP 'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Least Developed Countries]? I can think of three reasons: 1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages . I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. Source: websites and Financial Times 1991
  129. 129. Trade and international competitively 12/9 • recapitulation and models * international competitivity and economic competitiveness two terms most associated with neo-liberal global policies previously exports and balance of payments. * the meaning of international competition the ability to export innovation, technology, price * components of price i) productivity = technology, capital. environmental impact and ii) labour cost * BUT components labour cost = wages determined by the model of PE (strikes, sabotage, motivation) = state taxes, labour laws, • model competition and structural = change nature of society/model
  130. 130. 12/10 Global Trade and Labour Cost Political Problems * disruption from unequal exchange * Export Oriented Industrialisation (EOI) = trade liberalisation and labour cost inherent in structural adjustment * the unpopularity of trade WTO and Seattle Pascal Lamey and “restoration of citizen confidence” China trade disruption (12/11) * the luxury of low level trade dependency
  131. 131. Trade With China costs jobs* in every state of USA 2001-2007 12/11
  132. 132. 12/12 Current Attempts to Correct Global Labour Exploitation • development of Bilateral Trade Agreements brings state back in • opposition to Free Industrial Zones • social clause in international trade ILO core conventions child and forced labour organisation and bargain collectively • fair trade • ngo, ingo campaigns and ethical stocks • corporate social responsibility *conditions of labour *human rights *environment • rise of anti-corporate, trade and global populism
  133. 133. Session 12: People: Migrants and their Money
  134. 134. Migration and Migrants • definitional problems migrant must be distinguished from race and religion also from minorities and “visible minorities” • official definition = living outside country of origin • Current 3% global population or 3-4% global labour force • 13/1 Thus not a massive move of populations 97% of global population do not change their country of residence .
  135. 135. 13/2 Migration as a Human Capital Transaction between Societies • human capital approach • transfer: the burden of the unproductive years, and less productive years : cost of higher education and skill development home society bears the burden host society reaps the benefit
  136. 136. 13/3 Migrants as a Category of Labour • productivity and contribution no greater than resident population work harder in same time = increase in productivity ? • wages and conditions of work - migrant as socially disadvantaged labour ( children, women, elderly) * work for less * work harder and for less * work in worse conditions • equals net gain for direct employer partial gain for indirect employer – wider society? • weakening labour organisations, reduction in solidarity?
  137. 137. 13/4 Migrants, Domestic Politics and Political Risk • political risk analysts indicate lower political risks less diversity assumption less diversity less social turbulence Putman study shows conflict between and within ethnic groups • migration as a deregulatory employers gift (Bartram) political regimes and models involved migration, minimum wage v political risk • mass migration of low-skilled to bottom income quintiles in rich countries – the material balance unevenly distributed migrants gain employers gain low-incomes lose via fiscal pressure, wage depression? other?, • migration issue is code for distribution issue – low-waged versus high incomes
  138. 138. Average family Income of Mexican-American children by generation (in 2000 $) 13/5
  139. 139. Average Fiscal Balance of Migrant to Netherlands 2002 13/6 E1000.Average Netherlands contribution Average Fiscal contribution non-western migrant age X axis = E1000 Y axis = age : Source: Central Bureau Statistics, Central Plan Bureau, published Volkskrant 14/12/2002 p.13
  140. 140. 13/7 Remittances are the second largest source of finance for Developing Countries Source: Dilip Ratha, Global Economic Prospects 2006: Economic Implications of Remittances and Migration, World Bank.
  141. 141. Migrant Remittances lower debt service ratios Source: Dilip Ratha, Global Economic Prospects 2006: Economic Implications of Remittances and Migration, World Bank. 13/8
  142. 142. Circular flow of Migrants Remittances - An illustration Debt Repayment Government Bank Where Cleaner works Foreign currency Begin 13/9 Family in Pakistan Cleaner in Western Bank remittance
  143. 143. 13/10 Financial Flows and Global Politics economic models – corporatist v. neo-liberalism migrant remittances as a financial flow global politics: diaspora political movements global ideological and religious movements
  144. 144. Session 14: Global Governance: Sectoral Power
  145. 145. Sectoral Politics 14/1 • what are global sectors – clusters or regimes of organisations (actors) around a product or service at the global level • sector usually refers to a global industrial sector – e.g. wide-body passenger jets, pharmaceuticals, sugar, • why study global sectors -as a heuristic device – to illustrate what happens in global governance -as case studies of global governance - for material importance of sector – natural resources - because the transformation undergoing of corporate concentration takes place first at the sector level • sectors illustrates the new historical conjuncture because of a) concentration b) size of and global scope of corporations • sectors in global governance – increasingly involve “private authority” in global politics
  146. 146. 14/2 Major sectoral differences labour intensive v capital intensive natural resource based v industrial goods Intermediate goods v consumer goods export v domestic strategic/essential v extrinsic material security vertical integration v horizontal integration (product and value chain)
  147. 147. Multinational Corporation Sectoral Analysis 1) Production 2) Operations (Market) 3) Structure 4) Global Political Power 2. Operations (market) • global 1. production • regional • labour intensive • national • capital intensive high/low • export • investment risk high/low • consumer • manufacturers • dirty/clean • nature of raw materials – feedstock • public/private • service • mass/specialty 3 Structure • corporations – headquarters • FDI stock • size (revenue/employment) • Global/regional • market share • NGO’s INGO’s BINGO’s • Regulators 14/3
  148. 148. 14/4 Strategic Power and Political Sectoral Endowments Calculative Endowments Product - “essential goods” natural resources, pharmaceuticals, food and feedstocks, Consumers: core industries, defense, dominant industries key political groups Employment: size of labour force used: locality Size: sectoral contribution to global national gdp Location: proximity to resources, geo-strategic areas Scope: number and geographical spread of subsidiaries Political Endowments - lobby - capture of state, party,, individuals
  149. 149. Sectoral Analysis - Different Approaches 14/5 - neo-classical and neo-liberal = the underlying force of market demands monopoly, oligopoly and economic rent theories - global realism - who has the sectoral power and what they do with - regime theory can incorporate power, human agency and in particular the other private non-corporate actors (global civil society organisations) • Regime theory:- that actors interests surrounding a given issue area may converge sufficiently to create norms, rules and decision-making procedures, and practices around which actors expectations converge . • if no convergence – then nature of regime changes but may not disappear • regime may be a political space in which conflict takes place but where actors know the nature of the tactics and strategies of each other
  150. 150. Sectoral Case Studies: Oil 14/6 Oil Politics – Structural dimensions 1) Oil is energy plus feed stock for plastics and other strategic materials 2) The major consumers of oil are in the highly industrialized countries BUT the major producers are in ROW 3) The United States – the largest economy has an energy intensive life-style and consumes:twice as much energy per capita than Germany, France or Japan (other large industrialized economies with similar GDP per capita) 4) production, transport and consumption levels thus become crucial for sustaining the global status quo, life-styles and etc. 5) The oil corporations USA headquarter Exxon-Mobil, Chevron, Conoco Phillips and the European headquartered Shell, BP, and Total have approximately half each of the turnover of the “oil majors” BUT a) only Total is not Anglo-American ( Shell = hybrid) b) no important global-scope majors from other large economies (Japan, Germany)
  151. 151. Oil Empires: Romania at the Crossroads 14/7 Dan Dimancescu June 5 2007 Romania is once again at the heart of competing 'imperial' pressures. This time it is shaped by oil stakes that pit the world's powers, Russia, Europe, the United States and China against one another. By virtue of its strategic location along the Black Sea, Romania has become a major conduit point for Caucasus and Caspian Sea oil seeking routes to markets other than through Russia. The United States, in particular, has worked aggressively to establish alternate conduits for oil and gas around Russia. Afghanistan was viewed as one potential southerly transit country. Another is the Georgian route bringing Caucasus oil into to Black Sea harbours and into Turkey and Europe. The Baku-Tbilisi-Ceyhan (BTC) Pipeline, opened in May 2006, is the first fruit of that strategy with a 10 million barrel capacity. A map (adjacent), of planned and projected pipeline conduits for Caspian Sea oil and gas sources, illustrates the geo-political importance to routes that by-pass Russia. It also emphasizes the new role given to Romania as a connecting point into Europe.
  152. 152. Sectoral Case Studies: Asbestos-use Regime 1985 • Fire producing material • 1930s reveals lung cancer from then – struggle over use within the sector • Two diseases 14/8 Asbestosis and cancer – cancer caused only by asbestos • Four corporations J-M (USA) Gencor (South Africa) Cape Asbestos (UK) • Oppositional regime begins doctor USA activist UK • Enter social movements trade unions international trade unions • other organisations involved WHO, ILO political parties • 1974 Sweden banned asbestos • Corporations moved into the “civil society” organisations secured support from inter-state organisations – World Bank • Became an opposition regime involving individuals, ngos, ingos, which eventually obtained some success in banning the substance Source: J. Harrod and V. Thorpe, Asbestos: The Politics and Economics of a Lethal Substance (ICEM 1984)
  153. 153. 14/9 ectoral Case Study: Cement: Leading Cement Corporations 2008 Coporation Headquarters Production MTons Sales (approx) LaFarge France 205 $19b Holicim Switzerland 194 Heidelberg Germany 103 Cemex Mexico 96 Italcementi Italy 77 $6b Buzzi Unicem Italy 43 $3.5 $25b $14b $21b NB 1) the “Big Four” only directly control +/- 23% of global market 2) size global sector = +/- $400b: compare pharmaceuticals $1000b
  154. 154. Global Cement Consumption and Production ( million tons ) Consumption (top 5) Production China 1390 ROW 600 India 190 USA 100 Russia 70 Japan 70 Vietnam 183 USA 84 Japan 68 Russia 53 70 Iran India 70 Italy 1400 80 Brazil China 70 Source: International Cement Review: Global Cement Report 8th Edition 2008 14/10
  155. 155. Special Characteristics of Cement Industry - capital intensive - dirty - not-transportable - major supply to state sector - supplier of basic need “shelter” Cement major’s Corporate Strategy Strategic participation – price control Outcome: High Political Profile - early 1994 Greek banker murder by terrorist group for his role in Greek privatization of Cement Company Heracles - 1994 ex-Greek Prime Minister indicted for bribe of cement privatization - major players in conflict-destruction-reconstruction - political involvement as basic needs supplier - 2008 Chavez nationalizes cement industry 14/11
  156. 156. 14/12 Cement Corporations in Egypt: Who would have “In Guessed?for the time being only an exceptionally clownish cement company other words, would fail to profit in the Egyptian market. Five foreign building materials companies now own controlling stakes in Egyptian cement companies). In part, this reflects a strong consolidation trend in the industry globally. Indeed, Lafarge (part owner of Beni Swaif Cement) has been trying, with little success, to acquire the UK's Blue Circle (majority owner of Alexandria Cement).” Magazine article by Tom Owen; The Middle East, July 2000. -------------------------------------------------------------------------------------------------“Cairo had banned exports for six months in 2008 and has now ordered an investigation into cement trading practices because of rapidly fluctuating domestic prices. Executives at Egyptian cement producers were fined $l.8m each in 2007 for breaking anti-monopoly and price fixing regulations. The government also now requires producers to set maximum prices for each stage of the cement production process.” Magazine article; African Business, No. 355, July 2009
  157. 157. 14/13 Cement Sector: A voice from the Global South Globalization has thus simply provided the opportunity for corporations, particularly transnational corporations like Cemex, Holcim, and Lafarge to increase their investments, expand their conglomerates,and edge towards monopolization of the world’s cement industry through managing economies of scale because of their large capital investments in cement manufacturing. This is aside from the domestic factor that Philippine labor is cheap but productive. These cement firms are also able to impose their conditions on the government by their concerted lobbying and threats to move elsewhere if their conditions are not met. The case of the cement industry is another showcase of how globalization has spread its effects to a developing country like the Philippines. It adheres to corporate power as its core concept, thus limiting the chances of people, specifically workers, to achieve maximum social and economic improvement within a framework of social justice. The organization of workers in trade unions in particular has been jeopardized and the collective ability of workers to question, challenge and balance corporate power has been weakened. Dr. Divina M. Edralin, is a full professor at the Business Management Department, College of Business and Economics of De La Salle University-Manila. This article is taken from the conclusion of a commissioned study on the Cement Industry undertaken by the author in October 2003..
  158. 158. Cement Industry Nationalised in Venezuela 14/14 Hugo Chavez Nationalizes Cement Industry President Hugo Chavez Thursday announced the immediate nationalization of Venezuela's cement industry, a move that will hit Mexico's Cemex, just a year after Chavez launched a wave of state takeovers. The former paratrooper last year launched a broad nationalization crusade in the energy and telecommunications sectors while threatening to go after other industries such as banking, cement and steel. "Nationalize it, and as of this instant take all the legal measures ... to nationalize in the short term all of the national cement industry," Chavez said during a televised speech. Chavez has frequently accused private cement companies of exporting their production rather than selling it into the domestic market to help ease a housing shortage that has drawn complaints from his supporters. Source: by: Reuters | 04 Apr 2008 | 04:18 AM ET
  159. 159. Research Project: Global Politics Session 15: Global Governance: J. Harrod- UvA State and Private Authority(8,6/3) Global Civil Society accepted as problematic - no global state GSMs and GSOs are sub-nation state in the global space global civil society needed for : neo-Gramscians for counter hegemony moralists and constructivists for global norm change and development global governance - instruments of policy Actors in multi-national /global civil society space • corporations and and banks in industrial and service sectors politics of sectors – sectoral regime • social movements and global civil society • global ngo federations • networks global cyber-space
  160. 160. Global Governance 1: Inter-state Cooperation lecture divided into two parts global governance:1 – inter-state organisations and processes and global governance 2 - sub-state organisations and processes • Westphalia nation state system League of Nations United Nations • world government and its opposition - functional theory of peace by pieces (Mitrany and functionalism) integration and cooperation and spill over • International Organisation = first attempt at global government (Slide 15/2) • government without sovereign authority 15/1
  161. 161. Organogram for Intended World Government 15/2
  162. 162. Networks of Inter-State Organisations • network of international organisations as prime structure of global politics • secretariats as advocacy voices international civil service • types of organisations - security and negotiation fori UN security council , Nato - social policy organisations specialized agencies of the UN still important to institutionalisms and constructivists - international financial institutions intention – global democratic socialism (Keynesianism ) failure – major inter-state organisational support for corporations/banks • approaches: organisation theory; regime theory; hegemonic theory 15/3
  163. 163. 15/4 The Demise of Global Governance 1 • ideology of global governance 1: - sovereignty cooperation, integration, security, development, global voting • based on avoiding of percieved problems 1930s • limited success in security – Cold War • presided over a de-colonialsiation process • laid foundations for greater communication in social policy • move towards global framework agreements – New Orders Movement. • rejected by major states 1980 onwards
  164. 164. 15/5 Global Governance 2: Governance by Global Private Authority • The ideal definition “Governance is the sum of many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and co-operative action taken. It includes formal institutions and regimes empowered to enforce compliance, as well as informal arrangements that people and institutions either have agreed to or perceive to be in their interest” UN Commission on Global Governance • a realist definition “a process at the global level through which diverse interests are accommodated or subsumed thorough the actions of powerful non-state actors” J.Harrod 2010
  165. 165. 15/6 The Emergence of Global Governance 2 1) direct imperial – not only statist 2) indirect – post-imperial phase = neo-colonialism 3) 1970 - 1980 - New World Orders attempt (centred on specialised agencies of the UN) 4) 1980 neo-liberal and globalisation • Substitution of cooperation and integration by “globalisation” • Globalisation the ideology of multinational corporations and transnational banks to assure access to local areas and freedom of global action
  166. 166. Global governance 2 introduces “global civil society” 15/7 • Creation of a global civil society as consequence and reaction to reduction in inter-state organisational power • the idea of “global society" and “global civil society” Tonnies = society v community Hegal = civil society Gramsci = hegemony with “counter-hegemony” in civil society? Polyani = if global market then global double movement? • Global Civil Society accepted as problematic - no global state • but there is a global “political space” in which non-governmental organisations, international ngo’s, corporations, corporations state agencies, and individuals act
  167. 167. Actors in multi-national /global civil society space • corporations and and banks in industrial and service sectors politics of sectors – sectoral regimes • social movements and global civil society • global ngo federations • networks global advocacy • state agencies • global civil society needed for : - neo-Gramscians for counter hegemony - moralists and constructivists for global norm change and development - global governance - instruments of policy • countervailing or counter hegemony mixed success • Contradiction between the increased opportunity for the citizen at global level and his/her decreased impact with public-interest state representation 15/8
  168. 168. Conclusion: The Last Word Research Project: Global Politics Session 16: J. Harrod- UvA (8,6/3) Global Civil Society accepted as problematic - no global state GSMs and GSOs are sub-nation state in the global space global civil society needed for : neo-Gramscians for counter hegemony moralists and constructivists for global norm change and development global governance - instruments of policy Actors in multi-national /global civil society space • corporations and and banks in industrial and service sectors politics of sectors – sectoral regime • social movements and global civil society • global ngo federations • networks global cyber-space
  169. 169. The Last Word Felipe Gonzalez, ex prime minister of Spain 1982-1996 speaking in an interview April 2010 as reported in El Pais, Madrid 10, May 2010. 16/1 “Remember the statement of President Eisenhower in the 1950s – he said:‘we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the industrial-military complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes.’ This never happened. But are we now not in the presence of a global financial power which threatens the power of representative governments? I am convinced that we are.” Felipe Gonzalez -------------------------------------------------------------------------------------------------Remarks by the President Obama in Address to the Nation on the “Way Forward in Afghanistan and Pakistan” Eisenhower Hall Theatre, United States Military Academy at West Point, 1, December 2009 ( Whitehouse website) “And unlike the great power conflicts and clear lines of division that defined the 20th century, our effort will involve disorderly regions, failed states, diffuse enemies.” Barak Obama