PA 315 Government Business Relations Chapter 11 1 Up till now, we have completed the first portion of class, which we focused on economic development policies and practices in domestic context. We examined the tensions between government business relations in the following dimensions: market vs. government (how much role should government play in economic development) public interest vs. private interest (how to balance the pubic and private interests in economic development) Starting from today, we are going to the second half of the class, focusing on economic development policies in the international context. The tensions between government and business relations are examined in the following perspectives: neoliberalism vs. protectionism (how extensive should government policies be promoting free trade and protecting domestic industries) national interest vs. global responsibility (as a player in the global arena, how to balance the national interest and its global responsibility) What’s left… Globalization Neoliberalism and Protectionism North American trade agreements (examples of regional trade agreements) –NAFTA – North American Free Trade Agreement Free Trade vs. Fair Trade – European Union (regional economy and political integration) – IFO: International Finance Institutions – In the second half of the class, we will shift to analyze the international trading regimes and government’s role in managing them. Here are the topics as listed in your syllabus. NAFTA – Mexico, Canada, and United States CAFTA – Expansion of NAFTA – includes Central American countries of 1. Costa Rica 2. El Salvador 3. Guatemala 4. Honduras 5. Nicaragua In 2004, Dominican Republic was added and the agreement was renamed CAFTA –DR The free trade area of the Americas is an expansion to the NAFTA. Representatives from all countries in North, South, and Latin America, as well as the Caribbean are involved. The only country not represented is CUBA. 2 What is globalization? When you think of globalization, do you think of it in positive terms or negative terms? Globalization Globalization is an umbrella term It is the free movement of goods, services, and people across the world in a seamless and integrated manner Things to consider… Most regions are self sufficient – locally produced foods, fuels and raw materials are generally processed for local consumption. Even though trade has been around for centuries (silk traders), trade between regions was limited. Today, economies of most countries are interconnected creating a single, interdependent global economy. The term globalization includes change through the spread of ideas, information and perceptions which lead to cultural and social changes. 4 The world is entered into an era of globalism or globalization, which is an umbrella term for a complex series of economic, social, technological, cultural and political changes. It is seen as increasing interdependence, int ...

1. PA 315
Government Business Relations
Chapter 11
1
Up till now, we have completed the first portion of class, which
we focused on economic development policies and practices in
domestic context. We examined the tensions between
government business relations in the following dimensions:
market vs. government (how much role should government play
in economic development)
public interest vs. private interest (how to balance the pubic
and private interests in economic development)
Starting from today, we are going to the second half of the
class, focusing on economic development policies in the
international context. The tensions between government and
business relations are examined in the following perspectives:
neoliberalism vs. protectionism (how extensive should
government policies be promoting free trade and protecting
domestic industries)
national interest vs. global responsibility (as a player in the
global arena, how to balance the national interest and its global
responsibility)

2. What’s left…
Globalization
Neoliberalism and Protectionism
North American trade agreements (examples of regional trade
agreements) –NAFTA – North American Free Trade Agreement
Free Trade vs. Fair Trade –
European Union (regional economy and political integration) –
IFO: International Finance Institutions –
In the second half of the class, we will shift to analyze the
international trading regimes and government’s role in
managing them. Here are the topics as listed in your syllabus.
NAFTA – Mexico, Canada, and United States
CAFTA – Expansion of NAFTA – includes Central American
countries of
1. Costa Rica
2. El Salvador
3. Guatemala
4. Honduras
5. Nicaragua
In 2004, Dominican Republic was added and the agreement was
renamed CAFTA –DR
The free trade area of the Americas is an expansion to the
NAFTA. Representatives from all countries in North, South,
and Latin America, as well as the Caribbean are involved. The
only country not represented is CUBA.

3. 2
What is globalization?
When you think of globalization, do you think of it in positive
terms or negative terms?
Globalization
Globalization is an umbrella term
It is the free movement of goods, services, and people across
the world in a seamless and integrated manner
Things to consider…
Most regions are self sufficient – locally produced foods, fuels
and raw materials are generally processed for local
consumption.
Even though trade has been around for centuries (silk traders),
trade between regions was limited.
Today, economies of most countries are interconnected creating
a single, interdependent global economy.
The term globalization includes change through the spread of
ideas, information and perceptions which lead to cultural and
social changes.
4
The world is entered into an era of globalism or globalization,
which is an umbrella term for a complex series of economic,
social, technological, cultural and political changes. It is seen
as increasing interdependence, integration, and interaction
between people and firms in different locations.
The driving forces for globalism include the dominance of the

4. neoliberalism philosophy. Ideologically, more nations have
become in agreement in economic terms. The second reason is
the technology advancement, especially the Internet and the
WWW, which reduced the role of place. The third force is the
greater global awareness. e.g. NASA astronauts brought back
environmental movement.
Derogatory: tending to lessen the merit or reputation of a person
or thing; disparaging; depreciatory: a derogatory remark.
Types of Globalization
Economic – Countries that trade with many others and have few
trade barriers are economically globalized.
Political – The amount of political co-operation there is
between countries.
Social - A measure of how easily information and ideas pass
between people in their own country and between different
countries (includes access to the internet and social media
networks).
Cultural – transmission of ideas, meanings and values around
the world.
Economic Globalization
Advantages and Disadvantages

5. Advantages –
Increase in productivity
Economic growth
International peace
Increased standard of living
Access to new markets
Introduction to newer technologies
Disadvantages
Depletion of local resources
Violation of human rights
Widening disparity in income
Lack of fair trade

6. Examples
Parts of automobiles being assembled in the United States while
originating in Japan
Avocados being sold all year long in the United States –
seasonal at one time
Asian restaurants in the United States
Fashion trends in Europe end up in Brazil
Political Globalization
Political globalization refers to the growth of the worldwide
political system that includes national governments, their
governmental and intergovernmental organizations.
Examples
The European Union (EU) –
The European Union is a unified trade and monetary body of 28
member countries. Its purpose is to be more competitive in the

7. global marketplace. At the same time, it must balance the needs
of its independent fiscal and political members.
Intergovernmental agencies like the:
International Monetary Fund (IMF)- is an organization of 189
countries, working to foster global monetary cooperation,
secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce
poverty around the world
World Trade Organization (WTO)- deals with rules of trade
between nations. Goal is to ensure that trade flows as smoothly,
predictably and freely as possible.
United Nations (UN)- established to confront issues such as
peace, security, climate change, sustainable development,
human rights, terrorism, humanitarian and health emergencies,
gender equality, food production, etc.
World Health Organization (WHO)- primary goal is to direct
and coordinate international health
Pros of Political Globalization
Access to international aid and support
World peace
Smaller countries can work together and gain more influence
internationally
International organizations are often committed to spread values

8. like freedom and to fight abuses within countries
Governments can learn from one another
Cons of Political Globalization
State dominance is reduced
The functioning of international organizations is not always
democratic in nature
Larger countries can dominate decisions within organizations
Smaller countries are not as represented
Social Globalization
Pertains to human interaction within countries
Defined as the intensification of worldwide social relations

9. Links distant localities in a way that local happenings are
shaped by events occurring many miles away
The use of communication technologies, and the Internet in
particular, has been widely credited as contributor to the
mobilization of protests
Social Networking
Facebook – has more than 900 million active users allowing for
a real world social connection
Communication can be delivered in the form of text, audio, or
video
Global exchange of views, opinions, and ideas
Encompasses topics –
Family –
Religion –
Education –
Family – transfer of family values and concepts of people of
different societies around the world
Role of women in society

10. Perception of a perfect life can have a negative affect
Religion – ideas and beliefs of different religions are portrayed
to people around the world
Allows for greater religious tolerance and understanding
Can also portray negative images of religion
Education – ideas, values and knowledge, changing the roles of
students and teachers
Increase access to the world
Introduction of technology changing the nature of delivering
education
Western ideas are creeping into societies that want to appear
more modern
Cultural Globalization
Refers to the transmission of ideas, meanings and values around
the world in such a way as to extend and intensify social
relations.
Comes through internet, popular culture media, and

11. international travel.
Examples
Food
Fashion
Festivals
Westernized consumer culture – McDonalds and Coca Cola are
examples of dominance of American products in foreign
countries
Positive Influences
Acceptance of other cultures
Communication
People of different cultures
People of one culture can adopt other cultures
Cooking, music, and fashion

12. Negative Influences
Local cultures are ignored as people want to become more
westernized
Song
Dance
Food
Exploitation of workers and markets
Influence of societal values
Cultures are diminished
Neoliberalism
Globalization has been accelerated by the adoption of free
market principles
Neoliberalism – advocates for transferring control of the
economy from the public to the private sector
Belief that it will lead to improved economic health
Create a more efficient government
Society should be shaped by the free market
Smaller government and more robust role for the market
Basically, what works in the private sector will work also in the
public sector.
The term “globalism” is often used as a substitute for
neolibralism, which is an abbreviation of “neoclassical
liberalism.” It is sometimes described as an effort to revert to
the economic policies of the 18th and 19th centuries classical
liberalism, as articulated by the works of Adam Smith and

13. David Richardo.
The movement emerged during the 1970s and has been lasted
through at least the late-1990s, and possibly into the present (its
continuity is a matter of dispute). In current economic crisis, we
have observed many of the reverse neoliberalism signals
already. The world is definitely at a turning point now.
20
Neoliberalism
Policies Advanced by Neoliberalism (John Williamson's
"Washington Consensus“) :
Free trade: removal of trade barriers, like tariffs, subsidies, and
regulatory trade barriers
Privatization: transfer of previously-public-owned enterprises,
goods, and services to the private sector
Fiscal restraint: governments would cut expenditures and/or
raise taxes to maintain a budget surplus
Competitive exchange rates: governments would accept market-
determined exchange rates, as opposed to implemented
government-fixed exchange rates
Undistorted market prices: governments would refrain from
policies that would alter market prices
Limited intervention: (exception for promoting exports,
education or infrastructural development)
Source: Wikipedia
Generally speaking, neoliberalim is market-driven. Policies
advanced by neoliberalism is often called the Washington
Consensus. One major policy of Washington Consensus is free
trade.
21

14. Neoliberalism policy implications…
enticement of foreign investment;
reduction of inflation;
reduction of public spending;
privatization of public services;
deregulation of industry and finance;
reduction and flattening of taxes;
restriction of union organization; and, finally,
enforcement of property and land ownership.
Politicians don’t necessarily have to profess faith in all of these
norms to be considered neoliberal. Rather, they have to buy into
neoliberalism’s general market-based logic and its attendant
promise of opportunity..
22
Free Trade
23
The major policy pushed by neolibralism is free trade, the
removal of trade barriers, like tariffs, subsidies, and regulatory
trade barriers
Free Trade
Pro-Free Trade Arguments

15. A wider variety of goods to choose (choice)
Specialization in production of goods and services with
advantages (efficiency)
Maximize consumer welfare (welfare)
In this class, we are going to discuss the arguments for and
against free trade which is a major neoliberalism policy.
The pro-free trade arguments include:
It maximizes the interest of consumers throughout the world by
giving them a wider variety of goods from which to choose.
Differences in the efficiency of land, labor, and capital make it
profitable for nations to specialize in the production of goods
and services in which their resource situation is the most
advantageous, and exchange them for the goods and services of
other nations with different resource advantages.
If there were no restraints placed on the movement of goods and
services from one region to another, or from one nation to
another, then in theory the welfare of consumers would be
maximized.
24
Theories of Trade
David Ricardo
Absolute advantage
When a nation can produce a good or service more efficiently
than another nation, the latter should buy from the former
Comparative advantage
If a nation has an advantage over another nation in production
of several goods, it should produce the good in which it has the
greatest comparative advantage and buy the good in which it has

16. the least advantage from the other nation.
David Ricardo (18 April 1772-11 September 1823) was a
political economist, often credited with systematizing
economics, and was one of the most influential of the classical
economists, along with Thomas Malthus and Adam Smith.
He was also a member of Parliament, businessman, financier
and speculator, who amassed a considerable personal fortune.
Perhaps the most important of his contributions was the theory
of comparative advantage, an fundamental argument in favor of
free trade among countries and of specialization among
individuals.
Ricardo argued that there is mutual benefit from trade (or
exchange) even if one party (e.g. resource-rich country, highly-
skilled artisan) is more productive in every possible area than
its trading counterpart (e.g. resource-poor country, unskilled
laborer), as long as each concentrates on the activities where it
has relative productivity advantage.
25
Absolute Advantage, Comparative Advantage, and Opportunity
Cost
Absolute Advantage = produced at lowest cost
Comparative Advantage = produced at lowest opportunity cost
Opportunity Cost = a benefit that a person could have received,
but gave up, to take another course of action
https://www.youtube.com/watch?v=RpfV0Oerfr8

17. 26
Advantages of Free Trade
1. Increased economic growth
2. More dynamic business climate
3. Lower government spending
4. Foreign direct investment
5. Expertise
6. Technology transfer.
27
1. Increased economic growth.
2. More dynamic business climate. Often, businesses were
protected before the agreement. These local industries risked
becoming stagnant and non-competitive on the global market.
With the protection removed, they have the motivation to
become true global competitors.
3. Lower government spending. Many governments subsidize
local industry segments. After the trade agreement removes
subsidies, those funds can be put to better use.
4. Foreign direct investment. Investors will flock to the country.
This adds capital to expand local industries and boost domestic
businesses. It also brings in U.S. dollars to many formerly
isolated countries.
5. Expertise. Global companies have more expertise than
domestic companies to develop local resources. That's
especially true in mining, oil drilling and manufacturing.
6. Technology transfer. Local companies also receive access to
the latest technologies from their multinational partners. As
local economies grow, so do job opportunities. Multi-national

18. companies provide job training to local employees.
As the market potentially served expands from a national to
world market, there are
Gains with declining per-unit production costs (greater
efficiency)
Gains result from the reduction in the declining monopoly
power of domestic firms (less market distortion) -
Consumers gain with increased product variety and lower costs
(consumer focus)
Tax subsidies – an industry that the government wants to
support – through loans, grants, procurement policies that pay
more than the free market pricing and even stock purchases.
Farms – receive subsidies to guarentee our food supply remains
stable and able to meet the needs of our country. Farmers of
grains, corn, wheat, and rice.
Another is the Housing subsidies – comes in tow forms –
interest rate subsidies and down payment assistance. One of the
biggest interest rate subsidies is the mortgage interest deduction
on the federal income tax. Low income families have certain
tax exemptions. Down payment programs such as first time
buyers if you qualify.
FANNIE MAE AND FREDDIE MAC – was the bailout
Cash for Clunkers program was a subsidy to auto dealers – they

19. received a 3500 to 4500 subsidy from the federal government to
encourage dealers to discount new vehicle purchases.
Obamacare subsidies -
Disadvantages of Free Trade
1. Increased job outsourcing. Reducing tariffs on imports allows
companies to expand to other countries. Without tariffs, imports
from countries with a low cost of living cost less. It makes it
difficult for U.S. companies in those same industries to
compete, so they may reduce their workforce.
2. Theft of intellectual property. Many developing countries
don't have laws to protect patents, inventions and new
processes. The laws they do have aren't always strictly
enforced. As a result, corporations often have their ideas stolen.
They must then compete with lower-priced domestic knock-offs.
3. Crowd out domestic industries. Many emerging markets are
traditional economies that rely on farming for most
employment. These small family farms can't compete with
subsidized agri-businesses in the developed countries. As a
result, they lose their farms and must look for work in the
cities.
4. Poor working conditions. Multi-national companies may
outsource jobs to emerging market countries without adequate
labor protections. As a result, women and children are often
subjected to grueling factory jobs in sub-standard conditions.
5. Degradation of natural resources. Emerging market countries
often don’t have many environmental protections. Free trade
leads to depletion of timber, minerals and other natural
resources. Deforestation and strip-mining reduce their jungles
and fields to wastelands.
6. Destruction of native cultures. As development moves into

20. isolated areas, indigenous cultures can be destroyed. Local
peoples are uprooted. Many suffer disease and death when their
resources are polluted.
7. Reduced tax revenue. Many smaller countries struggle to
replace revenue lost from import tariffs and fees.
28
1. Increased job outsourcing
2. Theft of intellectual property
3. Crowd out domestic industries
4. Poor working conditions
5. Degradation of natural resources
6. Destruction of native cultures
7. Reduced tax revenue
Free Trade vs. Fair Trade
Free Trade vs. Fair Trade

21. Main Goal
Focuses on
Major Actions
Cre
30
Free Trade or Protectionism
Autarky is the quality of being self-sufficient. Usually the term
is applied to political states or their economic systems.
Autarky exists whenever an entity can survive or continue its
activities without external assistance or international trade.
https://www.youtube.com/watch?v=5ITyd1Pzek0
Autarky is the quality of being self-sufficient. Usually the term
is applied to political states or
their economic systems. Autarky exists whenever an entity can
survive or continue its activities without external assistance or
international trade.
Marion Anne Perrine "Marine" Le Pen is a French politician and
lawyer, and president of the National Front. She went against
Emmanuel Macron – President of France – May of 2017
31

22. Protectionism
32
If free trade is as described, would there be anybody against
free trade? What could be their arguments?
Protectionism
Protectionism refers to economic policies that restrain trade
between nations, through methods such as
tariffs on imported goods,
restrictive quotas,
a variety of restrictive government regulations designed to
discourage imports,
anti-dumping laws in an attempt to protect domestic industries
in a particular nation from foreign take-over or competition.
Source: Wikipedia
Let’s now look at those arguments against free trade from the
protectionism camp. Protectionism refers to economic policies
that restrain trade between nations, through methods such as
tariffs on imported goods, restrictive quotas, a variety of
restrictive government regulations designed to discourage
imports, and anti-dumping laws in an attempt to protect
domestic industries in a particular nation from foreign take-over
or competition.
33
Forms of protectionism
Subsidies:

23. Tax credits, direct subsidies (loans)
Infrastructure subsidies or free resources such as water or use of
public lands at little cost
Exchange controls:
currency values can be controlled and that affects the trading
relationship.
Currencies with low valuation can encourage low imports and
high exports by keeping value of money low against other
currencies.
e.g., China today
Dumping: selling a product in another country at a cost lower
than its production cost
*These three forms “unfairly” promote domestic goods in
foreign markets.
34
The second group refers to those “unfairly promote domestic
goods in foreign markets.”
Subsidies: tax credits, direct subsidies (loans), infrastructure
subsidies or free resources such as water or use of public lands
at little cost
Exchange controls: currency values can be controlled and that
affects the trading relationship. Currencies with low valuation
can encourage low imports and high exports by keeping value of
money low against other currencies. i.e. China today
Dumping: selling a product in another country at a cost lower
than its production cost often made up by government subsidy.
i.e. one Hyundai model that cost $3700 to produce was sold for
$5000 in Korea and $2200 overseas. The car was overpriced in
Korea and underpriced in South East Asia and Latin America.
The intent was to establish a market for the car in these areas by
selling below cost, with the Korean government covering the
loss.