QUESTION ONE: ECONOMIC GLOBALIZATION
Have a general understanding of the forces at work in economic globalization
Neoliberalism is a policy paradigm that combines politics and economics to transfer economic power from the government to the private sector. Most neoliberal policies seek to strengthen free-market capitalism by limiting public expenditure, taxation, and public ownership.
What are the elements of neoliberal policy?
Neoliberalism is generally associated with policies of economic liberalization that dismantle boundaries and walls between nations. Some neoliberal policies include privatization, deregulation, globalization, free trade, austerity, and government spending reduction.
What are the positive effects of economic globalization?
Economic globalization is key for most economies as it gives world economies a wider market. Globalization has given countries, and businesses access to a larger consumer base. Therefore, instead of selling goods only in their own country, a corporation may extend to other countries, growing revenue and earnings.
Who benefits?
Consumers and multinational firms are the main beneficiaries of globalization. Consumers benefit from lower prices through economic globalization. On the other hand, firms benefit from globalization by relocating (offshoring) to places where their manufacturing costs are low; thus, they sell affordable goods because they are less costly to produce, resulting in lower prices for customers.
What are the negatives?
Economic globalization has some negative aspects. For example, it endangers the environment when businesses expand supply to satisfy the increased global demand. Increased production implies more renewable resources are used, which will deplete them before they can be replenished, creating environmental harm.
Who does it hurt?
Developing nations are mostly hurt by increased economic globalization. It has long been said that Western corporations take advantage of emerging nations and are simply interested in making a profit or seeking a cheaper means of manufacturing, reinvesting only a limited portion of their profits in the countries where they are based. Even though globalization results are commonly portrayed positively, the divide between the wealthiest and poorest countries has only increased after globalization, and African countries have struggled to capitalize on it. For example, China, which has developed to become one of the world’s most strong economies, has greatly increased its prosperity and claims to be the primary producer.
QUESTION TWO: NEOLIBERALISM AND DEVELOPMENT
How do neoliberal policies affect development strategies globally?
Neoliberal policies advocates for developed countries to eliminate barriers to free-market capitalism so that it can generate growth. The argument is that if globalization is permitted to function openly, it will create money that will profit all.
What are Structural Adjustment Programmes, and how do they work?
Since the early 1980s, the World Bank and the International Monetary Fund (IMF) have promoted structural adjustment programs (SAPs) for developed countries by offering loans based on introducing those policies. Structural Adjustments are meant to promote an economy’s structural change by, for example, eliminating “excess” government controls and encouraging economic growth. Structural changes are also referred to as free-market reforms, and they are made on the basis that they can improve a country’s competitiveness and promote economic development.
What does Freidman mean when he says, “the world is flat?”
In his book, “The world is flat,” Friedman analyses globalization and its impact in the 21st century. The title is actually a metaphor where a “flat” world is one in which the “playing field” on which companies compete has become level. It is one in which companies from various countries can compete with one another on an equal basis.
What are some of the flatteners that he references?
Friedman has written thoroughly on the “10 Flatteners.” “The planet has been flattened by the collision of ten global political activities, inventions, and businesses,” he says. These 10 flatteners are: (i) the Berlin Wall collapse signaled the end of dictatorship and moved much of the world away from centrally planned societies toward capitalist free-market economies. (ii) The World Wide Web and the Internet allow users to retrieve, send, and share intellectual content electronically and instantly (iii) Uploading allowing users access to community-developed software. (iv) outsourcing where another company now performs some specific functions or tasks at a lower cost. (v) Offshoring allows companies to relocate to new areas where things are equal except for labor costs, lower taxes, and subsidized energy (vi) Insourcing where SME’s can provide services to large supply chains without the prohibitive expense, (vii) Supply Chaining that promotes Collaboration among suppliers, retailers, and customers to create value during the production. (viii) Workflow Software where people were now able to collaborate while working remotely (ix) Informing that provides worldwide access to information and research and lastly (x) worldwide connectivity where their world is no longer tethered to hard-wired connection.
Globalization has economic winners and losers – who are they, and why?
The uneven benefits from globalization explain why economic globalization has its winners and losers. In this case, the losers are the newly disadvantaged middle-class participants who conclude the business policy advances have gone overwhelmingly to the top of the income scale. On the other hand, winners are those multinational companies who have increased their global reach, increasing sales and revenue.
What is NAFTA, and How Is it supposed to work?
To lay a common ground and ensure everyone benefits from globalization, the NAFTA trade agreement was established in 1994. NAFTA or the North American Free Trade Agreement (NAFTA) was a treaty between Canada, Mexico, and the United States that eliminated most tariffs-that make foreign goods expensive- between the counties.
Did it help or hurt poor people in the United States and Mexico?
Critics of NAFTA point out that the N AFTA agreement hurt the poor residents of Mexico and America. For starters, employers in certain sectors in the United States had to tolerate reduced pay due to the NAFTA agreement. Third, jobs in Mexico’s maquiladora have been exploited by the rich. Maquiladora low-cost, American-owned manufacturing operation or warehouse in Mexico, generally near the US-Mexico border.
QUESTION THREE: ALTERNATIVES TO NEOLIBERALISM
After 40 years, what problems with neoliberalism can we identify?
After 40 years, neoliberalism is now derided as jargon for the ideas and behaviors that have resulted in rising economic instability and inequality, the loss of our democratic principles and beliefs, and the new populist backlash. Over the course of decades, neoliberal change has increased inequality in European countries, resulting in the PIGS’ economic near-collapse (Portugal-Italy-Greece-Spain). The resulting political uncertainty across the EU is compounded by the influx of refugees from countries where violent conflict has exploded due to neoliberal exploitation.
How do the principles of Dependency Theory attempt to address these problems?
The dependency theory seeks to understand the inequality brought about by neoliberalism. Dependency theory is a theory of economic underdevelopment that focuses on the ostensible constraints imposed by the global political and economic order. According to dependence theory, the marginal status of affected countries in the global economy is the primary cause of underdevelopment. On the global market, developing nations usually offer cheap labor and raw materials. These commodities are sold to industrialized countries with the infrastructure to turn them into finished products. Developing nations end up paying high prices for finished goods, depleting resources that could otherwise be used to improve their own productive capacity. Consequently, a vicious cycle exists, perpetuating the world economy’s division into a wealthy center and a poor periphery.
How does Sustainable Development differ from Neoliberalism and Dependency Theory?
Sustainable development is another alternative to Neoliberalism. In any case, sustainable Development, Neoliberalism, and Dependency Theory are all theories of development. However, Sustainable development differs from the two in that it takes environmental factors into account. In short sustainable development “meets the needs of the present without compromising the ability of future generations to meet their own need.”
What are some examples of Sustainable Development projects?
Some sustainable development projects include Wind and solar energy, green spaces such as parks, and efficient water fixtures. Sustainable projects are meant to promote economic development but at the same time conserve the environment for future generations.
What is the difference between free trade and fair trade?
Free trade focuses on the reduction of barriers and policies that favor certain countries’ economies. It differs from fair trade in that fair trade favors workers’ rights, improved working conditions, and seeks to eliminate pay discrepancies among countries. The Fairtrade approach is a better alternative to neoliberalism as it addresses many issues that arise out of the unfair market competition.
What are the advantages of the fair trade approach?
Fairtrade is unique in that it offers four essential advantages to producers: (1) stable prices that cover the costs of long-term production; (2) market access that encourages consumers to compete with suppliers who would otherwise be shut out of the market; and (3) cooperation (producers are involved in decisions that affect their future).
What are its flaws?
No system is perfect; therefore, fair trade has several flaws. For example, there are very high fees associated with this model. For an organization, an individual, or a cooperative to become certified as Fair Trade, they must undergo a costly and rigorous examination period.
How about microfinance?
Microfinance services are also another means to reduce the inequality created by neoliberal policies. Microfinance services are provided to unemployed or low-income individuals because most of those trapped in poverty or with limited financial resources do not have enough income to do business with traditional financial institutions.
QUESTION FOUR: CHINA AND INDIA ECONOMIES
How are the economic booms of China and India similar?
India’s and China’s economies have expanded rapidly in recent decades. It is generally assumed that these two emerging giants will change the global economy in various ways in the coming decades. China and India entered the global economy in various ways, which has resulted in them acquiring complementary strengths. They have become internationally competitive as a result of this operation.
How are they different?
While India’s financial markets are more mature than China’s, India has a greater need to reduce regulatory restrictions in financial product markets. India currently has much more restrictions than any other OECD nation. China has been more versatile in promoting modern, higher-risk technological advances due to fewer constraints. Additionally, over a wide variety of goods, Chinese producers can dramatically undercut prices offered by international rivals such as India. China has a significant market share today as a result of the “China price.”
What challenges does the Indian economy still face?
The Indian economy faces several challenges. Stagnated demand seems to be the biggest challenge for the economy at the moment. Demand for key goods and commodities like fuel, food, consumer goods, and electricity has fallen over the last few months. Second, Rising inflation has complicated the economic situation further. In July, retail inflation rose to 6.93 percent, way above the RBI’s medium-term target of 4 percent. Unemployment also remains a problem in both rural and urban areas amid rapid economic development—unskilled workers. The rapid pace of economic development has left them behind, and they have struggled to find jobs in rising industries.
What challenges does the Chinese economy still face?
The Chinese economy, which is the second-largest economy in the world after the United States and the third-largest importer in the world after the United States and Eurozone, also faces several challenges. Infrastructure programs in the country have resulted in a significant amount of debt. This debt overburdens the economy over time. Therefore, the growth rate has begun to crumble now that investor sentiment is pessimistic and more debt cannot be added.
How does the economic success of China relate to neoliberal principles?
In the era of neoliberalism, the authoritarian government has sought to retain power by shifting politically to the right and promoting neoliberal‐looking economic policies. These policies have raised average living standards and increased insecurity for most of the Chinese population, while some other social policies have facilitated marketization.
How about India?
India has seen more than 20 years of neoliberalism with the economic reforms that began in 1988. However, Neoliberalism in India is far from alleviating poverty. The Neoliberal economic policy (NEP) has been accused of creating a staggering number of losers and widening inequality.
What is Market Authoritarianism?
Market Authoritarianism is in an economic system in which a capitalist market exists alongside an authoritarian government. It is generally agreed that China is an authoritarian capitalist country. In many ways, the country has traded political freedoms for economic growth. Authoritarian capitalism blends private property and market forces with suppressing opposition, limits on freedom of expression, and either no elections or a single dominant political party.
QUESTION FIVE: GLOBAL FINANCIAL CRISIS
What were some of the critical issues that led to the global financial crisis in 2008?
The 2008 Global financial crisis was the most severe economic disaster after the Great Depression of 1929. The crisis originated from the Mortgage sector. The foundation of the crisis was a result of the housing market bubble that started in 2007. Banks and lending companies provided low-interest rates on mortgages encouraging many homeowners to take out loans they couldn’t afford. They did not do a rigorous analysis of the borrowers’ financial ability, whereby the borrowers came to default later. Because of the influx in mortgages, lenders devised new financial instruments known as Mortgage-Backed Securities (MBS), which were basically mortgages bundled together to be offered as securities with reduced risks. MBS was backed by Credit Default Swaps (CDS). Lenders could then quickly pass the mortgages- and all the risk- onto investors. Banks started lending recklessly to families and individuals who lacked the financial resources to repay their mortgages. These high-risk (subprime) loans were eventually bundled and passed down the line. Lending institutions started to fail as the number of subprime mortgage packages rose to an unprecedented extent, with a significant percentage of them falling into default. It contributed to the world’s poor financial conditions in 2008-2009, which persisted for years afterward.
What were some of the flaws in the neoliberal approach that the crisis exposed?
The crisis revealed some inherent flaws in the neoliberal policies. Neo-liberal policies’ prescriptions flow from the core theoretical belief in the superiority of unregulated markets-particularly unregulated financial markets. The Financial liberalization due to neo-liberal policies gave rise to a plethora of new, unregulated financial institutions in what is now broadly defined as the bank-intermediation market: hedge funds, private-equity funds, mortgage brokers. In the United States, the pursuit of financial deregulation crossed the Rubicon with the Glass-Steagall Act’s repeal, which had been established in the wake of the Great Depression. In the heady mortgage bubble, American commercial banks, whose traditional function was to take deposits and make loans, plunged into the roaring bull market, trading on their own account, underwriting new stock issues, and participating in reckless speculation? These risks are what led to the crisis and demise of some financial institutions.