308 Chapter 4

International Monetary Fund

"Sister" organization to World Bank, created at same time. Purpose: to stabilize the system of currency exchange rates and international payments to enable member countries to participate in global trade. Lends foreign exchange to member countries. Imposes conditions on governments that receive its loans.

Inversion

A strategy of acquiring or merging with a foreign firm in order to reduce corporate tax obligations at home.

Foreign Direct Investment (FDI)

Another important aspect of globalization is the worldwide flow of capital. FDI occurs when a company, individual, or fund invests money in another country, buying shares of stock in or loaning money to a foreign firm.

Free enterprise systems

Based on the principle of voluntary association and exchange. Members of society satisfy most of their economic needs through voluntary market transactions.

Collaborative Partnerships for Global Problem Solving Involves 3 sections

Business Government Civil Society

Companies avoid taxes in their home countries

By merging with companies located in other countries and shifting their headquarters there.

Major Transnational Corporations (TNCs)

Defined by the United Nations as firms that control assets abroad. 104,000 TNCs operate in the modern global economy. Most global commerce is carried out by a small number of powerful firms.

Entering and Competing in the Global Marketplace

Develop global market channels Establish global operations Develop global supply chains Summarized in 3 words

Central state control

Economic power is concentrated in the hands of government officials and political authorities. The central government owns the property that is used to produce goods and services.

Collaborative Partnerships for Global Problem Solving

Emerging trend for development of collaborative, multi-sector partnerships focused on particular social issues or problems in the global economy. T hese partnerships have been termed global action networks, or GANs.

The World Bank

Established in 1944. Provides economic development loans to its member nations. Funds used mainly for roads, dams, power plants, and other infrastructure projects, as well as for education, health and social services. Funding provided by member countries and international capital markets.

Develop global market channels

First build a successful business in their home country, then export products or services to buyers in other countries. Example: Nestlé

World Trade Organization

Founded in 1995, successor to General Agreement on Tariffs and Trade (GATT). International body that establishes the ground rules for trade among nations. Its major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs). Conducts "rounds" of negotiations on various topics.

The Benefits and Costs of Globalization

Globalization is highly controversial. Clearly, some benefit from globalization, while others do not.

Develop global supply chains

Purchase raw materials, components, or other supplies from sellers in other countries; work may also be subcontracted. Example: Nike, Gap

Military dictatorships:

Repressive regimes ruled by dictators who exercise total power through control of the armed forces. Examples: Zimbabwe and Uzbekistan Rights of citizens to organize for cultural or religious freedoms is restricted in others. Examples: Syria, Saudi Arabia According to United Nations estimates, 106 countries still limit important civil and political freedoms.

Focusing on the bottom of the pyramid can foster

Social development Provide employment in underserved communities Reap profits

Globalization

The increasing movement of goods, services, and capital across national borders.

Democracy

The presence of political freedom

Microfinance:

This occurs when financial organizations provide loans to low-income clients or solidarity lending groups (a community of borrowers) who traditionally lack access to banking or related services. Example: Grameen Bank in Bangladesh Indonesia, a midsized bank called BTPN

Several international codes of human rights exist.

United Nations Universal Declaration of Human Rights of 1948

No business can operate across national boundaries without complying with rules set by the

WTO

Three institutions that set the rules by which international commerce is transacted:

World Bank (WB) International Monetary Fund (IMF) World Trade Organization (WTO)

The Process of Globalization

an ongoing series of interrelated events International trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics. Globalization is not simply a trend or a fad but, rather, an international system.

Summarized in 3 words

sell, make, and source

Costs of Globalization

Causes job insecurity Weakens environmental and labor standards Prevents individual nations from adopting policies promoting environmental or social objectives, if these discriminate against products from another country Erodes regional and national cultures and undermines cultural, linguistic, and religious diversity Is compatible with despotism

Four defining features of democracy (according to the U.N.)

Fair elections Independent media Separation of powers -among the executive, legislative, and judicial branches of government An open society -where citizens have the right to form their own independent organization

The Heritage Foundation

Has scored the nations of the world according to an Index of Economic Freedom

Benefits of Globalization

Increased economic productivity Reduces prices for consumers Gives developing countries access to foreign investment funds to support economic development Transfers technology Spreads democracy and freedom, and reduces military conflict

Establish global operations

Locate manufacturing plants or service operations in other countries as a way to cut costs. Example: Ford, BMW

Comparative Political and Economic Systems

Nations differ greatly in their political, social and economic systems. First important dimension to consider is how power is exercised and degree of democratic rights. Past century has been marked by spread of democratic rights to many nations for the first time.

Civil society:

comprises nonprofit, educational, religious, community, family, and interest-group organizations.

Degree to which human rights are protected

differs greatly among nations.

Income

how much a person earns in a day or a year.

Inequality

may be measured in two ways: by wealth and income.

"Most favored nation" rule

means members countries cannot discriminate against foreign products for any reason.

Wealth

refers to assets that a person accumulates and he or she owns at a point in time.

Index of Economic Freedom:

the fundamental rights of every human being to control his or her own labor and property.