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.