Unit 2 – The Global Unit 2 – The Global EconomyEconomy

CGW4UCGW4U

GlobalizationGlobalization

The ever-increasing flow and exchange of The ever-increasing flow and exchange of “stuff” internationally or around the world“stuff” internationally or around the world• Goods & servicesGoods & services• PeoplePeople• InformationInformation• IdeasIdeas• CulturesCultures• TechnologyTechnology• DiseasesDiseases• Etc.Etc.

GlobalizationGlobalization

Positives and negativesPositives and negatives Potential : Potential :

• to create a world based on to create a world based on interdependence and mutual aidinterdependence and mutual aid

Downside : Downside : • promotes an economic system based on promotes an economic system based on

wealth accumulation that results in wealth accumulation that results in further inequity between rich and poorfurther inequity between rich and poor

The global economyThe global economy

An economyAn economy• A system for organizing resourcesA system for organizing resources• Value or income is typically measured in Value or income is typically measured in

GDP GDP total value of goods and services sold in the total value of goods and services sold in the

country/region in a yearcountry/region in a year

Today the largest economies are not Today the largest economies are not countries… countries…

A short history of the global A short history of the global economyeconomy

At the end of WWII countries met to set At the end of WWII countries met to set new ground rulesnew ground rules• Goal: to stabilize world economies, avoid Goal: to stabilize world economies, avoid

another large scale crisis (ex. )another large scale crisis (ex. )• 1944 – Bretton Woods meeting of world 1944 – Bretton Woods meeting of world

leaders, establishedleaders, established The International Monetary Fund (IMF)The International Monetary Fund (IMF) World Bank (Int’l Bank for Reconstruction and World Bank (Int’l Bank for Reconstruction and

Development)Development) General Agreement on Tariffs and Trades (GATT) – General Agreement on Tariffs and Trades (GATT) –

became the World Trade Organization (WTO) in 1995became the World Trade Organization (WTO) in 1995

The International The International Monetary Fund Monetary Fund

(IMF)(IMF) Established to:Established to:

• maintain currency stability & develop world trade Created:

• a multilateral system of payments between countries based on fixed exchange rates and complete convertibility from one currency to another

Acts as:• a “lender of last resort” to supply emergency loans to

countries which ran into cash flow problems

World Bank World Bank (originally the Int’l Bank for (originally the Int’l Bank for

Reconstruction and Development)Reconstruction and Development)

Originally created to:Originally created to:• aid in post WWII reconstruction in damaged aid in post WWII reconstruction in damaged

areas/countries (avoid repeat of post-WWI issues, ex. areas/countries (avoid repeat of post-WWI issues, ex. Germany)Germany)

Later extended goals to include developing Later extended goals to include developing countriescountries• Increase low standards of livingIncrease low standards of living• Increase industrializationIncrease industrialization• Help countries “grow” their way out of poverty through Help countries “grow” their way out of poverty through

economic developmenteconomic development

World Trade Organization (WTO) World Trade Organization (WTO) (originally GATT)(originally GATT)

a set of rules to:• govern world trade• stop the “protectionist” policies (i.e. charging

high tariffs on imports) that crippled the world economy in the 1930s

• currently (WTO, as of 1995) govern the trade of both goods AND services

WTO can impose sanctions (like penalties) on countries that don’t follow its rules• Examples

BC lumber Brazilian cattle MMT additive to fuel

The results of Bretton-Woods The results of Bretton-Woods (1944)(1944)

Increased int’l trade, industralization of Increased int’l trade, industralization of countries (Latin America in particular)countries (Latin America in particular)

Higher standards of living Higher standards of living on averageon average However, billions of $ in loans to However, billions of $ in loans to

developing countries, often misused, developing countries, often misused, sometimes embezzled (corruption)sometimes embezzled (corruption)

By the 70s…By the 70s…• western economies in western economies in recessionrecession (due to oil (due to oil

price jump in late 70s)price jump in late 70s)• less money for loans, increase in interest ratesless money for loans, increase in interest rates

Latin American Debt Crisis & Latin American Debt Crisis & Structural Adjustment Programs Structural Adjustment Programs

(SAPs)(SAPs) By early 80s, Latin America owed 50% of GDP in By early 80s, Latin America owed 50% of GDP in

external debtexternal debt Crisis began in early 80s, countries began to Crisis began in early 80s, countries began to

admit they could not afford to pay (Mexico - admit they could not afford to pay (Mexico - 1982)1982)

Faced with developing countries defaulting on Faced with developing countries defaulting on loans, IMF imposed conditions on further loansloans, IMF imposed conditions on further loans• Privatising public enterprises• Reducing government spending on social services• Liberalising trade• Increasing exports• Devaluing their currency

Effects of SAPsEffects of SAPs

Countries struggled to “grow”Countries struggled to “grow”• social programs (education, health) were social programs (education, health) were

sacrificed to pay debtsacrificed to pay debt Result = lower levels of literacy, higher levels of Result = lower levels of literacy, higher levels of

malnutritionmalnutrition

• increased exports (i.e. coffee) drove down increased exports (i.e. coffee) drove down prices, and reduced developing countries’ prices, and reduced developing countries’ incomes (less money to repay debt)…incomes (less money to repay debt)…

• developed countries continued to grow wealthy developed countries continued to grow wealthy while developing countries moved “backwards”while developing countries moved “backwards”

Sources: Sources: • ““Latin American Debt Crisis” Latin American Debt Crisis”

http://en.wikipedia.org/wiki/Latin_Americhttp://en.wikipedia.org/wiki/Latin_American_debt_crisisan_debt_crisis

• ““Global Economy” Global Economy”

Today’s topicToday’s topic

The global economyThe global economy• Winners and losersWinners and losers• Why aren’t we all rich (comparatively Why aren’t we all rich (comparatively

speaking) and healthy?speaking) and healthy?• How do we get there?How do we get there?• Can we all be wealthy and healthy?Can we all be wealthy and healthy?

World GDP Over TimeWorld GDP Over Time

source : http://en.wikipedia.org/wiki/Povertysource : http://en.wikipedia.org/wiki/Poverty

What’s the trend here?What’s the trend here?

Who has benefited? Who has benefited? Overall, extreme Overall, extreme

poverty (less than poverty (less than 1.25$/day) has 1.25$/day) has decreased…decreased…

Which countries in the Which countries in the world have increased world have increased their standards of their standards of living?living?

Why?Why? Which have not?Which have not? Why?Why?

% of world’s population living in % of world’s population living in extreme poverty over timeextreme poverty over time

World GDP Per Capita (2008)World GDP Per Capita (2008)

Source: CIA FactbookSource: CIA Factbook

How do you get out of poverty?How do you get out of poverty?

Ideas?Ideas? Issues?Issues?

External debtExternal debt is the amount, at any given time, of disbursed and

outstanding contractual liabilities of residents of a country to non-residents to repay principal, with or without interest, or to pay interest, with or without principal.

very simply… how much you owe to people of other countries

i.e. like borrowing from your neighbours (instead of borrowing from your family)

What could you borrow for? Why would they lend you money?

What’s the trend here?What’s the trend here?

Debt to GDP Ratio – Issues…Debt to GDP Ratio – Issues…

The graph shows Argentina and Brazil with increasing debt overtime; and therefore increased financial difficulty as more and more of the GDP is needed to pay the external debt.

Remember that by the early 80s, Latin American countries owed upwards of 50% of their GDP in external debt

Vicious circle… will countries ever be able to “climb” out of debt?

How?

Foreign Investment as a pathway?Foreign Investment as a pathway?

Issues with Foreign Investment?Issues with Foreign Investment?

Who will receive investments?Who will receive investments? Who will not?Who will not? Conditions attached?Conditions attached? Repayment schedules?Repayment schedules? Corruption / embezzlement?Corruption / embezzlement? Remember structural adjustments? Remember structural adjustments?

“Shock therapy?”“Shock therapy?”

Development Assistance as Development Assistance as Solution?Solution?

idea of Development Assistance came out of the post-World War Two Marshall Plan to reconstruct Europe

or Africa, DA came out of the end of Western colonial rule and the beginning of the Cold War (strategic – align with U.S. or Soviet Union)

aimed at promoting economic and social growth through smallholder assistance, enterprises, and human development

can consists of loans, technical, and monetary aid issues with aid? (hint: no more Cold War…)

What’s the trend here?What’s the trend here?

Is Aid Failing Africa?Is Aid Failing Africa?

Trend?Trend?

Source: World Source: World Development Development Indicators OnlineIndicators Online

What to Do?What to Do?

Jeffrey Sachs: Jeffrey Sachs: The End The End of Povertyof Poverty (foreword by (foreword by Bono!)Bono!)• increase aid (to 1% of increase aid (to 1% of

GDP); provide it GDP); provide it unconditionally and unconditionally and consistentlyconsistently

• deal with barriers to deal with barriers to growth (trade barriers, growth (trade barriers, health issues (malaria, health issues (malaria, HIV/AIDS), etc.)HIV/AIDS), etc.)

What to do?What to do?

vs. Dambisa vs. Dambisa Moyo: Moyo: Dead Aid: Dead Aid: Why Aid is Not Working and Why Aid is Not Working and How There is a Better Way How There is a Better Way for Africafor Africa

• End aid as it:End aid as it: ““spews” corruptionspews” corruption creates bureaucracycreates bureaucracy Inhibits Inhibits

entrepreneurshipentrepreneurship Disenfranchies voters Disenfranchies voters

and leads to anti-and leads to anti-democratic situationsdemocratic situations

Clip: The National (CBC) – Clip: The National (CBC) – Interview with Dambisa Moyo (11 Interview with Dambisa Moyo (11 min)min)

http://www.cbc.ca/national/blog/video/http://www.cbc.ca/national/blog/video/politicseconomy/dambisa_moyo_1.htmlpoliticseconomy/dambisa_moyo_1.html

Clip: Jeffrey Sachs – Hot Type Clip: Jeffrey Sachs – Hot Type (CBC)(CBC)

http://video.google.ca/videoplay?docid=-http://video.google.ca/videoplay?docid=-2480932648571689047&ei=jfDVSoKlKoKmrALOm2480932648571689047&ei=jfDVSoKlKoKmrALOmJCDBQ&q=jeffrey+sachs&hl=enJCDBQ&q=jeffrey+sachs&hl=en

Tomorrow…Tomorrow…

Simulation of foreign trade and Simulation of foreign trade and debt??debt??

GIS study of the global economy??GIS study of the global economy??