unit , lesson global economic...

Unit xx, Lesson xxUnit xx, Lesson xxUnit 10, Lesson 25

KeywordsAsian Tigers

Bretton Woods system

global corporation

Hyundai

oil embargo

Viet Cong

Essential Questions• Identifysomeoftheprincipalinstitutionsconnectedtoeconomic

globalization,andexplaintheirroles.

• WhataresomeofthereasonsforeconomicgrowthinAsiasinceWorldWarII?

• HowdotradingblocssuchastheEU(EuropeanUnion),NAFTA(NorthAmericanFreeTradeAgreement),andOPEC(OrganizationofPetroleumExportingCountries)operate?

Global Economic Interdependence

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Unit 10, Lesson 25 2

Institutions for Economic GlobalizationToday’sglobaleconomyisbasedontheeconomictheoriesofJohnKeynes,whoadvocatedfreetradeasameanstoeconomicprosperityaswellasworldpeace.Atitscore,Keynespostulatedthatwhennationsarecloselyconnectedeconomically,theyarelesslikelytoengageinaggressivemilitarybehaviorbecausetodosowouldthreatentheirownnationalstability.Keynes’stheoriesweregreatlyadmiredbyFDR,U.S.presidentFranklinD.Roosevelt(1933–1945),whofollowedKeynesianeconomictactics,especiallygovernmentinvestmentininfrastructureasameansofstimulatingtheeconomyduringtheGreatDepression.AfterWorldWarII,FDRinvitedalliedleaderstotheBrettonWoodsConferenceinNewHampshiretodiscusstheformationofanewglobaleconomyforthepostwarworld.

TheresultingBretton Woods systemledtothefoundingoftheWorldBank,alsoknownastheInternationalBankforReconstructionandDevelopment,aswellastheInternationalMonetaryFund(IMF).BothentitieswerecreatedtorebuildEuropeandtoassistdevelopingnationsaroundtheworldbycallingonmorewealthyindustrializednationsliketheUnitedStatestolendfinancially.TheWorldBankandtheIMFremainpowerfuleconomicforcesinthetwenty-firstcentury.AlongwiththeUnitedStates,thesemonetaryinstitutionsareconsideredtheprimarypromotersofthecapitalistglobaleconomy.TheWorldBankandIMFprovideloanstodevelopingnationsandtoindustrialnationsexperiencingeco-nomicrecessions.Generally,suchloansdemandcapitalisteconomicreforms,suchasareductioningovernmentspendingandanincreaseinfreemarketcompetition.

TheAlliednationsoriginallyagreedtotheKeynesianmodeldiscussedatBret-tonWoods.HostilitiesbetweentheUnitedStatesandSovietUnion,however,soonledtoadivision,whichineffectcreatedtwoseparateglobaleconomies.This

Set the StageGlobal trade has existed to a limited degree for over 500 years. But with the advent of the modern age, complete with automobiles, airplanes, and other rapid transportation systems, greater quantities of goods are traveling farther than ever before. Since World War II, numerous economic institutions have been set up to expedite and take advantage of globalization. Many of these institutions are located in the West, and are controlled by industrialized, developed nations. These countries greatly benefit from globalization since it provides a greater market for export goods, as well as access to raw materials and cheap labor in developing countries. For developing countries, the effects of globalization are mixed. Globalization has led to more rapid industrialization, which in turn brings a higher standard of living. But globalization increases social stratification as the rich, both individuals and nations, become richer while the poor grow ever more destitute. At the beginning of the twenty-first century, globalization is a force not easily controlled and its ultimate effects remain unknown.

Bretton Woods system global economy based on Keynesian economics; it includes such features as the World Bank and the International Monetary Fund



divisionwouldhavelong-reachingconsequencesforthetwentiethandtwenty-firstcenturies.TheSovietsemployedaclosedmonetarysystem.Proponentsoftheclosedmonetarysystemmodelincludedmostcommunistnations:muchofEasternEurope,thePeople’sRepublicofChina,andcommuniststatesinAsia,andLatinandSouthAmerica.Inthiseconomicsystem,governmentagenciesareresponsibleforallocatinggoodsandsettingprices,withnoregardformarketforces.

TheeconomyoftheWesternworld,whichincludedtheUnitedStates,WesternEurope,andtheirallies,iscapitalisticandallowsthelawsofsupplyanddemandtodeterminepricesandproductionlevels.From1944until1971theWesternglobaleconomywasbasedontheU.S.dollargoldstandard.Essentially,theU.S.dollarwasgivenasetvaluebackedbygold,andallothernations’currenciesweredeterminedinrelationtotheU.S.dollar.Althoughthesystemhaditscritics,thegoldstandardprovidedanefficientwayofrebuildingthepostwarworldandcre-atingavibrantglobaleconomy.TheUnitedStateshasmaintaineditspositionasthelargesteconomyintheworld,althoughtheBritishpoundandtheeurohavesurpassedtheAmericandollarintermsofbuyingpower.

ThehallmarkoftheWesternglobaleconomyisitsadvocacyforfreetrade.In1947,23noncommunistnationsmetandsignedtheGeneralAgreementonTariffsandTrade(GATT),agreeingtotheformationofafreetradeglobaleconomy.In1958,theGATTestablishedtherulesforimports,exports,andothereconomicinteractionsbetweenparticipatingnations.FreetradehashadanenormouslypositiveimpactontheeconomiesoftheWesternworld,theresultingprosperityleadingmanyothernationstoapplyformembershipintheGATT.From1948to

People in Seattle protest the current condition of the World Trade Organization.



1966,GATTnationssawan8.6percentannualincreaseintheireconomies.Thisnumberroseto9.2percentbetween1966and1977.Between1977and1990,theannualincreasemorethandoubledandtodayitcontinuestoclimb.

In1994,123nationsestablishedtheWorldTradeOrganization(WTO)toreplacetheGATT.TheprincipalpurposeoftheWTOistoreduceeconomicbarriersandenforceinternationalagreements.Onoccasion,theWTOmaybeaskedtosettleinternationaltradedisputesandcanenforceitsdecisionsifnecessary.Today,theWTOhas153member-nationsandispraisedbymostworldleaders.Theinstitu-tion,however,hasitscritics,andministerialmeetingsoftenareaccompaniedbystreetprotests.SomeprotestersarguethattheWTOencouragescorporationstomanufactureproductsindevelopingnationswithlowlaborcosts,leadingtounemploymentinindustrialnations.Otherprotestersrepresentlocalfarmersandartisanswhoselivelihoodsarethreatenedbytheincreasinglyglobaleconomy.Lastly,environmentalgroupsprotesttheWTO,citingtherelationshipbetweentherisingglobaleconomyandanincreasinglythreatenedenvironment.

TheWesterneconomicsystemhasgivenbirthtopowerfulglobal corporations.PriortoWorldWarII,companieswerelocal,national,orinternational.Inthecaseoflocalornationalcompanies,theheadquarters,manufacturing,andsellingofgoodswaslargelydonewithinthenation.Internationalcompaniesremaineddeeplyinvestedintheirhomenationbutwereconcernedwithimportingandexportinggoodsaswellasextractingrawmaterials.Since1945,however,internationalcom-panieshaveincreasinglyevolvedintomultinationalcompanies,whichhavetheirheadquartersintheirhomenationandhavemanufacturingfacilitiesinmultiplenations.Suchcompanieshavelessinvestmentintheirhomenationandarefocusedprincipallyontheirownbottomline.Sincethemid1980s,thesemultinationalcompaniesareincreasinglytransformingintotrulyglobalcorporationsthatdispersecorporatepositionsaroundtheglobeinsearchofthelowestpossiblecostandthehighestprofit.GlobalcorporationssuchasGeneralMotors,Nestlé,andMonsanto,inadditiontomorethan50,000others,treattheentireworldasasinglemarketandarethesymbolsoftheneweconomy.Globalcorporationsbothbenefitfromandcontributetoglobalization.

Unlikelocalandnationalcompanies,whicharerequiredtofollowtaxlaws,envi-ronmentalregulations,andcontributetothesocialwelfareoftheirhomenations,globalcorporationshavealmostentirelysteppedawayfromanysocialobligations.Jobsareregularlytransferredfromhigh-wagefacilitiesinindustrialcountriestofor-eignlocationswithlowwagesandfewenvironmentallaws,whichhasfar-reachingimplications.AtthecloseofWorldWarII,U.S.corporationswereresponsiblefor30percentofallfederaltaxes.Today,theypaylessthan12percent,whichhashadalargeimpactonsocialservicesandwelfareprograms.Governmentsandcitizengroupsalikehaveattemptedtocurbthefreedomsoftheseglobalcorporations,demandingtheyupholdtheirsocial,economicandenvironmentalobligations.

Economic Growth in Asia since World War IIAtthecloseofWorldWarII,Asiaseemedeconomicallyandpoliticallycrippled.JapanwasoccupiedbytheU.S.military,itscitiesandpopulationdevastatedby

1SELf-chEcK

What is a closed

monetary system?

global corporation a company that views the world as a single market and has corporate offices and manufacturing facilities around the globe



airraidsandtwoatomicbombs.Chinawaspoliticallyunstable,havingenduredacivilwar,foreigninvasion,andtheeconomicandculturaleffectsofWesterncolonialimperialism.Asaresult,twogovernments,onecommunistonthemain-landandtheotherquasidemocraticontheislandofTaiwan,eachclaimedtobethelegitimateChinesegovernment.Koreawassoonpulledintoitsowncivilwar,whichresultedinthedivisionofthecountryalongnorth-southlines.VietnamstruggledforindependenceagainstcolonialFranceandthentheU.S.military,whilesimultaneouslytryingtodevelopitselfpoliticallyandsociallyasanation.OtherAsiannationsexperiencedsimilarlytryingproblems.

Yetatthestartofthetwenty-firstcentury,AsiacompetedonessentiallyequaltermswiththeWest.JapanandChinahavetwoofthestrongesteconomiesandpoliticalvoicesintheworld,andeachislargelyindependentofWesterncontrol.EconomistspredictthatChinawillsoonsurpasstheUnitedStatesastheworld’slargesteconomy.SouthKorea,Thailand,HongKong,andSingapore,knownasthe“Asian Tigers,”havesimilarlybustlingeconomies.NorthKorearemainsvirtu-allyisolated,whileVietnamslowlyrecoversfromdecadesofwar.Yeteventhesetwocountriesaregaininginglobalprestige,theformerasanuclearpowerandthelatterasanewlyopenedeconomicmarket.

ForWesterners,theriseofAsiamayseemthreatening.But,whenviewedfromaglobalperspective,itisperhapsunsurprising.Formuchofworldhistory,Asiahasbeenthewealthiestregionintheworld.ItwasonlyduringthenineteenthandtwentiethcenturythatEuropeandtheUnitedStateswereabletoeconomicallydominatetheworld.Seeninthislight,theriseofAsiaismerelyareturntothenormativestatusquo.

JapanJapan’ssurrenderin1945broughtWorldWarIItoanendandanoccupyingarmytotheislandnation.GeneralDouglasMcArthurheadedtheU.S.militaryoccupa-tionandwasinchargeofrestructuringandrebuildingthecountry.Japan’smilitaryforcesandwartimepoliticalstructureweredisbanded,itsemperorwasreducedtoafigurehead,andnewdemocraticcivillibertieswereestablished.Japan’seconomystabilizedandbegantorise.TheUnitedStatesinvestedheavilyinJapanintheinterestsofglobalpeaceaswellastoinsureademocraticallytobalancethecom-munistthreatoftheUSSR.InadditiontodirectU.S.financialaid,JapanwasalsoreleasedfromwarreparationsandgivenfreetradewiththeUnitedStates.PeacetreatieswithSoutheastAsiannationsallowedJapantopaywartimereparationsingoodsandservices,reinventingJapanasaforceforeconomicdevelopmentandstimulation,ratherthananaggressiveimperialnation.BecauseJapanwasonlyallowedalimitedself-defenseforce,moneythatwouldhaveformerlygonetothearmedservicescouldinsteadbechanneledintootheravenues.

In1952,theoccupationendedandJapanresumeditsindependence.Politi-cally,thenationisaparliamentariandemocracy,ledbytheDiet(parliament)andsymbolicallyheadedbytheemperor.ItremainspoliticallyandeconomicallycloselytiedtotheWest,particularlytheUnitedStates.Thelargestpoliticalparty,theLiberalDemocraticParty(LDP)hasdominatedJapanalmostexclusively,exceptforabriefperiodin1993–1994.TheoligarchictendenciesofJapanesecultureremaindeeply

Asian Tigers an economic description referring to the fierce emerging economies of South Korea, Thailand, Hong Kong, and Singapore; they are sometimes referred to as “little tigers,” in contrast to the “great tiger” of Japan



embeddedinbothpoliticsandbusiness.Conformityandgroupconsciousnessareencouraged,whileeducation,particularlyinsciencefields,isstronglyadvocated.

Japan’seconomicpoliciesinitiallyfocusedonexportinglabor-intensivegoodssuchasiron,steel,andtextilestocountrieswithhighlaborcosts.Becauseofastrongculturalworkethicandlowwagedemands,Japanwasabletooffsetthecostofimportingrawmaterials.Duringthe1960s,Japanbeganproducingmorecapital-intensivegoods,becomingaworldleaderinthemanufacturingofautomobiles,motorcycles,radios,andtelevisionsets.Sincethe1970s,Japanwasincreasinglyfocusedonproducingtechnology-intensiveproductslikeCD-ROMdrives,liquidcrystaldisplays,andmemorychips.ThequalityofJapanesegoodsgainedinter-nationalrespect,furtherboostingtheJapaneseeconomy.By1983,Japan’sgrossdomesticproduct(GDP)washigherthanthecombinedGDPsofChina,India,Australia,andBrazil.EconomistspredictedthatJapanwouldovertaketheUnitedStatesastheworld’sstrongesteconomy.

In1997,Japan’seconomysufferedacrisisafterthehousingmarketbecamegrosslyovervalued,whichledtostockmarketspeculationandthenarecession.ThecloserelationshipbetweentheJapanesegovernmentandthebankingindustryledtogovernmentcorruptionanddisillusionmentamongtheyoungergenera-tion.Widespreadunemployment,similarinscopetotheU.S.GreatDepression,andamassivenationaldebtdidnothelpmatters.In2009,theLiberalDemocraticPartywasvotedoutandreplacedbyacoalitiongovernment.In2011,horrificearthquakesandtsunamisdevastatedlargepartsofJapan.Whilethecountryhasreceivedsignificantforeignaid,itwilltaketimeforJapan’seconomytoregainitsformerstabilityandstrength.

The People’s Republic of chinaDuringthetwentiethcentury,China’spoliticalstructurechangedtremendously.In1911,thelastemperorwasdeposed,bringingtoanend5,000yearsofChinesemonarchy.PriortoWorldWarII,twodifferentpoliticalgroupsviedforcontroloverChina.TheNationalistParty,ledbyGeneralChiangKai-Shek,wasnominallydemocratic,andtheCommunistParty,ledbyMaoZedong,followedStalinistMarxism.AfterJapaninvadedmainlandChina,thetwopoliticalpartiesfacedthethreatverydifferently.TheNationalistPartyattemptedtomeettheJapaneseinconventionalbattles,adecisionthatproveddisastrousandhumiliating.TheCom-munistsengagedinguerrillawarfaretacticsandwerelargelysuccessful,earningthetrustandrespectoftheChinesepopulation.Whenthewarended,theCommunistPartywasabletooverthrowtheNationalistParty,forcingChiangKai-ShekandhisgovernmenttofleetotheislandofTaiwan.TodaymainlandChinaremainsinthehandsoftheCommunistParty,whichtheyrefertoasthePeople’sRepub-licofChina.TheNationalistPartyinTaiwaninsiststhattheyarethelegitimateChinesegovernment,whichtheyrefertoastheRepublicofChina.Internationalconsensusfluctuates,withTaiwaneseclaimssometimesacknowledgedandatothertimesignored.

In1949,whenmainlandChinabecameacommunistnation,MaoZedongenjoyedgreatsupportfromthepeasantclassbecauseheofferedpracticalsolutionstomanyofChina’sfundamentalsocialandeconomicproblems.Thecommunists



providedpeasantswithaccesstoeducationandhealthcare,bothofwhichhaveledtoageneralincreaseinstandardofliving.ChairmanMaobeganhisreignbycommandingamassivepurgeofthelandholderclassandredistributinglandtothepeasantclass.Between1950and1952,asmanyasthreemillionpeople,mostofthembourgeoisieoraristocratic,weredenouncedandexecuted.Inaspectacularfashion,oneofthetenetsofcommunismbecameareality,asChinawastrans-formedintoalandofpeasantlandowners.Between1953and1958,thefirstFiveYearPlanwasinitiatedandlandwastakenawayfromprivatepeasantownershipandinsteadcollectivizedintoagriculturalcooperatives.In1957,Maoencouragedintellectualstosharetheiropinionsofcommunism.Theresponsewasoverwhelm-inglycritical.TheCommunistPartychosetohavethedissentersjailedorbanished.In1958,the“GreatLeapForward”advocatedrapidsmall-scaleindustrialization.Thecombinationofcollectivization,ineffectiveindustrialization,andthesilenc-ingoftheintellectualclass,wasdisastrous.Massivefoodshortageswerereportedandtheresultingfaminestookthelivesofasmanyas20,000Chinesecitizens.

From1966to1977,theCommunistPartyengagedintheGreatProletarianCulturalRevolution.Atitsheight,workersandstudentsragedacrossthenation,seizingfactoriesandoverthrowingthelocalbureaucracy.AlthoughtherevolutionwasinitiatedbyChairmanMaoinordertoattackpoliticalenemies,hewassoonforcedtodeploythearmytocontroltheangrycountryside.DuringtheCulturalRevolution,informationwashighlycensoredandindoctrinationintocommunistthinkingwaspromotedbyThe Little Red Book,acollectionofMao’ssayings.TheRedGuards,youngcommunistactivists,loudlydenounceduniversityprofessors,journalists,factoryforeman,andallcriticsastraitors.TheRedGuard’sthreemillionvictimswereharassed,jailed,sentto“reeducation”laborcamps,orkilled.EvenmembersoftheCommunistPartyelitewerenotsafefromaccusation,althoughMaohimselfwaswidelyrevered.In1976,Mao’sdeathabruptlychangedthepoliti-callandscape.Hiswidow,JiangQuig,andherallies,knownasthe“GangofFour,”brieflyheldpower.Theyharshlyattackedallartisticandintellectualactivity.

In1978,DengXiaopingbecamethenextleaderofthePeople’sRepublicofChina.Dengwasconsiderablymorepragmaticinhisapproachtocommunism,andfocusedonChina’ssocialandeconomicwell-beingratherthanMarxistide-als.Heendedlandcollectivization,returningChinesefarmstopracticalprivateownership,andallowedlimitedfreemarkettradewiththeWest.Standardsoflivingroseundertheimprovedeconomicsituation,bringingwithitadesireforsocialandculturalexpansion.In1989,Chinesestudentsandintellectualsdemandeddemocracyandstagednumerousprotests.OneofthelargestoccurredinBeijing,wherehundredsofthousandsofprotestersmetatTiananmenSquare,hopingtoforcetheCommunistPartyintoconcessions.Instead,tanksweredeployedtoscat-terthecrowds,killinghundreds;thousandsmorewerearrested.

In1992,asocialistmarketeconomywasestablishedinChinawheregoodsandservicesdetermineproductionandpricing,ratherthanthegovernment.Today,Chinaisamajorindustrialexporterandhasanenormousdomesticmarket.For-eigninvestmenthasincreasedashasthepresenceofglobalcorporationssuchasMcDonald’s,GeneralMotors,andCoca-Cola.In1997,thePeople’sRepublicresumed

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Since the 1970s, what

types of goods has Japan

focused on producing?



Recently I took a six-week journey across China. It was my first trip back since I came to the United States to study, in 1985. In the course of my visit I saw – I felt – the perturbations of profound and chaotic social change. China’s stunning hurtle from a centrally planned economy to a free market has set off an economic explosion and generated tremendous prosperity. Its economic growth was 13 percent in 1993, and average personal income in urban areas has doubled since 1985. With the state-owned sector accounting for less than 30 percent of total economic output, the socialist system is becoming an empty shell. Across China the lines between the state and private economies are blurring. At the largest national department store in Shanghai, a symbol of Chinese socialist business, customers now bargain for better prices. The counters within the store have been contracted out to shop clerks, who decide the prices. Dual ownership has in essence turned this state enterprise into a private business. Asked if such a practice is an example of China’s “socialist market economy,” a professor of economics at Nanjing University, where I taught in the early 1980s, replied, “Nobody knows what the concept means. It is only rhetoric, and it can mean anything but socialism.”

In this article, Xiao-huang Yin discusses the dichotomy of modern China. On the one hand, China has increasingly prosperous cities, amazing eco-nomic growth, and tremendous new wealth. On the other hand, corruption is rampant and rural areas are stagnating. Xiao cites the opinion of his friend and former economics professor who believes that economic socialism in China is mostly dead. The article was written for a Western audience, giving them the benefit of a Chinese immigrant’s view of his former homeland. Xiao seems to have mixed emotions about the new China, which perhaps reflects the views of many of his contemporaries, both in China and abroad. The article was written for the Atlantic Monthly, an American literary and cul-tural magazine. Its targeted audience is educated liberal readers increasingly interested in foreign affairs, politics, and the economy. The article introduces readers to modern China in order to illustrate how China has changed since opening its economy to the Western capitalist system.

A Piece ofhISToRy

China’s Gilded Age by Xiao-huang Yin



controlovertheportcityofHongKong,whichhadbeenaBritishcolonysince1839.HongKongisaglobalcenterforinternationalbankingandactsasabridgebetweencommunistChinaandthecapitalistWesternworld.Inordertoprotectthecity’seconomicstrength,theChinesegovernmenthasallowedHongKongtomaintainitsfreemarketeconomicsystemanddemocraticpoliticalsystem.In2009,Chinabecamethesecondmostpowerfulcountryintheworld,secondonlyineconomicdominanceandinfluencetotheUnitedStates.

Despitepoliticalandeconomicsetbacks,theChineseCommunistPartyhasbeensuccessfulonmanyaccounts.Intermsofeducation,healthcare,workingcondi-tions,andbasicstandardofliving,mostChinesecitizenshaveahigherqualityoflifethanwasavailablepriortoMao’sregimeandtherevolution.China’sgrowingpopulationhasbeenacauseofconcernsincethemid1960s.Nationwidefamilyplanninglimitsthebirthrate;onlyonechildisallowedineachfamilyandbirthcontrolandabortionarestronglyencouraged.Althoughthesepolicieshavereducedthebirthrate,thepopulationisnotexpectedtotrulystabilizefordecadestocome.

TheRepublicofChina,inTaiwan,alsohasathrivingeconomy.Althoughitlacksnaturalresourcesandisoverpopulated,thenationenjoyshighliteracyratesandtechnicaltraining.Fromthe1950stothe1970sTaiwanwasananticommu-nistregime,butwasnevertrulydemocraticsincepowerwasconcentratedinonedominantpartyintheparliamentarysystem.InTaiwan,thedominantpartyistheNationalistic(Guomindang)Party.ChiangKai-shekledTaiwanuntilhisdeathin1975andwassucceededbyhissonChiangChing-Kuo.Sincethattime,Taiwanhasbeguntoincreasinglydemocratize.Initially,theUnitedStatesrecognizedTaiwanasthelegitimateChinesegovernment,butreverseditspositionin1971whenitrecognizedthePeople’sRepublicofChina,whichreplacedTaiwanontheUNSecurityCouncil.UnofficialcontactsbetweentheAmericanInstituteinTaiwanandtheCoordinationCouncilforNorthAmericanAffairsensurestrongeconomicandpoliticalrelationshipsbetweenTaiwanandtheUnitedStates.TaiwanalsohasstrongeconomictieswithJapanandotherAsiannations.RelationshipsbetweenthegovernmentsofTaiwanandmainlandChinaremainuncomfortable,butpeaceful.

KoreaThesituationinKoreaisfartenser,sincethepeninsulaissplitbetweentwoextremelydifferentnations.AttheendofWorldWarII,Koreawasdividedintotwoterritories;thenorthernregionwascommunistandoccupiedbytheUSSR,whilethedemocraticsouthwasoccupiedbytheUnitedStates.In1948,theter-ritoriesbecameindependentnations.In1950,NorthKoreainvadeditssouthernneighbor,hopingtounifythetwoundercommunism.Forthenextthreeyears,aU.S.-ledcoalition,or“policeforce,”foughttopreserveSouthKoreandemocracy.Themilitaryconflictendedinanarmisticethatcontinuestothisday.Officially,thetwonationsremainatwar,andU.S.militaryforcesremainpermanentlystationedalongthebordertohelpmaintainpeace.

Between1948and1984,NorthKorea,knownastheDemocraticRepublicofKorea,wasledbyKimIlSung,atotalitariancommunistleaderwhoisolatedthenationfromtherestoftheworld.Hewassucceededbyhisson,KimIlSungII,whohasretainedmanyofhisfather’spractices.NorthKorea’sagricultureand

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What was the result

of Chinese protests at

Tiananmen Square?



industrialeconomyarealmostentirelygovernmentowned.Thenationfollowsanisolationisteconomicpolicyandsointernationaltradeisverylimited;itcurrentlytradesonlywithChinaandRussia.Inrecentyears,NorthKoreahassufferedfromnumerousdroughtsthathavecausedcripplingfamines.Itslargemilitaryposesenormousfinancialstrainonthenation,furtheraddingtothesufferingoftheNorthKoreanpeople.In2006,NorthKoreademonstrateditsnuclearcapabilitieswithatestbomb.Asecondtestwasconductedthreeyearslater,sendingshockwavesoffearintoneighboringcountries,particularlySouthKoreaandJapan,Korea’shistoricalenemy.

Bycontrast,SouthKorea,officiallyknownastheRepublicofKorea,hasoneofthemostbustlingeconomiesinAsia.ThisislargelyduetoSouthKorea’sclosepoliticalandeconomicrelationshipwiththeUnitedStates.Althoughnominallydemocratic,SouthKoreawascontrolledbyaseriesofmilitarydictatorshipsformanydecades.In1987,SouthKoreahelditsfirstfreeelectionsandhassincebecomeasuccessfulliberaldemocracy.Sincethemid1950s,SouthKorea’sgov-ernmenthasfocusedprimarilyontheeconomy,withflourishingsteel,textile,andautomotiveindustries.Thecountryalsoboastsanimpressivenumberofentrepreneurs.OneofSouthKorea’smostfamouscompaniesisHyundai,anautomobilecorporationwhoseworkersliveincompanytowns,completewithhouses,recreationfacilities,andstores.SouthKoreaalsoproducesmanycheapconsumergoodsforexporttotheUnitedStatesandotherWesternnations.Thecountryhasoneofthehighestpopulationdensitiesintheworld,atapproximately1,000peoplepersquaremile.Thisinturn,hasproducedhorrificairpollutionandotherenvironmentalproblems.Whilevastfortuneshavebeenmade,muchofthepopulationremainsinpoverty.

Vietnam, Laos, and cambodiaEconomically,Vietnam,Laos,andCambodiaarestilldeveloping.From1887until1954,thisregionofSoutheastAsiawastheFrenchcolonyofIndochina.WhenWorldWarIIended,manypeopleinIndochinahopedtothrowoffcolonialruleandachieveaneasypeace.Instead,decadesofrevolutionarywarandcivilwarshavewrackedthecountryside.

In1945,theVietnamesecommunistleaderHoChiMinhdeclaredhisnation’sindependence.Francefoughttherevolutionariesforalmostadecadebeforefinallybeingdrivenoutbytheguerrillasoldiers.LikeKorea,Vietnamsplitalonganorth-southline;thenorthernregionwasacommunistzonecontrolledbyHoChiMinh,whilethesouthernregionwasnoncommunist.TheUnitedStates,deeplyengagedintheColdWar,couldnotacceptacommunistVietnam,andvigor-ouslysupportedSouthVietnam.Duringthe1960sand1970s,theU.S.militarytriedtopreventthespreadofcommunism.Thenativepeople,however,wereoverwhelminglysupportiveofHoChiMinh.Theyviewedhimasarevolutionaryherofightingagainstforeigncolonialpowersandaforeign-controlledpuppetgovernmentinSouthKorea.DespitethefactthatmorebombsweredroppedonthetinynationinVietnamthaninallthetheatersofwarinWorldWarII,theVietnameseguerrillasoldiers,orViet Cong,wereultimatelyvictorious.In1975,communistfighterscapturedtheSouthVietnamesecapitalofSaigon.The

hyundai South Korean automobile company

Viet cong communist Vietnamese guerrilla soldiers during the Vietnam War



fightersrenamedthecapitalHoChiMinhCityandunifiedthecountryunderasinglecommunistrule.

Vietnamhasreceivedverylittleforeignfinancialaidandfollowedanisolationistpolicyuntilthelate1980s.Ithadahighlycentralizedcommandeconomy,buthasgraduallybeguntoliberalizeandexpand.IthassuccessfuleconomicrelationshipswithmanyJapaneseandEuropeancorporations,andisslowlyacceptingtheinclu-sionofAmericanfirms.Muchofthepopulationsubsistsonlowwagesearnedinsweatshopworkingconditions,andeducationisnotwidelyavailable.

ConditionsaresimilarinLaos.In1954,LaoswasgranteditsindependencefromFrenchcolonialrule,butthecountryimmediatelybecameembroiledinacivilwarthatlastedformorethantwodecades.In1975,theCommunistPartycameintopower,andLaosremainsacommunistnation.MostofLaos’spopulationworksintheagriculturalsector,growingthousandsoftypesofrice.Tourismhasgreatlyincreasedintheregion,which,alongwithforeignfinancialaid,isresultinginagrowingeconomy.

ThekingdomofCambodia,aconstitutionalmonarchy,hasexperienceditsownshareofpoliticalinstability,buttodayhasgoodpoliticalandeconomicrela-tionswithmanynationsinAsiaandtheWest.IthasreceivedsignificantforeignaidfromChinaandtheWorldBank.Itstwomajorindustriesareintextilesandtourism.EnglishistaughtasasecondlanguageinmanyschoolsduetothepresenceofsomanyEnglish-speakingtouristsandinhopeofpromotinggreaterbusinessrelationshipswithEnglish-speakingcountries.

SingaporeThetinycitystateofSingaporeisoneofthefour“AsianTigers.”LikeTaiwan,SouthKorea,andHongKong,Singaporehasamassiveindustrialandbankingeconomy,whichmakesitanimportantglobalplayer.Thisindependentnation,locatedonthetipoftheMalayPeninsula,hasbeenclaimedbynumerousempires.Mostrecently,SingaporewasaBritishcolony;itwasalsobrieflyoccupiedbyJapanduringWorldWarII.In1965,Singaporebecameanindependentcity-statewithaparliamentarygovernment.Itishighlyurbanized,withalargepopulationofbothnativeandforeignindividuals,andisamongtheworld’stopfinancialcenters,similartoNewYorkandLondon.Singaporealsohasanexceptionallybusyportinvolvedinbothheavyindustryandoilrefining,alongwithoneofthelargestcasinoindustriesontheplanet.

Modern Trading Blocs: the EU, NAfTA, and oPEcTodaymanynationshavejoinedtogetherineconomicalliancesinordertostrengthentheirdomesticeconomiesandgainacompetitiveedgeintheglobaleconomy.Thesealliancesoftenhaveimpressivepoliticalcloutandplaysignificantrolesinworldaffairs.Themodernglobaleconomyisstillevolvingandthelong-termeffectsofinternationaleconomiccooperationremaintobeseen.Supportersclaimglobalizationwillbringprosperitytoindustrialanddevelopingnationsalikebycreatingmarketsthatfunctionatmaximumefficiency.Criticsprotestthatglobal-izationrewardselitemembersofindustrialnationsandimpoverishesdevelopingnations,whichwidensthegapbetweenrichandpoor.Criticsalsociteglobalization

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Who was the leader of

Vietnam’s independence

movement?



asaleadingcauseinthedegenerationoftheenvironment.Whatisclearisthatglobalizationisoccurringrapidlyanditseffectswillforeveralterhumanhistory.

Theworld’slargestfreetradezoneistheNorthAmericanFreeTradeAgreement(NAFTA).Establishedin1994,NAFTAencompassesallofNorthAmerica,includ-ingCanada,theUnitedStates,andMexico.Itispurelyaneconomicallianceandhaslittlepoliticalclout.However,itispossiblethattheorganizationmayexpandtoincludenoncommunistnationsinLatinandSouthAmerica.Ifthishappens,NAFTAmaytakeonpoliticalagendasaswellaseconomic.Today,therelationshipbetweenCanadaandtheUnitedStatesisverypeaceful,andthetwonationssharethelargestunguardedpoliticalborderintheworld.TherelationshipbetweentheUnitedStatesandMexico,bycontrast,isoftentense.Inparticular,debatesovertheillegalimmigrationofMexicansintotheUnitedStatesandthecontinuedwarondrugsareoftencontentious.SincejoiningNAFTA,theMexicanGDPhasimprovedandsince2006Mexicohasbecomethesecond-largestU.S.tradingpartner.Atthesametime,thegapbetweentheMexicanmiddleclassanditspoorestcitizens,includingmostindigenoustribes,hassteadilyincreased.

ThestrongestfreetradezoneistheEuropeanUnion(EU).Itoriginatedinthe1950s,whenFranceandWestGermanybegancoordinatingtherebuildingofEurope.Theplanwastolinkthetwocountries’economiessothattheywouldbeunwillingtothreatenoneanothermilitarily.Theybeganbyunitingheavyindustriesondisputedborderareas,regionswhichhadsparkedwarsforcenturies.Soonafter,thecountriesloweredtariffstoencouragetrade.Italy,Belgium,theNetherlands,andLuxembourgsoonjoinedFranceandWestGermanyandeachnationbegantoprosperundertheclimateofeconomiccooperation.In1958,WestGermany,France,Italy,Belgium,Luxembourg,andtheNetherlandsformallyestablishedtheEuropeanEconomicCommunity(EEC),whichcreatedasingleeconomicentityamongpoliticallyindependentmembernations.Tariffswerereducedorabolishedandfreemovementamonglaborersandfinancialinstitutionswasencouraged.TheEECwasrenamedtheEuropeanUnion(EU)in1967,andbythe1970s,theEUvirtu-allyequaledtheUnitedStatesintermsofindustrialproduction.In1982,alltradeandcurrencyexchangebarrierswasabolished.Almosttwentyyearslater,in2001,asinglecurrency,theeuro,wascreated,whichtodayclaimsthesecondgreatestbuyingpowerofallcurrencies,aftertheBritishpound.EconomicprosperityhasledtoincreasedsocialwelfarebenefitsandraisedlivingstandardsthroughoutEurope.

TheEU’sheadquartersisinBrussels,andincludesaninternationalparliamentandcourtsystemforsettlingeconomicdisputesandviolations,theEuropeanCen-tralBank,andadministrativeofficesforafundthatpromoteseconomicgrowthinstrugglingEuropeanregions.TheEUnowincludesmostofWesternEurope,includ-ingGreatBritain,Ireland,Austria,Denmark,Sweden,Finland,Spain,Portugal,andGreece.Morerecently,manynationsincentralEuropewereacceptedasfullmembers,includingPoland,Romania,Slovakia,andLatvia.In2005,theIslamicnationofTurkeyappliedforfullmembershipstatus,provokingdiscussionsaboutwhatitmeanstobelongtotheEuropeanUnion.ItwilllikelytakeadecadeormorefortheEUtodeterminewhetherornottoacceptTurkey’scandidacy.

Member-nationssharecommoneconomicpoliciesaswellassomepolitical



policiessuchasthoseconcerningimmigration,environmentalprotection,security,andforeignaffairs.ManyhopethattheEUwillleadtofullEuropeanpoliticalinte-gration.Nationalismremainsstronginmanymember-nations,anditisunlikelythatindependencewillbeabandonedanytimesoon.WhiletheEUisundoubtedlyaneconomicpower,itlacksthediplomaticandmilitarypoweroftheUnitedStates,andsoitspoliticalpowerremainslimited.

Onefree-tradezonethatunderstandshowtouseeconomicpowerforpoliticalpurposesistheOrganizationofPetroleumExportingCountries(OPEC).Createdin1960,itismadeupofmostlyMiddleEasterncountries,includingSaudiArabia,Iraq,Iran,Kuwait,Libya,Qatar,Bahrain,andtheUnitedArabEmirates,aswellasEcuadorandVenezuela.Throughoutmostofthetwentiethcentury,thesedevel-opingnationswerethoughttobeeconomicallysubordinatetoWesternindustrialnations.Inthemid1970s,OPECprovedhowpowerfulaneconomiccoalitioncanbe.In1973,EgyptandSyrialaunchedasurpriseattackonIsrael,sparkingtheYomKippurWar.Israel,supportedbytheU.S.military,crushedtheattackingarmiesandacease-firewasarranged.OutragedbytheinsulttoMuslimmilitarypowerandangeredatU.S.involvement,OPECimplementedanoilembargoontheUnitedStatesandWesternEurope.Oilpricessoaredandmorethanquadrupled,whichcreatedafinancialcrisisandrecession.

OPEC’spoliticalclouthasdecreasedduetocontentionsbetweenmemberstatesduringtheIran-IraqWarandGulfWar,aswellasoverproduction.Formostofthetwentiethcentury,theaveragepriceofoilwaslessthan$20abarrel;since

embargo the partial or complete elimination of trade with a particular country

Members of the Organization of the Petroleum Exporting Countries (OPEC) attend a press conference in Vienna, Austria, on June 8, 2011.



2000oilpriceshavebeenincreasingdramatically.Aspricesrose,sodidtheambi-tionsofoil-wealthynationsinthePersianGulf.In2008,thepriceofoilpeakedatmorethan$155abarrel,beforedroppingbackdown.Asthedemandforoilkeepsrisingandreservesdryup,pricescanonlycontinuetorise.IfOPECnationscanstandtogetherpoliticallyandeconomically,theywillbeaforcetoreckonwith.

WhileNAFTA,theEU,andOPECwereestablishedprimarilyaseconomicasso-ciations,othercoalitionswerecreatedforpoliticalreasonsandonlylaterbranchedouttoincludeeconomicaims.TheAssociationofSoutheastAsianNations(ASEAN)isonesuchorganization.Establishedin1967asadiplomaticentity,ithassincestrengthenedeconomictiesbetweenmember-states.TheoriginalmembersofASEANwereThailand,Malaysia,Singapore,Indonesia,andthePhilippines;theassociationlaterexpandedtoincludeVietnam,Cambodia,Laos,andBurma.ItsprimaryobjectivesaretopromotepoliticalanddemocraticstabilityinSoutheastAsiaandtoacceleratetheeconomicdevelopmentoftheregion.In1977,ASEANsignedlimitedeconomicagreementswithJapan.Threeyearslater,itmadesimilartradeagreementswiththeEU.In1982,ASEANestablishedafreetradezonebetweenallmembers,andabolishedtariffsonindustrialgoods.ASEANlatersignedfreetradeagreementswithJapan,SouthKorea,Australia,NewZealand,andIndia.In2010,ASEANsignedfreetradeagreementswiththePeople’sRepublicofChina,aneconomicallianceexpectedtogeneratebillionsforASEANnations.

Numerousothereconomicassociationsexistworldwide.MercosuristhethirdlargestfreetradezoneandincludesArgentina,Brazil,Paraguay,Uruguay,andVen-ezuela.FiveotherSouthAmericancountriesareassociatemembers,andMexicohasobserverstatus.In2007,Mercosurmadeitsfirstofficialforeignfreetradeagreement,withIsrael.Inthefuture,itispossiblethatMercosurmayformtradeagreementsorunitewithNAFTA.Ifthishappens,alloftheAmericaswillbeasingleeconomicunit,withtheadditionalbenefitofU.S.politicalandmilitarypower.AnotherpowerfulfreetradeassociationistheShanghaiCooperationOrganization(SCO),whichunitesChina,Russia,andformerSovietUnionsatellitesincentralAsia.ObservercountriesincludeIndia,Iran,Mongolia,andPakistan.Createdin2001,theSCO’seconomicactivitiesarecoupledwithnationalsecurityconcerns,includingcombatingterroristsandseparatistsmovements.In2008,IranappliedforfullmembershipbutwasdeniedbecauseofongoingsanctionsagainstIranbytheUN.IfinthefuturesanctionsareliftedandIranisadmitted,theSCOwillunitetheoil-richIranandRussiawiththegrowingeconomyofChina—apotentcombination.OtherfreetradeassociationsoperateinWestAfrica,southernAfrica,SoutheastAsia,CentralAmerica,thePacificBasin,andtheCaribbean.

Tradingblocsareoftencriticizedbyadvocatesofworldwidefreetrade.Someeconomistshaveevensuggestedthattradingblocsfurtherfragmentglobalecono-miesbyfocusingonregionaleconomies.However,tradingblocsmayinfactactassteppingstonesinthecreationofafreeglobaleconomybybreakingdownbarriersbetweenneighboringcountriesandencouraginginternationalcooperation.Atminimum,tradingblocshavebeeninstrumentalinpreservingworldpeaceandpreventingtheoutbreakofanotherEuropeanlandwar.

5SELf-chEcK

What is the largest free

trade zone in the world?



SummaryMostoftheinstitutesofmodernglobalizationhavebeencreatedsinceWorldWarII.TheindustrialdevelopednationsintheWesthaveledtheway;manynationsinAsiahaveincreasinglydemonstratedtheirabilitytocompeteonequalfooting.OrganizationsliketheWorldBankandInternationalMonetaryFundhavebeencriticalinrebuildingwar-tornnationsandassistingduringrecessions.Tradealli-ancessuchasNorthAmericanFreeTradeAssociation,theEuropeanUnion,theOrganizationofPetroleumExportingCountries,andtheAssociationofSoutheastAsianNations,havehelpedstreamlinecapitalistglobalizationandbringpoliticalsustainabilityandpowertomember-nations.Theeffectsofglobalizationwillbefar-reaching,andmayincludemanypositiveaswellasnegativeresults.

Looking AheadTheeffectsofglobalizationfarsurpasstheeconomicfactorsdiscussedinthisles-son.Globalizationhaschangedmigrationpatternsforhumansaswellascountlessanimalandplantspecies.Ithasfacilitatedthespreadofinfectiousdiseases,andhelpedcoordinatetheirpreventionandcure.Thesocialandculturaleffectsofglobalizationaretremendous,thrustingWesterncultureanditsvaluesontradi-tionalculturesaroundtheworld.ButmanyoftheseculturesarealsoinfiltratingtheWesternworld,changingculinary,linguistic,ethnic,andreligiousnorms.

1. A closed monetary system is an economic system in which the government, rather than market demand, determines prices and quantities of goods produced.

2. Japan has focused on creating technology-intensive goods like computer parts.

3. The Chinese army sent tanks to break up the protest, killing hundreds; thousands were arrested.

4. Ho Chi Minh was the communist revolutionary who led Vietnam to independence.

5. NAFTA is the world’s largest free trade zone.

SELf-chEcK ANSWERS


Unit 10, Lesson 25All images © K12 Inc. unless otherwise noted. 1, 3 World Trade Organization protest in Seattle. Getty Images 8 Xiao-huang Yin, “China’s Gilded Age,” The Atlantic Monthly, April 1994, http://www.theatlantic.com/past/docs/unbound/flashbks/deng/gilded.htm 13 OPEC press conference, 2011. Associated Press


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