The following summaries are taken from International Relations, Brief Edition, Joshua S. Goldstein, Longman Press, 2002. You will also benefit from the use of the Chapter Summaries found in the website for Kegley and Whitkopf.
Trade and Money -- pgs. 271-274
Summary
| Mercantilism emphasizes the use of economic policy to increase state power relative to other states. It is related to realism. |
| Liberalism emphasizes international cooperation—especially through worldwide free trade—to increase the total creation of wealth (regardless of its distribution among states). Liberalism is conceptually related to idealism. |
| Most international exchanges entail some conflicting interests and some mutual interests on the part of the states involved. Deals can be made because both sides benefit, but conflict over specific outcomes necessitates bargaining. |
| The volume of world trade is very large—about 15 percent of global economic activity—and is concentrated heavily in the states of the industrialized West (Western Europe, North America, and Japan/Pacific). |
| Trade creates wealth by allowing states to specialize in producing goods and services for which they have a comparative advantage (and importing other needed goods). |
| The distribution of benefits from an exchange is determined by the price of the goods exchanged. With many buyers and sellers, prices are generally determined by market equilibrium (supply and demand). |
| Communist states during the Cold War operated centrally planned economies in which national governments set prices and allocated resources. Almost all these states are now in transition toward market-based economies, which seem to be more efficient in generating wealth. The transition has been very painful in Russia and Eastern Europe, less so in China. |
| Politics intrudes into international markets in many ways, including the use of economic sanctions as political leverage on a target state. However, sanctions are difficult to enforce unless all major economic actors agree to abide by them. |
| Mercantilists favor trade policies that produce a trade surplus for their own state. Such a positive trade balance generates money that can be used to enhance state power. |
| States are becoming more and more interdependent, in that the well-being of states depends on each other’s cooperation. States that have reduced their dependence on others, by pursuing self-sufficient autarky, have failed to generate new wealth to increase their well-being. Self-reliance, like central planning, has been largely discredited as a viable economic strategy. |
| Through protectionist policies, many states try to protect certain domestic industries from international competition. Such policies tend to slow down the global creation of wealth but do help the particular industry in question. Protectionism can be pursued through various means, including import tariffs (the favored method), quotas, subsidies, and other non-tariff barriers. |
| Certain products—especially food, intellectual property, services, and military goods—tend to deviate more than others from market principles. Political conflicts among states concerning trade in these products are frequent. |
| A world market based on free trade is a collective good (available to all members regardless of their individual contribution) inasmuch as states benefit from access to foreign markets whether or not they have opened their own markets to foreign products. |
| Because there is no world government to enforce rules of trade, such enforcement depends on reciprocity and state power. In particular, states reciprocate each other’s cooperation in opening markets (or punish each other’s refusal to let in foreign products). Although it leads to trade wars on occasion, reciprocity has achieved substantial cooperation in trade. |
| The World Trade Organization, formerly the GATT, is the most important multi-lateral global trade agreement. In successive rounds of GATT negotiations over nearly 50 years, states have lowered overall tariff rates (especially on manufactured goods). |
| The GATT was institutionalized in 1995 with the creation of the World Trade Organization (WTO), which expands the focus on manufactured goods to include agriculture and services. |
| Although the WTO provides a global framework, states continue to operate under thousands of bilateral trade agreements specifying the rules for trade in specific products between specific countries. |
| Regional free-trade areas (with few if any tariffs or non-tariff barriers) have been created in Europe, North America, and several other less important instances. The North American area includes Canada, Mexico, and the United States. |
| International cartels are occasionally used by leading producers (sometimes in conjunction with leading consumers) to control and stabilize prices for a commodity on world markets. The most visible example in recent decades has been the oil producers’ carte, OPEC. |
| Free-trade agreements have led to a backlash from politically active interest groups adversely affected by globalization; these include labor unions, environmental and human rights NGOs, and certain consumers. |
| Each state uses its own currency. These currencies have no inherent value but depend on people’s belief that they can be traded for future goods and services. |
| Gold and silver were once used as world currencies that had value in different countries. Today’s system is more abstract: national currencies are valued against each other through exchange rates. |
| The most important currencies—against which most other states’ currencies are compared—are the U.S. dollar, German mark, and Japanese yen. |
| Inflation, most often resulting from the printing of currency faster than the creation of new goods and services, causes the value of a currency to fall relative to other currencies. Inflation rates vary widely but are generally much higher in the third world and former Soviet bloc than in the industrialized West. |
| States maintain reserves of hard currency and gold. These reserves back a national currency and cover short-term imbalances in international financial flows. |
| Fixed exchange rates can be used to set the relative value of currencies, but more often states use floating exchange rates driven by supply and demand on world currency markets. Governments cooperate to manage the fluctuations of (floating) exchange rates but are limited in this effort by the fact that most money traded on world markets is privately owned. |
| Over the long term, the relative values of national currencies are determined by the underlying health of the national economies and by the monetary policies of governments (how much money they print). |
| To ensure discipline in printing money—and to avoid inflation—industrialized states turn monetary policy over to semiautonomous central banks such as the U.S. Federal Reserve. |
| The World Bank and the International Monetary fund (IMF) work with states’ central banks to maintain stable international monetary relations. Since 1971 the system has used Special Drawing Rights (SDRs)—a kind of world currency controlled by the IMF—rather than gold. |
| The IMF operates a system of national accounts to keep track of the flow of money into and out of states. The balance of trade (exports minus imports) must be balanced by capital flows (investments and loans) and changes in reserves. |
| International debt results from a protracted imbalance in capital flows—a state borrowing more than it lends—in order to cover a chronic trade deficit or government budget deficit. |
| The U.S. financial position declined naturally from an extraordinary predominance immediately after World War II. The fall of the dollar-gold standard in 1971 reflected this decline. In the 1980s, the U.S. position worsened dramatically. A chronic budget deficit and trade deficit expanded the country’s debt burden. Economic growth in the mid-1990s helped bring the budget deficit back down. |
| The positions of Russia and the other states of the former Soviet bloc have declined drastically as they have tried to make the difficult transition from communism to capitalism. Though rampant inflation in the early 1990s subsided in the late 1990s, the economies of the former Soviet republics are about half their former size. Western states have not extended massive economic assistance to Russia and Eastern Europe. |
| Multinational corporations (MNCs) do business in more than one state simultaneously. The largest are based in the leading industrialized states, and most are privately owned. MNCs are increasingly powerful in international economic affairs. |
| MNCs contribute to international interdependence in various ways. States depend on MNCs to create new wealth, and MNCs depend on states to maintain international stability conducive to doing business globally. |
| MNCs try to negotiate favorable terms and look for states with stable currencies and political environments in which to make direct investments. Governments seek such foreign investments on their territories so as to benefit from the future stream of income. |
| MNCs try to influence the international political policies of both their headquarters state and the other states in which they operate. Generally MNCs promote policies favorable to business—low taxes, light regulation, stable currencies, and free trade. They also support stable international security relations, because war generally disrupts business. |
| Increasingly, MNCs headquartered in different states are forming international alliances with each other. These inter-MNC alliances, even more than other MNC operations across national borders, are creating international interdependence and promoting liberal international cooperation. |
| MNCs sometimes promote economic nationalism over liberalism, however, especially in the case of state-owned MNCs or alliances MNCs based in a single country. |
North-South Relations – pgs. 403-407
Summary
| Most of the world’s people live in poverty in the third world. About a billion live in extreme poverty, without access to adequate food, water, and other necessities. |
| Moving from poverty to well-being requires the accumulation of capital. Capitalism and socialism take different views on this process. Capitalism emphasizes overall growth with considerable concentration of wealth, whereas socialism emphasizes a fair distribution of wealth. |
| Most states have a mixed economy with some degree of private ownership of capital and some degree of state ownership. However, state ownership has not been very successful in accumulating wealth. |
| Marxists view international relations, including global North-South relations, in terms of a struggle between economic classes (especially workers and owners) that have different roles in society and different access to power. |
| Since Lenin’s time, many Marxists have attributed poverty in the South to the concentration of wealth in the North. In this theory, capitalists in the North exploit the South economically and use the wealth thus generated to buy off workers in the North. |
| IR scholars in the world-system school argue that the North is a core region specializing in producing manufactured goods and the South is a periphery specializing in extracting raw materials through agriculture and mining. Between these are semiperiphery states with light manufacturing. |
| Today’s North-South gap traces its roots to the colonization of the third world regions by Europe over the past several centuries. Because of the negative impact of colonialism on local populations, anticolonial movements arose throughout the third world at various times and using various methods. These culminated in a wave of successful independence movements primarily after World War II in Asia and Africa. |
| Following independence, third world states were left with legacies of colonialism, including their basic economic infrastructures, that made wealth accumulation difficult in certain ways. These problems still remain in many countries. |
| World population—now at 6 billion—will reach 8 or 9 billion in 30 years. Thereafter it is expected to level out over 150 years, ultimately reaching a stable level somewhere between about 10 and 20 billion. |
| Future world population growth will be largely driven by the demographic transition. Death rates have fallen throughout the world, but birthrates will fall proportionally only as per capita incomes go up. |
| The demographic transition sharpens disparities of wealth globally and locally. High per capita incomes and low population growth make rich states or groups richer, whereas low incomes and high population growth reinforce each other to keep poor states and groups poor. |
| Within the overall shape of the demographic transition, government policies can reduce birthrates somewhat at a given level of per capita income. Effective policies are those that improve access to birth control and raise the status of women in society. |
| Death rates are stable and little affected in the large picture by wars, famines, and other disasters. Raising the death rate is not a feasible way to limit population growth. |
| Although the global AIDS epidemic may not greatly slow world population growth, it will impose huge costs on many poor states in the coming years. More than 30 million people are infected with HIV; most are in Africa and most new infections are now in Asia. Because states cannot wall themselves off from the outside world, international cooperation in addition to unilateral state actions will be necessary to contain AIDS. |
| Population pressures do not cause, but do contribute to, a variety of international conflicts including ethnic conflicts, economic competition, and territorial disputes. |
| Wealth accumulation depends on the meeting of basic human needs such as access to food, water, education, shelter, and health care. Third world states have had mixed success in meeting their populations’ basic needs. |
| War has been a major impediment to meeting basic needs, and to wealth accumulation generally, in poor countries. Almost all the wars of the past 50 years have been fought in the third world. |
| Hunger and malnutrition are rampant in the third world. The most important cause is the displacement of subsistence farmers from their land because of war, population pressures, and the conversion of agricultural land into plantations growing export corps to earn hard currency. |
| Urbanization is increasing throughout the third world as more people move from the countryside to cities. Huge slums have grown in the cities as poor people arrive and cannot find jobs. |
| Women’s central role in the process of accumulation has begun to be recognized. International agencies based in the North have started taking women’s contributions into account in analyzing economic development in the South. |
| Poverty in the South has led huge numbers of migrants to seek a better life in the North; this has created international political frictions. War and repression in the South have generated millions of refugees seeking safe haven. |
| Many people throughout the third world have turned to political revolution as a strategy for changing economic inequality and poverty. Often, especially during the Cold War, states in the North were drawn into supporting one side or the other during such revolutions. |
| Today the most potent third world revolutions are the Islamic revolutions in the Middle East directed against the North. Like communist ones, Islamic revolutions draw support and legitimacy from the plight of poor people. |
| When revolutionaries succeed in taking power, they usually change their state’s foreign policy. Over time, however, old national interests and strategies tend to reappear. |
| North-South relations, although rooted in a basic economic reality—the huge gap in accumulated wealth—reflect the close connections of economics with international security. |
| Economic development in the third world has been uneven; per capita GDP increased in the 1970s but, except in Asia, decreased in the 1980s. Growth in the 1990s was brisk in Asia but slow elsewhere. |
| Evidence does not support a strong association of economic growth either with internal equality of wealth distribution or with internal inequality. |
| The newly industrializing countries (NICs) in Asia—South Korea, Taiwan, Hong Kong, and Singapore—show that it is possible to rise out of poverty into sustained economic accumulation. Other third world states are trying to emulate these successes, but it is unclear whether these experiences can apply elsewhere. |
| China has registered strong economic growth in the past 15 years of market-oriented economic reforms. Though still quite poor, China may be emerging as a leading success story in third world economic development. |
| Economic development in other large third world countries such as India, Brazil, and Nigeria has been slowed by the inefficiency of state-owned enterprises, by corruption, and by debt. |
| Import substitution has been largely rejected as a development strategy in favor of export-led growth. This reflects both the experiences of the NICs and the theory of comparative advantage. |
| Most poor states want to develop a manufacturing base. But, even when focusing on low-capital industries, states have generally had to sharpen income disparities in the process of concentrating capital for manufacturing. |
| The theory that democratization would strengthen economic development has not been supported by the experiences of third world countries. But the opposite theory—that authoritarian government is necessary to maintain control while concentrating capital for industrialization—has also not been supported. |
| Government corruption is a major obstacle to development. |
| Given the shortage of local capital in most poor states, foreign investment by MNCs is often courted as a means of stimulating economic growth. MNCs look for favorable local conditions, including political and economic stability, in deciding where to invest. |
| States in the global South seek the transfer of technology to support their future economic development. Technology transfer can be appropriate or inappropriate to local needs depending on the circumstances of each case. |
| The green revolution of the 1960s was a massive North-South transfer of agricultural technology, which had both good and bad effects. Today’s “green” technologies being transferred to the third world are techniques for environmentally sustainable development. |
| Third world debt, resulting largely from overborrowing in the 1970s and early 1980s, is a major problem. Despite renegotiations and other debt management efforts, the South remains almost $2 trillion in debt to the North, and annual debt service consumes about one-sixth of all hard-currency earnings from exports of the South. |
| The IMF makes loans to states in the South conditional on economic and governmental reforms. These conditionality agreements often necessitate politically unpopular measures such as cutting food subsidies. |
| The WTO trading regime works against the third world by allowing richer nations to protect sectors in which the third world has advantages—notably agriculture and textiles. The Generalized System of Preferences (GSP) tries to compensate by lowering barriers to third world exports. |
| Efforts to improve the South’s solidarity, cooperation, and bargaining position relative to the North—such as the New International Economic Order (NIEO)—have had little success. |
| Foreign assistance, most of it from governments in the North, plays an important part in the economic development plans of the poorer states of the South. However, only a few states in the North meet the goal of contributing 0.7 percent of their GNPs as foreign assistance to the South. The United States, at 0.1 percent, contributes the smallest share of any industrialized state. |
| Most foreign aid consists of bilateral grants and loans from governments in the North to specific governments in the South. Such aid is often used for political leverage, and promotes the export of products from the donor state. |
| Disaster relief provides short-term aid to prevent a natural disaster from reversing a poor state’s economic development efforts. Disaster relief generally involves cooperation by various donor governments, local governments, the UN, and private agencies. |
| Handouts to poor communities to meet immediate needs for food and supplies outside times of disaster—here called the missionary model—can be helpful but also have drawbacks. |
| Efforts to support local organizations working to empower poor people and generate community economic development—here called the Oxfam model—are promising but have been tried only on a small scale. |