Economic Globalization Which economic ideas have most influenced the development of contemporary economic globalization?

Foundations of Economic Globalization A number of events led to the development of economic globalization as we know it today. The establishment of a new monetary system Creation of the World Bank and the International Monetary Fund The expansion of the free market economy into the former-bloc countries The Impact of new technologies on the movement of money around the world

New Monetary System Bretton Woods Agreement 1944, 44 Allied countries met to discuss rebuilding the global economy after the war The Agreement established a system of rules, institutions, and procedures for the postwar economy. It effectively established a new International Monetary System A global network of institutions to promote international trade and the regulation of currency (money) among Western countries

The Gold Standard The 44 countries at the Bretton Woods conference agreed that each country would maintain a fixed exchange rate for its currency. Fixed Exchange Rate The value of a country’s currency is set by the government. It would be based on the Gold Standard. All printed money could be convertible to gold and could be cashed in for gold at anytime. Money printed by the government must be backed up by a gold reserve.

Problems with the Gold Standard A country can only print as much money as it has in gold. 1 billion in gold = 1 billion in currency. In times of crisis the government needs money. It simply can print more. This can cause the government to go into debt. Too much debt the value of the currency drops the result is inflation Inflation – Country ends up with more currency but each unit of currency buys less

Floating Exchange Rate 1971 - Due to high inflation in the United States, their government closed the gold window. 1976 – All the world’s major currencies had Floating Exchange Rates. Value was no longer fixed by the government, but found its value on the world market. Supply and Demand

Canadian $ Value The Canadian dollar isn’t determined by the amount of gold we have. Instead it lies in the wealth of the country and in what the dollar can buy here and in other parts of the world. (perception by the World Market!) The value on the international market will always change. The US $ has been the standard for all currencies since the end of the Second World War Japan, European Union and the United States have the strongest economies and currencies.

World Bank The Bretton Woods Agreement created the World Bank Agency of the United Nations In practice it is independent and controlled by its 184 member countries Provides loans to less developed countries PLUS Developed Nations in potential CRISIS … ie: NEW ZEALAND in the 1980s-1990s)

Expansion of the Free Market Economy Cold War was “fought” between 1946 and 1989. between the communist and Western Powers With communism’s collapse many of the former communist countries turned to the United States and embraced a Free Market Economy Emphasis on Competition and “Freer” Trade. Other countries followed suit, China, India. China is the world’s foremost country for manufacturing India offered cheap and efficient outsourcing through technology

Technology and Communication Technology decentralized international money markets (Markets in which funds are loaned for a short period of time to businesses or governments) The Electronic Herd Through technology anyone can access world money markets Through a personal computer people from home can access a Mutual Fund manager

International Monetary Fund (IMF) Also came out of the Bretton Woods Agreement Works with the World Bank Tries to bring stability to international monetary affairs and to help expand trade It monitors exchange rates and provides short-term financial assistance. Agency of the UN Funded through quotas by its member countries.

14

People of Influence British economist John Maynard Keynes British economist Developed theories that called for a large role for government in the economy Direct gov’t would increase total spending and prevent or lift the economy out of a recession

People of Influence Opposite view of Keynes Friedrich Hayek Opposite view of Keynes When governments try to plan or control societies, those societies are doomed to failure. Based his theories on Totalitarian regimes, ex, Soviet Union and Nazi Germany

Free Trade and Economic Globalization What is Free Trade? As countries become more interdependent they need to rely on free trade agreements How has Canada been involved in free trade?

General Agreement on Tariffs and Trade GATT was established in 1947 as an agency of the UN. It had 4 main principles Conduct trade in a non-discriminatory manner Treating imported goods like domestic ones Protecting domestic industries through Tariffs A membership requires the country to list all tariffs and trade restrictions with other countries

Softwood Lumber

Free Trade with the US 1989 – The Free Trade Agreement (FTA) Took the majority of the tariffs off Reasons for Canada Wanted access to a large market Reasons for the US Wanted access to our resources The agreement excluded water

North American Free Trade Agreement 1994 – FTA extended to Mexico NAFTA created the largest free trade area in the world Before NAFTA there wasn’t a lot of trade between Mexico and Canada, after NAFTA Mexico increased its trade to Canada by 200% and Canada’s trade increase by 25%

View points on free trade Why would some people favour free trade and some oppose it? Page 219 in your text book. Read the voices section.