Global Political Economy: How the World Works

COURSE:

GLOBAL POLITICAL ECONOMY: How the World Works?

153 slides from the
16 lecture on-line
course available at

http://
www.jeffreyharrod.eu/avcourse.html

1/1
Session 1.

Introduction
The Lecturer – The Course The Subject

The Lecturer

Academic qualifications- usual academic degrees LL.B., MA. PhD
• but warning on “déformation professionnelle”
“if all you have is a hammer, everything looks like a nail”
(after Maslow)
Publications: IPE relevance : Trade Union Foreign Policy
UN Under Attack
Power,Production….

The Course
International Political Economy but Global Political Economy preferable
Some History
• different fori - different audiences
• is a graduate course but adjusted for wider audience
The Video Course why the adaptation?
- no audience and interaction
- no discussion of readings
Structure of the Course
The four great transactions
money (finance and investment
goods (trade)
people (migrants and travelers)
ideas

1/3

Navigation Around the Course
Each session has a number of:
- structure slides indicating the development of the lecture
- data-slides providing statistics and illustrative material and quotes
slides are not stand-alone – designed for integration into the lectures
Total of 16 Sessions
- blocks of sessions can be used independently
1-3 theory
4-7 Structure, Investment and Corporations
8,9 Finance
10,11 Trade
12,13 Labour and Migration
14 Sector Analysis
15,16 Global Governance

1/5

What is Global Political Economy?

1/6

• course is about power - therefore realist and critical
• in crude terms – joins two universals – greed and power
• global political economy includes all sources of global power
-the corporation
-non-governmental organisations – civic, religious, social, political
• global political economy as the study of:
…….the material the interface between nations, peoples, and societies
or…. the material underpinnings of international relations – conflict war and peace
or … the joining of power and greed
or … who gets what, when, how (at the global level) (H. Lasswell)
The material aspects permits the three key questions of hegemony and power:
Who benefits?
why now?
what’s missing

Flemish and French
Speaking Communities
in Belgium
GPD and Unemployment 1860-2005

1/7

Flemish
French
Mixed (Brussels)

Le Monde 15.9.2007p 23

Growth GDP Per Head
Index

Growth of Unemployment
In %

George Kennan Policy on World Wealth Distribution - 1948
We have about 50% of the worlds wealth, but only 6.3% of its
population.. in this situation, . . . our real job in the coming period is
to devise a pattern of relationships which permit us to maintain this
position of disparity.. . To do so, we have to dispense with all
sentimentality and day-dreaming; and our attention will have to be
concentrated everywhere on our immediate national objectives... We
should cease thinking about vague and unreal objectives such as
human rights, the raising of living standards, arid democratization.
The day is not far off when we are going to have to deal in straight
power concepts. The less we are hampered by idealistic slogans the
better.
George Kennan in US State Department Policy Planning Number 23,
January 1948

1/8

1/9
World Income Distributed by
Percentiles of Population 1992

Richest fifth income:
82,7% world income

82.7%

UNDP, Human Development Report Report 1992

“World Income Distributed by Percentiles of
Population” 1992 and 2000
Richest fifth
income: 82.7% of
world income

GNP 82.7%

1/10

1992 = 82.7%
2000 = 75%

1992 = 1.4%
2000 = 1.5%

UNDP, 1992,2005 Human Development Report “ World Income Distributed by
Percentiles” (2005, p,37)

Part of Consumption of Rich Country Citizens
From the Global South (profits and interest) 2008
Part from Global
South = 1.9%
4th Qtr
13%

1st Qtr
13%

2nd Qtr
17%

3rd Qtr
57%

What’s missing:
Unequal exchange?
Royalty and Patents
Fees

Rich Country
Consumption

1/11

Petro-Core Differential Accumulation and MiddleEast ‘Energy Conflicts’ 1966-2003
Percent Deviation from
Fortune 500

Bichler, S. and Nitzan. J. 2004 “ Dominant Capital and the New Wars.” Journal of World-Systems Research
10(2) p.311

1/12

Session 2. Theory:

The Global Level Problem

Untidy Combination of Power and Distribution
Problems of Studying Global Political Economy
- it is or should be the study of power
- the dynamics are currently corporate driven if not dominated
- which creates powerful popular myths and biased public intellectuals
“the globalization industry”
What is political economy ?
Using definitions of the last lecture
…….the material interface between groups, classes, peoples, nations
… Lasswell’s - who gets what, when, how
But to contrast with modern economic doctrine
Political economy is concerned with the productive resources of a society
and with the social, political, environmental impacts

2/1

Going With What We’ve Got
- three areas

National , International and Global

National Level Theories
- At the beginning there were only political economists
• the divorce of economics from politics
• started in 1920s
• accelerated post WWII as part of Cold War and anti- Marxism
- but what is politics in political economy?
Smith politics between the rich and the poor but accepted public
goods and inappropriate behavior of the rich
Marx politics almost exclusively between two classes
•While both claimed universalistic theories neither were very strong
on global or international matters
- 20th century continuation of political economy via Keynes, von Hayek,
Ropke and “Austrian” school

2/2

International Level Theories

2/3

19 Century: Imperialist or International
Most writers concerned themselves with imperialism
(Lenin, Schumpeter)
Ricardo and trade theory one of the few to address the international rather than
imperial issues
transfer of capital between independent nations was limited so discussion was
about trade
Second Half of 20th Century
the international started to emerge John Maynard Keynes
considered as an “economist” but can also be claimed as a political economist
- aimed at solving unemployment directly increasing welfare

Global Level Theories
Last Half of 20th Century and Contemporary GPE Theory
- contemporary attempt to put power into international economics
two approaches –
a) economists recognizing power - Galbraith, Gilpin, Spero,
Kindleberger
b) political scientists and historians Susan Strange, Robert Cox,
Braudel, Wallerstein Fukuyama
What are we left with
Some Analytical approaches and their prescriptions
- neo-liberals = free play of market forces
- neo-gramscians = counter hegemony to dominant ideology
- marxists and neo-marxists – the dynamics, contradictions of capitalism
- globalists = equity within global pluralism
- materialists = distributional equity mediated by state sovereignty
- global realists = multi-faceted power relations and conflicting interests

2/4

2/5

Modern Global Political Economy
Modern GPE combines concepts and approaches from at least three
fields:international
relations
nation-state
sovereignty
diplomacy process
levels
realism
idealism
imperialism
hegemony
regimes

international
economics
growth
national income
liberal model
capital flows
market logic
comparative cost
factor cost
balance of payments
exchange rate

comparative
politics/
political science
state
government
interest groups
ideology
Civil society
distribution
industrial structure
labour relations
technology
policy regimes
organisation

Session 2. Theory:

Imperialism Then and Now

3/1
Power and Heterogeneity: Theories of Imperialism
•

The first two session stressed the material content of political economy the concern with power and the holders of it to control transactions
goods , money production and distribution

•

but global political economy is by definition involved with differences in
culture, ethnicity, language, religion and locale

•

The exercise of power and, in particular, resistance to it is enhanced or
diminished by the interplay of these factors.

•

The body of theory which took account of the global nature of material
transactions and their local impact were the theories of imperialism

3/2
Theories of Imperialism
• Theories of imperialism contrasted with international economics
• theories of imperialism required reflection on the systemic causes of imperial
expansion and contraction
• Because earlier imperialism was about plunder and trade, theories were
material
• recognised resistance to material deprivation could also be based on “cultural"
factors
• the promotion of “globalisation” has lead to a re-considerations of “empire”
and imperialism
Consider popular works of the last decade
M. Hardt and A Negri Empire (Harvard University Press) (2001)
N. Ferguson Colossus: the Rise and Fall of the American Empire (2004)
M. Mann Incoherent Empire ( Verso, 2003)

Disraeli, Rhodes, Lenin, Hobson, and Schumpeter,
For these reasons the following cclassical theories of imperialism remain
useful –
Disraeli, Rhodes (c1845) imperialism was necessary to internally unite
social classes for Empire and to expand economy and “civilization
Lenin (1917) tried to found a Marxist theory of Imperialism in the
pamphlet “Imperialism the Highest Stage of Capitalism” Used
Hilferding’s idea of finance capital he says that the imbalance between
industry and banks produce the expansion abroad
Hobson (1902) argued that there were “sectors” who supported
imperialism and who benefited from it but the main divide was between
traders and investors the latter requiring the state to protect investments
Schumpeter (1918) proposes that a military is created for defence but in
order to keep itself in existence creates wars of imperialism (objectless
expansion) and industries to support it “created by the wars that required
it, the machine now created the wars it required”

3/3

3/4
Contemporary Importance of Theories of
Imperialism
• all materially based – trade, investment economic imbalances
• all disaggregated state
• their world is filled with globally operating bankers, traders,
corporations, military, elites and industries
But they also identified some reasons why imperialism failed
•Material and power imbalances in both metropolitan and
colony
• the stresses and contradictions which arise from attempts to
command, influence or control at a cultural, political and,
material distance.

Imperial Dysfunction
• Sometimes called “imperial dysfunction”
Any model, institution or arrangement or an order, command, policy derived
from one circumstance may not function as expected or desired in another
• two types
(1) – imposition of a model
it has been noticed historically and currently that any hegemon, be it state,
corporation, non-governmental organisation, or church, acting globally tends to
attempt to replicate itself
2) - dysfunctional/inappropriate demands
the insistence that procedures and practices should follow the pattern of distant
the power-holders produces dysfunction and stress
• Contemporary rise of the corporation, regionalism, global economic governance
and regimes change raises same problems

3/5

3/6
Disraeli and Dutch Financial System 1689

“…: he (the Prince of Orange) introduced into England the system of Dutch
finance. The principle of that system was to mortgage industry in order to
protect property; abstractly nothing can be conceded more unjust: its
practice in England has been equally injurious. In Holland, with a small
population engaged in the same pursuits, in fact, a nation of bankers,
the system was adapted to the circumstance which had created it ...
All shared in the present spoil and therefore could endure the future burthen
but applied to a country in which the circumstances were entirely
different .... it has ended in the degradation of a fettered and
burthened multitude.”

B. Disraeli Sybil ,or: The Two Nations (1845) (Penguin 1954) p.30

News Analysis

,

3/7
OPEL FIGHTS TO KEEP SEAT OF POWER

Despite GM's vows,I fears remain that authority will stay in Detroit,
writes Daniel Schafer
"Opel's

organisational structure is very dysfunctional. It loosely combines a design and'
developmnent centre, a gearbox production, a car assembly operation and a sales unit," says
Christoph Sturmer, analyst at IRS Global Insight.
In the past, local managers often did not have much to say when it came to product decisions.
One example is GM's decision a few years ago to sell in Europe the Antara - a sports utility
vehicle built at the GM Daewoo joint venture in South Korea.
Opel managers look back with anger at this decision, as they favoured reviving the
German carmaker's Frontera, a sports utility vehicle that was sold until 2004. "The Antara
does not fit the regional needs in Europe and was not accepted by many Frontera
customers. Its driving quality bears too much resemblance to a pure off-road vehicle," one
manager said.
Opel's financing structure is another matter. Before March this year, the various European
units did not even have their own cash management. "Every country unit was always on the
verge of liquidation, as they depended on getting the cash needed to operate from Detroit
each morning," Mr Sturmer says
Financial Times 14.11.2009 p.12

3/8
“ Countries where Shell operates that have Security

Concerns”

Source: Shell, Financial Times 5.10.2005 p.8

3/9
20th Century Changes: Resource Needs and Cheaper Communications

•Early 20th century writers anticipated many aspects of modern global political
economy – such as global scope, expansion of trade and finance capital, internal
imbalances and imperial dysfunction
•But there were two “discontinuities”
• modern industry and society needs raw materials over which “other”
populations reside especially energy
• the declining cost of global communication
•“Resource dependency” gives us “energy politics” “blood diamonds” “water
conflicts”
•Global communications gives us increased corporate reach and global non-state
organisations,

In Conclusion: Global Realism and Neo-Materialism
Global realism rather than statist realism
• so-called “private actors”, governments and parts of governments in
the global political economy seek power for identifiable and often
material purposes
• the objects of power are distant, dislocated and less “known” at the
global level and the unintended consequences are greater
Materialism as production, goods, money and distribution
• the acquisition of goods and money, the control of production and
distribution at the global level is more direct and is less diluted than at
other levels
• perhaps “neo-materialism” to distinguish it from Marxist materialism
and to avoid rational choice calculations and single objective
determinism,

3/10

Session 4:

Global Patterns and Political Economies:
Model Competition

Power Indicators of Global Structures
•The global political economy has some enduring structures which frame the politics
the four great transactions
• There are three basic sets of indicators of the structure of the global political
economy
1) size 2) dependencies 3) models of political economy ,
1 ) Size
-for states and nations GDP the basic measure of size is national income
-for the corporation key indicator of size and power is revenues (sales or
turnover)
-for international organisations inter-state and non-governmental the equivalent
power proxy is the annual budget
-there are a number of variables for models of political economy some of which
cannot easily be quantified

4/1

4/2

Economic Size of Nations 2007
Country

GDP
($ trillions)

POP
(millions)

USA
Japan
Germany

13.8
4.3
3.3

303.9.
128.3
82.7

Netherlands
China
Spain
Argentina
Kenya
Thailand

0.8
3.2
1.4
.2.5
. 03
2.5

16.4
1.331.4
43.6
39.5
36.0
65.3

Source: Economist Pocket World in Figures 2010

GDP Per Head
(thousands)
45.5
34.40.5
47.2.5
32.6.5
.6
3.8

The New Triad?

4/3

85% of World Consumption
3 Models of Political Economy?

GDP by PPP *- Major Economies 2008

USA
EU

Japan
Germany
UK
France
Italy
Russ
India

China
Source: IMF, Graphic News as quoted Le Monde 15/11/2009 p.14

* PPP (purchasing power parity) tries to give
economic size without the distortion of
current exchange rate.

Multinational Corporations - revenues 2009
Shell
Toyota
Wal Mart
McDonalds
Nestle

$458billion
$204 billion
$405 billion
$ 23 billion
$102 billion

Non-Governmental Organisations
Greenpeace (international)
World Wildlife Fund
OXFAM
Vatican
secret but
International Confederation
Of Trade Unions

$51 million (2008)
$664 million (2007)
$347 million (2009)
$55 million earning on assets 2005
$9.6 million

International Organisations
Total UN Budget (excluding peacekeeping )
World Health Organisations
Food and Agricultural Organisation

$2.5 billion (2009)
$900 regular + $3.2billion
$650 regular + $300million

Sources: Economist Pocket World in Figures: 2010; Fortune Global 500, July 2009;Annual Reports;
various websites.

4/4

2) Dependencies: Trade and Energy

(selected countries – calculated from US$ values (2007))

% Exports to GDP
(2004)

USA

14.3%

Germany

40%

France

Consumption per head

Economy
1000kg. oil equivalent
f current energy consumption
nearest 500
Imported (2004)

11.39%

Japan

The Hydrocarbon

21%

UK

16%

Netherlands 61%
Italy

47%

India

13%

China

30%

Kenya

16%

Hungary

68%

81%

4.1

61%

4.2

50%

4.4

13%

3,8

24%

4.9

85%

3.1

90%

3.6

23%

0.5

38%

Venezuela

7.7

24%

Ireland

29%

7%

1,4

214%

2.3

4/5

Dimensions of a Political Economy

4/6

3) Models of Political Economy
The transactions in global political economy are between often highly differentiated
societies which adhere to designated models economy
At its most simple a model of a political economy is the specific manner in which
production and distribution is organised within any one society.
But a model may be influence by culture, historic structures, geography and all
the variables which make distinctive societies.
Currently discussion has been centered on :the Anglo-American Model,
the European Model,
the Asian Development Model
And varieties as the Polder model (Netherlands)
the Nordic Model (Sweden)
,
the core material aspects of a model can be considered as production, the
manner, form and nature of it, and work the manner of it and the conditions
of which it is undertaken

The Political Importance of the Organization of Work
•

4/7

Labour productivity is one of the few “economic” indicators
which is also a political indicator
the productivity of labour = the wealth and development of the economy
relative unit labour cost and labour productivity
Comparative labour control/motivation and models of political economy
material, normative and coercion (physical and economic)

•

the productivity of labour is an indicator of the morale, motivation
motivation and organisation of the society and a substantial determinant of
income distribution

Other distinguishing features of Economies
- production structure size of enterprise
-sectoral balance - industry, agriculture, service and impact on labour force
- corporate governance -stakeholders – shareholders, managers, producers
owners/managers
- income and wealth distribution ( a feedback loop?)

4/8
Theoretical Attempts at Explaining Differences Between
Models
Three ways of dealing with these differences 1) institutionalists 2) neo-corporatism 3)
modes of regulation
institutionalist - concentrating on questions of economic growth and,
institutional differences in labour and capital markets arriving at liberal and
coordinated market economies
neo-corporatism - system in which material interests are legitimized in relation
to the state through formal and approved organizations – thus concentrates of
the way the representatives of capital and labour are socially integrated s
mode of regulation- neo-Marxist view that each stage of capitalism is
characterized by a different form of capital accumulation defined as a different
established ways of organising capital and labour

Current Model Competition
•

The reduction in diversity after 1989 to:Anglo-American neo-liberal
European Social Partner
Asian Developmental
Authoritarian Indicative (???)

•

Different models produce:
different income and wealth distribution which in turn produce:
different political regimes and ….

Different political regimes are the basis of international relations
Thus models of political economies and their attributes create material create
the material underpinnings of international relations

4/9

Models of Political Economy 1950-1989, 1989-2010

4/10

4/11
Trade Unionist Warns of Toxic Model Export

John Sweeny, President of USA AFL-CIO labour federation speaking at
World Economic Forum (Davos) February 1997 in FT February 2,1997
p.3
. this assumption may be the fasting growing export of what is called the
US model, but I am here to warn you. With all due respect, it is a highly
costly, toxic export, dangerous to the health and welfare of working
people and national economies across the world

National Income Distribution – Richest 10% to Poorest 10%
Dates of surveys vary between 1998 -2006
Source: UNDP: Human Development Report 2009 pp.195-8
Above 12 times
USA
15.9
United Kingdom
13.8
Australia
12.5
9-12 times
Italy
Spain
Canada
France
Switzerland
Netherlands
4-7 Times
Sweden
Germany
Japan
Note
Brazil
South Africa
Malaysia
Bolivia
Philippines
Hungary
Poland

11.6
10.3
9.4
9.1
9.0
9.2
6.2
6.9
4.5
40.6
35.1
11
93.9
14.1
6.8
9.0

4/12

Employer’s Costs for Dismissal
in Number of Weeks Wages (2005)

4/13

Source: World
Bankl/Volkskrant
13/9/2005

Child Well-Being in Rich Countries 2007

UNICEF, Child poverty in perspective: An overview of child well-being in rich countries Innocenti Report Card 7, 2007
UNICEF Innocenti Research Centre, Florence.

4/14

Weeks of Paid Maternity/Paternity Leave Available for Parents
(rich countries)2010)

4/15

Transfers of Financial Resources 1990 (US $billions)

4/16

Session 5:

Investment: Adventures Abroad

5/1

The Politics of Foreign Direct Investment
Investment concepts
- direct investment
the purchase or building of assets abroad over which there is
“controlling interest”
- portfolio
the purchase of foreign stocks and shares which does not
result in a controlling interest
note portfolio investment mainly in rich countries
- dynamics of fdi
- flows
the flow of direct investment in any one time period
- stocks
the accumulated investment by country
-

5/2

North and South (2008)
What is the Third World/South/Developing Countries/Poorer Countries “worth” to the North/Developed
Countries/Rich Countries?.
In Money Terms in Billion Dollars
1) Interest on Debt
Total Southern Debt = $2,900 (2007)
Official Interest payments plus arrears
2) Return on Investment
Total Stock of Investment in South = $4275, (2008)
Average return 15%

= $203b

= $641b
______

Total Interest and Profit

$844

* Percentage Southern- sourced interest and profit to Northern GDP = 1.9%
Other flows
1) Royalty and Patent Charges; estimate ???
2) Unequal Trade and Arbitrary Resource Value: estimate = ????
3) migrants remittances $150b (estimate 2007)
Notes:* GDP of North = $42,100b (2004) (70% of total)
* World GDP = $60,690b (2008)
* Official Development Assistance (“Aid”) $119b (2008)
Sources: UNCTAD World Investment report 2009; World Bank: Global development Finance 2005; Economist
Pocket world In Figures 2010. OECD Development Report 2008

5/3

Stocks of Multinational Corporation
Investments

Stocks of Foreign Direct Investment by Headquarter Country1985 and 2009
Stocks and Country % of Total
1985
Millions $

% of
Total

2009 Millions $

% of
Total

World

707,786

USA

251,034

35

4,302,851

22

Japan

43,970

6

74,930

4

Germany

59,909

8

1,378,480

7

UK

100,313

14

1,651,727

8.7

Netherlands

60,731

8.5

850,554

4.5

South Korea

526

0.07

115,620

0.6

229,600

1.2

75,618

0.4

China

15

18,982,118

.002

Malaysia

414

Brazil

5,826

0.7

157,667

0.8

(1990) 109

na

26,221

0.13

8

0.001

6,438

0.03

663,456

97

Poland
Nigeria
Developed
Economies

0.06

16,010,825

84

N.B Historically investment stocks in the global south have been between 25 and 40% of total
Source: UNCTAD World Investment Report 2010; Annex Table 2 pp172-175; % to nearest;

Why Corporations Invest Abroad
• remember the theories of imperialism
• two reasons:
- “liquidity reason” – a surplus of funds in
headquarters countries
- “investment reason” greater returns to be found
abroad
Investment Reasons
• Depends on “investment climate”
• Elements of investment climate
- labour cost and labour laws
- tax
- infrastructure,
- relative environment laws
- relative health and safety laws
- investment risk and political risk

5/4

5/5

National Regulatory Changes in Favour of Foreign Investment

5/6

Investment Risk or Political Risk
• important element as one of few areas accepting political
interest and involvement of corporation
• Elements of political risk
Corruption
Social turbulence
civil war
hostile government – restriction, control, nationalisation

5/7

Political Risk Table (selected Countries) 2006
(sample from internet (2006)
Country Risk Guide (ICRG) The PRS Group,New York
contains data from 1984 to the present.
A = Government Stability
B= Socioeconomic Conditions
C= Investment profile
D= Internal Conflict
E= External Conflict
F= Corruption
Rnk

G= Military in Politics
H= Religious Tensions
I= Law and Order
J= Ethnic Tensions
K= Democratic Accountability
L= Bureaucratic Quality
A

B

C

D

E

F

G

H

I

J

K

L

12

12

12

12

12

6

6

6

6

6

6

6

Country
Max. score
Norway

1

6.5

10

11.5

11.5

11.5

5.0

6.0

5.5

6.0

4.5

6.0

4.0

Netherlands

13

8.5

10

12

10

12

5

6

2.5

6

4.5

6.0

4.0

USA

10

10

8

11.5

10.5

8.0

5

4

5.5

5

5

6

4

Mexico

65

6.5

8

11.5

10

11

2

4.5

5.5

3

3

6

3

Taiwan

19

7.5

9

11.5

10

8.5

3

5

5

5

3

5

2.5

Corporate Foreign Investment and Global Politics

5/8

• creation rather than assume investment climate is “given”
- Investment climate as a given based on concept of “sovereign nation”
- indirect creation of favorable investment climate - structural adjustment
aid conditionality
- direct creation of investment climate by corporate actions
• investment dynamics and geo-politics
- national interest concept in realist international relations
national interest is public interest and security
-neo-materialist view that national interest also includes protecting enhancing
stocks of foreign direct investment

5/9

Indirect Pressure on Investment Climate

Members congratulated Jamaica on its structural reform, underpinned by
prudent macroeconomic management…… in view of the large trade deficit,
they also asked about competitiveness of Jamaica's exports, particularly
given rising unit labour costs and real appreciation of the currency. Members
sought assurance on the Jamaican policy response, including with respect to
the investment environment.
Trade Policy Review Board of World Trade Organisation , 2003

Direct pressure on Investment Climate
The Chiapa’s autonomy movement in Mexico resulted in
“peace negotiations” in 1995 with the Mexican government
During the peace negotiations in 1995, for example, International paper
Corporation sent a letter to the Mexican government voicing concern about
“the high political risk” posed by autonomy and laying down a series of
conditions for continuing investment in a paper-pulp and lumber plantation
project that would include the planting of 300,000 hectares of eucalyptus on
indigenous and communal lands in Tabasco, Campeche and Chiapis”
The Nation, February 26 2001 p.22

5/10

United States Outward Direct Investment
Position by Country of Affiliate at Yearend 2009

5/12

Source: U.S. Bureau of Economic Analysis: : M. Ibarra-Caton “Direct Investment Position for
2009: Country and Industry Detail” July 2010, pp20-35

5/13

Petro-Core’s Differential Accumulation & Middle East ‘Energy Conflict’

Source: Bichler, S. and Nitzan. J. 2004 “ Dominant Capital and the New Wars.”
Systems Research 10(2) p.311

Journal of World-

Session 6:Investment: Corporate

Delivery Vehicles

6/1

The Corporate Vehicle
•

models of political economy result in different income distributions, different
institutions, history and therefore politics

•

In this session the subject is “the corporation” rather than a multinational
corporation

•

different size and distribution of large corporations Slides 6/2 and 6/3)
first in absolute numbers of corporations = USA
but first relative to economic size of headquarters countries = Switzerland

•

corporate size – revenue/sales/turnover the key indicator for power
multinational corporation versus transnational corporation
there is more to a nomenclature
transnational corporations = border dissolving
multinational corporations = border exploiting

6/2
Corporations and States 2009
Number of Fortune Global 500 largest Corporations by Top 12 Headquarter states
State
USA

Number of Corporations
140

Japan

68

France

40

Germany

39

China

37

United Kingdom

26

Switzerland

15

South Korea

14

Canada

14

Netherlands;

13

Spain

12

Italy

10

* corporate size = of revenue
* Top 12 States by Headquarters = 84% of Fortune Global 500 2009
Source: Fortune Global 500 2009

6/3
Corporations and States 2009 by Economic Size
Number of Fortune Global 500 largest Corporations by Top 12 Headquarter states
per US$ 100 billion GDP

Switzerland

3.5

Netherlands

1.8

France

1.5

South Korea

1.4

Japan

1.4

Germany

1.1

Canada

1.1

China

1.1

United States

1.0

United Kingdom

.95

Spain

.85

Italy

.47

Sources: Fortune Global 500 2009 = corporations ; GDP 2007 Economist Pocket World in Figures 2010

6/4
The Modern Corporation
The modern corporation is a large productive organisation usually holding a
dominant position in the sector in which it operates
Transformation by Concentration
• concentration in the different sectors has transformed the corporation in the
last 30 years
- concentration accompanied by market-fundamentalist ideology
-sustained perception of corporate as a creature of the market and
competitively sanctioned
• Levels of concentration
•From 90% control of global “market” e.g. Microsoft and disc-operating system to
- “only” 20% for Michelin in car tires
•Monopoly, duopoly ,oligopoly and monospony – the 4-40 concentration ration
•Speight “oligopoly… better analyzed in terms of military strategy than in profit
maximization and the marginal principle” (1960)

From profit-making to rent-seeking

6/5

•

concentration almost alone has transformed the corporation from an enterprise to
an organisation

•

Impact of this transformation
1. Classical theories of capitalism become outmoded
• - Smith and maintenance of competition
• - Marx and the organic concentration of capital
2. Competition v. market share maintenance and acquisition
• -oligopoly price theory and market share maintenance
3. from profit-making to rent-seeking
• - crucial to understand the political actions of the multinational
• - economists use rent in relation to manipulation of prices in monopoly
• - political economist emphasizes seeking changes in political legal
environment
• - changing the investment climate

Theories of Corporate Behaviour
if market-based theories of corporate behaviour insufficient what are the
alternatives
A) international capital theories
- classical theories
rational location and profit maximization
- theories of imperialism
Hobson – Marxist-Leninist
- new capital theories
dominant capital and – Bichler&Nitzen
B) technological and resource theories
- product cycle theory (Vernon)
shift from labour to capital intensive
- geo-political-materialist
– resource seeking
- resource dependency and resource curse

6/6

Corporation as a Production Organisation

C) organization theories
- core of management literature
Weberian bureaucracy in private sector?
Veblen and managerial capitalism
-organizational systemic
Michel's iron law and goal displacement
- stakeholders and distributional battles
employees, shareholders, management
• The corporation as an organisation
corporate social responsibility v “the business of business is business”
externalities, environment and corporate citizenship

6/7

Session 7. Investment:

Corporate Power and Weaker States

7/1
Intro: Multinational Global Power
• now dealing with multinational corporations rather than corporation
although some aspects of power are not different
• differences between corporations
- relative size to each other (Data slides 7/D 1, D2. D3)
relative to headquarter state
- sector concentration
• corporate structure and models of political economy
- history of corporate governance - of Germany and post WWII Japan
- Anglo-American
- German (European Social Partner model)
- Japan (Asian developmental)

Fortune 100 Top and Bottom 15 by Revenue
Rank

Corporation

Revenue
$ billion

Rank

Corporation

Revenue
$ Billion

1

Royal Durch Shell

458,361

85

Nokia

74,224

2

Exxon Mobile

442,851

86

Marathon Oill

73,504

87

Hyundai Motor

72,542

3

Wal-Mart Stores

405,607

88

Costo Wholesale

72,483

4

BP

367,053

89

Rwe

71,851

6

Total

234,674

90

Home Depot

71,288

7

Conoco Phillips

230,764

91

AmerisourceBergen

70,594

92

Industrial & Comercial
Bank of China

70,568

8

ING Group

226,577

9

Sinopec

207,814

93

Archer Daniels
Midland

69,816

10

Toyota Motor

204,352

95

Munich re Group

67,515

12

General Electric

183,207

94

Vodafone

69,138

96

Nippon Life Insurance

66,621

13

China National
Petroleum

181,123

97

Toshiba

66,239

14

Volkswagen

166,579

98

Robert Bosch

66,052

99

China Mobile
Communication

65,015

100

Target

64,948

15

State-Grid

164,136

Compare Government Budgets
Netherlands $372b; Colombia $72b; Indonesia $97b; Kenya $9b:

Source: Fortune 500 2009 http://www.business.com; Budgets CIA World Factbook 2009

7/2

7/3
Selected Corporations Sales and Employment
Corporation

Sales/Revenue
$ billions

Employees

Bayer

48,149

108.000

Hoffman-La
Roche

43, 970

78,000

Novartis

41,460

98,200

22,140

400.000

Michelin

16,540

117,000

Bridgestone

29,700

133,000

Goodyear

19,600

70,000

Pharmaceuticals

Food
McDonalds
Tires/Rubber

Sources: Fortune 500: Wikipedia Corporation Profiles,2009

7/4
Top 100 Multinational’s Foreign Sales
by Headquarter Country (2007)
Headquarter
Country

No.
MNC's in
Top 100

GDP
$ billions

Foreign
Sales
$ Billions

% Foreign
Sales to
GDP

Netherlands

6

776

241

31

United Kingdom

16

2,772

678

24

Switzerland

4

424

186

22

Germany

12

3,317

642

19

Japan

10

4,384

507

12

USA

20

13,751

1,212

9

Italy

2

2,102

136

2

MNC data = The World's Top 100 non-financial TNCs, Unctad: World Investment Report 2009, p. 225
GDP = Economist: Pocket World in Figures 2010
Note: headquarters Netherlands/UK divided 50/50%; headquarters Australia/UK divided 30/70%;
headquarters USA/Germany divided 50/50%:

7/5
Multinational Corporate Power – Domestic Level
•

relationship to state crucial for both headquarter global power

•

the corporation as an institution of the 21 century
the institutions of in state/society
- the church – material power via spiritual service
- the state – taxation and enforcement
- the modern corporation – rent and manipulation

•

rationalities, ideologies and transformation

formal relationship with state/government
- private entity in “market”
- production - civil society – state administration
- importance of civil society as corporation free political space?

7/6

(cont) Power relationship with state/government
• how far does corporation, influence, control or dominate governments?
- conclusive evidence difficult
- by corporate resistance to investigation
- the political divide – anti-corporate v pro-business
• gradual merger of corporate and government elites
- ex-corporate leadership examples: USA, Mexico, Italy, etc
- increased interchange between corporate and government
personnel
• corporation has dramatically increased power over state policy starting in the
last quarter of 20th century

7/7
Multinational Corporate Power in Global Political Economy
Direct exercise of Power
• corporation to country via direct investment
• corporation in unilateral, bilateral or triangular diplomacy
•corporation in a regime
a regime is a global political space in which a number of globally operating
organizations and persons interact and produce practices, rules, norms, and
information
a sector regime involves corporations, sector associations, non-governmental
organisation (ngo’s) , international governmental organisations (ingo’s),
governments and governmental agencies, organised crime
- dominant corporations in sector usually most powerful
an issue regime typically involves corporations, advocacy groups, ingo’s, ngo’s,
governments and governmental agencies, inter-state organisations, powerful
individuals

7/8
(Cont.) Indirect Exercise of Power:
• through globally operating organisations
International Employers Association
International Chamber of Commerce
Round Table of Industrialists
“Clubs” and “meetings”
Sector and Trade Organisations
• in alliance with headquarter state or subsidiary state
- corporate interest and national interest (FDI)
- state-corporate alliance for strategic issues – resources
- state-corporate alliance for global state expenditure
defense
development
reconstruction destruction reconstruction cycle

Corporation in Global Governance
What is Global governance
two meanings
1) global governance as = global private authority – corporation in
regime
2) global governance = inter-state organisations
Multinational Corporations and Inter-state Organisation
early beginnings - ILO and Employer delegates
- FAO and corporate committees
contemporary developments
- United Nations Global Compact
- WTO and Trips and TRIMS
• core importance with IFI’s
World Bank – constitution task to promote “foreign direct
investment”
IMF post 1982 – structural adjustment and corporate friendly
models of political economy”

7/9

Session 8: Finance: Money,

Finance and Politics

Introduction - Politics of Money and Finance

• the politics of the financial transaction between states and societies
• demystifying finance
• finance is money transferred for the stated purpose of receiving interest
dividends or capital gains - as “portfolio” investment
• the global vehicle for these transactions are banks, stock-markets rather
than multinational corporation (Slide 8/2)
• the key player in global political economy is the investment bank
commercial, retail and investments banking
• flow and stock questions as with FDI
- flows indicator of global integration – but volatile (Slide 8/3)
- stock important as total foreign debt

8/1

Banks and Corporation Compared
by Market Capitalisation June 2009

8/2

Transnational Banks

Multinational Corporations

Bank

headquarters

Market
Capitalisation

Multinational
Corporation

headquarters

Market
Capitalisation

Ind Comm Bnk
of China

China

257.02

Exxon Mobile

USA

341.2

HSBC Holdings

United
Kingdom

143.2

Microsoft

USA

211.54

JP Morgan
Chase

USA

133.8

Wal-Mart
Stores

USA

188.8

Wells Fago

USA

115.4

Petrobas

Brazil

164.8

Bank of America

USA

110.3

Royal Dutch
Shell

UK/NE

156.3

Banco
Santander

Spain

98.1

Proctor &
Gamble

USA

148.9

Mitibushi FC

Japan

72.3

BP

UK

147.5

BNP Paribas

France

69.3

AT&T

USA

146.6.

Royal Bank of
Canada

Canada

57.7

Nestle

Switzerland

144.4

Credit Swiss

Switzerland

54.2

IBM

USA

138.1

Source: Economist: Pocket World in Figures, 2010

market capitalisation = number shares x current price

Cross-Border Portfolio Flows (largest 30 Countries)
2008

Source: IMF, Haver, Barclays Capital via Vox Research-based Policy Analysis

8/3

8/4

Money, Financialisation, and Finance
•

the politics of money
money and exchange
value: nominal real
Inflation and redistribution
inflation, social turbulence and conflict

•

Contemporary “financialisation”
households: tax, profits and interest
extraction through the finance channel

•

contemporary “international financial architecture”
banks, global institutions IMF, BISFinance,

8/5
Power and the Global Financial Transaction
• two aspects of power
- manipulations of exchange rates
- leverage through debt
• main focus of these sessions will be on foreign debt
foreign debt as the political leverage for imposition of
- models of political economy
- improving the investment climate
- hegemony and security

8/6
The Politics of Foreign Currency and Exchange
• The basics of foreign exchange
• Automatic Balance of Payments Adjustments
- situation 1 - goods exchange in balance
2 – deficit imbalance
3 - exchange rates change
4 – new prices for imports and exports
5 – restores balance
what causes 2 : political and social
decline in productivity
social unrest
inflation
inflation as the outcome of
distributional battles

8/7
Exchange Rate Manipulation and Political
Outcomes
• governments unwilling to accept automatic adjustments
• intervention to adjust winners and losers
•

state organized: exchange rates
capital controls
trade management cf
• requirements of Import Substitution Industrialisation (ISI)v
Export Oriented Industrialisation (EOI)
• associated with state corporatist model

• global backlash Washington Consenus
“stabalize,privitize,liberalize”
•

weakened state intervention and transition to new model

• larger states resisted India, China

The Politics of Lending and Borrowing
•Three types of foreign debt for the stated objective of:to solve a balance of trade deficit
to underwrite domestic (government, household debt)
for growth and development purposes (Southern foreign debt)
• the politics of lending and the politics of borrowing
The politics of Lending
. Generating exportable finance
- savings and restriction of consumption
- exporting bubbles

8/8

8/9
Private and Public External debt as Percentage GDP (2009 )

Country

Percentage of
GDP

UK

365

France

227

Germany

185

Spain

150

Italy

58

Japan

34

Russia

17

China

5

Portugal

188

Greece

153

Source: CIA World Fact book via Wikipedia List External Debt

8/10
The politics of borrowing
•. domestic and foreign debt
• power actors in domestic debt – banks, governments,
central banks
• foreign debt alters the power constellations via entry of foreign
banks, governments, individuals
• why go foreign
governments
short term nominal politics – electoral promises and
bribes
fear of social conflict
domestic income distribution
banks, individuals, pension funds
-short-term cash flows
off-loading risk

Global Lenders and Borrowers 2007

Other Asian

Source: IMF, Haver, Barclays Capital via Vox Research-based Policy Analysis

8/11

8/12
Global Politics and the Debt Explosion
- the conversion of debt it foreign debt “globalises” the local politics of
borrowing, saving and debt
Greek and austerity plan case
USA sub-prime case
Iceland bank case
- enables power of globally operating banks and investor entities and
“captured” inter-state organisations
the IMF , international financial architecture and global
homogenization
- unintended consequences
retarding development and provoking economic nationalism

Session 9: Finance: Debt

and the Power of Creditors

9/1

Introduction and In Memoriam
* May 2010 – 3 persons killed in Greece in protests concerning the
imposition of an austerity programme involving the
International Monetary Fund (IMF)
* March 1989 600 people killed in protests in Venezuela against
IMF imposed austerity programme
* May 2010 graffiti in Athens “IMF – get out!”
* Jan-June 1999 placards Seoul South Korea “I’M Fired”
* May 1984 graffiti in Kingston Jamaica “Help – we’ve been IMF’ed
The IMF is an inter-state organisation in which the major capitalexporting states have an overwhelming dominant role and through
them the major transnational investment banks.
- it is an agent of global financial power

9/2

The Basics of Debt Repayment and Austerity
• borrowing money abroad can only be paid back with goods or services
• the goods or services must be cheaper than from other countries
they must be “price competitive”
. austerity programmes are to reduce the price of exports and services
unit labour cost, labor market flexibility, budget cuts
improve efficiency
= reduce cost of labour component in any good or service
debt service and debt to GDP ratio’s
- key statistic
Examples: 1989 Chase Manhattan took 50,000 bags of coffee every four
months in exchange for debt reduction
2004 Chile-USA FTA Agreement “ Each Party shall permit
returns in kind relating to a covered investment “

Debt Repayment as Percent Exports – Selected Countries
(Debt Service Ratio)
Country

1997

2007

Argentina

58.7

13.0

Brazil

57.4

27.8

Pakistan

36.1

9

Bolivia

32.5

11.9

Mexico

32.4

12.5

Iran

32,2

4

Venezuela

31.3

7.4

Equator

31.0

18.7

Indonesia

30

10.5

Cote d'Ivoire

27.4

5

Jamaica

16.2

17.3

9/3

9/4

Current Global Politics = Past Global Finance
Events?
• past thirty years three major global financial events
beginning Mexican 1982 default and third world debt “crisis”
1997-8 Asian Financial “crisis”
2007/8 Sub-Prime Banks “crisis’
• losers in crisis
third world debt = third world (global south) populations
selected Asian country populations , some northern losses
sub-prime – northern populations some ROW leakage
• crisis for some success story for other “qui bono?”
bonus takers – executive salaries (constant)
fee takers (constant)
shareholders and stockholders – banks, others = dynamic

9/5
Southern Foreign Debt: Origins of Lending
• anatomy of a “crisis” southern foreign debt – 1974-2010
- why increased northern lending
- why increased southern borrowing
• Four streams making the perfect surplus storm
- MNC self-financing( one of the first effects of concentration)
- recycled oil price rise money
- Eurodollars surpluses in Europe
• capital flight and hot money – escaping the “welfare” tax,
garaging, loan-back, grey and black money
• leakage – corruption, non-performing loans = more loans
•. no risk – all loans private or government backed by government
“sovereign debt”

9/6
Southern Foreign Debt: Origins of
borrowing
• southern need for development finance
- production + profit + interest + capital repayment
•

declining commodity prices
- substitutes for southern raw materials
- self-defeating desperation

•

borrowing for current consumption
- the limits of the ISI model

•

deferring political decisions ( Eastern Europe)
- centrally planned regimes in need of adjustment

•

leakage – corruption non-performing loans requires more loans
•

debt is on the basis of a nation and not the nature of a
governmental regime

Global Debt Collecting: IMF 1 and IMF 2
IMF 1: Solving Balance of Payments through Short term Austerity
•

Bretton Woods – IMF loans for “temporary” balance of
payments problems

•

1980-1985 short term austerity

IMF 2: Global Financialisation and Model-Promotion
•

1985 - loan on condition of structural adjustment

•

Structural adjustment and the Anglo-American version
what's there: Wage freeze, labour market reform, public
sector cuts, privatization,
what's missing?: land reform, capital flight regulation,
progressive taxation, public sector expansion, support of
social partners, enhancing solidarity, self-reliance

•

Reorganize the economy to deliver at the border in order to
pay back the debt

9/7

African President on the IMF - 1980

9/8

Surpluses from the South – the Finance Phase
Four phases
* Plunder - appropriation
* Plantation – slave and indentured
* Manufacturing and unequal exchange
* Finance – interest and control
• interest on debt exceeds profits on direct investment in 1980
• previous phases often introduced and sustained militarily – colonialism
weak state
• debt phase associated with strong state involvement required for
structural adjustment and austerity

9/9

9/10
Issues of Global Financialisation
• global surpluses increasingly secure through production
• requires model conformity
- institutional and model transfer always an extreme version
of domestic variety
- imposition through multinational and regional organisations
reflect global power actors – mnc’s banks
countervailing forces weaker
alternative models
national interest
• attempted homogenization within diversity
• distribution issue 21 century with 19 century distribution patterns
- the repressive bias
• the impossibility of global regulation
• re-enter the state and inter state intermediation?

Session 10: Goods: Trade:

The Ricardian Myth

10/1
WTO Director-General on citizens loss of confidence in
trade

Director-General of World Trade Organisation, Pascal Lamy, in a lecture at
the University of California, Berkeley,
29 October 2008 said
"I would only say that restoring citizens' confidence in
trade requires governments to ensure that sound domestic policies are in
place. It is reassuring, however, to see that both Presidential candidates have
indicated that concluding the Doha Round is an important economic priority and
that both reject protectionist solutions to US economic difficulties.“
http://www.wto.org/english/news_e/sppl_e/sppl105_e.htm

The Politics of Trade
• In global political economy trade is not seen as a politically neutral
economic transaction
There are winners and losers in every trading transaction
- the government and state in terms of security, alliances
hegemony
- the groups, corporations involved in the transaction
• multinational corporations control directly or indirectly 75% of global
trade
• As an extensions of headquarter state power
- trade dependency – indebtedness
As a determinant of social/political structure and processes
- which income group receives main benefit
- which income group consumes goods

10/2

10/3
Traditional Trade Theory: Comparative Cost
•. Ricardo and Comparative Cost
- static - dynamic problem
- Ricardo writing 1817 of UK - Portugal trade
- but Treaty Methuen 1703 fixed trade of wine for textiles
- 1790 slave-produced cotton
- 1810 UK industrial export cotton cloth
• political assumptions of comparative cost
- labour market - determined by supply and demand for labour
- product market/industrial interest
- rational choice of production
- military/international relations not involved
• power model of trade pattern development Data slide 10D/2

A Power Model of Trade Pattern Creation

10/5

Dominant Power over Both Political Economies

Political Economy A

Propensity to
produce

Propensity
to consume

Political Economy B

Propensity to
consume

Propensity to
produce

Power model of international trade
• Thus combining created production with created demand
• consider: colonial trade and mildly addictive drugs
- tea, coffee, sugar, chocolate,
opium – failed
• How Free is “Free” Trade today?
• Sector concentration by multinational corporation
- commodity trade – banana’s and oligopoly Data Slide 10/D4
• one corporation trade
- Wal-Mart and China Trade
- 10% of Chinese exports to USA
8th largest “trading entity” greater than
Russia
• subsidized and promoted
- coffee in Vietnam

10/6

10/7

World market shares of banana companies
1966

1972

1980

1992

1995

1997

1999

2007

Chiquita 34

30.5

28.7

34

>25

24-25

25

25

Dole

12.3

18

21.2

20

22-23

25-26

25

26

Del Monte 16

1.1

5.5

15.4

15

15-16

16

15

Top 3

54

65.3

69

62-64

65-67

65

66

2-3

7-8

6-7

7-8

8

12

13

11

12

82

86

84

86

47.4

Fyfes
Noboa

Top 5

70

80

Source: The World Banana Economy, 1985-2002, FAO (data from 1966 to 1999), Banana
link (for 2007 data)

The whole process, Sir Leon Brittian, then EU Trade Commissioner, told
BBC2’ s the Money Programme. “Is being driven by politics in the United
States. It is driven by the fact that Chiquita is a company that gives money
to the political parties, that the president of Chiquita is very close to
Senator Trent Lott.” (1999)
http://www.newsdominica.com/articles/articles.cfm?Id=1884

10/8
Coffee Exporters 19902000
With World Bank help Vietnam went from 2% to 10% of total world exports in 10 years

Moving Towards Managed Trade
• combination of:multinational direct and indirect control
sector concentration,
international financial institutions assistance/demands
multinational
bilateral free trade agreements
regional arrangements
• results in a “managed trade”
bargaining, politics, power and hegemony prevails over
comparative cost
The Ideological Power of the “Free” Trade Argument
- “free trade” promotes, open society and exchange of ideas
- protectionism means authoritarian rule
- “free trade” and internationalism
• reality is now power bargaining in which the ideology is a part

10/9

Session 11: Goods: Trade

as Power

11/1
The Power Dimensions of Trade Power
• Three indicators of trade power
- trade dependency
- direction of trade
- size of trade potential (current imports and exports)
- composition of trade (resource dependency)
• dependency as percentage of economic size
- two of the top 4 economies not trade dependent (10/2)
• direction of trade
- major trading partners – special relationship?
• power of importing
- USA imports over 15% of total world exports (10/D2)
• resource dependency – energy (10/D3)
- political versus economic dependency

Trade Dependency 2007
(selected countries – calculated from US$ values)

1

% Exports

to GDP

(2004)
USA

11.39%

Main Export
Destination
Canada

24%

USA

20%

Japan

14.3%

France 9, USA, 8%

Germany

40%

Germany

15%

France

21%

USA

14%

Germany

29%

UK

16%

Netherlands 61%

Germany 9 France 11%

Italy

24%

UK

Ireland

47%

India

13%

China

38%

Venezuela

30%

Kenya

16%

Hungary

68%

18 , USA 17%

USA

14%
USA

19%

USA

53%

Uganda

16%

Germany

28%


11/2

Direction of World Exports 2008

15-20%

Total
World
Exports

11/3

TO

20 -25% TO

30-35% TO

1 country = USA
population +/-350m

+/- 53 Countries = Asia
population +/- 4 billion

24 countries = Europe
population +/- 735 million

Source: Britannica Yearbook Data 2009, various trade statistical sources

Resource Dependency: Energy ( 2007 )
Country
Size of
Economy

Percent
Current
Energy
Imported

Consumption
per head
(kg oil equivalent)

USA

29

7.7

Japan

81

4.1

Germany

61

4.2

7

1.4

UK

13

3.8

France

50

4.4

Italy

85

3.1

Brazil

8

1.2

India

23

0,5

Kenya

21

0.5

Hungary

63

2.7

Chile

67

1.8

China

NB


11/4

11/5
Trade Policy and Political Regimes
• trade association with political liberalism has meant a coincidence policies
towards the world and trade policies
• 1930’s concept of “economic nationalism” = protectionism mercantilism
• the lack of legitimacy of both isolationalism and nationalism resulted in
greater efforts at trade liberalization and increased global power of those
involved (11/6)
Trade and Models of Political Economy – Development and Industrialisation
- Import Substitution Industrialisation (ISI) versus Export Oriented
Industrialisation (EOI)
- forms of corporatism and forms of neo-liberalism
- the dynamics of trading income
- bipolar society?
- resource curse

Law, Trade and Politics: Vocabulary and
Relationships

11/6

Current Use of Trade Power
- boycotts, sanctions and selective sanctions
- as penalty or coercion in global governance
- WTO – and the TRIPs and TRIMs
- bilateral and regional uses
- Free Trade Agreements with links to investment and patents
- regional dominant power e.g. China in Asean.
- natural resources and the “Resource Curse”
- the impact of domestic winners and losers and the transmission to foreign
policy
- state and corporation in trade relationships
increasingly state represents corporation in inter-state negotiations

11/7

Session 12: People: Cheaper

Labour

Current Arguments About Cheaper Labour

12/1

• Cheap labour, or more accurately cheaper, labour major media discussion of the past
decade
• Arguments that are made
a) that the rich countries exploiting the cheaper labour of the poor and
are therefore richer
b) that multinationals are mainly concerned with seeking
cheaper labour
c) that high-waged rich countries labour must
compete and adjust with low–waged countries
d) that cheaper labour costs represents “unfair” competition
with high wages and must be constrained

12/2
How Accurate are These Arguments?
• there is some degree of accuracy in the arguments but usually not
significant or substantial as already noted in other sessions
a) that the extraction from the south is not
substantial even if “unequal exchange” in labour was
counted
b) multinational corporations invest mainly in
high-waged countries
c) income losses in rich countries greater from
job loses through “outsourcing” and production transfer
• This session objective to consider these issues

Labour Cost – The Basics

•. productivity and unit labour cost 12/5)
•

wage determination
- classical,
- Marxist,
- Polyani and the institutionalists

•

labour market segmentation
gender, race, religion, caste and skill

•

conditions of work – health and safety
work and labour at the core of models of PE and politics

2/3

12/4
Definition of Labour Cost – World Bank

12. Unit labor costs, which are used here to assess labor competitiveness, are defined
as the total labor cost associated with producing one unit of a given good. To facilitate
international comparisons and competitiveness analysis, unit labor costs are measured
in a common international currency, usually the dollar. Unit labor costs are calculated as
the ratio of wages (expressed in dollars) to average labor productivity (expressed in
physical output per worker). In order for a country's labor to be competitive in the
production of a good, its unit labor cost must be at least as low as that of other
countries
World Bank Bangladesh: Labour Market Policies for Higher Unemployment: 1995,
paragraph 12
.

Hourly Compensation Costs Production
Workers in Manufacturing 2004
Source: US Department of Labor 2005

NB China = $ .67 or 3% USA

12/5

Employer’s Costs for Dismissal
in Number of Weeks Wages
(2005)

12/6

Source: World
Bankl/Volkskrant
13/9/2005

Health Loss Compensation Costs Apartheid South Africa 1973

Source: J, Harrod and V. Thorpe,
Asbestos: Politics and Economics of a Lethal Product ,Geneva, ICEM 1984: p.52.

12/7

12/8
Infamous 1991 “Dirty Industry” Memo from L.
Summers then a World Bank Chief Economist now
Chief Economic Advisor to President Obama
DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP
'Dirty' Industries: Just between you and me, shouldn't the World Bank be
encouraging MORE migration of the dirty industries to the LDCs [Least Developed
Countries]? I can think of three reasons:
1) The measurements of the costs of health impairing pollution depends on the
foregone earnings from increased morbidity and mortality. From this point of view a
given amount of health impairing pollution should be done in the
country with the lowest cost, which will be the country
with the lowest wages . I think the economic logic behind dumping a load
of toxic waste in the lowest wage country is impeccable and we should face up to
that.
Source: websites and Financial Times 1991

Trade and international competitively

12/9

• recapitulation and models
* international competitivity and economic competitiveness
two terms most associated with neo-liberal global policies
previously exports and balance of payments.
* the meaning of international competition
the ability to export
innovation, technology, price
* components of price i) productivity = technology, capital. environmental
impact
and ii) labour cost
* BUT components labour cost = wages determined by the model of PE
(strikes, sabotage, motivation)
= state taxes, labour laws,
• model competition and structural = change nature of society/model

12/10

Global Trade and Labour Cost Political Problems
* disruption from unequal exchange
* Export Oriented Industrialisation (EOI) = trade liberalisation and labour
cost inherent in structural adjustment
* the unpopularity of trade
WTO and Seattle
Pascal Lamey and “restoration of citizen confidence”
China trade disruption (12/11)
* the luxury of low level trade dependency

Trade With China costs jobs* in every state of USA 2001-2007

12/11

12/12
Current Attempts to Correct Global Labour Exploitation
• development of Bilateral Trade Agreements brings state back in
• opposition to Free Industrial Zones
• social clause in international trade
ILO core conventions child and forced labour organisation and bargain
collectively
• fair trade
• ngo, ingo campaigns and ethical stocks
• corporate social responsibility
*conditions of labour
*human rights
*environment
• rise of anti-corporate, trade and global populism

Session 12: People: Migrants

and their Money

Migration and Migrants

•

definitional problems
migrant must be distinguished from race and religion
also from minorities and “visible minorities”

•

official definition = living outside country of origin

•

Current 3% global population or 3-4% global labour force

•

13/1

Thus not a massive move of populations
97% of global population do not change their country of residence
.

13/2
Migration as a Human Capital Transaction between Societies

• human capital approach
• transfer: the burden of the unproductive years, and less productive years
: cost of higher education and skill development
home society bears the burden host society reaps the benefit

13/3
Migrants as a Category of Labour
• productivity and contribution
no greater than resident population
work harder in same time = increase in productivity ?
• wages and conditions of work
- migrant as socially disadvantaged labour ( children, women, elderly)
* work for less
* work harder and for less
* work in worse conditions
• equals net gain for direct employer
partial gain for indirect employer – wider society?
• weakening labour organisations, reduction in solidarity?

13/4
Migrants, Domestic Politics and Political Risk

• political risk analysts indicate lower political risks less diversity
assumption less diversity less social turbulence
Putman study shows conflict between and within ethnic groups
• migration as a deregulatory employers gift (Bartram)
political regimes and models involved
migration, minimum wage v political risk
• mass migration of low-skilled to bottom income quintiles in rich countries –
the material balance unevenly distributed
migrants gain
employers gain
low-incomes lose via fiscal pressure, wage depression? other?,
• migration issue is code for distribution issue – low-waged versus high incomes

Average family Income of Mexican-American children by
generation (in 2000 $)

13/5

Average Fiscal Balance of Migrant to Netherlands 2002

13/6

E1000.Average Netherlands contribution

Average Fiscal contribution non-western migrant

age

X axis = E1000

Y axis = age :

Source: Central Bureau Statistics, Central Plan Bureau, published Volkskrant 14/12/2002 p.13

13/7
Remittances are the second largest source of finance for
Developing Countries

Source: Dilip Ratha, Global Economic Prospects 2006:
Economic Implications of Remittances and Migration, World Bank.

Migrant Remittances lower debt service ratios

Source: Dilip Ratha, Global Economic Prospects 2006:
Economic Implications of Remittances and Migration, World Bank.

13/8

Circular flow of Migrants Remittances - An illustration

Debt
Repayment

Government

Bank
Where
Cleaner
works

Foreign
currency

Begin

13/9

Family in
Pakistan

Cleaner
in
Western
Bank

remittance

13/10

Financial Flows and Global Politics
economic models – corporatist v. neo-liberalism
migrant remittances as a financial flow
global politics:
diaspora political movements
global ideological and religious movements

Session 14:

Global Governance:

Sectoral Power

Sectoral Politics

14/1

•

what are global sectors – clusters or regimes of organisations (actors) around a
product or service at the global level

•

sector usually refers to a global industrial sector – e.g. wide-body passenger jets,
pharmaceuticals, sugar,

•

why study global sectors
-as a heuristic device – to illustrate what happens in global governance
-as case studies of global governance
- for material importance of sector – natural resources
- because the transformation undergoing of corporate concentration takes
place first at the sector level

•

sectors illustrates the new historical conjuncture because of a) concentration b)
size of and global scope of corporations

•

sectors in global governance – increasingly involve “private authority” in global
politics

14/2
Major sectoral differences
labour intensive v capital intensive
natural resource based v industrial goods
Intermediate goods v consumer goods
export v domestic
strategic/essential v extrinsic material security
vertical integration v horizontal integration
(product and value chain)

Multinational Corporation Sectoral Analysis
1) Production 2) Operations (Market) 3) Structure 4) Global Political Power
2. Operations (market)
• global

1. production

• regional

• labour intensive

• national
• capital intensive

high/low

• export

• investment risk high/low

• consumer
• manufacturers

• dirty/clean
• nature of raw materials – feedstock

• public/private
• service
• mass/specialty

3 Structure
• corporations – headquarters

• FDI stock

• size (revenue/employment)

• Global/regional

• market share

• NGO’s INGO’s BINGO’s

• Regulators

14/3

14/4

Strategic Power and Political Sectoral Endowments
Calculative Endowments
Product - “essential goods” natural resources, pharmaceuticals, food and feedstocks,
Consumers: core industries, defense, dominant industries
key political groups
Employment: size of labour force used: locality
Size: sectoral contribution to global national gdp
Location: proximity to resources, geo-strategic areas
Scope: number and geographical spread of subsidiaries
Political Endowments
- lobby
- capture of state, party,, individuals

Sectoral Analysis - Different Approaches

14/5

- neo-classical and neo-liberal = the underlying force of market demands
monopoly, oligopoly and economic rent theories
- global realism - who has the sectoral power and what they do with
- regime theory can incorporate power, human agency and in particular the other private
non-corporate actors (global civil society organisations)
• Regime theory:- that actors interests surrounding a given issue area may
converge sufficiently to create norms, rules and decision-making procedures, and
practices around which actors expectations converge .
• if no convergence – then nature of regime changes but may not disappear
• regime may be a political space in which conflict takes place but where actors
know the nature of the tactics and strategies of each other

Sectoral Case Studies: Oil

14/6

Oil Politics – Structural dimensions
1) Oil is energy plus feed stock for plastics and other strategic materials
2) The major consumers of oil are in the highly industrialized countries BUT
the major producers are in ROW
3) The United States – the largest economy has an energy intensive life-style
and consumes:twice as much energy per capita than Germany, France or Japan
(other large industrialized economies with similar GDP per capita)
4) production, transport and consumption levels thus become crucial for sustaining
the global status quo, life-styles and etc.
5) The oil corporations USA headquarter Exxon-Mobil, Chevron, Conoco Phillips
and the European headquartered Shell, BP, and Total have approximately
half each of the turnover of the “oil majors”
BUT a) only Total is not Anglo-American ( Shell = hybrid)
b) no important global-scope majors from other large economies
(Japan, Germany)

Oil Empires: Romania at the Crossroads

14/7

Dan Dimancescu
June 5 2007
Romania is once again at the heart of competing 'imperial' pressures. This time it is
shaped by oil stakes that pit the world's powers, Russia, Europe, the United States and
China against one another. By virtue of its strategic location along the Black Sea,
Romania has become a major conduit point for Caucasus and Caspian Sea oil seeking
routes to markets other than through Russia. The United States, in particular, has
worked aggressively to establish alternate conduits for oil and gas around Russia.
Afghanistan was viewed as one potential southerly transit country. Another is the
Georgian route bringing Caucasus oil into to Black Sea harbours and into Turkey and
Europe. The Baku-Tbilisi-Ceyhan (BTC) Pipeline, opened in May 2006, is the first fruit
of that strategy with a 10 million barrel capacity.
A map (adjacent), of planned and projected pipeline conduits for Caspian Sea oil and
gas sources, illustrates the geo-political importance to routes that by-pass Russia. It
also emphasizes the new role given to Romania as a connecting point into Europe.

Sectoral Case Studies: Asbestos-use Regime 1985
• Fire producing material
• 1930s reveals lung cancer from then – struggle over use within the sector
• Two diseases

14/8

Asbestosis and cancer – cancer caused only by asbestos

• Four corporations J-M (USA) Gencor (South Africa) Cape Asbestos (UK)
• Oppositional regime begins

doctor USA

activist UK

• Enter social movements trade unions
international trade unions
• other organisations involved WHO, ILO political parties
• 1974 Sweden banned asbestos
• Corporations moved into the “civil society” organisations
secured support from inter-state organisations – World Bank
• Became an opposition regime involving individuals, ngos, ingos, which eventually
obtained some success in banning the substance
Source: J. Harrod and V. Thorpe, Asbestos: The Politics and Economics of a Lethal Substance (ICEM 1984)

14/9
ectoral Case Study: Cement: Leading Cement Corporations 2008

Coporation

Headquarters

Production
MTons

Sales
(approx)

LaFarge

France

205

$19b

Holicim

Switzerland

194

Heidelberg

Germany

103

Cemex

Mexico

96

Italcementi

Italy

77

$6b

Buzzi Unicem

Italy

43

$3.5

$25b
$14b
$21b

NB 1) the “Big Four” only directly control +/- 23% of
global market
2) size global sector = +/- $400b: compare pharmaceuticals $1000b

Global Cement Consumption and Production
( million tons )
Consumption (top 5)

Production
China

1390

ROW

600

India

190

USA

100

Russia

70

Japan

70

Vietnam

183

USA

84

Japan

68

Russia

53

70

Iran

India

70

Italy

1400

80

Brazil

China

70

Source: International Cement Review: Global Cement Report 8th Edition 2008

14/10

Special Characteristics of Cement Industry
- capital intensive
- dirty
- not-transportable
- major supply to state sector
- supplier of basic need “shelter”
Cement major’s Corporate Strategy
Strategic participation – price control
Outcome: High Political Profile
- early 1994 Greek banker murder by terrorist group for his role in Greek
privatization of Cement Company Heracles
- 1994 ex-Greek Prime Minister indicted for bribe of cement privatization
- major players in conflict-destruction-reconstruction
- political involvement as basic needs supplier
- 2008 Chavez nationalizes cement industry

14/11

14/12
Cement Corporations in Egypt: Who would have
“In Guessed?for the time being only an exceptionally clownish cement company
other words,
would fail to profit in the Egyptian market.
Five foreign building materials companies now own controlling stakes in Egyptian
cement companies). In part, this reflects a strong consolidation trend in the industry
globally. Indeed, Lafarge (part owner of Beni Swaif Cement) has been trying, with little
success, to acquire the UK's Blue Circle (majority owner of Alexandria Cement).”
Magazine article by Tom Owen; The Middle East, July 2000.
-------------------------------------------------------------------------------------------------“Cairo had banned exports for six months in 2008 and has now ordered an investigation
into cement trading practices because of rapidly fluctuating domestic prices. Executives
at Egyptian cement producers were fined $l.8m each in 2007 for breaking anti-monopoly
and price fixing regulations. The government also now requires producers to set
maximum prices for each stage of the cement production process.”
Magazine article; African Business, No. 355, July 2009

14/13
Cement Sector: A voice from the Global
South
Globalization has thus simply provided the opportunity for corporations, particularly
transnational corporations like Cemex, Holcim, and Lafarge to increase their
investments, expand their conglomerates,and edge towards monopolization of the
world’s cement industry through managing economies of scale because of their large
capital investments in cement manufacturing. This is aside from the domestic factor that
Philippine labor is cheap but productive. These cement firms are also able to impose
their conditions on the government by their concerted lobbying and threats to move
elsewhere if their conditions are not met.
The case of the cement industry is another showcase of how globalization has spread
its effects to a developing country like the Philippines. It adheres to corporate power as
its core concept, thus limiting the chances of people, specifically workers, to achieve
maximum social and economic improvement within a framework of social justice. The
organization of workers in trade unions in particular has been jeopardized and the
collective ability of workers to question, challenge and balance corporate
power has been weakened.
Dr. Divina M. Edralin, is a full professor at the Business Management Department,
College of Business and Economics of De La Salle University-Manila. This article is
taken from the conclusion of a commissioned study on the Cement Industry undertaken
by the author in October 2003..

Cement Industry Nationalised in Venezuela

14/14

Hugo Chavez Nationalizes Cement Industry
President Hugo Chavez Thursday announced the immediate nationalization of
Venezuela's cement industry, a move that will hit Mexico's Cemex, just a year after
Chavez launched a wave of state takeovers.
The former paratrooper last year launched a broad nationalization crusade in the
energy and telecommunications sectors while threatening to go after other industries
such as banking, cement and steel.
"Nationalize it, and as of this instant take all the legal measures ... to nationalize in the
short term all of the national cement industry," Chavez said during a televised speech.
Chavez has frequently accused private cement companies of exporting their production
rather than selling it into the domestic market to help ease a housing shortage that has
drawn complaints from his supporters.
Source: by: Reuters | 04 Apr 2008 | 04:18 AM ET

Research Project: Global Politics
Session 15: Global Governance:

J. Harrod- UvA
State and Private Authority(8,6/3)

Global Civil Society accepted as problematic - no global state
GSMs and GSOs are sub-nation state in the global space
global civil society needed for :
neo-Gramscians for counter hegemony
moralists and constructivists for global norm
change and development
global governance - instruments of policy
Actors in multi-national /global civil society space
• corporations and and banks in industrial and service sectors
politics of sectors – sectoral regime
• social movements and global civil society
• global ngo federations
• networks global cyber-space

Global Governance 1: Inter-state
Cooperation
lecture divided into two parts global governance:1 – inter-state organisations and processes and global governance
2 - sub-state organisations and processes
• Westphalia nation state system
League of Nations
United Nations
• world government and its opposition
- functional theory of peace by pieces (Mitrany and functionalism)
integration and cooperation and spill over
• International Organisation = first attempt at global government
(Slide 15/2)
• government without sovereign authority

15/1

Organogram for Intended World Government

15/2

Networks of Inter-State Organisations
• network of international organisations as prime structure of global politics
• secretariats as advocacy voices
international civil service
• types of organisations
- security and negotiation fori
UN security council , Nato
- social policy organisations
specialized agencies of the UN
still important to institutionalisms and constructivists
- international financial institutions
intention – global democratic socialism (Keynesianism )
failure – major inter-state organisational support for corporations/banks
• approaches: organisation theory; regime theory; hegemonic theory

15/3

15/4
The Demise of Global Governance 1
• ideology of global governance 1:
- sovereignty cooperation, integration, security, development, global voting
• based on avoiding of percieved problems 1930s
• limited success in security – Cold War
• presided over a de-colonialsiation process
• laid foundations for greater communication in social policy
• move towards global framework agreements – New Orders Movement.
• rejected by major states 1980 onwards

15/5
Global Governance 2: Governance by Global Private
Authority
• The ideal definition
“Governance is the sum of many ways individuals and institutions, public and
private, manage their common affairs. It is a continuing process through which
conflicting or diverse interests may be accommodated and co-operative action
taken. It includes formal institutions and regimes empowered to enforce
compliance, as well as informal arrangements that people and institutions either
have agreed to or perceive to be in their interest”
UN Commission on Global Governance

• a realist definition
“a process at the global level through which diverse interests are accommodated
or subsumed thorough the actions of powerful non-state actors”
J.Harrod 2010

15/6
The Emergence of Global Governance 2
1) direct imperial – not only statist
2) indirect – post-imperial phase = neo-colonialism
3) 1970 - 1980 - New World Orders attempt
(centred on specialised agencies of the UN)
4) 1980 neo-liberal and globalisation
• Substitution of cooperation and integration by “globalisation”
• Globalisation the ideology of multinational corporations and transnational banks to
assure access to local areas and freedom of global action

Global governance 2 introduces “global civil society”

15/7

• Creation of a global civil society as consequence and reaction to reduction in
inter-state organisational power
• the idea of “global society" and “global civil society”
Tonnies = society v community
Hegal = civil society
Gramsci = hegemony with “counter-hegemony”
in civil society?
Polyani = if global market then global double
movement?
• Global Civil Society accepted as problematic - no global state
• but there is a global “political space” in which non-governmental
organisations, international ngo’s, corporations, corporations state
agencies, and individuals act

politics of sectors – sectoral regimes
• networks global advocacy
• state agencies
• global civil society needed for :
- neo-Gramscians for counter hegemony
- moralists and constructivists for global norm
- global governance - instruments of policy
• countervailing or counter hegemony mixed success
• Contradiction between the increased opportunity for the citizen at global level
and his/her decreased impact with public-interest state representation

15/8

Conclusion: The Last Word

Research Project: Global Politics
Session 16:

J. Harrod- UvA (8,6/3)

Global Civil Society accepted as problematic - no global state
GSMs and GSOs are sub-nation state in the global space
global civil society needed for :
neo-Gramscians for counter hegemony
moralists and constructivists for global norm
global governance - instruments of policy
politics of sectors – sectoral regime
• networks global cyber-space

The Last Word
Felipe Gonzalez, ex prime minister of Spain 1982-1996 speaking in an
interview April 2010 as reported in El Pais, Madrid 10, May 2010.

16/1

“Remember the statement of President Eisenhower in the 1950s – he said:‘we must guard against the acquisition of unwarranted influence, whether
sought or unsought, by the industrial-military complex. The potential for the
disastrous rise of misplaced power exists and will persist. We must never let
the weight of this combination endanger our liberties or democratic
processes.’
This never happened.
But are we now not in the presence of a global financial power which
threatens the power of representative governments?
I am convinced that we are.”
Felipe
Gonzalez
-------------------------------------------------------------------------------------------------Remarks by the President Obama in Address to the Nation on the “Way Forward in
Afghanistan and Pakistan” Eisenhower Hall Theatre, United States Military Academy
at West Point, 1, December 2009 ( Whitehouse website)
“And unlike the great power conflicts and clear lines of division that defined the
20th century, our effort will involve disorderly regions, failed states, diffuse
enemies.”
Barak Obama

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