Subject: Contemporary World

Name: Ferdinand P. Bagni

Date: March 20, 2019

Instructor: Mr. James Oyando

 Principles of Neoliberalism

Neoliberalism, ideology and policy model that emphasizes the

value of free market competition. It is commonly associated with laissez-
fair economics. It is often characterized in terms of its belief in sustained
economic growth as the means to achieve human progress, its confidence
in free markets as the most efficient allocation of resources, its emphasis
on minimal state intervention in economic to the freedom of trade and
capital.

It is a demarcated set of political beliefs which most prominently

and prototypically include the conviction that the only legitimate purpose
of the state is to safeguard individual, especially commercial, liberty, as
well as strong private property rights. This conviction usually issues, in
turn, in a belief that any transgression by the state beyond its sole
legitimate purpose is unacceptable. These beliefs could apply to the
international level as well, where a system of free markets and free trade
ought to be implemented as well; the only acceptable reason for
regulating international trade is to safeguard the same kind of
commercial liberty and the same kinds of strong property right which
ought to be realised on a national level.

It generally includes the belief that freely adopted market

mechanism is the optimal way of organising all exchange of goods and
services. It also include a perspective on moral virtue: the good and
virtuous person is one who is able to access the relevant markets and
function as a competent actor in these market.
Imminent threats of Global Economy

1. Unwinding of globalization or the “islandization” of the global

economy.

Protectionist policies limit the cross-border flows of goods, services,

capital, and people are ascendant while measures aimed at facilitating
trade are in decline. For example, when Donald Trump became US
president, he made the policies “America First” which became a
phenomenon. Other major economies are also quietly pursuing
“islandization” policies. For instance, Beijing is limiting capital outflows,
several EU members are pushing for heighted scrutiny of foreign
investment, and Indonesia is restricting some raw materials exports.
Policymakers should strive to prevent this growing fragmentation of the
global economy, lest it hinder business activity and economic growth.

2. Growing political policy and regulatory influence on the economy.

The rise of populist politicians and the exploration or implementation

of controversial policies has created an uncertain and often politically-
charged operating environment for business. For example, increased
restrictions on H-1B visas in the United States are creating new
obstacles for business seeking to fill certain high-skilled jobs. Yet
political challenges also go beyond domestic politics. Geopolitical
tensions are increasing in numerous regions around the world. As the
world transitions away from largely “unipolar” US leadership to a more
multipolar international system, greater levels of volatility and
destabilization are likely. Political leaders should ensure domestic
regulatory transparency and stability, while also seeking to lessen
geopolitical tensions, to support sustainable economic growth.

3. Weak productivity growth.

Across the globe, total factor productivity growth is projected to hover

at around 1.2% through 2022. That is less than half of the 2.7 percent
average growth in the years leading up to the global financial crisis. The
drag created by low productivity growth has no easy solution as the
causes are deep rooted and wide ranging. Low levels of business
investment, inadequate infrastructure spending, and an aging labor
force, declines in competition and entrepreneurship, slower expansion of
global value chains, and the uncertain effects of technological change all
play distinct roles in contributing to the problem. Policymakers should
prioritize forward-
 Globalization vs. Internalization

Globalization

Globalization refers to global economic integration of many

formerly national economies into one global economy, mainly by free
trade and free capital mobility, but also by easy or uncontrolled
migration. It is the effective erasure of national boundaries for economic
purposes.

It is the worldwide effort and interaction of the public and private

sector toward economic, financial, communication, cultural etc.
integration through allowing and easing the cross-border movement and
transfer of people, capital, data, goods and services. This includes
reducing or eliminating visa obligations for visitors, tariff and non-tariff
trade barriers, and liberalization of investment regulations as well as
improvements in connectivity through better transport and digital
infrastructure. Globalization is required to ensure economic growth as
well as to tackle the increasing global challenges and threats mankind is
facing, such as the pollution of air and oceans, e.g. through micro
plastics and the threat of global climate change. Globalization has led to
rapid economic development and wealth creation but has also created
significant income inequalities.

Internalization

It refers to the increasing importance of international trade,

international relations, treaties, alliances, etc. Inter-national means
between or among nations. The basic unit remains the nation, even as
relations among nations become increasingly necessary and important.

It can also be interpreted as the efforts of companies to do

business in one or more foreign countries. This can include activities
such as the sourcing, producing and selling materials, components,
goods, and services. Companies internationalize by entering into arm-
length agreements with business abroad, by creating joint-ventures with
other foreign strategic or financial investors or with local partners to
conduct business jointly in one or more countries, or by setting up own
subsidiaries, e.g. procurement or sales offices, or operational sites
through foreign direct investment.
 Peripheral state

Peripheral states are less developed countries than the semi-

peripheral and core states. These states usually receive
disproportionately small share of global wealth. They have weak state
institutions and dependent on more developed states. These states are
usually behind because obstacles such as lack of technology, unstable
government, and poor education and health systems. These states may
have unstable government, inferior technologies, and poor health and
educational systems. At times, the exploitations of these countries with
regards to cheap labor, agriculture, and natural resources may help the
core countries may help the core countries remain wealthy.

The following factors make a state periphery:

 The stability of government

 The ability to participate in global trade activities
 The quality of education provided in the country
 The equality of the wealth in the country.
 Equal Exchange

Equal exchange is for profit Fairtrade worker-owned, cooperative

headquartered in West Bridgewater, Massachusetts. Equal Exchange
distributes organic, gourmet coffee, tea sugar, bananas, avocados,
cocoa, and chocolate bars produced by farmer cooperatives in Latin
America, Africa and Asia. Founded in 1986, it is the oldest and
largest Fair Trade coffee company in the United States. It was
founded by Jonathan Rosenthal, Michael Rozyne and Rink Dickinson
who had met each other as managers at a New England food co-op,
were part of a movement to transform the relationship between the
public and food producers.

Equal Exchange is a:

 A social change organization that would help farmers gain

more control over their economic futures.
 A group that would educate consumers about trade issues
affecting farmers.
 A provider of high-quality foods that would nourish the body
and the soul.
 A company that would be controlled by the people who did the
actual work.
 A community of dedicated individuals who believed that
honesty. Respect, and mutual benefit are integral to any
worthwhile endeavour.
 Modern Capitalism

Modern Capitalism arose out of an international economic order in

which European dominated the rest of the world both economically
and militarily.

Certain writers have asserted that capitalism originated as soon as

mobile wealth had been develop; and if this definition be accepted,
capitalism may be said to have been in existence in the Ancient world,
not only in that of the Greeks and Romans, but even farther back in
the more ancient societies which carried on active commercial
transactions.

Since its emergence in the 1700s, it has been the focus of intense
controversy. On the one hand, capitalism economic growth has been
extraordinary but it has been prone to crisis, and is also associated
with a striking degree of inequality. Much of the political controversy
is driven by conflict between those who have gained or stand to gain
from the rapid economic development of capitalism, and those whose
fortunes are threatened by capitalist advance and cyclical crises.
 What influence the change in character of global corporation?

The following factors affect the change in character of global

corporation:

 Containerisation
The costs of ocean shipping have come down, due to
containerisation, bulk shipping, and other efficiencies. The
lower unit cost of shipping products around the global
economy helps to bring prices in the country of manufacture
closer to those in export markets, and it makes markets more
contestable globally.

 Technological change
Rapid and sustained technological change has reduced the
cost of transmitting and communicating information which is a
key factor behind trade in knowledge products using web
technology.

 Economies of scale
Many economists believe that there has been an increase in
the minimum efficient scale associated with some industries. If
the MES is rising, a domestic market may be regarded as too
small to satisfy the selling needs of these industries.

 Differences in tax systems

The desire of businesses to benefit from lower unit labour costs
and other favourable production factors abroad has
encouraged countries to adjust their tax systems to attract
foreign direct investment. Many countries have become
engaged in tax competition between each other in a bid to win
lucrative foreign investment projects.

 Less protectionism
Old forms of non-tariff protection such as import licensing and
foreign exchange controls have gradually been dismantled.
Borders have opened and average import tariff levels have
fallen.
 How do global corporation operates?

The contemporary global corporation is simultaneously and

commonly referred to either as a multinational corporation (MNC), a
transnational corporation (TNC), an international company, or a
global company. While much of the remainder of this chapter will
serve to clarify some of these distinctions, those offered by Iwan
(2012) are practically useful.

 International companies are importers and exporters, typically

without investment outside of their home country;

 Multinational companies have investment in other countries, but

do not have coordinated product offerings in each country. They
are more focused on adapting their products and services to each
individual local market.

 Global companies have invested in and are present in many

countries. They typically market their products and services to
each individual local market.

 Transnational companies are more complex organizations which

have invested in foreign operations, have a central corporate
facility but give decision-making, research and develop (R&D) and
marketing powers to each individual foreign market.

More formally the transnational corporation has been defined by the

United Nations Centre on Transnational Corporations (UNCTC) as an
“enterprise that engages in activities which add value (manufacturing,
extraction, services, marketing, etc) in more than one country (UCTC,
1991).” This chapter will employ the term “global corporation” to refer
to all of these types, seeking within specific contexts to be clear about
which usage most applies. As many of the citations employed below
indicate, however, these distinctions are often not employed within
the literature.

An understanding of how global corporations operate within

contemporary globalization requires a brief recounting of some of the
major changes that have taken place over the almost seventy years
since the end of WWII. As indicated above, US corporations operating
internationally had enormous advantages in the immediate post-war
period as they—virtually alone in the world—emerged from the war
with their productive, organization and distributional capacities
intact. What would take shape as the beginning of contemporary
globalization, however, dates from the economic recovery of capital
structures in Japan and Europe and the re-entry into global markets
of their national corporations. By 1974 Barnet and Muller in a path-
breaking volume could both define the MNC as a major economic
global actor and begin an effective description of how this particular
corporate form was coming to dominate various aspects of global
production and exchange (Barnet and Muller, 1974). A considerable
amount of other scholarly work documents various “waves” of global
corporate development through the subsequent six decades to the
present.

The overall structure of this system would stay in place and continue
to develop throughout the 1970s and 1980’s—a period that stands
chronologically just prior to three fundamental innovations that have
substantially changed the character of the global corporation: the
advent and impact of digitalization and instantaneous global
communications; the structural transformation of global commerce
from producer-driven commodity chains to buyer-driven; and the
increasing role performed through the global system by financial
elements and the emergence of the global financial firm. (The post-
war period can be delineated in a number of ways. Geriffe for example
emphasizes three structural periods: Investment-based globalization
(1950-1970); Trade-based globalization (1970-1995); Digital
globalization (1995 onwards.) Within this analysis the nature of the
global corporation changes accordingly, being driven in each case by
its evolving purposes and by its extended reach and abilities (Geriffe
2001: 1616-18). Another method of projecting this growth is to
examine the sources and levels of Foreign Direct Investment (FDI)
most of which was of corporate origin. As Hedley indicates, in 1900
only European corporations were major investors, to be joined by
some American firms in the 1930s. Citing UN data he dates 1960 as
the major turning point for FDI as the major driver of extended global
corporate development. In each subsequent decade until the turn of
the century, FDI would triple (Hedley 1999).

Throughout these periods economists, other scholars and government

actors at both the national and transnational level tended to “frame”
the progressive growth of the global corporate structure (again,
referred to almost indiscriminately as either MNC’s or TNC’s) through
efforts to define, measure and assess the extent and consequences of
foreign direct investment, defined initially and primarily as the entry
of private capital from a source external to a country into a receiving
country. Usually referred to in terms of “out-ward” and “in-ward”
flows, supplies of FDI were viewed as the major elements of global
economic development, and during various policy periods as
“essential” for the development of what was then viewed as the “third”
world, even if in reality the vast majority of FDI into the 1990s was
between countries of the “developed” world—primarily North America,
Europe and Japan. Since 1964 the United Nations Conference on
Trade and Development (UNCTAD) has focused on the various roles
that FDI plays in the development process and has maintained an
extensive policy library of global FDI statistics as well as the dense
structure of regulation that frame global corporate cross-border
engagements (Fredriksson 2003). Periods of intense FDI changed the
global corporate landscape. During the period 1985-1990 FDI grew at
an average rate of 30% a year. One result, unsurprisingly, was the
landscape of corporate units and their relationship to each other.
DeAnne Julius indicates that the expansion of FDI, inter-corporate
alliances, and intra-firm trade during this period reached a level at
which “a qualitatively different set of linkages” was created among
advanced economies (Julius 1990). It was estimated that some
20,000 new corporate alliances were formed just in the period 1996-
1998 (Gilpin, 2000: 170).

The investment-based period was dominated by producer-driven

commodity or value chains, which in turn tended to be dominated by
firms characterized by large amounts of concentrated capital focused
on large-scale or capital-intensive manufacturing or extractive
industries. The organization of the dominant global firms during this
period was powerfully influenced by the transformation within
national economies of the older manufacturing companies wrought by
what was viewed as the progressive “de-industrialization” of these
economies through wide-scale off-shoring of labor applications and its
related costs. (See for example Bluestone and Harrison, 1984.) This
progressive shift in the siting of manufacture transformed the
dominant manufacturing firms of these older developed companies
into more fully extended and integrated organizational forms that
moved many such firms from a self-conscious understanding of
themselves as “national firms operating internationally” into more
authentically global firms that required extensive corporate
integration of their activities throughout the world.

Many corporate structures, especially those in the United States,

operating within the frame of the producer-driven commodity chain
had been organized by what came to be recognized as “fordist”
management principles. U.S. firms in particular had sought to
transport these models abroad to their international manufacturing
holdings. The emergence of Japan as a major producer nation,
especially of automobiles and consumer electronics from the 1970’s
on, brought onto the scene new models of effective production
focused especially on quality and regimes of flexible production—a
move that was echoed within European firms rejoining the global
commodity chains. These activities were experienced by U.S. firms as
unwelcome challenges to their previously virtually unchallenged
positions on product design, production efficiency, and quality—and
ultimately on the ability of these corporate structures to maintain
their accustomed returns on investment. The result was a
progressive “re-inventing” of the American business model, especially
the industrial model—a challenge that would dominate the curricula
of U.S. business schools for over two decades (Risi 2005) and which is
also continuously associated with the global value shift from
manufacturing capital to finance and human capital in progressively
networking societies (Castells, 2009).

Gereffi has argued persuasively that “how global corporations” work is

largely determined by whether they are situated in producer-driven or
buyer-driven commodity chains. The following figure drawn from his
work on U.S. firms suggests indirectly that the more buyer-driven
they are, the more nodes exist within their networks and the greater
either their inter-dependence on other actors or their imperative to
establish extensions (by whatever ownership or contract means) of
supply, finance, etc.