IR-10

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Number of Multinational Corporations: 63 Thousand
MNC's account for what fraction of world output: 1/4th
Percent of global trade that is intra-firm: 30%
Two Types of Investment: Foreign Direct Investment/ Portfolio Investment
Foreign Direct Investment: Investment tied to ownership and production
Portfolio Investment: No direct view of ownership but a view of markets
Three types of MNC's: Industrial/Extracting/Service
5 Benefits of MNC's: -Provide workforce
-Skill
-Multiplier effect (employment increases and spending increases)
-Increases economic interpendence among states
-Entities that transcend narrow nationalist points of view
Marxist view of MNC's: "Capitalist ecnomoies must expand and become imperialistic to find new markets"
Widens gap between rich and poor (Economic triangle dominates 75% of all trade)
Economic Triangle: North America (US), Western Europe, East Asia
Nationalist view of MNC's: "Companies should have loyalty to the homeland from which they came"
-40's and 60's view of MNC's was beneficial, opposed to recent trends which are more nationalistic
Two types of ownership patterns: Majority/Minority ownership
Majority Ownership: "Ownership of outsourced sector by original father firm"
Minority Ownership: "State that sourcing takes place in wants minority ownership so that they retain some deal of say in the matters of the company"
-reduces capital expenditure and nationalism
Profit Repartriation: -make a profit in one state and relocate it to another state
-money is not always invested back in outsourced sector or state in which sourcing is taking place
Transfer Pricing: -covert mechanism that MNC's utilize in intra-firm trade to reduce tax owed to a host country
-just in time delivery (requires open and fluid system of trade)
Host Country Learning Curve: -most MNC's can initially out whit developing nations
-over time countries realize situation and take advantage of elements such as sunken cost
Gunpowder Revolution: China (1300 CE)
Military Innovations of Napoleonic Revolution: -citizen army as opposed to mass constriction
-embraced nationalism
-warefare based on offense not stalemate
Military Innovation of Industrial Revolution: -machinery as a source of energy in production helped replace humans and animals
-aircraft, ships, tanks and trains could be fueled by combustion engine
-enabled "World War"
Military Innovation of Nuclear Revolution: "We have developed a weapon that can turn everything into nothing"
Weapons of Mass Destruction: -have expanded level of killing i.e. Nuclear Bomb/Anthrax
Methods of countering nuclear weapons (Deterrents): -Assured Second Strike Capability
-Proven Capability (staggering loss of life in any scenario)
-Present Counter Attack
-Must show that an initial attack will not destroy entire country
Assured Second Strike Capability: "States must be equipped for another attack fro retaliation is almost inevitable
How Could Deterrents Fail?: -False Positives
-Counter Force v. Counter Value
-Launch on Warning (LOW)
-Anti-Satellite Weapons
-Suitcase Bomb
False Positives (deterrent failure): "Nuclear weapons compress space and time; one must make a split decision as to whether or not it is a false alarm"
-newly nuclear states may not have sufficient techonology to judge properly
Counter Fource v. Counter Value - Multiple Independently-targetable Reentry Vehicle (MIRV): -Counter Force is much more accurate and much more deadly
-Counter Value is much less accurate and was used early in Cold War
Launch on Warning (LOW): "A state gives credible evidence and an ultimatum"
Anti-Satellite Weapons: -satellites that can view other weapons (allows states to take out opposition satellites)
Suitcase Bomb: -a state is attacked and it cannot tell by whom it was attacked
Problems w/ Nuclear Treaties: -states can cheat proliferation bans (North Korea)
-no answer to suitcase bomb
-many open ended treaties
-do not reduce number of arms simply limits and caps growth
Strategic Arms Limitation Treaties (SALT I & II): -did not reduce number but limited growth
-reconfigured forces of each side so that there would be some predictability
Strategic Arms Reduction Tready (START): -US & USSR reduced nuclear arms significantly
Why Bretton Woods System was adopted: "Peace, prosperity, and democracy was best achieved through unrestricted global governments"
-US favored Bretton Woods b/c they needed to close economic gap (1940's)
Benefits of Unrestricted Trade: -benefit all
-countries would specialize in products they are best suited to produce
3 Principle Pillars of Bretton Woods System: General Agreement of Tariffs and Trade (GATT and latter WTO)/World Bank/International Monetary Fund (IMF)
Balance of Trade: "A state is exporting more than it is importing and a balance of trade deficit means a state is importing mor than it exports"
Balance of Payment: "Larger concept that includes balance of trade that takes into account other ways money comes in and out of a country"
Factors of Balance of Payment: Foreign Direct Investment (FDI)/Interest paid v. interest recieved/Overseas military expenditures/Foreign Aid
Value of Currency: "The value of currency on the international market can have a significant affect on how much it can buy or sell"
-Currency drops can increase a country's exports
Deflation and Inflation: -gov'ts have many ways of stimulating economy
- if a state faces inflation a state can increase taxation or increase interest rates
International Monetary (IMF): -states give money on a sliding scale as what a country can afford
-a country can pay in dollars, gold, or local currency
-IMF assumes that if a state borrows money it's economy is in peril
-Very stringent on terms
-Conditionality - particularly bitter measures to terms
Reasons for IMF: -to prevent a state htat has a massive balance of payment deficit from defaulting"
-countries go through economic cycles
-if a country faces a balance of payment deficit it must take out another load which IMF will fund
Reasons to Prevent Defaulting: -when countries default they have nothing that can be reassessed
-banks will loose money and cannot pay principle interest to investors
Floating Exchange Rate: -the value of a country's currency based on supply and demand
-corporations often devide profits in different currencies
Options when a country suffers balance of payment deficit: -MUST take out another loan if it needs to repay previous loan
-states may lower currency
-states may force another country to strengthen its currency
-states may increase tariffs
Pre-1971 Economic Market Line: -US gold standard
-states fixed their currency to USD
-states' economies did not plummit when they suffered a balance of payment deficit
-USD was most stable currency
Post-1971 Economic Market Line: -US experienced first balance of payment deficit in 1971
-abandoned gold standard
-US devalued USD
-US backed out of fixed exchange rate
General Agreement on Trade and Tariffs (GATT) & later World Trade Organization (WTO): -states produce the goods they have the natural ability to produce
-most favored nation status
-reciprocity (no state gives something for nothing)
Transparency: "Nations should use a transparent methods of exports/imports (tariffs)"
Most Favored Nation Status: "If one member sets a tariff, the same tariff is applied to all states attempting to export to the tariff creating state"
Problems w/ GATT: -Non-Tariff Barriers (NTB's)
-Intellectual Property Rights
-Social Causes
-Voluntary Expert Restraint (VER)/ Orderly Market Arrangement (OMA)
-Agriculture
Non-Tariff Barriers (NTB's): -measures states take to keep out foreign products and cause them to push domestic products
-examples are quotas, environmental standards, and safety standards
Intellectual Property Rights (IPR): -patents and trademarks only reward innovative and capitalistic individuals and companies
Social Causes: -states can establish a tariff through a social cause such as child labor or human rights
Voluntary Expert Restraint (VER)/ Orderly Market Arrangement (OMA): -during a time of crisis states may set a number of units produced to help another state
Agriculture-related problems w/ GATT/WTO: -agriculture economies want tariff barriers reduced but are opposed by developed countries
-service sector economies are pushing for reduced barriers on services
International Bank for Reconstruction (IBR)/ World Bank: -International Development Association (IDA)
-International Financial Corporation (IFC)
-created to in order to prevent Soviet advance into crumbled Western Europe
-project lending organization
International Development Association (IDA): -soft loans with lower levels of interest
-World Bank gives money to the poorest of poor (countries that would not be able to attract loaners)
International Finance Corporation (IFC): -REDUCES RISK for MNC's
-encourages foreign direct investment (poor countries do not many FDI's: civil wars, poor living, poor health)
-World Bank assures MNC's that invest in poor countries, that they will not loose money
Criticisms of World Bank: -the world bank has been focused on development and not environmental standards
-aid is not affecting actual standard of living
-focused too much on project spending
New International Economic Organization (NIEO): "Theoretical revisions of Bretton Woods System"
3 Elements of NIEO: -southern countreis wanted northern tax money as aid stating that it was in the best interest of the north to have an economically viable south
-Generalized Scheme of Preference: developed countries
-International Commodity Agreement (ICA)
International Commodity Agreement (ICA): "States whose markets are predominantly focused on one material store product until time of crisis when all countries who produce this commodity support whole"
-funded by north
Dependency Theory: "Markets work to institutionalize; markets tend to trap states and people in certain situations of development"
Three Groups left by Bretton Woods System: Core/Semi-Peripheral/Peripheral
Globalization: "A level of interdependence that exists where boundaries almost cease to exist"
Examples of Border indifferent entities: -MNC's
-Drug Cartels
-Terrorist Groups
-Migrating Populations
Global Village: -Culture has been globalized (particularly US culture)
-Currency trade
-Language is globalized (needed to conduct business)
Effects of Globalization: -national governments will loose much of their control (loose control of markets, economies, and social trends)
-cultural homogenization (cultural backlash)
Realist Conception of Morality: "Morals have no place in policy, there should only be a rational view in the best interest of the state"
Defense of Morality: "If God did not exist anything would be possible"
-morality requires sovereign states to be held accountable
-interfering international community
Catholic Laws of War: -an enity must first be attacked and then may attack in defense
-there must be an equal and reciprocal attack (reciprocity)
Utilitarianism: "An action is moral if it brings the greatest good to the greatest number - suspend all personal interests; very pragmatic"
Deontology: "Certain moral principles are RIGHT and if one acts in a certain way they are in effect saying it is correct for all others to do the same"
Export Platforms: "A place companies set up labor because it is cheaper"
Outsourcing: "Producing goods overseas primarily for export back home"
Adam Smith: -the father of modern economics
-economically liberal view
Comparative Advantage: "People produce goods which are more efficient and beneficial to produce"
Collective Goods: "Security, law, and education"
Mercantilism: "The philosophy that economics and politics are related, that politics should come first, and that economic activity should serve the interests of the state"
Subsidies: "Money given to industries to allow them to comparitively compare to foreign products"
Federalism: "In economic integration there must be at the start a central gov't and lower level political units would retain some powers"
Functionalism: "Opposed to a supranational entity which starts with cooperation from the bottom up"
Neofunctionalism: "Some centralized political institutions, but states retain sovereignty"
Moral Relativists: -argue that moral judgements are just mere opinion concerning which there is no point in arguing"

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Number of cards 86