Global Political

Economy
• Economy – from the Greek word “household” – assets and
activities for production and exchange
• Economics – how to organize production and exchange most
efficiently (minimal cost, maximum gain)
• Political economy (Adam Smith) – “branch of science of a
statesman or legislator” concerned with:
– “providing a plentiful revenue or subsistence for the people”
– “supplying the state or commonwealth with a revenue sufficient
for the public service”
• In other words, political economy is about:
– the role of the state with regard to the economy,
– interactions between political and economic processes, and
– distribution of social power based on property and wealth.
• Global political economy, or international political economy –
the same, applied to the entire world
 Adam Smith (1723-1790)
Key works: “The Theory of Moral Sentiments”,
“The Wealth of Nations”
Classical political economy (Adam Smith, David Ricardo)
• The economy is seen as a complex natural organism
• Human labour is a key source of wealth
• Seeking balance between self-interest and cooperation
• “It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard to
their own interest. We address ourselves, not to their humanity
but to their self-love, and never talk to them of our own
necessities but of their advantages. “ (The Wealth of Nations”)
• Division of labour
• Key role of the market as an integrating force
• Harmony of interests between classes is possible
• Key role of the state in maintaining a market economy
 Karl Marx (1818-1883)
Key works: “Das Kapital”, “The Communist
Manifesto” (with Friedrich Engels)
Marxist political economy
• Market economies are social arrangements created by specific
historical forces
• Private property is a social construct, not something created by
nature
• Workers produce surplus value
• Owners of capital (capitalists) take all or most of it
• Accumulation of capital in the hands of capitalists
• Power is rooted in ownership and control of capital
Impoverishment of workers
• Division of society into classes based on their roles in the
economy and the state
• Struggle between classes for power – for control of the
economy and the state
• Capitalism will inevitably collapse due to its inherent
contradictions
• The two great traditions have determined the bounds of
political-economic thinking since the 19th century
– Whenever capitalism stumbles, Marxism gains attention and
influence
– Whenever capitalism recovers and shows its strength, classical
political economy looks more credible
• Policies of governments oscillate between these two poles
• The key variables:
– ability of the state to correct the inherent flaws of the market
system
– inherent flaws of the state (bureaucracy, waste, concentration of
power, etc.)
• Capitalism continues to exist so long as the state and the market
system complement each other effectively
Globalization
• Capitalism is historically rooted in international trade
• Division of labour on the international scale
• Movement of goods, money, people between countries creates
a global network of economic ties
• A global capitalist economy gradually emerges as a result of
integration of national economies into a single world system
• Key role of states in its creation and development
• First leader – Holland (17th-18th centuries), then - Great Britain
(18th - 19th centuries)
• Challenged by others (France, Germany), displaced by the
United States in the 20th century
The Great Silk Road, 3d century BCE – 15th century CE
Global trade and capital flows, 1400-1800
Global trade in consumer goods
 International trade flows, 28
Trade flows among Western
OECD countries
countries,1992
Underwater Internet cables: see zoomable version at:
http://submarine-cable-map-2015.telegeography.com/
• 19th century globalization led to World War I
• The Great War triggered off the global crisis of capitalism
– The 1917 Russian revolution
– The Great Depression
– The rise of fascism
– World War II
• Challenge to political leaders: restructuring the global system
John Maynard Keynes (1883-1946), main works: “The
Economic Consequences of the Peace”, “General
Theory of Employment, Interest, and Money”
Franklin D. Roosevelt, US President 1933-1945
1944, Bretton Woods, New
Hampshire:
• United Nations Monetary and Financial Conference
• 730 delegates from 44 countries
• 2 global institutions created:
– International Monetary Fund – to coordinate monetary
policies of states and render financial assistance to
governments
– International Bank for Reconstruction and Development
(now called the World Bank) – to help rebuild national
economies on a capitalist basis
• proposed 3d global institution: International Trade Organization
– would be set up as World Trade Organization in 1995
• 1940s-1970s:
• Government regulation of markets, welfare state, a relatively
liberal regime of international economic relations
• Global capitalism was saved by government policies which
regulated the market economy and redistributed wealth
The rise of global capital
Transnational (or multinational) corporations
The first in history was established in 1600 – British East India
Company
There are 63,000 transnational corporations worldwide, with
690,000 foreign affiliates
51 of the world's top 100 economies are corporations
Three quarters of all transnational corporations are based in North
America, Western Europe and Japan
Ninety-nine of the 100 largest transnational corporations are from
the industrialized countries
Royal Dutch Shell's revenues are greater than Venezuela's Gross
Domestic Product. Using this measurement, WalMart is bigger
than Indonesia. General Motors is roughly the same size as
Ireland, New Zealand and Hungary combined
---------------------------------------------
http://www.corpwatch.org/issues/PID.isp?articleid=378
• Success and growth of the global capitalist economy led to
concentration of enormous power in the hands of multinational
corporations
• Global capital was chafing at the limitations imposed on it by
states
• From late 1970s:
• A shift in state policies toward deregulation of business
activities and reduction of taxes on wealth
• “Triumph of freedom”
Milton Friedman (1912-2006), main works:
“Monetary History of the United States”, “Capitalism
and Freedom”
Margaret Thatcher, British PM (1979-1990)
Ronald Reagan, US President 1981-1989
• “The Washington Consensus”, or Neoliberal Orthodoxy –
dominant Western economic ideology since the early 1980s
– Liberalization – maximum possible freedom of market
interactions
– Stabilization – balanced state budgets, limits on government
spending
– Privatization – selling off public enterprizes to private owners
• In sum: changing the balance of power between global capital
and the state
• The Oxfam Davos report, 2016:
• 62 individuals (388 in 2010) now own more wealth than 50
per cent of the world's population. More shockingly, it reports
from its uncontested public sources that this share of wealth
by half of the world's people has collapsed by over 40 per cent
in just the last five years.
• https://www.oxfam.org/en/node/7321
Globalization seen as progress
• Import-export of goods
• Investment of capital in another country to produce goods there
• Creation of international production networks – the world as a
factory
• Removal of obstacles to trade and financial flows
• Migration of workers to seek employment anywhere
• Capital is free to go anywhere to seek a higher rate of profit
• Global division of labour reaches unprecedented scale:
everybody depends on everybody else
Globalization seen as disaster
• Concentration of capital on a global scale accelerates
• Capital acquires global control over production, exchange,
government policies, people’s lives
• Downward pressure on wages
• Global demand for goods and services declines
• Solution: borrow money against future income
• Pyramid of debt grows to stimulate the global economy
• At a certain point, the pyramid collapses – inevitably (see
current affairs)
The global economy: a snapshot
• Global population – 7.3 bln. people
• http://www.poodwaddle.com/clocks/worldclock/
• Global labour force - 3,3 bln. (2010 est.)
• Global GDP - $87 trln. (measured by Purchasing Power Parity, 2013, est.)
• Composition:
– agriculture: 6%
– industry: 31%
– services: 63% (2013 est.)
• Global GDP per capita (PPP) - $13,100
• Household income:
– lowest 10%: 2.8%
– highest 10%: 28.2% (2008 est.)
• Taxes and other revenues:
– 30% of GDP (2013 est.)
• Public debt
– 63.3% of GDP (2013 est.)
• Source: https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html
2.8 bln. people (40% of the world’s population) live on less than $2
a day
The richest 1% of the world’s people receive as much income as
the poorest 57% (UN Human Development Report 2002,
Overview, p.2)
World’s 3 richest people have assets greater than 48 poorest
countries combined
• Millionaires (US$):
– 10 mln. people (0.01% of the world’s population)
• Billionaires (US$):
– 1,210 people, total wealth - $4.5 trln. (up from $900 bln. 2 years
ago, 38% of the world’s GDP)
• 40% - Americans, own 37% of global billionaire wealth
• http://www.forbes.com/wealth/billionaires
Chrystia Freeland, The Rise of the New Global Elite – The
Atlantic, Jan/Feb 2011:
“Our light-speed, globally connected economy has led to the
rise of a new super-elite that consists, to a notable degree, of
first- and second-generation wealth. Its members are
hardworking, highly educated, jet-setting meritocrats who feel
they are the deserving winners of a tough, worldwide economic
competition—and many of them, as a result, have an
ambivalent attitude toward those of us who didn’t succeed so
spectacularly. Perhaps most noteworthy, they are becoming a
transglobal community of peers who have more in common
with one another than with their countrymen back home.
Whether they maintain primary residences in New York or Hong
Kong, Moscow or Mumbai, today’s super-rich are increasingly a
nation unto themselves.” –
http://www.theatlantic.com/magazine/archive/2011/01/the-rise-of-the-new-global-
elite/8343/
• Holly Peterson: “If you look at the original movie Wall Street, it was a
phenomenon where there were men in their 30s and 40s making $2 and $3
million a year, and that was disgusting. But then you had the Internet age,
and then globalization, and you had people in their 30s, through hedge
funds and Goldman Sachs partner jobs, who were making $20, $30, $40
million a year. And there were a lot of them doing it. I think people making
$5 million to $10 million definitely don’t think they are making enough
money.”
• As an example, she described a conversation with a couple at a Manhattan
dinner party: “They started saying, ‘If you’re going to buy all this stuff, life
starts getting really expensive. If you’re going to do the NetJet thing’”—this
is a service offering “fractional aircraft ownership” for those who do not
wish to buy outright—“‘and if you’re going to have four houses, and you’re
going to run the four houses, it’s like you start spending some money.’”
• The clincher, Peterson says, came from the wife: “She turns to me and she
goes, ‘You know, the thing about 20’”—by this, she meant $20 million a
year—“‘is 20 is only 10 after taxes.’ And everyone at the table is nodding.”
• Chrystia Freeland, Op.cit.
• Patrick Wood, independent researcher:
• “There is a relatively small yet diverse group of global players
who have been the planners and instigators behind
globalization for many decades. The primary driving force that
moves this "clique" is greed; the secondary force is the lust for
power. In the case of the academics who are key to globalism, a
third force is professional recognition and acceptance (a subtle
form of egoism and power.)
• It is also important to understand that core globalists have full
understanding of their goals, plans and actions. They are not
dimwitted, ignorant, misinformed or naive.
• The global elite march in three essential columns: Corporate,
Political and Academic. For the sake of clarity, these names will
be used herein to refer to these three groups…
• …In general, the goals for globalism are created by Corporate.
Academic then provides studies and white papers that justify
Corporate's goals. Political sells Academic's arguments to the
public and if necessary, changes laws to accommodate and
facilitate Corporate in getting what it wants.
• An important ancillary player in globalism is the media, which
we will call Press in this report. Press is necessary to filter
Corporate, Academic and Political's communications to the
public. Press is not a fourth column, however, because it's
purpose is merely reflective. However, we will see that Press is
dominated by members of Corporate, Political and Academic
who sit on the various boards of directors of major Press
organizations.” -
http://www.newswithviews.com/Wood/patrick6.htm
•
• The Life of the Super-Rich:
• http://www.youtube.com/watch?v=tFAvvk9gM9U

•
• Global poverty: A crime against humanity?
• http://www.youtube.com/watch?v=GP7wHi3nOEg
The world’s population can be divided into 3 classes
Upper class: 11% (real income higher than the average income in
Italy)
Middle class: 11% (real income between the average income in Italy
and the poverty line, adjusted for purchasing power)
The poor: 78% (real income below the poverty line)
Branko Milanovic, True World Income Distribution, 1988 and 1993: First
Calculations Based on Household Surveys Alone. Economic Journal , Jan.2002
• “When people observe each other and interact, it is no longer
simply a national yardstick that they have in mind when they
compare their incomes with the incomes of others, but an
international or global one. What globalization does is to
increase awareness of other people’s incomes, and therefore,
the perception (knowledge) of inequalities among both the
poor and the rich. If it does so among the poor, then their
aspirations change: they may no longer be satisfied with small
increases in their own real income, if they know that other
people are gaining much more. Therefore, the process of
globalization by itself changes the perception of one’s position,
and even if globalization may raise everybody’s real income, it
could exacerbate, rather than moderate, feelings of
despondency and deprivation among the poor.”*
• *Branko Milanovic. Global Inequality: What It Is and Why It Matters? – DESA
Working Paper No.26, August 2006 -
http://www.un.org/esa/desa/papers/2006/wp26_2006.pdf
Key international organizations dealing with GPE issues:

• The International Monetary Fund (IMF) -

http://www.imf.org/external/index.htm
• The World Bank - http://www.worldbank.org/

• The World Trade Organization (WTO) - http://www.wto.org/

• International Labor Organization (ILO) -

http://www.ilo.org/global/lang--en/index.htm
• United Nations Development Program (UNDP) -
http://www.undp.org/

• Organization for Economic Cooperation and Development (OECD) -

http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.
html
• World Economic Forum (WEF) -
http://www.weforum.org/en/index.htm
• Role of the state – the key issue
• The state is the key intermediary between transnational forces
and citizens
• How does it use its power?
• The state can totally yield to the logic of global capital
• Or it can try to influence its behaviour (tame it) though sticks
and carrots
• Impossible to do on a national scale
• Need for concerted international actions
• Creation of a global political regime (norms, laws, regulations) to
shape corporate behaviour
• Who is defining the terms of this regime?
• Whose interests are shaping it?
• What kinds of interests are they?
• Profit maximization as the driving force of the global economy
• To what degree is this compatible with other human interests?
• Struggle for determination of policies
• Protectionism – predicated on the notion that each country is a
body competing w. other bodies
• But – globalization, interdependence, integration present
obstacles to protectionism
• The global economy needs effective and democratic global
governance
Pew Research global poll:
• Discontent with Politics Common in Many Emerging and
Developing Nations
• http://www.pewglobal.org/2015/02/12/discontent-with-
politics-common-in-many-emerging-and-developing-nations