Configurig the world – notes

I completed the Coursera course Configuring the World I: Comparative Political Economy in 2016. Here are my notes, where I tried to include the most important facts and relations. Universitet Leiden is ranked 29th in the Shanghai ranking. Einstein and Fermi are alumni. The course was taught by Prof. dr. Richard Griffiths, international studies.

1. Forget your own perspective and try to appreciate the perspectives from other countries, from the other people and the perspective of other philosophies.

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GDP is a measure of country’s income. It emerged after 1945. However, one single number cannot explain everything.

IN 1970’s the economists started counting purchasing power parity, directed by the World Bank.

Factors: population, economic size, per capita income, economic growth, poverty

+ homogenous society, government – how many parties, control over media, tradition and religion, long-term economy performance

SOCIAL CAPITAL = people that we can trust and rely on. The bigger – the better.

TRUST RESULTS and CRITICISM*

Only 11 out of 122 surveyed countries have majority of citizens willing to trust you (Norway, Netherlands, Denmark, Sweden, Finland, New Zealand, Switzerland and Australia, China, Saudi Arabia and Vietnam).

1, they are all one party states with strong continuity in leadership!

  – checks and balances – like on a local level, people have at least some guarantees

2, they are all relatively homogenous!

no big differences – easier to predict the people’s behaviour = easier to trust

– people who share the same circumstances and way of life usually better understand each other that they understand a stranger who arrives from a big city or another country

– in Canada, multiculturalism works quite well (reflected in economic performance) because the migrants are well selected (education and language fluency criteria) and built into the society

3, all societies with strong state control over the media!

– it does not do away with propaganda but the propaganda is at least one-sided.

Negatives: no plurality of opinions. Positives: people do not have choices and trust the party.

 In the past, the people had to trust the king because: they had no other ruler (1), everyone lived in the same way (2), they did not know about the world (3).

The more homogenous the society is in terms of ethnic diversity, economic growth, governance and prosperity, the higher the level of trust.

In high-trust society, people would act on the behalf of the society and not in their own interest.

For example, if you lose your wallet in Japan, you are more likely to have it returned to you.

Economy will work better in societies with high trust: people would postpone immediate consumption and look towards long-term future return. Hence long-term economic performance.

*Based on Pew surveys, where people respond to the question:  “Generally speaking would you say that most people can be trusted or that you need to be very careful in dealing with people?”, using a ten point scale.

High country trust was strongly associated with high household income levels and lower degree of income inequality.

http://www.oecd-ilibrary.org/sites/soc_glance-2011-en/08/01/index.html?itemId=/content/chapter/soc_glance-2011-26-en

POSITIVE correlation occurs when both variables increase or decrease together.

NEGATIVE correlation occurs when one increases and the other one decreases.

GOOD GOVERNANCE

In case of good governance, the state should:

I, – take citizens’ demands into policies – welfare state

– combination of capitalism, democracy and welfare; one of the pillars of Islam in form of Zakat (taxes collected and used for the poor – annual charge of 2.5 percent of income); introduced in Britain by Liberal PM David Lloyd George (NHS, New Deal of F. D. Roosevelt and one-child policy in China

ZAKAT – It is the personal responsibility of each Muslim to ease the economic hardship of others.

II, – provide goods and services efficiently and effectively and should not be part of the provider chain – conflict of interests

In Slovakia: “a business man close to the ruling SMER party is involved in each suspicious procurement, overpriced contract or other affair”

Ex: Teta Anka affair – Chief of the State Insurance Group made deals with a company owned by his aunt. Gorila – recordings of top politicians meeting oligarchs in an intercepted apartment.

III, – make laws and regulations according to the situation and not according to opportunism and favour – no corruption

Governments pass laws that suit them, their lobbies and their affiliate oligarchs. Ex: Selling the emission quota cheaply to a company that sold it to Japan with profit.

After WWII World Bank was created to provide a structural development

1, financial crises in Latin America – IMF linked aid with structural reforms

–           Structural reforms weren´t always beneficial for the target country but the IMF made sure that they help the interests of their affiliates.

2, sociologists argue that the main problem is that of ownership

–           Who owns the resources can impact the legislation, the government will suit their needs – especially when they need money. Governments are dependent on the oligarchs, who indeed hold the power.

3, CORRUPTION AND GROWTH

Lot of money and not power (businessman) often makes a good deal with a lot of power and no money (government official in a poor country).

A Failed state poses three challenges:

for its own citizens, who are deprived of the public goods

for the neighbours that might be caught in a spill-over effect – refugees…

for the international communities, over space where crime and terrorism instils

Doubts: All sources on the Failed State Index are in American or British English: BBC, CIA, CNN, New York Times, National Public Radio…

Three-quarters of the development aid originates from five countries: the UK, the US, Japan, France, Germany. The aid flow is affected by the behaviour of the five big players.

In the 1950s, the largest aid giver were the US, under the Marshall Plan. They provided most of the initial capital for the World Bank. Later they (1) experienced problems with payment balance, (2) too many free African countries lined up for help, (3) Russia entered the stage. US called on the other nations to join them in the UN.

  • The US support the union of Africa but the support is in dollars, to keep the dollar strong. Dollar is the reserve currency for the world (60 percent of all reserves are in dollars).

Reserve currency is currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.

The continued printing of dollar money beyond the backing of gold reserves reduced the value of the currency reserves held by foreign countries. (Because of that the US initiated the Breton-Woods agreement in 1960, which ended the Golden Standard. It enabled them to print dollar freely  Source: Investopedia

OECD set the target for development aid at 0.7 percent of the GDP – still enshrined in the Millennium Development Goals.

John Maynard Keynes was a delegate to the peace conference after WWI. He wrote a book about this bitter experience…He coined wealth upon person – perks of the modern age; either technological and also political. He attempted to define globalization shortly after the WWI – an internationalized world, he called it.

Most globalized countries (index close to 100): Singapore, Ireland, Netherlands and Belgium, Hungary, Finland, Austria, Slovakia, Portugal, the Czech Republic and Denmark.

Following countries are more geographically distributed: Malaysia, N. Zealand, Australia, Canada, Peru…

Italy and France come next – they are open but fond of their history and products.

Argentina, Nepal, Ethiopia and Burundi are the least globalized.

22 of the world’s most 25 most globalized countries were European, while 20 of them were part of the European Union.

Canada has the greatest level of globalization in the G8, with a score of 85

The index measures the three main aspects of globalization: economic, social and political. It considers economic flows and restrictions, personal contact, cultural proximity and information flows.

Impediments to international trade:

Tariffs on import are higher in developing countries and also the West charged 11 percent on agricultural products (East Asia charges 30 on them).

  • Donald Trump wants to impose tariffs on Toyota cars manufactured in Mexico and sipped to the US. Good for the protection of the domestic economy. “Built the factory in the US or pay,” he told Toyota.
  • Tariff is a tax, it adds to the cost of the imported goods.

Reasons: Protecting Domestic Employment, Protecting Consumers , Infant Industries, National Security, Retaliation.

Import quota – limited number, amount of goods that can be transported.

Foreign exchange controls – powerful weapons of trade manipulation. They were introduced when countries come into balance of payment difficulties or have speculative movements of capital.

  • they are powerful weapons of trade manipulation.

On-tariff barriers, in form of technical barriers (minimum safety standards, hygiene regulations against infected food products…)

– import of food is often more complicated that with other goods, the street food sources told me.

Government procurements or purchases – they buy only from domestic producers, arguing to keep the tax revenue at home, boosting output and employment.

Foreign Direct Investment involves the purchase, or expansion, of a business in one country, by a business in a foreign country.

It can involve the purchase of shares, a merger, the establishment of new business facilities, and finally, enlargement of existing foreign business.

!  it does not include the purchase of local or national government bonds.

The OECD threshold of FDI is a minimum 10% ownership stake in a foreign-based company, typically represented for the investor acquiring 10% or more of the ordinary shares or voting shares of a foreign company.

US is the largest owner of the FDI stock in the world, holding almost 22 ( $1.3 trillion.) percent of it. Bu the detailed information is only solicited from firms with a turnover of more than 150 million. From there we slide to less developed countries with bigger holes in administration.

lot of foreign direct investment gets unnoticed or viewed as indirect investment.

HORIZONTAL investment – A car company opens an assembly line abroad.

VERTICAL investment – a drilling company branches into shipping, refining and retail.

TACTICAL investment – firm shifts even the headquarters to profit abroad.

Ex: IKEA with almost 350 stores in 43 countries and earnings of $4 billion, is not based in Sweden, it’s based in the university town in Leiden in the Netherlands.

– example close to where the professor lives

FINANCIAL MARKETS:

1, Bonds – fixed income, fixed term loans.

– size of bond markets in 2013 totalled $22.8 trillion.

2, Equities – ownership of assets, including company stock and shares.

3, Derivates – financial contracts that derive.  Derive – to have something as a source and include insurance against price changes.

– futures, options, swaps.

4, Foreign exchange transactions = buying and selling of currencies.

REAGAN and THATCHER

president_reagan_and_prime_minister_margaret_thatcher_at_camp_david_1986
To understand the modern world and the benefits and dangers of globalization it is good to get familiar with these two names and their politics. Ronald Reagan and Margaret Thatcher had impact on the overall development of the global world since the 1980’s.

RONALD REAGAN

Ronald Reagan was nicknamed “the great communicator”. He was a successful college athlete and started his professional career as a sports news announcer in Iowa.

He was elected the governor of California for Republicans in 1970. He was the oldest person elected US president at 69 in 1980.

Inauguration speech: “government is not the solution to our problems; government is the problem.”

tax cuts to stimulate economy (like Trump)

– increase in military spending

Reagan doctrine – help to anti-communist movements

Won second term 525 out of 538!

– signed removal of nuclear missiles with Gorbachev in 1987

– used to wear strollers – part of semi-formal attire.

The messenger rather than the message

Reagan is described by people who worked for him as a kind, humble, and decent person who was void of meanness and pettiness.

– good communication, simple message & optimism

– valued his wife Nancy

MARGARETH THATCHER

– the first woman to rule rather than merely reign over the British state since Elizabeth I in 1603.

– more admired abroad than at home

– from a working class family but talented enough to get to the Conservative circles at Oxford, where she studied chemistry

– MP for Kent at 23

– married Dennis, an activist & rugby referee, who was very caring = support & ‘warmth’ at home

– privatisation – reselling state property

– deregulation (crisis in 2007?)

–  learned to accept the inevitability of unpopularity.

– – fought against the excessive powers of Brussels (anti-EU)- famous speech in Bruges in 1988 (NO, NO, NO)

– the anti-EU views caused that the people within the Conservative party turned against her

– she indeed supported Britain´s relationship with the continent but with checks and balances – especially on the power of Brussels

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