Class notes
International Business WEEK 3 Formal institutions and international business
- Course
- Institution
Lecture notes to get a first!
[Show more]
Seller
Follow
chilllax
Content preview
WEEK 3 Formal institutions and internationalbusiness
27 September 2022 15:04
LECTURE PART A: FORMAL INSTITUTION AND THE GOLD STANDARD
LECTURE B: Globalisation’s history through formal institutions LECTURE PART C Today’s international institutions NO INTITUTIONS, NO RULES, NO GLOBALI
GLOBALISATION =
- interconnected nature of economic, political, social around globe. WAVES OF GLOBALIZATION Today’s key institutions:
- Driving force of IB 1. European imperialism IMF
SO, WHAT INSTITUTIONS ARE PLAY HERE? World Bank
2. US-dominated tariff reduction and European integration WTO
INSTITUTIONS - THE WORLD BANK 3. Neoliberal deregulation
POST BRETTON WOODS
Institutions can be usefully understood as the ‘rules of the game’ that constrain 4. European single market, collapse of communism, rise of China Bretton Woods established a foundation for the second phase of globalisation through the
establishment of a set of key institutions that created stability
and enable behaviours (North, 1990: 3) The ‘Bretton Woods’ era came to an end in the turbulent 1970s and its institutions have been re-
imagined, re-branded and re-launched in response to the challenges of supporting international trade in
FIRST WAVE: European imperialism the modern (hyperglobal?) era
Formal institutions [this week]: explicit, often state-set rules that govern behaviour
- driven by empire building and imperialism IMF
(e.g. legal systems) and also incentivise certain behaviours (e.g. tax breaks) - International trade was supported by institutions such as the gold
standard Developed out of the idea at Bretton Woods for an International Stabilisation Fund.
Informal institutions [next week]: shared cultural or social norms that function in Two key functions:
SECOND WAVE: US-dominated tariff reduction and European - Regulate the rates at which currencies were exchanged among member countries
integration - Help ensure international stability by making loans to support countries experiencing balance pf
similar ways to shape behaviour (e.g. beliefs, customs)
- Following the two world wars there was an international will to payments crises
establish global institutions (basically, to work together) American designed and led, not an internationally democratic organisation
Rodrik (2011: 14) identifies 3 types of institution that support markets (to reduce
- However, this system was now dominated not by European
‘transaction costs’): important role in surveillance of national economic policies and exercising disciplinary control
imperialism but US global dominance (albeit with USSR and China
- Long-term relationships based on reciprocity and trust
departing)
- Belief systems influence and power exerted through the conditionality for granting loans:
- Trade barriers gradually lifted via GATT, limiting restrictions of
- Third-party enforcement
movement on trade but not capital or labour
- 1957 formation of the European Economic Community (later the EU) • Reducing tariff barriers (which are often in place to protect jobs)
Blends together informal and formal
• Increase interest rates to reduce inflation
NATIONAL FORMAL INSTITUTIONS • Removal of subsidies and shrinking of the state (austerity)
BRETTON WOODS
A dichotomy that is sometimes presented between markets and states All 44 Allied nations met in a US resort town (Bretton Woods) to agree the
(between trade and rules) ‘is false and hides more than it reveals’ (Rodrik, new rules for how the global economy would work after the war 1976: IMF's BIGGEST BAILOUT YET
UK was undergoing a series of crises, forcing the Labour government to request a loan from the
2011: 9) --> SHAPE GLOBAL TRADE
International monetary Fund (IMF) = £3bn
Market exchange cannot work (especially over long distances) without rules Created the World Bank and the International Monetary Fund (IMF) committed to £2.5bn in spending cuts and the selling off of British Petroleum for £0.5bn
Different states have different arrangements for taxation, labour laws, as well as the GATT
• 'developed' nations have avoided the IMF
health and safety standards Between UK & US • focused on poorer, developing and emerging economies
This reflects ‘varieties of capitalism’ (e.g. degree of coordination, emphasis Depended upon the ‘dollar-exchange standard’: the US dollar as a global • substantial political influence and control exerted over these countries by the US and the West
on liberalised markets) currency pegged to gold • creating significant opportunities for international businesseswith e.g. greater welcoming of foreign
private investment amongst the loan conditions
US insisted on a multilateral agreement with no discrimination
ANOTHER THOUGHT Multilateralism achieved through the membership and processes of
negotiation in the new institutions (rather than power/politics, i.e. World Bank
greater voice for smaller nations) Established at Bretton Woods, operates as a development agency BY US
Why might my business want patenting protections to operate IMF focuses on short-term funding (e.g. balance of payments crises), the World Bank focuses on longer
Ensured a balance between international trade liberalisation with term loans (e.g. structural adjustments)
internationally (e.g. the Patent Cooperation Treaty)? national sovereignty and choice targeting particular types of reform, broadly liberalisation and limiting state intervention
- For example, my business is based on an innovative technology and I The longer term nature of the loans to poor countries has implications for repayments
GATT: General Agreement on Tariffs and Trade For example, concerns have been raised that these reforms (and a purely capitalist globalisation
want to start selling my product in different countries generally) lead to greater inequalities, i.e. there may be forms of economic growth but not effective
poverty reduction
- I also want my logo to be internationally recognised The multilateral forum overseeing global trade liberalisation The World Bank has been relatively responsive to criticisms in moving towards greater sustainability
Successive rounds of multilateral negotiation eliminated substantial
numbers of import restrictions and reduced tariffs World trade Organisation (WTO)
However, did not pursue actively globalisation or even free markets BAILOUT
Developed from the GATT
GATT was not great at resolving disputes Core objective: ‘help trade flow smoothly, freely, fairly and predictably!
achieve was a sense of stability, security and equity, facilitating economic
fundamental belief in the benefits of free trade
growth
Expects all nations to pursue a common strategy of low corporate taxation, tight fiscal policy,
deregulation and reduced trade union power
EUROPEAN ECONOMIC COMMUNITY (EEC)
EEC developed out of the European Coal and Steel Community and the Unlike the IMF &WB, voting is not delegated to a board: it is proportionate to share of world
Common Agricultural Policy that had sought to rescue struggling industries trade
192 STATES world intellectual property organization tariff-free, standardised trade stronger than GATT on dispute resolution and enforcement powers, substantially increasing its influence
setting out a common set of rules Trade disputes began to reach into domestic policymaking relating to tax, food safety,
THE GOLD STANDARD ERA
environmental regulations, industrial promotion strategies (though defers to the ILO on labour
refers to the use of gold (or alternative metal) to support the value of a currency Third wave: Neoliberal deregulation
rights)
fix exchange rates where countries determine the value of their currency to a fixed
neoliberal ideas gained prominence under US and UK leadership, producing For example: US v EU on hormones in beef, EU blocking US imports as unsafe
price for gold (and therefore in relation to the value of other currencies)
domestic and international deregulation
US won the dispute on grounds that there was not sufficient scientific evidence to prove this
beef was unsafe
For example: £1 = 113 grains, $1 = 23.22 grains of pure gold involved deregulation of the movement of finance, removing the safeguards
Therefore, £1 = $4.87 (113/23.22) developed at Bretton Woods
‘A no deal Brexit would mean trading under WTO rules’
1870-1913: a gold standard was adopted by an increasing number of countries, EEC
providing an institutional framework for the world’s first ‘truly global economy’ free trade norms, not only within Europe but internationally
(p.348) IF UK NO TRADING TERMS THEN HAVE TO DO THE SAME RULES WITH EVERYONE ELSE
Fourth wave: European single market, collapse of communism, rise
SUMMARY:
This system had clear, universal, non-discretionary rules that minimised of China
transaction costs across national borders There are a lot of international institutions facilitating global trade and international business
(Rodrik, 2011) 1995, WTO replaced GATT, limiting protectionism and state subsidies
They have tended to be US- (and to a degree EU-) dominated and influenced economic policy
Common currencies and regime coordination (institutional arrangements) 2001, China joined the WTO (Russia in 2012)
decrease the transaction costs of trade globally (free trade, privatisation)
Countries on the gold standard trade as much as 60% more with each other than 2004, expiration of the Multi-Fibre Agreement that protected wealthy The influence extends through rules, often attached to conditionality for loans or trading
those who are not economies from cheap clothing and textile imports, stimulating world agreements, but also through negotiation of disputes
(Meissner, 2003) trade
EU developed the European Single Market (further agreed standards
THE GOLD STANDARD etc) with a European Court: ensures the free movement of goods,
capital, services and labour within the EU
Ongoing spread of financial deregulation.
SUMMARY
A focus on formal institutions (the rules of international trade) provides a
different perspective on the history of globalisation
This demonstrates how integral formal institutions are to international
business
There are a range of key formal institutions we can look to which aid and
shape the realisation of international business
SUMMARY
Institutions establish the ‘rules of the game’ and
therefore shape the behaviours of international business
Institutions such as the gold standard were important
elements in the first phase of globalisation
Where there is globalisation there are rules (Rodrik, 2011)
International Business cannot operate without these
formal ‘rules’ in place
LECTURES Page 1
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller chilllax. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R175,02. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now