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,
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

Policies of governments oscillate between these two poles

The key variables:

Whenever capitalism stumbles, Marxism gains attention and

influence
Whenever capitalism recovers and shows its strength,
classical political economy looks more credible

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
countries
OECD
countries,1992

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

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, peoples 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 worlds population) live on less

than $2 a day
The richest 1% of the worlds people receive as much
income as the poorest 57% (UN Human Development
Report 2002, Overview, p.2)
Worlds 3 richest people have assets greater than 48 poorest
countries combined
Millionaires (US$):

Billionaires (US$):

10 mln. people (0.01% of the worlds population)

1,210 people, total wealth - $4.5 trln. (up from $900 bln. 2
years ago, 38% of the worlds 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 competitionand many of
them, as a result, have an ambivalent attitude toward
those of us who didnt 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, todays 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 dont 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 youre going to buy all
this stuff, life starts getting really expensive. If youre going to do the
NetJet thingthis is a service offering fractional aircraft ownership for
those who do not wish to buy outrightand if youre going to have four
houses, and youre going to run the four houses, its 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 20by this, she meant $20 million
a yearis 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 worlds 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
peoples 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 ones
position, and even if globalization may raise everybodys
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-withpolitics-common-in-many-emerging-and-developingnations