Benton-Short Unit 3 HG – Flashcards
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| Define and give examples of the 4 sectors of economic activity |
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| primary, secondary, tertiary, quartenary |
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| Primary Sector |
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| activities that take and use the earth’s resources (not exactly the major cause of economic growth, what everyone was doing before 1800) - Agriculture, mining, oil and gas |
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| Secondary Sector |
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| activities that add value to resources/ transform raw materials into finished goods - Manufacturing, processing, power production |
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| Tertiary Sector |
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| Basic Service Industries - Retail sales, hospitality industry, landscaping and lawn care, moving companies, clerical/administrative etc |
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| Quartenary Sector |
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| Processing and disseminating information - White collar service sector - “advanced” services requiring specialized education, training, and skills, - Accounting, marketing, financial advising, legal, education, medical, research, GIS etc etc |
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| Identify trends in economic activity for MDCs and LDCs for the last 30 years |
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| - Post 1950’s most MDCs see a decline in industrial (secondary) economy - Rise in tertiary, quarternary, its rises offsets the decline of the industrial. Like in cities like Detroit, not doing so well - LDCs still primary with increasing secondary sector - Rise of industrial economics in LDCs - Poorest LDCs where primary sector accounts for 40% of GDP |
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| 1st World trends in economic activity |
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| increasing economic equality, like in England, France, US (similar income levels) • Develop common economic policies/institutions (ex IMF, creation of EU, NAFTA, WTO • But growing gap between rich and poor within states (around 80 million living in poverty in US) • More billionaires and more in poverty |
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| 2nd World Trends in economic activity |
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| lost economic ground vs 1st world • No assistance from US • Not as much external infusion/investment • Overspent on military (USSR 15-30% of GNP)→ big strain on economy, big drain by taking money away from other sectors of development, so they didn’t have things like toasters or washing machines while the US was starting to buy these things • Income difference within rich/poor small gap • Now in transition to capitalism • Russia’s economy poor during 1990’s (corrupt years), strong 2004 – 2008 (cause of rising cost of oil) |
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| 3rd World Economic Trends |
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| • Only 15% of global income • Rising gap between 1st and 3rd world o Exceptions: Middle East (has seen its economy grow because of oil, East Asia (Hong Kong, Taiwan, China) • World Bank says 1 billion In DIRE poverty (income below $1 a day) probably higher number though (what about issue of global responsibility o Another 1 billion in poverty (income below $2 a day) o Total of 2 billion in poverty |
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| Explain the role of the World Bank, IMF, GATT in the global economy |
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| Global Economy too big for one country to manage: Economy more independent of political boundaries = Rise of institutions to manage global economy - World Bank (promote development) IMF (handle economic crises) GATT/WTO (set policy for trade) |
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| Define and explain the significance of “commodity dependence” |
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| - an economy that relies on the export of primary commodities (coffee, sugar) for a large share of its export earning and hence economic growth - Sudan: 99% of primary products as % of total exports of merchandise - Algeria: 98% - Nigera: 96% - Yemen: 96% → oil, if oil was gone, yemen would be screwed. |
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| Identify regions of the world where income is highest and those regions where it is lowest |
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| - Highest: Liechtenstein (118,000 per capita), US (460,900) - Lowest: Liberia ($500), DRC ($300) |
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| Explain the reasons why there still exists a significant income gap between MDCs and LDCs (with exceptions, of course) |
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| - Falling world prices for food - Commodity exports of third world to 1st world - Rising world prices for oil, industrial goods - Exports of 1st to 3rd world, while oil plentiful countries prosper, developing countries suffer because they need oil to industrialize and rising oil prices put a strain on their economy - Rapid pop growth in developing countries = GNP divided among more = lower GNP per capita |
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| Transnational Corporation |
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| companies that participate in int’l trade and production across several countries |
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| Foreign Direct Investment |
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| TNC investment in infrastructure (factories, markets) not by govt |
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| Explain why TNCs have had such a transformative role in the global economy |
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| Boosted international trade, as of 2005, 40% of international trade done by TNC’s, development of China, half of FDI takes place in China and India |
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| Discuss the positive and negative impacts of TNCs |
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| - Positive: Eliminates transportation costs by producing in more locales, Avoid barriers against imported goods, Mobile flexible capital |
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| Define and explain the rise of the New International Division of Labor (see Murray) |
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| Arose post WWII and is associated with the internationalization of production and industrialization. Evolved esp in the 60s and 70s as companies looked abroad for cheaper production and more profit. Three things facilitated this shit: developments in transport and communication technology, developments in processing technology that can standardize production and use unskilled labor and the emergence of a world pool of labor. |
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| Describe the reasons for US economic growth PRE 1970s |
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| - End of second world war, coming out of the Great Depression, US came up with Marshall Plan. They wanted to rebuild Europe, make it capitalist. So they managed to do this to most of Western Europe. Then they tried to do this internationally with the creation of the World Bank. After WWII, the US economy “supercharged” itself, saw great economic growth, because they had no competition. Europe is in rubble. - Before 1970: US had trade surpluses (exports more than imports) aka making a lot of money. |
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| Explain why the US has had a general trade deficit for the past several decades |
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| 1971: US imports more than it exports = trade deficit (and US is still in trade deficit) why is this happening? Some argue that other countries have high tariffs and whatnot - Declining wages for poor, working people - Higher profits for corporations/wealthy - Changes in economic sector activity & robustness |
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| Explain the problems that occurs to an economy with a persistent trade deficit |
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| - Declining wages for poor, working people - Higher profits for corporations/wealthy - Changes in economic sector activity & robustness |
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| Define the term “trade liberalization” |
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| Remove restrictive barriers policies in other countries, Tariff’s (taxes) quotas - Known as “trade liberalization” efforts or Neoliberalism |
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| Define “deindustrialization” describe the process of deindustrialization. |
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| - Decline of manufacturing “Deindustrialization” This is has been true in automobile and textile manufacturing. - Result of globalization, mobility of factories to countries where it is cheaper to produce, very temporary, outsource everything, great for boosting other economies but kills the US |
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| Explain where deindustrialization has occurred at national and regional scales |
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| - Regional scale: rustbelt. - National scale: Tigers? |
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| Define the “rustbelt” and the “sunbelt” and explain what has happened in terms of economic and population growth |
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| - Decline in Rustbelt: where old manufacturing heartland used to be, starts around Boston, goes west through Buffalo NY, all the way into Midwest manufacturing belt. And the thing is, those used to be good jobs until the (80’s-ish?) and these jobs have disappeared - Rise in “Sunbelt”: Start in Miami go to California, then up to Seattle. This is the service industry, very high tech field, rise in the service sector. |
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| Discuss the rise of services in MDC economies |
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| Rise in “service sector” in US - Legal, accounting, advertising, retail (but it’s not a replacement issue, ppl who were in manufacturing before can’t necessarily just go into law when they lose their jobs) |
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| Fordism |
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| refers to Henry Ford, who is known for the assembly line. (ok more like having the stuff there and just making it every day) - industrial Manufacturing - Standardization of products - Economies of scale (large volumes)= mass production - Unskilled labor + use of machinery = highly specialized tasks - Strong ties to places |
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| Flexible Specialization |
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| (High tech, niche manufacturing) (making the stuff as it is ordered, meaning it’s easy to change the product) - Small firms especially textiles, furniture, high tech - Locate in industrial districts, like Silicon Valley - Just in time production - Can quickly adapt to changes in demand = flexible - Outsourcing a strategy (think Nike) - Weak ties to places – highly mobile, “footloose” capital |
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| Discuss how the North American Free Trade Agreement reflects the emerging concern for trade liberalization. Describe what NAFTA seeks to do |
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| They work to make free trade (trade of good without tariffs), eliminate barriers to trade and investment between the US, Canada, and Mexico. They eliminated the tariffs on most of the imports from Mexico and exports to Mexico. |
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| Discuss whether Wal-Mart has been good or bad for the US economy |
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| - Largest retailer in US with 347 billion in sales, and now largest company in world - Drives down prices, undercuts manufacturers to get the lowest possible price. Results in low wages, outsourcing, and poor living conditions. Also mitigates the profit which causes low profits for small companies which in turn leads to job loss. It is responsible for the 120 billion trade deficit. Loss of small town businesses, loss of culture |
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| Wal*Mart good for China? |
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| - Overall no. although china gets an increase in employment the corporations keep wages extremely low, so low that they lead to poor living conditions and poverty. They disregard worker’s rights which violate laws and undermines the Chinese legal system. |
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| • Identify the “Asian Tigers” and describe their emergence as newly industrializing LDCs in the 1980s and 1990s. Use statistics to show their economic growth |
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| Japan and Asian Tigers (1960-1997) from about 1970 to 1990, these countries were the most economically robust. • South Korea • Thailand • Singapore • Indonesia • Malaysia • Taiwan • Hong Kong • China (1997-present) • India (1990’s-present) • Japan and East Asian Tigers • Rapid growth and reduced inequality • From 1980 to 1997 these 7 countries account for 40% for all goods produced for LDCS, they were far outperforming the US and Europe, and especially compared to LDC’s countries. • Comparing annual growth rate of per capital GNP 1980-1992, looking at latin American countries, they are growing at negative rates. Looking at Southeast Asia/East Asia they have growth rates of South Korea (8.5%) Hong Kong (5.5%) Singapore (6.0%) etc |
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| Explain the reasons for the success of Japan and the Asian Tigers |
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| o Cultural • Strong Confucian tradition • Belief in hierarchy • Education system (literate population, ppl going to high school, then going to college) • Strong belief in personal Sacrifice • High personal savings going into banks, low consumption o Government Business relationships • Strong state role in economy • Control production (vs market economy) • Result is target and support industries (high tech) o Govt investment o Tariffs on imports (eliminate foreign competition) o Chanel $$ / loans to certain sectors • Protectionist policies by Japan and Asian tigers. • So the reason for success in this area was the reason for decline in US |
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| Detail the protectionist policies of Japan and the Asian Tigers |
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| They are growing because they are protecting their market from US products |
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| Explain why the United States and Europe sought to end Asian protectionist policies |
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| They wanted US companies the chance to invest in China they realized it was full of potential |
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| Discuss the role of Japan in stimulating economic growth in the Asian Tigers and, more recently, in China |
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| Japan exports economic model (and capital) to Asia • Foreign Direct Investment into Asian Tigers stimulates their economic growth • South Korea: 1963 GNP = $100 2002 = $9,800 |
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| Discuss the weaknesses that led to the 1997 Asian financial crisis |
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| Heightened protectionism backfires (By 1980’s/90’s US, Europe pressure for open markets) • Japan’s exports down → inflation • Withdraw of Japanese FDI in Asia |
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| Identify the ways in which China has risen as a new economic power in the global economy; use statistics to show economic growth |
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| • Richly endowed with mineral resources • Early Pattern followed Soviet model • State owned enterprises • Centrally planned • Development was military related • 1979 reforms: • One child policy • Abandoned “collective” approach in agriculture • Change in industrial policy • Permits TNC’s and FDI • Devalues currency to make Chinese exports cheap • Becomes more responsive to global and regional markets • Reforms to economy • China adopts open door policy – 1970’s • Revered hostile attitude toward foreign investment • It offers TNCs: tax incentives, inexpensive labor, large domestic market • China requires TNC’s to SHARE technologies, managerial skills • Development of SPECIAL ECONOMIC ZONES (SEZs) • Note the geographical angle to reforms (they take place within a very small region in the country. Decided to try the experiment but only to a very small area. Can only happen in these areas) • Structure of economy • Agriculture 49% • Industry 22% (but 53% of GDP) • 1994-2004 GDP grows annual by 9.1% • Principal exports • Main export destination: US, Hong Kong, Japan, SK |
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| Define and explain the role of Special Economic Zones |
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| • Special Economic Zones • Five areas in China that function as modern day treaty ports, receiving a substantial amount of foreign investments • Investment from japan, US and Western European countries • Mid 1990’s – 60% of FDI – originated from overseas Chinese living in Hong Kong, Taiwan, Southeast Asia |
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| Explain the role of FDI in China’s growth |
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| US companies take advantage of cheap labour in China, that causes them to invest directly into china to get the cheapest product possible. |
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| Describe the trade relationship between the United States and China |
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| • As China began to grow economically on a large global scale, they had many protectionist policies to keep US goods out of China and therefore protect their economy. In ’83 US has the first trade deficit with China (300 million). In ’99 , 60% of all imports into US are from China. In 2004, US trade deficit with China is 125 billion. By 1970’s China was politically isolated from US and its allies but in 1972 Nixon travelled to China and agreed to recognize communist China, admit it to the UN and make it a permanent member. His initiatives brought an end to China’s decades long political isolation and gave the regime new political legitimacy. So this recognition made it possible for the regime to conduct an active diplomatic policy and secure foreign loans and trade deals that could assist its economic development. |
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| Reasons for China's Success |
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| • In 1970’s and 1980’s, reform in China had three important features. • 1) adopted a strict one child policty • 2) the regime abandoned its collective approach to agriculture and leased public land to farm households for long periods. By giving farmers more control over the land, higher prices, and economic incentives, the regime hoped to increase productivity and grow more food. • 3) the regime borrowed money from abroad to invest in industry, permitted foreign investors to build factories that could produce goods for export, devalued the currency to make these goods cheaper and easier to sell, and allowed Chinese entrepreneurs to set up businesses that could produce goods for sale on domestic markets. • All these allowed the regime to purchase oil and technology and invest in developments that would spur the economic growth |
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| Schaeffer's Criticism of China's success |
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| Also the dictatorship used policies and practices to undercut low wage workers in other countries and successfully attract foreign investment (1. Labor control, 2. Migration 3. Political repression) they basically screwed over South Korea, Mexico, and Taiwan. |
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| Compare and contrast the strategies for economic development in China versus India |
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| • China is driving down costs in manufacturing, while India is driving down costs of services. • India relies on a highly trained workforce that speaks English while China doesn’t. • China: growth: GDP has risen an average of 8% for the past decade compared with India’s 6%. Infrastructure: highways, ports, power secotr and industrial parks are far superior. Foreign Investment: china lures $50 billion plus a year. • India: Language: English gives India a big edge. Capital Markets: private forms have readier access to funding, china favors state sector. Legal System: Contract law and copyright protection are more developed than in China. Demographics: some 53% of India’s population is under age 25 vs 45% in China. |
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| Explain why Latin American countries took out loans |
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| Why seek credit (US thought Latin America was ripe to build, they had lots of resources, US and Europe could identify with them more easily) • Need $ to build infrastructure, houses, factories, school |
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| Describe the global economic context for loans in the early 1970s and contrast that with what emerges by the late 1970s |
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| International Context: late 1960’s, early 1970’s • MDC’s expanding, lots of $ for investment • Banks have $ for investment, makes loans easy • Schaeffer calls these “petro dollars” • The promise of future growth / markets |
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| petro dollars |
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| • During 1970’s, governments and private investors from around the world deposited US dollars and and other hard currencies they had earned in trade with US in Western European banks and in US banks with subsidiaries in Europe, became known as “Eurodollar”. So the money available in this Eurodollar banking pool grew from about $10 billion in 1960 to $110 billion in 1970. After the 1973 OPEC oil embargo sent oil prices soaring, OPEC countries received huge amounts of dollars from industrialized countries in payment from their oil. As money available to Western Banks grew, bank officials searched for a profitable way to invest or loan it and large US banks became particularly active in Latin America. |
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| • Explain how the shifting global context impacts the ability of Latin American countries to pay back loans |
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| • International Context: late 1970s • US/Nixon devalues the dollar (1971) • 1973 OPEC oil embargo • Commodities market down • Exchange rates up • Interest rates up (doubled in 1981( • US raises interest rates • From 7.3% (1973) to 14.2%(1982) • MDC recession • Slowed purchasing • 2) Poor investment decisions • Corrupt dictators • Causes of Debt crisis • Latin America’s debt crises is a combination of decisions to borrow and plans to develop as well as global economic processes over which they had little control (such as a world wide recession) |
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| Identify the countries that have the largest amount of debt |
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| As of 1992, Brazil (121 billion) Mexico (113 billion) Argentina (67 billion) |
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| Identify the countries that have the largest amount of debt |
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| As of 1992, Brazil (121 billion) Mexico (113 billion) Argentina (67 billion) |
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| Explain why growth in export revenues did not generate sufficient economic growth to repay debt |
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| Because they couldn’t pay the interest, because as a result of the debt spiral, interests just keeps rising, and whatever money they made in export revenues was being used to pay off the debt they already had. |
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| Define the “debt spiral” and explain what this means |
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| • 1980 – 1995 economies still heavily in debt • Taking out new loans to help pay interest on old debts • Why? To stay “credit worthy” • Why stay “credit worthy?” • For future credit |
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| Explain why a country would want to remain credit worthy |
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| So for the future they won’t have bad credit. |
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| Discuss what is meant by the term “Lost Decades” |
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| • Many LDCs pushed off “Road to Development” • Economic Growth without “Development” • GDP up, interest rates stabilize, BUT social, demographic factors worsen. For example, infant mortality during this time went up, did not move forward in terms of health care, individual increases in income etc etc |
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| Explain what is meant by the term “economic growth without development” |
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| • GDP up, interest rates stabilize, BUT social, demographic factors worsen. For example, infant mortality during this time went up, did not move forward in terms of health care, individual increases in income etc etc |
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| Explain the role of the IMF in the debt crisis |
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| Stages of Recovery (IMF did this, they essentially rescheduled their debt payments and whatnot) • 1) stabilization • Lower inflation • Lower deficit • 2) Structural Adjustment Program: reform economies and reschedule debt payments |
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| Define and explain the objectives of Structural Adjustment Programs as implemented in Latin America |
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| Free Market Philosophy • Less state intervention • Eliminates subsidies, tariffs • Privatize RR, electricity, phones • Reduce corruption and nepotism • Less regulation • Encourage private sector • Less govt spending • In order to obtain foreign currency, govs usually spend less on health, education, and social services, devalue the national currency (lowering export earnings) cut back on food subsidies, cut jobs and wages in public industries. • Less $$ for social programs/public expenditures • Positive stuff: More private sector and foreign trade • Problem: macro-level gains (GDP, FDI, BUT • Micro Level pains (social/environmental loses) |
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| • Discuss the positive and negative impacts of structural adjustment programs and be able to provide an example |
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| • SAPs example: Bolivia • Economic Positives: • Inflation • 23,000% in 1985 • 66% in ‘86 • Negatives costs in Bolivia • Falling wages • Rising inequality • Massive rural poverty • Malnutrition increasing • Tuberculosis increasing • Infant mortality increasing • Educational attainment declining • Growing drug trade |
