URBS 350 Globalization & Basic Economic ConceptsThe Greek Debt CrisisGlobalizationWhat is globalizationInstitutions of GlobalizationThe Big 3Globalization and International TradeUS Trade Deficit w/ China in BillionsWhy GlobalizationAbsolute and Comparative AdvantageGlobalization’s Impact on povertyGlobalization -The goodGlobalization -The badWinners and LosersCompromise?Why Cities?Why Cities?Why Cities?Questions to consider Political SystemsTypes of GovernmentRole of governmentWhy Democracy?Basic Economic ConceptsThe MarketExchange ValuePricesThe “Beach House”CapitalismThe MarketNeedProfitsOpportunity CostOpportunity CostMoneyInflation and DeflationBanksFederal Reserve (the Fed)Legal SystemsSystemic CausationSystemic CausationSystemic Causation - ExampleSystemic Causation – The Housing BubbleHousing BubbleHousing BubbleBasic Measures of incomePer capita incomePer capita income Absolute and Comparative AdvantageAbsolute and Comparative AdvantageMonetary PolicyFiscal PolicyInternational Financial Institutions -World Bank, IMF, WTOIncome Distribution - GINI CoefficientGINIs throughout the world!Redistribution- the goodRedistribution – the badCase Study - IndiaURBS 350 Globalization & Basic Economic Concepts Abhishek TiwariGlobalization • http://youthink.worldbank.org/multimedia/photo-galleries/globalization • http://www.youtube.com/watch?v=FzxGyKyzfP8&feature=related • First Countries, then Corporations, now individuals (Friedman) – http://www.wired.com/wired/archive/13.05/friedman.html?pg=3&topic=friedman&topic_set=What is globalization • “closer integration of the countries and peoples of the world, which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and people (to a lesser extent) across borders” – Joseph StiglitzInstitutions of Globalization • Financiers – Bankers, Fund managers, etc. • IMF, World Bank, WTO – Help maintain economic stability and, hence, aggregate demand (Keynes) • Media • Large corporations • Education institutions •The InternetThe Big 3 • International monetary fund (IMF) – monetary policy, budget deficits, inflation, borrowing • World bank – structural issues, what money is spent on, financial institutions, labor markets, trade policies, provides loans for capital improvement programs • World trade organization (WTO) – replaced GATT, provides trading framework, dispute resolution, can be punitiveGlobalization and International Trade • In 1960s there was no competition from developing countries •The US now has a surplus when looking at only high skilled goods, but a very large deficit which swamps the surplus when looking at low-skill goodsUS Trade Deficit w/ China in Billions -6 -30 -34 -40 -50 -57 -69 -84 -83 -103 -124 -162 -201 -232 -256 -300 -250 -200 -150 -100 -50 0 "1985" "1994" "1995" "1996" "1997" "1998" "1999" "2000" "2001" "2002" "2003" "2004" "2005" "2006" "2007"Why Globalization • Most countries are better off exporting things they are really good at making; and then importing the rest (basis for Comparative Advantage) • “Rising tide of international specialization and investment lifts all boats” • In the long run, globalization is good, though it can cause pain in the short termAbsolute and Comparative Advantage • Absolute advantage - When one region can make a good or a bundle of goods at a lower absolute cost than another region. • Comparative advantage – when one region can make a good or bundle of goods most efficiently compared to all other goods (so there is a reduced opportunity cost for that good compared to other countries). • Need to compare financial cost and opportunity cost—i.e. what a region has to give up to produce a good • Comparative advantage tells us that often its better to trade because one country can make a good so cheaply (efficiently) that it can buy everything elseGlobalization’s Impact on poverty • World Bank estimates that extreme poverty is declining: • Rural poverty declines (1981 – 2001): – 79%  27% (China) – 63% 42% (India) – 55%  11% (Indonesia) – However, absolute number of people in poverty has increased • But globalization may not have been the impetus for some (or the majority) of the reduction in poverty levels (land reform, green revolution, infrastructure expansion, increase in rural-urban migration)Globalization -The good • Helped many countries grow and grow quickly • Reduced isolations – provided access to knowledge • Provided jobs and new types of jobs • People in Mexico have lost jobs in labor intensive manufacturing, though foreign investment had brought new jobs. • In Bangladesh, Vietnam and Cambodia poor women now have jobs in the garment industries – though conditions are hard, they are better than elsewhere • Rewards people for skill, entrepreneurship, and workGlobalization -The bad • Wretched work conditions • Environmental degradation and resource depletion • Loss of jobs everywhere, particularly in more developed countries that loose lower skilled, labor intensive jobs to developing regions • Interdependency  increasing exposure to world markets (so we rise and fall together) • Not reduced poverty nearly enough, and has not ensured stability, especially in AfricaWinners and Losers Winners • Financiers in rich countries (higher returns in emerging markets) • Elites in developing countries (beneficiaries of capital inflows) • Large corporations in developed countries (new markets) • Poor people (some become richer) Losers • Poor people everywhere (rich and poor countries) – Unskilled labor in rich countries suffers as jobs move oversees – the poor in undeveloped countries are the least immune to economic cycles and often work in deplorable conditions • Environment http://youthink.worldbank.org/issues/globalization/Compromise? • Capital Controls – prevent flight of capital out of the country • Reduced protectionism in rich countries (think about US agriculture) • Trust busting the middle man – Coffee cartels • Social programs • Research • Immigration reform, particularly in richer countriesWhy Cities? • Cities are ideally poised to take advantage of globalization, as they increase integration with the world economy • Globalization and the accompanying technological change