Political Economy Lectures 8-11
Lecture 8: Late development in the 20th-century
Program
Globalization 2.0
American hegemony: rise, fall, ... resurrection?
Globalization 2.0 across the globe
IMF and the World Bank
America dominated Finance, Trade, and Production
Production: First World War, Americans dominated the assembly line; they had all the
innovations in the chemical, electronical, and car industries, also knew how to organize work
and workers; how to keep stability in the workforce
Trade: dominated trade, especially after the Second World War with setting up the general
agreement on tariffs and trade
How are we gonna allow free trade in the world but in a managed way? In a way that
it benefits American firms
Before the 19th century, trade was strongly connected to colonialism
the British were leading in trade
European integration collapsed during the interwar period
Trade openness dropped during the Great Depression and during the interwar period
1
,Migration, Financial integration and trade openness 1880-1996
Trade and finance go up and down together
Migration went down due to war,
slowly after the second world war started picking up
Production moved to places where the cheap labour was
Globalization 2.0 - The value of global exports
Something to keep in mind when comparing the globalization issues in the 19th
century to the 20th century
We are living in a hyper-globalized world
World is highly connected
On a scale never seen before
How/why is it possible?
→ Decline in transaction costs
Easier to be in contact with people
Completely changed the dynamic of world trade system operates
Linking back to Von Thünen circles: circles become closer and closer because the
transaction costs are going down
Transport costs, costs of communication costs dropped
2
,What is traded?
As a country, you have to decide what to focus on
Kaldorian vs Ricardian strategies
Ricardian: comparative advantage - rested on agricultural exports
based on the photo it doesn’t make sense to focus on agricultural exports
not a very good strategy
If you wanna go down the road of higher prosperity, the wealth of nations, it makes
more sense to pick the Kaldorian strategy
How to do it in a highly globalized system?
Rise of multinational corporations
Have moved from a physical product to information
Meanwhile, in the ‘NON-WEST’
Decolonization
after the second world war
Gerschenkron catch-up; Kaldorian experiments, Verdoorn effects, collective action problems
New independent countries wanted to catch up
Fix the Kaldorian collective action problem
3
, Manage the produces so they could invest in research, development,
training of the workers
They wouldn’t do it themselves because otherwise other companies
would benefit from it
That’s why it’s necessary that the state does it or pushes them to
do it
Creating a workforce that is highly educated
That’s how you create a public good that all the companies can enjoy the benefit of,
creating innovation
They start producing a lot and have the benefits of Verdoornian effects
Gerschenkronian collective action problem - how to force banks but also produces to even
go from comparative advantage to something that is not yet a comparative advantage
being short-sighted
A country that has agricultural products, you exporting that because this is your
comparative advantage but you could maybe process that agricultrual product but that
means investments and you are not sure if it’s gonna pay off in the long run
So you need a state to help you out
Germany, France, US
Cold War Effect
A lot of those investments can be done by the state but they can also be done by foreign
countries
the US could provide some of these investments
Connected to Cold War because you don’t want some countries to fall in the hands of the
former Soviet Union
Domestic capital or foreign borrowing?
What to do if you don’t have the necessary resources?
foreign borrowing was a common practice to avoid Soviet expansion
Latin America
‘Luck’ in timing export products
More or less American support
4
Lecture 8: Late development in the 20th-century
Program
Globalization 2.0
American hegemony: rise, fall, ... resurrection?
Globalization 2.0 across the globe
IMF and the World Bank
America dominated Finance, Trade, and Production
Production: First World War, Americans dominated the assembly line; they had all the
innovations in the chemical, electronical, and car industries, also knew how to organize work
and workers; how to keep stability in the workforce
Trade: dominated trade, especially after the Second World War with setting up the general
agreement on tariffs and trade
How are we gonna allow free trade in the world but in a managed way? In a way that
it benefits American firms
Before the 19th century, trade was strongly connected to colonialism
the British were leading in trade
European integration collapsed during the interwar period
Trade openness dropped during the Great Depression and during the interwar period
1
,Migration, Financial integration and trade openness 1880-1996
Trade and finance go up and down together
Migration went down due to war,
slowly after the second world war started picking up
Production moved to places where the cheap labour was
Globalization 2.0 - The value of global exports
Something to keep in mind when comparing the globalization issues in the 19th
century to the 20th century
We are living in a hyper-globalized world
World is highly connected
On a scale never seen before
How/why is it possible?
→ Decline in transaction costs
Easier to be in contact with people
Completely changed the dynamic of world trade system operates
Linking back to Von Thünen circles: circles become closer and closer because the
transaction costs are going down
Transport costs, costs of communication costs dropped
2
,What is traded?
As a country, you have to decide what to focus on
Kaldorian vs Ricardian strategies
Ricardian: comparative advantage - rested on agricultural exports
based on the photo it doesn’t make sense to focus on agricultural exports
not a very good strategy
If you wanna go down the road of higher prosperity, the wealth of nations, it makes
more sense to pick the Kaldorian strategy
How to do it in a highly globalized system?
Rise of multinational corporations
Have moved from a physical product to information
Meanwhile, in the ‘NON-WEST’
Decolonization
after the second world war
Gerschenkron catch-up; Kaldorian experiments, Verdoorn effects, collective action problems
New independent countries wanted to catch up
Fix the Kaldorian collective action problem
3
, Manage the produces so they could invest in research, development,
training of the workers
They wouldn’t do it themselves because otherwise other companies
would benefit from it
That’s why it’s necessary that the state does it or pushes them to
do it
Creating a workforce that is highly educated
That’s how you create a public good that all the companies can enjoy the benefit of,
creating innovation
They start producing a lot and have the benefits of Verdoornian effects
Gerschenkronian collective action problem - how to force banks but also produces to even
go from comparative advantage to something that is not yet a comparative advantage
being short-sighted
A country that has agricultural products, you exporting that because this is your
comparative advantage but you could maybe process that agricultrual product but that
means investments and you are not sure if it’s gonna pay off in the long run
So you need a state to help you out
Germany, France, US
Cold War Effect
A lot of those investments can be done by the state but they can also be done by foreign
countries
the US could provide some of these investments
Connected to Cold War because you don’t want some countries to fall in the hands of the
former Soviet Union
Domestic capital or foreign borrowing?
What to do if you don’t have the necessary resources?
foreign borrowing was a common practice to avoid Soviet expansion
Latin America
‘Luck’ in timing export products
More or less American support
4
