Recession : How has global economy been behaved since the 2008 crisis ? Part 2 (Sulema Cabral M00579784)

The Welfare State

It was not until after the Second World War that the Welfare state took its mature form. It is safe to say that before becoming the actual Welfare State, its first attempt was the Poor Law. The Poor Law defended the support to poor people, back in 1815. This law affirmed that each parish had to look after its own poor and that people in need and unable to work should be given money in order to survive. However, the cost of the Poor Law was increasing year after year.  Around 1830, the cost had increased extraordinarily, and consequently, its criticism started. It was criticised in terms of encouraging people not to work and to have children that they could not afford to take care of, as they were getting not enough money, provided by the middle and upper classes. So in 1834 the Poor Law Amendment was designed to reduce the cost of looking after the poor, by stopping money going to them, exceptionally in specific conditions but people did not react well to it for many reasons. As a result of collective discontentment, riots and attacks to workhouses were organised by the population and anti-poor law committees were set up. Such consequences led to the decline of that law. Followed by its crash, the Beveridge Report of 1942 intended to rectify the weaknesses of the previous. The Report was seen as the cornerstone of the welfare state because the foundations for the modern welfare state were laid by the same. This means that, with the collateral damages caused by the war, a lot of people were left in miserable living conditions and the United Kingdom was deprived and poor, encountering itself in a state of sheer devastation where a lot of work was required to re-raise it. In an atmosphere of relief after the war, a climate diffused with an idealism for a new, more just society, welfare legislation had bipartisan support. There was definitely a clear sense of rebuilding a better Britain. Hence, facing the situation and with the task of finding solutions to make it happen, Beveridge sets out a plan to rebuild the nation and proposes a more comprehensive system of social insurance. He then identifies five issues that needed to be tackled in order to initialize the process of reconstruction: disease, poverty, ignorance, squalor and unemployment. The Report remained at the core of social security system for a quite long time until gradually starting to erode. As an insurance scheme it failed to cover many contingencies, therefore it was unable to adequately respond to the social needs it was supposed to deal with. Finally, the Welfare State emerges in the years of 1945 to 1950, and although it built on the services that had existed before the war, it was a radical departure from the previous system. Its development is closely related to the process of industrialization and the social problems generated from it. Furthermore, one of the main causes that precipitated the implementation of Welfare States around the world was the crisis of Neoliberalism. As Neoliberalism defended free market and non-intervention of the state in productive activities, a set of issues started to raise and prejudicing the economy. So in a response to the crisis of the early twentieth century, of which the First World War and the economic depression of 1929 were a symptom, the ideology of welfare state is to put into action certain social measures that basically would benefit everyone in society, as it believed that the well-being of a nation, entirely and not individually (as in Neoliberalism that defended privatization), would promote economic growth and therefore end recession. Its origins are also linked up to the growing tension and social conflicts generated by the “liberal” capitalist economy.The proposals of the new system were the promotion of social security, National Health Service, free education, council housing and full employment. It is a system whereby the state undertakes to protect the health and well-being of its citizens, especially those in financial or social needs, by means of grants, pensions, loans and other benefits. Here, the state interference is allowed to provide these social services, paid by taxes. Aiming to fight the social inequalities caused by the war and looking forward the end of economic crisis, the system of welfare state is a state perspective for the social and economic field. Therefore, in this view, the state is the agent that promotes and organizes social and economic life, providing individuals with essential goods and services throughout their lives. The welfare state brought a set of benefits to society in general as it helped reduce poverty. In terms of Social security, this system promotes the support to families in need and with more than one child, providing a specific amount of money to them, weekly. Unemployed people were getting paid for at least six months, and were still getting paid in case of sickness. Regarding health, the NHS was introduced where health services were no longer private but free to everyone. This is in general something with extreme importance as it contributed to reduce social segregation, where only the most privileged ones had the facility to afford health services whereas the poor were exposed to death due to more serious illnesses, resulting from the inequality of wealth between the two classes, rich and poor. Moreover, the welfare state not only directly affected individuals but also indirectly affects the nation as whole through improving the health of the country. When it comes to Education, the majority of the proposals of the welfare within the 1944 Education Act, were assumed to be accomplished since the positive impacts on society had clearly become present. Citizens become more educated and therefore able to get better jobs, which in turn strengthened the economy as it made it grow by decreasing unemployment and having more money to invest. Differently from the war times, the employment rate had risen and less people were depending on the government. Council Housing was another welfare measure that contributed to a more equilibrated society where more houses were built reducing the homeless rate and providing good housing and care for all children deprived of living normal home lives.

Through its comprehensive system of social insurance, the welfare state impacted the economy positively as it secured economic growth that was noticed for a specific period. Furthermore, beyond promoting a well-being society and reducing social inequalities, it provided the infrastructure to support and develop intangible assets of individuals that could be potentially used in the creation of economic value, in the form of a strong workforce supplied by necessary skills demanded in the modern knowledge economy.  From the 1950s to 1980s, the states of the leading countries in the global economy remained with the welfare state system. The severe effects of the wars and Great Depression were reversed, and poverty was significantly reduced, in general. To support such assumption, there is the example of the USA where poverty rate fell to 12% in the early 70s. In Europe, similar situations came into evidence too. In fact, Denmark, which adopted the same system, is considered to be one of the happiest countries in the world due to its well-being as a country, provided by the welfare. ‘It’s the goods! All the yearnings, hopes, dreams and theories of socialists for the past half century have been crystallised into a practical economic formula. Equity for the “lowest common denominator” I was staggered by its comprehension” (Insurance clerk, Newport).

Regardless of how beneficial to the nations, and its engagement to fulfil certain social needs, the welfare state did not seem to accomplish its goals effectively. From the 80s onwards, several countries went through strong economic crisis, feeling the urgent need of a reformulation of macroeconomic policies in force and also Europe is an example as it “provided broad based welfare for its citizens but were struggling with relative high levels of unemployment” (Palgrave Macmillan, Global Political Economy, page91) at this time. Thus, governments realized that welfare was unable to lift people out of poverty, as it unintentionally sought dependency within societies where individuals were growing accustomed to living a facilitated life by the welfare and having benefits. The underclass was then refusing to work and abusing the benefits system. As a result of these events, the welfare state become an impossible economic burden.

 

 

 

Bibliography

 

Anon, (2017). [online] Available at: Whttps://www.theguardian.com/news/2017/sep/21/why-we-need-the-welfare-state-more-than-everelfare Economics https://www.investopedia.com/terms/w/welfare_economics.asp#ixzz519JfECx4 [Accessed 13 Dec. 2017].

Anon, (2017). [online] Available at: http://Social Insurance and Allied Servies (The Beveridge Report) William Beveridge, (Cmd 6404), HMSO [Accessed 13 Dec. 2017].

Bbc.co.uk. (2017). BBC – GCSE Bitesize – The Welfare State. [Online] Available at: http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/britain/welfarestaterev2.shtml [Accessed 13 Dec. 2017].

O’Brien, R. (2016). Global political economy. [Place of publication not identified]: Palgrave Macmillan.

OpenLearn. (2017). Birth of the welfare state. [online] Available at: http://www.open.edu/openlearn/history-the-arts/history/history-science-technology-and-medicine/history-medicine/birth-the-welfare-state [Accessed 13 Dec. 2017].

Pdfs.semanticscholar.org. (2017). Cite a Website – Cite This For Me. [online] Available at: https://pdfs.semanticscholar.org/3d75/a3de7a65c63eb0a85ed13e3e57066c2e02f8.pdf [Accessed 13 Dec. 2017].

 

 

 

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Impacts of Unequal Wealth Distribution (Nilton Da Silva M00572364)

The World where we live on when it comes essentially to wealth distribution it is far from being fair world. Men like Bill Gates, Warren Buffet and Jeff Bezos have their personal net worth higher than many under develop and developed countries GDP. Bill Gates, one of the world richest man, has an estimated net worth of 90.2 Billion USD, which make him richer than 140 world countries, according to Forbes. He’s on top of the list of that “1% of people who have as much wealth as the rest of the world combined” (Oxfam, 2016). These date shows how the wealthy is bad distributed throughout the world, generating inequalities and absolute poverty in different parts of the world. International organizations such as UN and World Bank have committed themselves to eradicating poverty, therefore tackling inequalities in wealth distribution become a matter of utmost importance since it is one the real cause of poverty. The Goal 10 of United Nations Sustainable Development Goals, Reduce inequality within and among countries, shows their commitment with this issue. However, there is still long to way to go since according to their reports “income inequality between countries may have been reduced, inequality within countries has risen” (UN).

 

Although in some countries the situation is more critical, the inequality in the wealth distribution is common issue to all countries. The following shows us that wealth is not well distributed, since the third world are the most affected by poverty. On a global basis, for instance, the so-called Third World, which houses 80 percent of the world’s 6.6 billion people and accounts for 60 percent of the planet’s land area, faces poverty that is far more severe and more extensive than people in the First World can imagine” (Taylor and Francis – Contemporary Society page180) .The Gini index is measure that allows us to find out which are the countries in best and worst positions in terms of wealth distribution. According to CIA the countries with worst Gini are Lesotho, South Africa and Central African Republic, all these are countries are situated in Africa, which make this continent the worst in terms of wealth distribution. The link below show how the world countries are ranked in terms of Gini. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

This disadvantageous situation of Africa in terms of Gini is result of nepotism, corruption, poor transparency in the use of public funds, problems related to armed conflict but essentially is result of the underdevelopment, constant exploitation of African continent by the colonial masters and systematic interference in African affairs. All these factors prevent Africa from draw their own path towards development.

As previously stated unequal distribution of income is global issue, where even the richest countries are victims. The US is the world richest country with 18.57 trillion USD (2016) but in terms of Gini is the number 40, in what wealth distribution concerns the US is one of 40 worst countries. According to CNN, The richest 1% of families controlled a record-high 38.6% of the country’s wealth in 2016, while the bottom 90% hold just 22,8% of the wealth, this data helps to explain why American Gini it is so high. However, this such high Gini coefficient is result of American economic and social policies. When we analyse American safety net and welfare system we observe that is weaker than others western industrialized countries, when the welfare system is weak or inexistent people with low income are more likely to fall in poverty situations. The American taxation system also plays a negative role on unequal distribution of Wealth, since American workers pay twice as much in taxes as wealthy investors, according to Ben Steverman (Bloomberg Politics). The link below shows that US taxes rich people less when comparing to other western nations.

https://www.newyorker.com/news/john-cassidy/american-inequality-in-six-charts

The inequalities in terms of wealth is not recent issue but it has been increasing with Globalisation. Free trade, free movement of people and capital are founding principles of Globalization, these ideals brought intense competition between people and countries. The countries that are more technologically advanced and industrialized are taking advantage of those that are not so well prepared, hence increase the gap in terms of wealth distribution.

The unequal wealth distribution is not morally fair and is certainly one of the main causes of poverty. To eradicate poverty as UN intend to do, it is necessary a redistribution of the wealth. Global Policies that force multinationals and wealthy investors to pay more taxes could be a milestone to a more equal word in terms of income distribution.

 

References

(2017). American Inequality in Six Charts. [Online] The New Yorker. Available at: https://www.newyorker.com/news/john-cassidy/american-inequality-in-six-charts [Accessed 13 Dec. 2017].

BBC News. (2017). How US welfare compares around the globe. [Online] Available at: http://www.bbc.co.uk/news/world-us-canada-37159686 [Accessed 13 Dec. 2017].

BBC News. (2017). Wealth of top 1% ‘equal to other 99%’. [Online] Available at: http://www.bbc.co.uk/news/business-35339475 [Accessed 13 Dec. 2017].

Bourguignon, F. (2017). Inequality and Globalization. [Online] Foreign Affairs. Available at: https://www.foreignaffairs.com/articles/2015-12-14/inequality-and-globalization [Accessed 13 Dec. 2017].

Cia.gov. (2017). The World Factbook — Central Intelligence Agency. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html [Accessed 13 Dec. 2017].

Data.worldbank.org. (2017). GDP (current US$) | Data. [Online] Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD [Accessed 13 Dec. 2017].

Egan, M. (2017). Record inequality: The top 1% controls 38.6% of America’s wealth. [Online] CNNMoney. Available at: http://money.cnn.com/2017/09/27/news/economy/inequality-record-top-1-percent-wealth/index.html [Accessed 13 Dec. 2017].

Forbes.com. (2017). Forbes Welcome. [Online] Available at: https://www.forbes.com/billionaires/#24107e62251c [Accessed 13 Dec. 2017].

Perry, J. and Perry, E. (n.d.). Contemporary Society. 13th ed. Taylor and Francis, pp.180-181.

Steverman, M. (2017). Why American Workers Pay Twice as Much in Taxes as Wealthy Investors. [Online] Bloomberg.com. Available at: https://www.bloomberg.com/news/features/2017-09-12/why-american-workers-pay-twice-as-much-in-taxes-as-wealthy-investors [Accessed 13 Dec. 2017].

Sustainabledevelopment.un.org. (2017). Sustainable Development Goals. Sustainable Development Knowledge Platform. [Online] Available at: https://sustainabledevelopment.un.org/?menu=1300 [Accessed 13 Dec. 2017].

World Bank. (2017). Theorist Eric Maskin: Globalization Is Increasing Inequality. [Online] Available at: http://www.worldbank.org/en/news/feature/2014/06/23/theorist-eric-maskin-globalization-is-increasing-inequality [Accessed 13 Dec. 2017].

 

 

 

 

Britain’s Industrial revolution was for the price of Indian lives.

England, UK — A political cartoon portraying the Governor General of India, Earl Charles Canning patronising a small Sepoy soldier at the time of their 1857 Indian mutiny, protesting about British colonial rule in India. — Image by © Hulton-Deutsch Collection/CORBIS

‘The British conquest of India was the invasion and destruction of a high civilisation by a trading company the British EIC (East India company), utterly without scruple or principle, careless of art and greed of gain, over running with fire and sword a country temporarily disordered and helpless, bribing and murdering, annexing and stealing, and the beginning that career of illegal and ‘legal’ plunder which has now (1930), gone on ruthlessly for one hundred and seventy –three years’(THAROOR,2017). – Will Durant American Historian and Philosopher.

As we are approaching the seventy-first anniversary of Indian independence from the British Empire, it’s imperative that we remind ourselves that much of the industrial luxuries we are enjoying today in Britain are due to the exploitation of the India and yet, we remain completely unaware. British colonialism in India was a distinctive form of imperialism which resulted in the British control of the India military, politics and most importantly, the economy. The colonisation of India was ultimately known as the British Raj. Although it would be enlightening to cover all aspects of the economic atrocities that was committed against India in this blog, rather the display of the before and aftermath effects of India deindustrialisation by the British Empire, will be explored.

What was the status of the Indian economy pre-colonial?
The Indian pre-colonial economy, was regarded as the golden era of prosperity for India, which was during the Mughal Empire. The Mughal Empire covered from the city of Kabul, Afghanistan, to Bangladesh; covering an estimate of 145,000 acres of land (Mughal Britannica,2017). By the end of the 16th century, the Indian share of the world was equivalent to that of all the European economy. Emperor Aurangzeb who was the exchequer, disclosed an annual revenue of more than hundred million compared to Britain, which was totalled at £16 million (Mughal Britannica,2017).

How could small little Britain take control of such a large empire?
It all initiated when the infamous East Indian company came into trade in the 1600s(Gurcharandas.org,2017) for profitable means; ironically, this was permitted by the exchequer, Emperor Jahangir (talk about axing your own feet). Much after these events, the days of Indian economic affluence and wealth, came crashing down; harder than a full-blown heavyweight would. As the East India Company began expanding, the company started to create ‘outposts’ and ‘factories’ in the need of defending its premises, which included recruitment. As the EIC was growing, they started taking over many Indian principalities and started to become influential up until the year 1857. By then, the EIC had taken over all of India’s domains, which resulted in the company presiding and deterring over 200 million (Tharoor,2017) people in social, political and economic life.

What type of de-industrialisation of India took place?

The major factor that helped British industrial revolution was based on the Indian textile exploitation. The British systematically destroyed and exploited Indian textile market right down to the core, by swapping Indian textiles with British ones. The value of textiles at that time, was estimated at 16 million rupees annually (History of Indian Economy,2017). During the British era, Britain stopped paying for textiles and silks and drastically pushed prices lower to unimaginable prices. Another factor that helped Britain’s revolution, was the Indian cotton market. India was known to their cotton production, which was a mainly concentrated towards the Bengal region. However, when the British conquered, many raw cotton materials were exported and flooded to Britain leaving the Indian economy to dust. The master weavers soon become beggars. The merciless exploitation of India under British colonial rule, subjected the Indian population to frequent famines, especially to the Bengal famine where an estimated number of 2.1 million people died (Oppenheim,2017). This also resulted in India having one of the world’s lowest life expectancies. By putting everything into context, India share of the world’s economy, went down from 27% to 3% in 1950 (History of Indian Economy, 2017).

There is an old phrase which reads as, ‘the empire on which the sun never set’(Thiel,2017). Perhaps after reading this, you might think that even God didn’t trust the British in the dark. Apart from all the sly digs; it is quite sad that many aspects of our life that are linked with industrialisation, came from the price of the suffering of many Indians. In today’s generation, many people are unaware of the exploitation that took place in India and for those who do know, are too guilty to confront the past it is.

Bibliography:

Encyclopedia Britannica. (2017). Mughal dynasty | India [1526-1857]. [online] Available at: https://www.britannica.com/topic/Mughal-dynasty [Accessed 13 Dec. 2017].
Gurcharandas.org. (2017). India: How a rich nation became poor and will be rich again | Gurcharan Das. [online] Available at: https://gurcharandas.org/rich-nation-poor [Accessed 13 Dec. 2017].
History of Indian Economy. (2017). India: PDF, pp.2-4.
Oppenheim, M. (2017). Winston Churchill is no better than Hitler, says Indian MP. [online] The Independent. Available at: http://www.independent.co.uk/news/world/world-history/winston-churchill-adolf-hitler-no-better-shashi-tharoor-indian-politician-post-colonialist-author-a7641681.html [Accessed 13 Dec. 2017].
THAROOR, S. (2017). INGLORIOUS EMPIRE. [S.l.]: SCRIBE PUBLICATIONS, pp.13-14.
Thiel, N. (2017). Who said, “The sun never sets on the British Empire?”. [online] Americainwarandpeace.blogspot.co.uk. Available at: http://americainwarandpeace.blogspot.co.uk/2009/09/who-said-sun-never-sets-on-british.html [Accessed 13 Dec. 2017].

 

SAJID KHAN (M00483671) Hendon Campus

How Can We Solve the problem of global inequality?- JoEllen Slatter (M00643735)

It’s no secret that global inequality is a huge problem, that affects global development for the future. The world’s wealthiest individuals, total only 8.6 percent of the global population but own 85.6 percent of global wealth, most of those individuals come from only a few countries, and most of the world lives on less than $2 per day. However, no matter how big it is, every problem should have some sort of solution.

But, is there a practical solution to global economic inequality, or are we just chasing a dream that can never be reached?

One possible solution would be for countries, like the United States, to provide more humanitarian aid to poorer LDCs. By having more developed countries helping lesser developed countries, the LDCs may be able to dedicate more time and resources to other issues that country may face. Humanitarian aid may also help countries to be more independent when natural disasters hit the country. By having some financial stability through aid, LDCs can afford preventative care before natural disasters that could destroy the country.

In 2014, the world spent around  £12.93bn in international humanitarian aid as a result of the humanitarian crisis in Central African Republic . Which accounted for around 2.5% of its total GDP. (Federal Reserve Bank, 2017)

But with 2.5% of the countries GDP coming from international humanitarian aid, one would think that the aid would help ease some of the inequality. Then why doesn’t it? According to a survey conducted by the United Nations, some people believe that Foreign aid does not go to the people because of corruption that the governments that receive the aid have.
Opponents of this policy argue that in most cases, help fails to reach the right people who are really in need of assistance. There are poor countries with corrupt officials who use the fund for themselves and that little or no aid is given to the poorest members of the communities. They also say that this can even stir and encourage corruption in these countries.(UN, 1999)

Without this aid going to actually help the people who need it, this “solution” only furthers the gap between the rich and poor. That is only a way to make the problem of global inequality worsen!

So, if humanitarian aid won’t work to reduce global economic inequality, a global tax might! In an argument made by French economist, Thomas Piketty, a global taxation on the world’s wealthiest would bring down global economic inequality. In his book, Capital in the Twenty-First Century, Piketty explains that “there needs to be more global cooperation between countries about cross-border financial assets so that there is an equitable tax system that allows governments to invest in infrastructure and education.” (Piketty, 2013)

However, a global taxation on wealth has the potential to be problematic for multiple reasons!

First, who would enforce the taxation? The Internal Revenue Service is in charge of overseeing taxes in American, would an international institution, like the United Nations oversee this tax? Who would determine what the rates would be?  Who would the wealthiest even pay to?

Even if the logistics are solved, the second problem that this theory brings is it wouldn’t even work!

The major concern with a global tax plan is that billionaires could easily liquidate their assets so there wealth would not be seen as high as it is, and therefore, they would get away with paying less. Another problem with a wealth tax would be, “stock is going to be taxed at these high rates, there by depressing the value of stocks in the market. Which might make it look like wealth inequality has reduced but it hasn’t actually changed the access to economic or political power in any manner.” (Worstall, 2017)

So, is there a solution to global inequality, or is it just something we can “appear” to solve without making any real change?

Well, according to a New Republic, an American liberal publication, the key to solving economic inequality is migration and Remittance!  gpe blog 4

Their theory suggests that If you give $4,000 to someone who earns only $1,000, that person’s income increases fivefold, dramatically reducing inequality. In fact, increasing the income of a truly poor person in a poor country by a factor of five is precisely what would allow her access to the basic goods, like education and health, that are the empty promises of human rights treaties! (Posner, Weyl,

Sources:

 

 

 

LET’S HAVE A LOOK AT GLOBALISATION. (RAMYAA MOHAN)

Globalisation can be described as the ‘integration of economies, industries, markets, cultures and policy-making around the world’. It is a process whereby regional and national economies, cultures and societies have all integrated through the means of a global network of transportation, trade, immigration and communication. Previously, the primary focus of globalisation was on the economic aspect of the world, e.g. trade and foreign direct investment (FDI). However, as of more recent times, we have seen an increase in expansion to incorporate a wider range of areas, such as the media, technology and even biological issues such as climate change.

Over the years, we have seen a few waves of globalisation. The first wave was observed between the 1870s and the First World War. During this period of time, there were technological breakthroughs in coal, steam, iron and steel, transnational railways and transcontinental shipbuilding as the UK was being challenged by America and Germany. The second wave took place between the Second World War and the 1980s. The world experienced a Mass Production revolution. It was very much based on being a ‘consumer’s society’, and looked at improving universal electricity, cheap oil, cheap suburban housing, plastics and automobiles. Income distribution was looked after by the use of the welfare state, public employment and public procurement. Even capitalists supported this compromise and the tax implications that came with it as the national market was their guaranteed demand space, meaning that wages were seen as a source of demand as well as a cost.

The first and second waves comprised of very minute integration between national economies. Most manufacturing companies opted to stay put in one country and produced mostly just finished goodson the international market. The main difference that was seen from the first to second wave was the growth of international trade – intra industry. For example, France would sell cars to Germany and Germany would sell cars to France. Over the second wave, the financial globalisation began. In the beginning of the 1970s, fixed exchange-rates were abandoned and the Bretton Woods agreement was put into place instead. There was also the oil price hike by the Organisation of the Petroleum Exporting Countries (OPEC) in 1973. This led to a huge trade-deficit in oil-importing countries including the US.

The third wave came about between 1980 and 2000. It was mainly commanded by the US thanks to their continuous breakthroughs in Information Technologies. This enabled Western multinationals to outsource manufacturing and services by using cheap labour. It really started to intensify at the end of the Cold War and at the collapse of the socialist economic system. Countries like India also started to embrace the idea of a capitalist world economy. Presently, we are in the fourth wave, which supposedly started in 2000. It really is just very similar to the third wave by Western countries now enthusiastically look to China as the favoured production site for many manufactured goods. By the 2000s, Apple, Dell and other electronic companies claimed to have one employee in America for every ten that they have producing goods in China.

As ideal as globalisation may seem, there are still some fundamental challenges posed – global markets are constitutionally dis-equalising, which in turn makes inequality in developing countries rise rapidly. For a start, economic gains that are affiliated with global markets are not shared equally. Essentially, markets do benefit those who have the correct assets such as entrepreneurial skills or human capital. In the global economy today, one of the most powerful assets for one to have is education.Picture4.png

The graph above shows the Relative returns to different levels of education in 18 different countries inLatin America. Evidently, returns to higher education is growing at a faster rate than the returns to lower levels of education. The worldwide demand for skills has been increased more than the supply due to new practices such as global technology, especially including the internet. Examples of countries experiencing this are India and China. Patterns like these increase inequality across countries as it inspires more skilled workers to emigrate – who are likely to leave the poorest countries as they are unlikely to exhibit and make use of their skills effectively.

We have also seen some individual countries entering the picture of globalisation but with the incorrect assets. Countries such as Uganda are highly reliant on primary commodity exports such as coffee, tea and oil. They have most definitely participated in globalisation, as their trade ratios have become higher than they were two decades ago. In addition to this, ‘they have reduced their tariffs against imports to rates comparable to their developing country counterparts’. However, the global price of their main exports has fallen dramatically in comparison to manufacturing prices, and ultimately lost out – lacking in growth. Owing to the fact that they have a poor political and economic institution in order to create a steady and dependable policy, they have not been able to successfully draw interest from private investment that would have allowed them to expand.

Globalisation has had a remarkable effect on international investors, especially on trade issues that may affect a country’s relationship with globalisation. For example, US President Donald Trump has adopted a protectionist outlook when it comes to free trade under agreements like the North American Free Trade Agreement (NAFTA).

BIBLIOGRAPHY

Tradingeconomics.com. (2017). Uganda Exports | 1993-2017 | Data | Chart | Calendar | Forecast | News. [online] Available at: https://tradingeconomics.com/uganda/exports [Accessed 5 Dec. 2017].

Ravenhill, J. (2017). Global Political Economy. 5th ed. Oxford University

The Balance. (2017). Globalization: Good or Bad for Developed Countries?. [online] Available at: https://www.thebalance.com/globalization-good-or-bad-for-developed-countries-4011193 [Accessed 6 Dec. 2017].

Economic Interdependence? Understand the Greek crisis domino effect on global economy. (Allisson Andrade – M00610018)

Since the 1950’s, worlds economic has become much more connected as a result of globalisation. The integration of the world economy is one of the leading factors responsible for the constitution of the various economic blocs in different parts of the globe. Its existence is in the best interest of multinational companies since there will be greater liberalisation of the world market, mainly between blocks. In other words, the formation of economic blocs opens the way for the creation of a world market without barriers in the future, from the perspective of multinational companies. (B, Matesanz, & J, 2013) In the beginning, this global economic interaction was welcomed mainly with the hopes to generate more employment, fast growth leading to increased tax revenues, therefore, improving the health, education and well-being of these families. But in 2009 the Greek crisis came into the picture to show another side not yet thought by economists.

Greece’s economic issue dates back to its accession in 2001 when Greece joined the Maastricht treaty. About fifteen years ago Greece registered smaller deficits than the real ones, which helped to bring this country into the crisis. During this period there was considerable public and private obligation. The current picture of the Greek economy was devastating at the beginning of this decade. Its crisis, a combination of public debt and the global financial crisis, was 13.6% of GDP in 2009, four times the size allowed by the rules of the so-called euro area. According to 2009 estimates, the country has accumulated a debt of 300 billion euros. The budget deficit was around € 255.3 billiΩon (FACTBOOKS, 2011).

By credibility for being a member of the Eurozone, Greece continued negotiations, funded by foreign banks, because even without complying with Maastricht Treaty tax rules, the cost of taking money in banks continued to fall. The central problem occurred because Greece was to refinance 53 billion euros of debt the following year in 2010. The IMF (International Monetary Fund) also approved an aid loan to Greece of approximately 30 million euros, which would be part of a larger package of 110 billion euros, to help the country (IMF, 2010). The IMF justified the aid saying that the European global crisis would contaminate all states. Also according to the same source, nations like Brazil also helped the Greek package in the IMF, with the excessive amount of 286 million dollars.

 

After the declaration of aid, but without demonstrating how these loans would be paid or details of these conditions, it was hoped that with the government borrowing costs the euro would once again be strengthened. However, the scenario went the other way. Despite the lower euro, in a survey carried out in the May 2011 year, eurozone consumers showed a decline in the euro’s recovery prospects. Aid to Greece, in a way, is unpopular with voters (Lee, 2015).

 

As a result, Greece’s financial crisis, once it is part of the European Union, directly affects all the countries in the world, especially Europeans, who fear that the euro will weaken with future local economic breakdowns. Due to globalisation, financial measures of international aid were taken, including in this context the IMF as part of this fund.
The Greek crisis served as a test for maintaining the supremacy of the European Union as an international economic block, demonstrating the strengthening of relations as a block, especially at a time of crisis, serving as a model for the conduct of possible crises in other European countries, or not, which are subject to similar situations.

Bibliography:

B, G., Matesanz, D., & J, G. (2013). Measuring Global Economic Interdependence: A hierarchical Network Approach. Retrieved November 16, 2017, from http://onlinelibrary.wiley.com/doi/10.1111/twec.12080/abstract

FACTBOOKS, C. (2011, February). CIA.GOV. Retrieved November 15, 2017, from CIA.GOV: https://www.cia.gov/library/publications/the-world-factbook/geos/ly.html

IMF. (2010, May 09). International Monetary Fund. Retrieved November 15, 2017, from https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr10187

Lee, T. B. (2015, June 29). Retrieved November 16, 2017, from Vox..com: https://www.vox.com/2015/6/29/8862583/greek-financial-crisis-explained

What I Couldn’t See in The Big Smoke – Nour El Huda Shaker – Dubai Campus (5)

I remember one Eid Al Fitr, a few years ago, my family was gathered for the first time in ages and we went into central London for celebrations and a huge feast and I had the best time of my life… Until we walked out of the restaurant door and I’d seen something I’ve never seen before in my area, albeit I have heard of it. What I’d seen that day was homeless people. That sight changed my perspective on life, forever.

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On the way home, I sat silently baffled as to why there were people so poor they hand nowhere to sleep in a country so far developed and advanced? Not only that but in the capital? The city of skyscrapers, fancy cars and a million lights.

Much to my shock, I found out that 1 in 5 people in the UK live below poverty line (Oxfam, 2015). Let me do the maths for you, 1 in 5 equates to 14 million people…14 million people below poverty line in the UK… Can you imagine? In the world’s sixth largest economy? How can such a powerhouse lack the resources to maintain it’s own citizens? According to Oxfam site, poverty numbers have doubled up over the last 25 years, whilst at the same time the economy has doubled up too.

Homelessness in specific is a problem because it cripples the economic and social output of a country (Well, 2016). Its a never ending cycle that only gets worse. According to Brandolini and Cipollone (2003) people born to poor families become poorer, in the long term, and likewise to people born to rich families, become richer. This fundamental unfairness is a feature deeply carved in the principles economic classes and a free market system.

So, what is the solution? What implications does homelessness have for developed countries? Does it weaken the stance of developed countries? So many questions and so little answers. We must also question the fact that there are far more studies concerned with analysing homelessness and poverty in developing countries than developed countries. Albeit it is justified, however, examining the growing rate of homelessness in developed countries is important when it comes to measuring the global economic environment.

There is a very common notion in the U.K. that some believe explains the inequality in the country’s wealth that subsequently causes poverty and homelessness. That is the low tax rates imposed on the wealthy. During thatchers era of neoliberal change, she decreased the rate of tax to be imposed on the rich from 83% to 40% (Mudie and Jones, 2015). Furthermore, Mudie and Jones, 2015 also found that the rich 20% paid the same (35.5%) income tax (for the year 2011) as the poorest 20%.Fact is, Thatcher’s belief that increased spending by the rich boosts the economy thus more jobs would be created for the poor is far from what is happening in the year 2017. If anything there far more poverty, debt and homelessness than ever before.

The widening gap...poverty.

I conclude this post with new knowledge and information on the topic in mind but it still makes no sense to me.


Bibliography:

Cipollone, P. and Brandolini, A. (2003). Urban poverty in developed countries, in (ed.) Inequality, Welfare and Poverty: Theory and Measurement. Research on Economic Inequality, 8.
Hill, D., (2016). London’s homelessness count continues to rise, available at: https://www.theguardian.com/

McDonagh, T., (2011). Tackling homelessness and exclusion: Understanding complex lives, available at http://www.homeless.org.uk/
Mudie, K and Jones, H. (2015). “Breadline Britain: 20MILLION now living in poverty as landmark study reveals how tax system creates inequality”. Mirror, 10 December.
Poverty in the UK. (2015). Available from: http://policy-practice.oxfam.org.uk/our-work/poverty-in-the-uk

Welle, D. (2017). UNICEF: 20 percent of children in developed countries living in poverty. [online] DW.COM. Available at: http://www.dw.com/en/unicef-20-percent-of-children-in-developed-countries-living-in-poverty/a-39259716 [Accessed 4 Dec. 2017].

 

BREAKING DOWN INEQUALITY. (RAMYAA MOHAN)

This diagram shows global divergence by convergence. There are three distributions you can see; 1800, 1975 and 2015.

Picture2In 1800, it can be seen that very few countries achieved economic growth. The majority of the world lived in poverty, and data shows that in the beginning of the 19th century, more than 80% of the world lived in conditions that we would most probably call extreme poverty today.

175 years later, in 1975, the world has become a lot more unequal. There are two humps, one of the which are below the international poverty line and a second one at a significantly higher income level. This just shows that the world had divided into two – one into a poor, developing world and the other that was a developed world and around ten times richer.

By the time it came to 2015, the world income distribution has changed again but this time, the poorer countries in South-East Asia that were not doing so well in 1975, have caught up. World inequality has declined but the distribution has shifted to the right, meaning poverty has fallen faster than ever before.

Income Disparity is the difference between the income of the richer and poorer parts of society. The more unequal the distribution of wealth in an economy, the greater the income disparity.

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The graph above which shows each country’s Gini coefficients has been used. The Gini coefficient is used to compare distributions over time and between countries. Perfect equality is a coefficient of 0 and perfect inequality is a coefficient of 1. The darker the colour, the higher the Gini coefficient. In order to compare income disparity across the globe, data from Iceland, the US and Zambia has been used. Their Gini coefficients are: US: 55.6 and Zambia: 41.1.

America does have a higher Gini coefficient than Zambia, i.e. meaning it has ‘higher levels of inequality’. In the US, taxes and transfers are doing less to reduce inequality than these policies are doing in other nations. On average, these policies reduce inequality by 36% in other rich countries, in the US it is only 24%.

The more unequal societies – and regions within countries – have more violence, reducing infant mortality, lower life expectancies, and more mental illness. Societies that are more equal, on the other hand, have more trust among people.

Inequalities between countries has not really been reduced by any decrease in the gap between average incomes. Instead, we have seen theper-capita income gap between the richest and poorest countries be at its largest today more than ever. The actual change that we have witnessed is that some countries with a huge population have experienced high growth rates, meaning that a good proportion of their population have been lifted out of poverty and into the middle of the global income distribution.

Due to recent economic change, a large portion of the elite and lower middle class have benefitted immensely. However, this change has left the most disadvantaged and harmed the upper middle-class too. This includes largely of the lower-income groups in developed countries.

It can be said that technical progress and globalisation have been key reasons for the educated to gain many benefits. On the other hand, in the middle of the global income distribution, many workers have benefitted from export-led growth in emerging economies. Concurrently, in developed countries, social stratification has expanded. Wages of those who are less skilled has also stopped increasing and there is a current scarcity of decent jobs which has a somewhat severe impact on employees.

History has taught us that when the people at the lower end of the distribution fall into poverty, there is most definitely a waste of human potential. As inequality increases, it automatically reduces the impact of growth on poverty reduction, and this is an issue as it is difficult see diminishing poverty levels if inequality is still at high levels. We saw this successfully work in China in the 1980s – poverty was combatted fairly quickly as levels of inequality was still fairly low.

Inequalities can also lead to social disintegration or even violence. Studies suggest that areas with a more pronounced income inequality are more likely to have higher levels of violent crime – ‘the wider the socioeconomic gap, the more gains potential criminals perceive’. The Strain theory proposes that when the poorer people of a society see that they are seeing inequality, they feel less of an obligation to social norms, and therefore feel they can view crime as acceptable.

BIBLIOGRAPHY

Our World in Data. (2017). Global Economic Inequality. [online] Available at: https://ourworldindata.org/global-economic-inequality [Accessed 4 Dec. 2017].

Pinsker, J. (2017). Does Inequality Cause Crime?. [online] The Atlantic. Available at: https://www.theatlantic.com/business/archive/2014/10/does-inequality-cause-crime/381748/ [Accessed 3 Dec. 2017].

Ravenhill, J. (2017). Global Political Economy. 5th ed. Oxford University

‘Women’ … The capitalist system’s deprived class!

We are in the 21st century, the age of liberty, freedom, and equality. But the world has made it clear for as, that these values are meant to be only for Men. On the contrary, we as half of the society, as Women, are not YET included! We are still secondary, known as sisters, mothers, and wives. Can’t we just for once represent ourselves?

Since money is what dictates, measures, and values the importance of our lives, in our contemporary world. The wage gap, can say a lot of how we are perceived in the global economic world. When we talk about the wage gap, we are not addressing the segregation in the developing world, because if so, we will be stuck in plenty of issues that are caused by their policies. However, we should look at the wage gap in developed countries, where values of liberty “were born”. The US, the country of freedom and equality, gender pay gap is, 18.9% of the median male wage (OECD, 2017)! No matter how it is close to zero, there is no valid explanation of this inequality.

But this can be easily explained if you look at this gap from the top, from the global capitalist class, the TNC’s. The gap wage opens a great opportunity for these companies to cut their costs even further, and employ women instead of men, in order to increase their profits (Baylis, Smith, 2017). Certainly if you are a woman your situation turns even worse if you’re from a developing country, because you are poor and a woman that is desperate for work, a great combination to the owners of production!

In Guangdong province in China, women usually outnumber men in labour-intensive production lines! unfortunately, they come from the countryside, and their working conditions is harsh and unsafe, this caused a high number of suicide, and it is evident that rural women suicide rate, is much higher than rural men suicide rate (SHENZHEN, 2013).

 

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 Greg Perry’s

May 7, 2014

Another key feature of women life under the capitalist system, is the sexual division of labour! Our rules and jobs are dictated by the interest of the system. For instance, during the Second World War, women in Canada and the United States entered the workforce, due to shortages of male workers caused by the war. However, when everything returned to normal, women were returned to domestic work (O’Brien, Williams, 2013).

This clearly portrays the role of the system in controlling the choice of women, and how it is constructed by a superior figure to fulfil their interest, and how it prioritizes men over women. Additionally, it also shows that women were able to work in factories, while men where not available, which proves that there is no specific role for women.

Another example of sexual division of labour, is domestic work. Women are obligated to do domestic work, without payment, this actually serves the capitalist system, in that it reduces the amount of payment that has to be paid, in exchange for work (Baylis, Smith, 2017). This is another form of women oppression, which places their importance and effort as an inferior issue.

Given these points, the wage gap, and the division of labour clearly serves the interest of capitalism. Women are more prone to poverty, and bad living conditions in this era, despite their continues effort.

So congratulation to all women out there, you have been promoted to be the losers of the global political economy!

 

Bibliography

 Baylis, J., Smith, S. & Owens, P. 2017, The globalization of world politics: an introduction to international relations, 7th edn, Oxford University Press, Oxford.

SHENZHEN. (2013). Factory women Girl power. Economist.com [online] Available at: https://www.economist.com/news/china/21577396-supply-female-factory-workers-dwindles-blue-collar-women-gain-clout-girl-power [Accessed 10 Dec. 2017].

O’Brien, R. & Williams, M. 2013, Global political economy: evolution and dynamics, 4th edn, Palgrave Macmillan, Basingstoke.

OECD (2017), Gender wage gap (indicator). doi: 10.1787/7cee77aa-en (Accessed on 10 December 2017)

By: Zainab

MISIS number:  M00610385

 

 

 

 

 

 

 

Is the IMF an outdated institution? – Valeriy Zhdanov

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The International Monetary Fund was created in 1944, Bretton Woods, with an objective to create a new world economic order. According to the IMF itself, it was “(…) conceived to (…) build a framework for economic cooperation to avoid the repetition of (…) the Great Depression of the 1930s” (IMF, 2017). At the time, two major factors were behind its creation, the first already mentioned, and the second to help and reconstruct the European economy, which was left in ashes after the WWII (Smith & Baylis, 2004). Throughout its existence, IMF struggled in various global issues, which would be mentioned further in this blog post. And today, a question arises, is the IMF up to date with all world-economic matters going on?

The first objection to this institution is that during its path, it faced and failed several times (at least two) on its primary purpose, which is prevention and ‘surveillance’ of the “(…) stability of the international monetary system.” and “(…) keeping track the global economy and the economies of member countries” (IMF, 2017).  None of this helped in 1973 Oil Crisis neither in 2008 Global Financial Crisis, which IMF itself admitted of being “(…) the worst financial crisis since Depression” (Stewart, 2008). Let us underline, once again, the leading institution responsible for maintaining the global economy healthy, was unable to estimate and even to prevent one of the biggest global financial crises since the Great Depression. (?) Seems, at least, bad.

Another objection that could be made to this institution is its lack of response. First with the crises, and second with the today’s world issues. By this is meant, for instance, the unresponsiveness to the so well known populism. The IMF certainly does not learn from the mistakes of the past. According to O’Brien and Williams (2016), another factor that contributed for the IMF’s creation was that the rise of Fascism in Europe was due to economic problems that countries such as Germany and Italy were facing. If we replace Fascism with Populism, Europe with world economies, and Germany and Italy with other countries, it will make more sense nowadays. Wolf (2017) suggest that populism, “distrust institutions, (…) the bureaucracy and fiscal or monetary rules. They are also suspicious of free markets and free trade.” And this should make the IMF aware, but interestingly enough, they have failed with their significant contributor, the USA, Trump was elected.

Just a fun fact, IMF was created and took it as a responsibility to prevent the world from crises. Nevertheless, IMF’s lending process serves three purposes, and which one of them is that “IMF lending can help prevent crisis” (International Monetary Fund, 2017). There is a paradox. And it seems that IMF would be happy if there would be a crisis, as in that case they would lend money and impose their conditions to the borrowers.

IMF, suggest that its lending process should always be focused on the framework tailored by themselves and the country-borrower, by this is meant to undertake austerity reforms and policies. Nevertheless, let us look at the Portuguese example, accordingly to the IMF’s website, Portugal is one of the biggest borrowers since ever (IMF, 2017).  However, “Portugal shows there is an alternative to austerity”. Portugal cut its debt budget deficit to its lowest in more than 40 years. And as soon as the current centre-left government took power, it has re-established all the social policies, including the rise of wages, cut of taxes, gave new breath the welfare system and re-established all the state and religious bank holidays. Even though there were several warnings from the IMF and the EU, which Portugal could lose all its progress made since 2011, Portugal has shown the world that there are alternatives to austerity (Orr A., 2017). Once again, Portuguese centre-left government shows that their government is concerned about its citizens’ quality of life that was threatened by the ‘monster’ IMF.

The essence which was at the basis of the creation of the IMF in 1944 is understandable. However, in the beginning, it served to restore Europe, and right after EEC was created, IMF changed its policy and to also help the developing world economies. During its path, it has only shown that it failed several times, let us put when the world most needed them. Its conditionality of lending money leaves people threatened with austerity measures, gives rise to populist movements and voices. The question remains is IMF and outdated institution (ironically)?


 

Stewart, H. (2008). We are in the worst financial crisis since Depression, says IMF. The Guardian. Available: https://www.theguardian.com/business/2008/apr/10/useconomy.subprimecrisis. [Last accessed 11th Dec 2017.]

IMF. (2017). About IMF. International Monetary Fund. Available: http://www.imf.org/en/About. [Last accessed 11th Dec 2017.]

O’Brien & Williams, R., M. (2016). Global Political Economy – Evolution & Dynamics. 5th ed. Palgrave

Wolf, M. (2017). The economic origins of the populist surge. Financial Times. Available: https://www.ft.com/content/5557f806-5a75-11e7-9bc8-8055f264aa8b.[Last accessed 12th Dec 2017.]

Smith & Baylis, S., J. (2004). The Globalization of World Politics: An Introduction to International Relations. USA: Oxford University Press.

International Monetary Fund. (2017). About the IMF. IMF. Available: https://www.imf.org/external/about/lending.htm. [Last accessed 12th Dec 2017.]

Orr, A. (2017). Portugal shows there is an alternative to austerity. The Guardian. Available: https://www.theguardian.com/world/2017/feb/21/portugal-shows-there-is-an-alternative-to-austerity. [Last accessed 12th Dec 2017.]