LESSON 4: MARKET INTEGRATION (2)
GLOBAL CAPITALISM-is capitalism that transcends national borders.
HISTORY: epochs
1. MERCANTILE CAPITALISM- 14TH century. Popularized by European Traders sought to increase
their profit
Banks and governments finance these ventures in return for SHARES in the mercantile company
and its profits.
The early American colonies practiced mercantile capitalism but colonists were only permitted to trade
with their mother country such as France or Great Britain
2. CLASSICAL CAPITALISM- free market capitalist principles. There is no interference of the
government, known as the “Hands-Off”
The theory is that, each person, by looking out for himself helps to ensure the best outcome for all. It
allowed expansion for corporations to raise funds
3. KEYNESIAN CAPITALISM- The third epoch was launched with the dominance of “hands off” or
the “laissez-faire ideologies” (a doctrine opposing government interference). Questions were raised
whether the market could in fact, self-regulate.
Policies were introduced to protect national industries from overseas competition and to provide for
those who could not sell their labor and were disenfranchised by capitalism, such as the elderly, sick and
special.
4. GLOBAL CAPITALISM –The system, once organized and regulated within the nations to protect
them, now transcends national borders.
It is based on the same ideology as classical capitalism, only now, the holders of the means of
production extend their reach to everywhere around the globe monetizing cheap labor and resources
and profiting as best as they can.
Integrated globally, this fourth epoch is backed up by international policies that support the free
movement and trade of goods. This massively increases the flexibility that corporations have to choose
where and how they operate
INTERNATIONAL FINANCIAL INSTITUTIONS
” When the American economy sneezes, the rest of the world catches a cold”
Objectives:
1. To provide development finance to the less developed on easy and flexible terms
2. To promote economic development, increase productivity and raise the standards of the less
developed countries
3. Support is in terms of helping attract investors on infrastructure and utilities
Advantages:
• Provide long term finance which are not provided by Commercial Banks
• Increases goodwill of the borrowing company in the capital world
THE BRETTON WOODS SYSTEM
-The Bretton Wood System was the first system used to control the value of money between
different countries.
- It meant that each country had to have a monetary policy that kept the exchange rate of its
currency within a fixed value- plus or minus 1 percent in terms of gold
Created in 1944 conference of all the World War II Allied Nations.
It took place in Bretton Woods, New Hampshire. Under the agreement countries promised that their
central banks would maintain fixed exchange rates between their currencies and the dollar
-it resulted in the creation of IMF International Monetary Fund and the World Bank. It was also
the end of gold currency.
The International Monetary Fund (IMF) oversees the stability of the world's monetary system, while
the World Bank aims to reduce poverty by offering assistance to middle-income and low-income
countries
The World Bank was established in 1944 to help rebuild Europe and Japan after World War II.
Its official name was the International Bank for Reconstruction and Development (IBRD). When
it first began operations in 1946, it had 38 members. Today, most of the countries in the world
are members.
It was established along with the International Monetary Fund at the 1944
Bretton Woods Conference. After a slow start, its first loan was to France in
1947. In the 1970s, it focused on loans to developing world countries then
shifting away from that mission in the 1980s.
INTERNATIONAL MONETARY FUND (IMF) and World Bank
*.The World Bank receives funding by issuing bonds to global investors
while the IMF is financed by quotas from member countries.
*.The institutions have their share of critics, in part because of the conditions attached to their
loans
*.The owners are the governments of its 180 member nations with equity shares in the Bank
and all the members are part of the policy and decision making it runs.
*.Unfortunately, the reputation of these institutions has been dwindling, mainly due to
practices such as lending the corrupt governments and even dictators and imposing ineffective austerity
to get their money bac
BONDS- A bond is a debt obligation. Investors who buy corporate bonds are lending money to the
company issuing the bond.
QUOTAS - Quotas determine the maximum amount of financial resources a member is obliged to
provide to the IMF. Each member of the IMF is assigned a quota, based broadly on its relative position
in the world economy.
EQUITY- (fairness and justice). The amount of money the owner of an asset would be paid after selling it
and any debts associated with the asset were paid off.
Quotas determine the maximum amount of financial resources a member is obliged to provide to the
IMF. Each member of the IMF is assigned a quota, based broadly on its relative position in the world
economy.
