geog323 lecture4 globalization

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Published on April 10, 2008

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Lecture 4: Economy/Globalization 1800-1990:  Lecture 4: Economy/Globalization 1800-1990 Geog 313 In the news…..:  In the news….. Turmoil http://news.yahoo.com/news?tmpl=story&cid=586&e=1&u=/nm/20050607/wl_nm/bolivia_resignation_dc Violence http://news.yahoo.com/news?tmpl=story&cid=586&e=1&u=/nm/20050607/wl_nm/bolivia_dc Legacy Paper H.W. #2:  Legacy Paper H.W. #2 Pick a country and answer the following questions: What is the legacy of colonization between 1500-1800 in your country? Was the encounter between the Spaniards and the Natives beneficial or negative in your country? Guidelines: The paper should be a minimum of three pages. Provide a title page and follow the guidelines in your syllabus. Your sources can be internet, newspaper, popular magazines, or scholarly sources. Early Economy:  Early Economy Economy -Mining -Agriculture Land tenure system -Encomiendas -Haciendas -Mitas -Engenho Mining:  Mining What where the most important mining centers? Mexico: Zacatecas boomed between 1580-1630. Upper Peru (Bolivia): Potosi, Bolivia in 1544 major silver ore deposits where discovered. Potosi boomed between 1580-1630. Brazil: gold was discovered in 1693 in Minas Gerais. In the 1700’s, Minas Gerais became the world’s leading gold producer. An estimated 800,000 people flocked to the area. (Winn, 1992; Rosenberg, 1992; & Blouet & Blouet, 2005) Mining:  Mining Why where mining centers important during the colonial period? -Extraction center: Gold and Silver were exported back to Europe. (Legacy of extraction of raw material to colonial powers) -Became permanent centers. -Required large and cheap labor force. -Created long distance trading need for livestocks, ropes, food, supply, etc. -Became growth poles. -Became important economic centers. -Created new capital cities. In the case of Rio de Janeiro, it became such an important main port for the mines that in 1763 the capital city was moved from Salvador to Rio. Mining:  Mining -Created an economic network that expanded around the globe. In the case of Potosi, 27 reservoirs were constructed to capture the water from the nearby mountains to carry down to the 132 silver mills. Mercury needed to be shipped from Spain until 1570. Before it was discovered, mining occurred in the Andes Mt. Huancavelica 800 miles northwest of the Potosi mines. Salt was brought from the Altiplano region of Peru. -Encourage the advancement of technology. Spanish developed an amalgamation process with mercury. -Created and extended infrastructure. Spaniards built hundreds of miles long roads to bring salt, mercury, and supply to the mines. Created ports on the Pacific Coast and organized the transportation from the Andes mountains to Panama City to Spain. Mining:  Mining -The mines of the Americas financed Spain (1550-1650) By 1600, they were producing half of the world’s silver. It would yield 60 million ounces of precious model during the colonial period. -Created a dependency of Spain towards the Americas. The amount of silver that arrived to Spain generated an inflation that made Spain industry and agriculture uncompetitive. In the end, the abundance of American silver may have promoted Spain’s decline, instead of enhancing its power. The silver passed through the hands of the Spanish toward the Dutch, French and British to pay for the luxurious life-style and to pay for the products they did not produce. - The silver led Europe on the road to industrial revolution and global empire. Agriculture:  Agriculture How were the agriculture and the mining centers linked? -As the mining center grew so did the agriculture centers. The agriculture provided the grains and animal products. Ex. The mule trade between Argentina and Potosi sold between 30,000 to 60,000 mules during the 1600-1700. -How did commercial agriculture emerge in the Americas? -Commercial agriculture grew by development of ports, inlands towns, administrative centers, and mines. -Most of the agriculture was consumed in the Americas except for dyestuffs, hides, and sugar. Agriculture:  Agriculture How important was Sugar? -In the case of the Portuguese they did not find large civilization to conquer or wealth to steal. What they did find was arable land to cultivate. -Sugar was as important to Portuguese Brazil, as silver was to Spanish Peru. -Sugar was the fuel that spur the colonization and economic growth of Portugal in the Americas. -It was Brazil’s initial link to the outside world and its biggest export and the major source of wealth. Agriculture:  Agriculture -Sugar was the first agricultural crop worth the cost and risk to travel across the Atlantic Ocean. -Created international economic trading. The Dutch provided the capital to establish the plantations and mills and market the sugar throughout Europe. The Portuguese had the necessary technology from their experience in Africa. The only thing missing would be the labor force. -Where did they obtain their labor force? At first they tried to bribe and coerce the Amerindian Indians. However, they were not used to the hard labor of the plantation and died in great numbers. by 1570 they began to replace them with African slaves. By 1620, Brazil became the largest producer of sugar and the largest importer of slaves. Atlantic Slave Triangle:  Atlantic Slave Triangle http://www.africanculturalcenter.org/4_5slavery.html Agriculture:  Agriculture -It created a new society The “Lord of the Mill” had unlimited power of the slaves and dispensed justice. He also exerted his power over the less wealthy white land owners without sugar mills, mulatto subsistence farmers and ranchers, priests, merchants, and Portuguese officials. -The legacy of sugar has survived until today. The economic and social patterns created by the Sugar plantation created a complex society with a dependency on a single crop and foreign markets, migrant labor, and an unequal society divided by color and class. Encomiendas:  Encomiendas Encomienda System: -was an economic and social institution. -used as reward for the conquistador. -used to control the native population. -allowed land to be used but not owned. Encomendero was in charged of the encomienda and could extract tribute, economic products, and labor. In return the Encomendero had to teach and covert the Indians to Christianity. By 1549 forced labor was abolished but the tribute payment continued. Repartamiento system replaced the encomiendas. The repartamiento system allocated Indian labor to mines or agriculture for a certain period of time. At the end of the colonial era the system was being used to require Indians to purchase goods from Spain. Haciendas:  Haciendas -A Large landed estate, was one of the colonialism’s fundamental institutions in Latin America. -It was more than a form of land ownership, the Hacienda was a complex social organization that was practically self-sufficient. -It provided the owner with economic return, it also offered social prestige and political influence. -The hacienda provided a sense of security and home for the workers. -The haciendas were created by land grants, purchase, usurpation, and mergers. -Haciendas were supposed to be “without injury” to Indian livelihood. (This was not the case) Mitas:  Mitas What where Mitas? -It was a forced labor system in the viceroyalty of Peru that required one- seventh of all formally free, unskilled Indian males over 18 years to provide labor service to the crown. -Indians were forced to travel great distances and their pay was the same as the tribute they had to surrender each year. -Mine owners had the right to put 13,300 Indians to work and operate the mines each year. Indians would report each Monday to the mines. They would work until Saturday evening without coming out. -In Peru Mitas where abolished in 1812. Engenho (engine):  Engenho (engine) What was the importance of Engenho? -Was the central social institution in colonial Brazilian life during the 1600’s. -The engenho was a combination of land, coerced labor, agricultural and industrial enterprise, technical innovation, capital and credit, and skill labors (blacksmiths and people who understood the sugar-making process) that became the sugar economy. -The term plantation was never used to describe the sugar industry, but the word “engenho” was used instead which described the mill. Engenho (engine):  Engenho (engine) -The sugarcane process determined the structure and complexity of the “engenho.” The first crop took 18 months to mature, but afterwards for the next 3 to 4 years, the same field could yield a new harvest every 9 months. The harvest period, or safra, began in July and ended in March. The engenho was alive with activity with cutting the sugar cane and processing in it. -Conditions were harsh at the engenho. The engenho operated 18-20 hours a day during the harvest period. Climate, problems with food, housing and treatment of labor created very high rates of disease and mortality. In a single year between 5-10 percent of the slaves would die. Lecture 4 Part II: Economy/Globalization 1800-1950:  Lecture 4 Part II: Economy/Globalization 1800-1950 Geog 313 Globalization:  Globalization What is Globalization??? Is the opening of national economies to the flow of international goods, capital, and ideas. Removes obstruction of movement of goods and create conditions that are favorable for trading in which economies can expand. During the colonial period, trading was controlled by the colonial powers. Trading occurred ONLY from Seville to the new world ports. The colonial period established the foundation of globalization by establishing transatlantic trade. Globalization:  Globalization Mercantile System: Trade flowed between designated ports by Spanish vessels. Trading between colonies was discouraged. Maintained trading surplus (one way street). L.A. independence dissolved this agreement. Trading relied on the extraction of natural resources (silver and gold) from the colonies. Old (Britain) and new (US) colonial powers wanted to capitalize on the new countries independence. Globalization: Colonial Power:  Britain: Britain wanted the new countries open to trade, while the U.S. wanted to avoid competition in the Western Hemisphere. In 1825 Britain recognized Argentina—the first independent Lain American republic to be recognized by an European power. A commerce between two nations followed. Britain’s strategy to gain an edge was to: open consulates, promote trade, protect the interests of Britain nationals working in Latin America. Globalization: Colonial Power Globalization: Colonial Power:  What was happening in the USA in the 1800s? In 1819 Spain ceded Florida to the United States in the Adams-Onis treaty. In addition, the United States gave up its claim to Texas. The U.S. claimed the Oregon Territory and paid Spain $5 million. The treaty was not ratified until 1821. (Therefore, tensions between the countries were high during the wars of independence). U.S. waited until the wars ended to recognize Mexico, Grand Colombia, Peru, Chile and Argentina as countries in 1822. Globalization: Colonial Power Globalization: Colonial Power:  Globalization: Colonial Power What was happening in Europe in the 1800s? France and a coalition marched toward Spain and overthrow the liberals and restored the Ferdinand VII Kingdom. England supported the new independent countries because the Latin American ports welcomed the English merchants and goods. Russian Czar had colonies in Alaska and wanted to extend their sphere of influence into the Oregon territory and established trading ports as far as California. Globalization: Colonial Power:  What is the Monroe Doctrine? http://www.classbrain.com/artteenst/publish/article_51.shtml In this 1823 statement of American foreign policy, President James Monroe declared that the United States would not allow European powers to create new colonies in the Western Hemisphere or to expand the boundaries of existing colonies. A U.S. foreign policy statement issued in 1823 which stated the Americas were no longer open to European colonization, that the Western and Eastern Hemispheres were distinct political spheres, and that the United States would not meddle in European affairs. Globalization: Colonial Power Globalization: Colonial Power:  What was the impact of the Monroe Doctrine? The immediate impact of the Monroe at the beginning but at the end was a major economic influence between US and L.A. During the 1890s, the U.S. initiated arbitration between Venezuela and Britain concerning the Venezuela-Guiana boundary dispute. The Spanish-American War (1898) established the US as the predominant power in the Caribbean. The US interfered in the internal affairs of Cuba and the Dominican Republic. Globalization: Colonial Power Globalization: Colonial Power:  What was the impact of the Monroe Doctrine? In 1903 the British reduced the naval strength in the Caribbean. The enhanced strategic value of the Caribbean required the US to acquire bases in the region and develop naval stations on the Gulf Coast. In 1904 the U.S. leased the Canal Zone from Panama. A naval base was established in Cuba. The United States Virgins Islands were acquired from Denmark (1917). Globalization: Colonial Power Globalization: Colonial Power:  Globalization: Colonial Power Manifest Destiny: http://www.classbrain.com/artholiday/publish/article_227.shtml Coining the Phrase In 1845, a democratic leader and influential editor by the name of John L.O'Sullivan gave the movement its name. In an attempt to explain America's thirst for expansion, and to present a defense for America's claim to new territories he wrote: ".... the right of our manifest destiny to over spread and to possess the whole of the continent which Providence has given us for the development of the great experiment of liberty and federaltive development of self government entrusted to us. It is right such as that of the tree to the space of air and the earth suitable for the full expansion of its principle and destiny of growth." (Brinkley 352) Manifest Destiny became the rallying cry throughout America. The notion of Manifest Destiny was publicized in the papers and was advertised and argued by politicians throughout the nation. The idea of Manifest Destiny Doctrine became the torch, that lit the way for American expansion. http://odur.let.rug.nl/~usa/E/manifest/manif1.htm#man Globalization: Colonial Power:  Globalization: Colonial Power What is the Manifest destiny? Manifest Destiny- is the God-given right to expand the territory of the United States to the north, south, west, and east. The imperial expansion of the United States began with the Louisiana Purchase (1803), the Mobil Act (1804), the purchase of Florida (1819), the signing of the Hidalgo Guadalupe Treaty (1848), the victory of the Spanish-American war (1898) Globalization: Colonial Power:  Globalization: Colonial Power What was the economic impact of the U.S. in Latin America? U.S. investment touched every country in the hemisphere: The development of sugar estates in Cuba, Banana growing in Central America, Oil extraction in Venezuela, Peru, and Colombia Copper in Chile, Iron ore in Venezuela. Globalization: Colonial Power:  Globalization: Colonial Power What was the economic impact of the U.S. in Latin America? U.S. investment touched every country in the hemisphere: Investment in the production of industrial raw materials, Investment in agricultural commodities (sugar in Cuba), Controlled banks, Import-export companies, Shipping lines, Railroads, Manufacturing plants, Retail stores. L.A. became an outlet for the export of U.S. capital and goods. Globalization:  Globalization How did export economies develop in L.A.? World economy began expanding Trade agreements between L.A. and foreign powers Improved transportation (Railroads) Foreign investment Globalization:  Globalization What economic sectors benefited from the opening of the markets? Wool Industries 1800’s: Non-perishable items Shipped as raw materials to textiles industries to Britain. Improved breeding introduced in the 1830s. Established introduction of refrigeration. Globalization:  Globalization What economic sectors benefited from the opening of the markets? Cattle Industries 1800’s: Animals were exported live on the decks of ships but trade diminished after England banned the import of cattle to control hoof and mouth disease. In order for the cattle industry to be successful it needed High quality cattle Refrigeration system capable of delivering frozen meat to Europe. An agricultural chemist published a method of producing a meat extract and in 1865 a plant was established in Uruguay. In 1876 Aberdeen Angus Cattle is introduced. By 1877 refrigerated chambers began to cross the Atlantic. Globalization:  Globalization What economic sectors benefited from the opening of the markets? Cattle Industries 1800’s: To accommodate the new breed of cattle the agriculture system changed from open fields to enclosed fields. Ex. Las Pampas, Argentina. Breeding could be controlled and animals fed regularly. Large meat-packing plants were built. Railroads were constructed to deliver livestock and export grains to ports. The whole cattle and farming industries were linked to global market. Labor for the intensive farming system were brought from Europe. Globalization:  Globalization What economic sectors benefited from the opening of the markets? Manufacturing 1800’s: Large scale meat-packing plants were constructed. Foreign investment sponsored the growth. Large railroads projects were sponsored by the Europeans. Established infrastructure for the new countries. (However, the railroads were constructed from the raw materials to the ports). Allowed the new countries’ economies to grow. Ex. Buenos Aires grew from 100,000 in 1850 to 1.5 million in 1914. Created a new social class: Bankers, merchants, and loan officers. No wealth distributed among the poor. Globalization:  Globalization What economic sectors benefited from the opening of the markets Guano deposits (bird dung) Rich in phosphate; great fertilizers for crops and improved yields. The Peruvian government owned the right to guano. Exportation began in 1841 to Britain, France, Southern States in the U.S. At first the Peruvian government had foreign companies organize the trade and bear the costs, with the government taking half of the profits. The money was invested in new buildings in Lima and revitalized the old colonial city. Globalization:  Globalization Case Studies: Peru and Guano deposits (bird dung) War of the Pacific (1879-1883): disrupted the export of Guano. The war was between Chile, Bolivia and Peru. A major cause of the war was the nitrate deposits of the Atacama Desert. Nitrates were used in explosives and exports grew in 1860’s. Disputes developed between Chile, Bolivia, and Peru over the revenue from the Nitrate extraction. Chile wanted to take advantage and took territory from Bolivia and Peru in the war. Chile won territory from Bolivia leaving it land locked. Peru gave up territory containing nitrates and copper. Globalization:  Globalization What economic sectors benefited from the opening of the markets Rubber Another example of the possibilities and peril of globalization is the rubber industry. Rubber had been used during pre-Columbian times, but exports grew as technology improved. Exports grew as rubber was used for wheels. Deforestation occurred as the rubber industry grew and migrants rushed to the forest. Competition came from South Asia and prices dropped in 1910 and people became unemployed. The Ford car company established a rubber plantation but it failed because it was susceptible to diseases 1920-1930. The Industry collapsed when it was replaced by synthetic rubber shortly after WWI. Globalization:  Globalization What economic sectors benefited from the opening of the markets Coffee The Brazilian coffee boom of 1880-1930 illustrates how success can result in overpopulation and a market glut. In 1867 a railroad was built from the port of Santos to the small town of Sao Paulo, which was to become the rail hub for the surrounding areas. As the area opened, migrants arrived from others parts of Brazil, southern Europe, Japan, Germany, Austria and Russia. During the early 1900s, Brazil was producing more coffee than the coffee market could absorb and the government established a quota system. But the tendency to overproduce continued through WWI and it culminated in the collapse of the prices in the Great depression. Early in 1929, coffee was around 25 cents a pound. By the end of 1931 it was only 7 cents a pound. Globalization:  Globalization What economic sectors benefited from the opening of the markets? Coffee However, as the meat industry laid the foundation for the prosperity and growth of Buenos Aires, the coffee boom allowed Sao Paulo to become a primate city. Profits from land sales and coffee exports were invested in diversified economic activities. In the 1880s, 50,000 people were living in Sao Paulo. By 1920, the population was 600,000 making it the largest city in Brazil. Globalization:  Globalization WWI uncovered Latin American economic weakness (1914-1920) Pattern trade: Mexico and Central America to USA. While, South America depended on European markets such as France, Germany, and Britain. 2) Exports were dependent on overseas markets and non-Latin American shipping lines. 3) L.A. countries did not own their own infrastructure such as railroads, ships, ports, etc. 4) Dependency on foreign capital/loans/credit*. Germany no longer invested in L.A. during the war. Britain and France still traded with L.A. but investment went to war efforts. 5) Dependent on European technology (machinery) and European goods. 6) Altered and lost trading partners during war (Germany). 7) After the war trading relations were not restored (France, Germany, and Great Britain). 8) Europe became financially and industrially weak and no longer a trading partner. Globalization:  Globalization WWI uncovered Latin American economic weakness 9) L.A. became more economically dependent on U.S.* (Remember the affect of Monroe Doctrine and Manifest Destiny). 10) Main export crops such as wheat, beef, cotton and others could be traded to the U.S. because of high tariffs. 11) U.S. exported more than they imported from L.A. creating a trade deficit.* 12) WWI stimulated raw material production but after war production decline, prices were depressed and resulted in over production (ie. Coffee, nitrate). 13) L.A. was in an early stage of manufacturing development and there was little industrial stimulation during the War. 14) WWI did not lead to diversification of economy. 15) Weakened the finance and trade system that focused on London. Britain had a adverse trade balance with most countries. By value, Britain imported more from Argentina than they exported. 16) Argentina and Uruguay economic prospects declined because they were linked into the capital sources, shipping system, and consumer markets of Britain. Globalization:  Globalization 1920’s (Growing): One crop economy/export cash crop 1930’s (Crashing): between 1929-1932 world trade shrunk by 60 percent. Results of the Market Crashing and Great Depression: World economy shrunk. Prices for agricultural commodities and industrial raw materials declined. Increased unemployment. Banks failed. Pushed depositors and businesses into bankruptcy. Countries defaulted on the loans. Globalization:  Globalization Results of the Market Crashing and Great Depression: 7) Economic import and export halted. 8) Ports received less ships. 9) Inflation increased. 10) Imports of all goods-from luxury items to spare parts and essential machinery- were drastically reduced. 11) Devaluation of Latin American currencies. 12) Lack of foreign currency. 13) However, because prices for imported goods were high, it allowed Mexico, Colombia, Brazil, Argentina, and Chile to increase market share in the region and expand manufacturing activities. Globalization:  Globalization 1930s (Economy rebounded) Rise of expansion by Europe into Asia and Africa became profitable for L.A. Bilateral trade agreement: Brazil, Argentina, Uruguay, and Chile signed a trade agreement with Germany in which would be paid in Asli Marks (money that could be use to buy German goods). Ex. Hitler came to power 1933. Imports grew from 9.6% in 1932 to 15% in 1938. Ex. Exports to L.A. grew from 4.1% in 1932 to 12% in 1938. Argentina and Britain signed a trade agreement. Rise of agreement and expansionist power created political advantages for L.A. and economic demand for raw materials and consumer goods. Government began to take control of key sector of the economy. Mexico nationalized the oil industry in 1938. The U.S., in fear of driving Mexico into trade with Germany and Japan, contributed to a cautious response to the nationalization of the oil. Globalization:  Globalization 1930s (Economy rebounded) The second half of the 1930s represented the start of a new era. Economy began to grow in the primary, manufactured, and service sectors. The region entered the second phase of the demographic transition in which death rates fall and birth rates remain high or rise. Rural to urban migration increased among young adults. Also, the L.A. governments policies promoted national economic expansion. States established development banks and government-owned corporations to promote activity in key sectors. The rules on foreign corporations operating within Latin American countries were tightened. Enterprises that were owned and operated by nationals were promoted. Globalization:  Globalization WWII: September 1, 1939 reshaped the pattern of world trade and altered the demand of industrial raw materials and agriculture commodities. Negative Unlike WWI this War was fought on two fronts. War started when Germany invaded Poland in September 1939. Japanese bombed Pearl harbor on December 7, 1941. By December 11, 1941 both Germany and Japan had declared war on the United States The world was divided into a trading block. North America and L.A. became isolated from markets outside the hemisphere. L.A. was forced to trade with U.S. and became further dependent on U.S. markets, technology, and financial services. L.A. entered WWII in 1941. German submarines had sank 3.3 millions of tons of goods. Mexico entered the war as a result of Mexican vessels being sucked by U-boats (1942). Similarly, Brazil enters the war in 1942. Venezuela oil production was disturbed as the result of the German submarines. Agriculture and cattle industry was stagnant or declined. Such as the case of Argentine wheat. Lost key European trading partners. Inflation grew. European or North American imports were not available in Latin America. Globalization:  Globalization Positive Brought together the economies of Canada, U.S., and Mexico. Demand for raw materials such as Bolivian tin, Chilean copper and Iron, and Brazilian rubber increased. Eliminated competition such as Southeast Asia. Lack of imports from N.A. and Europe created new industries in L.A. In some cases new industries were created by the immigrants from the war. In Argentina during the war years, the number of manufacturing companies increased by 1/3. Heavy industries emerged. Ex. Steel production from Mexico increased. In 1940 Mexico produced 147,000 metric tons of steel; this rose by 1945 to 230,000. Most of the sizeable countries of Latin America enjoyed growth in the total value of exports. Brazilian exports grew at an average annual rate of 10 percent between 1940-1945. Argentina grew at 4% and Chile at 2%. Even the manufacturing sector of most countries grew in excess of 5% per year. The major countries in Latin America enjoyed positive trade balances as export grew and imports were scarce. U.S. investment increased especially to Mexico to create or increase production of goods for U.S. market such as fruits. The war accelerated urbanization in Latin America. Lecture 4 Part III: Economy/Globalization 1960-Present:  Lecture 4 Part III: Economy/Globalization 1960-Present Geog 313 Globalization:  Globalization Post WWII: Import-Substitution Industrialization (ISI): This new approach led to an economic growth from 1950-1975. The idea was to create a national pride, discourage imports, and encourage manufactures of goods within the country. Export-Oriented Industrialization (EOI): A policy designed to encourage the manufacturing industry to produce for foreign markets. New Development Strategy: Latin American countries restructured their economies and adopted policies recommended by the IMF and World Bank. 1960s:  1960s Latin American economies grew at a faster rate than they developed after WWII until around 1970. However, population also grew faster than the world average putting a negative affect on the economic growth. What were the major issues facing Latin American in the 1960s? high rate of economic growth The rapid increase in population The need for land reform Land Reforms-1960s:  Land Reforms-1960s The issue of Land Reform is a political, economic, social, and emotional issue. Land reform is a topic that has been an issue since the emergence of haciendas. Thus creating a division of classes: Great farms (latifundia) Peasant landholdings (minifundia) Landless laborers or peasants When a populist movement demanded land reform, it was likely to lead to a military coup, such as Guatemala 1954, Brazil in 1964, Chile in 1973, etc. Urban Growth-1960s:  Urban Growth-1960s Urban growth was a result of globalization. What were the results? The fast pace of rural to urban migration resulted in the creation of sprawling, disorganized primate cities. Rural populations grew less than the average because of out-migration. The population of urban areas increased at nearly five percent and primate places grew faster. Big cities doubled their size in just over 10 years and were unable to plan orderly for expansion. 5. Old colonial cores of many cities were overwhelmed by traffic congestion. 6. Cities were divided into two halves Prosperous middle and upper class Squatter settlements: lack running water, electricity, sewers, and paved roads. 7. Informal sector grew in the cities. 8. The service sector and manufacturing sector grew. International Economic Alliances:  International Economic Alliances Between 1960s and 1970s there were unsuccessful attempts to create economic groupings. Three types of international economic grouping emerged The free trade area: A free-trade area consists of two or more countries that agree to remove tariffs and other restrictions on trade between them (ex. NAFTA). The customs union: involves a group of states removing restrictions on trade between them and establishing external tariffs (ex. MERCOSUR) The common market: provides for the removal of restrictions on trade between member states, the establishment of common external tariffs, and the creation of economic policies and business laws equally to all members (EU). What was the benefit of these international economic groups? Create a larger market area in which investment is stimulated Promote competition to make businesses more efficient Accelerate growth at a rapid pace. Politically, establish a commitment to a common market. International Economic Alliances:  International Economic Alliances What alliances emerged? The Central American Common Market (1960) Latin American Free Trade Association (1961) The Caribbean Free Trade Association (1968) The Caribbean Common Market (1973) Why did they fail? Most countries were practicing import-substitution manufacturing. Protecting home markets with high tariffs. Political problems undermined cooperation. War within neighboring countries. Civil wars. Oil Crisis: 1970s:  Oil Crisis: 1970s In the 1970s, there was a shortage of oil and other raw materials. However, Latin American countries benefited Mexico, Venezuela, Colombia, Ecuador, and Trinidad. In the early months of 1973 oil was $3 a barrel. By 1979 when another shortage hit it was trading for $40 a barrel. Many countries took the opportunity to increase the pace of development and found banks around the world that were willing to finance their economic growth. Countries like Venezuela and Mexico easily found money to borrow for their growth. “Lost Decade”:1980s:  “Lost Decade”:1980s Why was the 1980’s “the lost decade”? Oil prices increased. Too much borrowing money. High interest rates. Slow economic growth. Economy did not keep up with the population growth. Per capital decline. Less wealth distributed. Gap between rich and poor increased. Inflation rose. Ex. Bolivia’s inflation was 8,2000% and Mexico was 33,600% Government cut back on social programs. Poverty level rose. 1990-Present:  1990-Present Who are the players? The World Bank Group includes four key international institutions in development: Bank for Reconstruction and Development (IRBD), 1944. The International Development Association (IDA), 1960. The International Finance Corporation (IFC), 1956. Multilateral Investment Guarantee Agency (MIGA), 1988. 2) International Monetary Fund (IMF): The IMF was established, along with the International Bank for Reconstruction and Development, at the UN Monetary and Financial Conference held in 1944 at Bretton Woods, New Hampshire. 3) United Nations (UN) was signed in 1945 by 51 countries and by 2003 it had 191 members. 4) World Trade organization (Formerly GATT and now WTO): was established in 1948 when the General Agreement on Tariffs and Trade (GATT) was ratified by 23 countries. World Bank:  World Bank The world bank in 1999 was the major source of financing for development in the developing countries. Had 1,900 projects worth over $148 billion dollars. What is the purpose of the bank? “to assist in the reconstruction and development of territories of members… facilitate the investment of capital for productive purposes… to promote private foreign investment by means of guarantees or participation in loans…. to supplement private investment by providing funds on suitable conditions. World Bank:  World Bank How does the World Bank work? Not all the money is deposited, only 8.5%; the remaining money is only to be deposited when it is needed. The Bank working funds are derived from Sales of interest-bearing bonds Notes in capital markets of the world Repayment of earlier loans From profits on its operations. World Bank:  World Bank How does the World Bank work? The World Bank has earned Profit every year since 1947!!!!!!!!! Unlike commercial banks, the World Bank takes no financial risks since its loans are to governments with whom it has “preferred creditor” status (credit rating) It is estimated that for every US dollar the US government has invested in the World Bank, US companies have received back $1.10. (10% return). Other major holders benefit as well, such as United Kingdom $1.90 (90% return) France $1.78 Germany $1.47 Japan $.97 (-3% return) IMF:  IMF 2) International Monetary Fund (IMF): The IMF was established, along with the International Bank for Reconstruction and Development, at the UN Monetary and Financial Conference held in 1944 at Bretton Woods, New Hampshire. Is based in Washington D.C. but operates independently of the World Bank Group. What is the purpose of the IMF? International monetary cooperation, world trade, to help countries with balance of payment problems. IMF:  IMF How can a country become a member? The IMF began operations in 1947. Membership is open to all independent nations and included 183 countries in 2001. Each member is assigned a quota whose value is based on the weighted average value of five major currencies. Each member's quota is an amount corresponding to its relative position in the world economy. For example, The United States has the largest quota, in 2001 the U.S. quota was about SDR 37.1 billion. The smallest quota, that of the Republic of Palau, was about 3.1 million. IMF:  IMF What are the benefits? The amount of the quota subscription determines: how large a vote a member will have in IMF deliberations, how much foreign exchange it may withdraw from the fund, how many loans it will receive in periodic allocations. The member may use this foreign exchange for a certain time (up to about five years) to extricate itself from its balance-of-payments problem, after which the currency is to be returned to the IMF's pool of resources. The borrower pays a below-market rate of interest for the IMF resources it uses; the member whose currency is used receives almost all of these interest payments; the remainder goes to the fund for operating expenses. IMF:  IMF Balance of payments- is a country’s record of economic transactions with other countries. Ex. If a country buys more abroad than it sells abroad, it has a balance of payments problem and has to find ways to finance the difference. What is the Catch? The IMF loan’s are given in the condition that the government adopt economic policies determined by the IMF know as structural adjustment policy. IMF:  IMF Structural Adjustment policy: Severe spending reductions in government, Balance the budget (no deficit), Eliminating trade barriers, Cutting social subsidies, Encouraging exports, Devaluing currencies, Removing artificial barriers to foreign investment. Price reforms Wage restraints Institutional reforms What are the positive aspects about this policy? What are the negative aspects about this policy? IMF:  IMF What impact does structural adjustment policies (SAPs) have on women? Increased numbers of women look for income-generating work outside the home because of harsh economic conditions in the country. Women also enter forms of employment where job security and benefits are few such as domestic service, and where their vulnerability to abuse is often high. There is much evidence to suggest that SAP’s have to lead to a widening of wage differentials between men and women in all sectors of the economy. In times of economic recession such as the ones that occur in the SAP’s women enroll girls in schools to save costs and to care for younger children. IMF:  IMF What impact does structural adjustment policies (SAPs) have on women? Also, during times of food insecurity women often eat less. This leads to a decline of women’s health and affects children if the women is pregnant or breast-feeding. In Tanzania, cutbacks in public health services have led to an increase in under-five-years-old mortality from 193 per thousand in 1980 to 309 in 1987. The shift to export crops encouraged by SAPs often does not benefit women. Women work in subsistence agriculture and would not benefit from a export oriented market. Greater unemployment, decreased purchasing power, and cut-backs in social services result in women adopting strategies to make funds go further. WTO:  WTO What is the origin? The origin of the WTO goes back to 1948 when the General Agreement on Tariffs and Trade (GATT) was ratified by 23 countries. By 2001, 143 countries belonged to the WTO. Similar to the IMF, it ranks its members “most favored nation” status. What has been the economic results? Value of merchandise trade has increased from $57 billion to $3,500 billion. Trade in services has risen by 20%. What is the basic principle of the WTO? The members should work to cut tariffs, eliminate barriers to trade, open markets, treat all countries the same in matters of trade. WTO:  WTO What is the importance of the WTO? Sets the rules for the majority of the world trade. All the countries present had to agree to upholding two “liberal and unexceptional” principles know as the “national treatment”: All countries must treat foreign investment in their economy the same as domestic firms. Any concession granted to one trading partner of the WTO is extended to all. How does the WTO function? The WTO hosts a series of multilateral trade negotiations known as “rounds.” In these rounds trade arrangements are negotiated and disputes resolved. Voting within the WTO is unweighted (each members has one vote) Decision making is generally based in consensus. However, there are provisions that ¾ majority is needed for the adoption of an interpretation of a trade agreement or for a waiver of obligations by a member. The length of each round gives an insight into the challenges of achieving international consensus on trade agreements. Ex. The Uruguay round took seven years to complete. WTO:  WTO What is the impact of WTO policies? The agreements made within institutions have an impact on domestic economies throughout health, environment, agriculture, etc. global markets and economies, Sustainable development, 4. Alleviation of debt, 5. Progress toward democracy, 6. Technology transfer from develop to developing country, 7. Integrations into global markets. WTO:  WTO Why is the WTO so controversial? national sovereignty can be threatened, It defines manufacturing standards, Environmental and labor regulations, Administers trade sanctions when a member has broken WTO rules, WTO is more powerful than its GATT. What else? Globalization:  Globalization 1990: The decade of the World Bank and IMF (The New Model) Structural Adjustment: It was the mechanism used by financial organizations to assure loans. What were the terms? Devalued national industries Freed restrains on imports Encouraged export introduction Privatized government owned industries 5) Cut back on government expenditures (it did not curtail military expanding but social programs) 6) Welcomed foreign investment by giving majority shares in the national industries 7) Reform labor regulations Globalization:  Globalization What where the consequences of Structural Adjustment? Labor markets changed Labor force changed Rural to Urban population shifted Role of the women changed -New job opportunities -lower birth rates -acquired goods -improve education -rising poverty levels -new jobs created (maquilas) 5) Migration Agriculture diminished ex. 1970 to 1996 50% 25% of the economy Further Reading:  Further Reading Schwarts, Stuart B. (1985) Sugar plantations in the formation of Brazilian society: Bahia 1550-1835. Clayton, Lawerence A. and Conniff, Michael L. (1999). A history of Latin America. Winn, Peter (1992). Americas: The changing face of Latin America and the Caribbean. Blouet, Brian W. and Blouet, Olwyn M. (2002). Latin America and the Caribbean: A systematic and regional survey.

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