Trade Policies, Migration, Wages & Inequality in Industrial Capitalism, Ejercicios de Administración de Empresas

¡Descarga Trade Policies, Migration, Wages & Inequality in Industrial Capitalism y más Ejercicios en PDF de Administración de Empresas solo en Docsity! 2. INDUSTRIAL CAPITALISM AND INTERNATIONAL ECONOMY First wave of capitalist Globalisation, 1850-1914 From mid 19th century to the First World War • What is globalisation? • Movement of production factors across national borders (freely): •.1. Goods & services: Trade •.2. Labour: Migration •.3. Capital • Technology (we assume that it moves with capital) • With an investment, not only capital but technology moves 1. International Trade • Determinants of Trade cost = transaction costs + transport costs Transaction: everything we need to do to introduce a product in your country Transport: A. Tariffs: ■ Pay duties to introduce a product into the country. • Lower tariff = lower transaction cost B. Rise of Classical Gold Standard: ■ To trade there were changes in currency that entailed an exchange risk (ex: euros to dollars, the value may have changed when you received the product or vice versa == you’ll end up paying either more or less depending on the currency changes) == TO SOLVE THAT-> ■ Economic system used by the UK which influenced all the countries, which adopted the system. ■ It is like having just One currency, unification. • Fix amounts, the exchange rate is the same all the time = when a country joined the Gold Standard, the country had to fix its currency with the others. == no exchange risk. = lower transaction cost C. Improved communication technology: ■ We need information about the product you’re buying (cost, characteristics...) ■ How can you get the information you need to buy the product. If it is easier to communicate (telegraph) and get the information, then, transaction costs are lower. D. Transport costs: ■ It was a complement to the reduction of transaction costs. A. Trade policy: tariffs • 1600-1842: Mercantilism Industrial capitalism and international economy • Very very protectionist, so much that some products were even prohibited. ■ Cereals were prohibited because they wanted to avoid competition = high prices. • 1842-1873: Towards free trade = reduction of tariffs • reduce barriers to trade, allow imports to go easily into the country • 1873-1914: Moderate protectionism • We will have a slight increase in tariffs but without reaching mercantilism levels == there were many barriers to trade • 1914-1945: protectionism • Interwar period, protectionism for the majority of the countries. • 1945-: Free trade 1.1. COUNTRIES POSITIONING TOWARDS FREE TRADE: Countries in favour of Free Trade from 1850 to 1914 • Britain • Small countries such as the Netherlands, Switzerland and Denmark • They had a small domestic market = they needed trade and have a larger demand to grow and have economies of scale Reluctant to Free Trade from 1850 to 1914 • USA, they had a large domestic market): Alexander Hamilton, 1791 • As they had a very large market, they could use economies of scale for domestic market. • Alexander Hamilton, 1791: ■ They could not compete with the UK (mature industry) because they were beginning their activity. ■ Countries growing must have, at first, protectionist measures until the industry is stablished. • Germany (Zollverein 1833 = Customs Union, countries agree not to have tariffs between them, the same as the European Union = economic union): Friedrich List, 1837 • List thought the same as Alexander Hamilton, he thought that there was a need to consolidate the Industry before they opened to the market. 1.2. EXPANSION OF FREE TRADE: Cobden-Chevalier Treaty, 1860 • Trade started with bilateral agreements. == EXCHANGE Industrial capitalism and international economy - 1 - • Europe exported 50,5% of the world trade ■ This is explained due to industrialisation and the need of goods • They exported 37,8% of all manufacture (UK) and 56,3% (Europe) • The UK didn’t export many primary products, only 3,1% • The rest of the world (Except Europe and USA) exported many of the primary goods to industrialised countries and they imported many of the production of these countries. • Why Europe imports and exports almost the same quantity of primary goods and manufacture? • Because there were more developed countries that exported manufacture goods and there were less developed countries which exported primary goods. The imports were vice versa. • Afterwards, there’s specialisation manufacture and there’s trading between developed countries, when one produces textile, the other metallurgy. = imports and exports. 1.6. Impact of trade on convergence (equality/inequality) ■ Does globalisation increase or decrease inequality????? Globalisation lead to an inequality situation between countries and between individuals of the world. ■ BUT, WHAT ABOUT THE FIRST WAVE OF GLOBALISATION??? BETWEEN INDIVIDUALS, DID INEQUALITY REDUCE OR INCREASE? We have to look at income, at the wages of the workers before and after globalisation. • Inequality decreased in UK, internal inequality. BUT inequality in the USA increased. DUE TO TRADE AND GLOBALISATION • UK: If so many product (wheat) arrived to the UK from the USA = reduction of the product (wheat) price. Wheat is really important for the majority of the population, who will end up paying less for wheat. == REAL WAGES INCREASE in Europe = less inequality for the majority. (not as nominal, you can buy more with the same Nominal wages. We take out of the nominal wage the price variation[inflation]. Then, REAL WAGE = NOMINAL WAGE – INFLATION OR DEFLATION) ■ Purchasing power has increased. ■ LAND OWNERS GET LESS INCOME DUE TO THE ARRIVAL OF USA WHEAT = LESS VALUE OF THE LAND, LESS MONEY. RENTALS DECREASE. • USA: They sold wheat, cereal. Price will increase because there’s domestic demand and European demand, which both increase == price increase, expansion to west, etc. Supply doesn’t catch up demand so there’s the price increase == REAL WAGES DECREASE (they have to pay more for the wheat, effect of the inflation) Industrial capitalism and international economy ■ RENTALS INCREASE because land owners get more for their production due to high prices ■ Increase of inequality in the USA DEFLATION IN EUROPE AND INFLATION ON THE USA DUE TO THE EFFECT OF TRADE The impact of trade is different depending on who are the partners/ traders. It depended on the countries involved in trading. Open economies (Britain) had less inequality than close economies (Spain) ■ Trade only accounted for 25% of the wage/rental ratio convergence Trade was the cause of the 25% of the convergence of the wage/rental ratio between the British and American. ■ Globalisation through trade accounted 10% of wage convergence. Trade was the cause of decrease of the gap(convergence) between American and British/European wages. Trade contribution to this diminishing is only 10%. 2. Labour migration • 1821-1915: 46 million people emigrated. 44 were Europeans. • Almost everyone migrated through the Atlantic(Europe-> America and vice-versa) ■ UK was the one to contribute the most to migrations (Including Ireland) -- USA Industrial capitalism and international economy - 1 - • Due to the Demographic Transition = excess of population • The first country to have a huge increase in population = need to migrate. ■ Germany-- USA • STILL A FIRST COMER, ONE OF THE FIRST TO HAVE MIGRATION ■ Iberian Peninsula—South America ■ Austria- Hungary -- USA ■ Italy—USA & South America • Depending on when the industrialisation & demographic transition took place, the migration started earlier or later. = LATE COMERS, LATE MIGRATIONS. (Spain, Italy, Aus-Hungary) ■ France had its own kind of transition (birth rates fall as death rates) UK Germany Italy Iberian peninsula Austria- Hungary 1821-1850 2.6 0.6 1851-1880 4.6 2.1 0.2 0.3 0.2 1881-1915 8.9 2.2 7.8 4.3 4.2 1.7. WHY DID THEY MIGRATE? SUPPLY SIDE:(origin country) • Demographic transition • Agricultural productivity increases • Industrial revolution NOT MANY PEOPLE AS BEFORE IS NEEDED DUE TO AN INCREASE OF THE PRODUCTIVITY IN INDUSTRY, AGRICULTURE + INCREASE OF POPULATION = MIGRATIONS • Political or religious causes • If your religion was not the one original in the country, leaving the country was an incentive to keep practising the religion. The USA had free choice of religion. • End of 19th century = Jewish people from Russia left the country, migrated. • Lift restrictions to emigration • Removal of constrains to capital labour mobility, freedom of movement for people. • Clearances • Owners wanted to change the use of the land = didn’t need workers, owners wanted get rid of the land workers = clear the land of workers. DEMAND SIDE:(destiny country) • Demand of labour • Economic growing areas needed people to realise the potential growth == America had huge demand for labour Industrial capitalism and international economy SLAVES ORIGIN TRIANGULAR TRADE Triangular trade: •.1. Europe (sell manufacture to Africa) --> •.2. Africa (European buy slaves from Africa = traded with slaves) ---> •.3. take slaves to America (cash crops) ---> •.4. Cash crops to Europe. • INDENTURED LABOUR. • Abolition of Slave trade in Britain == appearance of indentured labour ■ India --> Mauritius, Sri Lanka, South-Africa, Jamaica, Trinidad&Tobago ■ China –> Philippines, Siam, Peru, EUA, Cuba 3. International Capital movements Foreign investment estimations (millions of pounds per year) • Investment hugely increases throughout the globalisation process. 1815-1840 4 1840-1850 30 Industrial capitalism and international economy - 1 - 1855-1877 56 1870-1890 116 1890-1914 340 We observe that the foreign investment hugely increases in 100 years. Acceleration between 1890-1914 1.12. WAS THE INVESTMENT SIGNIFICANT? • 1900-1914: Europe exported 20% of savings • Capital exporting countries, 1870-1914: • Britain: K exports amounted to 5% of her GDP (1904-10, 10%) ■ As Britain had a really huge GDP, the 5% was a huge contribution to it, really big. • France and Germany: 3% • USA: maximum of 6% 1.13. WAS THERE FINANCIAL GLOBALISATION? • THE STOCK OF FOREIGN CAPITAL IN UNDERDEVELOPED COUNTRIES WAS REALLY IMPORTANT • (African, Latin American and Asian except Japan) ■ Except from the interwar period, when globalisation stopped, the contribution to the GDP in underdeveloped countries was huge. • At the end of the 20th Century, the contribution of foreign investment to underdeveloped countries was smaller than in 1914 (peak of globalisation) • The capital exporting countries (percentage of investments abroad) • UK 43% • France 20% • Germany 13% • Belgium, Holland, Switzerland 12% • USA 7% • Others 5% ■ TOTAL = 100% • Capital receivers: • Europe 27% ■ Russia 10% ■ Spain, Austria, Hungary, Italy 17% • North America 24% ■ EUA 16% ■ Canada 9% • South America 19% Industrial capitalism and international economy ■ Argentina, Brazil, Mexico 16% • Asia 16% • Africa 9% • Oceania 5% 1.14. On what did they invest? ■ Public sector (FRANCE, UK) • Bonds to finance public budget deficits ■ Private sector (GERMANY, BELGIUM, UK) • Infrastructures: railway • Public services/utilities: water, electricity ■ 2ND revolution • Raw materials: mining, food ■ Foreign firms in countries (Río Tinto, English capital in Spain) 1.15. Why was there foreign investment? • Higher returns: the highest returns to investments came from foreign investment (see 1.3.5.) = for example, for the UK, the foreign Public Bonds interest rates were higher than the national == invest in countries such as Japan, which had higher interest rates. • Specialisation: Raw materials: to get the resources from other countries because they needed product that they couldn’t produce. = WANTED TO GET THE PRODUCT FROM FOREIGN COUNTRIES • Protectionism: with the arrival of protectionism again (from 1870’s onward) exporting to other countries was much more expensive due to tariffs == instead of producing in Germany and exporting to Spain, create a subsidiary in Spain so as not to pay the tariffs === PROTECTIONISM CREATED AN INCENTIVE TO BIG FIRMS TO BECOME MULTINATIONAL BY SETTING SUBSIDIARIES IN THE COUNTRIES WHICH HAD HIGH BARRIERS AND A GOOD MARKET. 1.16. Where there better returns abroad? Interest rates for Public Bonds, 1889 UK 2.7 Chile 4.5 EUA 3.1 Brazil 4.8 Netherland 3.3 Spain 4.9 Canada 3.5 Argentina 5.1 France 3.6 China 5.4 Industrial capitalism and international economy - 1 - France UKGermany, Belgium 1.19. Adoption of Gold Standard From 1871 to 1900 • UK since 1816 • 1871 Germany • 1873 Belgium, Italy, Switzerland • 1875 Denmark, Norway, Sweden, Netherlands • 1876 France • 1879 Austria • 1893 Russia • 1900 EUA (officially) 1.20. Gold Standard • A monetary system which related the amount of gold to a currency == Each currency had a fixed amount of gold • Currency was freely convertible into gold = the gold had to be in the bank Currencies and parties: Currency Grams of gold Parity, (STABLE PARITIES) UK 1 Pound 7.322 France 1 Franc 0.290 25.248 francs/pounds EUA 1 Dollar 1.504 4.868 dollars/pounds • Let’s say we’re BRITISH and BUY AMERICAN GOODS = have to pay the exchange rate + interest... NONONONO, • We go to the Bank of England, exchange my money for gold, and go with the gold to the USA so as not to pay the interest they wanted to charge. In the Federal Reserve we exchange the gold for dollars and then pay the good. == Gold Exiting the country ■ This trip would have had a Gold Point = cost Industrial capitalism and international economy • If the Bank of England charged me less than the Gold Point = transaction in the Bank 1.20.1. Adjustments with Gold Standard • We have an amount of money in the economy related to Gold. = monetary base • M (amount) • V (velocity) = speed at which money changes hands MV = GDP · PRICES According to the equation: Industrial capitalism and international economy - 1 - A. If the monetary base decreases (the amount decreases), the prices will decrease If this happens, international transactions which imply exit of Gold/money will make the economic basis decrease == we need more Gold to enter the country = Equilibrium between Gold outflow and inflow due to: • Increase of interest rate which entails a decrease of investment due to the increase of prices. This entails an increase of unemployment = less wages = less market demand = lower prices which will promote exports due to low prices = Gold inflow. B. If the monetary base increases (the amount increases), the prices will increase WITH THE GOLD STANDARD, A VERY STRONG STATE WAS NEEDED. 1.21. How were the payments from trade and foreign investments made? NON Multilateral System of Payments • France imports 1000 from UK and exports 600. France pays 400 to UK • Spain imports 900 from France and exports 700. Spain pays 200 to France • Spain imports 700 from UK and exports 400 Spain pays 300 to UK • Gold needed= 400+200+300=900 Multilateral System of Payments Industrial capitalism and international economy