Global Political Economy: Glossary (Part 5) T-Z

Tax Haven: A tax haven generally refers to a country, often an offshore island country, where taxes are very low or near zero. Those wishing to avoid taxes can invest their money in these countries and avoid paying taxes to their home governments.

Taylorism: Techniques of production using discipline and organization in the workplace. Production is based upon the scientific study of human efficiency and how much speed the human body can tolerate in the work place. It also uses incentives to increase the speed of work and exploitation. Used widely in US and Europe. Also used by Lenin and the Bolsheviks to modernizes production in the Soviet Union. See Harry Braverman. Labor and Monopoly Capital.

Technocratic Rule: Technocratic rule or management of the economy is frequently seen under neoliberal regimes when the economy has suffered a recession or is under austerity. For example a technocrat prime minister was appointed as Prime Minister of Greece after the economic crises in 2010. In this way, the country may avoid populist pressures to maintain benefits for the poor, elderly and working classes.

Technological Leapfrogging: Technological leapfrogging can be achieved by developing countries when they adopt technologically advanced methods of production as they industrialize. This means that they avoid going through the stages of older less efficient and polluting technologies and advance to more sophisticated technologies at once. This might provide them an advantage in the global market over countries which are still using less efficient production techniques.

Technological Spillover: Technology spillover happens when new technologies developed by a particular firm or group of firms becomes available for use by other firms or countries. The monopolization of a new technology by a particular firm may be relatively short term as other firms gain access to the technology.

Technology Transfer: Technology transfer happens when knowledge, technologies, skills, manufacturing techniques, and other technologies are learned and adopted by other countries, particularly developing countries. For example the technologies for the production of radio, television and video machines by the United States was quickly transferred to Japan in the l950s and l960s. 

Terms of Trade: The terms of trade indicate the relative price of exports of a country in terms of imports. It is the ratio of export prices to import prices. When the price of exports rise, a country can import more products. If the price of exports fall, the country can import less. The terms of trade generally militate against countries which depend upon the export of primary products such as bananas or coffee, because the price of agricultural products is likely to fluctuate greatly in the global market. For example, if the price of coffee falls, a country will have to export a large amount of coffee to buy a bulldozer.

The Theory of Capitalist Development (1942): A seminal book by the Marxist economist Paul Sweezy which extended the theories of Karl Marx to the twentieth century economy of the United States. Sweezy analyzed the operation of monopoly capitalism as it existed in the United States in the twentieth century.

Time Preference Theory of Interest (Irving Fisher): A concept from Irving Fisher that interest is a reward for not consuming things today, but putting off consumption until a later time.

Tobin Tax:  A tax proposed by the late economist James Tobin on international Financial flows but never established. The tax would provide a fund to help bail out countries in financial crises.

Tokyo Round: Trade talks under GATT which began in September 1973 and lasted for 74 months, involving 102 countries. The talks addressed the issues of tariffs and non-tariff measures. The talks resulted in tariff reductions worth 300 billion dollars in world trade.

Toxic Imperialism: Toxic imperialism happens when nations or firms act in such a way as to pollute other countries and profit from doing so. One form of toxic imperialism is dumping toxic waste in low income countries which lack environmental regulations. This can happen through the trade in toxic waste, often mislabeled. Another form is using countries with lax environmental regulations to produce products.

Trade Barriers: Trade barriers are restrictions on international trade, particularly tariff barriers, for the purpose of protecting the survival and profits and of domestic industries. Other types of trade barriers may include quotas, technical regulations, tax policies, and government subsidies to industries.

Trade Protectionism: Barriers to foreign trade, particularly tariff barriers. The major argument for trade protectionism has traditionally been to protect small industries.

Trade Rounds: Generally refers to the trade rounds carried out under the General Agreement on Tariffs and Trade (GATT) in the late twentieth century. The major trade rounds were the Kennedy Round, the Tokyo Round, and the Uruguay Round. The Doha Round has been carried out under the World Trade Organization. 

Traditional Growth Theory: May refer to the theories developed by Robert Solow and others in the l950s. Traditional growth theory posited that economic growth was a function of labor and capital. Technology and human knowledge were considered as exogenous variables. There were seen to be constant returns to scale.

Transatlantic Trade and Investment Partnership (TTIP) A trade investment agreement between the European Union and the United States which was being secretly negotiated through 2014. Talks began in Washington, DC in July 2013 and continued. Objectives of the trade agreement is to remove barriers which will result in millions of dollars of savings to US and European companies. It is argued by liberal proponents that everyone will benefit. Objectives also include cutting tariffs, standardizing technical regulations on products, opening up markets to services and investment, restricting subsidies to state owned enterprises, ensuring a market for genetically modified foods now restricted in Europe, and coordinating regulations in the financial sector between the EU and the United States.   

Transfer Pricing: Transfer pricing is the setting of prices between different branches or companies of a single corporation which are generally located in different countries. The misuse of transfer pricing involves pricing to lower the profits of a company in high-tax countries and raising the profits of a branch in a low-tax country. Transfer pricing is the major tool for corporate tax avoidance.   

Trans-Pacific Strategic Economic Partnership Agreement (TPSEP): A trade agreement of 2005 among Brunei, Chile, New Zealand and Singapore. The purpose was to liberalize trade in the Asia-Pacific region.

Trans-Pacific Partnership (TPP): A proposed expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) which has been negotiated beginning in 2010. The potential members include Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. The agreement might also include Taiwan and South Korea. A round of secret negotiations began in August 2013. Information about the large scale deal was leaked to the public and on November 13, 2013, the complete draft of the Intellectual Property Rights chapter of the agreement was published by WikiLeaks. There are many concerns about the potential agreement. Joseph Stiglitz has said that the TPP presents grave risks.

Turkish Financial Crises (2001): The 2001 Turkish Financial Crises broke out in February. Turkey was under an IMF structural adjustment program with the Turkish Lira pegged to the dollar as a crawling peg. In November, 2000, the banks had liquidity problems with a loss of confidence in the system. The central bank injected a large amount of liquidity into the system, violating its own rules. But this had little effect as a large amount of money flowed out of the country. The current account deficit rose sharply due to high imports. Interest rates rose. On February 19, the President of Turkey, Ahmet Necdet Sezer, warned the Prime Minister, Bulent Ecevit, about corruption in his ministry. Following this, the currency peg collapsed on February 21. The currency was floated, leading to a thirty percent devaluation. The currency crashed further in subsequent days with extremely high interest rates. The Turkish Banking system was badly in need of reform and a large amount of hot money had flowed into the country to take advantage of high interest rates on Turkish liras. Turkey received a loan of 11.5 billion US dollars from the IMF. However there were many strings attached. The government had to embark on a privatization of state economic enterprises and change many laws. Kemal Dervis, a World Bank former vice president was brought into the government to carry out an extensive reorganization of the banks and the country’s economy.

Uneven Development and Combined Development: A complex theory developed by Leon Trotsky to understand global development and the potential for development in Russia under the Czar. Trotsky’s analysis led to the theory of the permanent revolution. He noted that in human history, different countries do not modernize in the same way through linear stages of growth. Also countries are affected by each other with a spill-over effect. This means that countries could skip stages, telescope development, or compress development stages in the transition to modernization. He also noted how imperialism affected the way countries under the rule of another country were changed and modernized or impeded from development.   

Uruguay Round: A round of trade talks which resulted in the establishment of the World Trade Organization. The talks began in September 1986 and continued for 87 months, involving 123 countries. Issues addressed include tariffs, non-tariff measures, rules, services, intellectual property rights, dispute settlement, textiles and agriculture. Besides establishing the WTO, the talks resulted in major reductions in tariffs and agricultural subsidies, an agreement to allow full access for textiles and garments from developing countries, and the extension of intellectual property rights.  

Use Value: Use value is a concept which was developed by classical political economists in the eighteenth and nineteenth centuries. Use value is a measure of the utility which a commodity contains as opposed to its exchange value. For example, paper money contains little use value but only exchange value. 

Utilitarianism (Jeremy Bentham): Utilitarianism says that policies are best which produce the greatest good to the greatest number of people. The theory is sometimes seen to be unethical, as it could allow the weak members of society to perish without any help if the resources used could produce greater happiness elsewhere.    

Variable Capital (Karl Marx): A concept used by Karl Marx to describe labor as a factor of production in which the cost of labor was not fixed, but subject to change according to the conditions of production.  

Virginia School of Economics: A school of economics characterized by the Public Choice approach. Major architects of the school include James M. Buchanan, Gordon Tullock, G. Warren Nutter, and Mancur Olson. A major work was The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962) by James M. Buchanan and Gordon Tullock. First located at the University of Virginia, in 1969 the Center for the Study of Public Choice was established at Virginia Tech University. This center was moved to George Mason University in 1983. Theorists share the “free market” approach with the Austrian and Chicago schools. They apply economic analysis to national constitutions. Mancur Olson studied collective action and special interest groups. They have published a body of literature on rent seeking behavior.

Volatility: Volatility may refer to the rapid and unpredictable changes in the market values of major currencies in the global market. This makes it difficult to predict the prices of imports and exports and impedes international trade.

Wage Fund Doctrine: This principle says that employers must have a fund of capital available to pay the workers during the production process.

Washington Consensus: The assertion made by such organizations as the IMF and the World Bank in the l990s that countries around the world agreed with the approach of the United States that there was no alternative to instituting neoliberal economic management in countries in the age of globalization of production and marketing and that the rollback of interventionist governments along with privatization was necessary. In reality, there is little evidence of such a consensus.  

The Wealth of Nations: The famous book by Adam Smith published in 1776. Adam Smith argued that a more free market and liberal policies had an advantage over statist policies such as those advocated by Friedrich List. The book contained the idea that the free market functioned as if there was an invisible hand operating to produce a favorable result for all parties. The book also promoted the idea of free trade between countries, but noted that sometimes the worst enemies of the free market were the capitalists themselves who tended to form a monopoly in order to control the market.

Welfare Maximizing: Welfare maximizing may refer to devising economic policies which are designed to increase the social welfare of members of a society by the optimal allocation of resources to different segments of the population.

Welfare State: Welfare state may refer to the Western governments which began to provide a range of social services and benefits under Keynesian economic management after the early l930s. Social spending served as a government tool to increase effective demand and stimulate capitalist economies.  

World Bank: The World Bank includes The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The World Bank is an international financial institution which was set up at the Bretton Woods Conference in the United States in 1944. It provides loans to developing countries. The official goal of the World Bank is the reduction of poverty. The first World Bank loan was made to France for 250 million US dollars, half of what was asked for. The US State Department refused to approve the loan until the French Government expelled the Communist Party members from the Government.  

World Trade Organization(WTO): The organization established in l995 under the Uruguay Round of Trade negotiations. It replaced the General Agreement on Tariffs and Trade (GATT). As of 2013, there were 159 member states in the WTO.

Zaibatsu: A zaibatsu is a type of business firm which existed in Japan before World War II. The US occupation sought to destroy the Zaibatsus but they were reorganized as keiretsus. These large firms are interlocking and their presidents cooperate in formulating joint policies. They also share in financial matters, R&D, and marketing. They form the backbone of Japanese monopoly capitalism.



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Veblen, Thorstein. The Theory of Business Enterprise. Mansfield Centre, CT: Martino Publishing, 2013. (First published 1904)



Global Political Economy: Glossary (Part 4) O-S

Offshore Banking: Offshore banking units are concentrated in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore. They can also refer to Swiss Banks and banks in Luxembourg and Andorra. An offshore bank is simply one located outside the country of the depositor. It is usually in a low tax jurisdiction, that is, a tax haven. These banks may provide bank secrecy, low or no taxation, easy access to deposits, and protection from local political or financial instability. It has been estimated that half of the world’s capital may flow through offshore banks. These tax havens have 1.2 percent of the world’s population and 26 percent of the world’s wealth. They have some 31percent of the net profits of US multinational corporations. It has been estimated that some 13 to 20 trillion pounds sterling may be hidden in such tax havens. According to the World Wealth Report of 2010, one third of the wealth of the highest worth individuals, some six trillion dollars, may be held offshore.

Oligopoly: A market situation where a small number of large companies control the market for a commodity. This may allow companies to be price setters and keep profits high.

Oligopsony: Refers to a market in which there are many sellers but few buyers.

Opportunity Costs: The opportunity cost is the benefits that one must give up in order to engage in an alternative activity. For example, the income one would have to give up to take a long holiday.

Pareto Optimality: A pattern of resource distribution in which no one can be made better off without making someone worse off.

Partial Equilibrium Analysis: A type of analysis which examines equilibrium in one of more specific markets, without looking at the entire economy.

Path Dependence: In economics, decisions and patterns are frequently limited or determined by decisions which have been made in the past. For example, a particular technology is established and is put on the market. Once it becomes established, future versions may follow the same technology even though this is not the best possible technology. An example frequently given is the Microsoft operating system which became the dominant technology, even though it is not the best one. 

Pegged Currency: A system in which there is a fixed exchange rate between a  currency and gold or some other currency such as the dollar.

Periphery: Political economies, whether national or global, can be seen to be divided into a core and a periphery. The periphery is the outlying region farthest away from the center.

Physiocrats: A school of political economy in France in the Eighteenth Century. Physiocracy means the government of nature. The Physiocrats believed that the wealth of nations was derived solely from the value of land and agriculture. They saw productive work as the source of national wealth. They said that all life depends upon the productivity of the soil and the ability of the natural environment to renew itself. They praised country living. Their work is seen to be the first well developed theory of economics. The main figure was Francois Quesnay (1694-1774). Another important figure was Anne-Robert-Jacques Turgot (1727-1781).

Pigou Effect (Real Balance Effect from Arthur Cecil Pigou): Says that in a recession, the declining prices will increase the wealth of consumers and therefore increase spending.

Planning Commissions: Government economic institutions which were responsible for planning future economic development in countries such as India that developed plans, such as the Five Year Plans, for development. This approach was modeled after the development plans of the Soviet Union.   

Plaza Conference (1985): A conference in which Japan agreed to appreciate the value of the Yen, under US pressure.  

Pluralism: In the American context, pluralism refers to the concept that power is divided between many groups in the society and that their political activity is primarily a matter of each group trying to maximize their gains from the political system.

Portfolio Investment: Refers to investment in the financial sector in such investment assets as securities, stocks, bonds, Repo and so on, rather than in the manufacturing sector. Foreign portfolio investment is risky for emerging market economies as this type of money is essentially hot money. It can leave the country quickly in the case of economic or political instability.

Post-Fordism: Indicates an economy which has made the transition to a post-industrial economy which is dominated by the service sector. In the case of the United States there is a financialization of the economy.

Precariat: A class of people, such as urban poor, who lack secure jobs and economic security. An increasing proportion of the global population in the early twentieth century.

Predatory Pricing: Happens when businesses sell goods or services below the cost of production in order to ruin their competition. For example, large waste companies in the United States frequently sign up people for waste collection at very low rates until their competition is forced out of business. It is analogous to dumping in the international arena.

Preemption: Happens when a firm succeeds in getting its products into the market ahead of other firms. It is also called First Mover Advantage. This may preempt other firms by preventing them from moving into the market for a considerable time during which the initial firm enjoys high profits. 

Price Setters: A situation in which oligopoly firms control the market for a product and are able to keep the prices from falling. That is, they are able to set the price rather than allow the market to set the price. Having a unique product may also enable a firm to be a price setter.   

Price Takers: Price takers are at the mercy of the market and must sell their products at the price which the market or another firm decides.

Principles of Economics (1890): The famous textbook written by British economist Alfred Marshall (1842-1924 which went through many editions and was the standard textbook for generations economics students. The textbook deals with theories of supply and demand, marginal utility, costs of production and many other topics. The book is seen as consolidating the ideas of neoclassical economics into a coherent theory. The book was also responsible for changing the name of the discipline from political economy to economics.

Prisoner’s Dilemma: A game which has been analyzed in game theory. The game demonstrates why two individuals might not cooperate, even though it appears that they could benefit by doing so. Two prisoners are arrested and charged with a crime. The prisoners are isolated from each other. Because of lack of evidence, they can be convicted only on a charge that carries a one year sentence. So if neither one gives evidence on the other, they each get a one year sentence. If one remains silent and the other tells, the one who tells goes free and the other gets three years jail. If both of them tell on each other, they both get two years. The rational solution is that both of them defect and tell on the other. But the best solution would be for both of them to remain silent. This is seen to apply to real life situations. In the cold war, the rational solution was to build nuclear weapons. But the best solution for two enemy countries was to cooperate and not build nuclear weapons. The game shows how rational behavior may make one a rational fool. 

Product Cycle Theory (Raymond Vernon): From Raymond Vernon’s book Sovereignty at Bay (1971).  According to this theory, every product follows a cycle from innovation to maturity to the time when it is obsolete. After World War II, American firms had a comparative advantage in innovation because the American market was so large and because the US led in R&D. In the first phase, American products are exported from their US base. Sometime later, the product matures and production techniques become standardized. Foreign firms enter the market as there is technological transfer and a demand for the product. At this point, US firms export the means of production and produce abroad in order to preempt foreign firms. So FDI is a device used to preempt foreign firms from gaining a foothold in the market and allowing American firms to keep their monopoly. This theory helped to explain the behavior of US firms in the l960s.

Profit Seeking Activity: Another term for rent seeking by a coalitional distribution or interest group. If the activity is merely to gain greater benefits without enhancing production, such as in cotton agricultural subsidies in the United States, then the activity is unproductive and unjustified. The term is associated with Mancur Olson and the Virginia School of Public Choice Theory. 

Progressive Taxation:  The policy of taxing high incomes at a higher rate than low incomes.

Public Choice Theory: A theory largely devised by James Buchanan and Gordon Tullock in their book The Calculus of Consent (1962). They used economic theories to understand political behavior. These theorists were strongly opposed to government interference in the market.

Quantitative Easing: Another term for printing money. Central banks may have a policy of increasing the money supply with the aim of stimulating economic activity. This was the case following the financial crises in the United States in 2008. Quantitative easing by the United States and Europe tends to flood foreign currencies into emerging markets such as Turkey, where interest rates are higher.

Radical Critique of Political Economy: Radical critique may refer to the work of Karl Marx and others who challenged the approach and assumptions of the mainstream of political economy, such as Adam Smith, David Ricardo, Thomas Malthus and John Stuart Mill in the 18th and 19th centuries. After the marginalist revolution in the nineteenth century and the establishment of neoclassical economics by Alfred Marshall and others, radical critique refers to leftist thinkers in the Marxist tradition, who continued to support working class movements and base their economic analysis upon the labor theory of value, rather than the theory of marginal utility. The modern radical critique can be seen in the writings of Paul Sweezy, Harry Magdoff and others at the Monthly Review journal in New York, as well as other left critics of neoclassical economics.

Rational Choice Theory: Rational Choice Theory emerged from the use of methodological individualism to explain all of human behavior. The approach uses economic theory of utility maximization to analyze political behavior. Examples include the work of Anthony Downs in An Economic Theory of Democracy in the l950s and Gary Becker in The Economic Approach to Human Behavior (1976). The approach is also used in the Public Choice approach of Mancur Olson. It assumes that people make rational calculations to gain the basic desires of life, including food, prestige, awards, health, wealth and happiness. People are seen to approach life with the selfish and egotistical desires assumed by Thomas Hobbes. To act otherwise, presumably, would be a mistake. Probably a justification for capitalist profit-seeking behavior.

Rational Fools: A term from the political economist, Amartya Sen. While economists emphasize rational decision making by individuals, those rational decisions may also mark individuals as rational fools in terms of the likely outcome. One could relate this to rational profit making activity of corporations, which is swiftly destroying the global environment and so turning out to be quite irrational in a larger sense.

Reading School: The Reading School of Political Economy named after the University of Reading in England. The Reading School associated with John Dunning emphasizes technology as an important factor in the development of multinational corporations as well as the organization of production on a global basis. The theory is seen as eclectic as it borrows ideas from different schools of thought.

Real Economy: The Real Economy refers to the production of goods and services rather than investment in the financial sectors of the economy.

Realism: Realism may refer to state-centric realism which assumes that the international system is anarchic and sees the state as the most important actor. The approach also recognizes the role of international organizations, multinational firms and NGOs in the international arena.

Recession: A sharp downturn in economic activity in a country. In the United States, the technical definition of a recession is two consecutive quarters of negative economic growth.

Regime Theory in International Political Economy: A regime is defined by Stephen Krasner as a “set of principles, norms, rules, and decision making procedures” which guide actors, such as the directors of the World Trade Organization. In International political economy, the major approach is the liberal approach which assumes that actors act according to their rational interests and cooperate through international organizations. The realist approach sees states as the main actors in the international political economy and often in conflict with each other.

Regional Monetary Integration: May refer to the process by which the currencies of Western Europe were linked together into an exchange rate mechanism and eventually replaced by a single currency, the Euro. It may also refer to attempts toward monetary integration in North America, South America, East Asia, West Africa and other areas of the world through monetary unions and other forms of monetary cooperation.

Regionalism: A process by which the countries of a region, such as Western Europe cooperate to solve regional problems through such methods as customs unions, free trade areas, single markets, and monetary integration. It may refer to countries in North America, Europe, South America, East Asia, South Asia and elsewhere.

Rent Creation: May refer to activities of a government, such as legislation to create new programs, which results in the establishment of benefits which may then be available for distribution to an interest group. For example, a government may create social welfare benefits which are then distributed throughout the society. This can be contrasted to wealth creation in which new values are created through economic production.

Rent Seeking Behavior: Refers to the activities of coalitional distributions or interest groups which lobby or engage in other types of political activity to secure benefits from the government or public sector. This is seen by public choice theorists to be unproductive as it does not create any wealth but merely consumes resources already created.

Research and Development (R & D): Refers to activities which are aimed at innovation, the creation of new products and the improvement of existing products.

Reserve Army of the Unemployed (Karl Marx): A term Marx used to describe those workers who were unemployed and which capitalists could easily hire at cheap wages to expand production in a short period of time.   

Right to Work Laws (Irving Fisher): Also called open shop laws. This means that workers in a factory cannot be forced to join a labor union established by workers or labor officials in the factory.

The Road to Serfdom (1944): This is a famous book by Frederick Hayek which argued that the social welfare programs of the British Labour party were likely to result in totalitarianism.

Roundabout Production: Production methods which require more machinery and capital and therefore take more time to put into place when a decision has been made to expand production.

Savings: Savings may refer to the part of the national income which is not spent or consumed. In this case, it may result from deferred consumption. Savings in an economy may be related to investment and capital formation as the amount of savings may be made available to use as capital, when deposited in a bank or other investment asset.

Seigniorage: Refers to the special privileges the United States enjoyed during the Bretton Woods period as the provider of the world’s reserve currency, the US dollar. 

Service Sector Economy: A service sector economy is an economy in which the dominant enterprises of the economy are in the service sector. The service sector or tertiary sector includes information, transport, distribution of products, sales, pest control, entertainment, repair, food, hotels, hair solons, tourism and more. More than seventy percent of the work force in the United States is in the service sector.

Shareholder Capitalism (Stockholder Capitalism): The national system of political economy in the United States which is based upon the requirement that firms manage their business in such a way as to maximize profits for their stockholders or shareholders, rather than to serve the general needs of society.

 Smithsonian Agreement (December 1971): An agreement which adjusted the fixed currency exchange rates established at the Bretton Woods Conference in l944. The US dollar’s convertibility into gold was abolished. The dollar was over-valued by the l960s. In February 1973, the dollar was devalued by ten percent. The conference was held in Washington, D.C.

Social Dumping: Refers to a situation in which transnational corporations move manufacturing to countries which lack work standards and pay low salaries and few benefits to workers. Relocating in such countries as Bangladesh, for example to produce cheap clothing for higher profits is an example of social dumping.

Social Market Capitalism: Refers to the national systems of political economy in Western European nations such as Germany. These economies have been characterized by higher levels of social welfare and greater benefits to workers as compared to the United States. The members of society are seen as shareholders, as the companies are supposed to serve the interests of the whole society. 

Special Drawing Rights: A reserve currency created by the IMF in 1969 due to the shortfall in US dollars for international liquidity. The SDR is made up of a basket of currencies of the US dollar, British Sterling, the Euro and the Japanese Yen. As of 2013, there were some 275 billion in SDRs which are owned by the member countries of the IMF. They have served as a unit of account for the IMF and before 1981 were mainly seen as a form of credit. Countries are expected to maintain their SDR holdings at a given level. The SDR is sometimes seen as a source of credit for developing countries. They are not seen as very important in providing liquidity, however, as they make up only about four percent of global forex reserve assets.

Specie flow mechanism (David Hume): An analysis of the international flow of money which measures the effect upon an economy, including prices and the value of the currency. Hume observed that exports from a country would cause the value of the currency to rise, raising prices and having a negative effect on exports.

Speculative Mania: A phenomena which happens when investors rush to invest in a particular area of the economy, such as stocks or housing. The market may overheat creating a bubble which is likely to burst when investors start to become skeptical that the market will continue to rise. There is then a stampede of investors to get out of the market as quickly as possible.

Stagflation: A term used by a Conservative member of Parliament in the UK in a speech in l965. Lain Macleod warned that the economy was suffering from both high inflation and high unemployment.  This phenomenon was seen in the US economy beginning in the l960s. Unemployment remained high even when there was considerable inflation in the US economy. Some economists believed that the situation could be corrected by applying the proper monetary policies.

Stagnation: Stagnation in an economy happens when the rate of economic growth slows down and economic recovery is difficult to achieve.

Stakeholder Capitalism: Stakeholder capitalism can refer to the national system of social market capitalism in some European states, such as Germany. Members of society are seen to be stakeholders as they have an interest in the economic outcome in terms of their social welfare and quality of life.   

State-Centric Realism: A view of global political economy in which the state is seen as the primary actor in the international economic arena. International organizations are seen as having a secondary importance.

Steady State Economy: A steady-state economy may refer to the economic growth model of Robert Solow. In this model, the economy reaches a steady state when investment is equal to depreciation and is said to be in equilibrium. Knowledge is seen as an exogenous variable.

Stockholder Capitalism: The name applied to the national system of political economy in the United States which is based upon the requirement that firms manage their business in such a way as to maximize profits for their stockholders, rather than to serve the general needs of society.

Stolper-Samuelson Theorem: Says that international trade will tend to benefit those who own the abundant factor (capital or labor) and hurt those who own the scarce factor. Over time there will be a redistribution of value to either labor or capital. In a developing country, labor will benefit most. In a developed country, capital will benefit most.

Strategic Behavior: Strategic behavior in economics is a broad term which could apply to both firms and governments. In order to be successful, a firm must develop a strategy to manage the firm optimally and meet specific goals, most importantly making acceptable profits for its owners and stockholders. The production of cutting edge profits might be part of this strategy. For governments, strategic behavior can involve economic policies which promote domestic firms in the domestic and international environments.

Strategic Management: Strategic management involves the operation of a firm to meet specific objectives. It primarily involves responding to external issues outside the company, such as understanding the customers’ needs and responding to competitive forces. There is a need to continuously adapt to the changing external environment. Strategic management provides overall directions to an enterprise. There are a number of models of strategic management.

Strategic Trade Theory: Strategic Trade Theory argues that countries can increase international trade, particularly exports, by implementing specific policies. For example, Japan was able to capture a large share of the US market in electronics and automobiles in the l960s and 1970s by such policies as government support to oligopolistic industries, producing quality products at low cost, producing niche products, and supporting domestic firms even when they did not make a profit.   

Structural Adjustment Programs (SAP): Structural Adjustment Programs are economic reform policies administered by the IMF as requirements for obtaining a loan from the IMF. These policies usually involve the implementation of austerity packages. They may require large scale privatization of state owned enterprises, cutbacks in government employment, cutbacks in education, cutbacks in health, cutbacks in social welfare, banking reforms, decreases in government subsidies, and other such policies.

Structural Investment Vehicle (SIV): A financial instruments which earns a profit by producing nothing. The SIV was invented by Citigroup in 1988. The market in SIVs collapsed in 2008 with the financial crises. Money is made by borrowing money on short and medium term notes such as securities, commercial paper, and public bonds, at low interest. This money is then used to buy longer term securities that pay higher interest, such as mortgages, bonds, auto loans, student loans, and credit cards. The net credit spread produces profits for the investors. The amount of SIVs reached 400 billion dollars in 2008, but then the market collapsed.

Subprime Mortgage: A subprime Mortgage is one which is held by a borrower with a lower credit rating than a borrower with a conventional mortgage. Since the risk is greater in such lending, the interest rate is generally higher. Over-lending in the subprime market helped to produce the financial crisis in the United States in 2008. 

Subsistence Economies: A subsistence economy is one in which food, clothing, shelter and other basic needs are supplied through nature, such as through hunting and gathering and agriculture in which that which is produced is consumed by individual families or small groups and does not enter the market. Trade in such an economy would be carried out through barter as money is absent.

Subsistence Theory of Wages:  A principle held by classical political economists which says that wages will fall to the point in which the wage only allows the worker to survive.

Supply Side Economics: A right-wing conservative approach to economic policy. Supply side advocates argue that economic growth can best be increased by such policies as a lower income tax, a lower capital gains tax, and by reducing government regulations on firms. They argue that consumers will benefit from the greater supply of goods which result. It is the opposite of demand side economics. 

Surplus Value (Karl Marx): The source of profits for Karl Marx. When the worker works longer than is necessary to produce his cost of living, the additional part of the day is surplus labor for which the capitalist does not pay. This surplus labor produces surplus value for the capitalist.   

Global Political Economy: Glossary (Part 3 ) J-N

Jamaica Conference (1976): A conference in which the major industrial powers accepted flexible currency exchange rates. Most economists thought that this would benefit the global economy, while others argued that it would create higher inflation and destabilization.

Japan (Bank of): Nippon Ginko, the Central Bank of Japan located in Tokyo. It was founded after the Meiji restoration in 1882. In l871, a new currency, the Yen was established. The bank issued new bank notes in 1885 which were greatly favored by the rats which ate many of them.

Jevon’s Paradox (William Stanley Jevons): Says that an increase in the efficiency of use of a commodity will not result in decreased consumption of the commodity, but rather increased consumption. For example, if light bulbs become more efficient by using less energy, people will just buy more bulbs and use them longer.

Jugler Cycles (Joseph Schumpeter): A business cycle discovered by Clement Jugler associated with changes in investment in new plant and equipment. These cycles last eight to eleven years.

Justifiable Coalition: A distributional coalition, such as a corporation, which is set up to create value or wealth, rather than to engage in rent seeking on its own behalf. According to New Political Economy, in this case, the coalition is justifiable.

Keiretsu: In Japan, a set of companies with interlocking business relationships. They appeared after World War II, after the partial breakup of the big companies called zaibatsu. The six major postwar groups were Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi Kangyo, and Sanwa.  

Kennedy Round: Trade round talks under GATT which began in May 1964 and continued for 37 months. The talks involved 62 countries and addressed the issues of tariff reductions and anti-dumping measures. The talks resulted in 40 billion dollars of trade concessions in world trade.

Keynesian Economics: Also known as demand side economics. The theory presented in The General Theory of Employment, Interest and Money (1936) by the British economist John Maynard Keynes. Keynes noted that economic output depends upon aggregate demand, or total spending in the economy. During a recession or depression, the government can come to the aid of the economy by government spending programs to boost aggregate demand and thus economic output.

Kitchen Cycles (Joseph Schumpeter): Short fluctuations in the economy discovered by Joseph Kitchen, which last from three to four years. They are due to the changes in business inventories.

Kondratiev Waves: Long-run economic cycles lasting between 45 and 60 years and discovered by Nikolai Kondratiev. Prices rise during a 20 to 30 year period, and then decline for 20 to 30 years.

Labor Productivity: The amount of goods and services a worker produces in a unit of time. It can be measured in terms of a firm, a particular process, an industry, or for a country. Productivity depends upon such factors as investment, technology, human capital and intensity of work.

Labor Theory of Value: A theory devised by the classical political economists beginning with Adam Smith and David Ricardo. The theory was used by Karl Marx in his critique of political economy in Capital. The theory basically says that economic value is produced by labor. The amount of value produced depends upon the prevailing means of production in an economy.

Laissez faire capitalism: A system of economy which historically has existed only in theory. In is a concept from classical political economists, such as Adam Smith, of an economy in which the government does not interfere in the workings of the market. Prices are seen to be set by natural factors, such as effort in labor.

Late Industrializer: Countries such as Germany, Japan and the former Soviet Union which industrialized after the rise of earlier industrial countries such as England and the United States. The term is associated with Alexander Gershenkron who argued that the pattern of industrialization was different for countries depending upon the time frame of industrialization. While industrial capital was accumulated gradually through emerging corporations in early industrializers, the state was active in the accumulation of capital in late industrializing states. For example, the banks were a source of capital for capitalist businesses in Japan after 1945.   

Law of Diminishing Returns: A fundamental economic principle which says that in a process of production adding one more factor of production, while holding other factors constant, will, at some point, yield lower per unit returns. This is because at some point, additional units of a factor of production may lower the efficiency of the process.

Law of Income Distribution (Vilfredo Pareto): A pattern of income distribution across nations discovered by Pareto. Income increases geometrically from the poorest to the wealthiest members of society in almost every society, according to the law. Pareto believed that the natural distribution was that twenty percent of the population would own eighty percent of the wealth.

Laws of returns to scale: Includes the law of increasing returns to scale, the law of constant returns to scale and the law of diminishing returns to scale.

Least Developed Countries (LDCs): Least developed countries are countries which lack socioeconomic development and have a low human development index. The three criteria for least developed countries include poverty, lack of human resources and economic vulnerability. LDCs have a gross national income (GNI) per capita of less that US $992 as of 2012. Human resources are weak in terms of nutrition, health, education, and adult literacy. They also demonstrate economic vulnerability based upon the instability of agricultural production, the instability of exports of goods and services, merchandise export concentration, the handicap of smallness, and a significant proportion of the population affected by natural disasters. These criteria are set by the Committee for Development Policy of the UN Economic and Social Council (ECOSOC). There were 50 LDCs in 2014, including 34 in Africa, 10 in Asia, five in Australia and the Pacific, and one in the Caribbean.

Lender of Last Resort: The International Monetary Fund is frequently referred to as a lender of last resort when a country experiences serious financial problems and needs a large loan. The IMF is then seen as the only solution to the problems which the country faces.

Leontief Paradox: A concept from Wassily Leontief. The paradox was that the United States was seen to enjoy a comparative advantage in the export of labor-intensive agricultural products when traditional H-O theory predicted that the US should export capital intensive goods. Most of these agricultural products, however, were not produced under conditions of corporate production, but on individual small and medium sized farms in the United States. The process utilized much family labor which otherwise might have remained idle. Perhaps other relevant factors are the high productivity of much farm land in the US and efficient farming methods used by farmers in the US.

Less Developed Countries: Countries characterized by a low national per capita income, a high rate of population growth, high unemployment, and a dependence upon commodity exports.

Liquidity: Liquidity is cash, cash equivalents, and other assets, such as stocks and bonds that can easily be converted into cash.

Loanable Funds Theory of Interest: This theory says that interest rates are determined by the supply of savings and the demand for loans.  

Lobbying: In the American political system, all major corporations station representatives in Washington, DC, who petition Congressmen for legislation favorable to their business. Congressmen are in turn rewarded for their service with campaign contributions from these corporations. While it appears to be a form of bribery, it is referred to as lobbying, in the American context. More generally, lobbying also occurs in the European Union and other political contexts. 

Macroeconomic Policy: Includes the policies of a government in shaping the national economy. It includes monetary policies and fiscal policies. Monetary policies include such tools as raising or lowering interest rates to expand or restrict the economy. Also a policy of quantitative easing (printing money) is sometimes used to increase the money supply and stimulate the economy. Fiscal policy includes spending policies of the government, including military spending, spending for social welfare, spending for new infrastructure and so on. It also includes policies on taxation.

Managed Float: An exchange rate system in which the value of a currency is largely determined by the free market and changes from day to day. However, it can be adjusted by actions of the central bank, such as the buying and selling currencies. This is part of the current international financial environment. It is also called a dirty float.

Managerial Capitalism: A form of capitalist production and accumulation in which firms are managed and controlled by highly paid managers who are the central agents of power and direct the enterprises of the firm in order to maximize profits and accumulation. In the case of financial firms, profits and accumulation of capital is the sole underlying objective of the enterprise. 

Marginalist Revolution: The Marginalist Revolution refers to the development of neoclassical economic theory in the Nineteenth Century, beginning in the 1860s with the work of William Stanley Jevons, Carl Menger, and Leon Walras. These theorists developed a marginal theory of value to replace the labor theory of value of the classical political economists. Jevons published The Theory of Political Economy in 1871. Menger published his Principles of Economics in l871 and Walrus published his Elements of Pure Economics in 1874. This work anticipated the work of Alfred Marshall at the end of the century, which began the neoclassical period of economics.

Marginal Return: The marginal return to a factor of production is the change in output brought about by a change in that factor of production. The marginal product of labor is the change in output per unit change in labor.   

Marginal Productivity: The additional output that is produced by hiring one more worker or by using one more unit of input.

Marginal Utility Theory: An economic theory which attempts to measure the increase in satisfaction which consumers gain from consuming an extra unit of a good.

Market: A system, institution, procedure, or infrastructure by which people or parties may participate in the exchange of goods and services. A market generally also establishes the prices of goods and services. A market with a single seller is a monopoly. A market with multiple sellers and a single buyer is a monopsony.

Marshall’s Cross: The graphic depiction of supply and demand in Alfred Marshall’s economic model which depicts price on one axis and quantity on the other. Since the supply and demand curves cross at the point of equilibrium, the graph resembles a cross. It was seen by some to be the worker under capitalist production who was being crucified on this cruel cross.  

Masters of the Universe: The title which the owners and directors of giant global corporations have given themselves depicting their role in the global economy. 

Meiji Restoration (1868-1912): The economic rise of Japan during the imperial rule of Emperor Meiji. Meiji came to power with the end of the Tokugawa Shogunate in 1867. Changes brought about the end of feudal society and the beginning of a market society. Industrialization and the rise of the military promoted Japan as a modern nation with western influence. A Meiji slogan was “Enrich the Country.”   

Methodological Individualism: An approach to understanding economic and political behavior by focusing upon the discreet decisions of individuals which are seen to be rational. Typical of the neoclassical era of economics and particularly of the Austrian school of economics.

Mexican Debt Crisis: In August 1982, Mexico defaulted on its debt to the IMF. The Mexican Peso was devalued by about 50 percent. The private banking system was nationalized and Mexico suspended payments on its debt. The US Government arranged a 3.5 billion dollar loan to Mexico. This was followed by another loan of 3.8 billion dollars three months later during which Mexico was forced to make free market reforms. Wages fell and there was high unemployment. 

Mexican Financial Crises (1994): The Mexican Peso Crises began in December 1994 with the collapse of the Mexican Peso. The new President, Ernesto Zedillo had just been elected. Carlos Salinas de Gortari was the outgoing President. Zedillo took office on December 1, 2004. The Peso was four to a dollar but quickly crashed to seven to a dollar. The United States bought pesos and organized a loan of 50 billion US dollars. The Peso stabilized at around six to a dollar and Mexico emerged from the crises in around three years, which is a typical time. The causes of the crises involved several factors. First, Zedillo reversed the tight monetary controls of Salinas implementing financial liberalization. Secondly, Salinas’s populist policies before the election had strained the country’s finances. His efforts to stimulate the economy were unsustainable. Further the quality of loans made in a period of low interest rates led to high risk. Another factor was the Chiapas rebellion in late 1994. This helped to lead to a drop in foreign investment. Inflation also increased due to high spending in the period 1985-1993. At the same time, oil prices dropped. This made it hard to finance past debts. The current account deficit rose and dollars flowed out of the country.

Microeconomic Policy: Economic policies which are said to be designed to improve economic efficiency such as tax policy, competition policy, deregulation, economic liberalization, reforms of industrial and import licensing, the ending of public monopolies, and bringing an end to central planning.

Ministry of Economics, Trade and Industry (METI): The ministry of the Japanese Government which succeeded MITI in 2001 to coordinate and guide the Japanese economy.

Ministry of International Trade and Industry (MITI): A government ministry in Japan which was created in l949 to coordinate international trade policy with the private and public sectors of the economy and revive the Japanese economy. It provided money for R&D and investment to major companies. It was succeeded by the Ministry of Economics, Trade and Industry (METI) in 2001.

Misery Index: The misery index is a measure of the inflation rate plus the unemployment rate.

Mittelstand: The name given to small and middle sized industries in Germany, Austria, and Switzerland. They are given credit for much of Germany’s economic growth in the 20th century. These firms are seen to be efficient concentrating upon a particular niche in production. They typically enjoy economies of scale, have highly skilled workers, provide high job security, are export oriented, and manufacture innovative and high-value products. In Germany, in 2003, seventy percent of employees in the private sector worked in such industries and contributed fifty percent of GDP. They are often located in small rural communities and produce such items as machinery, auto parts, chemicals and electrical equipment. 

Mixed Economy: An economy typical of Sweden and several developing countries such as India in which some industries are privately owned and some are state-owned. Infrastructure industries, such as dams and electricity producing plants are typically state-owned.

Mob Psychology: Also called crowd psychology. Mob psychology can help to bring about a financial crises as viewed in the financial instability theory of Hyman Minsky. When a new opportunity opens up in the market, firms and individuals rush in to invest resulting in euphoria and creating a bubble in overvalued assets. At some point, some start to believe that the market has reached its peak and start to pull out by selling assets. This trickle picks up and turns into a panic as the mob psychology takes over again and this results in bankruptcies and a financial crisis.

Money Illusion: Happens when people react to the amount of money rather than to the purchasing power of the money. For example, people generally believe that their income has gone up when they get a pay raise, but their real pay may have actually decreased in terms of purchasing power.     

Monetarism: A school of economic thought associated with the American economist Milton Friedman. Adherents of monetarism emphasize the role of government to control the amount of money in circulation. Friedman argued that the excessive expansion of the money supply is inflationary and governments should concentrate upon price stability by regulating the money supply.

Monetary Reserves: Monetary reserves are funds which a government must hold, such as dollars or Euros, to pay its international debts.

Monopoly: A situation in the market when a single enterprise is the only seller of a particular commodity. There is an absence of economic competition and therefore the supplier can raise prices at will.

Monopoly Finance Capital: A description of the US economy after the late twentieth century in which companies engaged in financial enterprises controlled the economy and made the great bulk of their profits from financial enterprises, rather than in manufacturing. The approach is associated with the journal, Monthly Review, in New York, edited by John Bellamy Foster. Financialization is seen as a response to the stagflation in the US economy in the l970s. Financial institutions turned to speculation in the financial markets to generate higher profits. They also invented new financial tools, such as derivatives.   

Monopsony:  Refers to a market situation in which there are many sellers but only one buyer.

Moral Hazard:  Moral hazard is the principle that nations must be held accountable and responsible for their debts. If they are not held responsible when they default on a debt obligation, for example, and are then given a new loan to cover the default, this could be seen as throwing good money after bad, and encouraging the country to be irresponsible. Moral hazard says that actors may be more willing to take risks when most of the risk will be borne by another actor. Therefore, it is important to hold actors responsible.

Multilateral Agreement on Investment (MAI): A draft agreement negotiated between members of the Organization for Economic Cooperation and Development (OECD) between 1995 and l998 on international investment. It was launched in May 1995 and negotiated in secret. In March l997, a draft of the agreement was leaked. NGOs and developing countries launched a campaign of criticism of the draft agreement because it would largely prevent countries from regulating foreign companies. Due to this pressure, the negotiations were suspended in April 1998 and France withdrew from the negotiations in October. The negotiations were then canceled on December 3, 1998. However, similar measures to serve the interests of corporate investors and prevent their regulation are being established under the World Trade Organization.

Mundell Equivalency: Says that trade in capital or labor and trade in goods will have the same effect on the economy and that one can fully substitute for the other. 

Mundell-Fleming Model: A model developed in the l960s by Robert Mundell and John Fleming. It describes an open economy and the relationship between exchange rates, interest rates, and output. The Mundell Flaming Model is used to argue that an economy cannot maintain fixed exchange rates, free capital movement, and an independent monetary policy all at the same time. This is the irreconcilable trinity also known as the Mundell-Fleming Trilemma.  

National Economic Competitiveness: The ability of a country’s firms and industries to supply and sell goods and services in international markets. Paul Krugman, in a 1994 article in Foreign Affairs, “Competitiveness: A Dangerous Obsession,” argued that countries do not compete with each other the way corporations do. US President Bill Clinton once said, on the other hand, that each nation is like a big corporation competing in the global market place. US economist, Lester Thurow, in his 1993 book: Head to Head: The Coming Economic Battle Among Japan, Europe and America argued that nations do compete with each other. He argued that Europe would win out over the US and Japan due to its superior national system of political economy.

National System of Political Economy: The term describes the parameters of a national economy, such as the Japanese or German Political economy. Relevant criteria are the role of the domestic economy and differences with other nations, types of economic activity, the role of the state in the economy, the structure of the corporate structure, and private business practices. 

Negative Externalities: A phenomenon which happens when all of the costs of production of a product are not included in the price. For example, if the cost of an automobile included the cost of the environmental pollution created the price would be considerably higher. These costs, however, are externalized.

Neoclassical Growth Theory: The theory of growth formulated in the l950s by the economist Robert Solow. This model states that economic growth is a function of the factors of production, labor and capital. Technology and human capital are exogenous variables. It assumes that once new technology is invented, it is available to all producers. It also assumes constant returns to scale. It has been superseded by New Growth Theory, which takes account of such factors as economies of scale and control of R&D.

Neoclassical Political Economy: The term was used originally by Thorstein Veblen in 1900. The neoclassical era of political economy began in the late nineteenth century with the marginalist revolution, and particularly with the work of Alfred Marshall in 1890. The three basic assumptions include (1) people have rational preferences which can be identified (2) individuals try to maximize utility and firms try to maximize profits (3) people and firms act independently, based upon relevant information. Marshall used supply and demand graphs to specify when an economy was in equilibrium. These theorists also developed a theory of value based upon marginal utility. This approach may be viewed as including the Austrian School of political economy.

Neoclassical Synthesis: The neoclassical synthesis is defines as including neoclassical political economy plus Keynesianism.

Neo-institutionalism: An approach to studying society, including economics, sociology, international relations, and political science, that has emerged since the 1980s. It focuses upon the way people behave in institutions. It borrows from the work of Max Weber. In economics, this approach is associated with Douglass North at Washington University in St. Louis. Scholars note that the main goal of institutions is to survive and to do so, they must establish their legitimacy. People may act within institutions rationally to maximize utility; or act out of duty, that is normatively; or they may act cognitively, that is, taking for granted that certain ways are the correct way to do things. Neo-institutionalism emerged as a reaction to behavioralism which focuses upon the individual.

Neoliberalism: The mainstream approach to capitalist accumulation which has emerged since the l980s in Great Britain and the United States and spread widely around the world. Neoliberalism is characterized by the privatization of public sector enterprises, deregulated financial markets, an opening to the global market and foreign direct investment, austerity in government services and social welfare, and state support for capital and failing markets, rather than people. 

New Political Economy: There are several key parameters of the New Political Economy. Following the work of public choice theorists, such as Mancur Olson, it is argued that rent seeking distributional coalitions, such as labor unions, are unproductive and slow economic growth. Economic policy making should be taken out of the hands of populist politicians and put in the hands of technocrats who make decisions based purely upon economic parameters. Justifiable coalitions are positive when they are for the purpose of investing capital for economic growth. Those guiding the economy are seen to be rational and interested in only the needs of the economy.

Niche Products: Products which are produced and intended for a narrow segment of the market.

Nominal Interest Rates: The rate of interest in the current price but ignoring the rate of inflation. For example if the rate of interest is twelve percent, but inflation is ten percent, the real rate of interest is only two percent.

North American Free Trade Agreement (NAFTA): A trade agreement which came into effect in 1993 and links together the economies of Mexico, the United States and Canada. This agreement has shifted many US manufacturing jobs to Mexico. It has also had the effect of lowering average wages of workers in all three countries.  

Global Political Economy: Glossary (Part 2) E-I


Early Industrializer: Countries such as the UK and the United States which were among the first countries to industrialize in the industrial revolution.

Economic Geography: The study of how a national economy or the global economy is organized spatially in terms of cores, peripheries, and semi-peripheries. Attempts to explain why industries locate where they do leading to agglomeration or decentralization of economic activity. It also includes the factor which affect transportation and patterns of national and international trade.

Economic Miracle: A term which refers to the high rate of economic growth in specific countries for a period of time. For example, Japan after World War II.

Economic Stagnation: Economic stagnation occurs when the rate of economic growth slows down or decreases to a very low level for a considerable period of time.

Economies of Scale: The advantage that firms gain due to their size. The cost per unit is expected to decrease with larger quantities of production up to a point. 

Elasticity of Demand: The percentage change in consumer purchases divided by the percentage change the price of the good. This measures how much sales will be affected by a change in the price.

Embedded Liberalism: A term used by the political scientist John Ruggie (1982). Karl Polanyi had earlier written about disembedded markets and said it would be necessary to re-embed them in society after World War II. The term refers to the global political economy outside the communist sphere following WWII up to the l970s, which promoted free trade, national Keynesianism, and the management of unemployment. The international monetary system was the Bretton Woods System based upon the US dollar. The World Bank was to manage credit to developing countries and the IMF would settle payment accounts between countries.  

Emerging Markets: Refers to countries which have liberalized their economies since the l980s and experience generally rapid economic growth and a high rate of industrialization mostly in the private sector. Particularly, the big emerging markets include China, India, Brazil, Russia, and South Africa.

The End of History and the Last Man: The seminal book by Francis Fukuyama, published in 1992. While Karl Marx believed that history would end with Communism, Fukuyama claimed that Western Liberal Democracy would be the final form of human government.

Endogenous Growth Theory: A theory of economic growth in which knowledge and technological advance through R and D are treated as endogenous variables in the model. The theory is based upon economies of scale and says that there need not be diminishing rates of return.

Endogenous Variable: A variable which is included in the economic model.

Environmental Dumping: This happens when corporations move into developing countries to produce commodities, taking advantage of lax environmental pollution standards to cut the cost of production and increase profits.

Equation of Exchange (Irving Fisher): An equation derived by Irving Fisher which is used to discover the causes of price inflation. According to the equation, the Money supply (M) times its velocity (V), the number of times a unit of money is used during a year to buy goods and services, must equal the value of goods and services (P times Q). MV=PQ.

Equilibrium: In economics, market equilibrium is a situation in which supply and demand are balanced. There may be equilibrium in the market, even though people are starving.

Equity Company: A company which makes investments in the private equity of operating companies using investment strategies. Some examples are The Carlyle Group, Kohlberg Kravis Roberts, Blackstone Group, and Bain Capital.

Eurodollar Market: The Eurodollar market refers to foreign currencies, including dollars, which are deposited in European and other international banks.   

European Central Bank (ECB): An institution of the European Union which administers the monetary policy of the Eurozone, the countries in the European Union which use Euros as their currency. The bank was established by the Treaty of Amsterdam in 1998 and its headquarters is in Frankfurt. The bank is charged with maintaining price stability in the Eurozone and implementing monetary policies.

Excessive Exuberance: A term used famously by Alan Greenspan referring to the US economy in which investors were believed to have overestimated the potential for greater profits in the financial sectors of the economy.

Exchange Rate Mechanism: A complex system implemented in Europe in the l970s to link together the European currencies.

Exchange Value: The value of a commodity in terms of what it can be exchanged for.

Exogenous Variable: A variable which cannot be included in the economic model.

Export Led Growth: A strategy of economic growth which relies upon production of commodities for export. The major shift to export led growth in developing countries happened in the l970s, from the earlier import substitution industrialization approach.

Export Orientation: An economic strategy designed to increase the exports of a country. A typical strategy of many emerging market countries after the l970s.

Externalities: Externalities happen when the cost of producing a good is not paid for by the consumer or when the benefit of the good is not received by the consumer. An example of the first is pollution. An example of the second is the benefit of education to society.

Extreme Poverty: A condition in which individuals lack such basic human needs as adequate housing, clothing, food, electricity, safe drinking water, sanitation facilities, health care, education, and access to information. In such a condition, individuals cannot enjoy the most basic human rights.

Factor Price Equalization Theory: A part of the Heckscher-Ohlin Model of conventional trade theory. It says that under certain circumstances, trade in goods will over time equalize the return for each factor of production, wages to labor and profits to capital.

Factors of Production: The resources necessary to the production of commodities. Classically, the factors of production were land, labor and capital. It is also sometimes claimed that entrepreneurship is also a factor of production.

Falling Rate of Profit: A hypothesis of classical political economy found in the work of Karl Marx, Adam Smith, John Stuart Mill and Stanley Jevons. It says that the rate of profit will tend to fall over time. Marx explained the falling rate of profit according to his theory of exploitation. As the industry develops, the fixed capital or constant capital will increase in relation to variable capital or labor. This means that the surplus value will fall in relation to fixed capital. Since the rate of profit is equal to the surplus value divided by the total capital, the rate of profit will tend to fall.

Fast Track Legislation: A process used when a US Administration wishes to speed up the passing of a law and avoid extensive debate which might be widely reported in the press. For example, the passing of legislation for the North American Free Trade Agreement (NAFTA) was through a fast track legislation process.

Federal Reserve (The Fed): The Central Bank or national bank of the United States. It was privatized in the early part of the twentieth century. 

Financialization: The shifting of the major economic activity in the United States from industrial capital or manufacturing to generating profits through the financial sector. The primary sectors of the financial economy include the finance, insurance and real estate sectors, sometimes referred to as “F|IRE.” This happened after the early 1970s marking the US as a post-industrial service-sector economy. Manufacturing operations were mostly exported to developing countries such as China and Mexico. The analysis of financialization in the American economy is associated with the Monthly Review school in New York, and particularly John Bellamy Foster.

Fixed Exchange Rates: A fixed exchange rate system is an arrangement in which a country attempts to maintain a fixed rate of exchange between its currency and a given weight of gold, another currency or a basket of currencies.

Flying Geese Paradigm: A Japanese view of Kaname Akamatsu describing the pattern of technological development in East Asia. This view argues that Asian nations will catch up with the West as the production of goods for the global market moves from more advanced to less advanced countries in a sequence. With Japan in the lead of the formation, the second tier of countries following will be South Korea, Taiwan, Singapore, and Hong Kong. A third tier includes Indonesia, Thailand and Malaysia. Following these are China, Vietnam and the Philippines. As each country develops, production becomes more capital intensive and production shifts to cheaper labor countries.

Fordism: The term comes from the industrial system developed by Henry Ford to mass produce automobiles in the United States. The same system has been used to manufacture a wide range of products. The three fundamental aspects of Fordism include the production of standardized products, assembly lines based upon the low skill of workers, and living wages with benefits. See the Charlie Chaplin film, Modern Times.

Foreclosure: The process by which a bank reclaims title to a house or other asset when the mortgage holder fails to make the required payments on the loan.

Foreign Direct Investment (FDI): This is a process whereby a company invests in the manufacture of products in a foreign country either by buying companies or expanding production in the foreign country. It is distinguished from portfolio investment, where companies invest in securities.

Fragmentation: Fragmentation happens when production of a good is organized so that different components of the product, such as an automobile, are produced in different countries. The components are then shipped, or traded, and assembled elsewhere. Much of trade is in the form of components.

Free Market Economy: The concept of an economy in which the forces of supply and demand are not controlled by the government or some other authority. This ideal could be described as that of laissez faire. It is also associated with capitalism, but theoretically could be used in other economic systems. It is largely an ideal, as it is difficult to find actually existing economies that conform to these parameters. It is contradictory to the logic of capitalism itself, which tends toward monopoly.

Free Rider Problem: The free rider problem happens when individuals enjoy the benefits of a good for which they do not pay. For example, they may enjoy the benefits of good roads even though they do not pay taxes to construct them. Good roads may not be constructed unless individuals are forced to share the cost. 

Game Theory: The study of strategic decision-making. It involves mathematical models of conflict and cooperation between decision-makers who are considered to behave in a rational manner to maximize their gains in the game. Can be applied to economics and political science as well as other disciplines.

GATT: The General Agreement on Tariffs and Trade. The global multilateral trade agreement which existed from 1947 until 1994. It was replaced by the World Trade Organization in 1995. GATT was an arrangement which resulted from the failure to establish an international trade organization. Its purpose was to reduce tariffs and preferences and increase free trade.

General Equilibrium (Leon Walras): General equilibrium happens when all markets in an economy are in equilibrium at the same time.

Globalization: Globalization may be defined in many ways. Broadly, it can be seen to describe processes of linking peoples of the world together for thousands of years through commerce, travel, conquest, war and so on. The term has come to be largely a buzz term since the l980s, describing global changes associated with the spread of neoliberal capitalism to most countries and areas of the world. The International Monetary Fund (IMF) sees globalization as involving four aspects: global trade and transactions; capital and investment movements; migration and the movement of people and the spread of knowledge. Beyond this doctrinaire definition, the term could just as well describe the growing global resistance to neoliberalism capitalism.

Gold Standard: A strict gold standard is a monetary system in which currencies are made of gold. The Bretton Woods System was a modified gold system as the US dollar was linked to gold at the official price of 35 US dollars per ounce. Other currencies were then linked to the dollar. Gold was thus used to stabilize and maintain the value of the dollar. This could only work if there were not too many dollars. So the seeds of destruction were built into the Bretton Woods System.

Golden Fetters: From the book by Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. (1992) Eichengreen argues that economic policies, particularly the gold standard, constrained economic policies and was largely responsible for the unstable economic environment of the l930s.

Governance: Governance refers to the management, making policies and decisions, instituting processes, and carrying out all the tasks to keep an organization running. It may apply to a government, a business corporation, or other organization, such as a non-governmental organization.   The World Bank defines governance as “the manner in which power is exercised in the management of a country’s economic and social resources for development.”

Gresham’s Law: A principle which says that “bad money drives out good money.” The principle says that people will hold more valuable money and spend less valuable money.

Gross Domestic Product (GDP): A measure of the market value of all the final goods and services produced within a country in a designated period of time.

Harmony of Interests: In economics, the assertion that there is a harmony of interests in society between all members of the population.  The Austrian school of economics claims that this is because the division of labor removes conflict between individuals. This view is the opposite of seeing society in a dialectical way where there is a clash between the interests of different classes in society.  

Hecksher-Ohlin Model (H-O Model): The Hecksher-Ohlin Model is the neoclassical model of international trade theory. The theory is based upon a number of assertions. The model is based upon comparative costs and says that a country will specialize in products where it has a cost advantage over other countries. The model also assumes constant returns to scale and universal availability of production technologies. The model says that (1) a country will export those things which it has in abundance, (2) trade will benefit those who own abundant factors (capital or labor) and hurt those who own scarce factors, (3) all sectors will benefit, but there will be a redistribution to either labor or capital (Stolper-Samuelson Theorem), (4) trade in capital or labor and trade in goods will have the same effect and one can fully substitute one for the other (Mundell equivalency), and (5) trade in goods will over time tend to equalize the return for each factor of production, wages to labor and profits to capital. (Factor-Price Equalization Theorem).  

Hedge Funds: A hedge fund is a pooled investment vehicle run by a management firm. Hedge funds are not sold to the general public and are frequently held by financial institutions. Hedge fund managers invest in a broad range of markets.

Hegemonic Stability Theory: A theory that claims that free trade in the international arena is dependent upon a strong hegemonic state to keep the international system open to international commerce. Seen to be typical of the international order under British colonialism. More generally, it says that the stability of the international order depends upon the dominance of a single powerful state.

Helms-Burton Act: A US law which punishes foreign firms which deal with Cuba. It is seen to be an example of how the US tries to impose its policies on other countries.

Hyper Speculation: Excessive or overextended speculation in markets, whether in financial markets or other assets.

Holding Company: A holding company is a company which owns other companies, for example the outstanding stock. The holding company does not itself produce goods and services.

Hot Money: Money generally from developed countries invested into a foreign country as foreign investment or portfolio investment. The purpose is generally to take advantage of the higher interest rates in emerging market countries such as Brazil, China, Turkey, and Malaysia. These are generally short-term investments and are called hot money because the funds can move out of the markets very quickly, especially with financial or political instability.  

Human Capital: A term which treats the labor, ability, talent, skill, and education of human individuals as capital or a factor of production in the production of commodities.

Imperfect Competition: Imperfect competition refers to a market which shows only some of the characteristic of competitive markets. This can be due to the presence of an oligopoly, where a few companies control the market; due to monopolistic competition, where there are many sellers producing highly differentiated products; a condition of monopsony, where there are many sellers, but only one buyer; and a condition of oligopsony, where there are many sellers but few buyers.     

Imperialism: Generally refers to the domination of one country over another country. Classical imperialism saw the rule of one country over other areas of the world, such as under the British, French, or Dutch.  Modern imperialism may involve the economic and political domination of countries through the dynamics of global capitalism.

Import Substitution Industrialization: The pattern of development typical of countries after World War II, such as India, which tried to produce most products inside the country for domestic markets, rather than to produce products for export and import other goods.

Increasing Returns to Scale: Happens when the output increases by more than the proportional change in the factors of production.

Indivisible goods: Goods that are sold in discrete quantities, such as automobiles, airplanes or computers.

Inductive Reasoning: A type of logical reasoning in which general propositions are derived from a number of specific observations. For example, it may be observed that a number of developing countries suffer negative terms of trade when trading with rich developed countries. Therefore, as a general rule, a developing country can be expected to experience negative terms of trade in international trade. 

Infant Industries: Newly established industries, generally in developing countries, which have not yet developed to the point of being competitive in the international arena.

Infant Industry Argument: The mercantilist argument that protection should be used to protect small industries until they become strong enough to compete in the international environment.

Inflation: A persistent rise in general prices of goods and services over a period of time. Inflation is considered by some economists to be due to a growth in the money supply.

Information Technology (IT): The use of computers and telecommunications equipment to store, retrieve, transmit, and apply data. IT includes computers, software, electronics, semiconductors, internet, telecommunications equipment, and so on.

Institutionalist School of Economics (Thorstein Veblen): Says that economic behavior is not driven by rational decisions by individuals, but rather by the requirements of the institutions in society, such as conspicuous consumption and prestige.

Intellectual Property Rights: The rights given to a person over the creation of their minds. It is said to give the creator an exclusive right over the use of his or her creation for a period of time. Intellectual property rights may apply to literary works, scholarly works, artistic works, symbols, names, images and so on. They may be protected through patents, copyrights and trademarks. In real life, however, creations of the mind are not generally owned by the creator but by a publishing company or other company which pays a small fee for the exploitation of the intellectual creation.

Interest Group Theory: The theory that in a pluralist democracy, individuals and groups are free to form groups which petition the government for certain demands. The theory is closest to American political theory and is associated with such figures as Arthur Bentley and David Truman. Traditionally, interest groups have been seen to make society more democratic and better for all. Public choice theory challenges this view of interest groups.

International Monetary System: Refers to the system that was put into place at the end of World War II to regulate the world’s major currencies. In particular, the Bretton Woods System made the US dollar the principle global reserve currency. The US dollar was linked to gold at the rate of 35 US dollars per ounce. The major European currencies were pegged to the dollar with fixed exchange rates. The system operated well until the early 1970s when the dollar was devalued.

Intrafirm Trade: Trade which takes place between different branches of the same company in different countries. For example, some parts of a ford automobile may be produced in Turkey and shipped to a Ford auto plant in Vietnam. This transfer counts as international trade, even though it is only between two branches of the same company.

Intraindustry Trade: Trade which takes place between firms in the same industry.

Interindustry Trade: Trade which takes place between firms in different industries.

Investments: Capital spent for the purpose of increasing profits or income in future.

Investor-state dispute settlement: A process of the World Trade Organization in which a panel of corporate lawyers make a ruling in disputes between companies investing in foreign countries and the host government. For example, if parliament in the host country makes a law regulating environmental pollution which the company will produce, the company may make a claim to compensation from the host government. In this case, the WTO panel is to decide whether the company is entitled to compensation.

Irrational Exuberance: A term used by the head of the US Federal Reserve System, Alan Greenspan in a speech in 1996, to describe excessive investment by firms and individuals in stocks and other assets during the era of the dot-com bubble. It suggested the assets might be overvalued. The speech was followed by a world-wide fall in stock prices. It is the title of a book, Irrational Exuberance by Robert Schiller in 2000. 

Irreconcilable Trinity: The theory which says that only two out of the three goals of monetary management can be met at any one time. These are stable exchange rates, national independence of monetary policy and capital mobility. An international monetary system can accommodate only two of these goals at any one time. The Bretton Woods system, based upon fixed exchange rates promoted economic stability, but not the free movement of capital.   

Global Political Economy: Glossary (Part 1) A-D


Glossary of Terms of Political Economy:


Adding-Up Problem (Product Exhaustion): The question of whether the sum of the marginal productivity of all inputs used by a firm equals the product of output in order to cover the cost of the factors of production.

Adjustable Peg: A type of currency exchange rate management in which the currency is pegged to another stronger currency, such as the US dollar, and then the exchange rate is adjusted from time to time when economic conditions change.  

Agglomeration: A process which tends to lead firms to locate near other firms, large markets, and manufacturers. It is most typical of locations within developed countries. This process of concentration of business activities tends to build up the core areas of an economy.

An Economic Theory of Democracy (1957): The seminal work by Anthony Downs who argued that economic theory can be used to understand political behavior. In particular, he studied such phenomenon as the behavior of political parties and individuals in voting.

Arbitrage: An economic activity in which one takes advantage of differences in price between the same assets. For example, the difference in interest rates between two countries allows investors to make profits by moving their money from one country to another.

Asian Financial Crises (1997): The Asian Financial Crises began in July 1997 and affected most of the countries of East and Southeast Asia. In Thailand, the Thai baht was forced to float due to a lack of foreign exchange to maintain its peg to the US dollar. At the same time there was a real estate bubble and financial over-extension. Thailand was also effectively bankrupt with a high foreign debt. The collapse of the Thai economy spread to all of Southeast Asia. The Japanese yen declined. Stock markets fell. The IMF injected 40 billion US dollars to rescue Thailand, South Korea, and Indonesia. Also less affected were Hong Kong, Malaysia, Laos, and the Philippines. Less affected were China, Taiwan, Singapore, and Vietnam. On 21 May, 1998, Indonesian President Suharto was forced to resign after some thirty years in power. There was much crony capitalism in the country. The rupiah was devalued, causing riots. The causes of the crises are disputed. Paul Krugman disputed that there and been an Asian Economic Miracle with the eight to twelve percent economic growth previously. He argued that growth was based on high capital flow into the country due to high interest rates. He claimed that Asian productivity was not high. Secondly, there was a bubble in the Thai economy in housing, stocks and other assets. Further, development money had flowed to those close to power. Most countries also had high current account deficits. The economic recovery took around three years.

Austrian School of Economics: Developed in the late nineteenth and early twentieth centuries in Vienna by the work of Carl Menger, Eugen von Bohm-Bawerk, Friedrich von Wieser, Ludwig von Mises and others. It is based upon methodological individualism. These theorists developed a subjective theory of value and a price theory based upon marginalism. Seen as part of the nineteenth marginalist revolution.

Balance of Power: The term may refer to either nations or groups within a nation where there is a rough equality of power between nations or groups. This is generally seen to lead to political and economic stability.   

Basle Accord (1988): The Basle Accord was an agreement to standardize the regulations on reserve requirements of capital for international banks on an international scale. The agreement was in response to the desires of American bankers. Since reserve requirements were higher for American banks, the American bankers claimed that this gave foreign banks an unfair advantage. The US Federal Reserve put pressure on foreign banks to raise their reserve requirements. European and Japanese banks were forced to raise their reserve requirements.     

Big Bang Approach: A strategy used in Eastern European countries and the former Soviet Union after the collapse of communism. Under this approach, state control of wages and prices is relaxed at once generally leading to vast disruption in the economy for a period of time. It generally militates against those on retirement incomes and those who are suspended from their work. Sometimes associated with the economist Jeffrey Sachs.     

Big Emerging Markets: Refers to the newly industrializing countries after the 1990s era of globalization and neoliberalism. Includes at least twelve countries including the BRICS countries.

Big Push Theory: A theory launched in the 1940s which is seen to have established the field of development economics. Paul Rosenstein-Rodan argued that the governments of the less developed countries should take an active role to promote development. It was argued that with a big push, they could get the development ball rolling.

Biotechnology: Processes which use living systems and organisms to make new technologies and products. Biotechnology includes genomics, recombinant gene technologies, applied immunology and other inventions.

Bretton Woods System: The international monetary system which was put into place at the l944 conference in Bretton Woods, New Hampshire. The system was based upon the American dollar as the hegemonial currency. European currencies and the Japanese Yen would be pegged to the dollar to stabilize the key currencies of the international system. The dollar was the only currency which could not be devalued and was linked to gold, a modified gold standard. The system broke down under its own weight by 1971 as the US abused the system by flooding the world with dollars for war spending. This forced other countries to hold overvalued dollars and help the US pay for the war in Vietnam. The system contained its own seeds of destruction.

BRICS: Refers to a set of five big emerging market countries, specifically, Brazil, Russia, India, China and South Africa.

Bubble Economy: A situation in an expanding economy in which investment and prices tend to overheat and lead to the danger of an economic recession when the bubble bursts.

Capital: Includes capital goods, capital assets, or non-financial assets used in the production of goods and services. Money invested in the productive process is capital in capitalism.

Casino Capitalism: Refers to the era of the financialization of the economy in which capital is used in highly speculative ways. It is seen to increase the danger of a financial meltdown of the economy.

Centrifugal Forces: In economic geography, factors which tend to disperse economic activities away from the center or core toward the periphery.

Centripetal Forces: In economic geography, factors which tend to concentrate economic activities in the center or core, rather than in the periphery.

Chaebol: A Chaebol is a type of business enterprise in South Korea similar to a zaibatsu in Japan. It is a conglomerate which owns many companies and is controlled by a wealthy family. There are several dozen such multinational enterprises in South Korea.

Chicago Boys: Professors and students at the University of Chicago who worked to establish conservative free market policies around the world, particularly in Chile.

Chicago School: The Chicago School of Economics. Approach to economics developed at the University of Chicago by Milton Friedman and others.

Class Struggle: In the Marxist analysis of society, class struggle is the conflict between workers and capitalists.

Classical Political Economy: The Classical era of political economy began in the eighteenth century with the Physiocrats, the writings of Adam Smith and later, David Ricardo and John Stuart Mill.

Collateralized Debt Obligation (CDO): A type of structured asset-backed security (ABS). It is a promise to pay investors in a prescribed sequence based upon the cash flow. The CDO collects money from the pool of bonds or other assets which it owns. CDOs include mortgage backed securities, student loans, credit card debt, aircraft lease equipment as well as other securities.

Collateralized Mortgage Obligation (CMO): A CDO which is based upon mortgages.

Colonialism: The practice of countries ruling over other countries. The era of Western Colonialism emerged in the sixteenth century, up to the twentieth century.

Commercial Paper: Commercial paper refers to money-market securities sold by large corporations to obtain funds to pay short-term debts. They are not backed by collateral and present a particular problem in a financial crises.

Comparative Advantage: Comparative Advantage or comparative cost is usually associated with David Ricardo. The principle of comparative advantage says that in trading with other nations, a country should produce and export that in which it has a cost advantage.

Complementary Goods: These are two or more goods which are generally consumed together, such as peanuts and beer.

Constant Capital: The part of capital consisting of machines, buildings, and so on, which does not change during the production process.

Constant Returns to Scale: A situation in which output increases by the same proportional change as the change in the factors of production, such as labor and capital.

Consumer Satisfaction: A measure of the extent to which an individual’s expectations are fulfilled after purchasing a product. It may include utilitarian dimensions, such as how useful the product proves to be. Also it may include hedonic measures, such as how it makes the consumer feel, happy or disappointed.   

Convergence Theory: In economic development, the theory that developing countries will have a tendency to catch up with the developed countries. This is because the rates of economic growth should be higher in developing countries as the law of diminishing returns has not yet set in.

Convergent Growth: The pattern of high economic growth by which big emerging markets countries tend to catch up in development with developed countries.

Core: In economic geography, the core is an area or a country which is the center of economic activity. The outlying region is a periphery.

Corn Laws: A series of laws in England in the nineteenth century between 1815 and 1846 which levied a heavy tariff on imported grain. The laws were designed to protect landowners who had strong representation in Parliament from foreign competition. The tariffs kept the price of food, primarily bread, high. This also tended to keep wages higher and so was opposed by the industrialists. The 1815 Corn Law, supported by Thomas Malthus, led to wide-scale rioting in London.  

Corporate Governance: The system by which corporations are directed and controlled. It sets out the rights and duties of the board of directors, the managers, the shareholders, the creditors, the auditors, the regulators, the stakeholders and so on.

Corporate Leveraging: Techniques whereby investors gain the right to the return on a capital base that exceeds the investment which the investor has personally contributed to the entity or instrument achieving a return. This can be achieved through derivatives, such as the gains or losses on 25 million dollars in grain by investing one million dollars in cash as margin.

Corporatism: A type of economy in which labor, capital and the state work together to expand the economy. Typical of fascism.

Cost Benefit Analysis: An evaluation of the benefits of investment or spending for an enterprise, compared to the costs of the enterprise. 

Cost of Production Theory of Price: A concept from Adam Smith in which the natural price is the sum of the costs of paying land, labor, and capital for their contribution to production.

Council of Economic Advisers (CEA): A part of the Executive Office of the President in the United States which provides advice to the President on economic policies.

Crawling Peg: A type of adjustable currency exchange rate system in which a currency is pegged to a stronger currency, generally the dollar, and adjusted as economic conditions change.

Creative Destruction: A concept derived from the work of Karl Marx and used by Joseph Schumpeter to describe the dialectical development of capitalism. For Marx, capital must continuously destroy existing modes of production in order to bring new modes into operation. Schumpeter further developed the concept as typical of modern capitalism.

Credit Default Swap (CDS): A financial instrument which provides insurance against a loan default. It is a financial swap agreement in which the seller of the CDS agrees to compensate the buyer in the event of a loan default or other credit event. This tool was invented by Blyth Masters of JP Morgan in 1994. The value of all credit default swaps reached $62.2 trillion in 2007 and fell to $26.3 trillion in 2010 after the financial meltdown. A CDS has been referred to as a financial weapon of mass destruction.

Crisis of Governability: An explanation for the severe problems encountered by post-communist countries which argues that political elites brought about the collapse of the state as quickly as possible before the societies were ready for such change. They relied too heavily upon neoliberal views of the state. They also feared a return to communism if radical changes were not consolidated quickly.   

Crony Capitalism: A situation often seen in developing countries where state elites are in league with friends and relatives to divide up sectors of the economy to those whom they favor and enrich them. Success in business generally depends upon a close relationship with those in power.

Cultural Legacy Theory: An explanation for the problems of reform in post- communist societies in Eastern Europe and the former Soviet Union. The argument claimed that communism created a society characterized by passive people who had little incentive to work hard, were mainly self-interested, and did not take responsibility for their actions. The problem of nationalism and ethnic conflict returned especially in the Balkans disrupting the economy.

Cumulative Causation: (Gunner Myrdal): This happens when one economic variable affects another economic variable and the process continues. For example, for Myrdal, being black in the United States led to getting a poor education and getting a poor education led to having a poor job. So these effects add up to a worse and worse situation. For a member of the white race, getting a good education could have the opposite effect.

Cumulative Processes: When new growth is added to old growth, then cumulative processes lead to a build-up. In economic geography, cores of an economy build up through a cumulative process as new businesses and production facilities are added to those already there.

Decreasing returns to scale: See Diminishing returns to Scale.

Deductive Reasoning: Reasoning from a general principle to the specific. Also called “top-down” logic. Example: In a democracy, the people rule. This country is democratic, therefore, the people rule.

Loan Default: The failure to repay the loan.

Deflation: The fall of prices during a recession or a depression.

Demand Side Economics: Essentially Keynesian economics in which the economy is believed to be driven by total demand from the government, businesses, households and individuals. Government spending can be increased to avoid recessions and smooth out the business cycles in the economy.

Denaturalization: A process of examining the material causes of phenomenon and events in society, rather than accounting for them as part of a natural process. It is a humanistic approach which implies that individuals are largely responsible for and can change history.

Dependency Theory: Dependency theorists, such as Andre Gunder Frank, argued that third world countries lacked development because they were kept dependent upon developed countries such as the United States and Western Europe. Resources flow from poor countries on the periphery to the rich countries in the core. Therefore, development depends upon the location of the country in the world capitalist system.

Depression: A sharp economic downturn which lasts for a considerable period in the economy.

Deregulation: The process of lowering or removing government regulations on certain activities, particularly on businesses, such as large corporations. Generally corporations claim that it results in greater efficiency, production and lower prices. Opponents point out that it results in lower standards in regard to product safety, environmental standards, and work standards. Deregulation is typically associated with economic change in the age of neoliberalism.

Deregulation of Financial Markets: Signifies the removal of government regulations from the financial sector. This has tended to make the financial sectors more susceptible to crises. An example is the financial crises in the United States in 2008, which was largely brought about by excessive financial speculation in the housing market. Much of this was based upon new types of derivatives, which greatly increased the risk in the financial markets.    

Derivatives: A type of financial instrument and financial contract which derives its value from the performance of another entity, such as an asset, index, or interest rate which is known as the underlying entity. The most common underlying entities are commodities, stocks, bonds, interest rates and currencies. Financial instruments take the form of futures, swaps, credit default swaps, options, and so on.

Developing Countries: Developing countries are defined according to the Gross National Income (GNI) per capita per year. Countries with a GNI of US $11,905 and less are defined as developing countries according to the World Bank (2012). The list included 127 countries as of January 2014.

Development Economics: Development economics emerged in the l940s as a theory of how to help post-colonial countries develop within the capitalist orbit of the global economy. The theories set out the economic aspects of development in Eastern Europe and other low-income countries. Theories focus upon promoting economic development, economic growth, and structural change. The goal is also to improve the health, education, work place conditions, of the people and improve the standards of living and income levels. An early theorist was Paul Rosenstein-Roden in 1943. Others include Walt Rostow in the 1950s and Hollis Chenery in the l960s.

Developmentalist State Capitalism: A type of economic development in which the state takes the lead in economic development. A concept used by Chalmers Johnson to describe economic development in Japan in the twentieth century. Also typical of economic development in such states as Taiwan and South Korea. 

Dialectical view: A methodological approach to understanding society and social change. First a dialectical view of society includes the recognition that two opposite characteristics may be true at the same time but for different sections of society. For example: “It was the best of times; it was the worst of times.” For some people it was the best, for other people, it was the worst. Secondly, the dialectical view observes that social conditions (the thesis) change by destroying existing conditions and creating new conditions (antithesis). These new conditions are in turn destroyed resulting in yet another new condition (synthesis). The synthesis, however, contains elements from both the thesis and antithesis, and is a new stage in social change. This process then continues.

Diminishing Marginal Utility: An economic theory which says that the utility of the first unit of consumption is greater than the second unit of consumption and so on.

Diminishing returns to scale: A situation in production where output increases by less than the proportional change in the factors of production, such as labor and capital.

Directly Unproductive Profit-Seeking Behavior (DUP): Activities in society which are seen to waste resources, such as labor unions which attempt to raise wages above the market rate.

Dismal Science (Thomas Carlyle): A term used to describe the science of economics based upon the pessimism of Thomas Malthus.

Dispute Settlement Body (DSB): A method of settling disputes which arise among the member countries of the World Trade Organization. As of 2014, there were 159 members. According to the World Trade Organization, the DSB is the “central pillar of the multilateral trading system.” It is seen to be the greatest contribution of the WTO to the stability of the global economy. Rulings are made by a dispute panel of experts, who may be corporate lawyers, and presented to the General Council of the WTO, which consists of all member countries. It is effectively impossible for the General Council to reject a ruling, as it requires the consensus of all members. So countries which lose the case cannot block the ruling. Prompt compliance of countries with the ruling is expected. If not the country may have to pay compensation or have trade sanctions imposed upon it. By 2008, 136 out of 369 cases had been resolved. Some were pending and some were resolved out of court.

Distributional Coalition: A concept from Mancur Olson’s book, The Logic of Collective action. A distributional coalition is a group “oriented to struggles over the distribution of income and wealth rather than to the production of additional output.”

Distributional Justice: The idea that justice is not giving every person an equal amount of goods, but rather giving each person his due according to some measure of merit.

Divisible goods: Goods that can be sold in “divisible quantities” such as wheat, oil, corn, or cloth.

Division of Labor: In Adam Smith, division of labor is a process of dividing the production of a commodity into small tasks performed by different workers, in order to increase efficiency and productivity.

Doha Round: A round of trade talks under the World Trade Organization which began in Doha, Qatar in November 2001. The talks, which involved 159 countries, were not yet concluded in 2014. Issues involved tariffs, non-tariff measures, agricultural subsidies, labor standards, environment, competition, investment, transparency, patents, and a number of other issues.

Dollar Hegemony: Refers to the dominance of the US dollar in the global economy beginning with the Bretton Woods period, based upon the fact that the dollar was the central currency. During the Bretton Woods period, the dollar could not be devalued. This gave the US a tremendous privilege and power in the global arena. After l971, the central role of the dollar as a reserve currency continued giving the US a continued central role and power over many countries around the world.

Dollarization: Dollarization is the process by which local prices become linked to the value of the dollar. For example, since petroleum is sold in dollars, the price of petrol in the local currency rises when the exchange rate of the local currency drops against the dollar. Commodities become effectively priced in dollars.  

Dumping: In international trade, dumping happens when producers market goods in a foreign country below the price charged in the home country or below the cost of production. This selling at less than the “normal value” is seen to be a form of protectionism.

Global Political Economy: Biographical Sketches


Biographical Sketches

Amin, Samir (1931-): Egyptian Marxist political economist. Author of many books including The Liberal Virus (2004). Worked in Dependency and World Systems Theory. Critical of US imperial policies and neoliberalism.

Aristotle (384-322): Greek Philosopher. His economic ideas are discussed in The Politics. Perhaps he influenced Marx.

Arrighi, Giovanni (1937-2009): Italian scholar of Political Economy and Sociology. Collaborated with Immanuel Wallerstein at the Fernand Braudel Center at SUNY Binghampton. Worked on World Systems Analysis. Influenced by Adam Smith, Max Weber, Karl Marx, Antonio Gramsci, Karl Polanyi and Joseph Schumpeter. Major works: The Long Twentieth Century: Money, Power, and The Origins of Our Times (1994) and Chaos and Governance in the Modern World System (1999).

Arrow, Kenneth (1921-):Became famous for his impossibility theorem. Contributed to rational choice theory. He said essentially that social decision making is not rational. It is impossible to derive a social group choice from individual preferences. In an election, the rules determine who wins. No matter what the rules, there will be some unintended result. This casts doubt upon the possibility of democracy.

Bagchi, Amiya Kumar (1936): Indian Political Economist. Student of economic history and development. Author of Perilous Passage: Mankind and the Global Ascendency of Capital (2005).

Baran, Paul (1909-1964): American Marxist economist. Stanford University professor. Famous for his book, The Political Economy of Growth (1957).

Becker, Gary (1930-2014): University of Chicago economist. Contributed to rational choice theory. Claimed that all forms of human behavior can be explained by economic theory including decisions about who to marry, whether to have children, whether to rob a bank, or become a dealer in drugs. Claimed that there was no racial discrimination in America. Won a Nobel Prize.

Bentham, Jeremy (1748-1832): British philosopher and economist. Developed a philosophy of utilitarianism. The fundamental principle was: “It is the greatest happiness of the greatest number that is the measure of right and wrong.” In economics, he focused on monetary expansion as a means of helping to create full employment. He also worked on legal reform designing a prison building called the Panopticon. This concept influenced the French philosopher Michel Foucault.

Bernanke, Ben (1953-) American Economist, Chairman of the US Federal Reserve Board 2006-2013. Professor at Princeton University. Wrote on Monetary theory. Influenced by Milton Friedman. Became known as “helicopter Ben” by critics after quoting a statement made by Friedman about using a helicopter to drop money into the economy to fight deflation. Bernanke thought that adequate liquidity could have saved the US from the Great Depression of the l930s.

Bernstein, Eduard (1850-1932): A German Social Democrat. Bernstein was the founder of evolutionary socialism and revisionism. Bernstein believed that socialism could be achieved through peaceful means. Workers would win democratic rights through the democratic parliamentary process. With better social conditions, there would be less motivation for a revolution.

Bhagwati, Jagdish (1934- ): Indian-American economist. Taught at Columbia University in the field of international trade. A Liberal scholar pushing the notion of globalization and free trade. Worked with Amartya Sen and Indian Prime Minister Manmohan Singh. Work: In Defense of Globalization (2004) and many other books.

Blanc, Louis (1811-1882): French politician, historian, and socialist. Advocated cooperatives to guarantee employment for the urban poor with equal wages. An actor in the Revolution of 1848.

Blanqui, Louis Auguste (1805-1881): French socialist and revolutionary. Elected President of the Paris Commune. Wanted a just distribution of wealth carried out by a temporary dictatorship.

Bohm-Bawerk, Eugen von (1851-1914): An Austrian economist and disciple of Carl Menger. He published Capital and Interest in three volumes (1884, 1889). He criticized the exploitation theory of Karl Marx and influenced Joseph Schumpeter and Ludwig von Mises. He rebutted the labor theory of value of Marx. Wrote that “capitalists do not exploit workers; they accommodate workers by providing them with income well in advance of the revenue from the output they helped to produce.” 

Braudel, Fernand (1902-1985): French Historian of the Annales School. Precursor of World Systems Theory. Studied long historical waves of capitalist development in the Mediterranean and Europe. Famous for the books: The Mediterranean, Civilization and Capitalism, and Identity of France. 

Buchanan, James M. (1919-2013): American economist. Founder of the Virginia School of Political Economy and Public Choice Theory. Awarded Nobel Prize in l986. Said to be founder of “New Political Economy.”

Bukharin, Nikolai (1888-1938) A member of the Bolshevik Party in Russia. Participated in the Bolshevik Revolution in 1917. Leader of the right wing of the Party in the 1920s. Thought that the peasants should be allowed to get rich because they supplied food to the cities. Purged in the l930s by Joseph Stalin. Executed in the Purge Trials in 1938.

Cardoso, Fernando Henrique (1931-): Sociologist, professor, politician, President of Brazil (1995-2003). Worked on Dependency Theory. Author of Dependency and Development in Latin America (with Enzo Faletto) 1979.

Darwin, Charles (1809-1882): English naturalist and geologist. Contributed to evolutionary theory. Wrote: The Evolution of the Species (1859).

Downs, Anthony (1930- ): American Economist. Influenced Public Choice School. Famous for An Economic Theory of Democracy (l957). Since most voters have incomplete information, they resort to economic voting in an irrational way.

Engels, Friedrich (1820-1895): German social scientist, author, political theorist and philosopher. Engels worked with Marx on developing Marxist theory and edited Marx’s unfinished works after Marx died in 1883. Engels met Marx in 1842 in Germany and later in Paris and London. Major works include: The Condition of the Working Class in England (1844), The Communist Manifesto (with Marx, 1848), and Socialism: Utopian and Scientific (1880).

Faletto, Enzo (1935-2003): Chilean economist. Taught at University of Chile. Worked on Dependency Theory and development and underdevelopment in Latin America.

Fanon, Frantz (1925-1961): French Creole psychiatrist, philosopher and revolutionary. Made post-colonial studies. Best known for The Wretched of the Earth (1961). Studied the psychopathology of colonialism.

Foster, John Bellamy (1953-): Editor of the American independent Socialist journal, Monthly Review. Wrote many books focusing upon Marxist political economy, capitalism, economic crises, and the ecological crises. Author of many articles in Monthly Review journal.

Fourier, Charles (1772-1837): French philosopher and utopian socialist. Coined the word “feminism.” People would live in socialist communities called a phalanx. He set up several socialist communities in the USA. 

Frank, Andre Gunder (1912-2005): German-American economic historian and sociologist. Promoted Dependency Theory and World Systems Theory. Used Marxian concepts in political economy. Wrote many books on underdevelopment.

Friedman, Milton (1912-2006): American economists. Leader of Chicago School at University of Chicago. Awarded Nobel Prize (1976). A monetarist who challenged Keynesianism. Influential conservative economist.

Fukuyama, Francis (1952- ): American political scientist. A neoconservative who first supported George W. Bush and later changed his mind. During the George W. Bush Administration, he abandoned his neoconservatism.  His main thesis was that liberal democracy and the free market was the final form of human government. Wrote: The End of History and the Last Man (1992).

Furtado, Celso (1920-2004): Brazilian economist. Worked on development, underdevelopment, and poverty. An economic  structuralist. Inspired by Keynesianism and dependency theory. He was exiled with the military coup in l964.

Galbraith, John Kenneth (1908-2006): Canadian-American economist and diplomat. A Keynesian and institutionalist. Taught at Harvard University. US Ambassador to India. Wrote almost 50 books. Criticized the power of large corporations over consumers. Noted that economic ideas have inordinate stability, even when they are wrong.

George, Henry (1839-1914): An American writer and political economist. He was the strongest proponent of the “single tax,” the land value tax. Most important work is: Progress and Poverty (1879). He said that people should own what they create, but that everything found in nature, including land, belongs to all humanity. George criticized the railroad and mining interests, corrupt politicians, land speculators, and labor contractors. He thought the high price of land was the cause of poverty. He thought that a land tax was the only tax needed for public expenditure.

Godwin, William (1756-1836): English political philosopher. Anarchist and utilitarian. Advocated the peaceful overthrow of political, economic, social and religious institutions. Wrote: An Enquiry Concerning Political Justice. Engaged in a debate with Thomas Malthus over the issue of population.

Greenspan, Alan (1926-): American economist. Chairman of the US Federal Reserve (1987-2006). Supported Social Security privatization and tax cuts. Loved to write his memoirs in the bathtub.

Hamilton, Alexander (1757-1804): American founding father. He was chief of staff to General George Washington. He became the leader of the Federalist Party. He helped to put down a tax revolt by western farmers known as the Whiskey Revolt. The farmers opposed a tax on whiskey. He supported tariffs on imports to protect American industries. One of the main proponents to organize a constitutional convention to write a new constitution to replace the Articles of Confederation. He was killed in a duel with Aaron Burr.

Harberger, Arnold C. (1924- ): University of Chicago Professor (1953-1982). He headed the Chile Project of the US Government to establish free market economics in Chile, Argentina and other Latin American countries. Many of his students became Chicago Boys in Chile and Argentina. Established the technique of “Shock Treatment.” An economic adviser to many Latin American nations, including Chile under Augusto Pinochet.

Hayek, Friedrich (1899-1992): Austrian-British economist and philosopher. Defended classical liberalism. Awarded Nobel Prize in l974. Worked on the theory of money. Wrote: The Road to Serfdom (1944).

Hilferding, Rudolf (1877-1941): An Austrian-born Marxist economist who developed the theory of organized capitalism. Hilferding published his most influential work in l910, Finance Capital. Hilferding believed that the concentration of capital in the industrial, mercantile, and banking sectors of the economy was a key factor in the transformation of capitalism into socialism in future. As capitalists came to rely upon the state as a narrow ruling class, it would be relatively straight forward for the working class to take over the state and initiate socialism, once the forces of production were sufficiently developed.

Hobsbawm, Eric (1917-2012): British Marxist historian. Studied the rise of industrial capitalism, socialism and nationalism. Coined the term: “The Long Nineteenth Century.”

Hobson, John A. (1858-1940): John Hobson was an English economist and critic of imperialism. He is best known for his 1902 book, Imperialism: A Study. Hobson believed that imperialism was the result of the forces of expanding capitalism. Over-saving and underconsumption set in causing a maldistribution of income. Capitalists, finding no profitable investments for their capital in the domestic economy, exported their capital abroad to make higher profits. He believed that the solution to this was the redistribution of wealth through taxation and the nationalization of monopolies. Hobson’s work was a major influence on Vladimir Lenin’s theory of imperialism.

Hume, David (1711-1776): Scottish philosopher, historian, and economist. An empiricist. Hume argued against innate ideas. His economic works include ideas on the balance of trade. He said that protectionism to promote trade was counterproductive, since exports caused the value of the currency to rise. Hume said that there is no natural right to property. Wrote: A Treatise of Human Nature (1739) and An Enquiry Concerning Human Understanding (1748). 

Huntington, Samuel (1927-2008): A conservative American political scientist. Advocated the strategic hamlet program in Vietnam to depopulate areas and push peasants into the cities to help prevent revolution. Became famous for his thesis of the clash of civilizations. He said that after the collapse of the Soviet Union, the main cleavage in international politics would not be between ideologies, but between cultures. It seemed to justify the US wars in the Middle East. He also saw the danger of a “crises of democracy” in developing counties as countries developed. Wrote: Political Order in Changing Societies (1968); The Third Wave: Democratization in the Late Twentieth Century (1991); and The Clash of Civilizations and the Remaking of the World Order (1996).

Jaures, Jean (1859-1914): Jaures was the leader of the French Socialist Party. He tried to prevent the outbreak of World War I. He was assassinated at the outbreak of the war.

Jevons, William Stanley (1835-1882): British economist. Part of the marginalist revolution. Originator of mathematical methods in economics. Developed marginal utility theory of value. Famous for Jevon’s Paradox which states that an increase in the efficiency of use of a resource will tend to increase the rate of consumption of that resource rather than lead to less consumption.

Kalecki, Michal (1899-1970): Polish economist and Keynesian. Integrated Marxist class analysis with oligopoly theory. Predicted that the Keynesian Revolution would not endure.

Kautsky, Karl (1854-1938): German social democrat. An orthodox Marxist who wrote on imperialism. He criticized the Bolshevik Revolution as a coup. Said that imperialism was not a necessary form of capitalist development, in contrast to Lenin and Rosa Luxemburg who believed imperialism was necessary to capitalist development.

Keynes, John Maynard (1883-1946): British economist and professor. Developed the theory for Keynesian economics. Best known works: The Economic Consequences of the Peace (1919) and The General Theory of Employment, Interest and Money (1936). The most influential economist of the twentieth century.

Khaldun, Ibn (1332-1406): Arab historian and philosopher. Considered to be a founding father of sociology. Also wrote on economics. His most famous work is The Muqaddimah. He developed a theory of history of the successive regimes in the Maghreb. He saw history as evolving in cycles from primitive life among desert tribes to civilized life in cities. Analyzed society primarily on the basis of material conditions.

Kondratiev, Nikolai (1892-1938): Russian economist. Worked in agricultural economics. The Deputy  Minister of Supply in the government of Alexander Kerensky in 1917. He founded a research institute in Moscow in l920. He worked on the Five Year Plans of the Soviet Government and developed a theory of long economic cycles of fifty years. A proponent of Vladimir Lenin’s New Economic Policy (NEP).

Krugman, Paul (1953- ): American economist and professor at Princeton University and the London School of Economics. Author of many books on economics, he has worked on trade theory and New Economic Geography. Also a columnist for the New York Times. A liberal in terms of politics.

Laffer, Arthur B (1940- ): American economist who became famous for the Laffer Curve during the Reagan Administration (1981-1989). The argument is that there is some tax rate between zero and one-hundred percent that will maximize tax revenues to the government. Laffer argued that the current tax rate was above the optimum percent. Laffer did not claim originality for the theory, citing Ibn Khaldun and John Maynard Keynes as sources. A conservative and libertarian advocating supply side economics.

Lange, Oskar (1904-1965): Polish economist and diplomat. Developed a market model of socialism using market tools and economic planning. Prices would be adjusted according to supply and demand.

Lenin, Vladimir (1870-1924): Bolshevik and the first leader of the Soviet Union after the Bolshevik Revolution in l917. Contributed to theories on imperialism and capitalism. Famous for the theory of democratic centralism and the idea that professional revolutionaries or a vanguard must lead a revolution. He warned against making Josef Stalin the leader of the Soviet Union in his last will and testament.

Locke, John (1632-1704): An English philosopher and economist. His book, Two Treatises on Government laid out the ideology of liberal government in 1690. His contributions to economic thinking included the argument that men acquired property, including land, through a natural process when they mixed their labor with land and other elements of nature. This was a sort of labor theory of property. He argued that in nature man could appropriate as much provisions as he could use before it spoiled. Once money was invented, a substance which did not spoil, it legitimized unlimited property. Locke’s ideas provided an ideology which legitimized the emerging system of industrial capitalism.

Luxemburg, Rosa (1871-1919): A Polish Marxist and political economist. She was murdered by a member of a right-wing German paramilitary group, the Freikorps. She attacked militarism and imperialism. She was not enthusiastic about the Bolshevik Revolution, believing that it would turn into a dictatorship.

Marcuse, Herbert (1898-1979): German philosopher, sociologist, political theorist, and a member of the Frankfurt School. He worked on The Economic and Philosophical Manuscripts of 1844 of Karl Marx.  He wrote about the dehumanizing effects of capitalism and modern technology.  Most well-known books are Eros and Civilization (1955) and One Dimensional Man (1964).

Magdoff, Harry (1913-2006): American socialist writer. He worked for the US Government in the Franklin D. Roosevelt Administration. Later he became the co-editor of Monthly Review journal. Wrote many books on US Imperialism and on financial crises with Paul M. Sweezy.

Malthus, Thomas Robert (1766-1834): English cleric, scholar, political economist. Became famous for his arguments on population in his book: An Essay on The Principle of Population (1798).  Predicted that population growth would outstrip the ability to produce food bringing a Malthusian catastrophe. Misery and vice would suppress the population. His book was part of an argument with Rousseau about the future improvement of society. He became professor of political economy at East India Company College.

Marshall, Alfred (1842-1924): Primary founder of Neoclassical Economics with his textbook: Principles of Economics (1890). Cambridge University professor.  He developed famous supply and demand curve and developed  marginal utility theory.

Marx, Karl (1818-1883): German philosopher and political economist. Most famous for his three volume work, Capital (Volume I, 1867;Volume II, 1885; Volume III, 1894). Marx used Hegel’s philosophy to develop the dialectical materialist theory of history along with Friedrich Engels. This theory was published in The German Ideology (1845)  Marx’s early work on economics began with the Economic and Philosophical Manuscripts of 1844. Marx wrote his outline for Capital, The Grundrisse, in 1856-1857, published later. Marx continued to work on Capital until his death, but never finished the three volumes. These were edited by Engels after Marx’s death and published. Theories of Surplus Value (three volumes, 1862) critiques the work classical political economists, including Adam Smith. Stated that he was not a Marxist. Marx laid the foundation for the continuing radical critique of capitalism to the present time. Marxism may refer to a method of understanding society and history rather than an ideology.     

Menger, Carl (1840-1921): Founder of the Austrian School of Economics. Contributed to marginal utility theory. He opposed Adam Smith and David Ricardo on their cost-based labor theory of value. He helped develop a theory of marginal utility which argues that price is determined at the margin. Books include: Principles of Economics (1871) and The Theory of Capital (1888). He also wrote on monetary theory.

Mill, John Stuart (1806-1873): English philosopher, political economist and civil servant. He was raised as a precocious child being tutored by his father, James Mill, and Robert Thomas Bentham. He also knew David Ricardo, a friend of his father, and met Jean-Baptiste Say and Henri Saint Simon in Paris at a young age. Highly influential thinker of the nineteenth century. A proponent of Utilitarianism. Defended the freedom if the individual from the state. Called for the right of women to vote in Parliament. Wrote: The Principles of Political Economy (1848),  On Liberty (1859, and Utilitarianism (1863).

Minsky, Hyman (1919-1996): An American economist and professor. A post-Keynesian, he studied financial crises. He studied under Joseph Schumpeter and Wassily Leontief. He developed a theory of financial crises and the concept of the “Minsky Moment.” He wrote: “A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.” He emphasized the dangers of speculative bubbles in asset prices.  Works: Can “It” happen again (1982), John Maynard Keynes (1975, and Stabilizing An Unstable Economy (2008).

Mises, Ludwig von (1881-1973): Philosopher, Austrian School economist, sociologist and classical liberal. Moved from Europe to the United States in 1940. Became a professor at New York University (1945-1969). Developed his theory of praxeology. In Vienna, he was influenced by Carl Menger and Bohm-Bawerk. Wrote The Theory of Money and Capital (1912), Socialism (1922), and The AntiCapitalist Mentality (1956). He influenced James Buchanan, Milton Friedman, Friedrich Hayek, Lionel Robbins and Joseph Schumpeter. Von Mises stated that anti-capitalist sentiment is rooted in envy. He praised Ayn Rand.

More, Sir Thomas (1478-1535): English philosopher, author, statesman, Renaissance humanist, Councilor to Henry VIII. Wrote Utopia (1516). Utopia addressed the problems of the land due to the enclosures of common lands. Enclosures brought poverty and starvation due to lack of access to land because of sheep farming. There was a system of socialism where there was no private property and people requested what they needed from storehouses. Everyone must farm for two years and learn a trade. It was a welfare state with free hospitals. Thomas More was tried for treason, convicted and beheaded.

Mun, Thomas (1571-1641): A seventeenth Century British merchant economist. He was a mercantilist and a director of the East India Company. He said that a country becomes wealthy by making more money and produce than it spends. Mun preached the virtues of surplus trade.

Myrdal, Gunnar (1898-1987): Swedish economist and social democrat. Studied race relations in the United States, unemployment and poverty. Wrote the four volume work on Asian development, Asian Drama. Developed the idea of cumulative causation which helped to explain the cycle of poverty seen in rural Asia. He was critical of mainstream economists who often hid a political agenda under what seemed to be objective social science.

Olson, Mancur (1932-1998): American economist and social scientist. Contributed to conservative Public Choice theory. Studied institutional economics and collective action. Challenged the logic of interest group theory and saw such groups as damaging to economic growth. Wrote: The Logic of Collective Action (1965) and The Rise and Decline of Nations (1982). When groups such as cotton farmers, steel producers and labor unions form lobbies and engage in rent seeking, they hurt economic growth. Such unproductive distributional coalitions lead to the economic decline of nations. 

Owen, Robert (1771-1858): The founder of utopian socialism and the cooperative movement. Utilitarian. Famous for setting up New Lanark Mill to give mill workers a better life with physical, moral and social progress. Several communities were set up in the United States based upon Owen’s ideas.

Pareto, Vilfredo (1848-1923): Italian engineer, sociologist, economist, and political scientist. He studied income distribution and derived the notion of Pareto efficiency. He said income follows a Pareto distribution. For example, 80 percent of the land is owned by 20 percent of the people as a general rule in any human society in any age and country. Derived the notion of circulation of elites. Said “History is a graveyard of aristocracies.” Said that democracy is a fraud. He advocated free trade and believed like Walras that economics is a mathematical science. As part of the neoclassical revolution, he said that “good” cannot be measured. Utility is just preference ordering. The concept of Pareto Optimality says that a system enjoys maximum economic satisfaction when no one can be made better off without making someone else worse off. Pareto succeeded Leon Walras in the chair of political economy at the University of Lausanne in l893. He influenced Talcott Parsons at Harvard University. Wrote: The Mind of Society (1935). Advisor to Mussolini. Opposed worker strikes and may have favored fascism.

Parsons, Talcott (1902-1979): American sociologist. Studied at London School of Economics and the University of Heidelberg.  Taught at Harvard University 1927-1973. Developed the concept of action theory based upon voluntarism. Influenced by Emile Durkheim and Vilfredo Pareto. At Harvard worked with Joseph Schumpeter, Wassily Leontief, and Paul Sweezy. Wrote many books on sociology.

Pigou, Arthur C. (1877-1959): English economist, taught at the University of Cambridge, succeeding Alfred Marshall. Worked on welfare economics, unemployment and public finance. Invented the concept of externality which could be corrected with a Pigovian tax, such as a carbon tax on pollution. Wrote: The Economics of Welfare (1920) and The Theory of Unemployment (1933).

Polanyi, Karl Paul (l886-1964): Hungarian economic historian, political economist and social philosopher. Wrote: The Great Transformation (1944). Worked on the Enclosure Movement.

Prebisch, Raul (1901-1986): Argentine economist who contributed to the development of Dependency Theory. He was the President of the Central Bank of Argentina. He became the director general of the Economic Commission for Latin America (1948)  Dependency theory is based upon the Singer-Prebisch Thesis. This thesis reexamines the comparative advantage theory of David Ricardo. The international arena is seen to be divided between a center, such as the US or Western Europe, and a periphery, such as Latin American countries. While the center produces manufactured goods, the periphery produces agricultural products. 

Proudhon, Pierre-Joseph (1809-1865):  French anarchist, socialist, and political economist. Said “property is theft.” Advocated worker’s self-management and libertarian socialism. Developed a philosophy of Mutualism. Wrote: The System of Economic Contradictions on the Philosophy of Misery (1846).

Quesnay, Francois (1694-1774): French economist, Physiocrat and surgeon. Believed all national wealth came from the productivity of the soil and the ability of the natural environment to renew itself. Praised rural life over life in the city. He attempted to understand the economy in a systematic way. His economic table showed the distribution among the productive classes, proprietors and cultivators of land and the unproductive classes, the manufacturers and merchants. He praised Chinese constitutional despotism. Wrote: The Economic Table (1758).

Rand, Ayn (1905-1982): American novelist, philosopher, playwright. Developed a philosophical system called Objectivism. Promoted limited government and laissez faire capitalism. Emphasized individual rights and property rights. Ethical egoism or rational self-interest is the guiding moral principle. She rejected all forms of religion. Said that all knowledge is sense perception. Probably influenced Alan Greenspan. Wrote: The Fountainhead (1943) and Atlas Shrugged (1957).

Riker, William H. (19201993): American Political Scientist. The godfather of rational choice theory as applied to political science. An elitist, who believed that politics should be run by elites who manipulate the system through rhetoric and structuring institutions so that they can “win.” Elections are seen as meaningless. Used economic rational utility theory to understand politics. Wrote: The Art of Political Manipulation (1986).

Robinson, Joan (1903-1983): Post Keynesian economist. She worked on monetary economics and other economic theories. Taught at Cambridge University. Influenced Manmohan Singh, who became the Prime Minister of India. Wrote: The Economics of Imperfect Competition (1933), An Essay on Marxian Economics (1942) and The Accumulation of Capital (1956). Wrote many other books, some on China.

Rodney, Walter (1942-1980): Guyanese historian and political activist. Wrote: How Europe Underdeveloped Africa (1972). Assassinated by a car bomb.

Russell, Bertrand (1872-1970): British philosopher, logician, historian, social critic and aristocrat. An anti-imperialist. Believed religion is harmful to people. Wrote many books.

Sachs, Jeffrey (1954-): American economist. Professor at Columbia University. Became an adviser to Eastern European governments after the transition to market economies. Advocate of shock therapy to reform statist economies. Adviser to Bolivia, Poland, Slovenia, Estonia, and Russia. Worked on economic development, environmental sustainability, poverty alleviation, and debt cancellation. Stated that there is no solution to global warming and environmental degradation under current pattern of development in 2013. Said poor countries are caught in a poverty trap and cannot escape without foreign aid. Works include: The End of Poverty (2005) and The Price of Civilization (2011).

Saint-Simon, Claude Henry de Rouvroy, Comte de (1760-1825): An aristocrat and early French utopian socialist. He influenced Marxism, positivism, and sociology. His influence is seen in Karl Marx, Auguste Comte and Emile Durkheim. He thought industrialists would lead society using technocratic socialism. This would eliminate poverty. Science should control society, not religion. He saw “the hand of greed” as the avarice of human beings, controlling society. Socialism would be possible only when this is eradicated through education. His works have been published in 47 volumes.

Samuelson, Paul A. (1915-2009):  American economist. Nobel prize winner. He has been called the “Father of Modern Economics.” A key figure in the development of neoclassical economics, particularly the neoclassical synthesis, which combines Keynesian and neoclassical principles. He taught at the Massachusetts Institute of Technology (MIT), along with Robert M. Solow, Joseph E. Stiglitz, and Paul Krugman. Wrote the best- selling economics textbook of all times, Economics: An Introductory Analysis (1948), which has sold more than four million copies in many editions. Also: Foundations of Economic Analysis. (1947)

Say, Jean-Baptiste (1767-1832): French economist and businessman. Classical liberal views and an advocate of free trade and competition. Known for “Say’s Law.” It was not his original idea, however. The law says that “inherent in supply is the wherewithal for its own consumption.” This was criticized by John Maynard Keynes. John Kenneth Galbraith said that Say’s law is the most distinguished example of the stability of economic ideas, including when they are wrong.

Schumpeter, Joseph (1883-1950): Austrian American economist and political scientist. Coined the concept “creative destruction,” which described the continuous evolution of capitalism. Predicted capitalism would be destroyed by the emergence of social democracy. He influenced Milton Friedman, Paul Samuelson and others. He opposed Keynesianism. Studied business cycles. He said that capitalism would collapse, not from a revolution, but as a result of internal conflicts within capitalist society. The success of capitalism would lead to a form of corporatism and the rise of values hostile to capitalism, particularly among intellectuals. The intellectual climate necessary to entrepreneurship will be lost. A sort of laborism will be established and social democrats will come to rule society. These restrictions on business will come to destroy capitalism. Best known work: Capitalism, Socialism and Democracy (1942).

 Sedgewick, Henry (1838-1900): English utilitarian philosopher and economist. Founded Newham College for women at Cambridge (1875). He said no man should act so as to destroy his own happiness. He influenced Alfred Marshall.

Sen, Amartya (1933- ): An Indian economist who won the Nobel Prize. He contributed to welfare economics, social choice theory, and economic and social justice. He worked on the economic and political cause of famines. Sen showed that it is not just a lack of food which causes famines but a lack of equitable distribution of food. The Bengal Famine was caused by an economic boom in the cities that raised prices and starved millions of peasants in the countryside. Also wrote on why there are one-hundred million missing woman in Asia. Works: Poverty and Famines: An Essay on Entitlement and Deprivation (1981) and The Idea of Justice (2009).

Singer, Hans. (1910-2006): German development economist known for the Singer-Prebisch Thesis. This states that the terms of trade militate against the producers of primary products, so that the benefits of free trade go to the countries which produce manufactured products. He worked at the United Nations Economics Department on international trade. Taught at Sussex University, producing 30 books.

Soros, George (1930- ): Hungarian-American businessman, investor, money-trader. He made one billion US dollars in 1992 in the Black Wednesday United Kingdom Currency crises. Soros sold over ten billion pounds Sterling after which the sterling crashed out of the exchange rate mechanism, earning Soros a huge profit. Soros was implicated in helping to trigger the Asian financial crises. A liberal. Runs Soros Fund Management, a currency trading company. As a philanthropist he has given some eight billion dollars to causes such as human rights, public health and education. He funded the European Central University in Budapest. In 2009, Soros said that the world’s financial system had collapsed and was effectively on life support. He donated 23.5 million dollars to defeat George W. Bush in the 2004 Presidential campaign, but failed. He has written several books

Smith, Adam (1723-1790): Scottish moral philosopher and political economist. Famous for his image of “the invisible hand.” Smith argues that when one pursues their own interests, they contribute to the general interest of society and promote the public good without knowing it. He warns against a conspiracy of businessmen against the public who attempt to form a monopoly and raise prices. He also warned against a business-dominated political system where businessmen come to unduly influence politics and legislation. He said that the interests of manufacturers and tradesmen are often opposite to that of the public. His support of laissez faire economics has probably been exaggerated as he saw the necessity of government regulation. Two major works: The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

Spencer, Herbert (1820-1903): English philosopher, biologist, anthropologist, sociologist. Liberal political theorist. Coined the terms “Survival of the Fittest” and “There is no alternative.” Said all socialism is slavery. Had a great influence on many writers. Works: Principles of Biology (1864).   

Sraffa, Piero (1898-1983): Italian economist. Close friend of Antonio Gramsci. He was brought to Cambridge University by Keynes. Criticized Alfred Marshall’s work. Founded the neo-Ricardian School of Economics. He reconstructed Ricardo’s theory of surplus value. He demonstrated flaws in the marginalist value theory. Constructed a major challenge to the neoclassical theory of value.  Major work: Production of Commodities by Means of Commodities” (1960).

Stiglitz, Joseph (1943- ): American economist. Won Nobel Prize, 2001. He worked for the World Bank. He criticized free market economists, the IMF and the World Bank. Said markets are efficient only under exceptional circumstances. Wrote: Globalization and its Discontents (2002); Making Globalization Work (2006); The Price of Inequality (2012).

Strange, Susan (1923-1998): British scholar of international relations and political economy. She taught at the London School of Economics. She said one cannot understand how the world works without an understanding of international financial markets. Markets create great uncertainty and risk in the international arena. Wrote: Casino Capitalism (1986); The Retreat of the State (1996); States and Markets (1988).

Summers, Lawrence (1954- ): American economist. Professor at Harvard University. Worked at World Bank and in the US Government at the US Treasury Department as Undersecretary under the Clinton Administration. Worked on public finance, labor economics, economic history and development economics. Said that toxic waste should be dumped in low-wage African countries.

Sweezy, Paul M. (1910-2004): Giant of American leftist political economists. Reconstructed Marxist political economy. Founder, editor of Monthly Review journal. Called the Dean of American Marxists. Wrote: The Theory of Capitalist Development (1942). Said modern capitalism is characterized by monopoly, stagnation, and financialization. Influenced many leftist political economists, such as John Bellamy Foster.

Swift, Jonathan (1667-1745): Anglo-Irish satirist and essayist. His satirical works have meaning for political economy as he addressed the economic and political ills of society. In A Modest Proposal, he satirically suggests that the poor in Ireland sell their young children to the rich as food. What he is really suggesting is that most of the problem could be solved by other policies, such as taxing absentee landlords, home manufacture of goods, a rejection of foreign luxury goods, moderation in consumption and less fighting among political factions. Works: Gulliver’s Travels (1726), A Modest Proposal (1729) and many others.

Thompson. E.P. (1924-1993): British historian, writer, socialist. An intellectual of the Communist Party in Great Britain. He remained a Marxist after leaving the party. Part of the New Left in Britain and a socialist humanist. Wrote: The Making of the English Working Class (1963) and William Morris: Romantic to Revolutionary (1976).

Tobin, James (1918-2002): American economist. Taught at Harvard University. Served on the Board of Governors of the Federal Reserve System. A Keynesian who advocated government intervention. Won Nobel Prize in l981. He wanted a tax on foreign exchange called the Tobin Tax. This would serve to reduce speculation in the international currency markets.

Truman, David B. (1913-2003): American political scientist. Wrote on interest groups and pluralism. Professor at Columbia University. Best known work: The Governmental Process: Political Interests and Public Opinion (1951).

Tullock, Gordon (1922- ): American economist. Major figure in Public Choice Theory associated with the Virginia school of economics. He developed a theory of rent seeking, which happens when a monopolistic firm uses its financial position to lobby politicians in order to create new legislation to increase their profits. This results in a moral hazard which does not serve the public interest. Wrote: The Calculus of Consent (with James Buchanan, 1962), Private Wants, Public Means (1970), and many other books.  

Turgot, Anne-Robert-Jacques (1727-1781): supporter of private property in land and individualism. An economic liberal. Supported the ideas of Quesnay that land is the only source of wealth. Carried out tax reform, reducing the tax on land. Wrote the first complete statement on the idea of progress, A Philosophical Review of the Successive Advances of the Human Mind (1750). Best known work: Reflections on the Formation and Distribution of Wealth (1769).   

Veblen, Thorstein (1857-1929): American economist and sociologist. Most famous for A Theory of the Leisure Class. Saw capitalism as a modern form of barbarism. War is highly praised. Conspicuous consumption and conspicuous waste are integral to the feudal nature of modern capitalism. Said the modern economy must be run by engineers, not businessmen. Businessmen try to wreck the system to increase profits.

Volcker, Paul (1927- ): American economist. Chairman of the US Federal Reserve 1979-1987. Chairman of the Economic Recovery Advisory Board under President Barack Obama, 2009-2011. He played a role in President Richard Nixon’s decision to suspend gold convertibility on August 15, 1971, leading to the collapse of the Bretton Woods System. Famous for the Volcker Shock in 1981, when he raised interest rates to 21 percent to slow down inflation. This hurt developing countries.  

Wallerstein, Immanuel (1930- ): American Sociologist, historical social scientist, and world systems analyst. He is famous for his world-systems theory. Influenced by Karl Marx, Fernand Braudel, and Franz Fanon. Most known work: The Modern World-System (Four Volumes, 1974, 1980, 1989, 2011).

Walras, Marie-Espirit-Leon (1834-1910): French mathematical economist. He formulated the marginal theory of value. Helped develop general equilibrium theory. Advocated the nationalization of the land which he thought would support the nation. Became professor of political economy at the University of Laussanne and founded the Laussanne School of Economics. A leader of the marginalist revolution, along with William Stanley Jevons and Carl Menger.

Williams, Raymond (1921-1988): Welsh academic, novelist, and critic. Influential figure in the New Left in Britain. Wrote on politics, culture, mass media, and cultural studies with a materialist approach. Wrote many novels. Wrote: Culture and Society (1958) and The Long Revolution (1961).


Global Political Economy: Chapter Seventeen


Chapter Seventeen: The Multinational Corporation and the Global Economy

“What is good for General Motors is good for the Country.” US Secretary of State, “Engine Charlie” Wilson. (1953-1957)

To a great extent, the global economy is run by the multinational corporations. They are more powerful than all but a handful of governments. They function as virtual parliaments and control people’s lives around the globe even though they are not democratic organizations. The mode of operation of the world’s corporations is new, but they have historical roots in the beginnings of colonialism. Firms like the British East India Company founded in 1600 and the Dutch East India Company founded in 1602 were the forerunners of today’s multinational corporations.

Profile of MNCs Today:

The top 1000 multinational corporations account for eighty percent of world industrial output. They produce twenty-five percent of the world’s gross output. With revenues of 228 billion US dollars, ExxonMobil is ranked twenty first among world economies. Of the 100 largest economic entities in the world, fifty-three are MNCs and these are wealthier than 120 nation states.

The number of MNCs has mushroomed. In 1990, there were some 3000 MNCs. The number in 2014 has surpassed 63,000 with 821,000 subsidiaries. They employ 90 million people, including 20 million in developing countries. The country with the most MNCs is not the Unites States, England, or Japan. Denmark is the home location for some 9356 MNCs. Germany is second. However, 93 of the top 100 MNCs are located in the United States, Europe or Japan.

America’s domination has changed greatly, however. In 1962, sixty percent of the top 500 MNCs were American. In l999, only 36 percent were American.

In contrast to popular belief, most MNCs are not huge companies. Most of them employ less than 250 people. The United States has some 3390 MNCs, while there are 7460 in South Korea and 4334 in Japan.

The Study of Multinational Corporations:

Mainstream economic theories do not deal with multinational corporations as a separate entity. They are primarily studied by business economists, political economists, and radical political economists. From the perspective of mainstream economists, a firm’s behavior is controlled by the market whether it operates in the domestic or the international arena. Following the principle of the Mundell Equivalency, economists generally argue that foreign direct investment in multinational corporations is equivalent to the flow of trade in the real world. It means that trade and investment are perfect substitutes for each other.

Those political economists who stress the strategic behavior of multinational corporations point out that many multinational corporations are oligopolies. They function in very imperfect markets and have various relationships with the governments of the countries where they operate. Corporations can benefit from many strategies including tax breaks, using offshore havens to conceal their profits, and using transfer pricing to avoid paying taxes. They routinely seek countries where they do not have to worry about restrictive labor and environmental laws. Theories relevant to understanding the nature of multinational corporations include strategic trade theory (STT), industrial organization theory, technological advances through R & D, and the control of assets, such as trade-marks and particularly technologies.

The Product Cycle Theory (Raymond Vernon):

Raymond Vernon argued in his book, Sovereignty at Bay (1971), that every product follows a life-cycle from innovation to maturity to eventual decline and obsolescence. Initially, American products have an advantage internationally since US firms have excelled in R & D. This has not always been true in relation to Japanese firms, however. Another advantage enjoyed by American firms is the large domestic market.

In the first phase, the products are produced in the United States and exported to foreign markets. Once production techniques are established and standardized, firms export the means of production and produce the product abroad. Not only can the American firms flood the market, they can better compete with foreign imitators which begin to enter the market. This serves to preempt the competition. The goal of the firm is to maintain a monopoly in the market for the particular product.

Vernon’s theory was useful in explaining the behavior of American multinational corporations in the l960s between the US and Western Europe. American firms could not penetrate the Japanese market as easily, so the theory mainly applied to Europe. By the end of the l960s, Europe had recovered economically, as had Japan, and the US began to lose some of its advantage in the international market. European and Japanese firms began to compete with American firms and take over the markets by the mid l960s. The Japanese were also able to produce superior quality products which began to become popular in the US market. First in electronics, cameras and so on, and later in automobiles, the Japanese took over the American market to a great extent.

John Dunning and the Eclectic Theory of the Reading School:

John Dunning studied business strategy at the University of Reading in England. Dunning stressed several important factors in international business behavior. First, multinational corporations rely upon the development of technology to establish their place in the market. Secondly, MNCs organize themselves on a global basis in order to minimize the costs of production and distribution. Third, the location of the firm, ownership, and brand name are important to give the firm an advantage in the market. If one could buy any car they wanted, perhaps most would go for a Mercedes. Part of the appeal is simply the name, although few cars can come up to the sophisticated technology. This allows firms to extract high rents, that is, higher prices. Fourth, successful MNCs try to monopolize specific technology as long as possible. Fifth, internalization includes establishing branches in other countries. Sixth, as oligopolies, they seek to keep technology out of the hands of rival firms. Seventh, new branches can take advantage of cheap labor, and lack of labor unions, such as Daimler Benz locating in the south of the United States. With financial liberalization, it is easier for firms to move capital to new countries and leap over trade barriers. Management extends across borders to a world-wide scale.

Michael Porter’s Strategic Theory: 

In his book, Comparative Advantage of Nations (1990), Michael Porter argued that multinational corporations engage in strategic management. They establish a “value chain of activities” all the way from extraction, in the case of oil and minerals, to production and marketing. The firm uses a strategy to plan which activities it will pursue and in which countries it will locate around the globe. This is a theory of strategic management. The firm chooses the optimal location for each activity around the globe. This is a true transnational strategy and gives the firm great advantage over domestic firms. HP produces some of its printers in Vietnam, perhaps because the labor is so cheap, and Hanoi is next to a convenient sea port.

Marxist or Radical Theories (Stephen Hymer):  

There is a huge body of work on multinational corporations by Marxist writers. One of the early writers was Stephen Hymer.  Hymer challenged the conventional wisdom of economists that there was no significant difference between foreign direct investment (FDI) and portfolio investment in the l960s. For Hymer, FDI was part of a strategy to control the markets. Firms wanted to control production in foreign countries. This was a strategy to help firms control their monopolistic advantage.

Hymer’s work was ignored by mainstream economists because he was a Marxist. However, later business economists came to see that he was right. Organizational theorists came to the same conclusion as Hymer, although they were not Marxists.

Hymer said that monopoly capitalism is driven by two fundamental laws:

First, firms attempt to increase the size of the firm in the core and the periphery. Second, is the law of uneven development. Firms have considerable power in the global market. So they can exploit countries around the world to their advantage. It is relatively easy for the countries in the rich north to exploit less developed countries in the South. Much work has been done along this line by William Tabb, Harry Magdoff, Paul Sweezy and others at the Monthly Review School. They too, however, have largely been ignored by the mainstream. They were never likely to win the Nobel Prize.

Multinational Corporations: Benefits and their Downsides

Benefits of MNCs are said to include paying increasing tax revenues, providing employment, providing needed goods and services, and bringing in capital, technology and management skills.

On the negative side, Noam Chomsky has referred to MNCs as totalitarian organizations which increasingly control the global economy. Their leaders increasingly control people’s lives, even though they are not elected. MNCs are accused of enabling cultural imperialism. Some eighty percent of all recorded music is sold by just six MNCs. There are huge media corporations such as that owned by Rupert Murdoch. MNCs sometimes bring unwanted ideas and images to countries and have a powerful effect, either positive or negative, depending upon one’s point of view. MNCs have also been accused of promoting unhealthy diets with fast-food outlets. McDonalds has more than 29,000 hamburger restaurants in 120 countries.

MNCs also often threaten democracy. They can skew politics with political contributions, bribery and influence peddling. They repatriate profits from countries around the world, rather than invest them locally. In this way, they contribute to global inequality.

Intrafirm Trade:

We see that much of what goes as global trade is actually just transfers between divisions of the same MNC. In the United States, forty-six percent of imports are transfers between related parties. Some seven-forty percent of imports from Japan are intrafirm. On the other hand, only two percent of goods from Bangladesh are intrafirm. In the case of US imports of autos and medical equipment, seventy percent is intrafirm. The percentage of trade which is intrafirm also increases with increasing concentration of capital.

Transfer Pricing Between Divisions of MNCs:

Transfer pricing is the major tool used by MNCs for tax avoidance. Transfer pricing can be used to lower profits in high-tax countries and increase profits in countries where taxes are low or zero. The latter indicates tax havens. Between divisions of an MNC, prices may be set so as to allocate worldwide profits to low tax countries. In this way a large amount of taxes may be avoided.

Rules for transfer pricing are based upon the “arms-length principle.” This means essentially that prices should be the same as if the company was selling to an outside party. However, there are many techniques which may be used to avoid taxes. Legally, tax authorities may adjust prices, but often it is not easy to determine the correct price.

This mechanism allows corporations to shift much of their profits to tax havens and avoid taxes. It is estimated that sixty percent of capital flight from Africa is through improper transfer pricing. This sort of capital flight from the developing world is estimated to be ten times the size of aid received by these countries. According to the African Union, at lease thirty percent of the GDP of sub-Saharan has been moved to off-shore tax havens.

An International Regime for MNCs and Foreign Direct Investment:

There is no international agreement governing MNCs and FDI. Various attempts have been made to establish freedom for MNCs to operate and make profits in any country of the world. This agenda is primarily being pursued through the World Trade Organization dispute settlement bodies.

The Multilateral Agreement on Investment (MAI) was a draft agreement negotiated between members of the Organization for Economic Cooperation and Development (OECD) between 1995 and l998 on international investment. It was launched in May 1995 and negotiated in secret. In March l997, a draft of the agreement was leaked. NGOs and developing countries launched a campaign of criticism of the draft agreement because it would largely prevent countries from regulating foreign companies. Due to this pressure, the negotiations were suspended in April 1998 and France withdrew from the negotiations in October. The negotiations were then canceled on December 3, 1998. However, similar measures to serve the interests of corporate investors and prevent their regulation are being established under the World Trade Organization.

Other elements desired by MNCs in an international agreement on FDI include the right of establishment, national treatment, and nondiscrimination. The “right of establishment” means that the firms of any nation would have the right to invest anywhere in the world. National treatment means that national governments must treat subsidiaries of foreign firms as if they were their own firms. Nondiscrimination means that countries must not discriminate against foreign subsidiaries. The firms of every nation must be treated the same. For example, the US would not be able to prevent companies based in an Arab country from purchasing companies and operating in the United States. The same rules would apply to all countries in the agreement.

However, most countries would insist on areas of restrictions for the purposes of national security. For example an alarm was raised in the United States when it became known that the George W. Bush Administration planned to sell several US port facilities to a company from an Arab country. Also there is the question of whether a country could protect its cultural possessions from foreign encroachment. For example, the French have insisted that their wine industry stay in the hands of French. National security is another area of large concern. It is not likely that the US is going to agree to sell military drones to any country whatsoever.

The question arises in relation to US restrictions on American firms doing business with certain regimes such as Iran, Cuba, and North Korea, which are considered political enemies. Also the question of whether developing countries should be able to put restrictions upon powerful MNCs arises.

Another example of an attempt of the US Government to impose its domestic laws on other countries was seen in the Helms-Burton Act. This law punished foreign firms, for example from Europe, which did business with Cuba. But it is the US which has political problems with Cuba and not the European countries.

Lacking an international agreement, the dispute settlement facility of the World Trade Organization has begun to deal with these issues. In some cases, national legislatures can be overridden by this body. This is another example of how the MNCs in practice threaten democracy around the world.

Case Study: The Largest Private Multinational Corporation in the US, ExxonMobil:

ExxonMobil became the largest private corporation in the United States after the merger of Exxon with Mobil in l998. It is also the most profitable company with huge annual profits in the range of thirty billion dollars. The company is responsible for the Exxon Valdez oil spill in Alaska in l989. The BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010 was much larger. The BP oil spill dumped twenty times more oil in the environment than the Exxon Valdez accident but by this time, people were getting used to seeing the environment polluted by the oil giants.

ExxonMobil is a company which Americans love to hate, but which is at the very heart of the American system of capitalism and global power. ExxonMobil operates globally in some 200 countries.

The ExxonMobil oil spill that dumped a quarter of a million barrels of oil into Prince William Sound stamped major oil corporations as reckless despoilers of the environment in the American psyche. It was a landmark event that would not soon be forgotten by Americans, seeing wildlife drenched and drowning in sticky black oil. In contrast, the ExxonMobil pipeline leak that dumped four times as much oil in Eastern Nigeria just ten days after the Deepwater Horizon production platform burned and sank, was hardly reported. It would not figure highly in the American press, nor cause the corporation a major headache. ExxonMobil conducts operations in the United States and around the globe. As the largest American corporation ExxonMobil generates some thirty billion dollars of profit a year.

The actually existing system of global capitalism is a threat to the global environment. This system is deeply institutionalized and this current era of ecological stress is going to continue long into the future. Global warming is likely to become a more serious problem.

ExxonMobil is a great corporation, a model of excellence, in terms of the criteria of business schools across the world. It is the purpose of every business school to train individuals to emulate this behavior. Those who work for ExxonMobil are generally serious and hard-working people. They deserve credit for excellence in their line of work in the pursuit of efficiency and maximizing the return on employed capital. Many of them genuinely believe in what they are doing and ground their pursuit of profit in the Judeo-Christian tradition of their upbringing. Many of them were Boy Scouts, which teaches a strict sense of discipline and morality.

What really happened that night when the huge tanker with one and a quarter barrels of oil ran aground off the coast of Alaska? A fifth of the load leaked into Prince William Sound, creating massive ecological damage. The captain of the ship had been drinking and left the bridge saying he needed to take care of some paperwork. It was a wake-up call for Exxon. The company tightened up its operations and emphasized safety. The Operations Integrity Management System (OIMS) emphasized discipline and accountability. The company was inflexible, focused upon performance, and driven by numbers. A culture of discipline ruled. And the bottom line was financial performance.

ExxonMobil is a corporate state within the American state, operating under secrecy, forcefully protecting itself from competition and lawsuits. It is geared to breaking all records in terms of profits. The company produced one and a half billion barrels of oil and gas each year and sold 50 billion gallons of petrol worldwide.

A senior Exxon executive was kidnapped and killed in 1992 after which the company moved to politically conservative Irving, Texas from Manhattan.

The company under Lee Raymond was exceptionally profitable when oil prices were high and also when they were low. Operating in 200 countries with some 80,000 employees, of which only two percent were Americans, it was also a powerful political actor that could act against the interests of the US Government. But the corporation was seen as lacking human factors. It was set aside from even other major oil corporations in this respect. And there was no attempt to adapt to the concerns of environmentalists after the l970s. This only changed marginally when Rex Tillerson took over from Raymond.  Middle and upper managers of the firm could expect to become millionaires over their long career.

For Lee Raymond, the focus was on ROCE, return on capital employed, which was around twenty-two percent a year. Globally, ExxonMobil had to deal with increasing resource nationalism. Many countries, including those in the Middle East, seized back oil fields from Western companies. This happened in Saudi Arabia too. By the 1990s, almost all the oil in the Middle East was off limits to private corporate ownership.

A major concern of companies was the need to replace their booked oil reserves each year. Otherwise, their stock values would suffer and they risked falling into liquidation. One problem was that ExxonMobil owned a large amount of the tar sands in Canada, which contained oil. Technically, these could not be counted as booked reserves, according to the rules of the US Securities and Exchange Commission. The company counted them anyway in their reports to stock owners to enhance the value of their stock.

Interestingly, most Americans do not even know where their oil comes from. Surely, to some extent this is a function of the severe depoliticization that is endemic in America. Americans think that most oil used in the United States comes from Saudi Arabia. Actually, Canada, Mexico and Venezuela supply more oil.

ExxonMobil had another problem: too much cash. This reached eighty-one billion dollars in l998. When Exxon merged with Mobil, the company cut 20,000 jobs and reduced operating costs by $8 billion. It became the largest corporation in the United States with $228 billion in revenue the first year. This is more than the GDP of Norway. Only 20 states in the world have a larger GNP. It ranks forty-fifth among the top economic entities of the world.

While Americans generally have a domestic view, the transnational corporation has a global view to making profit quite independent of the US Government. The Washington office of the corporation is a sort of embassy. It engages in much lobbying of Congress.

Lobbying takes place through the American Petroleum Institute as well as through the efforts of other company staff on Capitol Hill and the White House. Votes are tracked and the money handed out for political campaigns according to who votes in the interests of the corporation.

The corporation is so powerful, that it generally wants the US Government to stay out of its affairs. But for serious help, the company can turn to the White House. The Chairman could simply pick up the phone and talk to Vice President, Dick Cheney during the George W. Bush Presidency.

The corporation typically opposes all government regulation and fears the spread of European ideas, particularly curbs on carbon emissions and the precautionary principle of passing laws to preserve the environment. Researchers were paid to write papers which sowed confusion among the public about global warming. The polls show that it worked, with a majority of Americans believing that global warming was not happening. Still there came a point, when a change in policy was called for, after the departure of Lee Raymond. This did not go so far as to admit that there was actual man-made global warming. It was largely a public relations exercise.

Raymond even advised the Chinese to resist Washington’s attempt to get them to lower greenhouse gas emissions. The corporation formed a Global Climate Coalition, a front group to block climate change legislation in the US, and spent some eight million dollars on research.

The company faced major problems in getting the gas and oil out in such places as Indonesia, West Africa, Chad, Nigeria, Equatorial Guinea, Russia, Venezuela and Iraq. The company faced the difficulty of extracting gas and oil where local populations can become hostile and attack. One case happened in the province of Aceh in Indonesia. The Free Aceh Movement (The Gerakan Aceh Merdeka or GAM) carried out violence against the company. Indonesian Government troops from the TNI (Tentara Nasional Indonesia) patrolled the LNG plant and were paid by ExxonMobil. They carried out many human rights violations.

During the Clinton Administration, there was an effort to address this issue with the launching of the Voluntary Principles on Security and Human Rights. Many corporations signed up, but Lee Raymond refused. He said that ExxonMobil had its own principles. Of course, every effort was being made to avoid lawsuits. When the company lost, it appealed. Company executives feared that they would be sued for the brutality carried out in Aceh. They were, in Washington, DC, and fought bitterly against compensation for those wronged. The Bush Administration was on the verge of listing the GAM leaders as terrorists.

In Equatorial Guinea, ExxonMobil operates in the offshore Zafro and Alba Oil Fields. The country was seen as “politically toxic.” The US government distanced itself from dealings and the US Embassy was closed down for some time. The dictator, Teodoro Obiang Nguema, came to power and controlled the economy through his family. The corporation did not consider that the way the country was being run was their concern. They were there to get the oil and make money. They followed Dick Cheney who once said that companies had to go where the oil was and not where there were good governments. The good Lord did not see fit to put the oil in places that were safe and well governed.

President Obiang visited Washington, on various shopping trips and fell in love with the impressive façade of the Riggs Bank in Washington. He decided to deposit his country’s oil money there. There were soon some $200 million in the account with an additional $20 million expected monthly. Eventually, the President persuaded the George W. Bush Government to open a new US Embassy in the country. But the windfall for the bank soon resulted in trouble with the government, when unaccountable amounts of money were disappearing.

In southern Chad, a pipeline was built to carry ExxonMobil oil overland to the west coast of Africa. Chad is a terribly poor country, twice the size of Texas with a literacy rate of less than fifty percent. Idriss Deby had come to power and ran the country with his relatives and cronies. He later ran into trouble with the World Bank over the lack of social spending.

One reason why ExxonMobil did not worry greatly about what local governments did was the “stability clause” in its contracts, such as in Chad. This device grandfathers in provisions for the company that no future government could change in the future. This might even mean that social spending by the government could be illegal under the clause if it cost the corporation money. This meant that Exxon ruled over its own affairs in the country, effectively stripping Chad of sovereignty. Exxon’s profits in Chad in l988 reached 5.3 billion dollars.

To address the “resource curse,” of oil-rich weak states like Chad, the World Bank had been made a partner to the deal. The Government would be required to spend a certain portion of its oil revenues on education, health and social welfare. This constituted a double standard, of course, as states such as Saudi Arabia were free to spend the money as they desired. For ExxonMobil, their interests were largely confined to the oil and regional political stability.

After 9-11, twenty-five percent of American oil imports were coming from West Africa so terrorism was also a concern.

When George W. Bush entered the White House in 2001, global warming was becoming a larger concern to environmentalists. The Bush Government was top heavy with Texas oil men who were not going to address the issue of carbon emissions. Vice President Cheney’s model was primarily to get the oil men together and let them write their own policies. To ward off potential danger coming from the scientific community, ExxonMobil funded their own research on global warming with an energy project at Stanford University along with General Electric and Toyota. One hundred million dollars of the $225 million came from ExxonMobil.

For Greenpeace, big oil seemed the perfect target in 2001. ExxonMobil’s position was that there was no such thing as global warming. The company wanted to prevent any legislation requiring caps on carbon emissions. So ExxonMobil funded skepticism, to increase doubt in the public mind. ExxonMobil funded right wing groups such as the CATO Institute for Public Policy Research and the American Enterprise Institute. A US Senator from Oklahoma, James Inhofe, called the idea of man-made global warming a “hoax.” Behind the scenes, in fact, ExxonMobil not only believed in global warming but was trying to use it to gain insight into oil exploration.

Lee Raymond would demonstrate no flexibility on the issue of global warming as long as he led the company. He doubted the scientific validity of public opinion surveys. In any event, he saw no reason to allow public opinion to drive decision making. The public was naturally skeptical of big oil and big corporations in general. There was a strong perception that the company was “hostile to social responsibility” as charged by Human Rights Watch. But there was also the perception that when the company decided to do something, it did it well.

The company tended to sneer at the efforts of BP to engage in green washing with its sun and flower symbols on petrol stations. This kind of stuff was not for ExxonMobil. ExxonMobil was seen as having an authoritarian top-down culture and was most popular in only one country, Singapore.

Even with all their money, knowledge, and expertise, a company like ExxonMobil could sometimes get it wrong. Lee Raymond decided that it was futile to try to predict the future price of oil. This depended too much upon unforeseen global events, wars and political instability. On the other hand, the company should be able to predict trends in supply and production. But in the case of natural gas, the company failed.

ExxonMobil operated Qatar’s North Field where they owned an estimated 800 trillion cubic feet of natural gas. They built a production facility to produce Liquified Natural Gas (LNG). The company’s projections were that the gas production in the United States had peaked. This would turn out to be wrong with new technology to extract gas from rock formations in a few years.

With resource nationalism, acquiring booked reserves was getting more difficult. The only possible places in the world were Russia, Iran, Iraq and Saudi Arabia. The Texas oil men in the George W. Bush Government had their eye on Iraq. Some, who knew little about the country, even dreamed of the privatization of oil in the country.

The American and British governments claimed that the invasion and occupation of Iraq was not about oil. One saw the same sort of blanket denials on both sides of the Atlantic. Defense Secretary Donald Rumsfeld scoffed that the war had “literally nothing to do with oil.” However, the concern of oil corporations with keeping up their booked reserves in order to keep their stock prices high was a detail which was hidden from the public. Iraq surely seemed to be an exciting opportunity in this aspect if the US could carry out its plans to totally make over the laws of the entire country. For people in the Bush Government, the invasion of Iraq seemed to be a cost effective way to “expand booked oil reserves.” If oil companies could use the country to bank reserves, their profits would greatly benefit, even if they did not pump a drop of oil. As it turned out, it was not so easy, and resource nationalism asserted itself in Iraq after the war. The US could not even push the country into passing an oil law, with dire threats. Nevertheless, even with all the legal uncertainty, the oil firms rushed in. The Kurdish Regional Government in Northern Iraq was friendly to foreign companies and ExxonMobil signed deals, which Baghdad saw as illegal. The company found plenty of reserves to book. A deal was also signed between Turkey and ExxonMobil to explore for oil in northern Iraq.

There were cross-cutting interests and contradictions. Some neoconservatives in the Bush Administration wanted to get Iraq out of OPEC, increase production, and cheapen the price of oil with Iraqi oil. This would benefit the US economy, provide cheaper oil for the vast needs of the US military machine, and help the balance of payments. For the oil majors, like ExxonMobil, they were enjoying windfall profit because of high oil prices.

Philip Carroll, who had run Shell-USA, was sent to Iraq to restructure the oil industry. As an oil man, he was aware that privatization was a pipe dream of those at AEI that could not work. He thought that Iraqis could be sent to the US for training in the oil industry. Ironically, due to the sanctions and the war, most of Iraq’s expert technicians had left the country long ago.

For Lee Raymond at ExxonMobil, with his eyes turned to profit, the entire world was a unified oil market. Let the market work on a global basis and keep banking the profits. This was not the way oil was viewed in China and Russia. Access to oil was a part of national power and these countries did not want to depend totally upon foreign oil. For the Russian President, Vladimir Putin, Russia would use its oil and gas to control and punish other countries. ExxonMobil was set to clash with Russia over this approach.

Oil executives and politicians in the United States did not understand Putin’s thinking on oil. Again, it was resource nationalism, state power, and Putin would use it to preserve and expand Russian state power. He was not just pumping oil into the global market, as ExxonMobil saw it, rather as a corporate business empire independent of the state. Exxon was fully prepared to go against the interests of the United States for profits and did not hesitate to do so. Their bottom line was profits and not the United States of America.

Russia was no longer a communist country. The country had huge oil and gas reserves. George W. Bush and his oil men brought Putin to the Texas ranch and began to envision US-Russian cooperation on oil. Russia might be a place where American companies could book huge reserves if things worked out. But they were not dealing with a banana republic.

Previously, under President Boris Yeltsin, the Sakhalin 1 project had been signed with Russia, which was a production sharing agreement, and allowed for foreign ownership of oil in the ground. This was what the Texas oil men, including ExxonMobil were looking for.

Rex Tillerson went to Moscow in 2002 to try to make a deal. BP was also interested. The Russian oligarch Mikhail Khodorkovsky wanted to sell part of Yukos to a western firm for cash. He had by then amassed an $8 billion fortune and donated a million dollars to the Library of Congress. But Khodorkovsky was coming into conflict with Putin. The Russian President was consolidating his power through bringing old KGB conservatives back into the government. They did not have a free market view of the world. Putin was not going to see Russia sold off to the Americans and British.

Khodorkovsky would only sell a quarter of the company. Perhaps that was as much as he could get by with, given Putin’s objections. This would not have interested ExxonMobil, however, whose executives wanted nothing except a controlling interest. Putin met Lee Raymond and disliked his rough and overbearing ways.

On October 25, 2003, Khodorkovsky was arrested and charged with income tax evasion, forgery, theft, and other crimes. Putin was also threatened by his trying to buy allies in the Duma. This sort of thing would have been business as usual in the United States of America. The ExxonMobil deal with Russia fell through.

In Russia, companies were subordinate to the state. In the US, it was just the opposite. It would have been difficult for Putin to have understood this.

For ExxonMobil, oil and gas were here to stay, at least up until 2030. They were realists about changing the world. They did not believe in the possibility of transforming other nations. The stuff of the neoconservative’s naive dreams in the Middle East was now lying in dust. Their business was to pump oil and bank the profits. They saw the world, to some extent like Chuck Hagel, who became US Secretary of Defense.

ExxonMobile’s vision of the future, up until at least 2030, sees global energy demand growing by thirty-five percent. There is nothing in the cards that is going to prevent this. By 2005, the world’s 6.4 billion people consumed 245 million barrels of oil, equivalent energy, including natural gas, coal, hydropower, nuclear, biomass, wind, and solar sources. The global population is projected to reach eight billion by 2030 with an average three percent economic growth per year until then.

The poor countries of the world are going to burn more fossil fuels as they industrialize and use more autos. ExxonMobil saw no end in sight to the rise in demand for oil and gas. It was not going to be in the interests of governments to take the needed action to limit global warming.

In the last year of Lee Raymond’s leadership, the company made $36 billion dollars in profits. The value of shares was $360 billion dollars with $68 billion dollars paid out in dividends between 1993 and 2005. The company had 83,700 employees and 2.5 million share holders. When Lee Raymond retired, he was given a $400 million retirement package.

The company was heavily into politics. The ExxonMobil Political Action Committee distributed $700,000 to those politicians who voted their way every two years. But only five percent of this money was going to Democrats. It was eleven percent when Obama ran in 2008. It was simple. Under the Key Vote System, members of Congress were ranked according to the favorable votes they cast. There were no Democrats who ranked higher than fifty percent. So they got little or none of the money that went to the pro-business Republicans.

ExxonMobil also came into conflict with Hugo Chavez in Venezuela and pulled out of the country for a second time. Chavez wanted more royalties for the oil for social spending, but ExxonMobil would not go back on its contracts, which largely stripped the host country of sovereignty over its own oil.

Problems in Nigeria involved the kidnapping of ex patriot workers and the theft of oil, assisted by the local navy.

In the United States, the company fought battles against the regulation of plastic toys and President Barack Obama’s threats to impose a windfall profits tax on the company.

Developments in the oil industry continued. Particularly important was the extraction of oil from the tar sands in Canada, of which ExxonMobil was a major owner and producer. The other major development was producing rock gas from hydraulic fracturing. These developments meant that the US would get more of its gas from domestic sources and more of its oil from Canada. These processes are severely environmentally damaging.

These developments greatly increased the estimates of how much oil and gas was available outside of the Middle East, Russia and Venezuela. The down side was that greenhouse gas production was going to continue producing more global warming. The concept of peak oil became more elusive with these developments. There seems to be plenty of oil, gas, and coal for a number of decades into the future.

The lack of political will to reduce carbon emissions was bound to produce a heavy toll on the earth and society in future. The US was clearly behind the curve in enacting a carbon tax. Americans were not concerned with global warming, partly due to ExxonMobil propaganda. India and China would not reduce emissions as they used more energy, along with the other big emerging markets of the world.


Multinational corporations are a global empire in themselves. They control global resources and wield great economic and political power. Their leaders are not elected. The top 1000 MNCs account for eighty percent of the world’s industrial output. The biggest MNCs have economies larger than all but a few nation states. Of the largest 100 economic entities in the world, fifty three are MNCs. These corporations are wealthier than 120 nation states.

While America’s domination of MNCs has declined, the power of the top MNCs is still concentrated in the United States, Europe and Japan, reflecting the post-war economic structure and global economic and political power. Today the strategic behavior of MNCs in their global operations is important to understand. They structure their operations to maximize profits and minimize taxes and obligations to the states and people where they operate.

In the l960s, Marxist scholars set the pace for later generations of business economists in understanding the behavior of MNCs. ExxonMobil is a paradigm example of the global corporation. It owes its loyalty not to the United States but to the company and profits for shareholders. Profits are the bottom line while MNCs ignore ecological damage and fight environmentalists and the interests of society with the inordinate power they wield.

Key Terms:

Charlie Wilson

Mundell Equivalency

Strategic Behavior



Strategic Trade Theory

Raymond Vernon

Product Cycle

John Dunning

The Reading School

Michael Porter

Strategic theory

Strategic Management

Stephen Hymer

Uneven Development

State-Centric Approach

Transfer Prices

Intercorporate Alliances


Kenichi Ohmae

The Borderless World

The Triad

Samir Amin

International Regime

Rights of Establishment

National Treatment


Helms-Burton Act

British East India Company

Dutch East India Company

Return of Capital Employed

Securities and Exchange Commission

Global View


Carbon Tax

Global Warming

Voluntary Principles on Security and Human Rights

Stability Clause


Peak Oil