International organisations and their roles in globalisation

International organisations play a key part in shaping globalisation by influencing trade, finance, and economic relationships between countries. These groups emerged after the Second World War to foster stronger global ties, boost the world economy, and reduce the risk of future conflicts. They generally support free trade, which means unrestricted exchange of goods and services between nations, while opposing protectionism, where countries use measures like tariffs or quotas to shield their own industries from foreign competition.

Key international organisations

Three major organisations work to encourage global economic cooperation and growth.

International Monetary Fund (IMF)

• The IMF focuses on promoting financial cooperation and international trade.
• It provides loans to member countries, often requiring them to remove trade restrictions in return, which helps integrate economies more closely.

World Trade Organisation (WTO)

• The WTO aims to expand global trade and settle disputes between member countries.
• It establishes rules for fair trading practices, making it easier for nations to exchange goods and services.

World Bank

• The World Bank collects subscriptions from member countries and loans money to less developed nations.

How these organisations promote free trade and globalisation

• Encouraging trade blocs - They urge countries to form or join groups that lower tariffs on internal trade.
• Improving trade legislation - They help make trade legislation more practical for trading nations.
• Supporting foreign direct investment (FDI) - They promote FDI, which occurs when individuals, companies, or groups invest money in another country to generate profits, such as by opening new business branches, building infrastructure, or through mergers and acquisitions (where one company combines with or takes over another in a different country).

Controversies surrounding international organisations

While international organisations drive globalisation, their influence can spark debate. Critics argue that they wield excessive control over global flows of money and goods, sometimes disadvantaging certain nations.

Key criticisms

• Strict loan conditions - To access loans from the IMF or World Bank, countries must often follow demanding rules, such as Structural Adjustment Programmes; these can be challenging for poorer or developing countries to implement.
• Biased governance - Decision-making in the WTO, IMF, and World Bank is largely controlled by developed countries, where most voting power lies; this can lead to policies that prioritise the interests of richer nations over those of poorer ones, creating inequalities in global trade.

National governments and their influence on globalisation

National governments make choices that either speed up or slow down globalisation. Their policies can connect economies more tightly or protect domestic interests.

Types of government policies

• Protectionism vs. free-market liberalisation - Some governments impose barriers to limit foreign competition, while others adopt free-market liberalisation, which removes restrictions on trading goods and capital to build stronger international links.
• Privatisation and foreign buyouts - Governments may sell state-run services, like transport networks, to private companies, including those from abroad; for example, in 2013, a portion of Manchester Airports Group was acquired by an Australian investment firm.
• Incentives for foreign companies - To attract overseas businesses, governments offer subsidies, reduced business rates, or grants for new international start-ups.
• Joining trade blocs - Governments decide whether to participate in trade blocs, which are groups of countries that eliminate tariffs on goods traded among members, such as the European Union (EU) or the Association of South East Asian Nations (ASEAN).

Advantages and examples of trade blocs

Trade blocs enhance globalisation by creating larger, more integrated markets. They remove internal trade barriers, making it easier for goods, services, and investments to flow between member countries.

Advantages of trade blocs

• Cheaper goods and increased trade - Members access products at lower prices without tariffs.
• Expanded markets - Producers gain a bigger customer base, which can lower production costs through economies of scale.
• Protection for industries - Blocs can impose barriers on non-members to safeguard vulnerable sectors within the group.
• Easier mergers - Smaller transnational corporations (TNCs) within the bloc can combine operations more efficiently, increasing profitability.
• Utilising member strengths - TNCs can leverage advantages like cheap labour in one country and advanced resources in another.
• Political stability - Economic interdependence among members fosters greater security and cooperation.

Example: The European Union (EU)

• The EU started as the European Economic Community in 1957 with six members and grew to 27 by 2022.
• It features free trade among members, common external tariffs on imports from outside, its own currency (the euro), and a European Parliament for creating laws.
• The Schengen Agreement enables free movement of workers across borders, further integrating labour markets.

Example: The Association of South East Asian Nations (ASEAN)

• Founded in 1967, ASEAN expanded to 10 members by 1999.
• It promotes free trade, which has spurred growth in local manufacturing and banking, enhancing economic competitiveness.
• In 1995, members agreed to avoid nuclear weapons, increasing political stability; the 2007 ASEAN Charter formalised their operations.
• Today, ASEAN ranks among the world's largest trade blocs due to its focus on economic integration.

Economic incentives in emerging economies

Governments in emerging economies actively promote globalisation by creating attractive conditions for foreign investment. This helps integrate these regions into the global economy more quickly.

Special economic zones (SEZs)

SEZs are designated coastal or inland areas with relaxed economic rules to draw in foreign businesses. They offer benefits like low tax rates, tax breaks, and no tariffs on imports or exports within the zone. Infrastructure, such as roads and ports, is often pre-built to make setup easier for TNCs.

Other government strategies

• Improving transport networks - Governments can invest in improving transport networks in SEZs, especially in land-locked or rugged areas, to facilitate trade and attract investors.
• Subsidies for businesses - Governments provide financial support to help local and international firms establish and grow in the early years.

Case study: China's 1978 'Open Door Policy'

China's shift towards globalisation provides a clear example of how government decisions can transform an economy. From 1949 to the late 1970s, China's industry was state-controlled, leaving it isolated from global markets and facing issues like famines and widespread poverty.

Key features of the policy

Introduced in 1978, the 'Open Door Policy' involved major economic and political reforms to make China more competitive globally and open to overseas investment. Four SEZs were created along the coast, offering incentives for foreign companies to establish operations.

Impacts on China's economy

• TNCs, such as Apple and Dell, outsourced manufacturing to these zones, for example in Shenzhen Special Economic Zone, earning China the nickname 'factory of the world' in sectors like consumer electronics.
• This influx of FDI fuelled rapid growth; by 2019, China attracted US $187 billion in FDI, with manufacturing contributing 27% to its gross domestic product (GDP), which is the total value of goods and services produced in a country.