Lectures on international economic relations.docx

LECTURES IN INTERNATIONAL ECONOMIC RELATIONS

FROM ECONOMIC NATIONALISM, INTERNATIONALISM TO STRUCTURALISM

SHERIFF GHALI IBRAHIM (Ph.D

CHAPTER ONE INTRODUCING MAJOR CONCEPTS AND ACRONYMS IN INTERNATIONAL ECONOMIC RELATIONS

The concept of International Economic Relations The concept of international economic relations according to Francis (2008:527) is not new in the study of international relations, economics and history. It involves the political and apolitical relations that are economically conducted. It includes trade and investment across borders, regional integration, multilateral economic institutions, the operation and activities of the Bretton Woods and general policies geared towards economic protectionism or liberalism. The economics of international economy can be divided into two broad subfields: the study of international trade and the study of international money. International trade analysis focuses primarily on the real transactions in the international economy, that is, on those transactions that involve a physical movement of goods or a tangible commitment of economic resources. International monetary analysis focuses on the monetary side of the international Economy, that is, on financial transactions such as foreign purchases of U. S. dollars. An example of an international trade issue is the conflict between the

United States and Europe over Europe's subsidized exports of agricultural products; an example of an international monetary issue is the dispute over whether the foreign-exchange value of the dollar should be allowed to float freely or be stabilized by government action (Francis, 2008:572). The Group of Five (G5) The G5 according to Kokotsis (1999:56) is the grouping of emerging economies comprising Brazil, China, India, Mexico and South Africa. Over the years, the G7/G8 duty presidencies began inviting a number of emerging countries for specific sessions of talks on an ad hoc basis, as the emerging economies' increasing weight on the world scene made it necessary to involve them in identifying solutions to major global challenges. The L'Aquila summit and its joint declaration by G8 and G5 have shown that the G5 is taken quite seriously by the world's most developed countries. A number of demands of G5 - including restructuring of international financial and other institutions, including the United Nations, keeping the interests of developing countries in mind while initiating action to overcome the global financial crisis and concerns on food security and climate

change

-

were

included

in

the

joint

document

this

time

(kokotsis,1999:56). The Group of Six (G6) In the writings of Reinalda (1998), G6 as an economic forum originated in the 1975 summit hosted by France which brought together representatives of six major powers. These powers included: France, West Germany, Italy, Japan, the United Kingdom, and the United States, thus leading to the name Group of Six

or G6. The entire members of this forum were in one way or the other, involved in the Second World War (Reinald, 1999). The Group of Seven (G7) The origin of the group of 7 or the G7 is traceable to the 1975‘s formation of the forum of six powerful nations (the G6). This forum later added one member to be called G7.the country that was added in 1976 Canada which became the seventh member and qualify the group‘s name as G 7 (Kokotsis, 1999). The Group of Eight (G8) The G 8 as identified by Hajnal (1999:97) is also a transformation of the G6 and G 7. The same process as Canada was added to the group of six (G 6) to make G7, so also the inclusion of Russia in 1997 to the group of seven (G 7) to make the G8. G8's membership comprises the main industrialized countries. It is not an international organization, nor does it have an administrative staff with a permanent secretariat. It is a process that culminates in an annual summit at which the heads of state and government of the member countries hold talks with a view to finding solutions to the main world issues (Kokotsis, 1999). There are some basic facts about the global status of the G 8 as recorded by Hajnal (1999), and these qualities are: (I)

The G 8 is 8th of the 12 top-ranked leading export countries in the world

(II)

The G 8 represents 6th of the 10 top-ranked countries with the largest gold reserves (USA, Germany, Italy, France, Russia and Japan).

(III)

The G 8 is also 8th of the 11 top-ranked economies (by nominal GDP), according to latest (2012 data) International Monetary Fund's statistics.

Five countries of the G 8 have a nominal GDP per capita above US$40,000

(IV)

(Canada, USA, Japan, Germany, and France). (V)

The G 8 has five countries with a sovereign wealth fund, administered by either a national or a state/provincial government (Russia, USA, France, Canada, and Italy).

(VI)

The G 8 is 8th of the 30 top-ranked nations with large amounts of foreignexchange reserves in their central banks. The G8 has 4 out of the only 9 countries having nuclear weapons

(VII)

(France, Russia, UK, and USA) in the world. (VIII)

The G8 has 3 countries that have nuclear weapons sharing programs

(Canada, Germany, and Italy). (IX)

The G8 has 7 of the 9 largest nuclear energy producers (USA, France, Japan, Russia, Germany, Canada, UK), even though Germany will wean itself from nuclear power by 2022. As with Japan, it shut down all of its nuclear reactors because of the earthquake in 2011; the first time the nation has gone nuclear-free since 1970. However, in July 2012, Japan restarted two nuclear reactors at the Ōi Nuclear Power Plant. These reactors are the only ones currently in operation at this time (Reinalda, 1998; Koktsis, 1999 and Hajnal, 1999).

(X)

The G8 has 8 of the 15 top donors to the UN budget for the 2013 annual fiscal year.

(XI)

The G8 also has 4 countries with an HDI index for 2013 of 0.9 and higher (USA, Germany, Japan, and Canada).

The Group of Fourteen (G 14)

The latest to join the 'G' ranks is G14 - a term used for the first time at the G8+G5 summit being held in this quake-hit Italian town, about 100 km northeast of Rome (Economics Time, 2009). G14 is the grouping comprising G8, G5 and Egypt. The joint declaration of the G8-G5 summit was actually that of the G14. Egypt was specially called for the summit outreach meeting between G8 and G5 and comes in Friday to make up the G14 (Francis, 2008:572).

The Group of Twenty (G 20) The G20 was founded in 1999 and it includes both developed and developing countries. It is a group of finance ministers and central bank governors from 20 major economies (19 countries and the European Union). With the popular transformation of international economic forums, Indian Prime Minister Manmohan Singh argues inter alia: The unworkability of the existing structures has led to greater reliance on plurilateral groupings. Some of these, such as G7, later expanded to G8, are to be seen as a group of countries with common interest, not necessarily representative of the global community (Economics Time, 2009). As of 2013, there are 20 members of the G-20. These include, 19 countries and of the European Union, and, at the ministerial-level meetings, the finance ministers and central bank governors of 19 countries and of the European Union. In addition, Spain has participated in every meeting so far, despite not being a

formally recognized member (Economic Times, 2011). Members of the group of 20 (G20) are: The European Union USA Canada Mexico Brazil South Africa Argentina China Japan South korea India Indonesia Russia Turkey Germany France United Kingdom Italy Saudi Arabia Australia

The BRICS

The BRIC as interpreted in the works of Goldman (2001:66) is an acronym, a concept that represents the loose grouping of Brazil, Russia, India and China, which later South Africa joined. The idea was first coined by Goldman (2001), in a paper he wrote as part of an economic modeling exercise to forecast global economic trends over the next half-century. The main finding was that the BRICs would play an increasingly important role in the global economy.

In another observation made by Goldman (2003:99), he forecasted the evolving dynamics of the world economy over the next 50 years. It was predicted in his writing (Goldman, 2003:99) that over the next 50 years, the BRIC economies could become a major force in the world economy. In less than 40 years, the BRIC economies together could be larger than the Group of Six (G-6) in US dollar terms. By 2025 their size could be over half the size of the G-6. The study also Predicted that by 2050, only the US and Japan of the current industrialized countries could remain among the six-largest economies in US dollar terms.

The First World

It is clear that there is no precise definition of the "first" or "rich" world, the World Bank does categorize countries as high, upper, and lower middle, as well as low income. High income countries are thereby defined as countries with a Gross National Income per capita of US$11,116 or more (Arora, 2011:1). According to the World Bank, some 60 countries were categorized as high

income economies as of 2007. The term "first world" refers to countries that are democracies, which are technologically advanced, and whose citizens have a high standard of living. The terms First World, Second World, and Third World were used to divide the nations of Earth into three broad categories. The three terms did not arise simultaneously (Arora, 2011:1). pointed out that there were a great many countries that fit into neither category, and in 1952 French demographer Alfred Sauvy coined the term "Third World" to describe this latter group; retroactively, the first two groups came to be known as the "First World" and "Second World. The first world dominated international trade, global exploitation of raw material and markets in the 19th century. The leading countries were: Portugal, Spain, Belgium, France, Germany and Holland (Aja, 1998). But by the end of 2nd WW, America had more men under arms than any other nation on earth; it possessed a nuclear monopoly; its WW II adversaries were devastated; her allies (Britain and the Soviet Union) were exhausted or down by the six years of war.

Table 1.1: % Share of World Manufacturing Production Year

USA

Britain

Japan

Developed 3rd countries

world

World total

1953

44.7%

8.4%

2.9%

93.5%

6.5%

100.00%

1963

35.1%

6.4%

5.1%

91.5%

8.5%

100.00%

1873

33.0%

4.9%

8.8%

90.1%

9.9%

100.00%

1980

31.5%

4.0%

9.1%

88.0%

12.0%

100.00%

Source: Adapted from Paul Bairoch, “International industrialization levels from 17501980” journal of European Economic History II (Fall 1982) P. 304.

What basically divides the world into economic grouping is not just geography, but economic and technological criteria. America and western capitalist states are not only within the first world classification, but rather, other countries in Asia such as Japan, Malaysia, Taiwan, in Africa, such as South Africa, fall under this classification (Aja, 1998). Some Characteristics of the First World 1. The export of capital and technology through the activities of multinational corporations. These companies have their headquarters in parent countries and subsidiaries in other parts of the world. 2. Control of international financial institutions such as the IMF, World Back and private banks with transnational lending capacity. 3. It dominates the global economies system, finance, trade, technology and banking. They trade among themselves more than they do with other worlds (2nd and 3rd ). 4. Democratic values have been maintained for long time. 5. They are characterized by low death rate, due to long life span 6. They have the most modern health care system 7. Well organized education and academic institutions of learning 8. Low infant and maternal mortality rate. 9. Well developed infrastructure and social services. 10.

Well equipped security system and military industrial complex.

The Second World

After World War II, people began to speak of the NATO and Warsaw Pact countries as two major blocs, often using such terms as the "Western Bloc" and the "Eastern Bloc" (Arora, 2011:1). The two "worlds" were not numbered. The second world is comprised of the socialist economies which are rated 2nd in the world (Aja, 1998), in economic and technological advancement. The 2nd world is also headed by Russia even after the disintegration of the Soviet Union. China as a socialist economy has been the fastest growing economy not only in the second world, but in the whole world since in the 1990s. The 2nd world was born in the early 20th century, which marked the ―Great October‖ Russian Revolution of 1917 which changed the backward economy of Russia into a socialist one. China, as an agrarian society had accepted communist revolution in 1949 and has been practicing what is called ―communism with Chinese characteristics‖ (Arora, 2011:1). As a result of too many political directives, over investment and, lax in monetary and fiscal policies, economic crisis hit the socialist states in the 1980s. The worst victims emanated from Russia, Poland, Yugoslavia Hungary and Bulgaria. But in 1985, socialist economic reforms started by Michail Gobachev, who was the general secretary of the communist party of the Soviet Union. He introduced a twin programme called: ―perestroika and Glasnost.‖ Perestroika means economic restructuring towards openness to regulated privatization and commercialization of state enterprises. Glasnost on the other hand, refers to political openness, to clearance accommodation and democratization. Some basic characteristics

1. The 2nd world is developed under controlled and planned economy 2. It is more satisfied with economic assistance by ignoring other trade linkages (Aja 1998) but that is not the case with Russia and China now 3. High level of political role in the economy. They practice what is popularly known as command economy. The Third World Other names for countries under this category are: (1) under developed nations (2) developing countries (3) less developed countries (LDCs), (4) New Nations and (5) Emerging industrializing countries. Basic Features 1. They are at the bottom of economic and technological development 2. Low per capital income 3. Quality of living is low 4. They are found in Africa, middle East, Asia and Latin America 5. Historical contact with western-European powers. 6. They are characterized by high infant mortality 7. Poor educational planning 8. Hunger, diseases and malnutrition 9. Poor medical facilities 10.

Inter-ethnic, tribal and religious conflicts

But some critics are of the view that, these negative characteristics were necessitated and engendered by the long contact the third world had with the developed societies under colonialism. This is also notable from the writings of people like walter Rodney, Claude Ake, bala usman and many other scholars

from Africa, asia, latin America and the caribean. Ake for example has identified some of the mechanism used by the Europeans to underdeveloped the periphery: these mechanisms are: 1. Imperialism 2. monetization of the pre-capitalist economy 3. forced labor 4. forced taxation 5. foreign investment 6. Establishment of export oriented marketing board. Other Worlds

In the argument of Arora (2011:1), there were a number of countries that did not fit comfortably into this neat definition of partition, including Switzerland, Sweden, and the Republic of Ireland, who chose to be neutral. Finland was under the Soviet Union's sphere of influence but was not communist, nor was it a member of the Warsaw Pact. Yugoslavia adopted a policy of neutrality, and was a founding member of the Non-Aligned Movement. Austria was under the United States' sphere of influence, but in 1955, when the country became a fully independent republic, it did so under the condition that it remains neutral. Turkey and Greece, both of which joined NATO in 1952, were not predominantly in Western Europe. Spain did not join NATO until 1982, towards the end of the Cold War and after the death of the authoritarian dictator Francisco Franco.

In recent years, as many "developing" countries have industrialized, the term Fourth World has been coined to refer to countries that have "lagged behind" and still lack industrial infrastructure. In contrast, countries that were previously

considered developing countries and that now have a more advanced economy, yet not fully developed, are grouped under the term Newly-industrialized countries or NIC. Some nations have developed their own classification scheme consisting of the "Third World" and the "Two-Thirds World". This system is similar to the former in that it also reflects economic status or behavior. In terms of material resources, the "Third World" takes just one third of the pie, while the "Two-Thirds World" takes two-thirds of the pie (Arora, 2011:1). CHAPTER TWO ECONOMIC NATIONALISM, INTERNATIONALISM AND STRUCTURALISM

Economic nationalism is an analytical instrument used to explain economic realism. The basic argument of economic nationalists is that, a nation must allow and work for the growth and prosperity of its economy using protectionist measures. Economic nationalism according to Sam (2012:281-291), had risen in the late 19th century, the impetus of crisis after 1929 and its institutionalization after 1945. Simultaneously, the accelerating growth of world markets through greater exports undermined the reality of national economies. This takes us to the period after the financial crash of 2008. In its aftermath, commentators warned of a resurgence of economic nationalism, that is, protectionism. Some states did increase tariff levels but this has not led to a generalized increase in barriers to trade in the pursuit of national economies for interrelated reasons: (1) The integration and therefore interdependency of economies. (2) The complexity of the global economy, making it all but impossible to separate by nationality

(3) The greater extensity of world markets compared to the mid-20th century (4) The redundancy of the various models of economic nationalism.

Some European countries and economic nationalism It is pertinent that economic nationalism has been in existence since hitherto the mercantilist era dealing with trade protectionism. But on the other hand, much of Continental Europe has adopted a very different approach from that of the UK. Some notable examples include the French government‘s attempts to encourage the merger of French firms to create corporate ―national champions‖, the merging of Suez and Gaz de France to prevent the energy giant Enel gaining a foothold in the French market. The French government‘s interventionist approach was codified by its identification of 11 strategic sectors prohibited to foreign predators (Cooper, 2007). Despite some high profile instances of protectionism, there were 408 completed foreign acquisitions of French firms in 2006, most of which took place without any controversy (Cooper, 2007). However, France has not been the only culprit, with both Spain and Poland thwarting takeovers. Such has been the spate of resistance to foreign takeovers in Europe that in 2005 the then Italian finance minister Giulio Tremonti warned dramatically of an ―August 1914 effect‖, referring to the months before the First World War. Beyond the continent of Europe, the USA has disappointed many who saw it as a bastion of free trade (Cooper, 2007).

The US administration‘s opposition to Dubai Ports World‘s attempts to buy US ports according to Cooper (2007) was one of the highest-profile recent examples of efforts to protect American industry. Meanwhile, the USA has also been protective of its agricultural sector in world trade talks, and in the recent ―Open Skies‖ agreement with the EU (concluded in April 2007) it continued with its limit of 25% share ownership of US airlines. Whereas the UK seems to be one of the most open economies in the world, the USA, with all its free-market rhetoric, has resorted to some fiercely protectionist policies.

This is somewhat ironic given the rise of the USA as the dominant economic power over the course of the 20th century, which has its roots in the 1870-1920 periods when the USA‘s rapid economic growth coincided with the migration of tens of millions of Europeans to America. Whilst the phrase ―Fortress Europe‖ rolls off the tongue, the USA‘s record has led some to speak of ―Fortress America‖. All these forces led to the results of a poll last year (Cooper, 2007).

IMPORTANT FACTS ABOUT ECONOMIC NATIONALISM FOR POLICY MAKERS

I.

Economic nationalism should be understood as a set of practices to create, bolster and protect national economies in the context of world markets. The rise and institutionalization of economic nationalism in the 20th century was a product of economic crisis, nationalist movements and enlarged states.

II.

There has been no ‗return of economic nationalism‘ as in a generalized rise in protective barriers to trade since the financial crash of 2011. Unlike the 1930s, sovereign debt has not motivated states to withdraw from global markets.

III.

The integration, complexity and extensity of the world‘s economy mean that a reversal of trade as great as during the interwar period would entail an economic Armageddon. Whatever future ructions the world‘s economy experiences due, above all, to chronic levels of sovereign debt, policy makers should be mindful of this reality.

IV. Simultaneously, they should be aware that ongoing instability may entail greater economic nationalism. The key lesson from the period after the Second World War is relevant now at a more overtly global level: the importance of planning, regulation and respect for models of economic diversity to further global trade. Economic Internationalism Economic internationalism is another approach in the study of international economic relations, which is ideally not unconnected with liberalism, capitalism, laissez-faire and free trade (Rourke, 2009:377). Economic internationalists believe that international economic relations can be conducted to achieve cooperation, interdependence, integration, free trade and economic interchange among others. The origin of economic internationalism according to Rourke (2009:378) lies in the roots of capitalism. This argument was first presented by Adam Smith (1776) in his argument, that people seek prosperity from their regard to their own

interest, and that this self interest constituted an invisible hand of competition that created the most efficient economies. The major argument of the economic liberalists as written by Rourke (2009) is that political interference must be eliminated in international economic activity. Proponents of liberalism believe in the use of intergovernmental and governmental programs to make sure that capitalism is embraced. Economic Internationalism and interdependence Globalization has facilitated commerce and trade; promote economic interdependence in communication and technological sectors. Industrialization is also one major sector that has intensified interdependence (Joshua, 2003:413). The global threat of climate change (to natural environment) is a major source of interdependence and ―a sustainable natural environment is a collective good, and states bargain over how to distribute the costs of providing the good‖. This, however, is generally termed ―tragedy of the commons‖, politics that was involved in British shared gazing ground (Hardin, 1968; Joshua, and Jon, 2009; Joshua, 2003 ;) for many centuries ago. Robert (1991:342-343) is of the view that ―much thinking about interdependence was shaped by events of the early and mid-1970s‖ when ―America‘s détente with the soviet union, recognition of china, and withdrawal from Indochina reflected a series of changes in super power relations‖. The eventual decline of détente, reduction in the power of OPEC according to Robert, coupled with the subsequent eruption of conflicts especially the Iran-Iraq war, has placed interdependence on the table of ―reexamination” (Robert, 1991:342).

He

explains

the

globalist

or

institutionalist

position

of

interdependence which leads to cooperation as a result of modernization,

industrialization and communication on one hand, while on the other hand highlights the modification of interdependence having to do with more enduring aspects of realism and power politics. Economics and politics of Interdependence on climate change: Realism or Liberalism?

The realists (Morgenthaou,1978:4-15) believe that politics, just like the society is governed by objective laws that have their roots in human nature, and men will challenge them only at the risk of failure; interest is defined in terms of power; The idea of interest is indeed of the essence of politics and is unaffected by the circumstances of time and place; universal moral principles cannot be applied to the actions of states in their abstract universal formulation, but that they must be filtered through the concrete circumstances of time and place; Political realism refuses to identify the moral aspirations of a particular nation with the moral laws that govern the universe. As it distinguishes between truth and opinion, so it distinguishes between truth and idolatry and; the political realist maintains the autonomy of the political sphere. While exposing the self-help ideology of the school of realism, Dale (1996) wrote about state interest to maintain and acquire power when he argues: Germany had been one of the few great powers trying to buck the trend towards protectionism in the early and mid1890s. Recognizing that German industrial products could now match the goods of any state, Chancellor Caprivi set in place policies to expand German trade in Europe and overseas. Other great powers, however, indicated their

opposition to any German penetration. Severe tariffs from the United States (McKinley tariff, 1890) and France (Meline tariff, 1892) were certainly worrisome. Even that bastion of free trade - Britain - indicated after 1895 that its fear of rising German commercial strength would soon lead to a reversal of policy.

This shows that, no matter how worst the issue of climate change will be in international politics, states will always pursue their own interest first. Dale (1996) further argues in this respect:

In 1896, the British had raided the Transvaal region of South Africa, jeopardizing German commercial interests. In mid-1897, Canada slapped a discriminatory tariff on non-British goods, contrary to the 1865 Most Favored Nation treaty between Germany and the British Empire. Despite Germany's protest, the British, far from making amends, upheld the Canadian decision and then renounced the 1865 treaty in July 1897. Soon after this Joseph Chamberlain opened talks with British colonies on the possible formation a general imperial preference system The realists hold the view that the refusal of bush to accept endorsing the Kyoto protocol deals with the aberration of the legalistic and moralistic nature of international politics. This is an epitome of what the realists called challenging

the ―objective laws‖ (Morgenthau, 1978:4-15). Still in this respect of international politics of climate change, the realist argues: A small knowledge of human nature will convince us, that, with far the greatest part of mankind, interest is the governing principle; and that almost every man is more or less, under its influence. Motives of public virtue may for a time, or in particular instances, actuate men to the observance of a conduct purely disinterested; but they are not of themselves sufficient to produce persevering conformity to the refined dictates and obligations of social duty. Few men are capable of making a continual sacrifice of all views of private interest, or advantage, to the common good. It is vain to exclaim against the depravity of human nature on this account; the fact is so, the experience of every age and nation has proved it and we must in a great measure, change the constitution of man, before we can make it otherwise. No institution, not built on the presumptive truth of these maxims can succeed (Morgenthaou, 1978:4-15).

Prominent scholars of the realist school such as diplomat-historian E. H. Carr (1939), geographer Nicholas Spykman (1942) John Herz (1959), Raymond Aron (1966), Hedley Bull (1977) and Martin Wight (1973), Arnold Wolfers (1962) and Norman Graebner (1984), diplomat George Kennan (1951), journalist Walter Lippmann (1943) and theologian Reinhold Niebuhr (1945) are of the view that the international system exists based on the self-help, due to its anarchic nature of lacking common government. In another realist perception of the international politics of climate change, waltz is of the view that, ―international relations take place in an anarchic system that

shapes state behavior‖. He also believes that ―states are unitary actors, who at a minimum seek their own survival and may aspire to greater power‖ (Robert, 1991:345). This also explains the US stand, despite the so called international interdependence, but it seeks for its own survival. a country with high technological breakthrough will suffer less impact of the climate change than those without technological advancement, and have no financial power to acquire such technologies(such as the developing nations). And for the realists, interdependence is like a mere illusion if it tries to hold within power cleavages with different capabilities:

A world composed of greatly unequal units is scarcely an interdependent one. A world in which the Soviet Union and china pursue exclusionary

policies

is

scarcely

an

interdependent one. A world of bristling nationalism is scarcely an interdependent one. (Kenneth, 1979:106)

According to Robert (1991:346), ―interdependence has waxed and waned‖, the reason is that the high level of interdependence and trade exchanges of the past did not prevent the world wars from taking place in history. another reason for the consolidation of realism in the international politics of climate change, from he angle of interdependence is that, Robert (1991), also believes that with ―inflationary pressures created by the twin oil shocks of the 1970‘s proved

harmful throughout much of the world; and problem of unemployment, monetary instability and collapsing agricultural prices as a result of excessive subsidies all illustrate damaging effect), thus, interdependence has negative effect. While for Dale (1996), in analyzing the fragility of interdependence, maintains that the: Realists turn the liberal argument on its head, arguing that economic interdependence not only fails to promote peace, but in fact heightens the likelihood of war. States concerned about security will dislike dependence, since it means that crucial imported goods could be cut off during a crisis. This problem is particularly acute for imports like oil and raw materials; while they may be only a small percentage of the total import bill, without them most modern economies would collapse. Consequently, states dependent on others for vital goods have an increased incentive to go to war to assure them of continued access of supply. This may come against the assumption that, the global climate change will affect even the rich countries that look for raw materials and resources form the poorer countries, due to shortage of raw materials and mineral resources. This will in turn bring about crisis, insecurity and conflicts. The realists will then argue, despite interdependence, the ideology of ―self-help‖ worked during the gulf war when the United States invaded Iraq to ensure constant supply and benefit of oil. This is the basic argument that ―states concerned about security‖ will dislike ―dependence‖. This also explains why Washington refused to sign the Kyoto protocol and its reluctance to succumb to the yearnings of the global community of cutting her carbon emissions For the liberalists, and neo-liberalists, however, the issue of curbing global climate change is something of collective responsibility. Due to its universality,

states must have a collective bargaining principles, and must all come together in order to deal with the issue. The core liberal position is straightforward. Trade provides valuable benefits, or "gains from trade," to any particular state. A dependent state should therefore seek to avoid war, since peaceful trading gives it all the benefits of close ties without any of the costs and risks of war. Trade pays more than war, so dependent states should prefer to trade not invade. This argument is often supported by the auxiliary proposition that modern technology greatly increases the costs and risks of aggression, making the trading option even more rational (Dale 1996) The liberalist analysis, accordingly, is based on the avoidance of conflict and war in international politics (especially on issues dealing with economic interdependence). Richard (1986:13-25) is of the view that states must choose between being "trading states," concerned with promoting wealth through commerce, and "territorial states," obsessed with military expansion. Modern conditions push states towards a predominantly trading mode: wars are not only too costly; but with the peaceful trading option, "the benefits that one nation gains from trade can also be realized by others." When the system is highly interdependent, therefore, the "incentive to wage war is absent," since "trading states recognize that they can do better through internal economic development sustained by a worldwide market for their goods and services than by trying to conquer and assimilate large tracts of land." If states allow climate deteriorate, it will affect their economic and trade volume and there by causing economic hardship in the world more than war could cause. There fore, the liberalists believe that high interdependence fosters peace by making trading more profitable than invading (Robert and Joseph, 1977:24-29).

It is also based on the canon of interdependence in international politics of climate change, that developing states called for a colossal amount of fund at the Copenhagen summit to help them deal with the problem of climate change with is engendered by the industrial activity of the industrialized states. In response, however, the developed nations are answering this question of financial aid. This is based on the primacy that the developed nations get the raw materials and resources that help their industrialization continue, and failure to consider will usher a bandwagon effect and every state must bear the repercussion. The money would help poorer countries protect their coasts, adjust crops threatened by drought, build water supplies and irrigation systems, preserve forests and move from fossil fuel to low-carbon energy systems such as solar and wind power. While for the constructivists, there is still a tendency for states to show and pursue identity and interest while considering threat in international politics. In the words of Checkel (1998:324-348), ‗constructivism puts international relations in the context of broader social relations‖. This implies that, despite the level of interdependence in international politics, there are those states that their relation is more broadened by their common interest and identity. In the argument of Joshua (2003:141), ―constructivists reject the assumption that states always want more rather than less power and wealth, or the assumption that state interests exist independently of a context of interactions among states‖ but the constructivists‘ believe is that ―complex cultures shape state behavior regarding international security and military force.‖ Constructivism will here explain why Britain worked with Russia to minimize German economic penetration in the Middle East. The British worked actively in 1907, they agreed with Russia to divide Persia into spheres of influence (Dale,

1996) as part of a campaign to restrict any extension of German power via the proposed Berlin-Baghdad Railway. The Russian ambassador reported to Moscow in August 1910, "England is less interested in what happens in Persia than in preventing any other Power, except England and Russia, from playing any role there ―This applies particularly to Germany and Turkey" (Dickinson, 1926:261).

It also explains why England worked out a tacit deal with the Americans, giving them a sphere of influence over Latin American oil, in return for British domination of the Middle Eastern oil reserves. By these means, the Germans were effectively denied control over oil imports at a time when only 10 percent of Germany's growing oil requirements were supplied by internal production (Fiona, 1986; Hans, 1950:30-38). This will also bring the constructivists to argue why china (the world fastest growing economy) will align with the most backward countries at Copenhagen climate summit, and support them for their clamors on funding emission reduction against the United States and other richest nations of the world. Economic Structuralism This is an international economic approach that is constructivist in nature; it sees international economic structures as the determinant factors of international relations and politics. The proponents of this school believe that the world is divided into rich and poor countries economically-hence the politically weak and politically strong countries in the global system (Rourke, 2009:378). Marxist analogies on the global polarization of economies best explain the above assertion. Marx believed that the society is divided between classes. The pivotal

point in Marxist analysis is the class struggle between the divided classes of the society and that it is the economic condition that instigates and determines the political structure.

CHAPTER THREE TRADE AMONG NATIONS

TRADE AMONG NATIONS (INTERNATIONAL TRADE)

The ordinary man‘s perception of the concept of trade is usually the process of buying and selling; a process that involves the purchase of goods and services for the purpose of market display and profit maximization. The concept is not a new one in the study of economics, commerce and international economic relations. International trade in the analysis of William, James, Keith, And James (1995:123) is the economic interaction among different nations involving the exchange of goods and services, that is, exports and imports. The guiding principle of international trade is comparative advantage, which indicates that every country, no matter their level of development, can find something that it can produce cheaper than another country. International trade is not unconnected with International finance, which connotes the process of payments between and among nations. This is also a relevant area of international economics and economic relations. It is also notable that a summary of international trade undertaken by a particular nation is given with the balance of trade. Why Nations Engage in International Trade

)

There are reasons for why nations come together for international trade. Some of these arguments provided by Amir (1973) may include: (i)

The increased consumption argument and comparative advantage: This refers to the increase that trade can bring to the total amount of goods and services available to the national population. In the analysis of Amir (1973) one reason why the amount of goods and services available to a country at a point in time can increase through trade is because it allows the country to buy goods and services from sources where it costs comparatively less to produce them. Local resources tied up in the production of these goods in the absence of trade are hence liberated so that comparatively more of other goods can be produced. If the United States can produce both computer chips and sugar but is much better at producing computer chips, while Brazil can also produce computer chips and sugar but is much better at producing sugar, then both countries can benefit from trade in these items.

The diversification argument: The diversity of goods and services made available through trade to this population. A different reason why trade is beneficial is because it makes accessible to national consumers and producers an array of goods and services that would not be available otherwise. Since these include consumer goods as well as capital goods and inputs, trade favors both domestic consumers and the development of the domestic production capacity. (iii)

The stability argument. The stability in the supply and prices of goods and services brought about by trade. Trade may also serve to smooth out transitory excess demand or excess supply situations in domestic

markets, thus avoiding or reducing price fluctuations and eventual supply shortages. Agricultural products may benefit especially in this respect from foreign trade, since agricultural markets tend to be particularly unstable as a consequence of supply rigidities (it takes time for agricultural production to respond to market signals), exogenous factors affecting production (such as weather and pest conditions) and the fact that the demand for food tends to vary little when prices go up or down (it is inelastic). Theories of International Trade Theories of international trade have emerged to explain some of the basic normative assumptions of hoe trade among nations can be facilitated. They have some basic assumptions and arguments on what can make trade larger and better on one hand, while on the other hand what a nation can venture on to affect her level of international trade. Some of the major theories of international trade are: The mercantilist theory The mercantilist theory in the assertion of Zhang (2008) is the oldest theoretical explanation of international trade. It emphasizes protectionist practice by states and the use of gold and silver as currency used. The protectionists believe in more exports than imports in favor of the nation. In England for example, the major economic writers of on trade were merchants, and this has gravitated the English men call the term "Mercantilism". In France and Germany, where the bourgeoisie was smaller, economic arguments were articulated largely by state officials -- thus French Mercantilism is better known as "Colbertisme" (named

after Jean-Baptiste Colbert, French minister of finance) and German Mercantilism as "Cameralism" (after the German term for the royal chamber). English Mercantilism is often divided into three phases: the crude "Bullionist" stage lasting roughly from the 1580s to 1620, the "Traditional" stage lasting from 1620 to about 1700, overlapping with the "Liberal" stage which stretched from the 1680s to the 1750s. French Colbertisme is said to have lasted between 1660s and 1750s, while German Cameralism had perhaps the longest time span, stretching from 1560s to 1750s and, through the hands of Neo-Cameralists, stretching even beyond 1800 (Zhang, 2008). The state exercised much control over economic life, chiefly through corporations and trading companies. Production was carefully regulated with the object of securing goods of high quality and low cost, thus enabling the nation to hold its place in foreign markets. The theory states that the world only contained a fixed amount of wealth and that to increase a country wealth, one country had to take some wealth from another, by exporting more and importing less, and to receive in exchange gold (the deficit is paid in gold) is called MERCANTILISM. The theory was criticized by the newly appeared class. More money was associated with less products and inflation. The standard of living is weaker. Mercantilist ideas did not decline until the coming of the Industrial Revolution and of laissez-faire (Earl, 1987). The Absolute Advantage (Adam Smith model)

In the second half of the XVIII century, mercantilist policies became an obstacle for the economic progress. Adam Smith (father of liberalism and economical

science) brought the argument in his book ―The Wealth of Nations‖, published in 1776, that the mercantilist policies favorised producers and disadvantaged the interests of consumers (Earl, 1987). Adam Smith‘s theory starts with the idea that export is profitable if you can import goods that could satisfy better the necessities of consumers instead of producing the internal market. The essence of Adam Smith theory is that the rule that leads the exchanges from any market, internal or external, is to determine the value of goods by measuring the labor incorporated in them(Earl, 1987). In order to demonstrate its theory, Adam Smith analyzed for the beginning country A, using one factor of production, the productivity of labor, evaluated in the necessary of hours needed to produce a unit of measure of the products X and Y.

He used a unifactorial system of economy. Symbolizing H-hours, L-labor, the unitary necessary of labor for product X is HLX and for Y HLY. Because all the economies have limited resources, there are limits in the level of production, and if a country wants to produce much of one product it has to give up producing another goods, existing in this case renounce of trade. Renounces can be illustrated by a graphic.

The production possibility frontier

We have a single factor of production- labour, which results in productivity. This country has a resource of labour of 8+4=12 hours. -with 4 hours of labour the country can produce 1 kilo of cheese -with 8 hours of labour the country can produce 1 liter of wine The production possibility frontier illustrates the variety of the mixing of goods that can be produce by the economy. The opportunity cost is the number of measure units of product Y to which the economy has to give up in order to produce one supplementary unit of product X. The Comparative Advantage Theory (David Ricardo Model) This theory is of the argument that countries can gain from trade even if one of them is less productive than another to all goods that it produces (Murray, 2008). In his example Ricardo imagined two countries, England and Portugal producing two goods, cloth and wine, using labor as the sole input in production. He assumed that the productivity of labor (i.e., the quantity of output produced per worker) varied between industries and across countries. However, instead of assuming, as Adam Smith did, that England is more productive in producing one good and Portugal is more productive in the other; Ricardo assumed that Portugal was more productive in both goods. Based on Smith's intuition, then, it would seem that trade could not be advantageous, at least for England (Murray, 2008). Similarly, on the basis of above assumptions, Ricardo explained his comparative cost difference theory, by taking an example of England and Portugal as two countries & Wine and Cloth as two commodities. As pointed out in the

assumptions, the cost is measured in terms of labour hour. The principle of comparative advantage expressed in labour hours by the following table.

Labor Hours in producing wine and clothes

Portugal requires less hours of labor for both wine and cloth. One unit of wine in Portugal is produced with the help of 80 labor hours as above 120 labor hours required in England. In the case of cloth too, Portugal requires less labor hours than England. From this it could be argued that there is no need for trade as Portugal produces both commodities at a lower cost. Ricardo however tried to prove that Portugal stands to gain by specializing in the commodity in which it has a greater comparative advantage. Comparative cost advantage of Portugal can be expressed in terms of cost ratio. Cost ratio of producing wine and clothes

Portugal has advantage of lower cost of production both in wine and cloth. However the difference in cost, that is the comparative advantage is greater in the production of wine (1.5 — 0.66 = 0.84) than in cloth (1.11 — 0.9 = 0.21). Competitive Theory (Porter’s Diamond) of nations Dissatisfied by economic theories of trade, Porter (1990a) advanced a new theory to explain national competitive advantage. The main question he attempts to answer is why some countries are more successful in particular industries than others. He identifies four classes of country attributes (which he calls the National Diamond) that provide the underlying conditions or platform for the determination the national competitive advantage of a nation. These are factor conditions, demand conditions, related and support industries, and company strategy, structure and rivalry. He also proposes two other factors, namely government policy and chance (exogenous shocks), that support and complement the system of national competitiveness but do not create lasting competitive advantages (Smit, 2010:105-130).

Factor conditions

Whereas the traditional trade theories define factor conditions as land, labor and capital (including human capital), Porter (1990a) distinguishes between the following categories: human resources, physical resources, knowledge resources, capital resources and infrastructure. Factor conditions are further subdivided into basic and advanced factors that can be either general or specialized. Basic factors such as unskilled labor, raw materials, climatic conditions and water resources are inherited and require little or no new investment to be utilized in the production process. Advanced factors are created and upgraded through reinvestment and innovation to specialized factors, which according to Porter form the basis for the sustainable competitive advantage of a country (Smit, 2010:105-130).

Demand Conditions

Porter, however, focuses more on demand differences than on similarities to explain the international competitiveness of countries. According to him, it is not only the size of the home demand that matters, but also the sophistication of home country buyers. It is the composition of home demand that shapes how firms perceive, interpret and respond to buyers‘ needs (Smit, 2010:105-130).

Firm Strategy, Structure and Rivalry

A third determinant of national competitive advantage, according to Porter (1990), is firm strategy, structure and rivalry. The main emphasis here is that the strategies and structures of firms depend heavily on the national environment and that there are systematic differences in the business sectors in different countries

that determine the way in which firms compete in each country and ultimately their competitive advantage (Smit, 2010:105-130). Porter (1990) identifies rivalry as the most critical driver of competitive advantage of a country‘s firms. He believes that domestic rivalry forces firms to be cost competitive, to improve quality and to be innovative. According to Porter (1990), it is firms that ultimately compete internationally, but it is the international competitiveness of a country that shapes the international competitive advantage of firms.

Related and support industries

The introduction of related and support industry clusters as a separate determinant of national competitive advantage has been viewed as one of the most important contributions of Porter‘s Diamond Theory (Teece,1996). According to Porter (1998, 2000), it is the external economies of related and support industry clusters, such as networks of specialized input providers, institutions and the spill-over effects of local rivalry, that become the true source of competitive advantage (Porter 2000, 2003). The cluster represents an environment in which learning, innovation and operating productivity can flourish (Smit, 2010:105-130). Table 1.1: The Proliferation of Regional Trading Blocs and Agreements: Main Regional Agreements among Developing Countries

Region

Organization

Sub-

Central

Member Countries

African Cameroon, Central African Republic, Chad,

Saharan

Economic

Africa

Monetary

and Congo, Equatorial Guinea, Gabon.

Community (CEMAC

in

French)

Common for

Market

Eastern

Southern

and Africa

(COMESA)

West Economic Monetary

Kenya,

Lesotho,

Madagascar,

Malawi,

Mauritius, Mozambique, Namibia, Rwanda, Somalia,

Sudan,

Swaziland,

Tanzania,

Uganda, Zambia, Zimbabwe. African and Union Benin, Burkina Faso, Côte d'Ivoire, Guinea

(WAEMU) (UEMOA

Angola, Burundi, Comoros, Djibouti, Ethiopia,

Bissau, Mali, Niger, Senegal, Togo. in

French) Economic

Benin, Burkina Faso, Cape Verde, Côte

Community of West d'Ivoire, The Gambia, Ghana, Guinea, GuineaAfrican (ECOWAS) Southern Customs

states Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo. African Botswana, Lesotho, Namibia, South Africa, Union Swaziland.

(SACU) Southern

African

Development

Lesotho,

Namibia,

Malawi,

South

Africa,

Swaziland, Tanzania, Zambia, Zimbabwe.

(SADC)

Pacific Australia, Brunei, Canada, China, Hong Kong,

Economic

Indonesia,

Japan,

Republic

of

Co/operation

Malaysia,

New

Zealand,

Philippines,

(APEC)

Singapore, Thailand, United States.

Association Asia

Botswana,

Mozambique,

Community

Asia

Angola,

South-East

Korea,

of Brunei, Burma, Cambodia, Indonesia, Laos, Asian Malaysia, Philippines, Singapore, Thailand,

Nations (ASEAN) South

Vietnam.

Asian

Association

for

Regional Co/operation

Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka.

(SAARC) Andean Latin America

Common

Market (ANCOM)

Bolivia, Colombia, Ecuador, Peru, Venezuela.

Caribbean

Antigua and Barbuda, Bahamas, Barbados,

Community

Belize, Dominica, Grenada, Guyana, Jamaica,

Monteserrat, St Kitts-Nevis, St Lucia, St

(CARICOM)

Vincent, Trinidad-Tobago. Central

American

Common

Market

(CACM) Latin

American

Integration Association (LAIA)

Costa

Rica,

El

Salvador,

Guatemala,

Honduras, Nicaragua.

Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela.

Southern Common Market

Argentina, Brazil, Paraguay, Uruguay.

(MERCOSUR) Cooperative Council

for

the Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,

Arab States of the United Arab Emirates. Gulf (GCC) Middle East & N. Africa

Council Economic

of

Arab Egypt,

Jordan,

Kuwait,

Libya,

Unity Mauritania, Somalia, Sudan, Syria, United

(CAEU) Economic

Iraq,

Arab Emirates, Yemen. Co-

operation Organization (ECO)

Iran, Pakistan, Turkey.

Source: caballero, j.m., grozia, m. and maetz, m. (2011): international trade: some basic theories and concepts. FAO corporate document repository.

The Great Trade Collapse In the economic argument of Robert (2011:1-2), the financial crisis and great recession of 2008-9 brought with it a "great trade collapse": world trade relative to GDP fell by nearly 30 percent between these two years, exceeding the experience of other post-war recessions. Why did trade fall so much, and why did it recover relatively quickly? The leading explanations stress, in varying degrees, the roles of: (1)

inventory adjustment for imports;

(2)

demand for durable versus non-durable goods;

(3)

the use of intermediate inputs in trade, which might magnify the impact on trade as "supply chains" are temporarily disrupted; and

(4)

The role of trade credit, which appears to have dried up temporarily during the crisis.

While considering the fourth explanation, Manova and Chor (2010) have provided the strongest evidence supporting the role of credit constraints on exports. These constraints limit the extensive margin of exports in sectors that are most vulnerable to financial stress. Monova and Chor (2010) are also of the belief that such sectors faced greater reductions in their exports to the U.S. market during the financial crisis. This argument has been supported and confirmed for Japan by Amiti and Weinstein (2009), when they made a discovery on japan. Their discovery shows

that Japanese exporters were to face greater reductions in their sales abroad if they were affiliated with main banks that performed poorly. On the other hand similarly, the discovery made on china was that firms faced tighter credit constraints on their exports than on their domestic sales, and that exports experienced a significant slowdown because of the 2008 crisis. While taking the first explanatory factor, on inventory adjustment, Alessandria, Kaboski and Midrigan (2010) stressed the role of inventory adjustment, which can lead to a rapid fall in imports as stocks are adjusted downwards. Other prominent scholars like Levchenko, Lewis, and Tesar (2010) also find a limited role for trade credit in their regression analysis of U.S. trade, but they use an accounting definition of "trade credit" that applies equally well to exports or domestic sales. They (Levchenko, Lewis, and Tesar, 2010) also made a finding which shows that, in sectors which are more reliant on imported intermediate inputs suffered more during the crisis, because these supply chains were temporarily disrupted. But for Bussiere, Callegari, Ghironi, Sestier and Yamano (2011), emphasis on the importance of imported inputs is also considerable. They model the different components of aggregate demand (consumption, investment, government spending, and exports) as having different import intensities. They then construct a weighted average of those factors with the weights reflecting their import intensities. Using the resulting variable as an income term, and including an import price, they are able to construct a model that predicts the fluctuations in import demand during the current crisis and earlier episodes much more accurately than do conventional methods that rely on GDP and aggregate prices. Foreign Direct Investment (FDI)

Foreign Direct investment is an investment carried out by a firm or firms to another country different from the country where the firm (s) comes from. FDI is defined as cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy (OECD, 2013). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the enterprise. Ownership of at least 10% of the voting power, representing the influence by the investor, is the basic criterion used. Inward stocks at a given point in time refer to all direct investments by nonresidents in the reporting economy; outward stocks are the investments of the reporting economy abroad. Corresponding flows relate to investment during a period of time. Negative flows generally indicate disinvestments or the impact of substantial reimbursements of inter-company loans. The FDI index gauges the restrictiveness of a country's FDI rules through four types of restrictions: foreign equity limitations; screening or approval mechanisms; restriction on key foreign employment; operational restrictions (OECD, 2013). Importance of FDI 1. It can provide a firm with new markets and marketing channels 2. It may provide cheaper production facilities 3. It provides access to new technology products, skills and financing. 4. It can provide for the host company source of new technology capital, products and management skills which also pave a way for economic development

Direct & indirect Investment Direct investment deals with physical investment into building factories in another country. It is also called ―a portfolio investment‖. An indirect investment goes to investment in buildings, machinery and equipments without portfolio. Factors That Have Developed FDI in Developing Countries (1) Trade and investment policies (2) Global regulation on the environment (3) Tariff liberalization (4) Easing restrictions on foreign investment and acquisition in many nations (5). Deregulation and privatization of industries Considerable Factors before FDI Before going on FDI, some factors need to be considered, and these factors are: 1. An assessment of internal resources 2. competitiveness 3. Market analysis 4. Market expectation Theories of FDI It is generally argued that, theories of FDI are concerned about some basic questions, these questions can be presented as follows: (5 W+H)= 1. Who? (is the investor) 2. What? (kind of FDI) 3. Why? (are we investing)

4. Where? (is the FDI going) 5. When? (do we invest) How? (the mode of entry)

Other Theories Theoretical backing of this chapter is derived from the scientific theorization of economic investment between and among nations in international economic relations. Theories of foreign direct investment can be categorized in to two: micro and macro theories. (1) The micro Theory deals with industrial organization while the macro theory deals with cost of capital. According to Caves (1971), ―FDI in microeconomic terms focuses on market imperfections, and the desire of multinational enterprises to expand their monopolistic power‖, and for Assaf (2002), ―multinationals find it cheaper to expand directly in a foreign country rather than through trade in cases where the advantages associated with cost or product are based‖. (2) The macro theory, as argued by Assaf (2002), has strong effect on exchange rate. It is centered on the positive effects of an exchange rate depreciation of the host country on FDI inflows, because it lowers the cost of production and investment in the host countries, raising the profitability of foreign direct investment. The wealth effect is another channel through which a depreciation of the real exchange rate could raise FDI. By raising the relative wealth of foreign firms, a depreciation of the real exchange rate could make it easier for those firms to use retained profits to finance investment abroad. (3) cross-border model of foreign direct investment: Mundell (1957) is of the view that: ―flows of capital and goods are substitutes and that all are equal,

capital flows should be related to relative endowments when there are barriers to trade, flowing from capital abundant countries to capital poor ones‖. Prominent among the exponents of this theory are: Wilfred Ethier (1986), Gene Grossman (2004), Elhanan Helpman (1984), James Markusan (2000), and Assaf Razin among others, who became popular in the 1980‘s, and later developed by Gene Grossman, Assaf Razin and James Markusan. They made their theorization focusing on the structure of fixed costs, relative country size and endowments, and preference conditions that compel firms to expand operations overseas. They thus capture two way flows between industrialized countries and to some degree the very low levels of FDI directed to poorer countries, and which presumably have smaller endowments of skilled labor or other resources important to producing special headquarters services that can be applied to production in plants overseas. (4) The Gravity approach: this deal with geographical proximity. That the closer countries are (Geographically), economically, culturally the higher will be the FDI flows between or among those countries (5) Institutional theory: this theory adopts institutional analogy or framework as a yardstick. They emphasize on political stability as a key factor. Global Status of FDI -2011-2012 According to preliminary estimates given by OECD (2013:1) global FDI flows have declined in 2012 by 14% from 2011 to USD 1.4 trillion in spite of the 22% increase in the last quarter but remain comparable to global FDI flows in 2010. OECD investments abroad declined by 15% to USD 1100 billion in 2012 accounting for 77% of global FDI (80% in 2011) and OECD attracted only USD

686 billion of FDI(or 48% of global FDI) representing an annual decrease of 21%. Investment to and from the European Union, in aggregate, declined by around 25%. China became the first FDI destination in 2012 and the United States maintained its position as the second (OECD, 2013:1).

In 2012, 44% of global FDI inflows were hosted by only five countries. China attracted the lion‘s share by USD253 billion (or 18% of total) followed by the United States (USD 175 billion), Brazil (USD 65 billion), the United Kingdom (USD 63 billion) and France (USD 62 billion). In spite of the 25% drop from USD 234 billion in 2011, accounting for the decrease in both equity and intercompany loans, the United States remains the first FDI destination within the OECD area (OECD, 2013:1). In the statistics of OECD (2013:2), FDI in Germany, which ranked as the 5th largest host economy within the OECD in 2011, declined by 87% in 2012 to USD 6 billion, ranking at the 20th position. This development is due to disinvestments (in equity) by foreign investors and reimbursements of intercompany debt. On the other hand, inflows to Japan recovered modestly in 2012 increasing from USD -1.8 billion in 2011 to USD 2.1 billion in 2012, well below the inflows recorded in 2008 and 2009 (USD 24 billion and USD 12 billion, respectively).

Some EU countries recorded negative inflows such as Belgium at USD -1.6 billion (declining drastically from USD 103 billion in 2011) as a result of major disinvestments in the fourth quarter of 2012. However, the impact of some of the

decreases recorded in the OECD area in 2012 was offset, in part, by significant increases (OECD, 2013:1). FDI inflows to France increased by 52%, to USD 62 billion (ranking as 3Rd OECD recipient). Due to historically high levels of intercompany loans, inflows to Luxembourg reached USD 58 billion, excluding investments in special purpose entities hosted in this country (OECD, 2013:1).

While China and Argentina received respectively 11% and 25% more FDI as compared to 2011, inflows to India, Russia and South Africa‘s decreased by more than 15%. Indonesia recorded its highest level of FDI inflows at USD 19.9 billion and Saudi Arabia received USD 13.7 billion in the first three quarters of 2012, while Brazil maintained the same level of FDI inflows at USD 65 billion. At USD 1100 billion, OECD‘s FDI outflows represented 77% of global outflows for 2012, representing a 15% decrease from 2011(OECD, 2013:1). In the same period, the United States, the largest single investing economy world-wide, recorded USD 351billion outward FDI which accounted for 25% of global outflows (or 32% of OECD or 37 % of G20 economies).

Other significant investing countries in 2012 according to the report of OECD (2013) were Japan (USD 122 billion), Belgium (USD 85 billion), the United Kingdom (USD 72 billion), Germany (USD 67 billion), China (USD 62.4 billion) and France (USD 62.2 billion).

CHAPTER FOUR GLOBALIZATION The concept of globazation has been a debating one. There has not been any acceptable definition. But Held and McGrew (2002:1) see globalization, as ―the expanding scale, growing magnitude, speeding up and deepening impact of transcontinental flows and patterns of social interaction.‖ Globalization is not just a shift in the intensity of exchange, but leads to a re-articulation of political, cultural and economic power. There is a structural transformation and a global shift in how power and authority is organized (Held & McGrew, 2007). The best example of this is the change in state sovereignty and autonomy. There has been a ‗reconfiguration of political power‘ (Held & McGrew, 2007) which is understood as neither globalist nor skeptic, but transformation list. Globalization is not a debate about either convergence or divergence, but represents a dialectical process, which can both integrate and fragment, creating both winners and losers.

The World Systemic Approach

A world-system is any historical social system of interdependent parts that form a bounded structure and operate according to distinct rules, or "a unit with a single division of labor and multiple cultural systems" (Wallerstein, 1974: 390). Three concrete instances stand out: mini-systems, world empires, and worldeconomies. The modern world-system is a world-economy: it is "larger than any defined political unit" and "the basic linkage between its parts is economic" (Wallerstein, 1974: 15). It is a capitalist world-economy because the accumulation of private capital, through exploitation in production and sale for profit in a market, is its driving force; it is "a system that operates on the primacy of the endless accumulation of capital via the eventual commoditization of everything" (Boli and George, 1999: 10). The fundamental feature of the systemic approach is that, the capitalist worldeconomy has no single political center: it "has been able to flourish precisely because it has had within its bounds not one but a multiplicity of political systems," which has given capitalists "a freedom of maneuver that is structurally based" and has "made possible the constant expansion of the world-system" (Strang and John, 1993: 348). The modern world-system has its origin in the European world-economy created in the late-fifteenth and early-sixteenth century (Wallerstein, 1995: 15), but only consolidated in its current form by the mid-seventeenth century (Wallerstein, 1998: 401). The crisis of feudalism created strong motivation to seek new markets and resources; technology gave Europeans a solid base for exploration. Parts of Western Europe exploited initially small differences, via specialization in activities central to world commerce, to ultimately large advantage.

What shapes the structure of the world system is that the system consists of a single division of labor within one world market but contains many states and cultures. Labor is divided among functionally defined and geographically distinct parts arranged in a hierarchy of occupational tasks (Boli and George, 1974: 34950). Core states concentrate on higher-skill, capital-intensive production; they are militarily strong; they appropriate much of the surplus of the whole worldeconomy (Wallerstein, 2000: 401). Peripheral areas focus on low-skill, laborintensive production and extraction of raw materials; they have weak states. Semi peripheral areas are less dependent on the core than peripheral ones; they have more diversified economies and stronger states. In the first centuries of worldsystem development, Northwest Europe constituted the core, Mediterranean Europe the semi periphery, and Eastern Europe and the Western hemisphere (and parts of Asia) the periphery (Strang and John,1974: 400-1). By the end of the twentieth century, the core comprised the wealthy industrialized countries, including Japan; the semi periphery included many long-independent states outside the West; poor, recently independent colonies mainly constituted the periphery. The World Polity Approach The concept of polity is a "system of creating value through the collective conferral of authority" (Meyer 1980: 111-2). The system is constituted by a set of rules, also called frames or models. Actors in the system are "entities constructed and motivated by enveloping frames" (Boli and Thomas 1997: 172). The world polity contains no single actor or institution defining what is valuable for the world as a whole, "Instead of a central actor, the culture of world society allocates responsible and authoritative actor hood to nation-states" (Meyer, 1997:

169). Their authority is rooted in a world culture: a set of universally applicable models that define who legitimate actors in world society are, what goals they can pursue and how they can pursue them. While world polity models define sovereign states as key actors, enabling authorities to construct collective goals and devise the means or programs to produce them, state officials are not the only ones engaged in such authoritative creation of value (Held, McGrew, Goldblatt, and Perraton, 1999: 112). The enactment of global models creates considerable institutional similarity among differently situated states. "World society models shape nation-state identities, structures, and behavior via worldwide cultural and associational processes . . . . As creatures of exogenous world culture, states are ritualized actors marked by intensive decoupling and a good deal more structuration than would occur if they were responsive only to local, cultural, functional, or power processes" (Meyer, 1997: 173). Medieval Christendom provided exemplars of rational organization and crystallized the notion of the person as an individual. The late-nineteenth century was a period of intense world polity innovation, with many organizations elaborating transnational rules that increasingly bound individual states. After 1945, world culture expanded further through the work of numerous international organizations. "The development and impact of global socio-cultural structuration greatly intensified with the creation of a central world organizational frame at the end of World War II" (Hafner, Emilie and Tsutsui, 2005: 163). "The colossal disaster of World War II may have been a key factor in the rise of global models of nationally organized progress and justice, and the

Cold War may well have intensified the forces pushing human development to the global level" (Boli, Loya and Loftin,1999: 50-77). The world cultural order consists of models defining actors (e.g., nation-state, individual), purposes (e.g., development, progress), and principles (e.g., human rights, justice). Four main "elements of collective world society" contribute to and implement the tenets of this order: international governmental organizations, especially those in the UN system; nation-states, which engage in copying that leads to diffusion; voluntary associations in many different fields, some operating as social movements; and scientists and professionals, as experts whose own authority derives from world-cultural principles (Meyer, 1997:162-6). The World Culture Approach World culture theory is a label for a particular interpretation of globalization that focuses on the way in which participants in the process become conscious of and gives meaning to living in the world as a single place. In this account, globalization "refers both to the compression of the world and the intensification of consciousness of the world as a whole"; in other words, it covers the acceleration in concrete global interdependence and in consciousness of the global whole (Robertson 1992: 8). It involves the crystallization of four main components of the "global-human circumstance": societies (or nation-states), the system of societies, individuals (selves), and humankind; this takes the form of processes of, respectively, societalization, internationalization, individuation, and generalization of consciousness about humankind (Robertson 1991: 215-6; 1992: 27). Rather than referring to a multitude of historical processes, the concept above all captures "the form in terms of which the world has moved towards unity" (1992: 175). This form is practically contested. Closely linked to the

process of globalization is therefore the "problem of globality" or the cultural terms on which coexistence in a single place becomes possible (1992: 132). World culture denotes the multiple ways of defining the global situation, conceived as responses to this shared predicament. As a process that both connects and stimulates awareness of connection, globalization dissolves the autonomy of actors and practices in contemporary world order. In this process of relativization, all units engaged in globalization are constrained to assume a position and define an identity relative to the emerging global whole (1991: 216; 1992: 29). Globalization has been occurring for centuries, in tandem with rather than as a consequence of the rise of modernity (1992: 8). In a "germinal" European phase (1992: 58), starting in the fifteenth century, ideas about national communities, the individual, and humanity began to grow. In the following "incipient" phase, lasting until the late-nineteenth century, these ideas took more concrete form; for example, unitary states now took part in "international" relations. In the critical "take-off" phase, from the 1870s to the 1920s, the main "reference points" of contemporary world society fully crystallized. World culture encompassed increasingly global conceptions of the correct kind of national society, thematization of individual rights and identities, inclusion of non-European societies in international relations, and greater formalization of ideas about humanity (1992: 59). Globalization in this period also included the growth of many other transnational linkages and standards. A "struggle-for-hegemony" phase lasted from the 1920s until after World War II, giving way to a period of "uncertainty" since the 1960s. Impacts of Globalization

On the one hand, globalization unifies the world, but, on the other hand, as the importance of human and social capital is often ignored and concern for the wellbeing of people is ranking low in comparison with economic interests, globalization excludes a large part of the world‘s population. While some recent research attests to the benefits of globalization, stating that per-capita global income more than tripled in the second half of the last century and that the indicators of human well-being improved as per-capita incomes rose (Sachs, 2005:95), there is ample evidence that inequalities and gaps within countries and among countries grew.

Critics are of the view that, to allow the market mechanism to be the sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society... Robbed on the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed (Polanyi, 1957:73).

The impact on poverty Timothy (2008:25-31) has identified some of the basic effects of globalization as it relates to poverty. These effects are:

(a)Globalization has been able to enrich wealthier nations by making others languishing in abject poverty. This can be seen in the relation ship between the northern and southern hemisphere (b)

As new technologies everyday covers all the global markets, these

technologies are expensive, the poorer countries can not afford them, but only the inventors and rich nations can afford to buy the technology for its own people. For example, despite the fact that Nigeria won the African cup of nations, it was not able to transmit the games live from South Africa to Nigeria for Nigerians to watch. (c)In the world of information, the number of people in world today that can not afford computers is far greater than the number of those that can afford them. This is largely because the purchasing powers are not the same, and globalization has not made it easier for them to afford them. (d)

In the world of competition, the rich nations are favored. Globalization has

given them the opportunity to produce more quality and sophisticated goods, by crippling the economies of the developing states that can not compete in the international market. (e)Despite globalization, it has not been able to solve the problem of poor infrastructure, slums, child, labor, water, roads, shelter and other essentials for serving humanity, which is a typical epitome of the third world situation. (29) Impact on Education According to Albrechat and Adrian (2000:75-83), some of the impacts of globalization on education can be seen as: (a)Globalization has brought about Commoditization and the corporate takeover of education.

(b)

There is great threat to the autonomy of national educational systems by

globalization. (c)Globalization has facilitated De-localization and changing technologies and orientations in education. Impact on Health With the invention of new medical instruments and scientific development in medicine, many people around the world find it convenient and stress-free the delivery of medical health care to them. But in some cases according to Kelly (2004:156-158), there are some implications, because not all nations get the same breakthrough. Some of the impacts of globalization as identified by Kerry (2004) are: (a)

Globalization has allowed new medical facilities invented and used to maintaining human health.

(b)

It has allowed other areas of the world to benefit from the global expansion and development of health technologies and new training.

(c)

It has excluded the poor driven countries especially in Africa from having the benefit of modern healthcare facilities and services.

(d)

Advanced machines used for medical healthcare are expensive and daring to third world countries.

(e)

People in Africa are still dying of malaria, polio, HIV, tuberculosis etc, and globalization has not given them a leaning way out.

Impact on politics

The political structure of societies has been very stable in developed societies as maintained by Giddens (2000:50). But the problem globalization always have, is its failure to develop stable structures politically in developing countries. Some of the political impacts of globalization are: (a)Globalization notwithstanding has brought governments nearer and increased the level of international relations and diplomacy, but it has not been able to solve major political conflicts in different societies. E.g. Syria, Libya, Bahrain, Congo DR etc. (b) Despite global democratization process, some societies have not fully welcome purely democratic tenets and values. This is due to human rights violation, unconstitutional treatment of the citizenry and so on. (c)Globalization has not been able to put a stop to money politics, election rigging and political thuggery especially in African politics. (d)

Despite the breakthrough in communication and information technology,

many people in the world are ignorant about the political system and practices of other societies, especially African politics. (e)Globalization that is meant for more political inter-connectedness, is creating more political gaps and mistrust among different societies. The euro-zone members are some times in disagreement, the Middle East and the west, Russia and the United States, china and Japan etc. Impact on economy On the observation of Parikh, (2002:35), globalization is not avoidable, it links the whole world in a global community, but it has the following effects on the society:

(a) Globalization has brought development to industrialized societies and underdevelopment to the periphery. This is largely because the less developed can not compete with the latter in a market economy. (b) Globalization has made the third world rely on the core countries economically without economic independence. (c) Globalization may increase the standard of living of societies if fruitful contacts are made with new markets. (d) Globalization may lead to the collapse of local industries as more advanced firms and products are introduced in the country. (e) Globalization may bring employment opportunity, as foreign investors provide opportunity for the labor force of the host nations. (f) It may also bring unemployment as a result of closure of firms due to competition or transfer of investment to other parts of the nation.

Cultural impact of globalization Aulakh and Schechter (2000:233) have identified some of the salient impacts of globalization on the cultural circle of the society. These impacts are as follows: (g)

The problem with culture in globalization is that, the west is becoming

universal culturally by inculcating its cultural values and by ignoring other cultures. (h) The Asians see western culture as hegemonic, hence called for cultural renaissance all over Asia. It connotes collectivism against individualism, respect to authority and religion among others. (i) Globalization has not been able to prevent clash of culture and civilization. Despite the coming together of people within the global village, tension is

increasing among people of different culture and civilization (Islam and the west, capitalism and communism etc). (j) Globalization affects history culturally, as some people adopt western culture by forgetting where they come from, what they eat what they wear or what kind of shelter they live in.

(k) The Americanization and westernization of global culture especially in the areas of pop and rock music, is seen as unacceptable in others societies. It is perceived as supporting immorality and unethical values.

CHAPTER FIVE THE BRETTON WOODS MONETARY SYSTEM

Origin of the Bretton Woods The Bretton woods system emerged on the heels of the Great Depression and the beginning of the end of World War II in 1944. The Bretton Woods Agreement was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944 (Stephey, 2008). Major outcomes of the Bretton Woods conference included: (1)

the formation of the International Monetary Fund

(2)

formation of an International Bank for Reconstruction and Development

(3)

The proposed introduction of an adjustable pegged foreign exchange rate system. Currencies were pegged to gold and the IMF was given the authority to intervene when an imbalance of payments arose.

The Bretton Woods system addressed global ills that began as early as the First World War, when governments (including the U.S.) began controlling imports and exports to offset wartime blockades. This, in turn, led to the manipulation of currencies to shape foreign trade. Currency warfare and restrictive market practices helped spark the devaluation, deflation and depression that defined the economy of the 1930s (Stephey, 2008). The conference that gave birth to the system, held in the Amrican resort village of Bretton Woods, New Hampshire, was the culmination of some two and a half years of planning for postwar monetary reconstruction by the Treasuries of the United Kingdom and the United States (Calleo and Rowland, 1973). Although attended by all forty four allied nations, plus one neutral government (Argentina), conference discussion was dominated by two rival plans developed, respectively, by Harry Dexter White of the U.S. Treasury and by John Maynard Keynes of Britain. The compromise that ultimately emerged was much closer to White's plan than to that of Keynes, reflecting the overwhelming power of the United States as World War II was drawing to a close (De vries 1976). One of the proposals of the Bretton Woods conference was that currencies should be convertible for trade and other current account transactions. Following the end of World War II in 1945, Europe and the rest of the world embarked on a lengthy period of reconstruction and economic development to recover from the devastation inflicted by the war. Although gold initially served as the base

reserve currency, the U.S dollar gained momentum as an international reserve currency that was linked to the price of gold (Calleo and Rowland, 1973). The Gold-Dollar Dilemma In the writings of dam (1982:138-39), the private market dollar price of gold in London from1960 through 1976. The flat line segment through 1968 represents the period of operation of the Gold Pool, a consortium of central banks organized in1961 to undertake purchases and sales of gold in London to peg the market at the official price. The United States was to provide 50 percent of the gold, with the remainder coming from seven European central banks (Dam, 1982:138-39).

As indicated in the figure, the Gold Pool was successful until March 1968, when it ceased operations after selling $3 billion of gold since the previous November, with$400 million of gold sold on 14 March alone. While considering this amount, the United States expended $2.2 billion in gold, and both the U.S. and the U.K. gold stocks declined by 18 percent between September 1967 and March 1968 (Solomon, 1982:114-19).

At this point, the members of the Pool agreed to a two-tiered system for gold, the central banks would buy and sell gold to each other at the official price but would refrain from buying or selling in the private market. The private market price then floated upward, reaching as high as $42.00 per ounce, but gold sales by South Africa brought the price back to about $35.00 per ounce by the end of 1969. Thus, the attack on gold did not result in a great discontinuity in the price of gold while seriously depleting the monetary gold stock (Solomon, 1982:11419).

Collapse of the Bretton Woods System The Bretton Woods system itself collapsed in 1971, when President Richard Nixon severed the link between the dollar and gold — a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands. By 1973, most major world economies had allowed their currencies to float freely against the dollar. It was a rocky transition, characterized by plummeting stock prices, skyrocketing oil prices, bank failures and inflation (Stephey, 2008). The Bretton Woods Institutions The major institutions of the Bretton Woods are: (1) The IMF: An international organization working to maintain global financial stability through technical assistance, training, and loans to member states. (2) International Finance Corporation (IFC): An agency within the World Bank Group providing financing and technical assistance to the private sector in developing nations. (3) Multilateral Investment Guarantee Agency (MIGA): An agency within the World Bank Group which promotes foreign direct investment in developing countries by providing non-commercial risk insurance to private sector crossborder investors. (4) International Centre For The Settlement Of Investment Disputes (ICSID): An autonomous international institution within the World Bank Group which seeks to remove major impediments to the free international flow of private investment

posed by non-commercial risks and the absence of specialized international methods for investment dispute settlement. (5) World Trade Organization (WTO): An independent international organization providing a forum to negotiate and adjudicate the rules of trade between its member states. (6) African Development Bank (ADB): An institution that works to promote both public and private investment and economic development in Africa, as well as provide financial and technical assistance to its member states. (7) Asian Development Bank (ADB): An institution providing financial and technical assistance to public and private development projects in Asia and the Pacific. (8) European Bank for Reconstruction and Development (EBRD): An institution that provides financial and technical assistance primarily to private-sector businesses in Central and Eastern Europe and Central Asia in order to promote transition to open and democratic market economies. (9) Inter-American Development Bank (IADB): An institution that provides financial and technical assistance to public and private development projects in Latin America.

CHAPTER SIX THE INTERNATIONAL MONETARY FUND (IMF)

The IMF is an inter-governmental organization, a public institution, established with money provided by tax payers all over the world (Wood, 2005). The IMF does not report or it is not answerable to the citizens who finance it, or those whose lives are affected by the IMF, but rather it reports to the ministries of finance and the central banks of the governments of states. Origin from the Great Depression Of 1929 The process of the creation of the World Bank was exactly taken in the creation of the IMF. Like the World Bank, the IMF was also conceived at the conference

of the Bretton Woods which was meant to reconstruct Europe after the devastating Second World War. It was also meant to assist nations maintain the value of their currencies without resorting to trade barriers and high interest rates. These however, were seen as the major cause of the great depression (New York Times, 2013). The great depression was a world wide one that lasted for about ten (10) years. The first day of the depression in the United States is called ―the black Thursday‖ which was October 24th 1929, when 12.9 shares were of stock were sold In one day (more than the usual sales) and it was triple of the usual amount. After four days it was discovered that the prices fell 23%, which was also called ―the stcok market crash of 1929‖ (New York Times, 2013).

Impacts of the Great Depression Some of the impacts of the great depression as recorded are: 1. 2.

Unemployment reached 25% from 3% in 1933. Monthly income or wages of those who survived the depression fell to about 42%

3.

GDP was cut in half from $103 to $55 billion due deflation, where prices also fell 10% per year.

4.

Panicked government leaders had to pass the ―Smoot-Hawley tariffs‖ in order to protect domestic or local industries and jobs. The SmootHawley Tariff Act of June 1930 raised US tariffs to historically high levels. This piece of legislation was originally intended to help protect domestic farmers against agricultural imports. During World War I,

countries outside of Europe increased their agricultural production. Then when the war ended, European producers stepped up their production. Thus massive agricultural overproduction occurred during the 1920s. This in turn led to declining farm prices during the second half of the decade. 5.

World trade plummeted 65% as measured in dollars and 25% in total number of units.

The IMF was first established in December, 1945 with 29 members that ratified its Articles of Agreement the institution started operating on 1 st March, 1947 currently, the institution has about 184 member-countries. The IMF was established (Article one of the IMF Articles of Agreement):

(i) To promote international monetary cooperation through a permanent institution, this provides the machinery for consultation and collaboration on international monetary problems. (ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. (iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. (v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. (vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. Procedures for Membership 1. An application for membership needles to be submitted to the IMF executive Board 2. A membership resolution is made to the Board of Governors that covers the (a) member‘s quota, (b) subscription and (c) voting rights. 3. If the application is approved, by the board of governors, the application must amend its own laws for it to sign the Articles of Agreement and to fulfill the obligations required of members. In other words, the applicant needs to give up a part of its sovereignty to the IMF General Obligations to Members In the picture of IMF membership (article IV, section I), the following are some of the basic obligations on members of the organization, which stipulates that members must:

(i) Endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances; (ii) Seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions; (iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and (iv) Follow exchange policies compatible with the undertakings under this Section The Case of Borrowing The IMF has been linked to an international credit union, meaning members whose contributions to the institutional reserves have the right to borrow as the need may arise. It is also able to raise funds by borrowing from member countries or from private markets. But it denies raising funds from the private market. Other Operations 1. Currency & monetary roles Two years before the collapse of the Bretton woods system, the IMF created a reserve mechanism called ―The special Drawing Right of SDR‖. This is a potential claim for free usable currencies. These currencies according to IMF are: the US dollar, Europe, Japanese Yen, and Pound sterling.

2. Moral Hazard: when there is hazard the IMF finance it morally. It gives loans to countries to execute development projects, especially when they are out of dollar reserve. 3. Conditionality: a borrowing country from IMF must agree to adjust its economic policies to over come problems that gave rise to the problem. It also include a. The capacity to replay in hard currency b. Evidence of economic reform existent in the economy c. Openness to absorb IMF crew in designing and executing capital projects d. Political stability e. Absence of communist attachment Conditions to Third Word 1. Devaluation of national currency 2. Retrenchment to reduce waste reduction in welfare expenditures 3. Trade liberalization 4. Privatization 5. Periodic review of interest rate

CHAPTER SEVEN MULTINATIONAL CORPORATIONS

These are institutions with investment and assets in one or more countries outside their home countries. They usually have centralized offices where they coordinate global management. Major global multinationals are American, Japanese, or European. Examples of MNCs are: coca-cola, Wal-Mart, AOL, Toshiba, Honda, BMW, McDonalds, e.t.c.

Two major factors according to John (1998:12) have given rise to the increase in multinational corporations. These factors according to John are: recent advances in information technology, deregulation and market liberalization worldwide. But the argument remains how are they taken by people from different societies and continent of the world? We may however argue that, some regard them as ruthless exploiters; some see them as engines of prosperity (John, 1998:12). Multinational/transnational corporations can also be defined from the perspective of: (1) ownership (2) Management (3) strategy and (4) Structure. Ownership Some intentional economists are of the view that MNCs are defined on the basis of ownership that a firm becomes transnational only when the parent company is owned by nationals of two or more countries. For example: Shell & Unilever are controlled by the British ands Dutch ownership. Management It is very clear to argue from the managerial point of view that a firm is multinational only if the managers of the parent company are nationals of various countries not dominated by one economic giant. Strategy Howard (1969) is of the view that some MNCs pursue policies to favor home country, host country or policy that is world oriented History MNCs originated from colonial and imperial ventures from Western Europe, especially England and Holland in the 16th century. An example of a firm during

this era was the ―British-East-India Trading Company‖ which acquired territories in the Far East, Africa and the Americas. Global Status It is not surprising according to John (1998:12) that it is easy to get that impression, since giant MNCs dominate the news. The top 100 multinationals own nearly $2 trillion of assets outside their home countries, a quarter of the world‘s stock of all foreign direct investment (FDI). And the recent wave of megamergers has made many large multinationals even larger. But a closer look at the marketplace reveals that the surge in MNC growth is also being driven by myriad newcomers, many of whom are actually quite small. Most of the estimated 45,000 firms that operate internationally employ fewer than 250 people. It is commonplace to find service companies that maintain fewer than 100 employees operating across more than 15 countries.

They are among the global biggest economic institutions. The 300 largest TNCs control at least one-quarter of the entire world‘s productive assets, of about US &5 Trillion. Itochu corporation‘s sales for example, are more than the Austrian GPD. Shell and Royal Dutch equal Iran‘s GDP. The sales of Mitsui and General Motors are greater than the GDPs of Denmark, Portugal and Turkey. It is also more than the GDPs of all the countries in sub-Sahara Africa. Merger and Alliance among Multinational Corporations Multinational corporations are resorting into mutual and multilateral alliances in order to explore certain benefits. John (1998) and Ellis (1997:98) are of the view that, the explosion of strategic alliances among firms is transforming the

competitive landscape. One estimate is that more than 20,000 alliances have been formed within the last two years alone. How, then, should one now think about where economic power is located? The electronics business in Europe is not the same as the European electronics business.

Competition is no longer defined solely by the ownership of assets; it is also a matter of who is in league with whom. The airline industry in its postderegulation phase, for example, is coalescing around several global alliances: One such partnership is the Star Alliance, with Lufthansa and United Airlines as central players. These groups hope to gain advantages from shared ticketing, loyalty programs (such as frequent flyer miles), and even the occasional use of shared equipment.

OECD Policies to MNC’s Enterprises should take fully into account established policies in the countries in which they operate, and consider the views of other stakeholders. In this regard OECD (2011) provided the following policies for multinational corporations: A. Enterprises should:

1. Contribute to economic, environmental and social progress with a view to achieving sustainable development.

2. Respect the internationally recognized human rights of those affected by their activities.

3. Encourage local capacity building through close co-operation with the Local community, including business interests, as well as developing the Enterprise‘s activities in domestic and foreign markets, consistent with the need for sound commercial practice.

4. Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.

5. Refrain from seeking or accepting exemptions not contemplated in the Statutory or regulatory framework related to human rights, environmental, health, safety, labor, taxation, financial incentives, or other issues.

6. Support and uphold good corporate governance principles and develop and apply good corporate governance practices, including throughout enterprise groups. 7. Develop and apply effective self- regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.

8. Promote awareness of and compliance by workers employed by multinational enterprises with respect to company policies through appropriate dissemination of these policies, including through training programmes.

9. Refrain from discriminatory or disciplinary action against workers who make bonafide reports to management or, as appropriate, to the competent public authorities, on practices that contravene the law, the Guidelines or the enterprise‘s policies.

10. Carry out risk-based due diligence, for example by incorporating it into their enterprise risk management systems, to identify, prevent and mitigate actual and potential adverse impacts as described in paragraphs above and account for how these impacts are addressed. The nature and extent of due diligence depend on the circumstances of a particular situation.

11. Avoid causing or contributing to adverse impacts on matters covered by the Guidelines, through their own activities, and address such impacts when they occur.

12. Seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products or services by a business relationship. This is not intended to shift responsibility from the entity causing an adverse impact to the enterprise with which it has a business relationship. 13. In addition to addressing adverse impacts in relation to matters covered by the Guidelines, encourage, where practicable, business partners, including suppliers and sub-contractors, to apply principles of responsible business conduct compatible with the Guidelines .

14. Engage with relevant stakeholders in order to provide meaningful opportunities for their views to be taken into account in relation to planning and decision making for projects or other activities that may significantly impact local communities. 15. Abstain from any improper involvement in local political activities.

B. Enterprises are encouraged to:

1. Support, as appropriate to their circumstances, cooperative efforts in the appropriate fora to promote Internet Freedom through respect of freedom of expression, assembly and association online.

7. Engage in or support, where appropriate, private or multi-stakeholder initiatives and social dialogue on responsible supply chain management while ensuring that these initiatives take due account of their social and economic effects on developing countries and of existing internationally recognized standards.

Problems of MNCs

1. Intra-company trade and manipulative price transfers: it gives the MNCs the ability to maximize profits by avoiding both market mechanisms and national laws with an instrument of internal costing 2. Influence in National political Affairs. a. Sponsoring candidates b. Influencing governmental officials working on economic policy committees

c. Financial contribution to political parties d. Bribery 3. International politics a. Advocating free trade b. They lobby at international economy trade summits 4. Human health and the economist 5. Occupational safety 6. Elimination of jobs, especially in their parent countries Arguments in Favor of MNC’S While advancing the arguments for and against the MNC‘S, Charles and Eugene (2004:216) have highlighted the following as the major pros and cons of the institutions as why are they supported or rejected in the international economic system: 1. They fill savings gap 2. Increase the volume of trade 3. Filling of revenue gap 4. They fill managerial/ technological gap 5. Improved products 6. Higher wages 7. Finance loans and service international debt 8. Lobby for free trade and the removal of trade barriers such as tariffs 9. Underwrite research and development that allows technological innovation 10.

Reduce the costs of goods by encouraging their production according

to the principle of comparative advantage

11.

General employment

12.

Encourage the training of workers

13.

Produce new goods and expand their opportunities for their purchase

through the internationalization of production 14.

Disseminate marketing expertise and mass advertising methods

worldwide 15.

Provide investment income to facilitate the modernization of less-

developed countries 16.

Advocate peaceful relations among states in order to preserve an

orderly environment conducive to trade and profits 17.

Break down national barriers and accelerate the globalization of the

international economy and culture and the rules that govern international commerce. Arguments against MNC’S 1. They may lower domestic savings 2. They reduce foreign exchange earnings 3. They widen inequality and uneven development 4. Some times they produce inappropriate products 5. Give rise to monopolistic conglomerations that reduce competition and free enterprise 6. Raise capital in host countries (thereby depriving the local industries of investment capital) but export profits to home countries 7. Breed debtors and make the poor dependent on those providing loans 8. Limit the availability of commodities by monopolizing their production and controlling their distribution in the world market place 9. Export technologies ill-suited to underdeveloped economies

10.

Inhibit the growth of infant industries and local technologies in less

developed countries while making the global south dependent on global north‘s technology 11.

Conspire to create cartels that contribute to inflation

12.

Curtail employment by driving labor competition from the market

13.

Limit the supply of raw materials available in international markets

14.

Widen the gap between rich and poor countries

15.

Limit worker‘s wages

16.

Increase the wealth of local elites at the expense of the poor

17.

Support and rationalize repressive regimes in the name of stability and

order 18.

Challenge national sovereignty and jeopardize the autonomy of the

states

CHAPTER EIGHT THE WORLD TRADE ORGANIZATION

(WTO)

Origin from GATT The foundation of WTO according to Petersmann (1997) was conceived and delivered by the General Agreement on Tariffs and Trade (GATT) which itself was born in 1947. GATT rounds incepted in the post WWs era. The major powers were committed to establishing institutions that would prevent war through the international government (UNO) and to do away with the economic

causes of war by establishing three (3) major economic institutions in the world. These three institutions were: (1) The IMF (2) The World Bank, and (3) International Trade Organization But the US congress did not adhere to the formation of international trade organization, making an assertion that it could affect national sovereignty of a state, but agreed to the formation of the former two (the IMF and the world bank). In the absence of International Trade Agreement (ITA) due to the American congress‘s rejection, the general agreement on trade and tariff (GATT) was used in place. GATT was aimed at (a) reducing tariffs and (b) facilitating global trade on goods. But the major problem of GATT was the practice of the most favored nation (MFN) clause, that is, when a nation chosen by another, it gives the chosen a kind of a privileged trading rights, consequently GATT reformed to assist all members obtain the MFNs states (Petersmann, 1997). The World Trade Organization (WTO) The WTO, however, replaced GATT as the world‘s global trading body in 1995 (Jawara, 2003). All the current rules of the organization were derived from Uruguay Round of GATT negotiations which were conducted between 1986 and 1994. The WTO currently has about 140 members and it performs the following functions (Jawara, 2003): Functions

1. It facilitates the implementation, administration and operation of multilateral trade agreements. Beyond this, it does same to bilateral trade agreements 2. Provides forum for negotiations among its members, which is usually decided by the ministerial conference 3. It administers the rules and procedures governing settlement of disputes. 4. It administers the trade policy view mechanism (TPRM) 5. It cooperates with the IMF and the world bank, for greater coherence in global economic policy-making Four Basic Rules 1. Protection to domestic industries through tariffs 2. Binding of tariffs 3. Most favored Nation (MFN) treatment 4. National treatment Rule: the rule prohibits member countries from discriminating between imported product and domestic products.

The Quest for New Discipline in WTO by Advanced Countries They want the following disciplines added in the organization. 1. Service sectors such as telecommunication and electronic commence 2. Minimum standards of intellectual property rights. 3. Rules for the freedom of operation of their investors and traders in other countries. 4. Liberalization of trade in information technology.

5. Pressures on the LDCs to liberalize the entry and operational conditions of foreign financial services Problems of LDCs in WTO 1. Weak political status 2. Weak economic growth and development

Basic structures A. The ministerial conference B. The general council 1. On dispute settlement 2. On trade policy review C. Council for trade in goods D. Council for intellectual property rights E. Council for trade in services F. Committees on trade & environment & other related committees CHAPTER NINE INTERNATIONAL ECONOMIC RELATIONS & ENVIRONMENTAL REGULATORY POLICIES

According to Carbaugh (2002) in the early 1960s, the US government became drastically concerned about (1) quality of life for its people (2) the conditions under which goods and services were produced, (3) the effect of production on its own society and (4) The physical characteristics of the products produced.

These, however have paved a way for regulatory measures to ensure: (1) safer and better products. (2) Less pollution, (3) better working conditions and (4) greater equality of opportunity. One apriori assumption that should be made is whether environmentally formulated policies explicitly or implicitly affect international trade or not? The exemplification given to this assumption is, considering the U.S and China in steel production, China sales 5 tons at $ 400 each ton, the US sales 12 tons at $ 600. But the case of the US situation is gravitated by more environmental regulations which make cost of production higher. In this case, China enjoys a cost advantage which free trade, and moves toward greater specialization in steel production. During the inception of the 1990s the United States, Canada, and Mexico farmed the North American free Trade Agreement (NAFTA), with the purpose of harmonizing trade b removing trade barriers. But environmental activities have criticized this move as it will encourage U.S companies that pollute the environment to move to Mexico, where enforcement of environmental regulations was at minimal. That the move would have a negative impact on the Mexican soil. On the other hand some maintained that NAFTA would encourage the importation of unsafe produces into the U.S (Carbough, 2002). It is however notable that, the industrialized countries of the world contributed move to global pollution than the developing nations. They impose harder (stringent) environmental standard on developing nations without any assistance in paying back. As argued by Carbaugh (2002), lack of compensation lessens the opportunity for less industrialized nations to grow.

Some International Summits on the Environment/Climate Change The Kyoto protocol This was a protocol to the United Nations framework convention on climate change.

The treaty of the Kyoto Protocol was signed on the 11th of December

1997; it entered into force on 16th December, 2005. The aim of the treaty was to attain a stabilization level of green gas concentration in the atmosphere, which would serve as a protection against the response of Mother Nature. America a signatory did not ratify the protocol; Afghanistan, Andorra and south Sudan have not ratified the protocol. Canada has also renounced the protocol. Countries belonging to the first annex of the protocol are 37 in number. They are committed toward curtailing of 4 greenhouse gases (GHG): namely (1) Carbon dioxide (2) Methane (3) Nitrous oxide and (4) Sulphur hexafluoride. The annex one countries agreed to reduce their emission by 5.2% on Average between 2008 and 20012. The Bonn climate change talks- June 2009 Two key documents discussed at the Bonn talks in June, were provision for a basis to intensify negotiations on further emission reduction commitments for Annex I Parties. One key document focuses on amendments to the Kyoto Protocol relating to emission reduction commitments of industrialized countries for the second phase of the Protocol (post-2012). A second document covers other related issues, including emissions trading and the project-based mechanisms, and land use, land-use change and forestry (UNFCC, 2009). The Bangkok climate change talks-2009

It was on this talk that Obama (2009) pointed out clearly on his support to checking global climate change when the asserted: It is true that for too many years, mankind has been slow to respond or even recognize the magnitude of the climate threat. It is true of my own country, as well. We recognize that. But this is a new day. It is a new era. Each of us must do what we can when we can to grow our .economies without endangering our planet -- and we must all do it together. We must seize the opportunity to make Copenhagen a significant step forward in the global fight against climate change. We also cannot allow the old divisions that have characterized the climate debate for so many years to block our progress. The Barcelona climate change talks-2009 This conference stressed the urgency for industrialized countries to raise their ambitions and, in particular, the importance of the U.S. announcing a clear, numerical mid-term emissions target. There was also a need, for industrialized nations to provide clarity on the amount of short- and long-term finance to which they will commit (Boer, 2009). The Accra Climate Change Talks -2009 The latest round of United Nations climate change negotiations took place in Accra, Ghana, from 21-27 August. The Accra Climate Change Talks took forward work on a strengthened and effective international climate change deal under the UN Framework Convention on Climate Change, as well as work on emission reduction rules and tools under the Kyoto Protocol. This is part of a negotiating process that will be concluded in Copenhagen at the end of 2009.

Over 1600 participants attended the Accra meeting, which was the third major UNFCCC gathering this year (UNFCC, 2009). One basic thing to note is that, despite the colossal amount of fund spent by sates to attend this conference, it was still a deadlock. James and Louis (2009) have reported Obama saying at the end of the summit, that it: Hangs in the balance…We are running out of time. The time for talk is over. It is better for us to act than to talk. The question is whether we move forward together or split apart…We can do that, and everyone who is in this room will be a part of an historic endeavor - one that makes life better for our children and grandchildren…we can again choose delay, falling back into the same divisions that have stood in the way of action for years. And we will be back having the same stale arguments month after month, year after year - all while the danger of climate change grows until it is irreversible.

The Copenhagen climate conference This conference has "failed" long before it even opened (Charles, 2009). It may not "succeed" (as he believes) until long after it ends (the prophecy was true, because the summit did not succeed). For the moment, then, negotiators must satisfy themselves with something in between, which according to him, is the outcome of the summit. The U.S. administration of President George W. Bush had blocked progress on climate change for seven years, and would do so for one more. When President Obama assumed office, he had just 11 months to work with international partners to negotiate a successor agreement to the 1997 Kyoto

Protocol, which had imposed modest emissions cuts on industrialized nations, and which the U.S. had rejected (Charles, 2009).

CHAPTER TEN UNDERSTANDING THE NORTH-SOUTH DIVIDE

The north is regarded to be the composition of countries within the northern hemisphere, particularly countries considered to be within the Euro zone. While the south is a pseudonym for countries within the southern hemisphere. These countries are usually found in the less-developed societies of Asia, Africa, the

Caribbean and Latin America. But in the interpretation of Charles (2004:200), the global south is some times described today as a ―Zone of turmoil‖ Tamped measure because in contrast with the global north, where according to Charles (2004) ―Peace, wealth and democracy‖ – prevail. One distinguishing feature of the global north is that, states are democratic and rarely fight one another; whereas in the global south, violence, conflicts are prevalent within the political and socio-cultural spheres of life. THE GLOBAL SOUTH AND GLOBAL NORTH: A MISNOMER? According to Goldstein (2003:455), the states in the global south are called by various names, used interchangeably: They are called third world countries, less-developed (LDC‘s), undeveloped countries (UDC‘s) or developing countries (DC‘s). On the other hand, these countries in the north are also called by various names, such as: industrialized countries (IC), advanced capitalist countries (ACC), developed societies (DS) etc. In his own characterization of the global south, Goldstein (2003:456) highlights some of the features identified with third world countries. Such features include: food shortage, lack of good source of water, shelter, health-care and other necessities, because ―they can not afford them‖. But the influence made by Goldstein (2003) however, is that, globalization has widened the gap between the developed and the developing countries, or between counties in the global south and global north. Differences between Global South and Global North

Some of the clear differences between the global south and north apart from: Democracy, stability on one hand, and violence, conflict tyranny on the other, many distinguishing features are notable. 1. Free, fair and periodic elections are conducted in the global north, while in the global south, tyranny, dictatorship and autocratic democracy is inherent. 2. The global south has been unable to invent research and develop technologically. The technological breakthrough of the world today has been virtually achieved and developed by the global north. 3. The global south is characteristically known with favorable national income and high level of per-capita income on the side of the global south, dependency, foreign aid and grants are more pronounced with low national and per-capital income. 4. Population in the global north is relatively lower than the population of the south. 5. The number of countries in the global south is more than the countries found in the global north. This shows that the major global population of the world is poor. 6. The global north is more attached to foreign direct investment (FDI) than countries in the south. But countries like China, India, and Brazil are rapidly growing in the field of foreign direct investment. 7. Internet service and communication facilities are more advanced and more reliable than in the south. 8. Life expectancy is usually longer in the global north than in the global south, due to influenced medical healthcare facilities. The Anatomy of African Colonial Economy

According to the wage commission in its report published in 1926, estimated the net product of South African industry in 1923 to be 186,000,000 pounds, of which agriculture represented 47,000,000 mining 37,000,000, manufacturers 31,000,000 transport 16,000,000 and commerce 12,000,000 pounds. The commission estimated that the per capita (including natives) income in South Africa was much lower than in Australia, Canada, or the United States, and upon the same level as the income of Germany or Italy. South Africa has an income of per occupied person of only forty-three pounds. These figures would, therefore show that the country is underdeveloped (U.G, 1926:217). While considering the economy of Kenya in 1925, it exceeded expenditure by 90,500m000 pounds. At the end of 1925, the net surplus of the colony stood at 149.723 pounds, while in 1926, conditions continued to improve. This however, made the per capital revenue of Kenya much greater than that of Tanganyika and Uganda. Kenya receipts from customs average about 200,000 pounds more than those of Uganda and Tanganyika. This different is probably due to the heavier consumption of luxuries, particularly spirits, by the large European population in Kenya. On the other hand, the per capital expenditures and loan obligation of Kenya are much heavier than in the two other territories. The revenue including railway net revenue and the expenditure excluding railway expenditure of Kenya for a period of five years is as follows Year

Revenue £

Expenditure £

1917-18

898,936

1,1021,178

1918-19

1,014,783

1,036,785

1919-20

1,139,690

1,438,115

1920-21

1,942,222

1,940,397

1921 (nine months

1,291,679

1,66,1672

Source: First interim report, economic and finance committee, October, 21, 1922, p. 2 cf. vol.1, p.534.

In Uganda similarly, the cotton campaign was conducted in 1921-22 by Governor, Sir. Geoffrey Archer. He prepared and circulated table showing the relative output and population of Buganda and the eastern province, demonstrating that unless the Buganda would become of minor importance to the economic life of the protectorate. The production of cotton in Uganda has been as follows: Cotton Production in Uganda 1909-1925 Year

Estimated average

Exports in cwts

Name in £

1909-10

24,680

23,180

60,445

1913-14

110,264

99,927

317,687

1918-19

114,592

98,188

965,951

1920

208,746

3,919,453

1921

325,463

1,281,357

1922

193,159

877,625

1923

418,609

352,184

2,026,820

1924

572,814

514,418

3,486,565

1925

617,324

4,685,992

Source: Annual report of the department of agriculture, 1924, pp.5,44: The Handbook of Uganda, cited p.179 Uganda report, 1925 (Col. No. 1318). P.8.

In northern Nigeria however, the leading commercial product is groundnuts, the production of which increased from about 78,266 tons-1924 to 127,226 tons cultural department, aided by the British Empire cotton growing association, has introduced American cotton in to both northern and southern Nigeria. The export of cotton amounted to 39,000 bales 1924-25. In southern Nigeria, cocoa has also been recently introduced. In 1924 about 44,000 tons were exports from Nigeria are shown in the following table. EXPORT TRADE Year

Palm Oil (tons)

Palm Kernels (tons)

Cocoa (tons)

G/nuts (tons)

Cotton lint (cwt)

1900

45,508

85,624

202

599

215

1905

50,562

108,822

470

790

12,300

1910

76,851

172,997

2,932

995

22,128

1913

83,090

174,718

3,621

19,288

56,796

1914

72,531

162,452

4,939

10,997

50,444

1918

86,425

205,167

10,219

57,554

13,214

1925

128,113

272,925

44,705

127,226

132,224

Source: (Annual report on the customs department of Nigeria, 1925, 9.12).

The contemporary African economy is facing a lot of crisis and depression. When we take the level of scarcity and the degree of substitutability of African resources such as agricultural products like coffee, cocoa, cotton, sugar etc. the African economy is

degenerating due to the forces of new-colonialism and imperialism. Let us consider the follow table

evel of scarcity Number of gree of Sellers bstitutability/ oduct/Element ffee Burundi (85%) Uganda (73%) Rwanda (62%) Colombia (51%)

Dependence Created

Comments

Buyers market, Despite some similarity with with buyers having most of mineral raw materials in terms of commercialization in hand advanced countries import dependence (very often 60%) only sellers export dependence is created because of eolgapsony market.

The

nature

of

the

products, most of these product including

hand

fitness,

jute,

tuber, and tea (two minerals tin and copper) are now covered by the common fund agreement (March

1979).

International

commodity agreement exists for some

(sugar,

cocoa,

coffee)

without much success however.

Others which might be covered by

UNCTAD‘s

integrated

program for commities include bananas, meat, tropical timber, vegetable oil and oil seeds.

ocoa

Ghana (51%) Chad (58%) Sudan (56%)

ugar

Mauritius (88%) Reunion (86%) Fiji (76%) Caba (75%)

Economic dependence (very high price fluctuations) with important effects on export earnings)

Source: Dudly seers (1981), dependency theory: a critical reassessment, fanci’s pinter, London p. 194.

GLOBAL NORTH: THE REASON FOR GLOBAL SOUTH’S BACKWARDNESS? The underdevelopment of Africa has gravitated scholars of political economy, development administration, statesmen from western, African, Asian and Latin American continents to explain why and how Africa is underdeveloped. It has led to the emergence of theories and school of thoughts in arguing how Africa and other rests of the world are still backward. The contending issue however, is as to having a historical excursion of the pre-colonial economy of Africa, as well as what peculiarised the colonial economy. These major theories have emerged to explain the origin of African under development. The first school is the liberalist school, while the second is a protest against the liberal school which is called dependency and underdevelopment theory. THE NATURE OF DEVELOPMENT AND UNDERDEVELOPMENT

Development is said to be a structural transformation of all aspect of life, such as the political, economic and socio-cultural aspects. It connotes a shift from unfavorable to favorable conditions. Development is not a process of erecting tall buildings, airports, Five Star Hotels, roads and railways, importing flashy cars. But development it involves both quantitative and qualitative changes. The quantitative changes include an increase in the Gross Domestic Product (GDP) and in Gross National Product (GNP). This trend is economically termed to be growth of quantitative change. But development is both quantitative and qualitative. It is qualitative when there is positive change in the lives of people. Underdevelopment on the other hand, is the opposite side of development. It envisages a degree at which the GDP and GNP of a coun1y is very low, the per capital income is too low, unemployment is rampant, the standard of living is poor, the general economy stagflated. An underdeveloped society is also characterized by hunger, poverty, diseases, social vices etc.

THE LIBERALIST/MODERNISATION PROJETC According to Ahmed (1996:3 8), Theory of modernization has emerged to explain why third world countries are characterized by political instability,

economic

crisis,

poverty,

malnutrition,

starvation… Africa and the third worlds were unable to

develop because they still maintain and preserve their traditional institutions and structures and they refused to copy from the modern institutions and structures of Western Europe and North America. The liberalists similarly, saw the endogenous forces of the third world such as political corruption, social rigidities, planlessness, market imperfections, unsuitable bureaucratic structure, insufficient investment in education and research as the genesis or causes of African underdevelopment (Gilpin, 1987:27). Prominent among the liberal/modernization theorists are: Talcott Parsons, W.W. Rustow, David Mc Celleland, Piero Gheddo etc. parsons (19678:26) has identified what he called ―pattern variable‖ where he explained the nature of developed societies and why the third worlds are still underdeveloped: (i)

Particularism versus universalism.

(ii)

Ascription versus achievement.

(iii)

Prescription versus innovation.

(iv)

(iv) Diffusion versus Specific

According to Parsons, the Western European societies were able to develop because their institutions and traditions are universal. They consider employment, promotion based on achievement i.e. merit and qualification. They are quite innovative and marry science and technology for development. On the other hand, the third world countries are particularistic and still preserve traditionalism. They consider employment and appointment based on merit and qualification, but on nepotism, favoritism, inheritance and tribalism. They are diffused because they try to work simultaneously in different work-place by incapacitating themselves to perform the expected functions. And lastly, they are not innovative, but see things only the way they are.

The liberalist schools also argue that development is realizable only when a society passes through certain stages of development. Rustow (1956) maintained that before a society develop; it must pass through the following stages: (i)

Traditional stage.

(ii)

The precondition of take-up.

(iii)

Take up stage

(iv)

Drive to maturity, and.

(v)

The stage of high mass consumption.

For Rustow similarly, the traditional stage is primitive and characterized by authoritative monarchy. The pre-condition of take up is still dominated by traditional values, but they came into contact with superior forces for development. The take-up stage encourages passes conflict between traditional and modem values in which the modem values triumph. The drive to maturity is a stage in which a country develops technological and entrepreneurial capability to produce what it chooses to produce what it chooses to produce. Lastly, the stage of high mass consumption, which according to Rustow, is a stage in which the income of individuals go beyond feeding, clothing, and shelter, to possessing other fixed-material assets for serving humanity. It is also, pertinent the argument of Mc Celland (1967:5 1) who argued in his theory of achievement motivation: A nation with generally high achievement will produce more level of energetic entrepreneurs who in turn produce rapid economic (development...the high achievers (developed societies) are characterized by innovation and challenge less concern with monitory reward but recognition of good performance, attempt calculated risks. They offer reasonable probabilities of success. The third world countries were

unable to develop because they are generally lazy and corrupt. Another argument of the liberalist school was provided by Gheddo (1975:81‘). He identified four revolutionary processes that had occurred in the western world, which are not well embraced by the third world countries. These revolutions are: First that the west was transformed by Christianity, and man was created in the image of God and make important development from that. But in the undeveloped societies, there was no religion and man was considered as one of the major elements of nature. Secondly, that if man is the king of creation, made in the image of God he ought to dominate nature. That in the underdeveloped societies, it is nature that dominates men. Thirdly, in the developed societies, population growth is used to promote science and technology while in the underdeveloped societies it is used to reproduce families. Fourthly, the Western societies were able to break away from their cultural past to engage in science and technology while the underdeveloped societies still preserve culture and tradition of the past. CRITIQUE OF THE LIBERALIST/MODERNISATION PROJECT The liberalist theory has failed to explain sincerely, the genesis/causes of African underdevelopment. Ahmed (1996:41) designated some critique of the theory as follows: It is the master plan of Western Europe and North America to promote capitalist development in the third world so that market would be obtainable for their finished products. The theory is thus aimed at making the economics of Africa subservient to western imperialists. The theory also neglects the devastating role of neo-colonialism, by seeing the traditional societies as isolated from the international system.

The theory also maintained that Africa was a major beneficiary of capital inflow (through foreign aids and investments) but the fact of the check communist insurgency. That the stages of development identified by Rustow are unscientific. He sees the end of development with U.S.A and Western Europe. But development is a continuous process and it is possible for another country to by pass them. And lastly Gheddo was a Reverend Father, but he failed to understand that Japan which is a non Christian state has developed. THE DEPENDENCY AND UNDERDEVELOPMENT ANALOGY This theory is also called the ―Neo Marxist school primarily because they borrow tool of analysis from the works of Marx, Engels and Lenin. The theory also emerged as a response to or protest against the liberalist theory. Some the scholars that belong to this school are: Samir Amin, Claude Ake, Bade Onimode, Elbaki Hermassy, Ingolf Volger, and Anthony De Zouza etc. The assumption of this theory can be itemized as follows; Development and underdevelopment are opposite sides of the same coin i.e. the Western world developed only by under developing the economies of Africa. The reason why Africa has been unable to develop was as a result of the contact it had with the western countries. The five centuries of slave trade and colonial subjugation account for the backwardness of African societies. Those African countries cannot develop so long they continue to exist and survive within the umbrella of the international capitalist system. They also argue that Africa was incorporated into the international capitalism by means of imperialism. This ranges from the obnoxious slave trade where Africa was drained off her human potentials. The so called legitimate trade, where African raw materials were siphoned by the Europeans. The genesis of all started from slave trade as argued by Ahmed (1996:51), that the bases of African underdevelopment can be attributed to the trans-Atlantic slave trade (TAST). Trading in human cargo who were taken to the American Plantations...this process of inhumanity went for over 400 years. Traded slaves in

exchange for guns, liquor, mirror and glasses, textiles goods, combs, hat and other consumables. What we should consider above is that the Europeans took the most productive class of Africans as slaves, those who could have been used in the development of Africa. Some of the impacts of slavery are that: It has depopulated Africa because , between sixty five and seventy five million people (Ahmed, 1996:60) were enslaved and about five to ten million people loss their lives before reaching to Europe on transit. Europeans got a colossal amount of dividend which was used for their own development. When slave trade was no longer profitable to the Europeans it was abolished and the so called legitimate trade was introduced. This was the period in which European companies exploited the nooks and crannies of Africa with the view of disposing their goods and obtaining raw materials. The terms of trade were fixed by the Europeans. This time around, the production of raw materials was promoted, but the problem was that there were many European companies competing for market and raw materials. Consequently, Africa was out rightly dominated and was therefore divided among the imperialist countries. Rodney (1972:85) argued inter alia:

The bigger MNCs that expatriated a preponderant quality and proportion of Africa’s wealth produced by the peasant toils at the most dejective, notorious and humiliative level were: Compagnie francaise De Afrique Occidentale (CFAO), Societe Commerciale Ovest African Company (UAC) which was controlled by the British government. According to Rodney, King Leopold of Belgium gained about $20 million from the time of colonization until 1906. Those natural resources like phosphates, oil, lead, zinc, and manganese and iron ore were exploited in North Africa. Gold, diamonds, iron ore bauxite, tin

and copper were taken exploitatively from guinea, Sierra Leone, Liberia, Nigeria, Ghana, Tanganyika, Uganda, and Congo Brazzaville. Slavery and colonialism and indeed, neo-colonialism have caused dependency, poverty and underdevelopment in Africa. It is against this backdrop that Volger (1980:31) posits: …this poverty and underdevelopment has been perpetuated, even aggravated by generations of western exploitation which have distorted and twisted the economies of the dependent territories. It is, however, in line with the above that Onimode (1985:246) maintained that: While the advance capitalist countries have been plundering the third world through slavery colonial and neo-colonial super profits and simultaneously under-developing third world countries by these same process... Summarily, Gilpin, 1987:28-286) has summarized the peculiarities of dependency and underdevelopment as follows: (1) Over dependence on the export of raw materials with fluctuating prices in domestic economic instability. (2) A lopsided distribution of national income resulting in the haves and the have-nots, thereby creating social inequalities in the society. This reinforces domination by external capitalism because the rich clamor for luxury goods from metropolitan or cove countries. (3) Dependency is sustained by the exploitative practice of multinational corporations, creating dependency and technological innovation. The dependent economies are worse off because the profits of MNCs are expatriated. (4) Foreign firms usually gain control of key industrial sections leaving the local firms to operate in capital markets.

(5) Capital-intensive rather than labor-intensive method of production is introduced thereby causing unemployment of production. (6) Dependency also encourages an international division of labor between the high technology of the cove and the low technology of the periphery. (7) It hampers self-sustaining development based on local resources and initiatives. (8) It increase unemployment and corrupts the labor market because the MNCs pay higher wages to workers than domestic employers; and (9) Governments of the periphery usually authoritarian because they rely on capital. The governments of the periphery protect the interest of the foreign firms and governments. In conclusion, the pre-colonial economy of Africa was an independent one, communal in nature, developed traditionally and rich in it. Subsistence farming was practice. Hunger and starvation was not known. Political system was stable. No military coup or political upheaval. African leaders were legitimate and succession was hereditary. (1) The human and national resources should be well harnessed. (2) Science and technology should be embraced (3) Leadership status must change to more democratic flexibility. (4) Nepotism, ethnicity and ascription should be discarded for qualitative values.

The New International Economic Order

The new international economic order was a response of the countries of the south to the dissatisfaction of the imbalance between them and countries of the north in international economic relations.

Origin of NIEO

The origin of NIEO is said to be traceable to the Havana Conference of 1948 engendered by the economic and political tensions that had been building between the developing and developed nations (Looney, 1999). In comparative analysis, the economic performance of the developing countries had been fairly good in the 1950s. By the early 1960s, however, many developing countries were frustrated with their growth prospects and started demanding a better deal. Consequently, formal proposals for a New International Economic Order (NIEO) were put forth by developing countries at the summit of nonaligned movement in 1973 (Bhagwati,1977).

The Formation of UNCTAD and Position of the North

This (UNCTAD) is an acronym for United Nations Conference on Trade and Development, which was formed by countries of the South through which they argued for fairer terms of trade and more liberal terms for financing development. The North responded with pious declarations of its good intentions - but also with a hard-nosed insistence that the proper forum for any

economic changes continued to be the Bretton Woods institutions where they held the balance of power (Rothstein (1979).

Rothstein (1979) has documented that the success of the oil producing countries of OPEC in increasing petroleum prices substantially, starting in 1973, served as a catalyst to pull together the developing countries in support of a call for a New International Economic Order in which their interests would be better represented. This call integrated many of the proposals that have been discussed previously at UNCTAD and other world forums. Specific proposals for changes in the economic system were advanced at the Summit Conference of Non-Aligned Nations held in Algiers in September 1973 (Looney, 1999), following that, the Sixth Special Session of the U.N. General Assembly was called hastily for April 1974. This session adopted, without a vote, a manifesto entitled "Declaration and Program of Action of the New International Order." in December 1974 the General Assembly approved the Charter of Economic Rights and Duties of States (Rothstein (1979).

The Formal Document Establishing NIEO

The formation of NIEO in the writings of Rothstein (1979) carried about 18clause-document, of which the major clauses are:

1. adoption of an integrated approach to price supports for an entire group of developing country commodity exports;

2. the indexation of developing country export prices to tie them to rising prices of developed countries‘ manufactured exports; 3. the attainment of official development assistance to reach the target of 0.7 percent of GNP of the developed countries; 4. The linkage of development aid with the creation of the IMF‘s Special Drawing Rights (SDRs); 5. the negotiated redeployment of some developed countries‘ industries to the developing countries; 6. the lowering of tariffs on the exports of manufactures from the developing countries; 7. the development of an international food program; and 8. the establishment of mechanisms for the transfer of technology to developing countries separate from direct capital investment.

The Most Important Provision of NIEO

The most significant provision in the program was the one designed to establish the NIEO deal with the management and pricing of at least ten core commodities which are: (i)

cocoa

(ii)

coffee,

(iii)

tea,

(iv)

sugar,

(v)

hard fibers,

(vi)

jute,

(vii)

cotton,

(viii)

rubber,

(ix)

copper and

(x)

tin

Seven other commodities were recognized with slightly lower priority. These commodities with lower priority are: (i)

bananas,

(ii)

wheat,

(iii)

rice

(iv)

meat,

(v)

wool

(vi)

iron ore and

(vii)

Bauxite.

The major objectives of the commodity program according to Murphy (1984) were: (1) Reduction of excessive price and supply fluctuations; and (2) establishment and maintenance of commodity prices in which in real terms are equitable to consumers and remunerative to producers. To achieve these goals for Murphy (1984), the following integrated measures were proposed: (1) the establishment of international buffer stocks, (2) the creation of a common fund to finance these stocks, (3) the signing of multilateral trade commitments, and (4) the arrangement of improved compensatory financing to stabilize export earnings.

CHAPTER ELEVEN REGIONALISM AND ECONOMIC COOPERATION

Regionalism is another form of economic multilateralism, which involves regional states sharing common interest, values, history, geography and by extension, having similar economic goals, coming together to achieve their designated goals. Regional groupings are very dynamic and resilient in achieving whatever binds them together. In Africa for example, there about nine of such groups; three in the Arabian peninsular; five in Asia; three in Europe; five in Latin America and the Caribbean and one in north America (aja,2002:120). The cooperation process under regionalism is consistent with the features and principles of globalization. Nations must cooperate with others in order to consume what they can not produce and cooperate with others to enable them sale what they produce. Cooperation in contemporary global economic system is inevitable. Theories of cooperation The Nationalist Theory of Cooperation The Realist theory of cooperation attempts to explain cooperation given states‘ overwhelming concern with security, independence, and autonomy. It is not merely relative gains that are a concern but a systemic intolerance for relative losses. All acts could result in the destruction of the agent, so power asymmetries triumph all other concerns. In this scenario, absolute gains just do not exist.

There is always the concern over "who will gain more?" The result is "defensive positionalism," or reluctant cooperation, wherein agents will cooperate only if they feel it is absolutely necessary. Rationality, in this case, is constrained by fear of destruction and the presence of anarchy (Hasenclever, Andreas, Peter and Volker, 1997). For Realists, institutions matter but only because they facilitate the necessary stabilizing exertion of power: payoffs to other agents, sanctions, and norms of reciprocity (that make accepting relative gains losses in the now or on a particular issue easier in expectation of compensation on other issues or in the future). With power, cooperation is rare at best, but without power it is impossible (Helen 1992:446-496). This is typically the picture of the Copenhagen summit on climate change as captured by Louis (2009): ―The row between the rich countries and the developing world intensified at the Copenhagen summit, as China and its supporters blamed America for ―endangering the world‖ by refusing to hand over more cash.‖

This political processes, however, is because some countries have no power (which makes cooperation impossible) from the stand of the school of realism. It was also reported by Neal (2009) that: a Sudanese diplomat went as far to say that rich nations are acting like the British Empire: "This is all based on the dominance and supremacy of developed countries. One could say the Empire has been doing this since the 16th Century, the Empire has always ruthlessly grabbed natural resources - the new resource is the global atmospheric space and carbon space."

Internationalist Theory of Cooperation Different from the argument of the realists, the liberal-institutionalists will argue that, cooperation is unconditional, due to the institutional cooperation of the members of the United Nations, from the Kyoto protocol to the Copenhagen (Robert, 1984; Axelrod 1948). The neo-liberalists believe that the liberal theory is a good one at explaining not only unrestrained exploitation of the planet‘s ecology, but encompassing areas such as slavery, piracy, dueling, colonialism, slaughter of certain animals (Charles and Eugene, 2004:43) among other things, and emphasizes the prospects for progress, peace and prosperity (even in issues dealing with global climate change).while the realists give conditions for cooperation (although neo-realist believe in cooperation) neo-liberalists have given an unconditional state of cooperation because ‗collaboration produces rewards that reduce the temptation to selfishly compete‘ (Charles and Eugene, 2004:44). Still in the argument of liberal-institutionalists, according to Joshua and Jon (2009:53), while explaining the three analyses of Kantian liberalist views, they noted that: states could develop organizations and rules to facilitate cooperation; a responsive legislature to check the monarch and; trade promotes peace, increases wealth, cooperation, and global well-being. in other words, the European union, the united states, the defunct soviet union and the developing states of Africa, Asia, Latin America and the Caribbean, transact businesses among themselves-hence, the avoidance of conflict in the long run (because governments will not want to disrupt any process that adds to the wealth of their states) and the need for cooperation arises (schrodt, 2004:292). This is not

exceptional in sates cooperating to solve the problem of global climate change in order to facilitate a harmonious trade environment and sustainability. The Constructivist Theory of Cooperation For the constructivists, however, while dealing with the issue of climate change globally, there is still the need to consider ‗persuasive ideas, collective values, culture and social identities‘. The theory has been described as a challenge to the dominance of neo-liberal and neo-realist international relations theories (Hopf 1998:171). Theoretically, constructivism is synonymous to idealism dealing with ideas which the constructivists refer to the goals, threats, fears, identities, and other elements of perceived reality that influence states and non-state actors within the international system . For instance, by engaging in the "enabled" action of intervention, the United States reproduced its own identity of great power, as well as the structure that gave meaning to its action. So, U.S. intervention

in

Vietnam

perpetuated

the

international

intersubjective

understanding of great powers as those states that use military power against others (Hopf 1998).

From the above analysis, therefore, we can see why the US still refuses to go by the Kyoto protocols and refused to increase its level of emission reduction. This shows that, the US is still portraying its great power identity, and its refusal to go by what the other states require of her to go by. In a showdown between the world's two largest polluters, China accused the United States and other rich nations of backsliding on commitments to fight global warming (John and Cara, 2009). This is also an identity issue because china identifies her self with the developing countries of Africa, Asia, Latin America and the Caribbean than the

advanced economies of the world, despite her fast economic growth, industrialization and rapid growth of her gross domestic product (GDP).

CHAPTER TWELVE MAJOR REGIONAL ECONOMIC GROUPINGS IN AFRICA

The Southern African Development Coordination Conference (SADCC) The Southern African Development Co-ordination Conference, SADCC, the forerunner of the SADC, the Community according to Bahar (1988:75) was established in April 1980 by Governments of the nine Southern African countries of Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia and Zimbabwe. The formation of SADC was the culmination of a long process of consultations by the leaders of Southern Africa. Towards the end of the 1970's, it became clear to the leaders of the region that just having a national flag and a national anthem would not meet the needs of the people for improved living standards. Secondly, the positive experiences gained in working together in the group of Frontline States, to advance the political struggle, had to be translated into broader cooperation in pursuit of economic and social development (Bahar, 1988:99). From 1977, active consultations were undertaken by representatives of the Frontline States, culminating in a meeting of Foreign Ministries of the Frontline States in Gaborone, in May 1979, which called for a meeting of ministers responsible for economic development. That meeting was subsequently convened in Arusha, Tanzania, in July 1979. The Arusha meeting led to the birth to the Southern African Development Co-ordination Conference a year later, with the following objectives (Bahar, 1988:99):

Objectives of SADCC (I)

to reduce Member States dependence, particularly, but not only, on apartheid South Africa

(II)

to implement programmes and projects with national and regional impact;

(III)

to mobilize Member States' resources, in the quest for collective selfreliance; and

(IV)

To secure international understanding and support.

SADC has developed since then, to become an organization that has a Programme of Action, covering several broad economic and social sectors, namely, Energy, Tourism, Environment and Land Management, Water, Mining, Employment and Labor, Culture, Information and Sport and Transport and Communications. Other sectors are Finance and Investment, Human Resource Development, Food, Agriculture and Natural Resources, Legal Affairs and Health. Sectors are each co-ordinated by a Member State with some member states co-coordinating more than one sector (Bahar, 1988:99). Over the past two years SADC has undertaken an exercise to restructure its institutions and a report on this was adopted by an Extra-Ordinary Summit on March 9, 2001 in Windhoek, Namibia. This restructuring was necessitated by the number of difficulties and constraints encountered in the process of moving the organization from a coordinating conference into a Community. These for Bahar (1988) include: (I)

Inadequate institutional reforms to enable the effective transformation from SADCC

(Coordinating

Conference)

to

SADC

(the

Community).

Furthermore, the resource provision and the management system were not adequately addressed. (II)

The need to put in place appropriate mechanisms capable of translating the high degree of political commitment to shape the scope and scale of community building through regional integration. This implies delegating authority and strengthening the capacity for decision-making to the relevant agencies responsible for implementing the SADC agenda.

(III)

Lack of synergy between the objectives and strategies of the Treaty on one hand and the existing SADC Programme of Action (SPA) and the institutional framework on the other.

(IV)

Limited capacity to mobilize significant levels of the region's own resources for the implementation of its Programme.

(V)

The external financial overdependence of the SADC Programme of Action (SPA) to the tune of more than 80 percent, which compromises the Programme's sustainability.

Transformation from Conference to Community This transformation occurred in August 1992, when the Heads of State and Government of the Southern African Development Co-ordination Conference met in Windhoek, Namibia, to sign a Declaration and Treaty establishing the new SADC - the Southern African Development Community. The SADCC leaders had come to realize that although the co-ordination conference had served them well and had demonstrated the crucial need to cooperate in their development efforts, time had come to give the Organisation a legal and more formal status. There was also a need to shift the focus of the organization from co-ordination of development projects to a more complex task of integrating the economies of

member States. Hence the Treaty, which is the blueprint for building a Community of Southern African states (Bahar, 1988:99). BASIC PRINCIPLES OF SADC (I)

Sovereign equality of all member States;

(II)

Solidarity, peace and security;

(III)

Human rights, democracy, and the rule of law;

(IV)

Equity, balance and mutual benefit;

(V)

Peaceful settlement of disputes

Major Objectives of SADC are to: (I)

Achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the people of Southern Africa and support the socially disadvantaged through regional integration;

(II)

Evolve common political values, systems and institutions;

(III)

Promote and defend peace and security;

(IV)

Promote self-sustaining development on the basis of collective selfreliance, and the interdependence of Member States;

(V)

Achieve complementarities between national and regional strategies and programmes;

(VI)

Promote and maximize productive employment and utilization of resources of the Region;

(VII)

Achieve sustainable utilization of natural resources and effective

protection of the environment; (VIII)

Strengthen and consolidate the long standing historical, social and

cultural affinities and links among the people of the Region.

THE EAST AFRICAN CO-OPERATION (EAC)

he EAC is a strong measure taken by its members to ensure great cooperation in economic

nd political integration. The Permanent Tripartite Commission for East African Co-

peration according to Malayas (2001:79) was first formed in 1967 as the East African

ommunity. It collapsed in 1977 due to political differences. Following the dissolution of the

ganization, former Member States negotiated a Mediation Agreement for the Division of

ssets and Liabilities, which they signed in 1984. However, as one of the provisions of the

Mediation Agreement, the three States agreed to explore areas of future co-operation and to

ake concrete arrangements for such co-operation.

ubsequent meetings of the three Heads of State led to the signing of the Agreement for the

tablishment of the Permanent Tripartite Commission for East African Co-operation on

ovember 30, 1993. Full East African Co-operation efforts began on March 14, 1996 when

e Secretariat of the Permanent Tripartite Commission was launched at the Headquarters the EAC in Arusha, Tanzania (Malayas, 2001:127).

onsidering the need to consolidate regional co-operation, the East African Heads of State, their second Summit in Arusha on 29 April 1997, directed the Permanent Tripartite

ommission to start the process of upgrading the Agreement establishing the Permanent

ipartite Commission for East African Co-operation into a Treaty. During a one-day summit Arusha, Tanzania on 22 January 1999, the Heads of State of Tanzania, Kenya and Uganda

solved to sign the Treaty re-establishing the East African Community (EAC) by the end of

ly 1999. The community was to take over from the Permanent Tripartite Commission for

ast African Co-operation (Malayas,2001:127) the writings of clerk (1997:53) there was a decision to re-establish the East African

ommunity by the end of 1999, other issues raised at the EAC Summit of January 1999

cluded the signing of a Memorandum of Understanding on Foreign Policy Co-ordination;

ero

tariff

rates

to

be

dopted by 1 July 1999 and the implementation of COMESA's 80% tariff reduction objective the same time; setting up of a mechanism to deal with terrorism in the region; and

ostponement in admitting Rwanda and Burundi to the EAC (Clerk, 1997:76).

pparently, the inclusion in the agenda on the question whether Rwanda should be admitted the EAC caused a heated debate during a preparatory meeting attended by the three

oreign Ministers on 21 January 1999. The Ugandan delegation wanted Rwanda to be

dmitted, but Tanzania disagreed arguing that it was not possible to admit new members at

is stage, as the procedure for doing so was still being debated. The proposal by Uganda was

efeated when the Tanzanian and Kenyan delegates voted against it (Clerk, 1997:76).

he Memorandum on Foreign Policy Co-ordination, signed by Foreign Ministers from the

ree countries, involves the three member states taking a common stand at international fora assisting each other in countries where they do not have Missions. This entails that any of

e three member states can appoint one Mission to represent their interests abroad. Nationals

om the three countries will also be able to have visa applications processed in any of the

Missions representing the region. President Moi suggested that the countries of the region

ight even form a political federation and suggested in this regard the creation of a regional

sembly with limited powers (Clerk, 1997:76).

he East African passport was officially launched on 1 April 1999. At the same time, it was

onfirmed that the EAC planned to establish a free trade area in July 1999 and a common

xternal tariff by the year 2000. In May 1999 a high level EAC task force met in Arusha and

commended a delay in the elimination of tariffs (to 1 July 2000) as well as a maximum

ommon external tariff of 25%. A meeting of experts took place at the EAC Secretariat in

rusha from 28 June to 7 July 1999 and resulted in the revision and redrafting of trade

ovisions of the draft treaty. Members of the three task forces also agreed on the creation of

customs union, the removal of internal tariffs by July 2000 and the removal of non-tariff

arriers to importation of goods originating from the partner states within twelve months of

oming into force of the treaty (Clerk, 1997:76).

he Treaty for the Establishment of the East African Community was signed in Arusha on 30

ovember 1999. The Treaty entered into force on 7 July 2000 following the conclusion of the

ocess of its ratification and deposit of the Instruments of Ratification with the Secretary

eneral by all the three Partner States. The EAC was inaugurated in January 2001. The

reaty calls for a customs union (the framework of which was to be negotiated over the next

ur years), common market and monetary union and sets the ultimate objective as the birth a political federation of east African states. Among the key institutions are an East African

arliament, a regional stock exchange and a joint court of justice (Clerk, 1997:76).

uring the 5th Summit of the Heads of State and Government, held in Arusha, Tanzania on 2

March 2004, the presidents Mkapa of Tanzania, Museveni of Uganda and Kibaki of Kenya

gned a Protocol establishing the East African Customs Union. The Protocol will have to be

tified by all three member states, and was expected to enter into force by 1July 2004. This

ill create a common market of 90 million people, with an estimated US$30 billion market

otential.

MEMBERS:

enya

ganda

anzania

BJECTIVES:

he Commission aims to:

) improve and strengthen co-operation on the basis of the historical ties and understanding

etween the people of Kenya, Tanzania and Uganda. In this regard the countries emphasize

o-operation

in

the

priority

areas

of

transport

and

ommunication, trade and industry, security, immigration and the promotion of investment in

e region.

I) Easing travel restrictions, harmonizing tariffs, increasing co-operation among security

rces, improving communications, sharing electrical power and addressing Lake Victoria

sues.

II) To achieve concrete measures toward integration include freely exchangeable currencies

nd ultimately a single currency), a common East African passport, a common flag and a

ouble taxation accord. It also aims to abolish all tariffs with the aim of attaining economic

nd political integration.

he Above Can Be Achieved Through:

i) the promotion of a sustainable growth and equitable development of the region, including

tional utilization of the region's natural resources and protection of the environment;

i) strengthening and consolidation of the longstanding political, economic, social, cultural

nd traditional ties and associations between the peoples of the region in promoting a people-

entred mutual development

ii) enhancement and strengthening of participation of the private sector and civil society

v) mainstreaming of gender in all its programmes and enhancement of the role of women in

evelopment

) promotion of good governance, including adherence to the principles of democracy, rule law, accountability, transparency, social justice, equal opportunities and gender equality

i) promotion of peace, security and stability within the region

TRUCTURE

he main organs of the EAC are the Summit of Heads of State and Government; the Council Ministers; the Co-ordination Committee; Sectoral Committees; the East African Court of

ustice, the East African Legislative Assembly; and the Secretariat (Clerk, 1997:76).

HE ECONOMIC COMMUNITY OF CENTRAL AFRICAN STATES (ECCAS)

was at a summit meeting in December 1981, the leaders of the Central African Customs

nd Economic Union (UDEAC) agreed in principle to form a wider economic community of

entral African states. ECCAS was established on 18 October 1983 by the UDEAC members

nd the members of the Economic Community of the Great Lakes States (CEPGL) (Burundi,

wanda and the then Zaire) as well as Sao Tomé and Principe. Angola remained an observer

ntil 1999, when it became a full member (Najeeb, 2010:234). the position of Najeeb (2010:237), ECCAS began functioning in 1985, but was inactive for

veral years because of financial difficulties (non-payment of membership fees) and the

onflict in the Great Lakes area. The war in the DRC was particularly divisive, as Rwanda

nd Angola fought on opposing sides. ECCAS has been designated a pillar of the African

conomic Community (AEC), but formal contact between the AEC and ECCAS was only

tablished in October 1999 due to the inactivity of ECCAS since 1992 (ECCAS signed the

rotocol on Relations between the AEC and the Regional Economic Communities in October

999). The AEC again confirmed the importance of ECCAS as the major economic

ommunity in Central Africa at the third preparatory meeting of its Economic and Social

ouncil (ECOSOC) in June 1999 (Najeeb, 2010:240).

resided over by President Pierre Buyoya of Burundi, the 2nd Extra-Ordinary Summit of

CCAS was held in Libreville on 6 February 1998. The Heads of State/Government present the summit committed themselves to the resurrection of the organization. The Prime

Minister of Angola also indicated that his country would become a fully-fledged member.

he summit according to Najeeb (2010:240) approved a budget of 10 million French Francs

r 1998 and requested the Secretariat to: (a)

Obtain assistance from UNECA to evaluate the operational activities of the secretariat; to evaluate the contributions due by member states; and the salaries and salary structures of employees of the secretariat;

(b)

Convene an extra-ordinary meeting of the Council of Ministers as soon as possible to evaluate the recommendations of UNECA; the Council should then draw up proposals for a new administrative structure for the secretariat and revised contributions due by each member state.

Major objectives of ECCAS

CCAS aims to achieve collective autonomy, raise the standard of living of its populations

nd maintain economic stability through harmonious cooperation. Its ultimate goal is to

tablish a Central African Common Market. At the Malabo Heads of State and Government

onference in 1999, four priority fields for the organization were identified (Najeeb,

010:240): (a)

to develop capacities to maintain peace, security and stability, which are essential prerequisites for economic and social development;

(b)

to develop physical, economic and monetary integration;

(c)

to develop a culture of human integration; and

(d)

to establish an autonomous financing mechanism for ECCAS.

TRUCTURE (a)

Conference of Heads of State and Government;

(b)

Council of Ministers;

(c)

Secretariat General (one secretary-general elected for four years and three assistant secretaries-general)

(d)

Court of Justice

(e)

Consultative Commission.

HE INTERGOVERNMENTAL AUTHORITY ON DEVELOPMENT (IGAD)

The Intergovernmental Authority on Development (IGAD) is an initiative of Eastern

Africa, which was created in 1996, with the aim of superseding the Intergovernmental

Authority on Drought and Development (IGADD) which was founded in 1986. The

recurring and severe droughts and other natural disasters between 1974 and 1984 caused

widespread famine, ecological degradation and economic hardship in the Eastern Africa

region. Although individual countries made substantial efforts to cope with the situation

and received generous support from the international community, the magnitude and

extent of the problem argued strongly for a regional approach to supplement national

efforts

In 1983 and 1984, according to Soleranza, (2004:59), six countries in the Horn of Africa -

Djibouti, Ethiopia, Kenya, Somalia, Sudan and Uganda - took action through the United

Nations to establish an intergovernmental body for development and drought control in

heir region. The Assembly of Heads of State and Government met in Djibouti in January

1986 to sign the Agreement which officially launched IGADD with Headquarters in

Djibouti. The State of Eritrea became the seventh member after attaining independence in

1993.

In April 1995 in Addis Ababa, the Assembly of Heads of State and Government made a

Declaration to revitalize IGADD and expand cooperation among member states. On 21

March 1996 in Nairobi the Assembly of Heads of State and Government signed 'Letter of

Instrument to Amend the IGADD Charter / Agreement establishing the revitalized IGAD

with a new name ". The Intergovernmental Authority on Development. The Revitalized

IGAD, with expanded areas of regional cooperation and a new organizational structure,

was launched by the IGAD Assembly of Heads of State and Government on 25 November

1996 in Djibouti, the Republic of Djibouti (Soleranza, 2004:59).

ObjectivesofIGAD

The objectives of IGAD as identified by Soleranza, (2004:59) are to: (I)

Promote joint development strategies and gradually harmonize macro-economic policies and programmes in the social, technological and scientific fields;

(II)

Harmonize policies with regard to trade, customs, transport, communications, agriculture, and natural resources, and promote free movement of goods, services, and people within the region.

(III)

Create an enabling environment for foreign, cross-border and domestic trade and investment;

(IV)

Achieve regional food security and encourage and assist efforts of Member States to collectively combat drought and other natural and man-made disasters and their natural consequences;

(V)

Initiate and promote programmes and projects to achieve regional food security and sustainable development of natural resources and environment protection, and encourage and assist efforts of Member States to collectively combat drought and other natural and man-made disasters and their consequences;

(VI)

Develop and improve a coordinated and complementary infrastructure, in the areas of transport, telecommunications and energy in the region;

(VII)

Promote peace and stability in the region and create mechanisms within the

region for the prevention, management and resolution of inter-State and intra-State conflicts through dialogue; (VIII)

Mobilize resources for the implementation of emergency, short-term, medium-

term and long-term programmes within the framework of regional cooperation; (IX)

Promote and realize the objectives of the Common Market for Eastern and Southern Africa (COMESA) and the African Economic Community;

(X)

Facilitate, promote and strengthen cooperation in research development and application in science and technology.

HE COMMON MARKET OF EASTERN AND SOUTHERN AFRICA (COMESA)

he history of COMESA as recorded by Kebel (1999:148) began in December 1994 when it

as formed to replace the former Preferential Trade Area (PTA) which had existed from the

arlier days of 1981. COMESA (as defined by its Treaty) was established 'as an organization free independent sovereign states which have agreed to co-operate in developing their

atural and human resources for the good of all their people' and as such it has a wide-

nging series of objectives which necessarily include in its priorities the promotion of peace

nd security in the region.

owever, due to COMESA's economic history and background its main focus is on the

rmation of a large economic and trading unit that is capable of overcoming some of the

arriers that are faced by individual states. COMESA's current strategy can thus be summed

p in the phrase 'economic prosperity through regional integration'. With its 21 member

ates, population of over 385 million and annual import bill of around US$32 billion

OMESA forms a major market place for both internal and external trading. Its area is

mpressive on the map of the African Continent and its achievements to date have been

gnificant (Kebel, 1999:186).

Free Trade Area

he COMESA states, in implementing a free trade area , are well on their way to achieving

eir target of removing all internal trade tariffs and barriers, an exercise which is to be

ompleted by the year 2000. Within 4 years after that COMESA will have introduced a

ommon external tariff structure to deal with all third party trade and will have considerably

mplified all procedures (Kebel, 1999:186).

radePromotion

ther objectives which will be met to assist in the achievement of trade promotion include:

rade liberalization and Customs co-operation, including the introduction of a unified

omputerized Customs network across the region. Improving the administration of transport

nd communications to ease the movement of goods services and people between the

ountries. Creating an enabling environment and legal framework which will encourage the

owth of the private sector, the establishment of a secure investment environment, and the

doption of common sets of standards. The harmonization of macro-economic and monetary

olicies throughout the region (kebel, 1999:186).

nstitutions of COMESA

everal institutions have been created to promote sub-regional co-operation and

evelopment. These include:

) The COMESA Trade and Development Bank in Nairobi, Kenya

i) The COMESA Clearing House in Harare, Zimbabwe

ii) The COMESA Association of Commercial Banks in Harare, Zimbabwe

v) The COMESA Leather Institute in Ethiopia

) The COMESA Re-Insurance Company (ZEP-RE) in Nairobi, Kenya

addition a Court of Justice was also established under the COMESA Treaty and became

rmally operational in 1998. Further initiatives exist to promote cross border initiatives,

rm a common industrial policy and introduce a monetary harmonization programme.

What COMESA Offers

) COMESA offers its members and partners a wide range of benefits which include:

i) A wider, harmonized and more competitive market

ii) Greater industrial productivity and competitiveness

v) Increased agricultural production and food security

) A more rational exploitation of natural resources

i) More harmonized monetary, banking and financial policies

ii) More reliable transport and communications infrastructure

HE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)

he idea of ECOWAS as reported by Larry (2002:71) is traceable to the effort of President

William Tubman of Liberia, who made the call in 1964. An agreement was signed between

ôte d'Ivoire, Guinea, Liberia and Sierra Leone in February 1965, but this came to nothing. April 1972, General Gowon of Nigeria and General Eyadema of Togo re-launched the

ea, drew up proposals and toured 12 countries, soliciting their plan from July to August

973 (Larry, 2002:83). popular meeting was then called at Lomé from 10-15 December 1973, which studied a

aft treaty. This was further examined at a meeting of experts and jurists in Accra in January

974 and by a ministerial meeting in Monrovia in January 1975. Finally, 15 West African

ountries signed the treaty for an Economic Community of West African States (Treaty of

agos) on 28 May 1975. The protocols launching ECOWAS were signed in Lomé, Togo on 5

ovember 1976. In July 1993, a revised ECOWAS Treaty designed to accelerate economic

tegration (Larry, 2002:83).

BJECTIVES OF ECOWAS

ome of the major objectives of ECOWAS are enshrined in Article 2(1) of the 1975

reaty as follows:-

i) to promote co-operation and development in all fields of economic activity particularly the field of industry,

v)

Promote transport and telecommunications among member states

v)

Develop more energy, for the use of member states

vi)

Develop agriculture and natural resources

vii)

Promote commerce, monetary and financial questions

viii)

To promote social and cultural matters for the purposes of raising the standard of

x)

living of its peoples, Maintaining economic stability among its members and contributing to the progress and development of the African continent".

CHALLENGES AND PROBLEMS OF ECOWAS Some of the problems or challenges facing ECOWAS according to Greer (1992:25-36) are numerous to mention, but the major ones are: (i)

Lack of a dominant political economic power on the continent that can form the core of a regionalization process. Most African nations are exporters of raw materials especially agricultural and mineral products and compete with one another for markets.

(ii)

Fear of the development of hegemonic sub-regional states. whenever one of the continent‘s more powerful countries like South Africa,

Nigeria and Egypt appears to be taking an active interest in subregional affairs, many of its smaller neighbors will try to combine to counter balance what they perceive to be excessive power. (iii)

The integration between neighboring African states is usually the integration of unequal partners and the benefits of the arrangement are often polarized towards one partner.

(iv)

Securitization of many states makes government suspicious of any measures that involve lessening control. Is as much as states are fearful of external or internal subversion, they are likely to try to retain as much power as possible in the hands of their security organizations. Thus, allowing free movement would be resisted by governments that are fearful of the infiltration of religious or political extremists.

(v)

Lack of grassroots involvement in regional integration decisionmaking process.

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