GEOG 3404 Economic Geography

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GEOG 3404Economic Geography
LECTURE 8 Regions and Economic Integration

• Dr. Zachary Klaas
• Department of Geography and Environmental Studies
• Carleton University

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Reading in the Dicken text

• For this lecture, Chapter 6 is the obvious
  reference point in the Dicken text. The main
  themes of this lecture are covered there in great
  detail the involvement of the state in the
  regulation of the economy, the creation of
  regional trading blocs and the creation of
  world-level bodies that govern and promote
  economic exchange between nations.
• When you read through the chapter, focus on
  themes relating to the character of the
  regulatory role played by the state, and the
  effectiveness of regional economic integration as
  opposed to full-blown globalisation.

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Economies and states

• Todays lecture deals in large measure with
  state policies regarding economic integration.
  If one believes generally the perspective put
  forward by the globalisation paradigm, then
  states have little choice where such policies are
  concerned. A state either accepts the need to
  integrate fully with the world economy or it
  begins to fail economically.
• This view suggests that states are epiphenomenal
  with respect to the global economy they do not
  direct policy, but rather are moved by economic
  forces to accept policies.
• To put this another way, states may be
  superstructures built upon their economic base,
  and thus, choices made by states are determined
  by economic necessity.

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The autonomous state?

• Not everyone in economic geography agrees that
  states are controlled by wider economic realities
  in this fashion. An alternate view, that states
  possess autonomous powers and have the capacity
  to regulate in some fashion a part of the world
  economy through its actions, is often expressed.
• Peter Dicken, for example, takes this position
  in his book. His view is that states possess
  sufficient agency both to regulate the economy
  and, indeed, to compete for developmental
  advantages within it.
• A Marxist-inspired theoretical perspective in
  economic geography, the regulationist school,
  concedes this kind of autonomy can emerge under
  certain conditions, though modes of regulation
  can be temporary and give way to more powerful
  economic forces at some point.

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Regional economic integration

• There may not be, perhaps, a complete death of
  distance in modern economic geography, but one
  argument for a lessened impact of distance with
  respect to the modern economy is certainly the
  increasing appearance of regional trading blocs,
  which nations join according to their perception
  of national interests.
• The regional trading bloc is a development which
  accepts the logic of globalisation provisionally,
  expanding relationships of free trade outward,
  while at the same time not accepting complete
  integration at the world scale and permitting
  some room for protectionism, albeit with respect
  to areas exterior to the bloc.
• In many cases, regional trading blocs have
  become the basis for supranational government, a
  level of government with powers delegated to it
  by national member states.

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Some examples of trading blocs and economically
integrative international organisations

• NAFTA (North American Free Trade Agreement)?
• CAFTA (Central American Free Trade Agreement)
  now includes Dominican Republic and is called
  DR-CAFTA
• EU (European Union), and also EFTA (European
  Free Trade Association)
• CIS (Commonwealth of Independent States former
  Soviet Union also the EurAsEC (Eurasian
  Economic Community))
• AU (African Union also the AEC (African
  Economic Community))
• Arab League
• Unasur (Union of South American Nations soon to
  be uniting Mercosur (South American Common
  Market) and Andean Community of Nations)
• OPEC (Organisation of Petroleum Exporting
  Countries) largely regionalised to Middle East,
  but with South American and African members as
  well
• APEC (Asia-Pacific Economic Cooperation)?
• ASEAN (Association of South-East Asian Nations)?

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Supranationalism

• Economic integration has been a primary catalyst
  in the development of political integration
  across national borders. The rise of
  supranationalism is closely linked with economic
  and trading agendas.
• What we now call the European Union was
  initially formed via the Treaty of Paris (1951)
  as the European Coal and Steel Community (ECSC),
  and via the Treaty of Rome (1957) as the European
  Economic Community (EEC). France, West Germany,
  Italy, the Netherlands, Belgium and Luxembourg
  were the initial 6 member states in the community
  the main industrial nations of west-central
  continental Europe.
• The EEC only became the European Union in 1992
  with the adoption of the Maastricht Treaty, which
  added two areas of political jurisdiction
  (foreign policy and criminal enforcement) to the
  existing economic policy mandate of the
  organisation.

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• Economic ties seem to be a prerequisite for
  these kinds of supranational ties. The former
  republics of the Soviet Union have only
  re-established themselves as an economic
  community since the year 2000 (with the advent of
  the Eurasian Economic Community), and the
  inter-state organisation which preceded it, the
  Commonwealth of Independent States, is only a
  very loose federation of nations, rather than a
  supranational organisation with a coherent
  mandate like the EU.
• Attempts to make the CIS more supranational have
  thus far not been very successful. The proposed
  Union of Russia and Belarus, for example, would
  create a clear supranational authority, but the
  terms of this proposed union remain unclear and
  not generally accepted. Other nations have
  expressed interest in joining this proposed union
  as well, but things have not gotten much beyond
  the talking stages at this point.
• Russia, Belarus and Kazakhstan are now proposing
  a formal customs union, which others of the
  CIS/EurAsEC group may join later.

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• The African Union foresees the implementation of
  an African Economic Community in the coming
  decades which will implement a free-trade area in
  Africa and potentially create an Africa-wide
  currency on the model of the Euro. Like the EU,
  the African Union has a Parliament which oversees
  the actions of the body. However, since the AEC
  has not been implemented yet, this Parliament
  does not appear to have the relevance that the EU
  Parliament has acquired over the years, and based
  upon the economic strength of the underlying EEC.
• In Central America, economic integration and
  political integration seem to be proceeding down
  two separate paths, with economic integration
  being accomplished by the DR-CAFTA initiative,
  and political integration largely wrapped up in
  the Central American Parliament project. The
  Central American Parliament, because it is not
  linked to DR-CAFTA in a meaningful way, also
  suffers from apparent political irrelevance.

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• Talks between the three parties to the NAFTA
  agreement have taken place, most recently in
  Montebello, QC, regarding harmonisation of
  security policies as well as deepening economic
  ties. These talks, referred to as the Security
  and Prosperity Partnership (SPP), have been seen
  by critics as possibly aiming at political
  integration or supranationalism.
• One potential disadvantage to political
  integration in the North American context is the
  potential power imbalance between the United
  States on the one hand and Canada and Mexico on
  the other. At present, none of the three nations
  have made any move in favour of supranational
  integration.
• The Independent Task Force On North America,
  chaired by Canada's John Manley and reflecting
  American and Mexican participation, however, does
  promote the establishment of a North American
  Economic and Security Community not unlike the
  old EEC in its scope and purpose perhaps a
  precursor to North American supranationalism?

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World-level economic integration

• In many respects, the regionalisation of
  economies indicates how far globalisation has
  gone compared with how much further it would have
  to go. Organisations that see the world economy
  as a coherent whole do exist and are not
  negligible forces to be reckoned with. Regional
  blocs, to some extent, may represent a bulwark
  against the totalised integration into the fully
  free-market system which these organisations
  promote.
• The principal of these world-level integrative
  organisations are the World Trade Organisation
  (WTO) the International Monetary Fund (IMF) and
  the World Bank.
• These three organisations have their roots in a
  conference held in Bretton Woods, New Hampshire
  in 1944, which had ambitious goals for the
  regulation of the world economy. The British
  economist John Maynard Keynes played a leading
  role at this conference.

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The General Agreement on Tariffs and Trade (GATT)
and the creation of the World Trade Organisation
(WTO)

• Free trade has been expanded across national
  borders by means of the General Agreement on
  Tariffs and Trade (GATT), which was first
  established in 1948 in the wake of the Bretton
  Woods conference. This agreement had as its goal
  the promotion of tariff reductions.
• GATT negotiations were entered into voluntarily
  by those participating in the agreement no
  enforcement mechanism was implied in its
  functioning.
• In 1995, however, during the Uruguay Round of
  GATT negotiations, an international organisation
  was created, called the World Trade Organisation
  (WTO), which took on the additional
  responsibility of enforcement and implementation
  of trade agreements arrived at under the GATT
  framework.

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• The importance of this difference in orientation
  should not be underestimated. The new WTO has
  punitive powers that the old GATT structure did
  not entail. These powers flow from the presumed
  benefits of globalisation that member states of
  the WTO believe will flow from the free trade
  agenda the organisation promotes.
• Submission to the WTO's dispute resolution
  process is, in other words, encouraged by the
  belief that there is no alternative to the free
  trade agenda which was not as present of a
  belief in the days when GATT was the primary
  mechanism for trade negotiations.
• The WTO has thus come under fire as an
  organisation which seeks to direct economic
  decisions from outside national boundaries,
  rather than simply provide a forum for the
  resolution of trading conflicts.

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The International Monetary Fund

• The International Monetary Fund (IMF) was
  originally created as a means of managing the
  exchange rate system established at the Bretton
  Woods conference.
• From 1944-1973, the IMF presided over the
  management of an exchange rate system which was
  based on gold as a standard of exchange and which
  used the U.S. dollar and, to a lesser extent, the
  British pound sterling, as a medium of liquidity.
  Essentially, during this time, the currencies of
  the world under the Bretton Woods system were
  "pegged" to gold.
• The Bretton Woods system ended up being
  abandoned by the U.S. and Britain, essentially
  because other nations would not join them in
  providing their gold as a standard of exchange,
  and thus nations wishing to convert their
  currency into gold drew disproportionately on
  U.S. and British gold holdings.

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• After 1973, the Bretton Woods system was
  scrapped in favour of a system of free-floating
  currency exchange. The U.S. and Britain were
  thus free of the role of providing its gold
  reserves and national currencies as the basis of
  an international currency system. The IMF, for
  its part, also had its mandate reduced.
• Currently, the IMF's role is limited to managing
  "balance of payment" issues on international
  debt, either through the offering of loans to
  assuage short-term radical fluctuations in
  balances of payments (such as after the OPEC
  shocks of the 1970s, for example) or the
  provision of management services.
• Given the debt load of many poorer countries,
  the role has tended largely to the second of
  these aims, and the IMF is mostly known nowadays
  for its "Structural Adjustment Policy" advice on
  how to restructure national economies in order
  that indebted nations may better pay off their
  existing debts.

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The World Bank

• The World Bank is an institution which
  originally was conceived as a source of long-term
  loans for economic development in lesser
  developed countries.
• The World Bank was also a creation of the 1944
  Bretton Woods accord. However, it has always had
  a different mandate from the IMF in that its role
  with regard to the provision of loans is not
  short-term. The World Bank has the specific
  mandate of making long-term loans to developing
  nations with the objective of reducing poverty.
  There are 185 member countries and funds for
  loans made by the World Bank are raised through
  the selling of bonds.
• Decisions on lending are made by shareholders,
  who come disproportionately from Western and
  industrialised nations. It is, for example,
  taken as normal that the president of the World
  Bank will be an American, given the large
  ownership of bank shares by American interests.

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The Argentine crisis and the movement for South
American disindebtedness from the IMF

• In the years 1999-2002, the nation of Argentina
  faced a severe economic crisis, related to the
  impending defaults on development loans from the
  IMF and other sources.
• In addition to other loans, the IMF and private
  lenders had underwritten loans to support
  Argentina's pegging of its currency, the peso,
  to the American dollar, which had in the past
  reduced inflation, but by this point had made the
  peso dramatically overvalued.
• In order to pay these external creditors for the
  loans, Argentina would either have to make deep
  cuts to social programs, exacerbating poverty in
  a nation already deeply affected by it, or
  negotiate to pay only a portion of those loans to
  their creditors.

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• Instead of fully repaying all the creditors, the
  new president of Argentina, Néstor Kirchner,
  worked out a deal with private creditors holding
  around 76 of the total debt owed by Argentina to
  pay back roughly a third of the debt owed to
  those lenders.
• However, Kirchner believed that the IMF must be
  paid in full rather than at a percentage of the
  amount owed. His rationale for this was that a
  break between the IMF and Argentina must be
  effected, and this could only be done through a
  policy of disindebtedness - the payment in full
  of what was owed, followed by disengagement.
• Notably, the country of Venezuela financed this
  repayment through the purchase of Argentinian
  bonds.
• At present, several other countries in South
  America have instituted similar policies of
  disindebtedness with respect to the Bretton
  Woods lending institutions of the IMF and the
  World Bank. A rival institution, called the
  Bank of the South, and controlled by interests
  local to South America, is now planned to fill
  this lending role.

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The rise of the Latin American Left

• A trend over the last decade has seen the rise
  to power of a number of left-wing leaders in
  Latin America Néstor Kirchner and Cristina
  Fernández de Kirchner in Argentina, Luiz Inácio
  Lula da Silva in Brazil, Ricardo Lagos and
  Michelle Bachelet in Chile, Evo Morales in
  Bolivia, Alan Garcia in Peru, Rafael Correa in
  Ecuador and Hugo Chávez in Venezuela.
• The regional economic integration organisations
  known as the Andean Group and Mercosur are now
  merging into a group with aspirations towards
  supranationalism called the Union of South
  American Nations (or Unasur) and at a time when
  the majority of South Americas governments range
  between moderately social democratic and
  assertively socialist.
• This suggests that there may be potential for
  the new regional bloc to be politicised as a
  left-wing force in world politics.