Influence of Superpowers (Edexcel A Level Geography)

Influence of Superpowers Over the Global Economy

• Much of the influence of superpowers and emerging superpowers is through International Governmental Organisations (IGOs)

• These promote:

  • Free trade

  • Capitalism

World Bank

• The World Bank is the sister to the IMF and both were set up during the Bretton Woods Conference in 1944

• It is an international organisation that provides finance, advice, and research to developing nations to aid their economic advancement

• Funded from wealthy nations and interest from loans

• It acts to reduce poverty by increasing economic growth

• It deals mostly with internal investment (development assistance) projects such as building dams, and infrastructure and promoting health and education in developing and emerging countries 

• Usually works with other nations, organisations and institutions as a sponsor of the project

• The World Bank issues low-interest loans, grants and/or zero interest credits to qualifying countries to support the development of their economies

• The World Bank funds projects that otherwise wouldn't happen because the cost is too high for developing countries or they cannot raise sufficient funds elsewhere because it is for social and not economic purposes 

World Trade Organisation

• Trade is important to keep the global economy working effectively and any barriers to trade will limit growth

• In 1947 the General Agreement on Tariffs and Trade (GATT) was set up to aid economic recovery after World War II by reconstructing and liberalising global trade

• Initially it was a multilateral treaty between 23 countries to remove cross-country trade barriers 

• GATT was superseded by the WTO in 1995 as an international global trading organisation with the power to mediate and settle trade disputes

• 164 countries, at present, have signed the agreement to ensure that producers of goods and services, along with exporters and importers, are protected and help manage their businesses

• It aims to reduce barriers and promote free trade between countries whilst ensuring that trading nations keep to the agreed international trade rules through sanctions

• The WTO has been a force for globalization, with both positive and negative effects

• Powerful TNCs support the WTO for its positive impact on international economic growth

• Others see it as increasing the wealth gap and hurting local workers and communities

• Overall, the WTO has lowered trade barriers and increased trade among the member countries with average tariffs being a tenth of what they were in 1947 when GATT was founded

International Monetary Fund (IMF)

• Created in 1944 at the United Nations, Bretton Woods Conference

• Along with the World Bank, its purpose was to bring financial stability to the world after World War II and avoid repeating the currency devaluation that contributed to the 1930s Great Depression

• Its main aim is to allow the currency to be exchanged freely and easily between 190 global member countries

• The IMF is funded by quota subscriptions

• Member states pay according to the size of their economy; with voting rights based on quotas

• These quotas ensure that member countries always have enough foreign exchange to continue to do business with the rest of the world

• If member countries run into trouble, they can turn to the IMF for advice and financial assistance

• The IMF has been criticised for lending with imposed conditions on how a country runs its economy along with making payback a priority on the loan; often forcing financial concerns ahead of any social care

• Countries under IMF programs are usually developing, emerging or countries that have faced financial crises

• Set up Structural Attachment Programs (SAPs) which promotes capitalism through the conditions attached to loans

World Economic Forum (WEF)

• Founded in 1971 

• A Swiss non-for-profit organisation

• It promotes free trade and is in favour of TNCs

• It aims to bring businesses and governments together, encouraging public and private co-operation

• Meetings of the WEF take place each year in Davos bringing together politicians, businesses, economists, religious groups, media groups and many others

• The aim is to discuss global issues such as ongoing conflicts, climate change and economic systems

• It is intended that this will promote global links and provide ambitious solutions to global issues 

Dominance of Transnational Corporations

• Most Transnational Corporations (TNCs) are publicly owned corporations owned by private shareholders

  • Nike, Shell, Nestle, Amazon are all examples of publicly owned TNCs

  • These are driven by profits and pay dividends to share holders

• Some TNCs are state owned, these are owned by the government and are often related to energy or communications

  • Gazprom (Russia), Aramco (Saudi Arabia) and EDF (France) is due to become state owned in 2023

  • Profits are reinvested into the TNCs

  • These are increasingly important and now make up 5 of the top 10 companies by revenue

Top Ten TNCs by Revenue 2022

• TNCs operate in foreign countries individually 

• The 500 largest TNCs account for 70% of world trade

• Many of the world's TNCs are based in the USA or in an emerging superpower

• Although TNCs have existed for hundreds of years, they have become increasingly important in recent years

• Governments and global institutions set the rules for the global economy but the main investment is through TNCs

• TNCs involve themselves in all economic sectors and impact the global economy 

  • The largest TNCs representing the biggest percentage of total global production

• TNCs directly invest in one country and later expand to other nations (usually developing countries) to take advantage of lower labour costs and incentives 

• It is the process of moving manufacturing around the globe that has resulted in the development of emerging countries such as China, India and Brazil

• The increased importance of TNCs have led to economic power shifting to emerging countries such as China 

• The huge profits of TNCs mean that they can exert political pressure and influence

• Walmart is the top TNC by revenue

• Walmart's supply chain involves 30,000 factories in China

• It has 10,500 stores around the world and directly employs 2.3 million people

Patents

• Patents are used by TNCs to protect their technology and innovations 

  • These are intellectual property systems which are used to prevent technologies and medicines being copied

  • They protect the wealth of the developed countries where the TNCs usually originate

• They favour developed countries and mean that many new technologies and medicines are unavailable to developing nations

  • The patents on new HIV treatments have made these drugs unaffordable in many developing countries where the disease is most prevalent

Trade patterns

• Developed countries have greater participation in international trade than developing countries as a result of TNCs

• Much global trade today is intra-company trade within the same company 

Global Cultural Influence

• Western TNCs were globally dominant until recently

• Of the ten best known global brands seven are from the USA

• This increased the spread of Western culture - the ideas, customs, and social behaviour of western society

• This 'westernisation' is important in the dominance of western powers, it is linked to:  

  • Economic influence 

  • Technology

• This is a soft power and has led to countries around the world adopting western culture and values including:

  • Freedom of speech

  • Dress and music

  • Food - the spread of fast food outlets McDonalds, Starbucks and KFC

  • Use and importance of technology

  • Democracy