1.WHAT ARE THE PROS AND CONS OF OURSOURCING? PLEASE REVIEW, SUPPORT/DISCUSS/DISAGREE/AGREE EACH CASE BELOW: CON: A search for “outsourcing” at Amazon.com yields 1,708 books alone. The majority of these books are are written from an anti-outsourcing stance, with titles ranging from Outsourcing America: What’s Behind Our National Crisis and How We Can Reclaim American Jobs (by Ron and Anil Hira, 2005), to Exporting America: Why Corporate Greed Is Shipping American Jobs Overseas (by Lou Dobbs, 2004). While blue-collar workers have traditionally been the first to lose their jobs to outsourcing, white-collar employees are increasingly seeing their jobs move overseas as well. As a result, labor unions have been some of the most vocal critics of outsourcing, often claiming that companies’ sending jobs overseas to benefit from lower costs will lead to inferior labor laws—an accusation often termed the “race to the bottom.” As Mike Gildea, a representative of the AFL-CIO, explained in speaking about the countries receiving outsourced U.S. jobs, “More often than not, the labor standards are non-existent or are not enforced. [Firms] can escape protective labor laws. They don’t have to worry about it.” Moreover, as labor lawyer Daniel Pyne notes, employees in foreign countries “earn much lower wages and enjoy few, if any, of the protections enjoyed by their American counterparts.” Thus, not only do critics believe outsourcing will render them unemployed, literally taking the food off their tables, but also that it will lead to an overall world decrease in labor standards (USA Today). CASE 2 PRO: So yes, some Americans are facing unemployment from outsourcing, however, this fact leads to one of the greatest outsourcing myths: the U.S. as a whole is losing jobs. Not so. According to research from The Heritage Foundation, the U.S. has never previously had so many people employed. As their household employment survey showed, 1.9 million more Americans have been employed since the end of the last recession in November 2001. “That means, there are 138.3 million workers in the U.S. economy today—more than ever before.” Moreover, proponents of outsourcing believe the picture of unemployment is not nearly as bleak as critics paint it. While the most startling estimate predicts a loss of 3.3 million service jobs between 2000 and 2015, the real number is in actuality much closer to an average of 55,000 jobs lost per economic quarter. Here it is important to note that job loss is part of the normal economic cycle—on average, 7.71 million Americans are unemployed each quarter, and the estimated number of jobs lost to outsourcing equal only 0.71% of this total.Rather than focus solely on job loss, supporters of outsourcing believe it can bring great benefits to the economy as a whole and suggest the development of government-sponsored retraining programs and other unemployment aid as a way to soften the blow to those whose jobs are affected (The Heritage Foundation). 2. Outsourcing, has attracted much attention since it became a hot topic during the last presidential election in the USA. Companies in the USA and Europe are now sending jobs off to India or China or some other country where they can be done at a lower cost, increasing the profit margin and productivity. Productivity increases are made possible by the 24-hour work day; when the office in the US is ready to close, its Indian counterpart is ready to begin, thus creating a continuous work cycle. Despite the advantages of outsourcing for companies, the practice has attracted much criticism from the US public and some politicians. Companies have laid off workers in the US and hired people in India or China to do the same kind of work for less, for example, call centers in India. Many American companies have outsourced their customer service department to India. So when you call for service, the call is picked up in India. In addition to concerns about many Americans losing jobs, people have complained about the quality of service provided. The complaints arise mainly because of the difficulty in understanding their accent or due to the cultural differences. Nevertheless, a person who believes that he has received bad service will have a negative opinion on outsourcing. What is your opinion on outsourcing? 3. PLEASE READ THE ARTICLE BELOW AND ANSWER THE FOLLOWING QUESTION: Can Sudan develop on its own? If so, how? If the development is successful, would it pave the way for the freedom of self-determination to trickle down to the lives of each individual on the African continent? South Sudan has waited more than 50 years to gain its independence from the North. In 2005, following two civil wars, the Comprehensive Peace Agreement (CPA) was signed, giving South Sudan six years of autonomy. In January 2011, a referendum on secession was held and an overwhelming majority voted in favor of independence. The referendum will usher in statehood for Southern Sudan, even though formal independence will be declared on July 9, 2011. South Sudan faces a long road ahead before a sustainable independence can be achieved. The legacy of the CPA is a litany of unsolved problems, including the lack of an agreed-upon border between South and North and the lack of a dispute mechanism to solve long-standing disagreements over oil and grazing rights. South Sudan must overcome many historical problems before it can move forward with development initiatives, which are so crucial to the success of both countries. History of the Sudanese Conflict South Sudan has a history of oppression and enslavement. In the 1820s, the North enslaved Southerners and exploited their oil and fertile land. Fears of losing the rights to both the oil and the fertile land are actually the root of today’s conflict between the North and South. From 1899 to independence in 1956, Southerners were further oppressed by the North under the British “divide and rule” policy. Ultimately, the British wanted to maintain its relationship with Egypt in order to prevent France from gaining control of the Suez. So the British supported Egypt, who wanted Arab Muslims to rule Sudan. The British granted the Northern Arab Muslims power over the South by giving them the skills to control government and by explicitly developing the North, while blocking private development efforts the South. For example, Christian missionaries, with little outside funding and support, were left in charge of education in the South. The South was intentionally kept underdeveloped to prevent Southerners from gaining power in the North. By 1956, when Britain granted independence to Sudan and control of the country to the North, Southerners began fighting for independence. This first civil war lasted until 1972 when the North and South signed the Addis Ababa Agreement, granting the South regional autonomy on all matters except national defense and foreign policy. The period of peace ended in 1983 when the Addis Ababa Agreement was abrogated. Before the agreement was abrogated though, the peaceful period was still marked by protests from the South. In order to continue wielding power, President Nimairy enacted minimal Shariah law in 1977, provoking protests especially in the South. Fearing these protests would lead to another civil war where the South would secede and take the oil the North relied on for 30 percent of its gross domestic product (GDP), Nimairy divided the South into three provinces. Nimairy specifically targeted an oil-rich region called Abyei where a tribe of Southern cattle herders – the Dinka – grazed with Northern pastoralists. Because the Dinka had previously allied with Southern rebels during the first civil war, the North feared the Dinka would ally again with the South in protests over advancing Shariah. The North ordered attacks by the Northern pastoralists on the Dinka in Abyei. Nimairy’s policies culminated in the enforcement of strict Shariah law. The enactment of complete Shariah law resulted in the break-out of a second, full-scale war for independence. In recent times, oil drilling, mechanized farming, and severe drought had lead the Northern pastoralists to to raid grazing fields used by the Dinka. During these raids, Northern pastoralist militias have committed grave human rights abuses. The Dinka now hope for safety under the rule of the South. Their hopes may be dashed though because the North will still want access to the grazing lands and the oil and so may employ militias to try to gain access to the land. The international community may need to step in to prevent these raids and help North and South find a way forward. The International Community’s Involvement Sudan cannot determine the border on its own. It needs an impartial international committee. Sudan’s own Technical Border Committee (TBC), created in 2005 to determine the border, has been unable to accomplish the task because of partisan disputes. The committee demarcating the border has eight hot spots to determine. These hot spots lie on oil-rich fields and grazing land. The committee will have the balancing act of distributing the land to its rightful owner (ie the North or South) while continuing to grant the North access to its livelihood should the land be demarcated to the South. If this task is not accomplished, the North will need access to other sources of livelihood. Development projects funded by the international community can help build those sources of livelihood for the North and the South. Another way the international community can get involved is by encouraging the South to choose a leader that is politically adept and who understand the challenges facing Muslim Arabs in the South. Muslim Arabs in the South have an 80 percent illiteracy rate, as well as limited access to clean water, schools, paved roads, and health care. These poor conditions could be misinterpreted as discrimination against Arab Muslims and could set-off further conflict in the South. The new leader must reduce tensions by reassuring Arab Muslims in the South that they are not forgotten. The international community can also prevent conflict from fragmenting the North by offering the current Northern Sudanese President Bashir incentives to implement policies that strengthen Sudan’s democracy. Bashir relies on financial support from the international community to prevent his power from diminishing, especially when he is facing a loss of a third of the North’s GPD that comes from the South’s oil. Africans in Darfur, Beja rebels, Islamic supporters of Turabi, and the urban poor want Bashir out and will use these economic losses as the reason to get rid of him. To pay for these losses, Bashir may be willing compromise with the EU and US, who can offer him financial incentives. The EU and Washington can ease economic sanctions, resolve funding issues to develop the North, and offer debt relief to Bashir on the condition that he brokers an agreement on arable lands and stops military raids into oil- rich regions. These efforts may be able to defuse the desire amongst non-Muslim, Africans to rebel against Bashir. The prevention of marginalization will counter any negative effects of South Sudanese secession in other regional conflicts. As one Sudanese noted, “The only way we’ll go back to war is if the world goes to sleep and forgets us.” Of course, in a world with tight budgets and short memories, the source of funding for these initiatives has not been determined. Within the US, there already are many who would already like to further decrease the foreign assistance budget. Conclusion Although experts such as Hilda Johnson, who helped broker the CPA, are correct that a failure by the international community to achieve democracy in Sudan will likely spur other ethno-religious conflicts, experts fail to see the negative consequences of placing such a great responsibility on the international community. By making the international community responsible for preventing war in Sudan, other rogue states may get the message: If a country commits gross human rights atrocities, the international community will develop the abusive country. Since secession was unavoidable, the international community is stuck in a predicament. On the one hand, the international community never wants another horrific war like the world has witnessed in Sudan. The only means of preventing future war though is economic development. Sudan and many developing countries need international assistance to achieve development goals. However, if the U.S. helps the Sudan now, some countries might get the wrong message. Atleast 150 word respond 4. There is growing debate about globalization. It is occurring in many locations, most obviously in the streets of cities hosting the meetings of the World Trade Organization, International Monetary Fund and other global institutions. These street protests have some correspondence with discussions occurring in universities and governments, and in factories, homes and fields. One important part of the debate about the interpretation of globalization concerns global income inequality. The question is whether income disparities are rising or falling. In other words, does global integration make the poor richer or poorer? Briefly discuss. Atleat 150 word respond 5. What is the impact of globalization on the environment? Please read the following article and write one page summary. Link (Links to an external site.)Links to an external site. Atleast 150 words respond 6. How do you see the future of globalization? Briefly discuss. Atleast 100 words respondQuestion 3 and 4 links http://csd.columbia.edu/https://www.youtube.com/watch?v=JgngXHClWxEhttps://www.youtube.com/watch?v=yhmv5haDRAohttps://www.youtube.com/watch?v=taCdAmuSW7wQuestion 5 and 6 http://www.globalissues.org/article/768/global-financial-crisishttps://www.youtube.com/watch?v=cyjQw1gGBxYhttps://www.youtube.com/watch?v=Y2X3KPilAt0
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Frederic S Mishkin: Globalization and financial development
Remarks by Mr Frederic S Mishkin, Member of the Board of Governors of the US Federal Reserve
System, to the New Perspectives on Financial Globalization Conference, International Monetary Fund,
Washington DC, 26 April 2007.
In the United States and many other countries, students learn that the key to success is hard work. Yet
when we look at many developing countries, we see people who work extremely hard for long hours.
Their wages are low, and so they remain poor. And as a whole, their countries remain poor. If hard
work does not make a country rich, what does?
The right institutions are essential. Nobel laureate Douglass North defines institutions as the “rules of
the game in a society, or, more formally, humanly devised constraints that shape human intervention.”
(North, 1990, p. 3). Among the institutions that are most crucial to economic growth are those that
enable a country to allocate capital to its most productive uses. Such institutions establish and
maintain strong property rights, an effective legal system, and a sound and efficient financial system.
In recent years, the field of economic development has come to the conclusion that “institutions rule”
and are critical to economic growth. 1 An extensive literature focuses on financial development as a
significant force driving economic development. 2
However, developing good institutions that foster financial development is not easy: It takes time for
institutions to evolve and adapt to local circumstances. In addition, vested interests in poor countries
often oppose the necessary reforms because they believe that such reforms will weaken their power
or allow other people to cut into their profits. How can poorer countries overcome these obstacles?
How can they change the distribution of power to forge the political will to promote institutional reform?
The answer is globalization.
I should note that the opinions I will express today are my own and not necessarily those of my
colleagues on the Federal Open Market Committee (FOMC).
Elements of institutional reform
Before examining the role of globalization in promoting financial development, let’s first look briefly at
what steps must be taken to build an institutional infrastructure that will ensure a well-functioning
Develop strong property rights
Strong property rights are needed to encourage productive investment because it will not be
undertaken if the returns on investment are likely to be taken away by the government or others.
Hernando de Soto, in his important book The Mystery of Capital, argues that the inability of the poor in
developing countries to acquire property rights is a central reason that they are unable to gain access
to capital and so remain mired in poverty. For example, the use of collateral is a crucial tool that helps
the financial system make loans because it reduces losses when loans go sour. A person who would
pledge land or capital for a loan must, however, legally own the collateral. Unfortunately, as de Soto
has documented, legalizing the ownership of capital is extremely expensive and time consuming for
the poor in developing countries. In one of his many astonishing examples, obtaining legal title to a
dwelling on urban land in the Philippines required taking 168 bureaucratic steps through 53 public and
private agencies over a period of 13 to 25 years.
A large literature shows the importance of good institutions to economic growth. See, for example, North and Thomas
(1973); Hall and Jones (1999); Acemoglu, Johnson, and Robinson (2001); Easterly and Levine (2001); Rodrik,
Subramanian, and Trebbi (2002); Easterly and Levine (2003); Glaeser and others (2004); and the recent survey by
Acemoglu, Johnson, and Robinson (2005). Kaufmann and others (1999) also point to the importance of various aspects of
An excellent nontechnical survey of the extensive empirical evidence on the link between financial development and
economic growth can be found in World Bank (2001). See also Levine (2004) and Schmukler (2004).
BIS Review 41/2007
Strengthen the legal system
A legal system that enforces contracts quickly and fairly is an essential step in supporting strong
property rights and financial development. For example, lenders write restrictive covenants into loan
contracts to prevent borrowers from taking on too much risk, but such covenants have value only if
they can be legally enforced. An inefficient legal system in which loan contracts cannot be enforced
will prevent productive lending from taking place. If setting up legitimate businesses or obtaining legal
title to property is too expensive, the poor will never have access to the legal system and will be cut off
from lending that could help them start small businesses and escape poverty. 3 Setting up a simple
business in the United States generally requires only filling out a form and paying a nominal licensing
fee. In contrast, de Soto’s researchers found that legally registering a small garment workshop in Peru
required 289 days; at 6 hours per day, the cost was about $1,200, which was approximately thirty
times the monthly minimum wage. The lack of property rights for all but the very rich, as documented
by de Soto, is a serious impediment to financial development.
Government is often the primary source of financial repression in developing countries. Rapacious
governments whose rulers treat their countries as personal fiefdoms are not uncommon: We have
seen these governments in Saddam Hussein’s Iraq, Robert Mugabe’s Zimbabwe, and Ferdinand
Marcos’s Philippines. Even officials in less tyrannical governments have been known to use the power
of the state to get rich. Not surprisingly, then, many governments pay lip service to property rights but
do not encourage a rule of law to protect them.
Eliminating corruption is essential to strengthening property rights and the legal system. When corrupt
officials demand bribes, they reduce the incentives for entrepreneurs to make investments. The ability
to buy off judges weakens the enforcement of legal contracts that enable the economic and financial
system to function smoothly. 4
Improve the quality of financial information
High-quality financial information is essential to well-functioning financial markets. If lenders cannot
figure out what is going on in a firm, they will be unable to screen out good from bad credit risks or to
monitor the firm to ensure that it does not take on too much risk at the lender’s expense. To make
reliable and accurate information more accessible, accounting standards must be high enough so that
prospective lenders can make sense of what is in a business’s books. Rules that require businesses to
disclose information must be enforced to enable prospective investors to make sensible decisions
about whether the business deserves to get their hard-earned money.
Improve corporate governance
For people to be willing to buy stocks, another way to channel funds to business, rules must be
established to ensure that the managers of corporations act in the stockholders’ interest. If managers
find it easy to steal from the corporation, or to use funds for their own personal use rather than for the
benefit of the company, no one will want to invest in the company. Finding the right balance of control
between management and stockholders is a challenge with which even we in the United States
continue to struggle.
Develop sound, prudential regulation and supervision of the banking system
Banks are the main institutions that allocate credit in developing countries. The skills necessary for
bank officers to assess risks and make good lending decisions are critically important and often
scarce. Poor lending policies may cause too much capital to be channeled toward low-return projects
and insufficient capital to be directed toward the high-return projects needed to propel income and
growth. Moreover, deterioration in banks’ balance sheets caused by insider lending or excessive risk-
A discussion of how the costs of doing business vary across a number of countries is in World Bank (2005)
Research finds that increases in corruption are associated with lower growth (for example, Mauro, 1995). Wei (1997) also
finds that corruption significantly reduces foreign direct investment, which is generally considered to be beneficial to growth.
BIS Review 41/2007
taking that leads to a proliferation of bad loans can cause banks to cut back sharply on lending, with
negative effects on the economy. If the deterioration in banks’ balance sheets is severe enough, it can
result in banking and currency crises that substantially disrupt the economy, phenomena that
unfortunately have been all too common in developing countries over the past several decades. 5
Preventing banking crises must start with prudential regulation, in which rules set by the government
ensure that banks have sufficient capital and manage risks well. To guarantee that these regulations
are enforced, the government must also engage in prudential supervision, in which it monitors banks
by examining them on a regular basis to ensure that they are complying with government regulations.
The role of microfinance in developing countries is receiving much attention these days. Microfinance
is a positive development; it has clearly helped substantial numbers of poor people escape poverty,
and the Nobel Peace Prize awarded to Muhammad Yunus for his pioneering efforts in this area was
certainly well deserved. 6 However, microfinance is not a substitute for the institution building I am
talking about here.
Globalizing to advance institutional reform
Now that we understand what kinds of institutions are needed to promote financial development and
economic growth, let’s turn to the question of how developing countries can improve the likelihood that
these institutions are developed.
One of the most powerful weapons for stimulating institutional development is globalization. Wealth is
not something that can be attained by remaining closed off to the rest of the world. Poorer countries
would do better by embracing globalization – that is, opening their financial markets and their markets
for goods and services to other nations so that funds, goods, and, often, the ideas that accompany
them can flow in. Such inflows can help them achieve reforms that build productivity and wealth that
will benefit all their citizens. Of course, countries need to take care that the foundations of the
fundamental institutions discussed above are in place, and they must monitor the pace of reform.
Opening financial markets
Now let’s look at how opening financial markets to foreigners promotes financial development.
Globalizing the domestic financial system by opening financial markets to foreigners encourages
financial development and growth in wealth in two ways. First, opening financial markets to foreign
capital directly increases access to capital and lowers its cost for those with productive investments to
make. 7 We know that labor is cheap in poor countries, and so we might think that capital would be
especially productive there. Just think of how hugely profitable a factory might be in a country where
wages are one-tenth of those in the United States. Although some of that differential would likely
reflect the higher productivity of American workers, capital should, nevertheless, have extremely high
returns in such countries, and, in principle, we should expect substantial flows of capital from rich
countries (where the returns on capital should be relatively low) to poor countries (where they should
be far higher). Such capital flows could lead to substantial benefits for poor countries in the form of
larger capital stocks, higher productivity, and more rapidly growing incomes.
In fact, as we well know, at present capital flows are moving, on net, from poor countries to rich ones,
that is, in a direction opposite to the one we would expect. Many reasons have been proposed for this
apparent paradox, but one of them certainly is the weakness of financial systems in poor countries, as
described earlier. This point leads us to a second benefit of financial globalization: Opening markets to
foreign financial institutions promotes reforms to the financial system that improve its functioning.
Allowing foreign financial institutions to operate in an emerging-market country brings in expertise and
A survey of the literature that links a lack of sufficient prudential regulation and supporting institutions to excessive risktaking and the possibility of a subsequent banking crisis is in Demirguc-Kunt and Detragiache (2005). Dell’Ariccia and
Marquez (2006) also argue that under certain circumstances lending booms can make the banking system more unstable
and can lead to a higher probability of a banking crisis.
The literature on microfinance is vast. One thorough discussion is in Armendariz de Aghion and Morduch (2005).
When stock markets in emerging-market countries are opened to foreign capital, dividend yields fall, average stock prices
increase, and liquidity goes up. See Levine and Zervos (1998); Bekaert, Harvey, and Lumsdaine (2002); and Henry
BIS Review 41/2007
best practices, such as those designed to screen good from bad credit risks and to monitor borrower
activities to reduce the amount of risk they take. 8 Because of their familiarity with more-advanced
financial systems, foreign financial firms also are likely to increase the pressure on the domestic
government to institute reforms that will make the financial system work more effectively.
As domestic financial institutions start to lose business to better-run and more trustworthy foreign
institutions, they will realize the need for a better legal and accounting infrastructure that will make it
easier for them to make loans to new customers. Domestic financial institutions will then be far more
likely to advocate for and support the reforms that achieve this result.
Of course, this is not to say that in a genuinely corrupt and anticompetitive environment financial
globalization, by itself, can still engender an efficient, dynamic, and modern financial system. Recent
research has shown that when some countries opened up to international capital markets too soon in
the absence of some basic supporting conditions, vulnerabilities to sudden stops of capital flows
increased. Thus, some preconditions must exist with respect to a minimum level of institutional quality,
financial market development, and macroeconomic stability before financial globalization can further
improve financial market and institutional development. 9 That said, given these preconditions and
some constituency for progress and reform, financial globalization can be a powerful force in support
of such efforts.
Opening trade in goods
Next, let’s consider how opening domestic markets to foreign goods can promote the development of
Although not immediately obvious, opening domestic markets to foreign goods, known as “trade
liberalization,” can be a key driver of financial development. It can weaken the political power of
entrenched business interests that might otherwise block institutional reforms, a point that is
emphatically made by Rajan and Zingales (2004) in their book Saving Capitalism from the Capitalists.
Trade liberalization, which promotes a more competitive environment, will lower the revenue of
entrenched firms so that they will need greater access to external sources of capital. Thus, they will be
more likely to support reforms that promote a deeper and more efficient financial system. In fact,
research indicates that a deeper financial sector is positively associated with greater trade openness
(Rajan and Zingales, 2003; Svaleryd and Vlachos, 2002).
Free trade also promotes financial deepening by reducing corruption. High tariffs breed corruption
because importers have incentives to pay customs officials to look the other way when the importers
avoid tariffs by smuggling in goods. Not surprisingly, countries that restrict international trade are
found to be more corrupt (Ades and Di Tella, 1994).
Even when developing countries are unwilling to tear down all barriers to imports of foreign goods,
they can still generate incentives for institutional reform by removing obstacles that prevent domestic
producers from engaging in international trade. Facilitating production for overseas markets creates a
greater need for a well-functioning financial system because, to compete effectively in the international
arena, firms need better access to capital. If they can’t get capital, they won’t be able to make the
investments they need to increase productivity and price their goods competitively. Accordingly,
international trade creates a demand for reforms that will make the financial system more efficient.
The case of China
We are seeing how the globalization of trade is driving financial reform in China. As Chinese
enterprises increasingly enter international markets, they need a better financial system that can
ensure that the allocation of their high domestic savings is done efficiently and is responsive to market
developments. Although it has taken time, globalization is helping to generate the demand for an
improved financial system, which is driving the reform process.
This argument is made in World Bank (2001) and Goldberg (2004).
An excellent discussion of the literature on financial globalization using a unified conceptual framework is in Kose and others
(2006). Studies focusing more specifically on the necessary preconditions for, and the appropriate sequencing of, financial
reforms, macroeconomic policies, and institutional development, on the one hand, and capital account liberalization, on the
other, include Eichengreen (2001), Alfaro and others (2004), and Klein (2005).
BIS Review 41/2007
The Communist leadership recognizes that the old development model must change. The government
has announced that state-owned banks are being put on the path to be privatized and has allowed
foreign investment in China’s banking system