The Institutionalism

C. The Institutionalism

Historically, the exports of many developing countries followed the pattern of comparative advantage established during the era of colonization, producing and exporting basic commodities such as fruits, tea, coffee, sugar, rubber, and minerals. But by the middle of the twentieth century, new industrial economies became increasingly concerned that the terms of trade were turning against the influences of western countries.

Turning to the competition issue, competitiveness advantage plays pivotal roles through combining supply chain and business environment. Moreover, theory of supply chain experiences dramatic evolution. In the 1980s, supply chain focused on the demands of just-in-

time. In the ’90s, outsourcing mattered most. In the ’00s, it was the Internet. Following that, the nagging question is what will shape supply chain in the new decade. On the other hand,

business environment also dramatically changes. In 1960s, the Green Revolution had transformed from developed countries to the least developing countries by introducing new high-yield-variety strains, fertilizers, and intensive cultivation techniques. But in some respects the Green Revolution actually worked against commodity-exporting LDCs: Higher worldwide agricultural output led to lower commodity prices, further deteriorating terms of trade against the developing countries, a phenomenon labeled as “immiserizing growth” (Jagdish Bhagwati, 1958). This theory suggests that the unchanged structure of supply intensifies the structural dependency and, regardless of growth, there is no development but only 'immiserizing growth.' This situation is especially pertinent for countries with agrarian monoculture. As a consequence, the theory later asked for a speedy industrialization including heavy industry for larger countries (Krugman 2003).

Only recently before, the Organization of Petroleum Exporting Countries (OPEC) had succeeded in quadrupling the price of oil from about $3 per barrel in 1972 to about $12 per barrel in 1974, creating a class of high-income Arab countries virtually overnight. Recently, the oil price is rocketing to more than $100 per barrel and noted as the most dramatic change. The cartel strategy triggers other commodities such as coffee and foods. But the problem with cartels is that the more successful they are at jacking up prices (and profits to their members), the more apt they are to implode (Wydick, 2008).

Instead of abandoning globalization, the mainstream international theory encourages to run up against the globalization problem on account of institutional problem. That focuses on economic players namely government, producers, and consumers which is associated with three bottom line issues (government, business entities, and society). Part of the problem lies with the international economic institutions, with the IMF, World Bank, and WTO which help set the rules of the game. The global protests over globalization against the WTO meetings because it was the most obvious symbol of global inequities and the hypocrisy of the advanced industrial countries. While those countries have forced the opening of the market in the developing countries to the industrial countries, they manage to keep their market closed to the products of the developing countries, such as textile and agriculture (Stiglitz; 2002).

The modern international trade theory runs up against political economy of international trade. Property rights, judicial systems, bureaucracies, police, commercial law, and even international bodies such as the World Trade Organization are other examples of institutions that foster cooperation and mutually beneficial exchange on a widespread level. What remains common to all of these institutions is that their broad-based support and their perceived legitimacy are keys to their success. Ansari (2007) said that if all WTO member states have the political will to agree to one suggestion, the problem can be solved but due to politicization of the WTO, a common view is difficult to be reached. Though all states want protection of the environment, bet when they come to a conflict situation with international trade, differences among them becomes eminent.

Warburton (2010) points out that there is a significant difference in the margin of import tariff hat are applied to imports by the high income and the least developed member and marginal propensity to import is significantly dependent on output for the high-income members but not for the least developed members. This indicates that creating enabling condition for tariff reduction is not enough; the international trade law should aim to increase national earning capacity.

Gstohl (2010) shows that legalization is strong for intellectual property rights, moderate for public health and environmental matters and weak for labor issues. Based on China case study, Sato (2010) questions whether intellectual property rights could have applied the general principle of necessity developed under the General Agreement on Tariffs and Trade and General Agreement of Trade in Services.

As the industrial organization approach to international trade, the oligopoly models had developed while a branch known as strategic trade policy. The literature produced inevitably assumed single-plant nationally owned firms, despite the fact that industries used to motivate the analysis were often dominated by multinationals (Markunsen, 2002).