INTERNATIONAL/GLOBAL BUSINESS AND TRADE

MODULAR CONTENT AND SESSION GUIDES

List of Learning Materials

No. MODULE TITLE MODULE CODE

1. ECONOMIC GLOBALIZATION—Introduction and Status

2 GLOBAL KEYNESIANISM VS NEO-LIBERALIZATION

INTERNATIONAL/GLOBAL BUSINESS AND MARKET IBT 323-3
3
CHARACTERISTICS
4 CLASS DEBATE IBT 323-4
INTERNATIONAL/GLOBAL INVESTMENT FORMS AND IBT 323-5
5
COUNTRY INVESTMENT FACTORS
6 FOREIGN DIRECT INVESTMENTS OR FDIS IBT 323-6
7 ECONOMIC PROVISIONS OF PHILIPPINE CHARTER IBT 323-7
8 CLASS DEBATE IBT 323-8
IBT 323-9
9 MIDTERM EXAMINATION

10 EARLIEST INTERNATIONAL TRADING SYSTEMS IBT 323-10

11 INTERNATIONAL TRADE THEORIES (PART 1) IBT 323-11
12 INTERNATIONAL TRADE THEORIES (PART 2) IBT 323-12
13 REFLECTIVE ACTIVITY IBT 323-13
14 TARIFFS AND AVERAGE TARIFF METRICS IBT 323-14
INTERNATIONAL TRADE AGREEMENTS/ORGANIZATIONS, IBT 323-15
15 REGIONAL ECONOMIC INTEGRATION AND GLOBAL BANKING
SYSTEM
GATT/WTO’s, ASEAN/APEC/EU/NAFTA’s, and WB/IMF/ADB’s IBT 323-16
16
IMPACT On BUSINESS
17 ANALYTIC ACTIVITY IBT 323-17

18 FINAL EXAMINATION IBT 323-18

 Economic Globalization
and the 2 Global Economic
Worldview
 LEARNING MATERIAL CONTENT
COURSE TITLE : INTERNATIONAL BUSINESS AND TRADE
LEARNING MATERIAL TITLE : Economic Globalization/Global Economics: Intro and Status
Global Keynesianism vs. Neo-Liberalization: 2 Perspectives
NOMINAL DURATION : 3 Hrs. (No. of Hours per Topic)

(SPECIFIC) LEARNING OBJECTIVES:

At the end of this module you MUST be able to:
(Refer to Syllabus for Specific learning Objectives)
1. Introduce the concept of economic globalization and give an update on/status about
it
2. Identify the key features or explain the main arguments of Global Keynesianism by
John Maynard Keynes within the context of the Bretton Woods System and Neo-
Liberalization by Hayek and Friedman within the context of the Washington
Consensus

TOPIC/SUBTOPICS: Global Keynesianism or Bretton Woods System vs. Neo-Liberalization

or Washington Consensus

(Refer to Syllabus for Topics/Sub-Topics)

1. Features/arguments of Global Keynesianism
2. Features/arguments of Neo-Liberalization by Hayek and Friedman
 Information Sheet
IBT 323/1-2
International/Global Economic Systems:
Global Keynesianism vs. Neo-Liberalization

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
3. Introduce the concept of economic globalization and give an update on/status about it
4. Identify the key features or explain the main arguments of Global Keynesianism by John
Maynard Keynes within the context of the Bretton Woods System and Neo-
Liberalization by Hayek and Friedman within the context of the Washington Consensus

A. ECONOMIC GLOBALIZATION

Economic globalization is a historical process characterized by increasing integration of

economies around the world through the movement of goods, service, and capital across
national and regional borders—a product or byproduct of human innovation (people and
organizational or institutions) and technological progress (brought about by technologies).
Drastic economic changes is occurring throughout the world: the value of trade or trading of
goods and services as a percentage of world GDP has increased tremendously, the increase of
which (trade) also means that business investments, particularly foreign direct investments or
FDIs are moving and flowing all over the world in bigger amounts and at faster speeds. This also
translates in a parallel, dramatic increase in global trade in the span of just a few decades.

Aside from the sheer magnitude of trade and commerce, there was also an increased speed
and frequency of financial (stock) trading (and even money or foreign currency or forex
trading). (Even the products or items being traded are changing drastically—today, books can
be downloaded digitally read with an e-reader, and music albums consisting of 15 songs on
mp3 format that can be purchased and downloaded from iTunes.)

GLOBAL KEYNESIANISM OR BRETTON WOOD SYSTEM AND NEO-LIBERALIZATION OR

WASHINGTON CONSENSUM: TWO OPPOSING, GLOBAL ECONOMIC SCHOOLS OF THOUGHT,
WORLDVIEWS OR PERSPECTIVES

GLOBAL KEYNESIANISM AND THE BRETTON WOODS SYSTEM. The “Bretton Woods System,”
largely influenced by the ideas of British economist John Maynard Keynes, was inaugurated at
the beginning of the end of World War II in 1944 to create a global economic system that would
help ensure longer-lasting world peace and help prevent the political-economic catastrophes of
the early decades of the 20th century from recurring and affection international relationship
between nations.

Keynes believed that economic crisis only occur not when a country does not have enough
money (because a country has all the money it needs), but when money is not being spent and
thus not moving or circulating. When economies slow down, government have and can
reinvigorate markets with infusions of capital. The global economic system of “Global
Keynesianism” is basically anchored on governments’ supposed active role in managing
national spending (involving public funds coming from taxes).

Bretton Woods created the two largest international funding institutions: the International
Bank for Reconstruction and Development (IBRD, which was later renamed World Bank or WB)
tasked to fund post-World War II reconstruction projects (a critical institutional at a time when
many of the world’s major cities were destroyed by second world war; and the International
Monetary Fund or IMF to serve as a global lender-of-last-resort to help prevent individual
countries from spiraling into credit crises. (IMF would step in if economic growth in a country
slowed down because there was not enough money to stimulate a country’s economy.)

(Various countries also committed to further economic integration by agreeing to help reduce
tariffs and other hindrances to free trade through adoption of the General Agreement on Tariffs
and Trade or GATT in 1947.)

NEO-LIBERALIZATION OR NEO-LIBERALISM AND THE WASHINGTON CONSENSUS AND INITIAL

PROBLEMS. The high point of Global Keynesianism occurred when governments poured money
into their economies that allowed people to purchase more goods that increased in the process
not only demand for these products but also their prices. This rise in prices that is accompanied
by general economic growth and decreased unemployment was accepted by western and other
Asian countries (like Japan) as necessary tradeoff for economic development. The Keynesian
theory claims that price increases would be accompanied by increased business earnings, part
of which would be used to employ more workers.

The Keynesian orthodox thinking began facing challenges from a new form of global economic
thinking that subsequently ended of the Bretton system because of at least two major,
unpredicted international developments:
 The OPEC member-countries’ “Oil Embargo” in early 1970s, imposed in response to US
and other western countries interference in the middle eastern Yom Kapur War and as a
way also to stabilize the top oil-producing countries’ economic growth, caused sharp oil
price hike that severely afftected western countries heavily reliant on crude oil
 The 1973-1974 Stock Markets Crash that occurred when the US stopped linking the US
dollar to gold (from the ‘gold standard system’ to floating and, eventually, to the fiat
currencies, systems)

What unexpectedly occurred were cases of “stagflation,” an economic phenomenon

characterized by economic growth and employment decline (or stagnation) alongside sharp
prices increases (inflation).

Economist like Friedrich Hayek and Milton Friedman used the economic turmoil to challenge
the consensus around the Keynesian economic principles and pushed for a new form of
economic thinking that critics labelled “Neo-Liberalism or Neo-Liberalization,” a codified
strategy of the US Treasury Department, the WB, the IMF, and eventually the newly-formed
World Trade Organization or WTO founded in 1995 to continue tariff reduction under GATT.
Their new global economic policies came to be called the “Washington Consensus.”

Hayek and Friedmark raised two main arguments against Global Keynesianism:
 Government intervention in economies only distort the proper functioning of the
market
 Governments’ practice of pouring money into their economies caused inflation,
increasing the demand for goods without necessarily increasing the supply

Dominating global economic policies from the 1980s until the turn of the century in early 2000s,
the advocated of the Consensus pushed for the following basic national economic policies or
policy thrusts:
 Minimal government or public spending to reduce existing government debts
 Privatization of government-owned and -controlled public utility services like water,
electricity, communications and transportation, believing that facilitating free market or
laissez faire can produce better economic results
 Economic liberalization or opening up and tariff reduction as the quickest way to
economic progress

However, certain industries would be affected and eventually die via “shock therapy”
occurences apparently necessary and/or inevitable for long-term economic growth

Two main advocates of Neo-Liberalization are former US Pres. Ronald Reagan and UK PM
Margaret Thatcher, who both justified their government spending reduction by comparing
national economies to local households.

Critics, particularly Keynesians, took exceptions and considered with the government-
household analogy as inappropriate comparison. They argued towards or in support of two
major Keynesian economic arguments and claims:
 Government’s money printing mandate
 Government’s taxation power or constant taxation system that provides them steady
flow of income that enables them to pay and refinance debts steadily

Critics cited the Russian Post-Communism Scenario as proof of defects of Washington

consensus wherein the IMF calls for immediate privatization of government industries (a move
expected free said industries from corrupt bureaucrats and passed on to more dynamic and
independent private businessmen or investors) led only to certain individuals and groups who
had accumulated wealth under the previous communist order purchasing these industries
(further entrenching “oligarchy” still dominant in present-day Russian economy). This is also
proof that Neo-Liberalization’s “shock therapy” (predicted by the believers in perfectly free
markets) did not lead to ideal outcome.
PROBLEMATIC NEO-LIBERALIZATION IS COMPLICATED BY THE 2008-2009 GLOBAL FINANCIAL
CRISIS. The 2008-2009 Global Financial Crisis, the greatest international economic downturn
wince the post-World War I Great Depression, was the greatest rebuttal or repudiation of the
neo-liberalist advocates’ thinking and claims, traced and attributable to the US’s systematic
removal of various banking/financial and investment restrictions and later worsened by the
collapse of major US investment banks (such as Lehman Brothers) that depleted major
investments. The crisis spread beyond the US since many investors were foreign governments,
corporations and individuals. The loss of their money spread like wildfire back to their country
of origin, a series of interconnections leading to a global multiplier effect that sent ripples
across the world (particular in countries like Iceland, Spain, Greece, etc.

Ironically, the main proponents of Neo-Liberalism has managed to recover from the global
financial/economic crisis largely through the ‘Keynesian-style financial/economic stimulus
package’ that even former Pres. Barrack Obama pushed.

ECONOMIC GLOBALIZATION OR GLOBAL ECONOMICS: STATUS OR UPDATE

Closing national economies however will not resolve the continuing after-effects of the most
recent global financial crisis, and some form of international trade remains essential for
countries to develop. Exports help national economies grow. However, while it the advanced
nations such as the US, EU and Japan producing and selling industrial and agricultural products
who benefitted the most from free trade, developing countries like our country, India, China,
Argentina and Brazil has somewhat benefitted from opening up their economies to take
advantage of increased free trade (with advanced nations benefitting less. Economic and trade
globalization or liberalization has ushered the creation of the large Asian economies of Japan,
China, Korea, Hongkong and Singapore.

Nonetheless, economic/trade globalization/liberalization, even with the series of WTO trade

negotiations, has remained an uneven distribution process where some countries, corporations
and individuals benefitting more than others. The direct/indirect cause of such uneven
outcomes/results can be traced to at least two major triggers:

 Governments of developed countries such as the US and Japan are the ones who often
hold on to their protectionist economic and trade policies, making poorer countries
powerless to make economic and trade liberalization more just and fair [unjust
protectionism]
 …Even if it is the transnational corporations (TNCs) in these developed countries which
are more concerned with profits than assisting host government’s social program that
have benefitted the most from global trade and commerce [profit greed]

Thus, the net, final outcome or consequences of these conditions that continue to characterize
the economic and trade relations between developed and developing countries are:
 Trade imbalance in favor of developed countries—trade surplus in developed countries
and trade deficit in developing nations
 Degradation of national socio-economic development policies in developing countries,
including being forced to adopt the specific policies imposing: “lowering of labor
standards and worker’s welfare protection” via wage/salary ‘race to the bottom’
(intended to lure investors seeking high profit margins at the lowest possible cost); “tax
laws loosening” (to prevent wages/salaries from rising); and “environmental laws
loosening,” also to attract investors (that directly causes depletion of finite natural
resources and ultimately results in ecological imbalance)
 ASSESSMENT
IBT 323/1-2

Quiz 1 & 2 (10 items each)

Class Debate/Recitation Topic:
Global Keynesianism vs. Neo-Liberalization:
Which is one is more suitable during the present time? Which would be more appropriate for
the country?
Instruction:
Cluster into groups of 2-4
Prepare arguments for or against the two opposing global economic schools of thought that
should include the following basic arguments (then organized the group delivery of the
arguments along the following debate segments—introduction, rebuttal, and conclusion.

1. For Global Keynesianism:

a. Two developments that had temporary not permanent effect on the viability of
Global Keynesianism
b. Two counter-arguments against Neo-Liberalization critique of Global
Keynesianism
c. Natural sectoral interrelationship between government/state and
business/market (in relation to nonprofit, NGO civil society sector)
d. Others
2. For Neo-Liberalization:
a. Two main arguments against Global Keynesianism
b. Three preference national economic development policies of Neo-Liberalization
c. One development that had temporary probably not permanent effect on the
viability of Neo-Liberalization
d. Others
 RUBRICS: Class Debate/Recitation
IBT 323/1-2

1. Individual contribution 20%

2. Introduction/Conclusion 25%
3. Rebuttal 25%
4. Organized group effort 30%
====
100%
ASSESSMENT ACTIVITY

TASK SHEET #1: Class Debate/Recitation

Title: Conducting a Class Debate-Recitation

Performance Objective:
Given the basic discussion on the key features/main arguments of Global Keynesianism
and Neo-Liberalization, the class should be able conduct a debate on the merits of the
two global economic systems
Supplies/Materials : Notes, additional researched info, paper and ballpen

Equipment : Laptop or adequate mobile phone for online Class Debate

Steps/Procedure:
1. Cluster into groups of 2-4
2. Prepare arguments for or against the two opposing global economic schools of
thought that should include the following basic arguments
3. Organized the group delivery of the arguments along the following debate
segments—introduction, rebuttal, and conclusion.
Assessment Method: Recitation/Project