Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang

 THE GLOBAL ECONOMY

Economic Globalization

 Economic globalization is driven by the "growing scale of cross -border trade of

commodities and services" (Shangquan, 2000:1). Critical to economic globalization is
global economic integration.

 Economic integration means that separate production operations are functionally

related to each other and form a unified product or service. This requires efficient
management of economic operations from different areas in the world. In current
times, this is made possible by innovations in transport logistics, modernization of
communication and transport systems, policies supporting integration of different
process along the globe, among others.

 Economic globalization focus on increasing economic trade interrelations among

countries (Steger, 2010; Al-Rodhan, et al., 2006; Shangquan, 2000). This is governed by
neoliberal principles with the role of the market as a central driver of economic
activities, with less government interventions (Martin, Schumann & Camiller, 1997).

 Economic globalization entails global industrial restructuring and readjustments were

developed countries play a dominant role (Shangquan, 2000:3).

 Gills and Thompson (2006: 1) argues that the globalization processes "have been
ongoing ever since Homo sapiens began migrating from the African continent
ultimately to populate the rest of the world." Explorations in earlier times tend to
focus on a relatively smaller target of commodities of high value like spices, tea,
gold, or other precious metals. The difference now is the extent and reach of
economic globalization, restructuring of economic systems, and the dominant
influence of the private sector in the global economy (Shangquan, 2000).

Actors that Facilitate Economic Globalization

1) International Economic Organizations
These organizations are critical in developing and pushing for neoliberal policies among
different countries. They also help facilitate trade and development discussions among various states.

Examples: International Monetary Fund(IMF), World Bank, and Organization for Economic
Cooperation and Development (OECD)

Regional organizations promote regional agreements and standards that facilitate better trade
and exchange of knowledge, human resources, and regional cooperation.

Examples: Association of Southeast Asian Nations (ASEAN) and North American Free Trade
Agreement (NAFTA)

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 2) Multinational Companies (Mncs)
The main carriers of economic globalization (Shangquan, 2000:2). In 2006, there were 88,000
MNCs identified (UNCTAD, 2007). MNCs started to emerge during World War II when US industrial
production increased by 44 percent. Trade companies such as the Dutch and British East India,
Muscovy Company, Royal African Company, and Hudson Bay Company were precursors of the
modern day MNCs (Hirst & Thompson, 2002)

3) Central Banks
They are considered one of the most powerful institutions in the world economy since
they can lead economic development, and some authors contend that central bank governors
are more influential in their own national economy than some politicians.

4) Global Civil Society

The major driver of economic globalization. The global civil society has made its mark in
global development arena particularly during the UN Conference on Environment and
Development in 1992.
Global civil society seen as either composed of individuals or groups of individuals
disadvantaged by the effects of the globalization of the world economy, they protest and seek
alternatives while on the other hand, global social movement constituting a basis for an
alternative to a new world order

Specifications:

International Monetary Fund Global Civil Society International Financial institutions

(IMF) (IFIs)
Either composed of
An international organization individuals or groups of Financial institutions operating on
of 183 member countries to individuals disadvantaged an international level, ranging
promote international by the effects of the from development banks and
cooperation and exchange globalization of the world monetary authorities. They give
stability; to foster economic economy, they protest and loans to governments for large-
growth and high seek alternatives while on scale projects, restructuring and
employment; and to provide the other hand, global balance of payments on
short-term financial assistance social movement condition that they make
to countries to help ease constituting a basis for an specific changes that IFIs believe
balance of payments alternative to a new world will boost economic growth.
adjustments (IMF, 2019) order

Transnational Corporations G8 and G20

Enterprise that engages in
activities which add value
(manufacturing, extraction,
services, marketing, etc.) in
more than one country
Group of nations that serve as
an advisory organization that
discuss current economic and
political problems and transfer
the ideas from the forum in
national legislative regulations

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 INTERNATIONAL TRADING SYSTEMS

 The oldest known international trade route was the Silk Road-a network of pathways in the
ancient world that spanned from China to what is now the Middle East and to Europe.
It was called as such because one of the most profitable products traded through this
network was silk, which was highly prized especially in the area that is now in the Middle
East as well as in the West (today's Europe). Traders used the Silk Road regularly from 130
BCE when the Chinese Han dynasty opened trade to the West until 1453 BCE when the
Ottoman Empire closed it.

 Flynn and Giraldez trace to 1571, with the establishment of the galleon trade that
connected Manila in the Philippines and Acapulco in Mexico. This was the first time that
the Americas were directly connected to Asian trading routes. For Filipinos, it is crucial to
note that economic globalization began on the country's shores.
 The galleon trade was part of the age of mercantilism. From the 16th century to the 18th
century, countries, primarily in Europe, competed with one another to sell more goods as
a means to boost their country's income (called monetary reserves later on). To defend
their products from competitors who sold goods more cheaply, these regimes (mainly
monarchies) imposed high tariffs, forbade colonies to trade with other nations, restricted
trade routes, and subsidized its exports. Mercantilism was thus also a system of global trade
with multiple restrictions.

 In 1867, he United States and other European nations adopted the gold standard at an
international monetary conference in Paris. Broadly, its goal was to create a common
system that would allow for more efficient trade and prevent the isolationism of the
mercantilist era. The countries thus established a common basis for currency prices and a
fixed exchange rate system-all based on the value of gold.

 Returning to a pure standard became more difficult as the global economic crisis called
the Great Depression started during the 1920s and extended up to the 1930s, further
emptying government coffers. This depression was the worst and longest recession ever
experienced by the Western world. Some economists argued that it was largely caused by
the gold standard, since it limited the amount of circulating money and, therefore,
reduced demand and consumption. If governments could only spend money that was
equivalent to gold, its capacity to print money and increase the money supply was
severely curtailed.

 Though more indirect versions of the gold standard were used until as late as the 1970s, the
world never returned to the gold standard of the early 20th century. Today, the world
economy operates based on what are called fiat currencies-currencies that are not
backed by precious metals and whose value is determined by their cost relative to other
currencies. This system allows governments to freely and actively manage their economies
by increasing or decreasing the amount of money in circulation as they see fit.

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 ECONOMIC GLOBALIZATION TODAY

 The global financial crisis will take decades to resolve. The solutions proposed by certain
nationalist and leftist groups of closing national economies to world trade, however, will no
longer work. The world has become too integrated.

 Exports, not just the local selling of goods and services, make national economies grow at
present. In the past, those that benefited the most from free trade were the advanced
nations that were producing and selling industrial and agricultural goods.

 By 2011, developing countries like the Philippines, India, China, Argentina, and Brazil
accounted for 51 percent of global exports while the share of advanced nations including
the United States-had gone down to 45 percent.

 Economic globalization remains, an uneven process, with some countries, corporations,

and individuals benefiting a lot more than others.

 First developed countries are often protectionists as they repeatedly refuse to lift policies
that safeguard their primary products that could otherwise be overwhelmed by imports
from the developing world. The best example of this double standard is Japan’s
determined refusal to allow rice imports into the country to protect its farming sector.
japaJapan's justification is that rice is sacred." Ultimately, it is its economic muscle as the
third largest economy that allows it to resist pressures to open its agricultural sector.

 Poorer countries can do very little to make economic globalization more just. Trade
imbalances, therefore, characterize economic relations between developed and
developing countries

 The term "race to the bottom" refers to countries' lowering their labor standards, including
the protection of workers' interests, to lure in foreign investors seeking high profit margins at
the lowest cost possible. Governments weaken environmental laws to attract investors,
creating fatal consequences on their ecological balance and depleting them of their finite
resources (like oil, coal, and minerals).

WAVES OF ECONOMIC GLOBALIZATION

The
The Neo-
Keynesian
Early Wave Liberal
Liberal
Wave
Wave

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 EARLY WAVE
 Boudreaux (2008) aptly described the primary reason people engage in trade so that “each party
expects to be made better off by that trade.”

 Through trade the exchange is not limited merely to goods and services there is also more
important and that is ideas and knowledge. This trade did not only transpire from its close neighbors
but encompasses for thousands of miles.

 Famous of which that lasted for 2,000 years, from ancient times into the 16th century was known as
the Silk Road. The coverage of this trade was so vast connecting by land and sea from Asia to the
far end of Europe, Middle East, as well as Africa.

 During this period traded goods, silk, spices, ceramics, textile, compasses, gun powder from India
and China (Frank, 1998). By middle ages, trade increased and expanded due to more treaties
signed by nations for a safe passage and secure trade.

 However, This growing trade was hampered becausee the feudal economic system was self-
sustaining. Manorial structure promoted economic self sustenance by producing their own needs
thereby negating any chances 4th raid outside the Manor.

 When feudal system weekend and capitalism increased, this gave an impetus to spur economic
globalization.

 The age of exploration, from early 15th to 17th century was the pivotal era that “changed the shape
of the world in the course of history” (Roberts, 1992). European made an unprecedented level of
exploration because of the growing numbers of professional explorer and navigators. European
ships traveled around the world in search for trading routes and new lands to colonize.

THE KEYNESIAN LIBERAL WAVE

 In anticipation of the inevitable end of the Second World war, 44 countries headed by the United
States of America in Great Britain gathered in Bretton Woods, New England to frame new
international economic policies that will regulate trade and financial agreement.

 Economic setbacks in the Inter war years from 1918- 1938 such as The Great Depression in 1929
and 1930s motivated political and financial leaders to set the institutional foundations for the
establishment of three international economic organizations.

 The International Monetary Fund was established to administer responsibility to coordinate and
regulate International Monetary transaction as well as to promote global economic prosperity
and political stability.

 The international bank for reconstruction and development became known as World Bank,
primarily designed for the Marshall Plan to extend financial loans to reconstruct the devastated
economies in Europe. By 1950s Loans were expanded to the developing countries in the world to
provide funds to finance various industrial projects (Steger, 2002).

 The General Agreement on Tariffs and Trade what's established in 1947 charged in grafting in
policing multilateral trade agreements. Then it became World Trade Organization in 1995. Since
the 1990s WTO became the subject of great controversy over the policies imposed that have
made more developing countries worse off. The Bretton Woods goals and strategies we're
macroeconomic stability import substitution on governance reform.

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 Other concepts under the Keynesian liberal wave:

Macroeconomic Stability

The term "Macroeconomic Stability" describes a national economy that has minimized vulnerability
to external shocks, which in turn increases its prospects for sustained growth. To maintain macroeconomic
stability, the US dollar was the only international standard currency of choice peg at $35 for ounce of gold.

Each country set a value for its currency and pledged to maintain the value within a range of
variations to eliminate extreme volatility. The IMF was expected to maintain an equilibrium functioning of
the gold standard that if a certain country get short of its balance of payments financial assistance is
provided.

The Asian Financial Crisis of 1997

The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast
Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
By the last quarter of 1997 the entire region was into crisis and escalated to other parts of the world.

The 1997 Asian financial crisis threatening the entire world was the worst such crisis since 1973 OPEC
price hike.

Import Substitution

Domestic industries were built in the 50s and 60s to replace imported products and promote domestic
industrial development and eventually achieve industrialization. This will move people from primary industry
into manufacturing and better jobs.

Improvement of jobs creates substantial demand for goods and services. Some developing nations
recovered rapid growth , such as Brazil, Mexico, Argentina, and some in Africa and Middle East.

Governance Reform
Article IV of the Bretton Woods agreement stipulates “members”
exchange rate policies, avoid pursuing policies that are designed to either interfere with the adjustment
process or gain an unfair competitive advantage over other members

THE NEOLIBERAL WAVE

 After the dissolution of the Bretton Woods a new set of policies were introduced: neoliberalism
and the Washington consensus. Neoliberalism economic policies were grounded under the
laissez-faire principal that market is the fundamental dominant decision maker. Joseph Stiglitz
aptly described neoliberal doctrine is more on freedom from the government in terms of
taxation, freedom from Regulation

 At term Washington consensus was named after the key players in Washington headed by
President Ronald Reagan of US and Prime Minister Margaret Thatcher of England. Washington
consensus as defined by John Williamson, president of World Bank in the 1970s, required
governments to implement the following structural adjustments in order to qualify for loans

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang
 THE NEOLIBERAL WAVE
Specifically, the following happened in this wave:
1. A guarantee of fiscal discipline, and a curb to budget deficits;
2. a reduction of public expenditures , particularly in the military and public administration;
3. tax reform, aiming at the creation of a system with a broad base and would effective
enforcement;
4. financial liberalization, with interest rates determined by the market;
5. competitive exchange rates, to assist export led growth;
6. Trade liberalization, coupled with the abolition of import licensing and a reduction of tariffs;
7. Promotion of foreign direct investment;
8. privatization of state enterprises, leading to efficient management and improved
performance;
9. deregulation of the economy; and
10. production of property rights.

The following concepts under Neoliberal wave:

The Power of Transnational Corporation

International companies are importers in exporters, typically without investment outside of their home
country. Multinational companies have investments in other countries, but do not have coordinated
product offerings in each country. They are more focused on adopting their products and services to each
individual local market.

Global companies have invested in and are present in many countries. They typically market their
products and services to each individual local market. Transnational companies are more complex
organizations which have a central Corporation facility but give decision making, research and
development and marketing powers to each individual foreign markets

Th

There are three fundamental innovations that have substantially changed the
character of global Corporation. First was the advent and impact of digitalization
in instantaneous global communication. Second, the structural transformation of
global Commerce from producer driven commodity chains to buyer driven. Third,
the increasing role performed through the global system by financial elements
an emergence of the global financial firm.

Course Code: GE 107

Descriptive Title: Contemporary World Instructor: Frances Deanna U. Rabang