The Contemporary World Lesson 2 for 3

and 4 Weeks

The Global Economy

Bangladesh Garment Workers
The garment industry in Bangladesh makes clothes that
are then shipped out across the world. It employs as many as four million people,
but the average worker earns less in a month than a U.S.
worker earns in a day.

Not everything about globalization is

beneficial. Any change has winners
and losers, and the people living in
communities that had been dependent on jobs outsourced elsewhere
often
suffer. Effectively, this means that
workers in the developed world must
compete with lower-cost markets for
jobs; unions and workers may be
unable to defend against the threat of corporations that offer the
alternative
between lower pay or losing jobs to a supplier in a less-expensive labor
market.
The situation is more complex in the developing world, where
economies are undergoing rapid change. Indeed, the working
conditions of people at some points in the supply chain are deplorable.
The garment industry in
Bangladesh, for instance, employs an
estimated four million people, but the
average worker earns less in a month than a U.S. worker earns in a day.
In 2013, a
textile factory building collapsed, killing more than 1,100 workers.
Studies also suggest that globalization may
contribute to income disparity and inequality
between the more-educated and
less-educated members of a society.
This means that unskilled workers may be
affected by declining wages, which are
under constant pressure from globalization.
 Economic Systems

Have you seen these symbols before? What do these symbols represent?

Capitalist Economies
Historically, these societies leverage market forces, such as supply and
demand, with a strong motivation to
earn a profit, to shape their economic models.

Socialist Economies
Basically, socialism is defined as an
economic model where all citizens
in a country, region or community
each own the factors of production
equally. Typically, equal economic
outcomes are generated after
the election of a democratically
chosen government

Communist Economies
Communism is an economic model where the collective, governed by a
centralized
government, owns any and all properties
located in the collective. Communism is
modeled upon a classless society, where the work of the citizenry - the
fruits of their labor - are taken by the government and distributed
throughout the populace based on need.

Traditional Economy
This economy relies on tradition and culture to choose what goods and
services will be produced, how those goods and services
will be produced, and how those goods and services will be distributed
throughout the
populace.

Economic Globalization And Its

Consequences
Economic globalization, broadly understood, is the growing global
integration not only of markets but also of systems of finance,
commerce, communication, technology, and law that bypass traditional
national, cultural, ethnic, and social boundaries.

Proponents of economic globalization argue that it leads to more

efficient division of labor, greater specialization, increased productivity,
higher standards of living and wealth, and
ultimately the end of poverty. Proponents
also argue that recent economic growth has greatly contributed to the
high standard of
living enjoyed by many within the developed world and raised living
standards of many
people formerly living in abject poverty. Many others have not made
such gains.
Opponents argue that economic globalization
detaches markets from essential regulations
meant to protect national sovereignty, the
democratic process, human rights, labor rights, and the environment.
Opponents also argue
that the policies and practices of industrialized countries and
transnational corporations drive
the market forces of economic globalization.
There is no effective global regulatory system
controlling economic globalization.

The rules governing economic globalization

have been created through trade agreements, international law, and
institutions dominated
by industrialized countries. These rules favor
those with access to capital, legitimizing
measures such as dropping tariffs, eliminating
capital controls, enforcing intellectual property rights, privatizing public
services, and
weakening regulations that protect labor,
health and safety, and the environment.

Economic globalization is increasingly perceived by the rest of the world

as American economic
imperialism. Many Americans, accustomed to an individualistic and
competitive culture, are
insensitive to the realities of abject poverty,
cultural erosion, and environmental degradation.
As a result, systematic exploitation of labor and
the environment goes unnoticed as do coercive monopolistic pricing of
goods and services,
criminal evasion of local legal controls, growing debt among developing
countries, widening
economic disparities, and devastation of
traditional cultures.

Three Phases of Globalization

The Early Voyages of Exploration & Colonization
Phase one begins in 1492, with
the voyage of Christopher Columbus to the new world, and continues
with later European voyages of
exploration that eventually made
possible the formation of Europe’s
colonial empires.

1492 – mid 19th century

 The Age of Transnational Integration
Western world experienced a
dramatic intensification of inter-national connectivity due to four
advancing technologies–trains, steamships, the telegraph, and
the postal system.

1830’s - 1914

The Modern Age of Globalization

The third phase of globalization that began in 1945 was made possible
by the long
economic expansion that followed the end of the Second World War.
New global
economic reforms agreed upon by the
United States and its wartime allies in 1944 provided a new framework
for international commerce and finance.

1945 - present
 Integration of Economies
What is economic integration?
Economic integration, the process in which two or more
states in a broadly defined geographic area reduce a range
of trade barriers to advance or protect a set of economic goals.

What are the benefits of trade?

 Trade increases competition and lowers world prices.
 Trade also breaks down domestic monopolies.
 Trade will also encourage the transfer of technology between
countries.
 Trade is also likely to increase employment, given that
employment is closely related to production.

What are the downsides of trade?

 Trade can lead to over-specialization, with workers at risk of
losing their jobs should world demand fall or when goods for
domestic consumption can be produced more cheaply abroad.
 Certain industries do not get a chance to grow because they face
competition from more established foreign firms, such as new
infant industries which may find it difficult to establish
themselves.
 Local producers, who may supply a unique product tailored to
meet the needs of the domestic market, may suffer because
cheaper imports may destroy their market.
 Multinational VS. Transnational
Multinational Companies
operate in more than one country and have a centralized manage-ment
system.

Operations:
Own a home company and its
subsidiaries

Local Response:
Since multinational companies
have a centralized management system, there will be some
barriers in decision making

Examples:
Microsoft
Apple
Adidas

Transnational Companies
have many companies around the world but do not have a centralized
management system.

Operations:
Do not have subsidiaries but
just many companies

Local Response:
They are able to gain more
interest in the local markets
where they maintain their own systems
Examples:
Nestlé
Unilever
Cadbury-Schweppes

Protectionism and Trade

Liberalization
Protectionism
 Means by which trade between countries is restricted in some
way – normally through measures to reduce the number of
imports coming into a country.
 Main means are:
o Tariffs
o Quotas
o Non-Tariff Barriers
 Tariff: A tax on goods coming into a country
 Increases the price of the good and makes it less competitive
 Quota: Physical restriction on the number of goods coming into a
country

Non-Tariff Barriers
Any methods not covered by a tariff,
most usually:
 Rules
 Regulations
 Voluntary Export Restraints (VERs)
 Legislation
 Exacting Standards or Specifications
 Examples include setting exacting standards on fuel emissions
from cars, the documentation required to be able to sell drugs in
different countries, the ingredients in products – some of which
may be banned in the destination country
 NTBs are difficult to prove – when do you accuse a country of
protectionism –
could be a legal or cultural issue?
 The main method involved in NTBs is not
to prevent trade but to make the cost of doing so prohibitive to
the potential exporter

Reasons for Protectionism

 Protect domestic industries
 Protect domestic employment
 Strategic reasons
 Political pressures
 Protect culture
 Prevent ‘Dumping’ – selling goods
in the destination country below cost
to break into that market

Trade Liberalization
 Aims to free up world trade and break down the barriers
to international trade
 Basic philosophy rests on the principle of comparative advantage
 Talks to achieve trade liberalization have been ongoing for many
years
 GATT – General Agreement on Tariffs and Trade
 First signed in 1947 –
talks on-going since then!
 Uruguay Round 1994 – set up the World Trade Organisation
(WTO) as well as agreements covering a range of trade
liberalization measures
 WTO provides the forum through which trade issues can be
negotiated and works to help implement and police trade
agreements

Potential benefits:
 Promotes international specialization
and increases world output
 Promotes efficient use and allocation
of world resources
 Allows developing countries access to the heavily protected
markets of the developed world thus helping promote
development
 Facilitates the working of the international market system and
the working of price signals to ensure efficient allocation of
resources, international competition
and the associated benefits to all
 Institutions of Globalization

With 189 member countries, staff from more than 170 countries, and
offices in over 130 locations, the World Bank Group is a unique global
partnership: five institutions working for sustainable solutions that
reduce poverty and build shared prosperity in developing countries.

The World Bank Group has set two goals for the world to achieve by
2030:
 End extreme poverty by decreasing the percentage of people
living on less than $1.90 a day to no more than 3%
 Promote shared prosperity by fostering the income growth of the
bottom 40% for every country

Established in 1944, the World Bank Group

is headquartered in Washington, D.C. They
have more than 10,000 employees in more
than 120 offices worldwide.
“The World Bank is a vital source of financial and technical assistance to
developing countries around the world. We are not a bank in the
ordinary sense but a unique partnership to reduce poverty and support
development.”

The World Trade Organization (WTO) is the only global international

organization dealing with the rules of trade between nations. At its
heart are the WTO agreements, negotiated and signed by the bulk of
the world’s trading nations and ratified in their parliaments. The goal is
to ensure that trade flows as smoothly, predictably and freely as
possible.

What is the World Trade Organization?

The WTO has many roles: it operates a global system of trade rules, it
acts as a forum for negotiating trade agreements, it settles trade
disputes between its members and it supports the needs of developing
countries.

All major decisions are made by the WTO's member governments:

either by ministers (who usually meet at least every two years) or by
their
ambassadors or delegates (who meet regularly in Geneva).
 The International Monetary Fund, or IMF, promotes international
financial stability and monetary cooperation. It also facilitates
international trade, promotes employment and sustainable economic
gro, and helps to reduce global poverty. The IMF is governed by and
accountable to its 189 member countries wth.

Founding and mission: The IMF was conceived in July 1944 at the
United Nations Bretton Woods Conference in New Hampshire, United
States. The 44 countries in attendance sought to build a framework for
international economic cooperation and avoid repeating the
competitive currency devaluations that contributed to the Great
Depression of the 1930s. The IMF's primary mission is to ensure the
stability of the international monetary system—the system of exchange
rates and international payments that enables countries and their
citizens to transact with each other.
 Sustainability and Sustainable Development
Sustainability refers to the degree to which the Earth can provide
resources for human needs.

Sustainable Development is specifically

developing the world in a way where the needs of the present
generation is met while preserving resources for future generations

“Race to the Bottom”

This phrase describes 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.

End Note
International economic integration is a central tenet of glo-balization–
but, as a reminder, economics is just one window into the phenomenon
of globalization. Nevertheless, much of globalization is anchored on
changes in the economy.

Activity 1
Write what is being asked.
1. What are the two market forces utilized and manipulated in a
capitalist economy?
2. Which economic system is modelled on a classless society?
3. Which economic system relies on customs and culture to produce
goods?
4. The phenomenon of globalization could be traced back into three
phases, what are the phases of globalization?
5.
 6.
7. What do we call the tax laid on goods entering the country?
8. What does GATT mean?
9. What is the act of buying labor and services from another country
or location instead of using a company’s own called?
10. At present, how many countries are members of The World
Bank?

Activity 2
Answer the following questions:

1. How is globalization affecting the economics of the world in the

time of COVID-19?
2. How is economic globalization affecting the Philippines at
present?
3. Enumerate the economic systems of the world and in your own
words, explain each.
4. Write and explain the three phases of globalization.
5. In your opinion, which economic system would be best suited to
the needs of the Filipinos at present?

Activity 3
Compare and contrast MNCs and TNCs.

Reflection
Is the phrase “Race to the Bottom” becoming a reality for the
Philippines? Explain your answer.
 References
National Geographic Society. (2019, Dec. 23). Effects of economic
globalization. Retrieved from:
https://www.nationalgeographic.org/article/effects-economic-
globalization/9th-grade/

O’Connell, B. (2018, Oct. 29). Traditional economy: definition,

characteristics and examples. Retrieved from:
https://www.thestreet.com/markets/what-is-traditional-economy-
14759652

Amadeo, K. (2020, Apr. 06). Traditional economy with its characteristics,

pros, cons, and examples. Retrieved from:
https://www.thebalance.com/traditional-economy-definition-examples-
pros-cons-3305587

Economic globalization 2003 statement of conscience. (n.d.) Retrieved

from:

https://www.uua.org/action/statements/economic-globalization