MODULE 02: Economic Globalization

The Contemporary World (CW)

BS Medical Technology | PROF. Brian Roy Sunga | A.Y. 2022 - 2023 - 1

ECONOMIC GLOBALIZATION
→ refers to the growing interdependence of the world
economies manifested by the ever-increasing flows of
capital, technologies, and communication through a
common economic system (Shangquan, 2000; Steger et
al., 2014).
→ IMF further explains that Economic Globalization is
known for the movement of goods, people (pertains to the
workforce), and knowledge (specifically in technology).
This movement helps global market growth at an
unprecedented rate.

ECONOMIC SYSTEM o As more and more countries are involved and

→ is an established order of one’s economy on how the way participating in the global market, free trade and
things are regarded and treated. economic liberalization are at the forefront of different
state policies and major players in state economic
An economic system addresses the 3 BASIC ECONOMIC treaties or Free Trade Agreements (FTAs).
QUESTIONS: o These FTAs bind countries to impose imports and
1) What will be produced? export duties for purposes of mitigating or reducing
2) How will it be produced? trade barriers like tariffs.
3) Who will get what is produced? → Thus, it is with utmost importance to understand what and
why Free Trade and Economic Liberalism became the
The INTERNATIONAL MONETARY FUND OR IMF (2008) widely used economic policy and philosophies.
attributed the integration of the global economy to a
historical process as the result of the following;
1) HUMAN INNOVATION
→ refers to the higher productivity of people as it
produces goods, services, and capital, making it
available in all parts of the world;
2) TECHNOLOGICAL PROGRESS
→ refers to the innovative methods of producing
goods and services more efficiently.

INDUSTRIAL REVOLUTION
• Human innovation and technological progress can be
seen in human history. One of the major manifestations LIBERALISM
of this development was the period of the 1ST Industrial
→ a political and social philosophy that promotes individual
Revolution of the 18th century to the 4TH Industrial
rights, civil liberties, democracy, and free enterprise.
Revolution (Industry 4.0) we are now experiencing.
• Basic examples of today’s FOURTH INDUSTRIAL
FREE TRADE
REVOLUTION (FIRE) are the automation in vehicles
such as Tesla cars and the Artificial Intelligence (AI) → is a policy by which a government does not discriminate
embedded in a number of applications like the Plagiarism against imports or interfere with exports by applying
checker or text similarity detection such as Turnitin. tariffs (to imports) or subsidies (to exports).

o The expansion of the global market is felt by all types
of economies, whether in a capitalist or socialist society
(IMF, 2005). The major far-left countries, for example,
like China and Russia, are now engaged in a free
market economy.
o The infographic below shows how these two countries are
leaning towards market capitalism where low or less
government regulation, less tariff, privatization, and
foreign ownership are increasingly observed.
ADAM SMITH
→ the father of economics, emphasizes that countries
must free up their citizens to produce and buy goods as
they pleased, both in domestic and foreign markets, at a
cheaper rate than what they can provide at home-country.
→ Smith in his 1776 book THE WEALTH OF NATIONS,
explained that "It is the maxim of every prudent master of
a family never to attempt to make at home what it will cost
him more to make than to buy. The tailor does not attempt
to make his own shoes, but buys them of the shoemaker.
The shoemaker does not attempt to make his own
clothes, but employs a tailor".
DAVID RICARDO (1821 – 2001)
→ For a British political economist who further
expounded Smith's principle and introduced the
comparative advantage concept, emphasizes that the
countries should do what they do better while also giving
up the least (Opportunity cost).
→ He posits the idea of focusing on the core competencies
(specializations) which provide countries with a
comparative advantage.

LAZO, K.I., BSMT-2-B 1

 MODULE 02: ECONOMIC GLOBALIZATION
ECONOMIC LIBERALISM
• In politics, FREE TRADE was justified through the
philosophy of Economic liberalism.
• Proponents of economic liberalism believe that there
should be less government intervention in Trade, lower
taxes, and privatization of government-owned utilities and
financial institutions to better off the world's economy.
• This philosophy was heavily lifted from the theory of
Classical liberalism (Zafirovski, 2007).
CLASSICAL LIBERALISM
→ In a nutshell, the CLASSICAL LIBERALISTS subscribed
to the idea of free will and limited to "no" government
intervention to achieve the economic prosperity of
human beings.
→ But critics of this philosophy commonly argued that
classical Liberalism, in practice, made ordinary people
and their environment exposed to exploitation and
abuses.
→ Individuals who own the means of production like the
capitalists (the business class) or the owners of large
corporations can make more workers suffer in longer
hours of work and lower wages.
• For instance, the concept of a free market in the
classical liberalist perspective where the exchanges
must be based on mere voluntary acts between or
among the parties involved (consumers and producers)
without a robust government mechanism in place can
result in unfair trade practices. There are specific
markets that could maximize their revenues by haggling
down the supplier's prices while charging their consumers
at a higher cost.
• FOR EXAMPLE, Spotify, a music streaming provider,
charges their U.S. Premium subscribers between $4.99
to $9.99 per month, at the same time, paying their music
artists (suppliers) an average of $0.0032 per stream in
June 2019 (Blum, 2020). So, if you played your favorite
TikTok song on Spotify hundred times, the artist will get
approximately US$0.32 or Php16.00 only. The PHP
16.00 will further split up to the producers, artists, and
songwriters, among others. Although there is some
competition, large companies can dominate specific
industries where they can dictate unfair terms to the
suppliers. It is the reason why some groups called for a
Federal standard rate or government intervention on
these digital services to protect the artists.
• Now, imagine if we have the same scenario in all aspects
of our society from education to banking institutions
without an apparent involvement of our government
institutions that would regulate and hold those
organizations directly accountable. Many of these
institutions will leave people with no option but to accept
these greedy terms of companies without immediate
consequences (and yes, it could be worse than the
services we received from our internet providers in the
country). Hence, critics of these liberalist ideals resulted
in empowering the government that will set socio-
economic rules and enforces them (Nijs, 2016).
• German sociologist and economist ALEXANDER
RÜSTOW, who popularized the concept of "Free
Economy, Strong State," believed that there must be
free-market capitalism together with social policies that
will bring a fair competition while supporting people's
welfare (Nijs, 2016).
• In the 1930s, Rüstow coined the term Neoliberalism, as
the middle ground between Liberalism and some
ideology of Paleo-liberalism to meet the socio-economic
and political needs of the populace (Nijs, 2016; Turner,
2008).
• PALEO-LIBERALISM (OLD LIBERALISM) upholds
tradition, culture, liberty, and free market that is governed
by the rules based on the covenant (contract) agreed by
the society which restricts specific behavior.
• Therefore, Neoliberalism, for Rüstow, promotes
Liberalism (free market) and socialism (for the mere
reason that it has a political or government intervention).
• However, the purpose of state or government power
in Neoliberalism is merely to: ensure the efficiency of
the market activities based on its defined and agreed
boundaries (its contract/covenant) and would not limit
its purpose in general (or the free-market system) (Nijs,
2016).
NEOLIBERALISM
→ is both a political and economic ideology, modified
laissez-faire economics that imposes less government
regulation towards businesses (both domestic and
foreign) under a "strong state" that could promote
economic cooperation.
→ Further, the government must limit its expenses
through fiscal austerity and privatization of
government-owned corporations with a progressive
type of taxation for the general welfare (Nijs, 2016;
Stahl, 2019; Steger & Roy, 2019; Turner, 2008).
Rachel Turner (2008), in her book entitled "Neo-liberal
Ideology," identified the following 4 PRIMARY PRINCIPLES
OF NEOLIBERALISM;
1) Free Market
2) Rule of Law or legal state ("Strong state" principle)
3) Public Interest through a 'constitutionally' limited state
power
4) Protection of private property or ownership
1) FREE MARKET
→ It is based on the notion that voluntary exchanges
will protect individual freedom while efficiently
allocating economic resources.
2) RULE OF LAW OR LEGAL STATE ("STRONG STATE"
PRINCIPLE)
→ It is related to the maxim that "we are a government
of laws and not of men", that in terms of conflict,
among free individuals in a free-market economy, we
will be governed, equally, in accordance with the
promulgated laws.
3) PUBLIC INTEREST THROUGH A
'CONSTITUTIONALLY' LIMITED STATE POWER
It is in consonance to the previous number but focuses on the
fundamental obligation of the state to ensure 'law and order,'
socio-economic needs of the people, and safeguarding the
market order.
4) PROTECTION OF PRIVATE PROPERTY OR
OWNERSHIP
→ It gives a certain sense of autonomy for every
person (natural person or juridical entity (e.g.,
corporation) to own and secure a property without
any invasion from the state.
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 MODULE 02: ECONOMIC GLOBALIZATION
• Neoliberalism in government policies, however, never
existed nor was adopted until the 1980s. It started gaining
popularity among politicians when some of the
economists began to blame the state interventionism
(Keynesianism), piloted by the economist JOHN
MAYNARD KEYNES, as the cause of economic
recession in 1973.
• American President RONALD REAGAN and U.K.
Prime Minister MARGARET THATCHER campaigned
for Neoliberal ideologies and realized them into state
policies and programs of their governments. It was also
known as the FIRST WAVE OF NEOLIBERALISM
(Steger & Roy, 2019).
• Reagan and Thatcher intentionally associate
Globalization with economic liberalism. Moreover, the
call for a Neoliberal economy further strengthens with the
collapse of communism in the Soviet Union countries
(Russia, Armenia, Georgia, etc.) in the late 20th century
(Steger, 2015). Hence, the global market leads to the
integration and cooperation of various economies
since then, also known as Economic Globalization
today.
WHAT ARE THE MAJOR ELEMENTS OF ECONOMIC
GLOBALIZATION?
The following are the significant elements of Economic
Globalization:
1) Internationalization of Trade and Finance (Steger, 2005;
Stiglitz, 2003)
2) Movement of Labor (Stiglitz, 2003)
3) Diffusion of Technology (Stiglitz, 2003)
A. INTERNATIONALIZATION OF TRADE AND FINANCE
INTERNALIZATION OF TRADE
→ In 2018, the world's trade value of goods exported across
the globe was at an astounding US$19.5 Trillion from
US$61.8 Billion in 1950 (O'Connell, 2019).
→ The growth of world trade has been attributed to the
regional and international market liberalization
agreements. Two primary examples of this are the North
American Free Trade Agreement (NAFTA) and
General Agreements on Tariffs and Trade (GATT).
• NAFTA, as a trilateral trade agreement in North
America (Canada, USA, & Mexico), was created to
reduce and eliminate barriers to trade and
investment (Macdonald, 2017). The results of this
agreement have been the subject of debate and
discussions on unemployment, environmental
concerns, and economic growth.
• GATT, on the other hand, is a multilateral
agreement aimed to prevent trade wars and was
able to liberalize international trade. However,
GATT failed to address global investment and
intellectual property issues, among others. Thus, the
WORLD TRADE ORGANIZATION (WTO) was
formally established to replace GATT and address
its inefficiency, and provide better transparency and
accountability (Hira & Cohn, 2003).
o Some national economies were better off because of
free trade, such as increased productivity,
competition, specializations, and the spread of
technology (Steger, 2005).
o However, studies have shown overwhelming
drawbacks and criticisms of Free Trade over the past
decades. The primary examples of these growing
concerns are the (1) the increasing gap between
poor and rich, the lowering global labor standards
and loss of jobs due to outsourcing.
FINANCIAL LIBERALIZATION
→ Internationalization of Finance
→ It is vital for any trade transaction.
→ Steger (2003) explains that LIBERALIZING FINANCE
MEANS 3 THINGS
1) it is to deregulate interest rates or reduction of
governmental powers on a certain industry to create
more competition.
2) to remove credit controls over financial or
commercial institutions to provide their clients with
more flexible regulations and expand their
business, such as extending loans and other
financial services.
3) the privatization of government-owned banks and
financial institutions. It will create fewer restrictions
and better investment opportunities for the
various commercial and banking institutions.
Some of the related studies on trade and Finance have a
separate empirical assessment of their impact on the
world's economy. However, we have to understand that
these two elements must work hand in hand to deliver
efficient transactions with accuracy and enough
accountability.
B. MOVEMENT OF LABOR
→ Another element is the mobility of international labor
or workforce.
→ It refers to less regulated flows of the workforce to a
particular economy or between economies.
→ EXAMPLES: Overseas Filipino engineers, medical
technologists, and nurses, among others
→ It is a significant factor in production, not merely in the
developing countries, but in all types of economies.
• The growing number of nurses, for instance, in the
Philippines, affects its general supply, and as the labor
demand is relatively static, it can substantially decrease
its minimum wage rates.
o It would be a hindrance for a capitalist economy to
increase its wages if there is a surplus of workers.
• It can also be applied to those developed countries like
the USA and the United Kingdom, where they
outsourced their businesses to developing countries such
as the Philippines and India to acquire more workers
who can be paid less than their people.
o But it has an adverse effect on the human resources
of countries including but not limited to loss of jobs
or unemployment and lower wages since they
outsourced their services to other countries.
C. DIFFUSION OF TECHNOLOGY
→ TECHNOLOGY has become a powerful and game-
changer tool for the economic policies of different
governments and financial institutions.
→ It facilitated the flow of ideas, money capital, stocks, and
other commercial transactions of the world.
→ The advancement of technology affects people's political
and economic diasporas. It creates individuals who
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 MODULE 02: ECONOMIC GLOBALIZATION

support democracy and free-market systems since it
gives them individual freedom to choose and live.
→ ECONOMIST BANDA (2019), emphasizes that the world
we live in became more interconnected because of
information and technology, communication, travel and
transportation, and other innovations and advancement
in sciences.
→ The spread of technology is part of neoliberal policies
to bring all aspects of society (socio-economic and
politics) into free-market capitalism.
MAJOR INTERNATIONAL ECONOMIC INSTITUTIONS
Globalization scholar Manfred Steger (2003) named the
following 3 FUNDAMENTAL INSTITUTIONS that facilitate the
globalization of the economy;
1) International Monetary Fund (IMF)
2) World Bank (WB) and;
3) World Trade Organization (WTO)
• In the 1940s, shortly after World War II, countries were
looking to re-strategize the world’s economy, resulting
in a more peaceful relationship among them.
• One of the objectives was to fight TRADE
PROTECTIONISM or a policy that safeguards
domestic products through imposing higher tariffs,
quotas, and other restrictions against any foreign industry
or market.
o Trade protectionism is one of the causes of the
great depression from the 1920s to the 1930s and
eventually led to World War II (Cohn, 2012).
UNITED NATIONS MONETARY &
FINANCIAL CONFERENCE
→ In 1944, it was held in Bretton Woods, New Hampshire,
U.S.A.
→ The conference was attended by 44 countries and all
country representatives agreed to establish international
economic institutions, namely the IMF and World
Bank, or the International Bank for Reconstruction
and Development (IBRD).
→ And to facilitate an expanded global integration, the more
informal institution called General Agreement on
Tariffs and Trade (GATT), also known as WTO, was
established.
This crisis became the opportunity for neoliberals to make
the world’s economy to be more integrated and
cooperative with one another.
This policy of neoliberalism is later called the
WASHINGTON CONSENSUS.
The three major economic institutions of the world had
adopted this policy and using it as their measure in
providing terms and agreements to their borrowing
countries (Steger & Roy, 2019).
A. INTERNATIONAL MONETARY FUND
• The Covid-19 global pandemic causes many countries'
economies to shrink and slow down.
o According to the latest World's GDP report from the
IMF, the global economy will shrink as much as 3%
in 2020.
o Hence, reinvigorating one's economy is very crucial
in the next months or even in the next few years.
→ The primary function of IMF is to lend money through
what it called EMERGENCY FINANCING to its member
country like the Philippines (member since 1945).
→ Yet, the functions of these economic institutions are not
limited to lending. It does a whole lot more, which can
influence the economic mechanisms of various countries.
B. WORLD BANK
→ it was originally known as the INTERNATIONAL BANK
OF RECONSTRUCTION AND DEVELOPMENT (IBRD)
and helped in postwar reconstruction after World War II
in Europe.
C. WORLD TRADE ORGANIZATION
→ WTO, as discussed in the Internationalization of Trade
and Finance born out from the GATT, aimed to reduce
trade barriers.
→ Like other economic institutions such as the IMF and
World Bank, it promotes free and fair trade among
countries.
→ It functions as the governing body of global trading
and transactions of its 164 member-countries. Its
member-nations must adopt the rules on trade
promulgated by the WTO.

• This post-World War II new economic order is later called

the BRETTON WOODS SYSTEM, spearheaded by the
economist John Maynard Keynes.
o According to Keynes, the government has a
significant and direct role in managing the
economy, as opposed to classical liberalism or
laissez-faire economics, particularly if there is an
economic downturn or crisis through massive
spending by the government (Steger & Roy,
2019).
o Yet the Bretton Woods system collapsed in the early
1970s, due to the economic recession and Oil crisis.
The imposed prohibition and discontinued oil shipments
to the USA, UK, and other allied countries by the Arab-
member countries or the OPEC (Organization of
Petroleum Exporting Countries).
o It quadrupled the prices of oil and caused stagflation
(Stagnant economy and inflation) in the affected countries
(Steger & Roy, 2019).

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