THE GLOBAL ECONOMY

Steger’s (2014) definition of globalization as the expansion and intensification

of social relations and consciousness across world time and space implies that there are
various forms of connectivity. Globalization is a multidimensional phenomenon,
creating economic, political, cultural, and even technological forms of connectivity. This
section focuses on the economic dimension.

Economic globalization refers to the expanding interdependence of world

economies. Shangquan (2000) attributes this to the growing scale of cross-border trade
commodities and services, flow of international capital, and wide and rapid spread of
technology. In the Philippines, cross-border trading can be best illustrated by the
country’s trading partnerships with China, and United States, and Australia. Moreover,
the flow of international capital can be observed in foreign direct investments (FDI), a
type of investment in which a company establishes a business in another country for
production of goods or services and still takes part in the management of that business.
A good example of this is Toyota Motor Philippines Corporation which is a subsidiary of
Toyota Motor Corporation based in Toyota, Japan. This flow of international capital can
also be observed in foreign portfolio investments, trade flows, external assistance and
external commercial borrowings, and private loan flows.

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In 2008, the International Monetary Fund (IMF) defined economic

globalization as a historical process, the result of human innovation and technological
progress. “It refers to the increasing integration of economies around the world,
particularly through the movement of goods, services, and capital across borders” (IMF,
2008). Economic globalization can be traced from the time when there was economic
movement in Asia, Africa, and Europe through Silk Road, a network of trade routes
that connected the East, particularly China, and the West. Historically, these routes also
led to the discovery of the Philippine islands when Portuguese and Spanish envoys were
in search of spices, which then spawned colonization. In the contemporary period,
foreign expatriates come to the country to manage their company’s foreign subsidiaries.
Likewise, the Philippines sends thousands of skilled workers to the Middle East as
construction workers, seafarers, and nurses.

Benczes (2014) identifies four interconnected dimensions of economy, namely:

(1) globalization of trade of goods and services; (2) globalization of financial and capital
markets; (3) globalization of technology and communication; and (4) globalization of
production. The first dimension of economic interconnectedness is demonstrated in the
establishment of the World Trade Organization (WTO) that eases trade among
countries. WTO, established in 1995, “ensures that trade flows as smoothly, predictably,
and freely as possible” (WTO, 2012). Another indicator is the emergence of China as a
major supplier and exporter of manufactured goods that has affected the world
economy. China-made products or parts are sent to the United States. To meet this
demand, China creates more jobs for its citizens. Another good example of economic
globalization of trade and services is the increasing number of business process
outsourcing (BPO) companies in the Philippines. Why do American companies set up
subsidiaries in the country? Cheap labor cost, English proficiency, and customer service
skills are the common reasons. The second dimension is evident in the liberalization of
financial and capital markets. This is seen in cross-listing of shares on one or more
foreign stock exchange, cross-hedging and diversification of portfolio, and round-the-
clock trading worldwide (National Research Council, 1995). The third dimension
emphasizes that various transactions and interactivities that transpire instantly due to
the internet and communication technology. Moreover, the fourth dimension is best
illustrated by the existence of multinational corporations (MNCs) and transnational
corporations (TNCs). The Coca-Cola Company is an example of an MNC. Based in
Atlanta, Georgia, USA, the company only manufactures syrup concentrates and sells
them to various bottlers that hold exclusive territories in different countries including
the Philippines. Toyota Motor Corporation is also an MNC. Through its subsidiaries in
Japan and in the other parts of the world, it has been selling millions of vehicles every
year since 1998.

The most fitting definition of economic globalization is that of Szentes’ (2003):

the process of “making the world economy an ‘organic system’ by extending
transnational economic processes and relations to more and more countries and by
deepening the economic interdependencies among them.” This implies that the world
economy is no longer controlled by the nation-states, but it must be seen from a global
context-the reliance and integration of world economies.

After recognizing the definition of economic globalization, it is important to

discuss the different agents that bring about the interdependencies of global economies.
There are different views on who or what the actors are that facilitate economic
globalization. On one hand, some scholars believe that it is still the nation-state but of
different levels. Boyer and Drache (1996) state that the role of nation-states as manager
of the national economy is being redefined by globalization. Although such is the case,
nation-states still act as buffer to negative effects of globalization. In support, Brodie
(1996) calls the government as the “midwives” of globalization. It means that nation-
states are still relevant despite assuming a global perspective and act as mediators
between the effects of globalization and the national economy. Government policies and
regulations either permit or deny the smooth connection among the world economies.
In the looming trade war between China and the United States, each government
imposes high tariffs on goods and services. Thus, this trade war does not only affect
their economies but also the rest of the world. On the other hand, some experts claim
that the actors are now global corporations. Ohmae (1995) argues that the nation-
state has ceased to exist as the primary economic organization unit in the global market.
Filipino consumers, for instance, prefer to consume and avail of global products and
services like H & M, Uniqlo, Accenture, Amazon, Alibaba, and FedEx. As a result of
transforming the national economy into a global one, Reich (1999) posits that national
products, technologies, corporations, and industries become obsolete. San Miguel
Corporation and Jollibee Food Corporation are good illustrations of this effect. These
two Filipino companies have expanded outside their home country as they are present
in Europe, US, and the rest of Asia. According to Gereffi (2005), such TNCs are the main
driving force of economic globalization accounting for two-thirds of the world export.
Forbes lists down companies from 63 countries that together account for $35 trillion in
revenue, 2.4 trillion in profit, $162 trillion of assets and have a combined market value
of $44 trillion (Schaefer, 2016).

An international structure for money, power, and interest was created in order to
set a system in the financial and economic relations in the modern day. The
establishment of an international monetary system (IMS) is one of the actors that
facilitate economic globalization. IMS refers to internationally agreed rules,
conventions, and institutions for facilitating international trade, investments, and flow
of capital among nation-states. Historically, there are three global IMS-the gold
standard, the Bretton Woods System, and the European Monetary System (EMS). The
gold standard functions as a fixed exchange rate regime, with gold as the only
international reserve and participating countries determine the gold content of national
currencies (Benczes, 2014). In the Bretton Woods Systems, the US dollar was the only
convertible currency. Thus, it was agreed by 44 countries to adopt the gold-exchange
standard. Also, two financial institutions were established: The International Bank for
Reconstruction and Development (IBRD) and the IMF. The former, now known as the
World Bank, is responsible for post-war reconstructions. The latter aims to promote
international financial cooperation and strengthen international trade. Another form of
integration is the establishment of the EMS. It came about after the collapse of Bretton
Woods System. EMS was successful in the stabilization process of exchange rates. It
then promoted the foundation of a new European Economic and Monetary Union
(EMU). National currencies were abandoned and member states delegated monetary
policy onto a supranational level administered by the European Central Bank (European
Commission, 2008). The development of international trade and trade policy is also a
form of such economic integration. Trade patterns must not be stagnant. Flow of goods
must be voluntary but restricting it might affect the relationship between and among
states.
 With the nation-states, global corporations, and international monetary systems
as actors of economic globalization, the world is now confronted with a number of
ongoing debates as to whether economic globalization unites or divides the world.
Benczes (2014) believes that economic globalization fosters universal economic growth
and development. For one, globalization allows a worldwide distribution of incomes.
Australia, for instance, cannot provide all the raw materials they need for certain
products or services, so it needs other nation-states to produce or provide these
materials. Also, economic globalization reduces poverty (World Bank, 2002). As foreign
countries are in need of workforce and human capital, Filipino nurses become overseas
workers; they go to Europe and other foreign countries to support their families in the
Philippines. Lastly, globalization creates mutual dependence between developing and
developed countries (Arrighi, 2005). Some developing countries rely on developed
countries for employment and income while the latter relies on the former for raw
materials and services like labor.

On the other hand, some observers of economic globalization believe that it

divides the world further. First, one might observe that the sources of goods and services
are exploited. Since these economically poor nation-states depend on industrialized
countries for employment and income, these industrialized compensate their labor with
cheap cost. These industrialized countries even source materials from natural resources
of poor nation-states as another form of exploitation. Some even destroy nature without
doing anything to rehabilitate it. Second, economic globalization does not benefit all
nations (World Bank, 2002). There is an uneven experience among nations. Workers in
TNCs are paid less compared to their counterparts in the companies’ home countries.
This shows how cheap labor is in the Philippines. Third, Wallerstien (2005) claims that
capitalism created the different levels of wages in the economic arena of world systems.
It further divides the world for it leads to inequality according to expertise, experience,
and skills.

In conclusion, economic globalization affects all nations and citizens through the
increasing integration of economies around the borderless world. Its important players
are the nation-states, global corporations, and the international monetary systems.
Though some people believe that economic globalization brings unity of all economic
movements, others believe that globalization furthers the separation among nation-
states around the world.