MODULE 3: THE GLOBAL ECONOMY

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Study Period: November 6-10, 2023

MODULE 3: The Global Economy

This module consists of the following:
LESSON 1: Surplus and Deficits
LESSON 2: Economic Chains and Networks
LESSON 3: Outsourcing and Consumption
LESSON 4: The Modern World System

Intended Learning Outcome:

a. Define economic globalization;

b. Identify the actors that facilitate economic globalization;
c. Analyze the modern world system;
d. Articulate a stance on global economic integration;

Discussion

ECONOMIC CHAINS AND NETWORKS

Supply Chains. These are general label for value-adding activities in the production
process. A supply chain begins with raw materials and follows the value-adding process
through a variety of inputs and outputs and ultimately to a finished product. For example,
the process might begin with some comparatively inexpensive raw material, say cotton,
and at various steps along the way workers and technologies add value to the cotton so
that in the end the finished product – the T-shirt in this case – has greater value than the
cotton which the process begin.
International production networks. These involve the networks of producers involved in
the process of producing a finished product. Multinational corporations (MNCs) are seen as
playing a central role, as being the “flagships” in these networks.
Global commodity chains. Gereffi and Korzeniewicz (1994) bring together the idea of
value-adding chains and the global organization of industries. They also accord a central
place to the growing importance of the sellers of global products. This includes buyer-

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driven chains such as Wal-Mart which play an increasing role in determining what
industries produce and how much they produce. Since such companies do not manufacture
their own products, they are buyers of products that are then sold under their brand
names. Also, included here are “brand companies” or “manufacturers without factories”.
Buyer-driven chains are distinguished from producer-driven chains. There is a focus on the
governance structure of global commodity chains. Also of concern is the role of lead firms
in the creation of “global production and sourcing networks”.
Global Value Chains. Gereffi argues that global value chains are emerging as the
overarching label for all work in this area and for all chains. He describes it as:
These highlight the relative value of those economic activities that are required to
bring a good service from conception to, through the different phases of production
(involving combination of physical transformation and the input of various producer
services), delivery to final consumers, and final disposal after use.

OUTSOURCING
Outsourcing is the transfer of activities once performed by an entity to a business or
businesses in exchange for money. It is a complex phenomenon that is not restricted to the
economy, not only a macro-level phenomenon and not simply global in character.
Dealing with the first issue, while outsourcing in the economic realm is of greatest
importance and the issue of concern. It also occurs in many other institutions such as
health care and the military. In terms of health care, one examples is the work of the
radiologists, which is increasingly being outsourced. This is made possible because the
material with which radiologists deal (x-rays, results of MRIs) is now usually digitized and
therefore sent easily by a lower-paid radiologist in Asia. Similarly, the military has
outsource many of its functions. For example, North Atlantic Treaty Organization (NATO)
forces from various countries serving in Afghanistan may be flown there on leased
Ukrainian airplanes or by commercial airlines of NATO nations rather than on planes from
their own air forces. While both of these examples exist outside the economy, they are
examples of outsourcing and are manifestations of globalization.
Secondly, we need to go beyond the macro-level outsourcing to deal with it at the
meso- and micro-levels. Thus, we can include under the heading of outsourcing meso-level
restaurants that outsource the cooking of their food to outside organizations, and at the
micro-level parents who outsource the care of their young children or aged parents to
institutions, specifically daycare and assisted-living centers.
Inclusion of these levels makes a more satisfying and more complete sense of
outsourcing, although much of it may not relate directly to globalization. Nonetheless,
globalization is often involved even at these levels as exemplified by the fact that the micro-
level of care for children or aged parents in developed countries is often outsourced to

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immigrants, legal or illegal, from less developed countries. These migrants can be seen as
part of a global care chain and those who care for children, as well as the children
themselves, as part of the globalization of parenthood. It is even the case that motherhood
is being outsourced with for example, Indian women serving as surrogate mothers for
couples from Israel.
The form of outsourcing most closely and importantly associated with globalization
is offshore outsourcing which involves sending work to companies in other countries. For
example, a variety of Indian firms have become very important settings for the outsourcing
of various kinds of work – the best known of which is that performed by all call centers
from the US and Great Britain. Indian companies are even making progress in performing
outsourced call center work for Japanese firms, necessitating the employment of those
fluent in Japanese. While blue-collar manufacturing work has long been outsourced
offshore and the offshore outsourcing of low-level service work is of more recent vintage,
what is eye-catching is the increasing offshore outsourcing of high-level white collar and
service work such as IT (Information Technology), accounting, law, architecture,
journalism, and medicine. There are many disadvantages of offshore outsourcing to both
outsourcers and outsources and that is why it has grown dramatically and is likely to
continue to grow. However, there are many costs, especially in the country doing the
outsourcing and most notably in job loss and destruction. It is the array of costs that has
made offshore outsourcing a hot-button issue in the US and other developed nations and
has led to calls for the government to act to restrict it.
However, as we saw above in the case of health care and the military offshore
outsourcing is not restricted to the economy and is therefore globalizing in a far broader
sense than is usually understood. For example, the offshore outsourcing of war has a long
history, but it boomed, at least in the case of the US, following the end of the Cold War. A
variety of for-profit private organizations have emerged to which various war functions are
outsourced. So many aspects of the war in Iraq were outsourced that one wag joked that
President George Bush’s “coalition of the willing” might thus be more aptly described as the
“coalition of the billing.

CONSUMPTION
Consumption is highly complex, involving mainly consumer objects, consumers, the
consumption process and consumption sites.
It is quietly associated with America and Americanization. This is largely traceable
to the affluence of the US after the close of WWII and the economic difficulties encountered
by most other societies in the world during this period. Thus, the US developed an
unprecedented and unmatched consumer society for several decades after the end of the
war and at the same time, began exporting it and its various elements to much of the rest of
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the world. While much of the American society came to be adopted elsewhere, it was also
modified in various ways, even in the immediate aftermath of WWII in the European
nations ravaged by the war and being aided through America’s Marshall Plan.
In a world increasingly dominated by neoliberalism, the emphasis in the economy is
to greatly increase global flows of everything related to consumption and to greatly
decrease any barriers to those flows. Of particular interest here is the expending of global
flows of consumer goods and services of all types of the financial processes and
instruments that expedite those flows. Thus, for example, the relatively small number of
credit card brands with origins in the US especially Visa and MasterCard are increasingly
accepted and used throughout more and more parts of the world. This serves to promote
not only global consumption, but also the flow of global consumers.
More importantly, this serves to expedite the global flow of hyperconsumption
(buying more than one can afford) and hyperdebt (owing more than one will be able to pay
back). The global flow of many of the same goods and services, and the increasing global
use of credit cards and other credit instruments, lead more and more societies throughout
the world in the direction of American-style hyperconsumption and hyperdebt. Many
countries that at one time were very conservative as far as consumption and debt are
concerned have plunged headlong in these directions. China and India , with their
enormous populations enjoying an unprecedented economic boom, also appear to be
headed in much same direction. Thus, globalization means that hyperconsumption and
hyperdebt, as well as the problems associated with them, are increasingly likely to become
global phenomena and problems.
While there was, and continue to be, an important American component to the
globalization of consumption, it is important to recognize that the heyday of the US in this
area and many others is long past and in any case, there has always been much more to the
globalization of consumption than Americanization. That is local have certainly not always,
or perhaps ever, been overwhelmed by American imports, but have integrated them into
the local cultural and economic realities, that is they have “glocalized them”. Furthermore,
other nations and regions have been significant exporters of important aspects of
consumer society. Finally, much of consumption remains largely, if not totally, local in
character. The growing consumption of khat or qat – a mild stimulant – in Kenya is not only
locally defined, but there is active resistance to external definitions of it.
Consumption also plays itself out differently in different parts of the world. For
example, both the US and Japan can be seen as consumer societies, but Japan differs from
the US in many ways including the fact that it never fully embraced the idea of consumer
society and, more specifically, continues to manage to save a significant amount, in contrast
to the US where the savings rate approaches zero.

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Consumer Objects and Services

Much of consumption revolves around shopping for and purchasing objects of all kinds, but
in recent years, an increasing amount of consumption relates to various services (legal,
accounting, and educational, among others). While many objects and services remain
highly local, an increasing number have globalized. On the one hand, there are, for example,
the global objects such as automobiles from the US, Germany, and Japan.
On the other hand, there are global services such as those offered by accounting firms, as
well as package delivery services. Of particular importance in terms of objects and services
is the issue of brands and branding. Brands are of great importance both within nations as
well as globally. Indeed much money and effort is invested in creating brand names that are
recognized and trusted throughout the world.
Consumers
Increasing numbers of people throughout the world are spending more and more time as
consumers. Not long ago, it was different as most people spent most of their time as
producers. Not only do more people spend more time consuming, but they are increasingly
more likely to define themselves by what they consume, than by their roles as producers
and workers. Furthermore, consumers are on the move throughout the world, often as
tourists. Not only is tourism is a form of consumption, but much tourism is undertaken in
order to consume the goods and services on offer at other locales throughout the world.
Consumption Processes
Increasing numbers of people know what is expected of them as consumers; they
generally know what is expected of them as consumers they generally know what to do in
the consumption process wherever they happen to be in the world. This includes knowing
how to work their way through a shopping mall, use a credit card, or make a purchase
online. Others have not yet encountered, let alone learned how to handle these processes
but many of them certainly will in the not-too-distant future. Where these processes are
known, there is a remarkable similarity throughout the world in the process of consuming
in a supermarket, a shopping mall, or a fast-food restaurant.
Consumption Sites
American and Western-style consumption sites – shopping malls, fast-food
restaurants, clothing chains, discounters such as Wal-Mart, Disney-like theme parks, Las
Vegas-style casino hotels, internet sites such as Amazon.com and Ebay.com – have spread
throughout much of the world.

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GLOBAL RESISTANCE
The global spread of chain stores, theme parks, and among others, has led to many
concerns and to resistance in many parts of the world. While we discuss resistance to
consumption sites here, there is far broader global opposition to all aspects of
consumption, especially hyperconsumption.
For example, in Paris, there is much concern about the Champs-Elysees, “the most
beautiful avenue on earth,” and the way it is increasingly dominated by large outlets, often
megastores associated with global chains such as MacDonald’s, Adidas, Gap, Benetton,
Disney, Nike, Zara, Virgin, Cartier, Louis Vuitton, and Sephora, as well as huge auto
showrooms for Toyota, Renault, and Peugeot. A major reason is that burgeoning rental
costs on the Champs- Elysees increasingly means that it is only the large chains that can
afford them. As a result, local institutions such as clubs and movie theatres are
disappearing from the Champs-Elysees. A movement has emerged to stop the
“banalization” of the most famous avenue in Paris, if not the world; to stop what has
already occurred in other major areas such as Times Square in New York and Oxford Street
in London. A first step was the banning of the opening of an H&M Megastore on the
Champs-Elysees. A study commissioned by the city of Paris concluded that, “the avenue is
progressively losing its exceptional and symbolic character, thus its attractiveness”. An
alternative view, however, is that these changes represent a democratization of the
Chymps-Elysees. They offer an escape for the less affluent, especially multi-ethnic young
people, some of whom have been expressing their general dissatisfaction with French life.

THE MODERN WORLD-SYSTEM

One of the famous works that captures the socio-historical and economic nexus of
pre-capitalist economies and the present world was that of Immanuel Wallerstein’s
research on the modern world-system. His analysis focused on the broad economic entity
with a division of labor that is not circumscribed by political or cultural boundaries. This is
to say that through the global economic activity, countries around the world have been
divided according to their economic power in global arena.
The world-system is a largely self-contained system with a set of boundaries and a
definable life span; that is, it does not last forever. It is composed internally of a variety of
social structures and member groups.
It should be noted that world-systems have existed before and not a unique feature
of the contemporary world. What is significant is the transformation of this world-system.
In the past, the system that binds the world together is based on political and military
domination. This was the world empire.
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The modern world-system is also known as the modern capitalist world-economy. It

is a system which relies on economic domination. It encompasses many state and a built-in
process of economic stabilization. This means that it is economic forces that pull people,
states, and societies toward the arena of worldwide economic transactions.

WORLDWIDE DIVISION OF LABOR AND DEVELOPMENT OF THE MODERN WORLD-

SYSTEM
Not all countries or areas are equal in the modern world-system according to
Wallerstein. A three-level hierarchy is a remarkable feature of the modern capitalist world-
economy. The world is now divided into three categories and thereby creating the
worldwide division of labor. They are the following:
a. Core. These are areas that dominate the capitalist world-economy and
exploits the rest of the system.
b. Periphery. These are areas that provide raw materials to the core and are
heavily exploited.
c. Semi-periphery. A residual category that encompasses a set of regions
somewhere between exploiting and the exploited.
The international division of exploitation is defined not by state borders but by the
economic division of the world. There are three things necessary for the rise of the
capitalist world-economy. The first is geographical expansion. The era of exploration and
colonization in Europe created wider networks of people and markets. It was incorporated
with the crumbling feudal economy, slave trade, and availability of commodities for
exchange to other countries.
The worldwide division of labor was estimated to have begun in the 16 th century as
capitalism replaced statism as the major mode of domination. The different parts of the
world came to specialize in specific functions. Different areas came to specialize in
producing particular type of workers. For example, Africa was the source of slaves;
Western and Southern Europe were home to peasant tenant farmers; and Western Europe
was dominated by wageworkers, ruling classes, and skilled and supervisory personnel.
Core state’s development is the third factor. This meant the involvement of the
political sector and how various economic groups used state structures to protect and
advance their interests. It is also in here that European states in 16th century developed and
made advancements of their bureaucratic systems.
Obviously, the modern world-system did not stop during the 16th century because of
the later developments in it as explained by Wallerstein. From the 1600s-1700s, major
political changes smashed by the European continent. There was the decline of the
Netherlands. England and France had a major conflict. Spain declined the Sweden gained
power and progress. These events were intensified by the Industrial Revolution, French

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Revolution, and Independence of the European colonies in America during the 1730s until
the 1840s.
During the 1750s-1850s, India and China were incorporated into the periphery of
the world-economy. They were once called external zones. These are areas from which the
capitalist world-economy wanted goods but which are able to resist the reciprocal
importation of manufactured goods from core nations. Today, North Korea is a good
example of an external zone in the late 19th century and early 20th century, there was a
quickened pace of incorporation. Wallerstein (1929) said that, “the entire globe, even those
regions that had never been part even of the external area were pulled inside.

The Pressure of Incorporation

Why are countries being pulled toward this system? Can the countries of areas of
the world “resist” being part of it? Ritzer (2010) explained:
“The pressure for incorporation into the world-economy comes not from the nations
being incorporated but rather from the need of the world-economy to expand its
boundaries, a need which was itself the outcome of pressures internal to the world
economy.
It seems that the world-system gained an enormous power over the centuries.
Today, it is highly likely that it would grow even more due to the rise of the global financial
market and modern ways of producing, distributing, and consuming products and services
all over the world.
In maintaining a good balance between maintaining state power and being part of
the modern world-system, the states must be strong enough to protect their own
economies from external threats. However, this strength of theirs which comes from,
perhaps, their external sovereignty should not be too much for them to be able to stand on
their own and refuse to act in accord with the demands of the capitalist world-economy. It
is a matter of striking a balance between the state’s power and pressures of the global
economy.

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