The Contemporary World

Notes compiled by Dr. Marilyn Lorente- Balmeo

Saint Louis University
History and Structures (types) of Globalization

ESSENTIAL CONCEPTS and TERMINOLOGIES

1. Political Globalization is the cooperation between different countries is a form of

globalization that is used to prevent and manage conflict.
2. Economic Globalization pertains to the economies of nations that are interconnected
through the exchange of resources, products and money.
3. Social and Cultural Globalization is a kind of globalization that includes the sharing of ideas,
knowledge and cultural norms between nations.

History of Global Market Integration in the 20th Century

Market Integration
1. The nineteenth century saw substantial advances in international market integration, and the
creation of a truly world economy. Technological advance was critical in this. The railroad
locomotive and the marine steam engine revolutionized world transport from the 1830s onwards.
Steamships connected the world's ports to each other, and from the ports the railroads ran
inland, creating a new and faster world transport network.

2. Freight rates fell, and goods could be carried across the world to ever more distant markets and
still be cheaper in those faraway places than the same item produced locally. Linked closely to
these changes was the electric telegraph, whose lines often ran along the new railroad networks.

3. Telegraph systems were established in most countries, including the major market of British India,
until 1854. Beginning with the first transatlantic cable, which was laid by steamship in 1866, these
existing domestic telegraph systems were linked together by marine cables. The resulting
international information network was crucial in communicating details of prices and price
movements, reducing the cost of making deals and transactions.

4. An infrastructural change of major significance came in 1869 with the opening of the Suez Canal,
which linked the Mediterranean Sea by way of Egypt to the Red Sea: now ships sailing from
Europe to Asia could take the new shortcut rather than sail all the way around Africa. Immediately
Asia was some 4,000 miles closer to Europe in transport terms, and freight costs fell. Yet the low
efficiency of early steamships meant that many bulk cargoes such as rice still were carried to
Europe from Asia by sail around the Cape of Good Hope.

5. Technological change in the shape of steel hulls and steel masts made sailing ships larger and
more efficient, and they continued to be active until the more efficient triple-expansion engine
finally drove the sailing ships from the oceans during the last quarter of the nineteenth century.

ENGAGE

RISE OF FREE TRADE

1. Physical changes in lowering freight and transaction costs were not the only forces stimulating
market integration. It was normal for countries to impose import duties on foreign goods,
seeking to gain an inflow of gold in their foreign trade accounts by selling more to each of their
trading partners than they bought from them.
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University

2. In 1846 the merchants of Manchester, England, the center of the world's cotton textile industry,
struck their famous victory for free trade by forcing the British government to abandon tariffs on
all imported goods apart from a few luxury items. The tariffs on wheat were the first to go,
opening up the Great Plains of the United States for wheat production to supply Britain.

3. With free trade, no longer did trade relations with a foreign country have to balance or be in
surplus; rather, a deficit in trade with one country could be offset by a surplus in trade with
another country, liberalizing world trade in a way never previously seen. Britain moved heavily
into deficit on trade account, but this was sustained by considerable invisible inflows generated
by her substantial overseas investments, particularly in the railroad systems of the United States.

4. This policy of open markets became a dominating principle extended through much of the British
Empire, including the key market of India, although Canada and the State of Victoria in Australia
chose to be notable exceptions. The United States retained import duties, and after short periods
of trade liberalization most European countries also returned to protectionism so that their new
manufacturing industries could establish themselves safe from the competition of cheaper goods
from Britain.

5. Britain itself ran heavy trade deficits with the United States due largely to grain purchases, and it
also had deficits with the newly industrialized countries of continental Europe, due to purchases
of manufactured goods. Britain was able to sustain these deficits because of its own sales of
manufactures, especially cotton yarn and textiles, to India and the rest of Asia, including China. So
the open-market polices of the British Empire played a crucial role in sustaining a complicated
interrelated mesh of world payments, and newly industrializing countries took advantage of
these open markets whilst maintaining their own protective walls.

6. Each country could specialize in producing those goods they were best endowed by nature to
produce, and could exchange them for the other products they needed. The vast market of
British India was crucial, and though Britain, the colonial power, was the leading supplier of
manufactured goods there, Germany and other industrial nations were free to trade, and did so
very effectively. India itself had big surpluses with the rest of Asia, particularly China, because of
its sales of opium and of cotton yarn and textiles from Bombay.

EXPLORE
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
*** Critically look at the picture above. List down the implications you get from the picture.

EXPLAIN

INTEGRATION OF GRAIN MARKETS AT THE TURN OF THE CENTURY

1. Within Asia major effects of market integration were seen. Where a market area is fully
integrated, prices of a particular commodity will equalize across that area. Fluctuations in prices
across the region will synchronize, demonstrating that they are subject to the same influences.
Transport costs are crucial, and a commodity will only move from one location to another if the
cost of production in the place of origin plus the cost of transport is less than the prevailing price
for that commodity in the destination.

2. In Asia the late nineteenth century saw market integration in one of Asia's key commodities, rice.
Prices moved in the same way in the exporting countries (Burma, French Indochina, and Siam), in
the great redistribution centers (the British free ports Singapore and Hong Kong), and in the
receiving countries (India, Ceylon, the Straits Settlements, the Dutch East Indies, the Philippines,
China, and Japan).

3. The movement of migrant workers to tin mines and rubber and tea plantations in places like the
Straits Settlements, the Dutch East Indies, and Ceylon had created increased demand for rice in
those countries which was now satisfied by rice imports from those countries capable of
producing supplies. Shifts in the flow of rice from country to country and from year to year
reflected harvest variations in both producers and consumers.

4. The transport and information networks established in the second half of the nineteenth century
had created an intra-Asian economy in which the income received by rice cultivators was spent on
the products of the new manufacturing industries of the region, particularly the cotton yarn and
textiles of the factories of Bombay, Shanghai, and Osaka.

5. Rice was also supplied in very substantial quantities to Europe, where it was used for food,
brewing, and starch. It joined a flow of wheat to Europe from Karachi. This period saw the
integration of the world wheat market and the world rice market, creating a global market in
basic food grains. The two markets interlocked in British India, which both consumed and
exported both crops. Now the world price of wheat and rice moved in unison, which meant that
the incomes of U.S. farmers and other world wheat producers were influenced by forces such as a
monsoon in India!

Note:
 But this integration of the world wheat markets and world rice markets had serious
consequences. During the 1920s there was great expansion in the amount of land under wheat
and rice in the world at large.
 Normally, good wheat harvests were offset by poor rice harvests, and good rice harvests were
offset by poor wheat harvests. But when favorable climatic conditions occurred for both grains,
particularly beginning in 1928, this resulted in a glut, forcing down prices and bankrupting farmers
all over the world.
 As farm incomes fell, so did the ability of farmers to purchase manufactured goods, and this
affected manufacturers, contributing to the worldwide Great Depression of the 1930s. As the
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
depression bit, countries increased their tariff duties to keep foreign products out of their
markets in order to help their own manufacturers and farmers.

 In 1932 even Britain, with its deep commitment to free trade, was forced to turn to protectionism
and surrender the free trade ideal. Free trade and open markets were unfortunate casualties of
the Great Depression, and in fact their breakdown contributed to the slump's prolongation.

 The restoration of free trade and open markets was one of the primary aims of those planning the
operation of the world economic system after the end of world hostilities in 1945.

Types of Globalization
Note: Each of these will be discussed individually during the Midterms.
Political Globalization
 Political cooperation between different countries is a form of globalization that is used to
prevent and manage conflict. For example, global organizations such as the United Nations and
the World Trade Organization were created to diffuse political issues and maintain order on an
international scale.
 Intergovernmental entities help nations to develop common laws and policies and discuss
immigration issues. Political globalization is also a way for countries to work toward aspects
that affect everyone, such as climate change.

Economic Globalization
 The economies of nations are interconnected through the exchange of resources, products and
money. As a result, there isn’t a country today that operates on its own in isolation. Countries
that are rich in natural resources, such as oil for example, sell it to other countries for money or
in exchange for other materials, such as lumber.
 Similarly, countries across the globe sell crops and food to other nations that lack them, which
helps their own economies in addition to those of other countries. As a result, when an
economy crashes, it affects other economies around the globe because they are closely
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
interconnected. The banking crisis in the United States in 2007 led to a global financial crisis
that affected other countries including Canada and China.

Social and Cultural Globalization

 This kind of globalization includes the sharing of ideas, knowledge and cultural norms between
nations. Examples include the popularization of books, movies and shows across the world,
such as the "Harry Potter" or "Twilight" series, which were globally recognizable.
 Social and cultural globalization tends to flow in one direction, unlike other forms of
globalization. Developed countries such as the United States, United Kingdom and Canada
share cultural information with less-developed countries, rather than the other way around. As
a result, this kind of globalization has been said to erode cultural differences that make nations
unique.

Technological Globalization
 This kind of relationship between nations is as a result of the infrastructure in place for
television, radio, telephones and the internet. Traditionally, technological globalization used to
be only available to the upper classes that had access to them.
 Now, there are many people in developing countries who have access to cell phones and the
internet, making it easier for them to connect to people in other countries around the world.
 Technological globalization makes it possible for countries to connect in other ways, such as
financially through sending loved ones money across the globe or culturally by watching movies
from other nations.

Other Forms of Globalization

 There are other types of globalization, including the globalization of information. This is the
concept that knowledge is shared among nations and groups of people for the betterment of
the world.

 Ecological globalization is the idea that the Earth is a single ecosystem rather than a group of
separate ecosystems. As a result, there are international organizations and agreements that
deal with issues like climate change, biodiversity and wildlife preservation on a global scale,
spanning several countries.
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University

Structures of Globalization

A. Global Economy

What is a global economy?

The global economy refers to the interconnected worldwide economic activities that take place between
multiple countries. These economic activities can have either a positive or negative impact on the
countries involved.

The global economy comprises several characteristics, such as:

 Globalisation: Globalisation describes a process by which national and regional economies,
societies, and cultures have become integrated through the global network of trade,
communication, immigration, and transportation. These developments led to the advent of the
global economy. Due to the global economy and globalisation, domestic economies have become
cohesive, leading to an improvement in their performances.

 International trade: International trade is considered to be an impact of globalisation. It refers to

the exchange of goods and services between different countries, and it has also helped countries
to specialise in products which they have a comparative advantage in. This is an economic theory
that refers to an economy's ability to produce goods and services at a lower opportunity cost
than its trade partners.

 International finance: Money can be transferred at a faster rate between countries compared to
goods, services, and people; making international finance one of the primary features of a global
economy. International finance consists of topics like currency exchange rates and monetary
policy.

 Global investment: This refers to an investment strategy that is not constrained by geographical
boundaries. Global investment mainly takes place via foreign direct investment (FDI).

Why is the global economy important?

We can understand the importance of the global economy by looking at it in relation to emerging
markets:
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
 Economic importance at a micro and macro level: The increase in the world’s population has led
to emerging markets growing economically, making them one of the primary engines of world
economic growth.

The growth and resilience shown by emerging markets is a good sign for the world economy.
Before delving into the next point, you need to understand the concept of microeconomics. It
refers to the study of the behaviour of households, individuals, and firms with respect to the
allocation of resources and decision-making.

In simpler terms, this branch of economics studies how people make decisions, what factors
affect their decisions, and how these decisions affect the price, demand, and supply of goods in
the market. Therefore, from the perspective of microeconomics, some of the largest firms with
high market value and a few of the richest individuals in the world hail from these emerging
markets, which has helped in the higher distribution of income in these countries. However, many
of these emerging countries are still plagued by poverty, and work still needs to be done to work
towards eradicating it.

 Long-term world economic outlook: According to financial and economic projections based on
demographic trends and capital productivity models, the GDP in emerging market economies in
2019 are likely to keep increasing at a positive rate. According to an emerging markets economic
forecast for 2019 conducted by Focus Economics, the economy is set to increase by 7.5% in India,
6.6% in Philippines, 6.3% in China, 5.3% in Indonesia, 5.1% in Egypt, 4.9% in Malaysia, 3.8% in Peru and
3.7% in Morocco.

Who controls the global economy?

o Many people think that the global economy is controlled by governments of the largest
economies in the world, but this a common misconception. Although governments do hold
power over countries’ economies, it is the big banks and large corporations that control and
essentially fund these governments. This means that the global economy is dominated by large
financial institutions.
o According to world economic news, US banks participate in many traditional government
businesses like power production, oil refining and distribution, and also the operating of public
assets such as airports and train stations. This was proven when certain members of the US
Congress sent a letter to the Federal Reserve Chairman Ben Bernanke. Here’s an excerpt from the
letter:

“Here are a few examples. Morgan Stanley imported 4 million barrels of oil and petroleum products
into the United States in June, 2012. Goldman Sachs stores aluminium in vast warehouses in Detroit
as well as serving as a commodities derivatives dealer. This “bank” is also expanding into the
ownership and operation of airports, toll roads, and ports. JP Morgan markets electricity in
California.

In other words, Goldman Sachs, JP Morgan and Morgan Stanley are no longer just banks – they have
effectively become oil companies, port and airport operators, commodities dealers, and electric
utilities as well.”

How does the global economy work?

 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
The functioning of the global economy can be explained through one word —transactions.
International transactions taking place between top economies in the world help in the continuance of
the global economy.

These transactions mainly comprise trade taking place between different countries. International
trade includes the exchange of a variety of products between countries. It ranges all the way from fruits
and foods, to natural oil and weapons. Such transactions have a number of benefits including:

 Providing a foundation for worldwide economic growth, with the international economy set to
grow by 4% in 2019 (source: World Trade Organisation);
 Encouraging competitiveness between countries in various markets;
 Raising productivity and efficiency across countries;
 Helping in the development of underdeveloped countries by allowing them to import capital
goods (machinery and industrial raw materials) and export primary goods (natural resources and
raw materials).

What are the effects of global economy?

Nearly every country in the world is in some way affected by things that happen in what may seem at
times, like unrelated countries - due to the influence of the global economy. A good example of this is
the economic impact that the Brexit vote will have other countries, not only in Europe, but across the
globe. Brexit was referendum decision for the United Kingdom to withdraw from the European Union
(EU).

The main cause of these effects is economics — based on the production and exchange of goods and
services. Restrictions on the import and export of goods and services can potentially hamper the
economic stability of countries who choose to impose too many.
The purpose of international trade is similar to that of trading within a country. However, international
trade differs from domestic trade in two aspects:
 The currencies of at least two countries are involved in international trade, so they must be
exchanged before goods and services can be exported or imported;
 Occasionally, countries enforce barriers on the international trade of certain goods or services
which can disrupt the relations between two countries.

Countries usually specialise in those products that they can produce efficiently, which helps in reducing
overall manufacturing costs. Then, countries trade these products with other countries, whose product
specialisation is something else altogether. Having greater specialisation helps countries take advantage
of economies of scale. Economies of scale refer to the proportionate saving in costs gained by an
increased level of production. Manufacturers in these countries can focus all their efforts on building
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
factories for specialised production, instead of spending additional money on the production of various
types of goods.

Occasionally countries add barriers to international trade. Some of these barriers include trade tariffs
(taxes on imports) and trade quotas (limitation on the number of products that can be imported into a
country). Trade barriers often affect the economies of the trading countries, and in the long run, it
becomes difficult to keep employing such barriers.

What are the benefits of global economy?

There are numerous benefits of a global economy, which include:

 Free trade: Free trade is an excellent method for countries to exchange goods and services. It
also allows countries to specialise in the production of those goods in which they have a
comparative advantage.

 Movement of labour: Increased migration of the labour force is advantageous for the recipient
country as well as for the workers. If a country is going through a phase of high unemployment,
workers can look for jobs in other countries. This also helps in reducing geographical inequality.
 Increased economies of scale: The specialisation of goods production in most countries has led to
advantageous economic factors such as lower average costs and lower prices for customers.

 Increased investment: Due to the presence of global economy, it has become easier for countries
to attract short-term and long-term investment. Investments in developing countries go a long
way in improving their economies.

Factors affecting global economy

According to the latest economic news, here are some of the key factors that influence and affect how
well the global economy works:
 Natural resources;
 Infrastructure;
 Population;
 Labour;
 Human capital;
 Technology;
 Law.

B. Market Integration
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University

Market integration occurs when prices among different locations or related goods follow similar patterns
over a long period of time. Groups of goods often move proportionally to each other and when this
relation is very clear among different markets it is said that the markets are integrated.

o Thus, market integration is an indicator that explains how much different markets are related to
each other. A marketer plays the role of an integrator in the sense that he collects feedback or
vital inputs from other channel members and consumers and provides product solutions to
customers by coordinating multiple functions of organization.

How important is market integration in globalization?

 In theory, market integration should increase financial and economic efficiency, and lead to a
higher economic growth. However, market integration may increase asset return volatility, and
cause financial instability and contagion effects.

What is an example of market integration?

 A situation in which separate markets for the same product become one single market,
for example when an import tax in one of the markets is removed: It has long been recognized
that market integration is far more efficient than firm integration.

 Integrated Marketing is an approach to creating a unified and seamless experience for consumers
to interact with the brand/enterprise; it attempts to meld all aspects of marketing communication
such as advertising, sales promotion, public relations, direct marketing, and social media, through
their respective mix of tactics, methods, channels, media, and activities, so that all work together
as a unified force.

 It is a process designed to ensure that all messaging and communications strategies are
consistent across all channels and are centered on the customer.

What is integration in globalization?

 Global integration means the process with which the local Indian market opens up to the global
economy. Consequently, it amounts to letting foreign factors influence India's local business
environment.

What is the importance of market integration?

 Integrated marketing allows you to spread your marketing message across multiple channels and
increases the chances of it being heard. Best of all, customers engaged through multiple channels
tend to spend more than other customers. Therefore, spreading your marketing message can
increase your return on investment.

 What are the types of market integration?

The main types of integration are:
 Backward vertical integration.
 Conglomerate integration.
 Forward vertical integration.
 Horizontal integration.
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University

Types of market integration

1. Horizontal integration

 This occurs when a firm or agency gains control of other firms or agencies
performing similar marketing functions at the same level in the marketing sequence.
In this type of integration, some marketing agencies combine to form a union with a
view to reducing their effective number and the extent of actual competition in the
market. It is advantageous for the members who join the group.
2. Vertical integration

 This occurs when a firm performs more than one activity in the sequence of the
marketing process. It is a linking together of two or more functions in the marketing
process within a single firm or under a single ownership. This type of integration
makes it possible to exercise control over both quality and quantity of the product
 The Contemporary World
Notes compiled by Dr. Marilyn Lorente- Balmeo
Saint Louis University
from the beginning of the production process until the product is ready for the
consumer. It reduces the number of middle men in the marketing channel.
a) Forward integration

 If a firm assumes another function of marketing which is closer to

the consumption function, it is a case of forward integration.
Example: wholesaler assuming the function of retailing
b) Backward integration

 This involves ownership or a combination of sources of suppl.

Example: when a processing firm assumes the function of
assembling/purchasing the produce from the villages.
3. Conglomeration

 A combination of agencies or activities not directly related to each

other may, when it operates under a unified management, be
termed a conglomeration.