THE GLOBALIZATION OF ECONOMIC

RELATIONS

By: Istvan Benczes

What is Economic Globalization?
o It is 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)
 What is Economic Globalization?
Dimensions of Economic Globalization:
a. The globalization of trade of goods and
services
b. The globalization of financial and capital
markets
c. The globalization of technology and
communication
d. The globalization of production
What is Economic Globalization

Internationalization Economic Globalization

The extension of The functional
economic activities of integration between
nation states across internationally
borders. dispersed activities.

Economic globalization is rather a qualitative transformation

than just a quantitative change.
-Dickens (2004:12)
What is Economic Globalization?
“In economic terms globalization is nothing
but a process making the world economy an
“organic system” by extending transnational
economic processes and economic relations
to more and more countries and by
deepening the economic interdependencies
among them.”
- Szentes (2003)
What is Economic Globalization?
- Refuses the assumption that the nation
(state) is the only unit of analysis and
that current trends.
- It claims that economic activities and
processes can be interpreted in a global
context.
What is Economic Globalization?
o Consumption of highly standardized globalized
products and services.
o National products into global product.
o On the other hand, globalization redefined the
role of the nation state as an effective
manager of the national economy.
(Boyer&Drache, 1996)
o It is misleading to assume that globalization
relegated the nation state and its policies.
What is Economic Globalization?
o New actors appear
o The major players of present day
economy are the Transnational
Corporations (TNC’s)

TNC’s are constantly evolving.

Is Economic Globalization a New
Phenomenon?
o There is no consensus on its origin.
o “have been ongoing ever since Homo sapiens
began migrating from the African continent
ultimately to populate the rest of the world.”
(Gills&Thompson, 2006) 16th century-
connection of Americas to Afro-Eurasia
o “the existence of the same world system in
which we live stretches back at least 5,000
years”. (Frank&Gills, 1993) Silk Road
Is Economic Globalization a New
Phenomenon?
o In the 17th-18th century, coupled with
monopolized trade (British and Dutch East
India Companies) did not favour international
integration.
o Trade and Exchange rather than Production
o The real break-out came only in the 19th
century with the help of the transport
revolution (steamships, railroads, etc)
Convergence Versus Divergence

o “globalization can indeed reduce poverty but it

definitely does not benefit all nations.” (World Bank,
2002)
o Homogenous countries
o The rest of the world did not manage to capitalize on
these processes.
o Capitalism under globalization reinforces the
structural patterns of unequal change. (World system
analysis)
Convergence Versus Divergence
o Underdevelopment is:
- “consequence of colonialism and imperialism”
(Rostow, 1960)
o Imperialism is: (As classified by Wallerstein and his
followers)
- The product of the world capitalist system which has
perpetuated unequal exchanges.

“Globalization, the product of long process of capitalist

development, is, therefore, nothing new for the world
system analysts: it is simply the relabelling of the old
ideas and concepts (Arrighi, 2005).
 INTERNATIONAL
MONETARY
SYSTEM
• Regime
• Rules, customs, instruments, facilities, and
organizations for effecting international
payments (Salvatore, 2007)
• Facilitate cross-border transactions (trade and
investment)
More than just a money

• Reflects economic power and

interests
- Money is inherently political, an
integral part of high politics of
diplomacy (Cohen, 2000)
GOLD STANDARD
• UK adopted gold mono-metallism in 1821
• 1867 – European nations and US, propagated a
deliberate shift to gold at the Int’l Monetary
Conference in Paris
• 1872 – Germany joined the new regime
• 1878 – France decided to do so
• 1879 – US joined the regime
• 1880 – became the int’l monetary regime
• 1894 – Italy joined joined the regime
• 1897 – Russia joined the new regime
GOLD STANDARD
• Functioned as a fixed exchange rate regime,
with gold as the only int’l reserve
• Tendency for trade balance to be in
equilibrium
- Determined by the automatic price-specie flow
mechanism which assumes a passive change
on money supply and a full flexibility in
internal prices.
 1. Lend order and stability to foreign exchange
markets.
2. Encourage elimination of balance-of-payments
problems.
3. Provide access to int’l credits in case of
economic shock
4. Restore equilibrium to current accounts
5. Unlimited access to world finance

ROLE OF PROPERLY DESIGNED IMS

END OF CLASSICAL GOLD STANDARD
• Outbreak of World War I
- Nations gave up convertibility and abandoned gold
export in order to stop the depletion of their
national gold reserves.
1931
- UK was the last country to abandon the gold standard
by failing to successfully return the gold standard at
pre-war price levels in 1925.
1930’s
Darkest Period Of Modern Economic History
• Competitive devaluations
• Capital Controls
• Imposition of tariffs

Resulted in devastating drop of int’l transactions

SUFFRAGE
• Deep structural changes were causes and also
consequences of universal suffrage made the
governments reluctant to defend a pegging
system at any cost.
• July 1944
United Nations Monetary and Financial
Conference in Bretton Woods, New
Hampshire

• Gold-Exchange Standard
44 countries agreed on this new adjustable
peg system
BRETTON WOODS SYSTEM
• US dollar was the only convertible currency
of the time
- Sell and purchase gold without restrictions at
US$35/ounce.

BRETTON WOODS SYSTEM

• Did not prevent countries from running large
and persistent deficits in their balance of
payments
• Adjustments did not happened frequently
although they had adjustable peg system.

BRETTON WOODS SYSTEM

JOHN MAYNARD KEYNES
• Proposed creation of an international clearing
union, a kind of global bank
• Bancor – new unit of account that would be
used
• Branded by the US as a proposal to national
blow of sovereignty.
• Managed floating
- Industrialized countries decided to float their
currencies and intervene in financial markets only in
case of drastic short-term fluctuations.
- Long term prices of currencies were determined by
demand and supply

JAMAICA ACCORDS (1976)

MANAGED FLOATING
• Failed
- G7 agreed on substantial devaluation of US dollar as
a result of pressure of domestic manufacturers and
agrarians
LOUVRE ACCORD (1987)

• Defended dollar from further

devaluation
• Triumph of neo-liberalism
• Used as an exchange of financial assistance
from IMF
• Appreciation of US dollar that caused loss of
price competitiveness of emerging markets of
those countries embrace neo-liberalism

WASHINGTON CONSENSUS (1990’s)

• Liberalization or privatization could not
deliver the expected results in an
environment of imperfect or incomplete
markets and inadequate or missing
institutions (Stiglitz, 2002)
• The way to move forward was not to
import-substitute but to export-orient
productive activities. (Wallerstein, 2005)

CRITIQUES OF NEO-LIBERALISM
• USSR’s push for communism activated US reconstruction
programme, Marshall Plan in 1948

MARSHALL PLAN
- Administered by Organization for European Economic
Cooperation that resulted in European Coal and Steel
Community in 1951 as it successfully grew.
- 1957, Rome Treaty was singed that established European
Economic Community (EEC)

EUROPEAN MONEY INTEGRATION

• Pressured on creating a regional monetary regime,
the EUROPEAN MONETARY SYSTEM (EMS) in
1979 by the collapse of Bretton Woods System.
• No use of gold and US dollar in stabilization process
of exchange rate, instead it use European Exchange
Rate Mechanism.

EUROPEAN ECONOMIC COMMUNITY

• Late 1980’s – total abolishment of capital controls

MAASTRICHT TREATY (1992)

• Founded the European Economic and Monetary Union
(EMU)
• 1999, EMU members abandoned their national
currencies and delegated monetary policy onto a
supranational level (administered by European Central
Bank)

EUROPEAN ECONOMIC COMMUNITY

Reported by: Joyce Llanasas
ENGLA PORTU
ND GAL
TRADE IS NOT WITHOUT
POLITICS (LIST, 1841/1928)
- voluntary trade can have very different
distributional effects and can also hinder long-
term development.
- a temporary retreat from international trade can
be beneficial for the less effective nation.
RESTRICTING THE FREE FLOW OF GOODS

LONG-TERM ECONOMIC GROWTH AND POLITICAL POWER (NATURAL WAY

OF SECURING NATIONAL OBJECTIVES (GILPIN,2001)
 ADVANTAGE
- The division of labor contributes to the
economic development of the CORE.
- CORE economies have had the best of
two worlds, as consumers of primary
commodities and as producers of
manufactured articles.
DISADVANTAGE
- But hinders the development of the
PERIPHERY.
- PERIPHERY economies had the worst of
both worlds, as consumrs of
manufactures and producers of raw
materials.
SOLUTION

PROTECTIONIS
M
 UNILATERAL TRADE MULTILATERALISM:
ORDER From GATT to WTO
- Trade and trade policies served the - Dollar became a world currency.
interest of the monarchs from Portugal - Compromise between the extreme
to England. liberal international regime of the long
- Voluntary trade helped to avoid the 19th century and the economic
eruption of war between two countries nationalism of the inter-war period.
(Dunham,1930). - GATT ( 13 October 1947)
- Countries adopted highly protective - WTO (1 Januray 1995)
tarrifs.
- Protectionism was detrimental to
development, peace and stability
(Ruggie,1982).
- Consequence Retaliation.