The

Contemporary
Market Integration
World
Tobit P. Abao
 ECONOMY
• Institution that has big impact on society
• Three parts: production, distribution, and
consumption
• Composed of people
• Economic systems shape the lives of people
• This chapter aims to show the contributions of
different financial and economic institutions that
helped in the growth of the global economy.
 SECTORS OF THE ECONOMY
(regardless of the economic system)
• Primary Sector
– Extract raw materials from the environment (i.e.
miners, farmers, loggers, fishermen)
• Secondary Sector
– Make the raw materials from the primary sector
into goods (i.e. artisans, craftsmen, industrialists)
• Tertiary Sector
– Offers services rather than goods (i.e. barbers,
manicurist, pedicurist, dentists, teachers, etc.)
 CONTEMPORARY GLOBAL
ECONOMY
• Characterized with high interdependence
• Brought closer by globalization
• “when the American economy sneezes, the
rest of the of the world catches a cold”
• So when the American economy catches a
fever, let us prepare for our own funeral
• Weaker economies have less impact on other
countries
 INTERNATIONAL
FINANCIAL
INSTITUTIONS AND
ECONOMIC
ORGANIZATIONS
 BRETTON WOODS SYSTEM
• World War 1, Great Depression, World War 2
• The global economy is characterized with high protectionism and the principle
of mercantilism that hinders trade.
• To promote Free Trade on the global arena, the US believed that it is necessary
to create a TRANSNATIONAL AGENCY which would assist nations suffering
with deficits in their international trade account
• A nation suffering with ACCOUNT DEFICIT is forced to control and limit imports
• These agencies would give temporary assistance to nations suffering with
deficits so that they will not be forced to limit their importations and close their
markets.
• BRETTON WOOD TWINS: WORLD BANK (International Bank for Reconstruction
and Development [ICRB] and INTERNATIONAL MONETARY FUND)
• World Bank and IMF are basically banks started by different countries.
 BRETTON WOODS SYSTEM (5
ELEMENTS)
1. Expression of currency in terms of gold or gold value to establish a
par value.
2. Official monetary authority in each country (i.e. Bangko Sentral ng
Pilipinas)
3. Establishment of an overseer to these exchange rates through the IMF
4. Eliminating restrictions on currencies of members states in the
international trade
5. US dollar as the global currency
– (we do not pay our utang to the World Bank in Philippine peso but
in US dollars. That is why remittances of our OFWs are very
important because we are suffering from ACCOUNT DEFICITS)
INTERNATIONAL MONETARY FUND
• IMF and World Bank complement each other.
• Provides temporary relief to member countries
suffering from a shortage of international
currency due to trade
• Lender of countries who needed financial
assistance because of economic problems
• Primary function: to secure the freedom in terms
of international flow of goods and commodities
• Strings attached (structural adjustments [SAP])
 WORLD BANK
• Long-term approach
• Goals involved the eradication of poverty and
it funded specific projects that helped in the
realization of such goals especially in poor
countries
• Primary function: secure freedom in the
international movement of investment capital
 GATT and WTO
• General Agreements on Tariffs and Trade
• Tariff – taxes imposed to imported materials.
• GATT (1947) – was a forum for the meeting of
representatives from 23 member countries. Focuses on
trade goods through multinational trade agreements
conducted in many “rounds” of negotiations
• It was in the Uruguay Round (1986-1993) of the GATT that
an agreement to create the WTO was reached.
• GATT is just an agreement; WTO is an organization
• It was GATT that gave birth to the WTO though
 WTO
• World Trade Organization
• members (2008) with headquarters in Geneva, Switzerland
• Independent multilateral organizations that became
responsible for trade in services, non-tariff-related barriers
to trade, and other broader areas of trade liberalization
• Neoliberalism is the idea behind the WTO. It was based in
the assumption that by reducing or eliminating barriers,
all nations will eventually benefit.
• Criticism is that the trade barriers imposed by developed
countries cannot be countered enough by the organization.
 ORGANIZATION FOR ECONOMIC
COOPERATION AND
DEVELOPMENT (OECD)
• Most encompassing club of the richest countries
in the world
• 35 member-states as of 2016
• Latvia is a latest member
• Highly influential organization
 ORGANIZATION OF PETROLEUM
EXPORTING COUNTRIES (OPEC)
• Organization of major oil exporters in the
world
• Originally composed of Saudi Arabia, Iraq,
Kuwait, Iran, and Venezuela
• Was formed because they want to increase
the price of oil
• United Arab Emirates, Algeria, Libya, Qatar,
Nigeria, and Indonesia are now members
 EUROPEAN UNION (EU)
• Made up of 28 member-states
• Most members adopted euro as the basic
currency while some nations like Britain,
Sweden, and Denmark did not.
• Brexit issue
NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
• Trade pact between United States, Mexico, and Canada
• Originally created with US and Canada only in 1989
• Aims to increase cooperation for improving working conditions in
the region by reducing trade barriers
• Leads to the outsourcing of manufacturing jobs to Mexico due to
cheaper labor and relatively lower government regulations
• Has both negative and positive consequences
• POSITIVE (reduced prices by removing tariffs, opportunity for small
and medium businesses, quadrupled trade, created jobs)
• NEGATIVE (pollution, exploitation of Mexican workers, Mexican
farmers running out of business)
 HISTORY OF GLOBAL MARKET
INTEGRATION
• Agricultural Revolution
– Domestication of plants and animals leading to permanent
settlements
– Creation of surpluses (if naay sobra, naa pa kay mabaligya) and
trade networks
• Industrial Revolution
– Rise of industries and new technologies (steam engines)
– From manual labor to mechanization
– From family enterprise to factories and mass production
– Because of mass production, more surpluses
– Criticized by Karl Marx (The Father of Communism)
 COMPETING ECONOMIC
MODELS: CAPITALISM AND
SOCIALISM
 CAPITALISM
• System in which all natural resources and means of production
are privately owned (private ownership)
• Profit maximization and competition as the drivers of efficiency
• Adam Smith (Wealth of Nations; emphasis of the invisible hand)
• The market has its own invisible hand that regulated itself, thus
state intervention is discouraged
• Monopoly (form of market failure)
• Capitalism= MARKET over STATE
• There should be minimal intervention from the state.
 SOCIALISM
• Production is under collective ownership
• Rejects capitalism’s private property and hands-off
approaches
• Property is owned by the government and allocated to all
citizens
• Collective goal. Meeting everyone’s basic needs rather than
profit
• Marx viewed it as the stepping stone towards communism
• Socialism= STATE over MARKET
• Government should intervene. The state should have a role.
 INFORMATION REVOLUTION
• Technology has reduced the role of human labor (same as in the
Industrial Revolution)
• Computers and technologies already replaced jobs through
automation and outsourcing
• Primary labor market
–Jobs that provide many benefits to workers like high incomes, job
security, insurance, and retirement packages. White collared
professions (i.e. Engineers, accountants, etc.)
• Secondary labor market
–Provides fewer benefits and includes low-skilled jobs, tend to pay
less, unpredictable schedules, and less job security.
• Corporations – organizations that exist as legal entities and have
liabilities that are separate from its members.
 GLOBAL CORPORATIONS
• Multinational or Transnational Corporations (MNCs or
TNCs)
– Companies that extend beyond the borders of one’s country
• Intentionally surpass national borders to take advantage
to the opportunities in different countries to
manufacture, distribute, and market their products
• Coca-Cola, General Electric, McDonald, Starbucks, Ford
• Has wide political influence
 GLOBAL CORPORATIONS
• Often locate their operations into countries with
the cheapest labor to save expenses
• States on the other hand offers tax-free trade,
cheap labor to attract these corporations
• International trade and global trade accelerate
the process of globalization
• Diffusion – the process where cultural practices
and expressions are passed between nations,
spreading group to group.