THE INTERNATIONAL

ECONOMY
Contemporary World
Gerald Duagan
 THE BEGINNINGS OF THE
INTERNATIONAL ECONOMY

How would the

world look like
without money?
 THE BEGINNINGS OF THE
INTERNATIONAL ECONOMY

•Gold, silver, and other precious metals were

used as currency to one country and another.
•Minting coins with arbitrary face values
started the process which led to the formal
adoption of formal monetary systems in the
West.
 THE BEGINNINGS OF THE
INTERNATIONAL ECONOMY

In the 1800s, UK, USA, and

Europe adopted the gold
standard
The gold standard was a
commitment by
participating countries to
fix the prices of their
domestic currencies in
terms of a specified
amount of gold. National
money and other forms of
money were converted into
gold at the fixed
price.” (Michael Bordo)
 WHY USE GOLD?

This means that currencies were backed by gold:

every price of paper money has an equivalent
amount of gold, hence when people use paper
money, it’s as if they are using gold.

The rationale for the choice of this precious metal is

that “gold was believed to guarantee a non-
inflationary, stable economic environment, a
means for accelerating international trade”.
The Gold standard provided:

Important degree of predictability for world

trade, lending, and investment.
Western powers intensified their use of their
colonies for the raw materials and markets
Technological innovations in production and
transportation accelerated industrialization
Swifter trade
 INTERNATIONAL TRADE

International trade aided by the gold standard

led to market integration.

“Technological and policy change turned a world of

closed colonial empires into an integrated global
economy”

“Transportation and communications improvements,

along with policies to further economic integration,
led to a significant convergence of prices”
 INTERNATIONAL TRADE

•World War 1 disrupted the dominance of the

gold standard, as it has weakened Europe
politically and economically, while the US
steadily established itself as the center of
the capitalist world.
•The crisis years of the 1930s further
weakened Europe and the US eventually.
Countries resorted to closing their
economies from free trade to help cushion
the impact of the crisis.
 INTERNATIONAL TRADE

•The need for an international commitment

was further encouraged after the effects of
the 2nd World War.
•All these factors led to the establishment of
what is to be known as the “Bretton Woods”
system which replaced the gold standard
and aided capitalist countries toward
achieving closer economic integration.
 INTERNATIONAL TRADE

!In 1944, 44 capitalist countries led by the US met at

Bretton Woods, a town in New Hampshire, resulting in
agreements that ”created an international basis for
exchanging one currency for another. It also led to the
creation of the IMF and the International Bank for
Reconstruction and Development, now known as the
World Bank. The former was designed to monitor
exchange rates and lend currencies to nations with trade
deficits, the latter to provide underdeveloped nations
with needed capital.”
 INTERNATIONAL TRADE

•Member nations contributed “a membership

fee, of sorts, to fund these institutions; the
amount of each contribution designated a
country’s economic ability and dictated its
number of votes.”
 INTERNATIONAL TRADE

•The establishment of the Bretton Woods

system further stimulated international
trade and financed post-war reconstruction,
as “the member states agreed to fix their
exchange rates by tying their currencies to
the US dollar to gold; $1 equaled to 35 oz. of
bullion. Nations also agreed to buy and sell
US dollars to keep their currencies within
1% of the fixed rate. And thus the golden age
of the US dollar began.”
 INTERNATIONAL TRADE

!From then on, the US dollar became the

world’s leading, if not unchallenged,
international currency. With the IMF and the
WB under its control and influence, US
dominance in the capitalist world remained
undisputed until China outperformed the
former in terms of GDP.
INTERNATIONAL TRADE
Understanding the Global
Economy through Immanuel
Wallerstein’s
World Systems Theory
 WORLD SYSTEMS
ANALYSIS

Emphasis on the “world” as a unit of analysis rather

than the state or society.
• The world economy as a large geographic zone within
which there is a division of labor and hence significant
internal exchange of basic or essential goods as well as
flows of capital and labor.
• What unifies the structure most is the division of labor
which is constituted within it. Every ”world” or “large
unit” of countries is composed of a CORE and a
PERIPHERY.
 WORLD SYSTEMS
THEORY

Core States/Economies:

Engage in innovative, capital-intensive

production
Requires higher and more specialized labor
and professional skills
Eg.: Microchip production, pharmaceuticals
 WORLD SYSTEMS
THEORY

Peripheral States/Economies

• Take part in labor-intensive production

• Requires only low-level skills, usually involving
the mere extraction and/or preliminary
processing of resources
Eg.: Mining or copra production
 CORE AND PERIPHERY

Core regions typically treat their peripheries as sources

of raw materials and labourers, and as markets for
their surplus products.
The economies of core regions seemingly grow at the
expense of peripheral regions.
Peripheries are seemingly made permanently
dependent on the core regions as they are hindered
from using their own natural resources for
industrialization and achieving capability in production
and innovation.
 CORE AND PERIPHERY

Some regions are labelled as semi-peripheries as they

share some characteristics of both a core and a
peripheral region or if they serve as a core to one
region and a periphery to another.
If the world will be considered as a world system, the
industrialized countries are the core countries while
most of the industrializing or non-industrialized
countries are peripheral countries.
WORLD SYSTEM THEORY
MODEL
Globalization as a Process

!A set of complex, sometimes contradictory, social

processes that are changing our present social
condition based on the modern system of
independent nation-states.

!It is also a multidimensional set of social

processes that create, multiply, stretch, and
intensify worldwide social interdependencies and
exchanges.
Globality

!As a future social condition characterized by

thick, economic, political, and cultural
interconnections and global flows that make
currently existing political borders and economic
barriers irrelevant.
Globalism

!A political belief system that advocated the

deregulation of markets and liberalization of
trade, the privatization of state-owned
enterprises.

!Examples of this belief system include the

promotion of “American values” and the support
for the global war on terror.
 IMPERIALISM

Imperialism is a policy/ideology of extending a

country’s power and influence through military force
or diplomacy. In other words, it refers to the practice
by which a country increases its power by gaining
control over other areas of the world. The term
imperialism is derived from Latin imperium,
meaning supreme power.
TYPES OF IMPERIALISM

Formal imperialism refers to the complete colonial rule

or the physical control.

Although less direct, informal imperialism is also a

powerful form of dominance, which is less costly than
directly taking over territories.

In informal imperialism, the control is less subtly spread

through ownership of private industries, technological
superiority, uneven trade agreements, and offering loans
that cannot be repaid.
 COLONIALISM

Colonialism is the practice of acquiring partial or full

control over another country and exploiting it economically.
Colonialism results in a set of unequal relationships
between the colonizers and the colonized (natives of the
colony) and between the colonial power and the colony.

European countries such as the Great Britain, France, Spain,

Portuguese, and Netherlands established colonies in Asia,
Africa and the Americas during the period from 16 century
th

to mid-20 century.
th
TYPES OF COLONIALISM

Settler colonies involve foreign people moving to a new

region. This is a large scale immigration, motivated by
economic, political or economic reasons. Europeans moving
to the Americas, Australia, and New Zealand is an example
of settler colonialism. The original residents of these regions
are often forced to move to other regions or exterminated.

Dependencies are colonies where a small number of

colonizers act as the administrators over the native
population. This does not involve large-scale immigration.