CHAPTER 2: The Structures of Globalization

Lesson 1.The Global Economy

a. Actors in Globalization
b. Modern World System

Learning Objectives:
At the end of the chapter, you should be able to:
1.1 Identify the actors that facilitate economic globalization
1.2 Examine the role of international financial institution
1.3 Identify the roles and functions of the United Nations
1.4 Examine the role of nation-state

Lesson 1 the Global Economy

Economy is the basic foundation which should be given primary importance and it also
influences the condition of the society s as well as the politics.
In which the world-wide economic status of one country clearly shows that economic mobility
is consider as major factor in competing in the global arena. Where the rich become more richer
and the poor become poorer.

Economic relationship was established then where Philippines bartered goods with China such
as porcelains, silk and other goods. The Galleon trade which was implemented by the Spaniards
in the Philippines. The silk road which was introduced by China as the oldest international trade
route where goods transported to the other side of the globe.
The establishment of Bretton Woods System in 1944 is after fears of another Depression after
World War II . This was an attempt to create institutional structures which would foster
international economic cooperation and encourage the free fl ow of capital around the world.
The US dollar was adopted as the standard, almost a “ global currency, ” in order to establish
stable international exchange rates.

The Bretton Woods System led to the creation, either directly or indirectly, of various global
economic structures. While the International Trade Organization (ITO) was unsuccessful
because of a lack of US support, the General Agreement on Trade and Tariffs (GATT) sought to
facilitate the liberalization of trade by the reduction of tariff barriers. GATT was eventually
replaced by the World Trade Organization (WTO), which added a concern for the reduction of
non - tariff barriers.

This included the General Agreement on Trade in Services (GATS), protection of intellectual
property through TRIPS, and TRIMS measures that allow a nation - state to control the distorting
effects of foreign investment. The WTO is a forum for international negotiations on trade, with
member countries participating in successive “rounds ” of discussions. Bretton Woods also led
to the creation of the International Monetary Fund in order to create a stable global monetary
system.

According to Hamilton, 2008 . One of the dimension of globalization is the economic

globalization it involves trading and investing between countries. Trade is a driving force behind
international relations and trade impacts nearly every aspect of society.This global economy has
involved the global decentralization of production simultaneous to the centralization of
command and control of the global production system within global cities. Here Sassen draws
on the basic insight from the sociology of organization that any increase in the complexity of
social activity must involve a concomitant increase in the mechanisms of
coordination.(Robinson, 2008)

Global trade operates through various economic networks such as supply chains, international
production networks, global commodity chains and, most importantly, global value chains.
Global value chains follow the creation of value through different stages, from the creation of a
product, to its disposal after use.

Furthermore, commodities are often the first link in this chain. The demand for commodities is
sky - rocketing, fueled primarily by enormous demand in the developed countries and increased
consumption in developing countries (especially China). Oil is a case in point. Not only are prices
escalating because of increased demand, but it is also becoming increasingly difficult to procure
oil. These problems will be exacerbated in the future by a decrease in the global supply of oil, as
well as by the fact that some of the current oil - exporting countries will start to import (rather
than to export) oil to meet their domestic needs. Some countries stimulate trade and investment
through low prices and low wages. This often leads to a “race to the bottom ” among countries
vying for increased investment and export business. However, some theorize that after a point,
there is a move toward industrial “upgrading. ”

In global flow outsourcing is also important which the offshore outsourcing involves
contracting work to companies located in other countries. Apart from the economic domain,
this process is also prevalent in the health care and military domains. Not only does the process
operate at a macro - level, but increasingly, it can also be observed at micro - and meso - levels.

Interconnection of worldwide economic activities known as Global Economy that take

place between multiple countries. These economic activities can have either a positive or
negative impact on the countries involved.

There are some characteristics of Global Economy:

Globalization 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.

• International trade is considered to be an impact of globalization, and it has also helped countries to
specialize in products which they have a comparative advantage in.

• . 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.
Why is the global economy important?
• 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).
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
How does the global economy work?

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:

What are the effects of global economy?

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.

What are the benefits of global economy?

Movement of labour: Increased migration

of the labour force is advantageous for the Free trade is an excellent method for
recipient country as well as for the countries to exchange goods and services
workers.

Increased economies of scale: The

Increased investment: Due to the
specialisation of goods production in most
presence of global economy, it has
countries has led to advantageous
become easier for countries to attract
economic factors such as lower average
short-term and long-term investment
costs and lower prices for customers.

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:
 Population Infrastructure
Human capital; Technology;
Natural resources Law.

Suggested Link:

https://www.edology.com/blog/accounting-finance/how-does-global-economy-work/

Actors in Globalization

Category of Organization

Intergovernmental Organizations or international organization

is an organization composed primarily of sovereign states , or of other intergovernmental

oganizations. IGO are established by a treaty that acts as a charter creating group. Treaties are
formed when lawful representatives of several states go through a ratification process,
providing the IGO with an international personality.

 World Trade Organization

 World Health Organization
 Asian Development Bank

Supranational Organization

Organizations that extend beyond the borders of three or more states that seeks to promote
economic, political, or cultural unity between members.

 United Nations
 International Labor Organization
 European Union

International Non –Governmental Organizations

Organization extends the concept of a non-governmental organization to an international
scope . NGOs are independent of governments and can be seen as two types , advocacy NGOs,
which aim to influence governments with a specific goal and operational NGOs , which provide
services.

 Amnesty International
 International Committee of the Red Cross
 International Chamber of Commerce

Multinational Corporation(MNC) also known as global corporation, is an entity that owns and
controls production of goods or services in one or more countries aside from their home
country.

While Transnational Corporation (TNC) is a commercial enterprise that operates substantial

facilities that does business in more than one country.
Google.com
B. World-system theory
A world-system is a socioeconomic system,
under systems theory, that encompasses
part or all of the globe, detailing the
aggregate structural result of the sum of the
interactions between polities. World-systems
are usually larger than single states, but do
not have to be global. The Westphalian
System is the preeminent world-system
operating in the contemporary world,
denoting the system of sovereign states and
nation-states produced by the Westphalian
Treaties in 1648.
The BRANDT LINE
In the study of Wallerstein ,1979 he cited
that a social system is known as world
system which one that has boundaries,
structures, member groups, rules of
legitimation and coherence. Its life is made
up of the conflicting forces which hold it
together by tension and tear it apart as each
group seeks eternally to remold it to its
advantage. There are also semi peripheral
areas which are in between the core and the
periphery on a series of dimensions, such as
the complexity of economic activities,
strength of the state machinery, cultural
integrity, etc. Some of these areas had been
core-areas of On the other hand, the
interests primarily located in the semi
periphery are located outside the political
arena of the core-states, and find it difficult
to pursue the ends in political coalitions that
might be open to them were they in the
same political arena.
Source : ReviseSociologyA level sociology
revision Karl Thompson Dec. 2005
The Brandt Line is an imaginary division that has provided a rough way of diving all of the
countries in the world in to the rich north and poor south. It is also the report written by the
independent Commission, first chaired by Willy Brandt in 1980, to review international
development issues. The result of this report provided an understanding of drastic differences
in the economic development for both the North and South hemispheres of the World.

a. Global Economic Integration

The economic integration is not a new phenomenon. Since the travels of Marco Polo , global
economic integration has been a trend to civilization. There are number of factors that
contributes to global economic growth such as the privatization, deregulation, foreign direct
investment, trade liberalization and regional integration.

Privatization the transfer of ownership , property or business from the government to the
private sector is termed privatization The government ceases to be the owner of the entity or
business.

Deregulation is the process of removing or reducing state regulations, typically in the

economic sphere.

Foreign direct investment (FDI) is an investment in the form of a controlling ownership in a

business in one country by an entity based in another country. It is distinguished from a foreign
portfolio investment by a notion of direct control.
 Trade liberalization is the removal or reduction of
restrictions or barriers on the free exchange of
goods between nations. These barriers
include tariffs, such as duties and surcharges, and
nontariff barriers, such as licensing rules
and quotas. Economists often view the easing or
eradication of these restrictions as steps to promote
free trade.

Regional integration is the process by which two or

more nation-states agree to co-operate and work
closely together to achieve peace, stability and
wealth. Usually integration involves one or more
written agreements that describe the areas of
cooperation in detail, as well as some coordinating
bodies representing the countries involved.

What is Market Integration?

Market integration in a term that is used to identify a phenomenon in which markets of goods
and services that are somehow related to one another being to experience similar patterns of
increase or decrease in terms of the prices of those products. The term can also refer to a
situation in which the prices of related goods and services sold in a defined geographical
location also begin to move in some sort of similar pattern to one another.
(Tatum, 2020 )Market integration is a term that is used to identify a phenomenon in which
markets of goods and services that are somehow related to one another being to experience
similar patterns of increase or decrease in terms of the prices of those products. The term can
also refer to a situation in which the prices of related goods and services sold in a defined
geographical location also begin to move in some sort of similar pattern to one another. At
times, the integration may be intentional, with a government implementing certain strategies
as a way to control the direction of the economy. At other times, the integrating of the
markets may be due to factor such as shifts in supply and demand that have a spillover effect
on several markets.

Effect of Integration on Market Development

1. Market integration provides opportunity to expand market coverage by selling local

products in the global market.

2. Market integration help to reduce market failure

3. Difference in the prices in integrated market should be equal if they are well integrated.

In the International Financial Institutions, with the Bretton Woods Agreement that currencies
were pegged to the price of gold and the US dollar was seen as a reserve currency which linked
to gold standard. Bretton Woods had its most powerful effects on global trade, the global
monetary order, and global investment (Peet 2003 ).

According to the study of Mofatt, 2020 under the Bretton Woods System the central banks of
countries other than the United States were given the task of maintaining fixed exchange rates
between their currencies and dollar which they did this by intervening in foreign exchange
markets .
In terms of global trade , a key was the idea of the “ unconditional most - favored nation ”
which “ required governments to offer the same trade concessions [reductions in trade
barriers, non- d iscrimination against a nation’ s products] to all” (Frieden 2006 : 288).
Restrictions on international trade were reduced over the years through various meetings (“
rounds” ) under the auspices of GATT (General Agreement on Tariffs and Trade) and later the
WTO .

In terms of the monetary order , it was the IMF that took center stage. The goal was to provide
security, as well as fl exibility, to the monetary order. What emerged between 1958 and 1971
was a system in which the US could not change the value of its dollar, while all other countries
could, but as infrequently as possible. This made exchange rates stable enough to encourage
international trade and investment which otherwise would have been discouraged by dramatic
fluctuations in rates.

In terms of global investment , a key role was envisioned for the World Bank, but massive US
aid through the Marshall Plan, and rapid European post - war recovery, made its work in that
period of much less significance than had been anticipated. A key development in terms of
investment involved MNCs, especially American based firms in fields like automobiles and
computers, constructing their own plants and/or investing in indigenous companies in other
countries.

In many countries specially the welfare of the state global openness encourage by Bretton
Woods contributed to the emergence or expansiob of social welfare program.Welfare states
sought to deal with various problems – recession, layoffs, reductions in wages, and
bankruptcies of uncompetitive fi rms. The creation of a social safety net within a given country
served to protect it and its citizens from these problems, at least to some degree. In the
process, it gave a nation and its entrepreneurs the cover they needed to be actively involved in
the global marketplace.

Hence, to eliminate restrictions on the use of currency for international trade, the member
states decided to come up with an agreement known as the General Agreement on Tariffs and
Trade (GATT)
.
GATT focused on trade in goods, the WTO also took on responsibility for the increasingly
important trade in services. While GATT was simply a forum for the meeting of representatives
of countries, the WTO is an independent organization.

Trade - Related Aspects of Intellectual Property Rights (TRIPS) (Correa 2000 ) was negotiated
through the WTO, as a result of the 1986– 9 4 Uruguay Round of negotiations. This involves
intangible ideas, knowledge, and expressions that require their use to be approved by their
owner. Involved here is a wide range of intellectual property, such as movies, books, music
recordings, and computer software, which exists, or whose value lies, largely in the realm of
ideas
Trade- Related Investment Measures (TRIMs) “ are a range of operating or performance
measures that host- country governments impose on foreign firms to keep them from having a
distorting effect on trade in goods and services” (Grimwade 2007 : 1178).

World Trade Organization ( WTO)

The WTO is a multilateral organization headquartered in Geneva, Switzerland, with, as of

2008, 152 member nations (Krueger 2 000; Trachtman 2 007: 1308– 1 5). Its focus on trade
places it at the heart of economic globalization and has made it a magnet for those opposed
either to the broader process of trade liberalization and promotion or to some specifi c aspect
of WTO operations.

While GATT focused on tariff reduction, the WTO has come to focus more on non- t ariff- r
elated barriers to trae.

International Monetary Fund ( IMF )

The goal of the IMF is macroeconomic stability for both member nations and, more generally,
the global economy (Cardim de Carvalho 2 007: 658– 6 3)

World Bank

The World Bank (officially the International Bank for Reconstruction and Development [IBRD]),
a specialized agency of the UN, is the most important element of the World Bank Group (WBG)
(Gilbert and Vines 2000 ; Bradlow 2007 : 1262 – 7).

The IBRD (or the Bank) was established in 1944 at Bretton Woods and began operations in
1946. Membership is open to all member states of the IMF and as of this writing it includes 184
nations. It provides funds to government- sponsored or - guaranteed programs in so - called
Part II countries (member states that are middle- income or creditworthy poorer nations).