CHAPTER II

THE GLOBAL ECONOMY

OVERVIEW:

The world economy or global economy is the economy of the humans of the,
world considered as the international exchange of goods and services that is expressed
in monetary units of account. In some contexts, the two terms are distinct “international”
or “global economy” being measured separately and distinguished from national
economies while the “world economy” is simply an aggregate of the separate countries
measurements.

Millennium Development Goals (MDGs)

The United Nations Millennium Development Goals are eight goals that all 191
UN member states have agreed to try to achieve by the year 2015. The United
Nations Millennium Declaration, signed in September 2000 commits world leaders to
combat poverty, hunger, disease, illiteracy, environmental degradation, and
discrimination against women. The MDGs are derived from this Declaration, and all
have specific targets and indicators.

The Eight Millennium Development Goals are:

1. to eradicate extreme poverty and hunger;

2. to achieve universal primary education;
3. to promote gender equality and empower women;
4. to reduce child mortality;
5. to improve maternal health;
6. to combat HIV/AIDS, malaria, and other diseases;
7. to ensure environmental sustainability; and
8. to develop a global partnership for development.

The MDGs are inter-dependent; all the MDG influence health, and health
influences all the MDGs. For example, better health enables children to learn and
adults to earn. Gender equality is essential to the achievement of better health.
Reducing poverty, hunger and environmental degradation positively influences, but
also depends on, better health.
Economic Globalization and Global Trade

Economic globalization according to the United Nations itrefers to the increasing

interdependence of world economies as a result of the growing scale of cross – border
trade of commodities and services, flow of international capital, and wide and rapid
spread of technologies.

 Communication – modern communication technology and mass media are

global standard. It is relatively easy and inexpensive to stay in touch.

 Transportation – travel and shipping are cheap and safe.

 Trade – Multi-national Corporation have global reach and increasing power.

Government has decreases tariffs and regulation on international trade.

There are two different types of economies associated with economic

globalization: protectionism and trade liberalization.

Protectionism – protecting one’s economy from foreign competition by creating trade

barriers. Domestic products are greater than imported goods. It comes
into form of quota, tariff, and bans.

Tariff –required fees on imports and export. The money collected

from tariff is called customs duty.

Quota – limits on the number of products that can be imported into

a country.

Ban – forbid products on import goods.

Trade liberalization- it is also called “FREE TRADE”. Act of reducing trade barriers to
make international trade easier between countries. Trading of
goods and services between two or more countries without tariffs
or taxes.

Trade Bloc–agreement between governments to reduce or eliminate trade barriers.

Fair trade–it is the concern for social, economic and environmental well-being
marginalized small producers. It aims for a more moral equitable global economic
system. Specifically, it is concerned with protection of workers and producers,
establishment of more jus prices, engagement in environmentally sound practices and
sustainable production, creation of relationships between producers in the south and
consumers in the north, promotion of safe working environment.
Economic Globalization and Sustainable Development

Sustainable Development
It is the development of our world today by using the earth’s resources and the
preservation of such resources for the future. One significant global response or
approach to economic globalization is that sustainable development, which seeks to
chart a middle path between economic growth and sustainable environment. The
relationship between globalization and sustainability is multi-dimensional. It involves
economic, political, and technological aspects.

The continuous production of the world’s natural resources, such as water and
fossil fuel allow humanity to discover and innovate many things. We were able to utilize
energy, discover technologies, and make advancements in transportation and
communication. However, these positive effects of development put our environment at
a disadvantage. Climate change accelerated and global inequality was not eradicated.

The 17 sustainable development goals (SDGs) to transform our world:

GOAL 1: No Poverty
GOAL 2: Zero Hunger
GOAL 3: Good Health and Well-being
GOAL 4: Quality Education
GOAL 5: Gender Equality
GOAL 6: Clean Water and Sanitation
GOAL 7: Affordable and Clean Energy
GOAL 8: Decent Work and Economic Growth
GOAL 9: Industry, Innovation and Infrastructure
GOAL 10: Reduced Inequality
GOAL 11: Sustainable Cities and Communities
GOAL 12: Responsible Consumption and Production
GOAL 13: Climate Action
GOAL 14: Life Below Water
GOAL 15: Life on Land
GOAL 16: Peace and Justice Strong Institutions
GOAL 17: Partnerships to achieve the Goal

Environmental Degradation
It is a result of socio – economical, technological and institutional activities.
Degradation occurs when Earth’s natural resources are depleted. Resources which are
affected include: water, soil, and air. The degradation also impacts are: ecosystem,
wildlife, animals and plants. Development especially economic development was
hastened by the industrial revolution. This is the period in human history that made
possible the cycle of efficiency. Efficiency means finding the quickest possible way of
producing large amounts of a particular product. This cycle harms the planet such as
deforestation, pollution, and climate change.
Food Security

Global food security means delivering sufficient food to the entire world
population. It is therefore, a priority of all countries, whether developed or less
developed. The security of food also means the sustainability of society such as
population growth, climate change, water scarcity, and agriculture.

Economic Globalization, Poverty, and Inequality

Economic and trade globalization is the result of companies trying to

outmaneuver their competitors.

Multiplier effect means an increase in one economic activity can lead to an

increase in other economic activities. For instance, investing in local businesses will
lead to more jobs and income.

Economic globalization has helped millions of people get out of extreme poverty
but the challenge of the future is to lift up the poor while at the same time keep the
planet livable. One of the best ways to help those in extreme poverty is to enable to
participate in the economy.

Global Income Inequality

Globalization and inequality are closely related. We can see how different nations
are divided between the North and the south, developed and less developed, and the
core and periphery. These differences mainly reflect one key aspect of inequality in the
contemporary world – global economic inequality.

Two types of economic inequality: wealth inequality and income inequality.

Wealth refers to the net worth of a country. It takes into account all the assets of the
nations may be natural, physical and human – less the liabilities. In other words, wealth
is the abundance of the resources in a specific country. This means that wealth
inequality speaks about distribution of assets. However, there is no widely recognized,
monetary measure that sums up these assets.

In order to measure global economic inequality, economists usually look at

income using the gross domestic product (GDP). Income is the new earnings that are
constantly being added to the pile of the country’s wealth. Income inequality we mean
that new earnings are being distributed, it values the flow of goods and services, not
stock of assets.

Branko Milanovic, an economist who specializes in global inequality, explained

all this by describing an “economic big-bang” wherein the industrial revolution caused
the differences among countries. Through this explosion, of industry and modern
technology, some nations, became economically developed while others were
developing. Ultimately, the result is the economic gap among countries. Economic
globalization and international trade are the forces responsible I today’s global income
inequality. Many economists believe that the world’s poorest people gained something
from globalization.

Access to technology also contributed to worldwide income inequality. It

complemented skilled workers but replaced unskilled workers. In modernized
economies, jobs are more technology-based, generally requiring new skills. This is what
economists referred to as skill-based technological change. As a result, workers who
are more educated and more skilled would thrive in those jobs by receiving higher
wages. On the other hand, the unskilled workers will fall behind. They will be left or
overtaken by machines or more skilled workers. In addition, manufacturing, jobs that
require low skills are moved overseas. The result is a widening gap between the rich
and the poor as well as between high-skilled and low-skilled workers.

The Global City

The rural- urban differentiation has a significant relationship to globalization.

Globalization has deeply altered North –South relations in agriculture. For instance, the
relations of agricultural production have been altered due to the rise of global
agribusiness and factory farms. In this scenario, the south produces non-traditional
products for exports from the north. Consequently, this leads to replacement of the
staple diet as well as the displacement of local farmers. Rural economies are exposed
to low prices and mass migration.

Cities are major beneficiaries of globalization; Bauman claimed that they are also
the most severely affected by global problems. Therefore, the city faces peculiar
political problems, wherein it is often fruitlessly seeking to deal locally with global
problems and local politics has become hopelessly overloaded.

Theories of Global Stratification

A. Modernization theory
This theory frames global stratification as a function of technological and cultural
differences between nations. It specifically pinpoints two historical events that
contributed to Western Europe developing faster rate than much of the rest of the world.
The first event is known as the Columbian Exchange. This refers to the spread of
goods, technology, education, and diseases between the Americas and Europe after
Christopher Columbus’s so called “discovery of Americas”. The second historical event
is the industrial revolution in the 18 th and 19th centuries. This is when new technologies,
like steam power and mechanization, allowed countries to replace human labor with
machines and increase productivity. The industrial revolution, at first, only benefited the
wealthy in western countries. Industrial technology was very productive that it gradually
began to improve standards of living for everyone. Countries that industrialized in the
eighteenth to nineteenth centuries saw massive improvements in their standards of
living and countries that did not industrialize lag behind.

Walt Rostow’s for stages of modernization

According to American economist Walt Rostow, modernization took place as it

always tends to, in four stages.

1. Traditional stage
- This refers to societies that are structures around small, local
communities with production typically being done in family settings.
Because these societies have limited resources and technology,
most of their time spent on laboring to produce food, which creates
a strict social hierarchy.

2. Take-off stage
- People begin to use their individual talents to produce things
beyond the necessities. This innovation creates new markets for
trade. In turn, greater individualism takes hold and social status is
more closely linked with material wealth.

3. Drive to technological maturity

- Technological growth of the earlier periods began to bear fruit in the
form of population growth, reductions in absolute poverty levels,
and more diverse job opportunities. Nation in this phase typically
begin to push for social change along with economic change.

4. High mass consumption

- A country is big enough that production becomes more about wants
than needs. Many of these countries put social support systems in
place to ensure that all of their citizens have access to basic
necessities.

B. Dependency theory
Dependency Theory, theory of economic development that emerged in the
1960s. Dependency theory addresses the problems of poverty and economic
underdevelopment throughout the world. Dependency theorists argue that dependence
upon foreign capital, technology, and expertise impedes economic development in
developing countries. The view that global stratification results from colonization and
exploitation of the poorest nations by the richest ones.

C. The world-systems theory

It stresses that world-systems should be the basic unit of social analysis refers to
the international division of labor: core countries are geographically advantaged,
exploit peripheral areas. Semi-periphery countries are exploiting by the core
countries and exploiting the periphery areas, recent expansion into
manufacturing areas no longer profitable in core, and periphery countries are
least developed; exploited for cheap labor, raw materials, and agricultural
production.