The Structure Of Globalization

THE GLOBAL ECONOMY

INTRODUCTION
United Nations- address different kinds of problems occur in the world

8 Millennium Development Goals (1990s)

1st: Eradication of Extreme Poverty and Hunger

Achieving Universal Primary Education

Promoting Gender Equality and Women Empowerment

Reducing Child Mortality

Improving Maternal Health

Combating disease like HIV/ AIDS and Malaria

Ensuring environment sustainability
Global partnership with development

There are different standards of living in the world.

Poverty Line/ Poverty Threshold
Extreme poverty – characterized by severe deprivation of basic human needs. Eliminate by 2030
UN (2015) reported that 1.9 billion down to 836 million extreme poverty.
World Bank by 2030 predicted down to less than 400 million

People who lifted out from extreme poverty still considered to be poor.

ECONOMIC GLOBALIZATION AND GLOBAL TRADE

Economic Globalization
- The increasing interdependence of world economies as a result of cross-border scale trade of
commodities and services, flow of international capital, and wide and rapid spread of technologies. It
reflects the continuing expansion and mutual integration of market frontiers, and is an irreversible
trend for the economic development in the whole world in the turn of millennium.’ (Shangquan, 2000)

2 TYPES OF ECONOMIES
1. Trade Protectionism- usually comes in the forms of quotas and tariffs.

Tariffs – are required fees on import/export

Great Depression of 1929- marked the peak of protectionism
2. Trade liberalization/ Free Trade- it means goods and services moves around the world more easily
than ever. It is more on innovations and ideas, Jeffrey Sachs, an economist mobiles phones are the
“single most transformative technology” when it comes to developing the world.
Leapfrogging – the idea that countries can skip straight to more efficient & cost effective technologies
that were not available in the past.
Fair Trade- concern for the social, economic, and environmental well-being of marginalized small
producers. It aims for a more moral and equitable global economic system.

ECONOMIC GLOBALIZATION AND SUSTAINABLE DEVELOPMENT

Sustainable Development- is the development of our world today by using earth’s resources and the
preservation of such sources for the future.

The relationship between globalization and sustainability is multi-dimensional - it involves economic,

political, and technological aspects.
 Positive effects of development put our environment at a disadvantage such as climate change and
global inequality.

Environmental Degradation
Efficiency- finding the quickest possible way of producing large amounts of a particular product.
This cycle harms the planet in a number of ways.

 Ecological Modernization theory sees globalization as a process that can both protect and enhance
the environment.

Food Security
Global food security means delivering sufficient food for the entire world population.The sustainability
of the society such as population growth, climate change, water scarcity, and agriculture.

 The challenges to food security can be traced to the protection of the environment.

Major Environmental problems:

• Destruction of the natural habitats

• Deforestation

• Industrial Fishing

• Decline in the availability of fresh water and water supply

• Pollution

• Greenhouse gases
• GLOBAL WARMING – poses a threat to the global supply of food as well as to human health.

Global Income Inequality

Economic Inequality- the unequal distribution of income and opportunity between groups in society.

Two types of Economic Inequality

Wealth Inequality- Speaks about distribution of assets

Income Inequality- New earnings are being distributed that values flow of goods and services
Wealth- Refers to the net worth of a country which is also the abundances of resourceS in a specific
country.
Income- New earnings that are constantly being added to the pile of a country’s wealth .

The Third World and the Global South

First world (Global North)- (US, Canada, Western Europe)- Western capitalist country.
Second World (North-South)- The Soviet union and its allies (Albania, Hungary, Poland and Romania)

Third world (Global South)- Caribbean, Latin America, South America, Africa, some part of Asia

Theories of Global Stratification

Modernization Theory- One of the main explanation for global stratification is the modernization
theory. This theory frames global stratification as a function of technological and cultural differences
between nations.

Walt Rostow’s Four Stages of Modernization

1. Traditional Stage- refers to societies that are structured around small, local communities with
production typically being done in family setting.

2. Take-off Stage- people begin to use their talents and skills. This innovations creates new markets for
trade.

3. The drive to technological maturity- nations in this phase typically push for social change along with
economic change.

4. High mass Consumption- your country is big enough that production becomes more about wants
rather than needs.

The Modern World System

Core- high-income nations of the world economy. A manufacturing base of the planet where resources
funnel in to become the technology and wealth.
Semi-Periphery- middle-income countries, due to their closer ties to the global economic core
Periphery- Low Income countries, whose natural resources and labor support the wealthier countries.

MARKET INTEGRATION
Market Integration - Occurs when prices among different locations or related goods follow similar
patterns over a long period of time.

In any given economy, production typically splits into three sectors:

1) Primary Sector
2) Secondary/Manufacturing Factor
3) Tertiary/Service Sector

HISTORY OF GLOBAL MARKET INTEGRATION

-The Agricultural Revolution and the Industrial Revolution
-Capitalism and Socialism
-The Information Revolution
-Global Corporations

International Financial Institutions

The strength of a more powerful economy brings greater effect on other countries. In the same
manner, crises on weaker economies have less effect on other countries.”

THE BRETTON WOODS SYSTEM

Five Key Elements
1) The expression of currency in terms of gold or gold value to establish a par value. (Boughton, 2007)
2) The official monetary authority in each country would agree to exchange its own currency for those
of other countries at the established exchange rates, plus or minus a one-percent margin. (Boughton,
2007, pp 106-107)

3) The establishment of an overseer for these exchange rates, the International Monetary Fund (IMF)
was founded.
4) Eliminating restrictions on the currencies of member states in the int’l trade.
5) The U.S. dollar became the global currency.

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

Substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a
reciprocal and mutually advantageous basis”

WORLD TRADE ORGANIZATION- Responsible for trade in services, non-tariff-related barriers to trade,
and other broader areas of trade liberalization.

INTERNATIONAL MONETARY FUND (IMF)

WORLD BANK

ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)

ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

EUROPEAN UNION (EU)

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

Positive Consequences
-if lowered prices by removing tariffs, opened up new opportunities for small and medium sized
business to establish a name for itself, quadrupled trade between the 3 countries, and created five
million U.S jobs.

Negative Consequences
-include excessive pollution, loss of more than 682,000 manufacturing jobs, exploitation of workers in
Mexico, and moving Mexican farmers out of business.

GLOBALIZATION
Defining Globalization

Components of Globalization
Thinking About Globalization—Globalists vs. Skeptics
Major Questions and Dilemmas of Globalization

Definitions of Globalization

1.Joseph Nye and John Donahue:

“Globalism is a state of the world involving networks of interdependence at multicontinental
distances.”
2. World Bank: Globalization is the growing integration of economies and societies around the world.
Thomas Friedman, “The Lexus and the Olive Tree”
A globalist system has replaced the Cold War system
The new system has unique rules, logic, pressures and incentives driven by international capitalism
Features integration: free flow of capital, goods, ideas more broadly, faster, deeper than anytime in the
past.

The “Golden Straightjacket”: must abide by goals of free market principles, efficiency. Rewarded if you
do.
New key players: The “Electronic Herd.”
Globalization promotes cultural homogenization, the “Big
Mac. Friedman: Globalization’s new structure and balance of power
Traditional balance between states (countries), U.S. is the paramount player
Balance between states and global markets: states can’t ignore the market any longer without costs
Balance between individuals and states: people influence governments through the market at home and
abroad (for good and evil).
Globalization produces “super-empowered individuals

Important Conclusions from Friedman’s argument

1.Rewards. Those who participate in globalization are rewarded, though there are winners and losers.

2.Peace Dividend. Those engaged in globalization have too much to lose with war.

3.Democratic Dividend. Free movement of information with markets produces drive for freedom and
liberty—seeds of democracy.

Components of Globalization?
Economic globalization

Political globalization

Cultural globalization

Q: Is there a global economy?

If so, is this good?

Globalizers (Integrationists) : Yes!

1.Increased integration has brought a higher volume of trade. This means more goods and services for
most of the world.

2. Increased GDPs and overall standard of living for those that participate
“Development cycle” working well
Economies in post-industrial societies increasingly depend on the service sector
Developing countries are industrializing. By the late 1990s almost 50% of total world manufacturing
jobs were located in developing economies while over 60% of developing country exports to the
industrialized world were manufactured goods.

America?
Loss of manufacturing jobs natural. 2.6 million between 1979 and 1999, but overall job increases,
especially in the 1990s.
 Increasing role of the service sector: IT, banking, insurance, service industries—help raise GDP per
capita and the overall standard of living
 Cheaper goods and services with global market

Is economic globalization good?

“All boats rising” (for those who participate) but at different rates
 Raised incomes, though not equal
More individual choice and freedom in the marketplace
Costs of goods and services go down

World Bank Policy Research Report:

Globalization, Growth and Poverty, 2002.

Key Points:

1.Strong correlation between integrating into the world economy and economic growth. Poor countries
with around 3 billion people have broken into the global market for manufactures and services.

2.Higher growth rates increase a country’s GDP and standard of living

 The success stories or “new globalizers” include:

China

India

Bangladesh

Uganda

Vietnam

 Why successful?

Good investment climate

Social policies that aid human capital

Related Study by David Dollar and Aart Kraay, “Spreading the Wealth,”Foreign Affairs, 2002.

 The current wave of globalization (starting around 1980) has reduced poverty and promoted economic
equality
 Key examples: China and India

-account for 36% of the world’s population

-important examples of “how to do it.

UN 2003 Report
China has lifted 150 million people out of poverty in the last 10 years—the biggest success story in
international poverty alleviation.

Why?
1.Rapid economic growth

2.Political will (centralized government)

3.Economic and policy reforms—more open trade, investment, technology

Skeptics (Separatists): No.

1.Not a “globalized” economy. Trade is overwhelmingly dominated by the developed countries (U.S. and
Europe). These countries amass 76% of the exports in goods and services.

2.World economy is dominated by the U.S. and major western powers.

3.Major U.S. trade partners: Canada, Mexico, Japan, China, Germany, U.K. South Korea, Taiwan, France,
Italy

4.Developed countries have overwhelming advantage with investment and trade. Do little to help poor
countries. Center for Global Development and Foreign Policy
Magazine recently ranked overall contributions by developed countries to developing countries. The
U.S. (despite having the largest economy) ranked second to last out of 21 countries. U.S. spends 0.1
percent of its GDP on development.

5.Globalization does not alleviate inequality and poverty, it increases it. Gap betweenrich and poor
countries has increased.
6.Gap between the rich and the poor within countries has increased. Good example? China! Top 10
percent to bottom 10 percent income ratio: 1:35.
Countries with the highest inequality in income and consumption? SubSaharan Africa.

7.Intentions and statistics of the World Bank and the International Monetary Fund suspect.Joseph
Stiglitz, Chief Economist for the World Bank. Book: Globalization and ItsDiscontents, 2002.These
organizations put the interests of Wall Street and the financial community ahead of the poorer nations.

8.Globalization hurts workers in developing countries—forced to work for cheap wages and in poor
working conditions e.g. China, India. Rights of workers ignored.

9.Cheap foreign competition and off-shore production of manufacturing hurts American workers e.g.
Pillowtex.

10. Globalization is undermining the whitecollar class as well with the export of jobs, for instance, to
India.

11. Labor is anything but “global.”

12. Developed countries are still protectionist. This hurts developing countries, limits globalization, and
only helps the already developed.

Important Points
1.China and India are important cases but they don’t represent “the world.”

2.Need to ask what life would be like in China, India and other globalizers without reforms.

3.Rich countries HAVE grown richer, and most of the VERY POOR countries HAVE stayed poor. Question
is WHY.

4.Some governments clearly fail to provide a sufficient environment for economic growth and
development. Others fail to create fair tax systems e.g. Guatemala. Role of ethnic conflict?

5.Some governments are politically unready to even try to provide the a proper environment e.g. “failed
states.”

6.Key differences between the Globalists and Skeptics revolve around:

a. Efficiency: “let ‘em eat cake”
b. Fairness: “social safety-netters”
c. Quality of life under globalization
Need policies that address all of them:
“Sustainable development”

Q: Is there a Global Culture?

Globalists: Yes and No.

1.Decline of nationalism.

2.Growing universal language: English

3.Universal Market of popular culture: entertainment, the Internet, food, etc.

4.Globalization does not destroy local cultures, though it may influence them.

5.Likely growth of a democratic culture. Over 120 democracies today, including over ½ of the world’s
population. Most of these encompass capitalist economies.

Skeptics: No.

1.Nationalism and ethnic nationalism are alive and well in many parts of the world.

2.Globalization = Americanization, a “McWorld” led by the U.S. Vast majority of products originate from
the U.S.

3.Globalization undermines and destroys local cultures e.g. Guatemala and Mayan culture.

4.Globalization engenders a backlash and resistance.

Skeptics: No.

1.Nationalism and ethnic nationalism are alive and well in many parts of the world.

2.Globalization = Americanization, a “McWorld” led by the U.S. Vast majority of products originate from
the U.S.

3.Globalization undermines and destroys local cultures e.g. Guatemala and Mayan culture.

4.Globalization engenders a backlash and resistance.

Q: Has globalization reconfigured

Political Power and National

Interests?

Globalists: Yes
1.The power of governments has declined in the face of the market.

2.Downside: states are more vulnerable—economic pressures and non-state actors e.g. terrorists

3.Societies are freer of government control; people are better able to “link up” for common purposes.

4.War is less likely because of the costs

5.The U.S. is the dominant power but it acts as a positive force in the globalization process providing
“rules” of the market and “creative destruction.”
6.States are losing their sovereignty to the market and other multilateral organizations

Skeptics: No.
1.States are still powerful, some clearly more than others—US unilateralism.

2.National interest? Each state still defines its own if it can.

3.States ignore the goals and regulations of multilateral organizations when it benefits them.
Skeptics: No.

1.States are still powerful, some clearly more than others—US unilateralism.

2.National interest? Each state still defines its own if it can.

3.States ignore the goals and regulations of multilateral organizations when it benefits them.

Dilemmas and Strategies

1.Each side can muster evidence for its cause—what is the broad, sustainable picture?

2.Globalization can be “trainwrecked”

- Economic collapse
-War
-Terrorism

3.Globalization’s impact on the environment and our future? Global warming, resource use, rainforest
destruction, etc

4.Can everyone “globalize” at once?

5.How can governments provide a stable economic environment in the face of AIDS and ethnic conflict?

6.Gender discrimination and empowerment

America?

Comprehensive Policy

1.Support globalization but negotiate a more level playing field for American workers.

2.Improve worker training and “retooling at home.”

3.Support governments that both liberalize their economies and attempt to improve human capital.
Offer “sweet deals.”

4.Bring cases of worker exploitation to the spotlight.

5.Encourage and negotiate improvements in human rights in other countries but protect the market of
opportunity.

6.Encourage the economic empowerment of women.

7.Better entrust and finance UN agencies to achieve sustainable development.

-micro-level investment strategies
-cheap health programs
-address AIDS in a comprehensive way
-transparency for all economic actors

-sensible taxation policies

-”progressive” deprotectionism
-open markets in developed countries for goods from developing countries

Develop and maintain middle classes--Aristotle