CHAPTER II: ECONOMIC GLOBALIZATION

Economic globalization is one of the most powerful forces to have shaped the postwar
world according to Nye, Joseph and Donahue, John (2000). In particular, international trade in
goods and services has become increasingly important over the past fifty years, and international
financial flows over the past thirty years.
The two major drivers of economic globalization are reduced costs to transportation and
communication in the private sector and reduced policy barriers to trade and investment on the
part of the public sector. Technological progress and innovation have long been the driving costs
of transportation and communication steadily lower. In the postwar period major cost-saving
advances, even within ocean shipping supertankers, roll-on-roll-off ships, and containerized cargo
were observed.
One economist defines economic globalization as a process making the world economy an
“organic system” by extending transnational economic processes and economic relations to more
and more countries and by deepening the economic interdependence among them.
This concept may support Adam Smith and David Ricardo’s “classical theory” that argues,
specialization- the division of labor- enhances productivity, associated with the phrase
comparative advantage. David Ricardo (1772-1823) extended this concept to trade between
countries. The notion that trade allows each country to specialize in what it does best, thus
maximizing the value of its output. If a government restricts trade, resources are wasted in the
production of goods that could be imported more cheaply than they can be produced domestically.
He explained, for example, how it was more economically advantageous for Britain to produce
cloth and for Portugal to produce wine, as long as they engaged in free trade.
However, this theory has been undermined by the current wave of economic globalization.
The growth of transnational or multinational corporations complicates global trading. Production
of goods and services is strongly influenced by costs, arbitrary specialization, and government and
corporate policies. These developments mark a shift from the classical or conventional theory to
what is known as competitive advantage. The “new trade theory” is believed to be more realistic
as it takes into account imperfect competition, increasing returns to scale, and changing
technology. It can be viewed as providing equally strong, or stronger, support for the sort of free
trade policies. The United States has followed throughout the postwar period this theory that is
multilateral and bilateral negotiations to reduce trade barriers.
Removing impediments to the free flow of goods and services among countries is the
foundation of free trade, or trade liberalization. The consensus among advocates of free trade is
that it reduces prices, raises the standard of living for more people, makes a wider variety of
products available, and contributes to improvements in the quality of goods and services.
Despite global acceptance of the concept of free trade, governments continue to engage in
protectionism. For example, The EU and the US each support their commercial aircraft industries
so that those industries can compete more effectively in a market dominated by few companies.
The idea of assisting such industries, which represents departure from free trade, is known as the
strategic trade theory.
Payne (2009) in his book on Global Issues, Politics, Economics, and Culture discussed the
origins of global trade which he argued to be as old as human society. He stated that lacking
complete self-sufficiency, human beings traded goods and services within their communities and
gradually expanded trade with people in distant areas. Global trade is integral to daily lives that
are generally oblivious to how it links men to the rest of the world. He said, that the movement
toward free trade occurs because of a consensus that free trade is more beneficial to more countries
and individuals than its alternatives.
The Bretton Woods Conference
By the end of the nineteenth century, many countries engaged in trade protectionism. The
outbreak of World War I radically altered the global economic system and led to increased
international economic instability. Widespread international economic problems that came with
the onset of the Great Depression in 1929 influenced many countries to pursue autarky (ideology
promoting economic national self-sufficiency and an end to economic interaction with other
countries) and protectionism. But the rapid decline in global trade between World War I and World
War II strongly influenced the United States and Western Europe to embrace freer trade.
At the Bretton Woods Conference in New Hampshire in 1944, the United States and its
allies created the:
(1) International Monetary Fund (IMF) to manage exchange rates and payment imbalances
among nations, and
(2) International Bank for Reconstruction and Development (World Bank) to supplement
private capital for international investment, with an emphasis on the reconstruction of Western
Europe.
American and European concerns about the negative consequences of protectionism and
their strong desire to promote free trade led to the establishment of the General Agreement on
Tariffs and Trade (GATT) in 1947 to serve as a negotiating forum for the reduction of tariffs and
other barriers to trade. Between 1947 and 1992, various meetings of GATT (known as rounds)
resulted in significant reductions in tariffs and freer trade. However, GATT covered manufacture
products, but excluded trade in agricultural and services. The Uruguay Rounds (meetings of GATT
held in Uruguay from 1986 to 1992) added services and agriculture to the global trade framework
and replaced GATT with the World Trade Organization (WTO) in 1993. WTO covered
agriculture, consumer services (restaurants, hotels, travel agencies, and so on), producer services
(investment, banking, insurance, intellectual property rights, or the control people have over
their artistic, creative, scientific, industrial, and educational inventions, and data processing),
textiles, clothing, telecommunications, labor standards and the environment. However, resistance
to certain aspects of trade globalization in the developing world led to the collapse of the 2003
WTO meeting in Cancun, Mexico. At the heart of the controversy was the extent to which domestic
industries should be protected from foreign competition. In 2006 the Doha Round of WTO
negotiations ended in failure.
Moreover, economic globalization according to one of the most cited definitions is a
historical process, the result of human innovation and technological progress. It refers to the
increasing integration of economies around the world, particularly through the movement of
goods, services and capital across borders. Sometimes, it also refers to the movement of people
(labor) knowledge (technology) across international borders. (IMF, 2008)
Thus, this phenomenon has interconnected dimensions such as:
 The globalization of trade of goods and services
 The globalization of financial and capital markets
 The globalization of technology and communication
 The globalization of production
Significant events in the history of Economic Globalization

1. Globalization processes have been ongoing ever since Homo sapiens started migrating from
the African continent to populate the rest of the world (Grills and Thompson)

2. Silk Road (Asia, Europe, Africa) is the best example for archaic globalization 5,000 years ago
(Frank and Grills)

3. The discovery of America by Christopher Columbus in 1492 and the discovery of the direct
sea route to India by Vasco da Gama in 1498 as the two (2) greatest achievements of human
history (Adam Smith)

4. 16th century long distance trade - the origins of modernity and globalization according to
world systems analysts, with the innovative concept of “long duration” such as a slow-moving,
“almost imperceptible” (Fernand Braudel)

5. 17th – 19th century, economic nationalism and monopolized trade such as the British (1600)
and the Dutch (1602) East India Companies

6. British Industrial Revolution spread to Continental Europe and North America

7. 19th- 20th century transport revolution was regarded as “golden age of globalization”
because of relative peace, free – trade, and financial and economic stability

The Rise of Global Corporations:

Global corporations are inseparable to the phenomenon of globalization. In all probability,
the major players of present-day global economy are the contemporary global corporations.
There are three periods history of global corporations.
In early historical periods as both cities and countries extended their reach beyond their
own borders, this view holds, a form of globalization was initiated which then followed complex
patterns of interactive engagements organized through trade and directly influenced by the
emergent and subsequently dominant technologies, especially in shipping and navigation (Harvey,
1990).
The long spanning period before the end of World War II, modern nation-state system
emerged in ways that allowed inventions and social organization to combine and vastly increased
world capital and the wealth of nation-states. With the increase in global population that attended
industrial revolution, the societies arose and invent new ways to organize the world through
colonialism and imperialism.
As the world emerged from the vast destructions of World War II, economic recovery and
expansion were led overwhelmingly by American corporations onto the global scene essentially
stood for what then had come to be viewed as multinational corporations (MNCs) (Barnet and
Mueller, 1974). This period from the end of World War II to the present can be viewed, therefore
as a third and distinct period in the transformation of the global corporation.

Colonialism and American, Japanese, &

Trade and Exchanges
Imperialism European Corporations

The Contemporary Global Corporation

The contemporary global corporation is simultaneously and commonly referred to as either
multinational corporation (MNC), a transnational corporation (TNC), an international company or
a global company. The British East India Company and the Dutch West India Company were
predecessors to modern corporations.
 How do they differ?
 International companies are importers and exporters, typically without investment outside
of their home country.
 Multinational companies have investment in their countries, but do not have coordinated
product offerings in each country. They are more focused on adapting their products and
services to each individual local market
 Global companies have invested in and are present in many countries. They typically
market their products and services to each individual local market.
 Transnational companies are more complex organizations which have invested in foreign
operations, have a central corporate facility but give decision-making, research and
development (R&D) and marketing powers to each individual foreign market.

Individual/Group Activities:

1. Individual work: Watch the documentary film, The True Cost and at least 1 of the other following
documentary films –
a. The True Cost (https://www.youtube.com/watch?v=5-0zHqYGnlo)
b. Will COVID kill globalization? (https://www.youtube.com/watch?v=KJhlo6DtJIk)
c. Globalization – Rise of Networks (https://www.youtube.com/watch?v=x1wLbJoSmR0)
d. Top 10 Most Powerful companies in the world (https://www.youtube.com/watch?v=FbyNp-5U6pg)

Based on the film that you watched, make a long list of the things that you learned about the
impact of economic globalization to the environment, governments, humans, and businesses, using a table
following the format below:

Aspect Positive Impact Negative Impact

Environment

Government

Human

Business

Conclusion/Insight

2. Group dynamics: Logo quiz

Mechanics: (Based on the groupings made for the previous group activity)

a. Each group must have 1 representative in each question

b. Answers must be typed on the chat box.
c. The first to enter the correct answer gets the point
d. There shall be three rounds with 10 logo each round: 10 seconds is given for easy with 1 point,
20 seconds for average with 2 points, and 30 seconds for difficult with 3 points.
d. Scores earned by each group shall be recorded as individual score of each group member

Market Globalism
Amidst the various debates whether globalization is a process, a condition, phenomenon,
or an ideology, there are six core claims of market globalism.
Claim one: Globalization is about the Liberalization and Global Integration of Markets
 This claim is anchored in the neo-liberal ideal of the self-regulating market as the
normative basis for a future global order. The vital functions of the free market can only be realized
in a democratic society that values and protects individual freedom. As argued by some,
“globalization is the triumph of markets over governments” (Business Week editorial, 1999)
Thomas Friedman (1999) also explained that the driving idea behind globalization is free
market capitalism - the more you let market forces rule and the more you open your economy to
free trade and competition the more efficient your economy would become. Globalization means
the spread of free market capitalism to virtually every country in the world. Thus, he advocates
that as economic project advancing human freedom in general, globalization must be applied to
all countries, regardless of the political and cultural preferences expressed by local citizens.
Market globalists on the other hand believes that globalization is a natural economic
phenomenon whose essential qualities are the liberalization and integration of global markets and
reduction of governmental interference in the economy such as privatization and free trade.
Claim two: Globalization is inevitable and irreversible
Frederick Smith (1999), the CEO of FedEx Corporation, asserts that globalization is
inevitable and inexorable and it is accelerating...and that globalization is happening, it’s going to
happen…and it does not matter whether you like it or not.
The neoliberal portrayal of globalization as some sort of natural force, makes it easier for
market globalists to convince people that they must adapt to the discipline of the market if they
are to survive and prosper. Manny Villar (1998), also agrees that, “we cannot simply wish away
the process of globalization. It is a reality of a modern world. The process is irreversible”.
Governments, political parties, and social movements had no choice but to ‘adjust’ to the
inevitability of globalization.
Claim three: Nobody is in charge of globalization
This core claim justifies a state of leaderlessness. As Robert Hormats (1998) puts it, “The
great beauty of globalization is that, it is not controlled by any individual, any government, any
institution”; which Friedman (1999), later said that “the most basic truth about globalization is
this: No one is in charge…” This further means that globalists are not in charge in the sense of
imposing their own political agenda on people.
Claim four: Globalization Benefits Everyone (…in the long run)
John Meehan (1997), explains this claim that as episodic dislocations such as mass
unemployment and reduced social services might be necessary in the short run, but in the long run
they will give way to quantum leaps in productivity. Market globalists justify the real human costs
of globalization as the short-term price of economic liberalization.
Claim five: Globalization furthers the spread of democracy in the world
Francis Fukuyama (2000), argues that there exists a clear correlation between a country’s
level of economic development and successful democracy. The delineation between popular
democracy and polyarchy in globalization is significant.
Popular democracy as a process and means to an end - a tool for devolving political and
economic power from the hands of elite minorities to the masses is more possible than polyarchy
which represents an elitist and regimented model of ‘low intensity’ or ‘formal market democracy’.
This claim justifies that globalization does not limit democratic participation to voting in elections
but also require that those elected be insulated from popular pressures, so that they may ‘effectively
govern’.
 However, in a different view, the promotion of polyarchy provides market globalists with
the ideological opportunity to advance their neoliberal projects of economic restructuring in a
language that ostensibly supports the democratization of the world.
Claim six: Globalization requires a Global War on Terror
The last core claim according to KAplan: “You also have to have military and economic
power behind it or else your ideas cannot spread…” This final decontestation chain attests to
globalism’s political responsiveness and conceptual flexibility. It combines the idea of economic
globalization with openly militaristic and nationalistic ideas associated with the American-led
global War on Terror.

//svsalcedo