Module 2

The Structures of Globalization

Objectives:
At the end of this module, you are expected to:
1. Identify the different global economic institutions;
2. Analyze economic issues surrounding the various member countries and regions
around the world;
3. Recognize the historical events that led to the present global economic situation;
4. Create a viewpoint on economic globalization using local and international
perspectives;
5. Explain the effects of globalization on governments; and
6. Determine the challenges of global governance in the twenty –first century.

The Global Economy

On the level of an average student, you rarely encounter the International

Monetary Fund, the World Bank and the World Trade Organization. In your age, you
probably have not read a broadsheet or mainstream newspaper and if you did, you would
probably discard the business section. Perhaps your understanding of the economy is
that oil prices dictate the movement of prices of all commodities. With this comes domino
effect of all other products that you buy. Why do oil prices increase? Why are countries
focus so much on oil trade and the subsequent effects of oil price movements? In solving
the problem of inflation, why does our government avail of loans from international
organizations?
 Figure 4. The Stock Market. It is the most obvious illustration of how liquid
(constantly changing) the global economy is.

Economic Globalization
As discussed in the previous module, there are several dimensions of
globalization. One of which is economic. Globalization happens in many senses. It affects
us in many ways. The economy is perhaps the most remarkable.
The United Nations (UN) defines it as “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.”
Economic globalization can be defined as the dramatic change or increase in
global trade in the span of a few decades. According to the United Nations Conference
on Trade and Development (UNCTAD), the amount of foreign direct investment flowing
across the world was US$57 billion in 1982. By 2015, that number was $1.76 trillion. This
has steadily increased for the next years.
One very important economic activity is trade. Trade is the concept of exchanging
goods and services between two people or entities. On the other hand, international trade
is then the concept of exchange between people or entities in two different countries.
There are two major economic policies in economic globalization: protectionism
and trade liberalization.
Protectionism is a policy of protecting one's economy from foreign competition by
creating trade barriers. One of the most used form of protectionism is the imposition of
tariffs- the fees and taxes on imports.

Figure 5. Protectionism. http://www.china.org.cn/opinion/2012-12/19/content_27458423.htm

Trade liberalization is the reduction of trade barriers to make international trade easier
between countries. Most countries in the world are currently shifting towards this
economy. When two or more countries trade goods and services without tariffs or taxes,
it is called free trade. In order to promote free trade. Countries form trade blocs,
agreements made between governments to reduce or eliminate trade barriers.

Outsourcing. Since most of the world has already opened up its economy. Transnational
companies (TNC) and Multinational Companies (MNC) are practicing business process
outsourcing. This is the transfer of jobs from developed countries to developing nations
in order to reduce production cost.
 Figure 6. Outsourcing. How does it unify the world? https://medium.com/codeep-io/why-
outsourcing-is-good-four-your-business-994088ee472c

World Trade Organization

Free trade gives international companies a certain amount of access to different

countries' economies. Because of this openness, abuses and malpractices on trade
happen. This is where the world trade organization interferes. The World Trade
Organization is the only global international agency dealing with the rules of trade
between nations. WTO implements and institutionalizes agreements, negotiated and
signed by all the member nations. The goal is to ensure that trade flows as smoothly,
predictably and freely as possible and prevent trade abuses between developed and
developing nations.

International Trading Systems: The Road to Economic Globalization

The oldest known international trade system is the Silk Road. This is the network
of pathways in the ancient world that spanned from CHINA to what is now the Middle East
and to Europe. In this era, silk is a high priced profitable product to trade. Traders used
the Silk Road regularly from 130 BCE when Chinese Han Dynasty opened trade to the
West until 1453 BCE when ottoman Empire closed it.

The primary goods traded on the Silk Road were the following:

From East to West: Silk, Tea, Dyes, Precious Stones, Chinaware, Porcelain, Cinnamon,
Ginger, Bronze and Gold Artifacts, Medicines, Perfume, Ivory, Rice, Paper, Gunpowder

From West to East: Slaves, Horses, Saddles and Riding Track, Grapes, Domestic and
Exotic Animals such as Dogs and Cats, Honey, Fruits, Glassware, Woolen Blankets,
Rugs and Carpets, Textiles, Gold and Silver, Camels, Weapons and Armor

Figure 7. The Silk Road (https://silkroadfestival.org/)

Impact of the Silk Road

1. Change of way of life. Before the establishment of the silk road, people worked
for their own families. They harvested crops for personal consumption. Built
houses for their own community. Manufactured clothes, shoes and other
ornaments for themselves. During the onset of the silk road system, people
 engaged in silk production rather than doing anything else. As demand for silk
grew, more and more, people devoted their lives to silk production.

2. Promulgation of Ideas. The Silk Road was a vital route not just for goods but
ideas as well. It had a significant impact on the spread of Buddhism in Central Asia.

The Silk Road is indeed a huge turning point in the history of world trading.
However, a question is usually posed by scholars who try to study the economic impact
of this trading system. Was the Silk Road global? No, it was not Global. Rather, it was
international. The Silk Road does not have ocean routes that could reach the American
Continent. Our question then, is when did full economic globalization begin?

The Start of Full Economic Globalization

Full economic globalization began when all important populated continents began
to exchange products continuously. The fall of different empires surrounding the Silk
Road caused its closure in the 15th century. Because of this, the trading of goods slowed
down.

Galleon Trade
In 1571, the establishment of the Galleon opened up a wider global trading system
due to its use of ocean routes and ships. It was a system of trading ships sailing 90 to
120 days across the Pacific Ocean. The economic link between Manila and Acapulco,
Mexico has resulted in the great exchange of goods and culture between the West and
the East.

Mercantilism
This economic system developed in the sixteenth century, mercantilism was one
of the earliest efforts to develop an economic theory. It aimed to maximize the exports
and minimize the imports for an economy. It promotes imperialism, tariffs and subsidies
on traded goods to achieve surplus rather than deficit. Mercantilism was widely
implemented in many industrialized parts of Europe from the 16th to the 18th centuries.
Some scholars argue that it is still practiced in the economies of industrializing countries
in the form of economic interventionism. It promotes government regulation of a nation's
economy for the purpose of augmenting state power at the expense of rival national
powers.

The Gold Standard

This was implemented in the 19th and 20th century. It was introduced and led by
the UK to counter the restrictive and isolating mercantilist ideology. The US, the rest of
Europe, and many countries followed this because they all wanted a standardized
transaction in the booming world trade market. Perhaps you would ask, out of the many
precious metals on earth, why gold? Gold is a currency. Although gold is priced in US
dollars to indicate exchange rates. The price of this metal also fluctuates at the same time
as other currencies that is why it can be considered as a currency.

However, the Gold Standard was still restrictive, because it compelled countries to
back their currencies with gold reserves. In the height of World War 1, countries depleted
their gold reserves and suspended the gold standard to print more money to fund military
involvement.

The Great Depression

In 1920 to 1929, the US economy expanded rapidly and the nation’s total wealth
grew more than double. New York Stock Exchange was filled with speculations; a place
where the highest to the lowest classes in the society poured their money into stocks. On
October 24, 1929, the stock market crashed because nervous investors began selling
overpriced stocks en masse. A record of 12 million shares were traded that day. It was
known as “Black Thursday”.

Some economists argue that the Gold Standard caused the Great Depression
largely, because it limited the amount of circulating money, therefore reducing
investments, demand, and consumption. To understand and study the great depression,
Keynesian Economics was developed by British economist John Maynard Keynes.
The End of the Great Depression
When Franklin D. Roosevelt was elected into office, he signed the “New Deal”
within 100 days, creating 42 new agencies mandated to stimulate agricultural and
industrial production, create jobs, allow unionization, and provide unemployment
insurance, which would stimulate recovery. The New Deal was a series of programs,
public work projects, financial reforms, and regulations implemented in the United States
between 1933 and 1939.

Fiat Currencies
Fiat money is government-issued currency that is not backed by a physical
commodity, such as gold or silver. The value of fiat money is derived from the relationship
between supply and demand and the stability of the issuing government, rather than the
worth of a commodity backing it. Most modern paper currencies are fiat currencies.

The Bretton Woods Agreement

It was created during a 1944 conference of all of the WW2 Allied nations. It took
place in Bretton Woods, New Hampshire. Delegates from forty-four nations created this
new international monetary system. The purpose was to change the gold standards and
to recover from the experience of the Great Depression. It also wanted to provide for
postwar reconstruction. It was an unprecedented cooperative effort of nations because
for more than a decade, barriers between their economies have been set up.

The Bretton Woods established two new institutions. The International Monetary
Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The
IMF would monitor exchange rates and lend reserve currencies to nations with balance-
of-payments deficits. The IMF was the global lender of last resort to prevent countries
from spiraling into credit crises. The IBRD was responsible for providing financial
assistance for post-World War reconstruction and the economic development of less
developed countries (Ghizoni, 2013). The IBRD was responsible for reconstruction
projects after the war since many of the world’s cities were left in shambles.
General Agreement on Tariffs and Trade(GATT)
After the Bretton Woods, more countries committed to further global economic
integration through the GATT. The purpose of GATT was to eliminate harmful trade
protectionism, tariffs, and other hindrances to international trade. GATT restored
economic health to the world after the devastation of the depression and WW2. GATT
was signed in 1947 and lasted until 1993, when it was replaced by the World Trade
Organization (WTO) in 1995.

Neoliberalism
It is often associated with Adam Smith’s laissez faire economics, the policy that
prescribes a minimal amount of government interference in the economic issues of
individuals and society. The idea of neoliberalism includes extensive economic
liberalization policies such as privatization, fiscal austerity, deregulation, free trade,
and reductions in government spending in order to enhance the role of the private
sector in the economy (McMaken, 2016).

The Challenges to Neoliberalism

Monopoly and Monopsony Power

A broadly neoliberal policy has seen a widening inequality of both wealth and
income in the Western world. This is due to several factors, such as skilled workers in a
position to command higher wages, but low-skilled workers in flexible labour markets are
more likely to see stagnant wages. What is the difference between monopoly and
monopsony? Both refer to a single entity influencing and distorting a free market. In a
monopoly, a single seller controls the supply of goods and services. In a monopsony, a
single buyer dominates the demand for goods and services.

Deregulation
This is the reduction or elimination of government power in a particular industry. It is
usually enacted to create more competition within the industry. It aims to give private
market players more control over the market behavior.
“One Size Fits All” and Inequality
An important problem for neoliberalism is that policies which may work in one
country do not necessarily work in all countries. Neoliberal policies also tend to increase
inequality. But, this inequality can harm long-term growth prospects. Those with low-
income have limited spending power and those who become richer have a higher
marginal propensity to save, so wealth doesn’t ‘trickle down’ as some hope.

Stagflation
Stagflation is the persistent high inflation combined with high unemployment and
stagnant demand in a country's economy. Its etymology may have come from the
combination of the words “stagnant and inflation.”
In the early 1970s, the post-World War II economic boom began to wane, due to
increased international competition, the expense of the Vietnam War, and the decline of
manufacturing jobs. Unemployment rates rose, while a combination of price increased
and wage stagnation led to a period of economic doldrums. The crisis was compounded
when oil-rich nations in the Middle East declared an embargo against the United States
in retaliation for its support of Israel. Embargo means a ban on trade.

The 2008 Financial Crisis

Every now and then, we feel that we are in crisis. Perhaps because we live in a
third world country and we are currently on a huge international debt. But the crisis that
we are experiencing now is nothing compared to what happened in 2008. One of the
earliest events leading to the world financial crisis of 2008 happened on 15 September
15, 2008 when Lehman Brothers of UK, one of the world’s oldest, richest and most
powerful banks filed for bankruptcy.

In the United States and Western Europe, the crisis has been linked to the so-
called “subprime mortgage crisis.” Subprime mortgages are home loans granted to
borrowers with poor credit histories. Their home loans are considered high-risk loans.
With the housing boom in the United States in the early to mid-2000s, mortgage lenders
seeking to capitalize on rising home prices were less restrictive in terms of the types of
borrowers they approved for loans. As housing prices continued to rise in North America
and Western Europe, other financial institutions acquired thousands of these risky
mortgages in bulk.

Benefits of International Trade

Globalization cannot exist without trade, international trade to be specific. These are
the reasons why international trade is very important:
1. Exports create jobs and boost economic growth. International companies
opening up in third world countries give the locals more jobs opportunities.
2. They give domestic companies more experience in producing for foreign
markets. When a n international company enters the local market, competition will
become tighter among rivals in the industry. Hence, companies are compelled to
improve their services or systems. They can learn new technologies from foreign
industry players.
3. Trade makes companies more efficient. Because products manufactured are
not only for domestic consumption but also for importation, companies become
more efficient and tend to produce more for a wider market share.
4. Imports allow foreign competition to reduce prices for consumers. The end
beneficiaries for international trade are the consumers. Because there are many
imported items in the market, other suppliers would adjust their prices to cope up
with the competition.
5. It gives consumers a wider variety of goods and services. Isn’t it better if we
shop in a department store with more brands to choose from? Each will have its
own advantage over the other. Hence, consumers will have better decisions on
buying.

Issues and Concerns with International Trade

1. Child Labor. According to the International Labor Organization- International
Programme on the Elimination of Child Labour, child labor is often defined as work
that deprives children of their childhood, their potential and their dignity, and that
is harmful to physical and mental development. The worst forms of child labour
 involves children being enslaved, separated from their families, exposed to serious
hazards and illnesses and/or left to fend for themselves on the streets of large
cities – often at a very early age.
2. Embargoes. The oxford dictionary defines it as an official ban on trade or other
commercial activity with a particular country. While goods are traded worldwide by
exclusive suppliers of oil, for example, they can also decide to control or prohibit
trading of such commodities.
3. Reduces jobs in domestic industries that can't compete on a global scale.
While local companies can learn from the technologies of foreign companies, there
are times when local competitors cannot upgrade to the level of an international
company. Worse, the existence of the bigger company could render local
companies bankrupt due to strong competition
4. Countries with traditional economic systems will be affected immensely.
There are countries which are just starting to accept globalization. Because of the
fact that foreign investments are already on a full globalized level, cultures of that
country will be overwhelmed, especially conservative and spiritual nations.

Effects of Economic Globalization

Nations face tradeoff between economic progress and environmental protection.

Highly industrialized and developing countries are currently facing consequences brought
about by the rapid growth of industries entering their national borders. One of the issues
being addressed by nations is sustainability or the degree to which the earth can provide
resources for humanity.

The Global Interstate System and Contemporary Global Governance

The modern world-system is structured politically as an interstate system – a

system of competing and allying states. Political scientists call it the Global Interstate
System. It is composed of international relations, global economy and global political
system. It includes all the cultural aspects and interaction networks of the human
population. One important concept in the interstate system is internationalization or the
diplomatic engagement between two or more countries, studying international relations
and interaction between states. It involves nation states or a sovereign state whose
citizens are relatively homogenous in factors such as language or common descent. The
nation state is an ideal in which cultural boundaries match up with political ones.

During the medieval period, there was no concept of sovereignty. Sovereignty is

the supreme power or authority of a state to govern itself or another state. The supreme
power is held by the monarch. Europe was dominated by kings and kingdoms who are
often in clash with each other in order to expand their territories. Because of this, wars
between different kingdoms were extensive. In order to solve this series of bloody wars,
the Treaty of Westphalia was signed. This was a set of agreements signed in 1648 to
end the thirty years of war between the major powers of Europe. A treaty is an agreement
between the winning and losing nations at the end of a war. The main purpose of the
treaty was to give sovereignty to nation states. Today, in order for sovereign nations to
have understanding between each other, there should be internationalism. This is the
advocacy of cooperation and understanding between nations.

Global governance refers to the various intersecting processes that create order
and adhere to the global norms. It can also be defined as a system for international
relations and a global political system. An international organization refers to an
international intergovernmental organization or group that is primarily made up of
member-states. (Ex. UN, IMF, World Bank). The source/s of global governance are
treaties signed by each state and form an organization in the process of legislating a
public/international law. Why are treaties important? It is important to have treaties
between sovereign nations in order for each signatory to have:
1. Access to global navigation routes;
2. Respect for each other;
3. Air and sea navigation; and
4. Territorial boundaries.
The United Nations
The United Nations is an inter-governmental organization tasked with maintaining
international peace and security, developing friendly relations among nations, achieving
international cooperation, and being a center for harmonizing the actions of nations. It
was founded in 1945 by 51 countries after the second world war.
It has a foremost role of maintaining worldwide peace and security, developing
relations among nations, and fostering cooperation between nations in order to solve
economic, social, cultural, or humanitarian international problems.”

The UN is divided into five active organs:

a. The General Assembly. This is where policy making in the organization takes
place. It is the only UN body with universal representation because all the 193
member states of the UN are represented. Every year, the full UN membership
meets in the General Assembly Hall in New York. Decisions on peace and security,
admission of new members and budgetary matters are being deliberated.
Meanwhile, decisions on other questions are by simple majority. The General
Assembly, each year, elects a GA President to serve a one-year term of office.
b. Security Council. The primary responsibility of the Security Council is to maintain
international peace and security. It has 5 permanent and 10 non-permanent
members. The Security Council takes the lead in determining the existence of a
threat to the peace or act of aggression. It settles disputes by peaceful means and
recommends methods of adjustment or terms of settlement. In some cases, the
Security Council can resort to imposing sanctions or even authorize the use of
force to maintain or restore international peace and security.
c. ECOSOC. The Economic and Social Council is the principal body for coordination,
policy review, policy dialogue and recommendations on economic, social and
environmental issues, as well as implementation of internationally agreed
development goals. It is the United Nations’ central platform for reflection, debate,
and innovative thinking on sustainable development.
d. International Court of Justice. This is the principal judicial organ of the United
Nations. Its seat is at the Peace Palace in The Hague, Netherlands. It is the only
 one of the six principal organs of the United Nations not located in New York . Its
role is to settle legal disputes submitted to it by States and to give advisory opinions
on legal questions referred to it by authorized United Nations organs and
specialized agencies.
e. Secretary General. The Secretariat comprises the Secretary-General and tens of
thousands of international UN staff members who carry out the day-to-day work of the
UN as mandated by the General Assembly and the Organization's other principal
organs. The Secretary-General is chief administrative officer of the Organization,
appointed by the General Assembly on the recommendation of the Security Council
for a five-year, renewable term. UN staff members are recruited internationally and
locally, and work in duty stations and on peacekeeping missions all around the world.
But serving the cause of peace in a violent world is a dangerous occupation. Since
the founding of the United Nations, hundreds of brave men and women have died in
service.

Key points
1. Economic globalization is 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.
2. Protectionism is used by nations to protect their economy. They do it by imposing
tariffs or taxes.
3. The most widely used economic policy today is trade liberalization where
economies open up for foreign investments.
4. The World Trade Organization serves as a facilitator between trading nations to
prevent protectionism and create a smooth global market process.
5. The Silk Road was the earliest cross country trading system in the world spanning
from China to the Middle East and parts of Europe. It did not only bring economic
change along its routes but cultural transmission as well.
6. Under the Gold Standard, Gold was considered as a currency but because it was
restrictive and the metal is hard to liquidate, the Bretton Woods Agreement was
signed and the US dollar became the base currency for world exchange rates.
 7. Neoliberalism gives private market players certain freedom to control the economic
processes.
8. The United Nations was founded after World War II to have a better, more
peaceful and healthier global interstate relationship
Guide Questions
1. How did the world evolve to become economically globalized?
2. How does protectionism protect one country’s economy?
3. Why are nations leaning towards trade liberalization and doing away from
protectionism?
4. Can economic globalization flourish without international trade?

Answers to guide questions:

1. People start from producing for themselves. Because of the rising need of other
nations, small trades took place. The Silk Road was a great step towards
internationalization of economies. Galleon trade contributed to making trade global
(not only international). Global alliances and agreements between countries further
strengthened the links between trading countries. Today, the majority of the
countries in the world are already signatories of WTO, which means trading is
open, continuous and regulated.
2. When a country imposes high tax on imported goods, these goods will be sold for
more expensive compared to local products which makes local markets more
profitable than foreign counterparts.
3. Economies in the world open up for foreign investments to further stimulate their
economies. Especially if investments come from developed countries and the host
country is a developing country.
4. No. Trade is the blood of economic globalization. Without trade, economies will
halt.
Assessment. (Please upload your answers to your respective folders in the google drive
with the format: Assessment Module2.)
 Name:

Year and Section:

1. The pandemic caused many businesses to close, increasing unemployment rates

and affecting different industries in the economy. If you are to suggest to the
president a solution to this, what are the steps you would take for your economy
to recover? Base your answers from the lessons you learned from this module.
(5 pts.)
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2. Is politics related to the economic situation of a country? Explain your answer in 4-
sentences.
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Rubric for Essays:

Points Characteristics
5 Very informative, and organized
Very little or no grammatical and punctuation errors
Reflected a deep understanding of the subject matter
4 Informative and organized
Few grammatical and/or punctuation errors
Have a grasp of the subject matter
3 Somewhat informative and organized
With a number of grammatical and/or punctuation errors
Answer is related to the lesson, with minimal application reflected
Some instructions not followed
2 Informative but lacks organization
Answer is correct but lacks explanation, incomplete
1 Somewhat informative, but lacks organization
Glaring grammatical and/or punctuation errors
Information cited is correct without any explanation