Chapter 2: The Structures of Globalization (4.

5 hours)

Introduction
This chapter is focused on the economic aspect as the main driving force of
globalization. Economic globalization will be defined and this chapter introduces the different
actors that facilitates economic globalization. This chapter will also define the modern world
system we live in and hope to give us enough information to decide our stand on global
economic integration.

Learning Outcomes
1. Define economic Globalization
2. Identify the actors that facilitate economic globalization
3. Define the modern world system
4. Articulate a stance on global economic integration
5. Differentiate the economic systems

Content
Held et al. (1999) offer a convenient starting point for any discussion on globalization by
claiming that it ‘may be thought of initially as the widening, deepening and speeding up of
worldwide interconnectedness in all aspects of contemporary social life’ (1999: 2). ‘Aspects’ can
refer to ‘political, technical and cultural, as well as economic’ features (Giddens, 1999: 10),
implying that globalization is best thought of as a multidimensional phenomenon.
Economic globalization does not constitute the whole story of contemporary globalization, but in
order to fully understand its meaning and implication, the economic dimension, as one of the
major driving forces of the process of globalization, requires special attention.
What Is Economic Globalization?
According to one of the most often cited definitions,
Economic globalization 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. The
term sometimes also refers to the movement of people (labor) and knowledge (technology)
across international borders. (IMF, 2008)
The phenomenon can thus have several interconnected dimensions, such as
(1) the globalization of trade of goods and services;
(2) the globalization of financial and capital markets;
(3) the globalization of technology and communication; and
(4) the globalization of production.
What makes economic globalization distinct from internationalization is that while the latter is
about the extension of economic activities of nation states across borders, the former is
‘functional integration between internationally dispersed activities’ Dicken (2004: 12). That is,
economic globalization is rather a qualitative transformation than just a quantitative change.

ACTORS OF ECONOMIC GLOBALIZATION

1. Nation-states
Globalization is a force that changed the way nation-states deal with one another, particularly in
the area of international commerce.
One commonly recognized effect of globalization is that it favors Westernization, meaning that
other nation-states (Like US and UK) are at a disadvantage when dealing with the Americas and
Europe. This is particularly true in the agricultural industry, in which second- and third-world
nations face competition from Western companies. Another potential effect is that nation-states
are forced to examine their economic policies in light of the many challenges and opportunities
that multinational corporations and other entities of international commerce present.
Nation-states to confront the unique issue of foreign direct investments from MNCs/TNCs,
forcing nation-states to determine how much international influence they allow in their
economies. Globalization also creates a sense of interdependence among nations, which could
create an imbalance of power among nations of different economic strengths.
The role of the nation-state in a global world is largely a regulatory one as the chief factor in
global interdependence. While the domestic role of the nation-state remains largely unchanged,
states that were previously isolated are now forced to engage with one another to set
international commerce policies. Through various economic imbalances, these interactions may
lead to diminished roles for some states and exalted roles for others.
2. Global Corporations
- Multinational corporations (MNCs)
- Transnational corporations (TNCs)
The pervasive influence of TNCs resulted in a change in the politics of trade. According to Held
and McGrew (2001: 325), ‘it is global corporate capital, rather than states, which exercises
decisive influence over the organization, location and distribution of economic power and
resources”’ in the contemporary world economy.
Contemporary globalization is equated primarily with TNCs, the main driving forces of economic
globalization of the last 100 years, accounting for roughly two-thirds of world export (Gereffi,
2005)

3. International Monetary Systems

According to Krasner (1983: 2), regimes can be thought of as all the ‘implicit and explicit
principles, norms, rules, and decision making procedures around which actors’ expectations
converge'. Consequently, an international monetary system or regime (IMS) ‘refers to the rules,
customs, instruments, facilities, and organizations for effecting international payments’
(Salvatore, 2007: 764). In the liberal tradition, the main task of an IMS is to facilitate cross
border transactions, especially trade and investment. An international monetary system is,
however, more than just money or currencies; it also reflects economic power and interests, as
‘money is inherently political, an integral part of ’“high politics” of diplomacy' (Cohen, 2000: 91).
The Gold Standard
The origins of the first modern-day IMS dates back to the early nineteenth century, when the UK
adopted gold mono-metallism in 1821. Half a century later, in 1867, the European nations, as
well as the United States, propagated a deliberate shift to gold at the International Monetary
Conference in Paris. Gold was believed to guarantee a non-inflationary, stable economic
environment, a means for accelerating international trade (Einaudi, 2001). Roughly 70 per cent
of the nations participated in the gold standard just before the outbreak of World War I
(Meissner, 2005).
The Bretton Woods System and Its Dissolution
As soon as Europe regained its pre-World War II economic power, the external position of the
United States turned into a persistent deficit as a natural consequence of becoming an
international reserve currency. Nevertheless, by the mid-1960s, the dollar became excessively
overvalued vis-a-vis major currencies. As a response, foreign countries started to deplete the
US gold reserves. Destabilizing speculations, fed by the huge balance of payments and trade
deficit, along with inflationary pressures, forced the United States to abandon the gold-exchange
standard on 15 August, 1971.
European Monetary Integration
The miraculous growth performance of Western Europe prompted a closer cooperation on a
regional level, resulting finally in the European Coal and Steel Community in 1951.9 This was
followed by the signing of the Rome Treaty in 1957, which established the European Economic
Community (EEC), and was the first major step towards an ‘ever closer union’. The original six
founding members (Germany, France, Italy, Netherlands, Belgium and Luxembourg) aimed at
the creation of a common market, where goods, services, capital and labour moved freely.
Originally, the European six did not plan any direct cooperation in the field of finance or
exchange rate policies. The collapse of the Bretton Woods system, however, placed the EEC
under pressure, and member countries eventually agreed on setting up a regional monetary
regime, the European Monetary System (EMS) in 1979.
Bretton Woods also set the institutional foundations for the establishment of three new
international economic organizations. International Bank for Reconstruction and Development
(IBRD) later became World Bank (WB), General Agreement on Tariffs and Trade (GATT) later
became World Trade Organization (WTO) and International Monetary Fund (IMF)

4. International Financial Institutions

International Financial Institutions were founded by groups of countries to promote public and
private investment to foster economic and social development in developing and transitioning
countries.
The first International Financial Institutions, also known as Multilateral Development Banks
(MDBs), were established after World War II to help rebuild war-torn countries and manage the
global financial system. Later, regional development banks were founded to promote economic
growth and cooperation.

IFIs are owned and managed by national governments acting as borrowers, lenders or donors.
Example: World Bank (WB) and International Monetary Fund (IMF)
5. International Economic Cooperation Organizations
International economic and financial organizations provide the structure and funding for many
unilateral and multilateral development projects. Such organizations deal with the major
economic and political issues facing domestic societies and the international community as a
whole. Their activities promote sustainable private and public sector development primarily by:
financing private sector projects located in the developing world; helping private companies in
the developing world mobilize financing in international financial markets; and providing advice
and technical assistance to businesses and governments
The three major international economic organizations are the World Bank, the International
Monetary Fund (IMF), and the World Trade Organization (WTO). The WTO emerged out of the
General Agreement on Tariffs and Trade (GATT) in 1995; it is an arrangement across countries
that serves as a forum for negotiations on trading rules as well as a mechanism for dispute
settlements in trade issues.(1) By contrast, the World Bank and IMF deal with their member
countries one at a time. They have little influence with industrial countries but can affect
developing countries during times of economic crisis and when those countries seek additional
foreign exchange resources.
Convergence versus Divergence
Those in support of economic globalization emphasize its ability to foster universal economic
growth and development. Dollar and Kraay (2002) argue that only non-globalizer countries
failed to reduce absolute and relative poverty in the last few decades. On the other hand,
countries that have embraced globalization (proxied by trade openness) have benefited from
openness considerably.
The World Bank (2002) claims that globalization can indeed reduce poverty but it definitely does
not benefit all nations.
Why are less developed regions unable to catch up with developed ones, as predicted by
standard economic theories such as the neoclassical Solow growth model, Bairoch (1993)
argues that while in the developed part of the world, industrial revolution and intensified
international relations reinforced growth and development on an unprecedented scale (as
compared to the previous era), the rest of the world did not manage to capitalize on these
processes. Reflecting upon the division of labour between developed and developing countries
in the nineteenth century, Bairoch claimed that ‘the industrialisation of the former led to the de-
industrialisation of the latter’ (1998: 11). The structural deficiencies of the world economy are
heavily emphasized by the so-called structuralists. Structuralism is a ‘cluster of theories which
emerged in the 1950s, 1960s and 1970s … [and] share the idea that North and South are in a
structural relationship one to another; that is that both areas are part of a structure that
determines the pattern of relationships that emerges' (Brown, 2001: 197). The best known
critical approach to the prevailing social division of labour and global inequalities is offered by
‘world-systems analysis, which claims that capitalism under globalization reinforces the
structural patterns of unequal change. According to Wallerstein, capitalism, ‘a historical
social system”’ (1983: 13), created the dramatically diverging historical level of wages in the
economic arena of the world system. Thus, growing inequality, along with economic and political
dependence, are not independent at all from economic globalization. Accordingly,
underdevelopment (i.e. a persistent lack of economic growth and development, together with
impoverishment and even malnutrition) is not the initial stage of a historical and evolutionary
unilinear development process (as predicted by Rostow, 1960), but a consequence of
colonialism and imperialism. But while for Hobson (1902/2005) imperialism was a kind of
‘conscious policy’ adopted by leading capitalist nations, Wallerstein and his followers identified
imperialism as the product of the world capitalist system which has perpetuated unequal
exchange.
The modern capitalist system is unique in the sense that it created political structures that
guaranteed an endless appropriation and accumulation of surpluses from the poor (or the
periphery) to the emerging (or the semi-periphery) and in particular, the advanced industrialized
(or the core) countries. It is, however, not just that the periphery is dependent on the core: the
latter's development is also conditioned on the former. The link between these groups is
provided via trade and financial transactions, and is organized by a dense web of businessmen,
merchants, financial entrepreneurs and state bureaucrats. Globalization, the product of the long
process of capitalist development, is, therefore, nothing new for world-system analysts; it is
simply the relabelling of old ideas and concepts (Arrighi, 2005).

POLITICAL- ECONOMIC SYSTEMS

1. Capitalism: Under capitalism (aka market system), each individual or business works in its
own interest and maximizes its own profit based on its decisions. A market economy is one
where the allocation of resources and the trading of goods and services are through the
decentralized decisions of many firms and households.
The market system fosters competition that generally produces the most efficient allocation of
resources. In pure capitalism, also known as laissez-faire capitalism, the government's role is
restricted to providing and enforcing the rules of law by which the economy operates, but it does
not interfere with the market. (Laissez-faire means "let it be.")

The essential characteristics of capitalism are that:

 the factors of production are privately owned;

 economic transactions take place in markets, where buyers
and sellers interact;
 businesses and employees are free to pursue their own self-
interest and are motivated to do so by the potential to earn a
profit;
2. Socialism: The definition of socialism varies widely, and many people use it synonymously
for communism, but it is often distinguished as an economic system between communism and
capitalism. Socialism also believes that wealth and income should be shared more equally
among people. Socialists differ from communists in that they do not believe that the workers will
overthrow capitalists suddenly and violently. Nor do they believe that all private property should
be eliminated. Their main goal is to narrow, not totally eliminate, the gap between the rich and
the poor. The government, they say, has a responsibility to redistribute wealth to make society
more fair and just.
Socialism is the social and economic doctrine opposite from Capitalism that espouses public
over private ownership and control of property and natural resources.

3. Communism: also known as a command system, is an economic system where the

government owns most of the factors of production and decides the allocation of resources and
what products and services will be provided.
The end goal of communism was to eliminate class distinctions among people, where everyone
shared equally in the proceeds of society, when government would no longer be needed.

There is no purely capitalist or communist economy in the world today. The capitalist United
States has a Social Security system and a government-owned postal service. Communist China
now allows its citizens to keep some of the profits they earn. These categories are models
designed to shed greater light on differing economic systems.

Recommended learning materials and resources for supplementary reading.

https://www.ushistory.org/gov/13b.asp
https://www.nber.org/reporter/winter00/krueger.html
https://www.investopedia.com/terms/e/economic-integration.asp

Flexible Teaching Learning Modality (FTLM) adopted

Online (synchronous) - Class collaboration through the GC/SeDi LMS
Remote (asynchronous) - Individual task/activity through module
References
Benczes, István. 2014. Chapter 9 of textbook: “The Globalization of Economic Relations”
Wallerstein, Immanuel. 2004. “The Modern World-System as a Capitalist World Economy:
Production, SurplusValue, and Polarization.” In WorldSystems Analysis: An Introduction.
Durham & London: Duke University Press, pp. 23-4130.
Steger, Manfred B. 2003, Globalization, A very short Introduction. Oxford University Press