WEEK 2 (MODULE 2)

Lesson 2 The Globalization of World Economics

LEARNING OUTCOMES:
At the end of this lesson, you should be able to:
1. Define economic globalization;
2. Identify the actors that facilitate economic globalization;
3. Narrate a short history of global market integration in the
twentieth century; and
4. Articulate your stance on global economic integration.

The International Monetary Fund (IMF) regards "economic

globalization as a historical process representing the result of
human innovation and technological progress. It is characterized by
the increasing integration of economies around the world through
the movement of goods, services, and capital across borders. These
changes are the products of people, organizations, institutions, and
technologies. As with all other processes of globalization, there is a
qualitative and subjective element to this definition. How does one
define “increasing integration”? When is it considered that trade has
increased? Is there a particular threshold?

Students are to watch the video entitled: The Six

Stages of Integration
The Six Stages are as follows:
1. Preferential Trading Areas (PTA)
2. Free Trade Areas (FTA)
3. Customs Union
4. Common Markets
5. Economic and Monetary Union
6. Completer Economic Integration

1
 As you watch the video, take notice of the structures
explained by the narrator/speaker.

Economic integration is an arrangement among nations that typically include

elimination of trade barriers and the coordination of monetary and fiscal polic
integration aims to reduce costs for both consumers and producers and to in
between the countries involved in the agreement.

Economic integration is sometimes referred to as regional integration as it of

neighboring nations.

When regional economies agree on integration, trade barriers fall and eco
coordination increases.
What is Fiscal Policy?
Fiscal policy refers to the use of government spending and tax policies to inf
conditions, especially macroeconomic conditions, including aggregate dema
services, employment, inflation, and economic growth.

 Fiscal policy refers to the use of government spending and tax policies
influence economic conditions.
 Fiscal policy is largely based on ideas from John Maynard Keynes, wh
governments could stabilize the business cycle and regulate economi
 During a recession, the government may employ expansionary fiscal p
tax rates to increase aggregate demand and fuel economic growth.
 In the face of mounting inflation and other expansionary symptoms, a
pursue contractionary fiscal policy.
2
Source: Investopedia
 Even while the International Monetary Fund (IMF) and
ordinary people grapple with the difficulty of arriving at precise
definitions of globalization, they usually agree that a drastic
economic change is occurring throughout the world. According to
the IMF, the value of trade (goods and services) as a percentage of
world GDP increased from 42.1 percent in 1980 to 62.1 percent in
2007. Increased trade also means that investments are moving all
over the world at faster speeds. According to the United Nations
Conference on Trade and Development (UNCTAD), the amount of
foreign direct investments flowing across the world was US $ 57
Billion in 1982. By 2015, that number was $1.76 Trillion. These
figures represent a dramatic increase in global trade in just a few
decades.
A foreign direct investment (FDI) is an investment in the
form of a controlling ownership in
a business in one country by an entity based in another country. It
is thus distinguished from a foreign portfolio
investment by a notion of direct control. The origin of the
investment does not impact the definition, as an FDI:
the investment may be made either "inorganically" by buying a
company in the target country or "organically"
by expanding the operations of an existing business in that country.
Broadly, foreign direct investment includes "mergers and
acquisitions, building new facilities, reinvesting profits earned from
overseas operations, and intra company loans. FDI usually involves
participation in management, joint-venture, transfer of
technology and expertise.

2.1 – International Trading Systems

International trading systems are not new. The oldest known
international trade route was the Silk Road-a network of pathways
in the ancient world that spanned from China to what is now the
Middle East and to Europe. It was called as such because one of the
most profitable products traded through this network was silk,
which was highly prized especially in the area that is now the Middle
East as well as in the west (today's Europe). Traders used the Silk
Road regularly from 130 BCE when the Chinese Han dynasty

3
 opened trade to the West until 1453 BCE when the Ottoman Empire
closed it.
However, while the Silk Road was international, it was not
truly "global" because it had no ocean routes
that could reach the American continent. So when did full economic
globalization begin. According to historian Dennis O. Flynn and
Arturo Giraldez, the age of globalization began when “all important
populated continents began to exchange products continuously-
both with each other directly and indirectly via other continents –
and in values sufficient to generate crucial impacts on all trading
partners.”

The galleon trade was part or the age of mercantilism. From

the 16th century to the 18th century, countries, primarily Europe,
competed with one another to sell more goods as a means to boost
their country’s income (called monetary reserves later on). To
defend their products from competitors who sold goods more
cheaply, these regimes (mainly monarchies) imposed high tariffs
forbade colonies to trade with other nations, restricted trade routes,
and subsidized its exports. Mercantilism was thus also a system of
global trade with multiple restrictions.

Mercantilism is an economic policy that is designed to

maximize the exports and minimize the imports
for an economy. It promotes imperialism, tariffs and subsidies on
traded goods to achieve that goal. These
policies aim to reduce a possible current account deficit or reach a
current account surplus. (Wikipedia)

Submit a report about the Great Depression, an

economic crisis during the 1920s that extended to
the 1930s. This is a group report and graded. Be sure each
group is ready for questions that will be
asked.
● A4 or Short Bond Paper ● Verdana,
12
● Top Page, indicate Subject/Section ● Double
space
● Indicate Members of the Group ● Minimum of
1,200 words
● Date of Submission:

4
 2.2 - The Bretton Wood System

Students are to watch the video entitled:

1. What is BRETTON WOODS SYSTEM? at
https://www.youtube.com/watch?v=RsL7--MVOBA
2. Bretton Woods at
https://www.youtube.com/watch?v=wuOOK7aU1TY

The Bretton Woods system was the first system used to

control the value of money between different
countries. It meant that each country had to have a monetary
policy that kept the exchange rate of its currency
within a fixed value—plus or minus one percent—in terms of gold.

The Bretton Wood system was inaugurated in 1944 during the

United Nations Monetary and Financial Conference to prevent the
catastrophes of the early decades of the century from recurring and
affecting international ties. It was largely influenced by the ideas of
British economist John Maynard Keynes who believed that economic
crises occur not when a country does not have enough money, but
when money is not being spent and, thereby, not moving. When
economies slow down, according to Keynes, governments have to
reinvigorate markets with infusions of capital. This active role of
government in managing spending served as the anchor for what
would be called a system of global Keynesianism.

Delegates at Bretton Woods agreed to create two financial

institutions. The first was the International Bank for Reconstruction
and Development (IBRD, or World Bank) to be responsible for
funding postwar reconstruction projects. It was a critical institution
at a time when many of the world’s cities had been destroyed by
the war. The second institution was the International Monetary Fund
(IMF), which was to be the global lender of last resort to prevent
individual countries from spiraling into credit crises. If economic
growth in a country slowed down because there was not enough
money to stimulate the economy, the IMF would step in. To this day,
both institutions remain key players in economic globalization.

Shortly after Bretton Woods, various countries also committed

themselves to further global economic integration through the
General Agreement on Tariffs and Trade (GATT) in 1947. GATT’s
main purpose was to reduce tariffs and other hindrances to free
trade.

5
 Tariff - a tax or duty to be paid on a particular class of
imports or exports.

Students are to watch the youtube video entitled:

How do tariffs work? CNBC Explains
https://www.youtube.com/watch?v=LKCMnCZyxiQ

Based on the youtube: How do tariffs work? CNBC

Explains
1. What is a tariff?
2. The video is about tariffs of U.S. on (a. import
b. export)
3. How do you call the money collected under tariff?
Answer: duty or custom duty
4. In the Philippines, what agency is in charge of
collecting tariffs? Bureau of Customs
5. If a Robert, Filipino businessman imports a luxury
car, the usual import duties and VAT is 1/3 of the
purchase price of the car. If he buys a luxury car
costing 5M pesos, how much is the total cost of
the car? 6,665,000 pesos
6. & 7. In the video, what are the two reasons why
the U.S.A. charge import duties? 6. To raise
money 7. They protect local businessmen from
competition of foreign businessmen.
8.________ John Maynard Keynes was an
economist who negotiated for the arrangement of
the Bretton Woods Monetary System which form the
basis of post World War II monetary order.
Bretton Woods Monetary System which form the
basis for the post World War II monetary order.

9. The first pillar of the Bretton Woods agreement was

that the U.S. Dollar was tied to _______ gold at a fixed
price, back then 35 US dollars an ounce.

10-12 The MR University video gives us the Bretton

Woods Monetary System in terms of three goals. Give

6
 the three goals. a. rule-bound b. policy
independence for nations c. avoid volatility of floating
exchange rates

2.3 – Neoliberalism and its Discontents

Students are to watch the video entitled:

1. Neoliberalism @

https://www.youtube.com/watch?v=DLtxUiwY6j

2. Pros and cons of neoliberalism @

https://www.youtube.com/watch?v=t41rFqVpB1I

The high point of global Keynesianism came in the mid-

1940s to the early 1970s. During this period, governments
poured money into their economies, allowing people to
purchse more goods and, in the process, increase demand for
these products. As demand increased, so did the prices of
these goods. Western and some Asian economies like Japan
accepted this rise in prices becau.se it was accompanied by
general economic growth and reduced unemployment. The
theory went that, as prices increased, companies would earn
more, and would have more money to hire workers.
Keynesian economists believed that all this was a necessary
trade-off for economic development.
In the early 1970’s, however, the prices of oil rose
sharply as a result of the Organization of Arab Petroleum
Exporting Countries’ (OAPEC, the Arab member-countries of
the Organization of Petroleum Exporting Countries or OPEC)
imposition of an embargo in response to the decision of the
United States and other countries to resupply the Israeli
military with the needed arms during the Yom Kippur Ear.
Arab countries also used the embargo to stabilize their
economies and growth. The “oil embargo” affected the
Western economies that were reliant on oil. To make matters
worse, the stick markets crashed in 1973-1974 after the
7
United States stopped linking the dollar to gold, effectively
ending the Bretton Woods system. The result was a
phenomenon that Keynesian economics could not have
predicted – a phenomenon called stagflation, in which a
decline in economic growth and employment (stagnation)
takes place along side a sharp increase in prices (inflation).
What is Stagflation?
Stagflation is a seemingly contradictory condition described
by slow economic growth and relatively high unemployment, or
economic stagnation, which is at the same time accompanied by
rising prices (i.e. inflation). Stagflation can also be alternatively
defined as a period of inflation combined with a decline in gross
domestic product (GDP- is a monetary measure of the market
value of all the final goods and services produced in a specific
time period).

 Stagflation refers to an economy that is experiencing a

simultaneous increase in inflation and stagnation of economic
output.
 Stagflation was first recognized during the 1970's,
where many developed economies experienced rapid
inflation and high unemployment as a result of an oil
shock.
 Prevailing economic theory at the time could not easily
explain how stagflation could occur.
 Since the 1970's, rising price levels during periods of
slow or negative economic growth have become
somewhat of the norm rather than an exceptional
situation.

Liberalism, political doctrine that takes protecting

and enhancing the freedom of the individual to be the central
problem of politics. Liberals typically believe
that government is necessary to protect individuals from
being harmed by others, but they also recognize that
government itself can pose a threat to liberty. As the
revolutionary American pamphleteer Thomas Paine expressed
it in Common Sense (1776), government is at best “a
necessary evil.” Laws, judges, and police are needed to
secure the individual’s life and liberty, but their coercive
power may also be turned against him. The problem, then, is
to devise a system that gives government the power
necessary to protect individual liberty but also prevents those
who govern from abusing that power. (Encyc.Britannica).

8
What Is Neoliberalism?
Neoliberalism is a policy model that encompasses both
politics and economics and seeks to transfer the control of
economic factors from the public sector to the private sector.
Many neoliberalism policies enhance the workings of free
market capitalism and attempt to place limits on government
spending, government regulation, and public ownership.

Neoliberalism is often associated with the leadership of

Margaret Thatcher–the prime minister of the U.K. from 1979
to 1990 and leader of the Conservative Party from 1975 to
1990–and Ronald Reagan, the 40th president of the U.S.
(from 1981 to 1989). More recently, neoliberalism has been
associated with policies of austerity and attempts to cut
government spending on social programs.

KEY TAKEAWAYS

 The policies of neoliberalism typically supports fiscal

austerity, deregulation, free trade, privatization, and a
reduction in government spending.
 Neoliberalism is often associated with the economic policies
of Margaret Thatcher in the United Kingdom and Ronald
Reagan in the United States.
 There are many criticisms of neoliberalism, including its
tendency to endanger democracy, workers’ rights, and
sovereign nations’ right to self-determination.

Understanding Neoliberalism
Neoliberalism is related to laissez-faire economics, a
school of thought that prescribes a minimal amount of
government interference into the economic issues of
individuals and society. Laissez-faire economics proposes that
continued economic growth will lead to technological
innovation, expansion of the free market, and limited state
interference.

Neoliberalism is sometimes confused with libertarianism.

However, neoliberals typically advocate for more intervention
government intervention into the economy and society than
libertarianism. For example, while neoliberals usually favor
progressive taxation, libertarians often eschew this stance in
favor of schemes like a flat tax rate for all taxpayers.

9
 In addition, neoliberals often do not oppose measures
such as bailouts of major industries, which are anathema to
libertarians.

Libertarianism (from Latin:

libertas, meaning "freedom") is a political philosophy and
movement that upholds liberty as a core
principle. Libertarians seek to maximize political freedom
and autonomy, emphasizing individualism, freedom of choice
and voluntary association.

2.4 – The Global Financial Crisis and the Challenge

to Neoliberalism

Students are to watch the video entitled:

1. BEYOND NEOLIBERALISM – WHEN AN ORTHODOXY
HITS ITS EXPIRATION DATE | DR. JOHANNES MEIER
| TEDXHHL @
YOUTUBE.COM/WATCH?V=2RBP6DMCLMQ
Core Beliefs of Neoliberalism according to Dr.
Johannes Meier in his Tedx Video
1. Society of rational individuals seeking to maximize
their own utility (homo economicus)
2. Competition is the primary driver of human affairs.
The right to compete is the essence of neoliberalism.
3. The success of a nation is the sum of individual’s
utility. Measure is like the GDP.
4. The proper role of government is to establish and
protect free markets.

Russia's case was just one example of how the “shock

therapy" of neoliberalism did not lead to the
ideal outcomes predicted by economists who believed in
perfectly free markets. The greatest recent repudiation of this
thinking was the recent global financial crisis of 2008-2009.

Neoliberalism came under significant strain during the

global financial crisis of 2007-2008 when the world
experienced the greatest economic downturn since the Great
10
 Depression. The crisis can be traced back to the 1980s when
the United States systematically removed various banking and
investment restrictions.

Covering Lessons 2.2, 2.3 & 2.4

2.5 – Economic Globalization Today

Students are to watch the video entitled:

1. Washington Consensus @

www.youtube.com/watch?v=AVKKBBqSoPg

2. The Washington Consensus @

www.youtube.com/watch?v=cOPT9cRrkwc

Discussion will be done on the propriety of

the Washington Consensus.

The global financial crisis will take decades to resolve.

The solutions proposed by certain nationalist and leftist
groups of closing national economies to world trade, however,
will no longer work. The wolrd has become too integrated.
Whatever one’s opinion about the Washington Consensus is, it
is undeniable that some form of international trade remains
essential for countries to develop in the contemporary world.

11
 Localizing the Material
Many Philippine industries were devastated by unfair trade deals u
eventually the WTO. One sector that was particularly affected was
According to Walden Bello and a team of researchers at Focus on the
used its power under the GATT System to prevent Philippine impo
Philippine poultry and pork-even as it sold meat to the Philippines.
Although the Philippines expected to make up losses in sectors l
areas such as coconut products, no significant change was realized. In 1
amounted to $1.9 billion, and after a slight increase to $2.3 billion in 19
billion in 2000. Most strikingly, Bello and company noted that the Ph
food importer under the GATT. In 1993, the country had an agricultura
million. it had a deficit of S764 million in 1997 and $794 million in 2002.
-Bello, Walden, Herbert Docena, Marissa de Guzman, and Mary
Development State: The Political Economy of Permanent Crisis in the P
New York: Zed Books, 2006, 140142.

2.6–Conclusion
International economic integration is a central tenet of
globalization. In fact, it is so crucial to the
process that many writers and commentators confuse this
integration for the entirety of globalization. As
a reminder, economics is just one window into the
phenomenon of globalization; it is not the entire thing.

Nevertheless, much of globalization is anchored on

changes in the economy. Global culture, for example, is
facilitated by trade. Filipinos would not be as aware of
American culture if not for the trade that allows locals to
watch American movies, listen to American music, and

12
 consume American products. The globalization of politics is
likewise largely contingent on trade relations. These days,
many events of foreign affairs are conducted to cement
trading relations between and among states.

Research about an international economic banking

organization, the Asian Development Bank
(ADB) or an international company like Honda or Mc Donald’s,
etc. Answer elaborately the following
questions:

1.How does this institution influence economic activity?

2. How does it affect economics in the Philippines?

13