CONTEMPORARY WORLD

Unit 1. The Structures of Globalization

Lesson 1. What is Globalization?

Learning Outcomes:

1. agree on a working definition of globalization for the course;

2. differentiate the competing conception and globalization; and

3. narrate a personal experience of globalization.

Globalization: A Working Definition

1. Most accounts view globalization as primarily an economic process.

2. Newspaper Reports: It is the integration of the national markets a wider global market
signified by the increased free trade.

3. Activists: Anti-globalization means resisting the trade deals among countries facilitated and
promoted by global organizations like the World Trade Organization.

4. Academics: call globalization an interdisciplinary approach used by General Education

courses.

5. Manfred Steger: Globalization is the expansion and intensification of social relations and
consciousness world- time and across world-space. Expansion refers to both the creation of new social
networks and the multiplication of existing connections that cut across traditional political, economic,
cultural, and geographic boundaries. Intensification refers to the expansion, stretching, and acceleration
of these networks: social media, international groups of non-governmental organizations(NGOs) that
connect a more specific group- social workers and activists.

Examples:

1. Strong financial market connecting London and New York such as electronic trading.

2. China committed itself to the global economy in the 1980s.

3. Shainghai steadily returned to its old role as a major trading post.

4. Honda plant temporarily ceased production of car parts due to monsoon rains flooded much
Bangkok. This had a strong negative effect on Honda-USA which relied heavily on the parts being
imported from Thailand, as a result, Japanese car company’s global profits also fell.

The final attribute of the definition of globalization relates to the people perceived time and space.
Steger notes that “globalization processes do not occur merely at an objective, material level but they
also involve the subjective plane of human consciousness.” In other words, people begin to feel that
the world has become smaller place and distance as collapsed from thousands of miles to just a mouse-
click away. One can now e-mail call a friend in another country and get a reply instantaneously, and a
result, begins to perceive their distance as less consequential. Cable TV and the internet has also
exposed one to news from across the globe, so now, he/she has this greater sense of what is happening
in other places. Much more today, with the occurrence of CoVID 19 pandemic, DepEd and CHED require
all learning institutions to use virtual/on-line classes as we cannot afford to go face-face classes.

Steger posits that his definition of globalization must be differentiated with an ideology he calls
globalism, a widespread belief among powerful people that the global integration of economic markets
is beneficial to everyone, since it spreads freedom and democracy across the world. It is a common
belief forwarded in media and policy circles.

6. Arjun Appadurai, different kinds of globalization occur on multiple and interesting dimensions
of integration that he calls “scapes.”

1. ethnoscape refers to the global movement of people

2. mediascape is about the flow of culture

3. technoscape refers to the circulation of mechanical goods and software

4. finanscape denotes the global circulation of money

5. ideoscape is the realm where political ideas move around

Although they intersect, these five scapes have different logics. They are thus, distinct windows
into the broader phenomenon of globalization.

7. Schottle (1995) states that globalization stands for quite a large public spread across the
world as one of the defining terms of the 20 th century social consciousness.

8. Rosenau (1996) states that globalization is not the same as globalism, which points our
aspirations for an end state of affairs wherein values are shared by or pertinent to all the world’s five
billion people, their environment, their roles as citizens, consumers and producers with an interest in
collective action designed to solve common problems. Not it is universalism – values that embrace all
humanity.

9. Mc Grew (1990) globalization is described as something that is comprised of multiple

sameness and interconnectedness that go beyond the nation-states. It is a process in which individuals
and organizations in one part of the world are affected by the activities, affairs, and convictions on
another part of the world.

10. Cerny (1997) globalization is a cluster of economic and political frameworks and procedures
deriving from the changing marks of the interests and assets that comprise the foundation of the
international political economy- specifically, the expanding structural differences of those interests and
assets.

11. Freeden (2003) posits that globalization denotes a range of processes nesting under one
rather unwieldy epithet. Its conceptual difficulty to handle or control arises from the fact that global
flows occur in different physical and mental dimensions.

12. Economists – globalization means increase of free trade, speed of trade, global economic
organization, and regional trade blocks. The expansion of the free trade allows governments not to
restrict the importation of products
 nor impede the export of local products. Importing and exporting are done just in a millisecond
through technology and the internet. There is also the intense establishment of economic organizations
such as the International Monetary fund (IMF), World Bank (WB), World Trade Organization (WTO),
International Labor Organization (ILO), European Free Trade Area (EFTA), Mercusor, a customs union
among Brazil, Argentina, Uruguay, Paraguay, and Venezuela, ASEAN Free Trade Area (AFTA) and Trans-
Pacific Partnership.

13. McLuhan ( 1964) a Communication Expert- globalization refers to the concept of a global
village. Through globalization, the world has become a borderless world. Communication technology
makes the world shrink. He believes that media have connected the world in ways that created a global
village.

14. Culture Experts- globalization is referred to as cultural imperialism. It is the conviction that
there is a “better” culture. Some cultures see other cultures as superior to theirs, forming inferior or
non-dominant cultures. In cultural globalization, therefore, the spread of popular culture ( e.g., music,
art, literature, fashion, lifestyle, etc.) flows from dominant to non-dominant cultures ( i.e., from
developed to developing countries.

Lesson 2: The Globalization of World Economics

Learning Outcomes:

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.

Economic Globalization refers to the expanding interdependence of world economics.

Shangquan (2000) attributes globalization to the growing scale of cross-border trade commodities and
services, flow of international capital, and wide and rapid spread of technology.

In the Philippines, cross-border can best be illustrated by the country’s trading partnerships with
China, United States, and Australia.

Moreover, the flow of international capital can be observed in Foreign Direct Investments (FDI),
a type of investment in which a company establishes a business in another country for production of
goods or services and still takes part in the management such as the Toyota Motor Philippines
Corporation which is a subsidiary of the corporation based in Tokyo, Japan.

This flow of international capital can also be observed in foreign portfolio investments, trade
flows, external assistance and external commercial borrowings, and private loan flows.

The International Monetary Fund (IMF)(2008) 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.

1. How does one define “increasing integration?

2. When is it considered that trade has increased?

3. Is there a particular threshold?

4. To what extent has CoVID 19 pandemia affected economic globalization?

According to the IMF, the value of trade (goods and services) as a percentage of world Gross
Domestic Product (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 speed.

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 a span of just a few
decades.

An evidence to this claim is ten years ago, buying books or music indicates acquiring physical
items. Today, however, a “book” can be digitally downloaded to be read with an e-reader, and a music
“album” refers to the 15 songs on mp3 format you can purchase and download from iTunes.

International Trading Systems

The oldest international trade is 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 and Europe. Traders used the Silk Road regularly from 130 Before
the Common Era (BCE) when the Chinese Han Dynasty 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.

According to Dennis O. Flynn and Arturo Giraldez, historians, the age of globalization began
when “all important populated continents began to exchange products continuously- both with each
other directly and indirectly viva other continents – and in values sufficient to generate crucial impacts
on all trading partners.

Flynn and Giraldez trace back to 1571 with the establishment of the galleon trade that
connected Manila in the Philippines and Acapulco in Mexico. This was the first time that the Americas
were directly connected to Asian trading routes. For Filipinos, it is crucial to note that economic
globalization began.

The galleon trade was part of mercantilism. From the 16 th to the 18th centuries, countries,
primarily in Europe, competed with one another to sell more goods as a means to boost their country’s
income called monetary reserves. To defend their products from competitors who sold goods more
cheaply, these regimes mainly the monarchies (1)imposed high tariffs, (2) forbade colonies to trade
with other nations,(3) restricted trade routes, and (4) subsidized its exports.

A more open trade system emerged in 1867 when following the lead of the United Kingdom, the United
States and other European nations adopted the gold standard at an international monetary conference
in Paris. Broadly, its goal was to create a common system that would allow for more efficient trade and
prevent the isolationism of the mercantilist era. The countries thus, established a common basis for
currency prices and a fixed exchange rate system – all based on the value of gold.

During World War I, when countries depleted their gold reserves to fund their armies, many
were forced to abandon the gold standard. Since European countries had low gold reserves, they
adopted floating currencies there were no longer redeemable in gold.

The Great Depression, a global economic crisis which started during the 1920s and extended up
to the 1930s was the worst and longest recession ever experienced by the Western World. Some A more
open trade system emerged in 1867 when following the lead of the United Kingdom, the United States
and other European nations adopted the gold standard at an international monetary conference in
Paris. Broadly, its goal was to create a common system that would allow for more efficient trade and
prevent the isolationism of the mercantilist era. The countries thus, established a common basis for
currency prices and a fixed exchange rate system – all based on the value of gold.

During World War I, when countries depleted their gold reserves to fund their armies, many
were forced to abandon the gold standard. Since European countries had low gold reserves, they
adopted floating currencies there were no longer redeemable in gold.

The Great Depression, a global economic crisis which started during the 1920s and extended up
to the 1930s was the worst and longest recession ever experienced by the Western World. Some
economist argued that it was largely caused by the gold standard, since it limited the amount of
circulating money ,thus, reduced demand and consumption. If governments could only spend money
that was equivalent to gold, its capacity to print money and increase the money supply was severely
curtailed.

Barry Eichengreen, an economic historian argues that the recovery of the United States really
began having abandoned the gold standard, the US government was able to free up money to spend on
reviving the economy. At the height of World War II, other major industrialized countries followed suit.

The world never returned to the gold standard of the early 20 th century, though more indirect
versions of the gold standard were used until as late as the 1970s. Today, the world economy operates
based on what are called fiat currencies – currencies that are not backed by by precious metals and
whose value is determined by their cost relative to other currencies. This system allows governments
to freely and actively manage their economies.

The Bretton Woods System

The Bretton Wood System is a network of global financial institutions that would promote
economic interdependence and prosperity. Global leaders believed that creating a global economic
system would ensure a longer-lasting global peace. The Bretton Wood System was inaugurated in 1944
during the United nations Monetary and Financial Conference.

John Meynard Keynes, a British economist largely influenced the Bretton Wood System who
believed that economic crisis occur not when a country does not have enough money, but when money
is is not being spent and, thereby not moving. When economies slow down, governments have to
reinvigorate markets with infusions of capital. This active role of governments in managing spending
served as the anchor called Global Keynesianism.

Delegates at Bretton Woods agreed to create two financial institutions: (1) International Bank
for Reconstruction and Development (IBRD or World Bank) responsible for funding postwar
reconstruction projects; (2) International Monetary Fund (IMF) to prevent individual countries from
spiraling into credit crises, that is, if economic growth in a country slowed down because there was
not enough money to stimulate the economy.

The General Agreement on Tariffs and Trade (GATT) is another global economic integration
with the main purpose to reduce tariffs and other hindrances to free trade established last 1947.

Neoliberalism and Its Discontent

Neoliberalism is a new form of economic thinking that became the codified strategy of the
United States Treasury Department, the World Bank, the IMF in the 1980s and eventually the World
Trade Organization founded in 1995 to continue the tariff reduction under the GATT. The policies they
forwarded was called the Washington Consensus.

In the mid-1940s to the early 1970s was the high point of Keynesianism. The governments
poured money into their economies, allowing people to purchase 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 because it was
accompanied by general economic growth and reduced unemployment. The theory was: As prices
increased, companies would earn more, and would have more money to hire workers. The Keynesian
econo-mists believed that this is a necessary trade-off for economic development.

In the early 1970s, 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 war. 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 stock
markets crashed in 1973-1974 after the United States stopped linking the dollar to gold, effectively
ending the Bretton Woods system.

The result was a phenomenon that Keynesian economics were unable to predict: stagnation a decline in
economic growth and employment; and inflation a sharp increase in prices called stagflation.

A new form of economic thinking challenged the Keynesian orthodoxy. Friedrich Hayek and
Milton Friedman argued that the government’s practice of pouring money into their economies had
caused inflation by increasing demand for goods without necessarily increasing supply. They argued that
government intervention in economies distort the proper functioning of the market.

Friedman used the economic turmoil to challenge the consensus around Keynes’s ideas and
what emerged was a new form of economic thinking called neoliberalism. From the 1980s onward,
neoliberalism became the codified strategy of the United States Treasury Department, the World Bank,
the IMF and World Trade Organization -

(WTO) – a new organization founded in 1995 to continue the tariff reduction under the GATT. The
policies they forwarded came to be called the Washington Consensus.

The Washington Consensus dominated global economic policies from the 1980s until the early
2000s:

1. Its advocates pushed for minimal government spending to reduce government debts.

2. They also called for the privatization of government-controlled services like water, power,
communications, and transport believing that the free market can produce the best results.

3. They pressured governments, particularly in the developing world to reduce tariffs and open
up their economics, arguing that it is the quickest way to progress.

4. They conceded that certain industries would be affected and die, but they considered this “
shock therapy” necessary for long-term economic growth.

President Ronald Raegan, US President and Margaret Thatcher, British Prime Minister who are
advocates of neoliberalism justified their reduction in government spending by comparing national
economies to households. Thatcher, in particular, promoted an image of herself as a mother, who
reined in overspending to reduce the national debt.

The problem with the household analogy is that governments are not households. For one,
governments can print money, while households can not. Moreover, the constant taxation system s of
governments provide them a steady flow of income that allows to pay and refinance debts steadily.

Despite the initial success of neoliberal politicians like Thatcher and Raegan, the defects of the
Washington Consensus became immediately palpable. A good example is the post-communist Russia.
After Communism had collapsed in the 1990s, the IMF called for the immediate privatization of all
government industries. The IMF assumed that such a move would free these industries from corrupt
bureaucrats and pass them on to the more dynamic and independent private investors. What
happened, however, was that only individuals and groups who had accumulated wealth under the
previous communist order had the money to purchase these industries. In some cases, the economic
elites relied on easy access to government funds to take over the industries. This practice entrenched
an oligarchy that still dominates the Russian economy to this very day.

The Global Financial Crisis and the Challenge to Neoliberalism

The “shock therapy” in Russia is an example how neoliberalism did not lead to the ideal
outcomes predicted by economists who believed in perfectly free markets.
 The greatest global financial crisis of 2007-2008 occurred when the world experienced the
greatest economic turned down since the Great Depression.

1.This can be traced back to the 1980s when the United States systematically removed various
banking and investment restrictions. Americans began building houses that were beyond their financial
capacities “ cheap housing loans.” To mitigate the risk of these loans, banks lending houseowners’
money pooled these mortgage payments and sold them as “mortgage-backed securities” (MBS).

Mortgage-backed securities increased as banks became less discriminating in extending loans to people
who were unlikely to pay their loans and these high-risk mortgages became known as sub-prime
mortgages. Banks thought that since there were so many mortgages in just one MBS, a few failures
would not ruin the entirety of the of the investment. Banks also assumed that housing prices would
continue to increase, so even if homeowners defaulted on their loans, these banks can simply reacquire
the homes and sell them at a higher price, turning a profit. The tipping point was the collapse of the
major investment banks like Lehman Brothers in September 2008.

2. Three Iceland top commercial banks which heavily depended on foreign capital, failed to
refinance their loans and defaulted. From 2007 to 2008, Iceland’s debt increased than seven-fold.

3. Spain and Greece ( Third World countries) are heavily indebted. Greece was forced by
Germany and the IMF to cut back on its social and public spending which affected services like pensions,
health care, and various forms of social security, these, acutely affected the poor.

The United Sates recovered from this crisis during the Presidency

of Barrack Obama through the Keynesian- style stimulus package.

4. In Europe, the economic crisis sparked political upheaval.

5. In France, far-right parties like Marine Le Pens Front National rose into prominence by
unfairly blaming immigrants for their woes, claiming that they steal jobs and leech off welfare. These
movements blend popular resentment with utter hatred and racism.