Week 2: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to

a. Discuss the factors leading the formation of economic integration and

cooperation.

Metalanguage
In this section, understand the economy in the global scale, the political component
of globalization and define the terms of roles of civil society and non-governmental
organizations. Demonstrate ULOs will be operationally defined to establish a common
frame of reference as to how the texts work in your chosen field or career. You will
encounter these terms as we go through the study of curriculum. Please refer to these
definitions in case you will encounter difficulty in the understanding of educational
concepts.

Big Picture in Focus: ULOa. Globalization of World Economics.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for the 2 nd week of
the course, you need to fully understand the following essential knowledge that will be
laid down in the succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books, research articles
and other resources that are available in the university’s library e.g. ebrary,
search.proquest.com etc.

8. Global Economy
Global economy is also referred to as world economy. This term refers to
the international exchange of goods and services that is expressed in monetary
units of money. It may also mean as the free movement of goods, capital,
services, technology and information.
In some context “global” or “International” economy is distinguished and
measured separately from national economies while the “world economy” is
simply an aggregate of the separate country’s measurements.
World economy is exclusively limited to human economic activity and is
typically judged in monetary terms. Typical examples are illegal drugs and other
black market goods which by any standard are part of the world economy, but
for which these is by definition no legal market of any kind.
Global economy or economic globalization is concerned on the
globalization of production, finance, markets, technology, organizational
regimes, institutions, corporations and labor. While economic globalization has
been expanding since the emergence of trans-national trade, it has grown at
 an increased rate due to an increase in communication and technological
advances under the framework of General Agreement on Tariffs and Trade and
World Trade Organization, which made countries gradually cut down trade
barriers and open up their current accounts and capital accounts. This recent
boom has been largely supported by developed economies integrating with
majority world through foreign direct investment and lowering costs of doing
business, the reduction of trade barriers and in many cases cross border
migration.

9. Economic Systems
9.1 Market Economy –decision making of private individuals is a
determinant of a pure market economy. Economic freedom to
purchase and sell products, services, and properties is a key
characteristics of an economy under the will and interest of the
individuals. Economics activities like production and distribution of
goods and commodities are based on the interaction of supply and
demand. This condition is not planned by a single person or group
that has the ability to manipulate or direct the economy solely. There
is a very close economic engagement between producers and
consumers. Supply in the market is based on the consumer
behavior, price and the resource availability in the economy.
9.2 Command Economy- a central economic body handles the entire
decision-making in the operation of an economy. The quality and
quantity of goods and services produces in the market is based on
the decision of the government. Production quantity is dictated,
consumer behavior is directed, and market operation is controlled by
a single authority. During the height of communism, many countries
move its economy to state planning and government ownership.
However, economic problems hampered the economy like limited
production, faulty decisions, and weak domestic investments.
The objective of command system is to mobilize resources for
the common good of the public and for the interest of the nation.
Private individuals have no say in the economic operation as this
includes the abolition of private of economic competition and
innovation.
9.3 Mixed Economy-market-driven economies like United States, Great
Britain and France had experienced mixed economic system. This
practice is a combination of market and command systems of
economic planning and decision-making. Some sectors are under
the direction of the private individuals while others aspects of the
economy are left within the interest and guidance of the government.
There are times that the state has to take over the ownership and
operation of a particular troubled private firm for the purpose of
maintaining the interest of the nation. When the American market
 was hit by the 2008-2009 financial markets, its government resorted
to take over some collapsing financial corporations.

10. International Trade

The conclusion of World War II signaled the beginning of trade
facilitation around the globe. Economies set rules and guidelines for
international trade which led to formation of General Agreement on Tariffs
and Trade (GATT). These trade rules were developed through series of
rounds or meetings of member economies. Exchanges of good and
commodities become more accessible, trade barriers were reduced,
unprecedented increased of specialization and product innovation, and
competitive prices were offered in major industries. These development
resulted to a more open and free flow of goods and services where
exchanges were seen between developed and less developed economies.
Why do countries engage in international trade? What are the costs
and gains in trading with other countries? This chapter will provide an
overview on the system and practice of international trade. It will present
the three leading theories and perspectives in international trade. Likewise,
the advantages and disadvantages of engaging in global trade and
international market will be described and analyzed.
International Trade (IT) is the process and system when goods
commodities, services cross national economy, and boundaries in
exchange for money or goods of another country (Balaam and Vesth, 2008).
Global trade has grown dramatically since the post-cold war era as result of
increasing demand of goods and services of countries. This global norm is
are flection of growing practice of internationalizing and globalizing local
products and services.

11. Trade Theories

There are two types of trade theories explaining international trade:
11.1 Descriptive Theory. It deals with the natural order and
movement of trade. It describes the pattern of trade under the idea
of laissez faire, a French term which means “leave alone”. It refers
to the notion that individuals are the best economic agents to solve
the problems through invisible hand rather than the government
policies. Descriptive theory addresses the questions of which
product to trade, how much product to offer and produce, and which
country to trade in the absence of government restrictions.
11.2 Prescriptive Theory. This prescribes whether government,
an important economic institution, should interfere and restrict with
the movement of goods and services. This theory views government
to have participation in deciding which countries to alter the amount,
composition and direction of goods. The pressing question
 describing descriptive theory is “Should the government control
trade?”
12. Three Perspective on International Trade
12.1 Economic Liberals
David Ricardo and Adam Smith were known critics of late 18th
century on the abuses of mercantilism in England. Their liberal ideas
and contribution in understanding global trade are still relevant until
today. For Ricardo, his influential work Law of Comparative
Advantage explains that free trade efficiency is attainable if two
countries can produce more goods and trade products separately.
The advantage of this theory in international trade is deriving from
the principle of specialization and division of labor (Nau,2009).
Countries have different resources and talents; they are better in
performing in that economic activity than other economic activities.
Economic liberals explain the importance of free trade and the
role of individual’s preference in choosing economic activity. It
includes making decision and choices on comparing the costs of
products to be produced and traded, the availability of the product
and the efficiency of producing and buying the products.
20.2 Mercantilists
Mercantilism is an economic theory emerged from about 1500-
1800.This period was the emerging eras of nations-states and the
formation of more central governments. This system flourished due to the
following reasons:
 Higher export than import. Governments imposed restrictions
and policies requiring economy and its market to produce
higher that products and services purchased outside the
country or import. Countries used this mechanism to support
their trade objectives and strengthen their colonial rule and
possessions.
 Export less high valued product and import less high valued
product. It prevented and monopolized the production and
manufacturing operation of the colonies.
 The benefits of colonial powers. Mercantilism was adopted to
increase and sustain the colonial power and its authority to
direct and control the economic activity of the colony.
Alexander Hamilton and Friedrich List are known critics of economic
liberalism. They stressed the need of government and an economic
body controlling and overseeing the operation of economy.
20.3 Structuralists
The earliest wave of mercantilism was described as classical
imperialism. The drive of European countries to explore and
colonized underdeveloped countries originated from the aggressive
mercantilist behavior of European economies. This idea was
extended to the practice of modern capitalist-imperialist approach by
 countries and economies that have the immense resource through
the use of hard power over developing and less developed countries.
The Modern World System (MWS) theory developed by
Immanuel Wallerstein, explains the contact of economies between
core, semi-peripheral and peripheral countries in the world. The core
states have the absolute advantage over the other through unequal
exchange and extraction of raw materials from periphery and semi-
periphery. This system as part on the structure of global capitalism,
involves exploitation, and transformation in some ways. The 16 th
century core states of northwest Europe moved agricultural sector to
higher –skilled industries. Eastern Europe became the periphery
economy where it heavily exported agricultural products to the core.
While Mediterranean Europe served as intermediary between the
core and periphery through using its labor-intensive industry.
The economic globalization and market integration of the 21st
century are extensions of the same economic motives of imperial
powers of the 19th and 20th centuries (Balaam and Veseth,2008).

13. Why Countries Engage in International Trade?

21.1 Use of Excess Capacity in Demand. The inadequate domestic
demand pushes business organizations to expand their market base
outside the national territory. This is usually done by firms and
companies that have the resources and capital to operate in a
transnational market. Giant brands like Nestle, Pepsi, McDonald’s,
Toyota, and Starbucks are known for expanding their operations outside
their home country.
21.2 Cost Reduction and Increase of Profit. A market leader for a
particular good or service may garner a lower production cost by
increasing its market in global rather than domestic. This enables a firm
to increase its profit while reducing its operating costs.
21.3 Cheaper Supplies. A country imports goods from other countries
because of inexpensive raw materials and supplies used for production.
The availability of buying cheaper materials from other countries lowers
the cost in production which might result to an increase in the profit of
businesses.
21.4 Addition to Product Line. Economies usually aim for a variety of
products and services available in the market. It offers consumer to
choose and buy products that are of competitive prices, degree of
importance, and will offer higher satisfaction.
21.5 Reduction Risk. Importing products is seen as an alternative to
countries that are vulnerable to supply shortage. These countries that
have high volume of imported goods are economies that confront the
demand and supply condition of the local market.
 21.6 Foreign Policy Tool. The membership of a country to regional market
integration and economic relationships is part of its foreign policy.
Enhancing the economic and political affiliation of a country is very
important in sustaining its international status in a global environment.

14. The Bretton Woods System

After the two world wars, world leaders sought to create a global
economic system that would ensure a longer-lasting global peace. They
believed that one of the ways to achieve this goal was set up a network of
global financial institutions that would promote economic interdependence
and prosperity. 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 reoccurring and
affecting international ties.

The Bretton Woods system 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 governments 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
the 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 Woos, 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.

15. Neoliberalism and Its Discontents

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 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 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 1970s, 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 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 gold, effectively ending the
Bretton Woods system. The result was a phenomenon that Keysion
economics could not have predicted—a phenomenon called stagflation, in
which a decline in economic growth and employment (stagnation) takes
place alongside a sharp increase in prices (inflation).
Around this time, a new form of economic thinking was beginning to
challenge the Keynesian orthodoxy. Economists such as Friedrich Hayek
and Milton Friedman argued that the governments’ practice of pouring
money into their goods without necessarily increasing supply. More
profoundly, they argued that government intervention in economies distort
the proper functioning of the market.
Economists like Friedman used the economic turmoil to challenge
the consensus around Keynes’s ideas. What emerged was a new form of
economic thinking that critics labeled neoliberalism. Form the 1980’s
onward, neoliberalism became the codified strategy of the United States
Treasury Department, the World Bank, the IMF and eventually the 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 1980’s until the early 2000’s. it advocates pushed for minimal
government spending to reduce government debt. 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. Finally, they pressured governments, particularly in the
developing world, to reduce tariffs and open up their economies, arguing
that it is the quickest way to progress. Advocates of the Washington
Consensus conceded that, along the way, certain industries would be
affected and die, but they considered this, “shock therapy” necessary for
long-term economic growth.
The appeal of neoliberalism was in its simplicity. It advocates like US
President Ronald Reagan and British Prime Minister Margaret Thatcher
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 household analogy is that governments are not
households. For one, governments can print money, while household
cannot. Moreover, the constant taxation systems of governments provide
them steady flow of income that allows them to pay and refinance debts
steadily.
Despite the initial success of neoliberalism politicians like Thatcher
and Reagan, the defects of the Washington Consensus became immediate
palpable. A good early example is that of post-communist Russia. After
Communism had collapsed in the 1990’s, the IMF called for the immediate
privatization of all government industries. The IMF assumed that such a
move would free these 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 has entrenched
an oligarchy that still dominates the Russian economy to this very day.

16. The Global Financial Crisis and the Challenge to Neoliberalism

Russia’s case was just one example of how the “shock therapy” of
neoliberalism did not lead to the ideal outcomes predicted by economist
who believed in perfectly free markets. The greatest recent radiation 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 down turn since the Great Depression. The crisis can be traced
back to the 1980’s when the United States systematically removed various
banking and investment restrictions.
The scaling back of regulations continued until the 2000’s paving the
way for brewing crisis. In their attempt to promote the free market,
government authorities failed to regulate bad investments occurring in the
US housing market. Taking advantage of “cheap housing loans”, Americans
began building houses that were beyond their financial capacities.
To mitigate the risk of these loans, banks that were lending
houseowners’ money pooled these mortgage payments and sold them as
“mortgage-backed securities” (MBSs). One MBS would be a combination of
multiple mortgages that they assumed would pay a steady rate.
Since there was no such surplus money circulating, the demand for
MBSs increased as investors clamored for more investment opportunities.
In their haste to issue these loans, however, the banks became less
discriminating. They began extending loans and individuals with dubious
credit records- people who were unlikely to pay their loans back. These
high-risk mortgages became known as sub-prime mortgages.
 Financial experts wrongly assumed that, even if many of the
borrowers were individuals and families who would struggle to pay, a
majority would not default. Moreover, banks thought that since there were
so many mortgages in jus one MBS, a few failures would not ruin the entirety
of the investment.
Banks also assumed that housing prices would continue to increase.
Therefore, even if homeowners defaulted on their loans, these banks could
simply reacquire the homes and sell them at a higher price, turning profit.
Sometime in 2007, however, home prices stopped increasing as
supply caught up with demand. Moreover, it slowly became apparent the
families could not pay off their loans. This realization the rapid reselling of
MBSs, as banks and investors tried to get rid of their bad investments. This
dangerous cycle reached a tipping point in September 2008, when major
investment banks like Lehman Brothers collapsed, thereby depleting major
investments.
The crisis spread beyond the United States since many investors
were foreign governments, corporations, and individuals. The loss of their
money spread like wildfire back to their countries.
These series of interconnections allowed for a global multiplier effect
that sent ripples across the world. For example, Iceland’s banks heavily
depended on foreign capital, so so when the crisis hit them, they failed to
refinance their loans. As a result of this credit crunch, three of Iceland’s top
commercial banks defaulted. From 2007 to 2008, Iceland’s debt increased
more than seven-fold.
Until now, countries like Spain and Greece are heavily indebted
(almost like Third World countries), and debt relief has come at a high price.
Greece, in particular, has been forced by Germany and the IMF to cut back
on its social and public spending. Affecting services like pensions, health
care, and various forms of social security, these cuts have been felt most
acutely by the poor. Moreover, the reduction in government spending has
slowed down growth and ensured high levels of unemployment.
The United States recovered relatively quickly thanks to a large
Keynesian-style stimulus package that President Barack Obama pushed for
in his first months in office. The same cannot be said for many other
countries. In Europe, the continuing economic crisis has sparked a political
upheaval. Recently, far-right parties like Marine Le Pen’s Front National in
France have risen to 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. We will discuss their
rise further in the final lesson.

17. Economic Globalization Today

The global financial crisis will take decades to resolve. The solutions
proposed by certain nationalist and leftist group of closing national
economies to world trade, however, will no longer work. The world has
become has 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.
Exports, not just the local selling of goods and services, makes the
international economies grow at present. In the past, those that benefited
the most from free trade were the advanced nations that were producing
and selling industrial and agricultural goods. The United States, Japan, and
the member-countries of the European Union were responsible for 65
percent of global exports, while the developing countries only accounted for
29 percent.
When more countries opened up their economies to take advantage
of increased free trade, the shares of the percentage began to change. By
2011, developing countries like the Philippines, India, China, Argentina, and
Brazil accounted nations---including the United States—had gone down to
45 percent. The WTO –led reduction of trade barriers, known as trade
liberalization, has profoundly altered the dynamics of the global economy.
In the recent decades, partly as a result of these increased exports,
economic globalization has ushered in an unprecedented spike in global
per capita GDP rose over five-fold in the second half of the 20th century. It
was this growth that created the large Asian economies like Japan, China,
Korea, Hong Kong and Singapore.
And yet, economic globalization remains an uneven process, with
some countries, corporations, and individuals benefiting a lot more than
others. The series of trade talks under the WTO have led to unprecedented
reduction in tariffs and other trade barriers, but these processes have often
been unfair.
First, developed countries are often protectionists, as they
repeatedly refuse to lift policies that safeguard their primary products that
could otherwise be overwhelmed by imports from the developing world. The
best example of this double standard is Japan’s determined refusal to allow
rice imports into the country to protect it’s farming sector. Japan’s
justification is that rice is “sacred”. Ultimately, it is economic muscle as the
third largest economy that allows it to resist pressures to open its
agricultural sector.
The United States likewise fiercely protect its sugar industry, forcing
consumers and sugar-dependent business to pay higher prices instead of
getting cheaper sugar from plantations of Central America.
Faced with these blatantly protectionist measures from powerful
countries and blocs, poorer countries can do very little to make economic
globalization more just. Trade imbalances, therefore, characterize
economic relations between developed and developing countries.
The beneficiaries of global commerce have been mainly
transnational corporations (TNCs) and not governments. And like any other
business, these TNCs are concerned more with profits than with assisting
the social programs of the governments hosting them. Host countries, in
turn, loosen tax laws, which prevents wages from rising, while sacrificing
social and environmental programs that protect the underprivileged
 members of societies. The term “race to the bottom” refers to countries’
lowering their labor standards, including the protection of workers’ interest,
to lure in foreign investors seeking high profit margins at the lowest cost
possible. Governments weaken environmental laws to attract investors,
creating fatal consequences on their ecological balance and depleting them
of their infinite resources (like oil, coal, and minerals).

Localizing the Material

Many Philippine industries were devastated by unfair trade deals under the GATT and
eventually the WTO. One sector that was particularly affected was Philippine agriculture.
According to Walden Bello and a team of researchers at Focus on the Global South, the US
used its power under the GATT system to prevent Philippine poultry and pork---even as it
sold meat to the Philippine.
Although the Philippine expected to make up losses in sectors like meat with gains in areas
such as coconut products, no significant change was realized. In 1993, coconut exports
amounted to $1.9 billion, and after a slight increase to $2.3 billion in 1997, it returned to
$1.9 billion in 2000.
Most strikingly, Bello and company noted that the Philippines become a net food importer
under the GATT. In 1993, the country had an agricultural trade surplus of $292 million. It
had a deficit of $764 million in 1997 and $794 million n 2002.
-Bello, Walden, Herbert Docena, Marissa de Guzman, and Mary Lou Malig.The Anti-Development State: The Political Economy of
Permanent Crisis in the Philippines. London and New York: Zed Books, 2006, 140-142.

18. Conclusion
International economic integration is a central tenet of globalization.
In fact, it is so crucial to the process that many writers and commentators
fjhu confuse this integration for the entirety of globalization. As a reminder,
economics is just one window into the phenomenon of globalization; it is
u 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 aware of American Culture if not for the trade that allows
locals to watch American movies, listen to American music, and 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.
Given the stakes involved in economic globalization, it is perennially
important to ask how this system can be made more just. Although some
elements of global free trade can be scaled back, policies cannot do away
with it as a whole. International policymakers, therefore, should strive to
think of ways to make trading deals fairer. Governments must also continue
 to devise ways of cushioning the most damaging effects of economic
globalization, while ensuring that its benefits accrue for everyone.

Self Help: You can also refer to the sources below to help you further
understand the lesson:

Ariola, M (2018). The Contemporary World. Manila: Unlimited Books Library Services &
Publishing Inc.

Claudio, L & Abinales, P. (2018). The Contemporary World. Quezon City: C&E Publishing
Inc.

De Ocampo, F, et al. (2018). Introduction to Contemporary World. Bulacan: St. Andrew

Publishing House