CONTEMPORARY WORLD
UNIT 2: THE GLOBAL ECONOMY
TRANS OUTLINE
I. THE GLOBAL ECONOMY
II. THE POST-WORLD WAR II ECONOMIC SYSTEM
III. INTERNATIONAL MONETARY FUND (IMF)
IV. WORLD BANK (WB)
V. GOOD GOVERNANCE
a. 8 primary elements of Good Governance
VI. GENERAL AGREEMENT ON TARIFFS AND TRADE
(GATT)
VII. WORLD TRADE ORGANIZATION (WTO)
VIII. FROM KEYNESIANISM TO NEOLIBERALISM
a. Keynesianism
b. Neoliberalism
IX. NEO-LIBERALISM
X. INTEGRATION OF ECONOMIES
XI. CORPORATE EXPANSION
XII. CORPORATION DOMINATION
XIII. IT TECHNOLOGIES AND GLOBALIZATION
THE GLOBAL ECONOMY
● Szentes (2003) defines Economic globalization
as “a process making the world economy an
“organic system” by extending transnational
economic processes and economic relations to
more and more countries and by deepening the
economic interdependencies among them”
○ When we try to integrate our economies
when countries tried to focus on how they
could try to come up of ways for global
integration
■ By opening up the economy, you
try to submit yourself to the idea
of eradicating the barriers to
create that must be mitigated in
order for the goods and
commodities of the countries to
enter the local market of each
respective state.
THE POST-WORLD WAR II ECONOMIC SYSTEM
● The Bretton Woods Conference in July 1944,
formally known as the United Nations
Monetary and Financial Conference.
○ This paved the way for the creation of
economic structures. The idea of this
conference is surrounded by the countries
which try to slowly open up economies
following the 2nd world war.
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■ After World War 2, everything is
geared towards how we could
reconstruct the world.
○ The conference, spearheaded by the United
Nations, in order to lay down the
foundation of how we could establish
systems that will aid the countries to
recover from the war.
● Two international economic organizations:
International Monetary Fund (IMF) and World
Bank or the International Bank for
Reconstruction and Development. These
institutions are known as the Bretton Woods
Institutions. It also includes a third entity, the
General Agreement on Tariffs and Trade (GATT).
○ Primarily catered to the demand of poorer
countries where they could gain loan and
access to credits for economies who were
vastly affected during the war.
INTERNATIONAL MONETARY FUND (IMF)
● Tasked with providing short term loans, grants and
financial instruments to the countries who were
greatly affected by the war.
● This could be utilized to reconstruct their
devastated economic setting and for them to start
anew.
● Beginning in the 1960-1970s, countries have been
obtaining loans from the IMF, however there are a
lot of problems since the loans that were given to
them didn’t not really resulted in its ultimate
function of intended purpose
○ These countries have unstable political
institutions, many of them have corrupt
leaders. The money given to them was not
utilized properly.
WORLD BANK (WB)
● Was created to provide long-term loans.
○ The world bank has tried to come up with
different functions.
● The World Bank today is made up of two
institutions. One is the International Bank for
Reconstruction and Development (IBRD) which
provides lending to middle-income and
creditworthy low-income countries. The other is
the International Development Association
(IDA) which grants credits and loans to
lowest-income countries.
○ Their main thrust, as a financial
institution, is to provide financial
assistance in those poor, low-income
countries. They provide services,
humanitarian development efforts, to uplift
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global conditions aligned in poverty, food
security and education
● The renewed role of the World Bank in the
modern economy is to reduce extreme poverty
while addressing the imperfections of global
capital markets continues to be of secondary
importance (Clemens & Kremer, 2016).
GOOD GOVERNANCE
● One of the reasons why countries remain poor
despite the loans given by WB and IMF is that
where the loans were given to the countries,
many are corrupt.
○ Corruption is one thing that alleviates
the condition of poverty in many
societies.
● In 1990s, the UNDP and WB tried to spearhead
the campaign, where they promote this model
of good governance
○ This is a framework that provides the
prescribed mechanism for countries
for them to combat corruption and
provide good and effective public
service.
8 primary elements of Good Governance
1. ACCOUNTABLE
a. It’s how you could be answerable to the
people. The government entity is
accountable to the people where before
they do any unscrupulous act (like
stealing from the comforts of the
country) they know that they are
accountable for the actions.
2. TRANSPARENCY
a. This is about being open, if we are not
hiding anything, we are transparent
b. This is very important to mitigate
corruption because it allows the people
to have access to the government
records, transactions so they are
properly accounted for.
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c. When the government is transparent, it
enables the people to understand
where their taxes are coming from.
3. RESPONSIVE
a. There must be a sense of urgency on
the part of the government to provide
good and honest public services.
i. Mostly seen during the times
of calamities or natural
disaster
4. EQUITABLE AND INCLUSIVE
a. This means that we need to give more
to those who have less.
b. Equity - all those people, regardless of
their social status, should be
benefiting from the government.
c. Everyone should have access and
should be benefiting from the
government and the acts of public
service.
5. EFFECTIVE AND EFFICIENT
a. Efficiency - you are doing something, or
produce something using the least
amount of resources.
b. We need a government that does not
only do things effectively, but also
efficiently.
6. FOLLOWS THE LAW
a. If you want to break the chain of
corruption, we have to follow the rule of
law
i. If we don't follow the rule of
law, it creates an avenue for
corruption to exist.
b. When we have good governance, we are
bending or destroying the ill effects of
corruption in the society.
7. PARTICIPATORY
a. Should entail people to be active
participants in the decision making.
They must feel that their voices are
being heard.
8. CONSENSUS ORIENTED
a. Governance is no longer a monopoly of
the government. In democracy, people
need to participate.
b. There must be consensus to mitigate
the corruption. If the people are directly
participating in the political process, it
means that they are aware of the
things happening inside where this
knowledge empowers them to hold the
government accountable.
● These elements are very important in order for
us to be able to solve the problem of
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corruption, so that whatever loan from the WB
or IMF will go to its intended purpose.
GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)
● The General Agreement on Tariffs and Trade
(GATT) is a legal agreement between many
countries, whose overall purpose was to
promote international trade by reducing or
eliminating trade barriers such as tariffs or
quotas.
○ The tariffs or quotas act as protectionist
barriers
○ If we don’t want to protect our local
economy, we need to reduce these tariffs, in
order for the goods and services of other
countries to freely enter our market and
vice versa
● The purpose of GATT was to eliminate harmful
trade protectionism. That had sent global trade
down 65 percent during the Great Depression.
GATT restored economic health to the world
after the devastation of the depression and
World War II.
● The original 23 GATT members were Australia;
Belgium; Brazil; Burma, now called Myanmar;
Canada; Ceylon, now Sri Lanka; Chile; China;
Cuba; Czechoslovakia, now Czech Republic and
Slovakia; France; India; Lebanon; Luxembourg;
Netherlands; New Zealand; Norway; Pakistan;
Southern Rhodesia, now Zimbabwe; Syria;
South Africa; the United Kingdom and the
United States. The membership increased to
more than 100 countries by 1993.
○ A positive note for the GATT, as more and
more countries are slowly embracing the
concept of economic integration
● For 47 years, GATT reduced tariffs. This boosted
world trade 8 percent a year during the 1950s
and 1960s. That was faster than world
economic growth. Trade grew from $332 billion
in 1970 to $3.7 trillion in 1993.
● It was such a success that many more
countries wanted to join. By 1995, there 128
members, generating at least 80 percent of
world trade.
WORLD TRADE ORGANIZATION (WTO)
● It was in 1995 when the GATT was renamed into WTO.
● The World Trade Organization — the WTO — is
the international organization whose primary
purpose is to open trade for the benefit of all.
○ The current, most dominant economic
organization in the world
○ Currently 164 members, and 24 observer
governments of the WTO
○ The Philippines is a signatory, a part, of the
WTO – the reason why we have opened up
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our borders to trade, and we have goods
from other countries (China, ASEAN
Integration)
● The WTO provides a forum for negotiating
agreements aimed at reducing obstacles to
international trade and ensuring a level playing
field for all, thus contributing to economic
growth and development. The WTO also
provides a legal and institutional framework
for the implementation and monitoring of
these agreements, as well as for settling
disputes arising from their interpretation and
application.
○ Not just simply a way of ensuring economic
integration, but performs other tasks such
as settling disputes between member
states
FROM KEYNESIANISM TO NEOLIBERALISM
Keynesianism
– proposed by John Maynard Keynes
– emphasizes that economic growth, economic balance,
economic progress can only be attained if the government
will take the steering wheel in order to lead the nation’s state
to where it would like to be
– more grounded on how the government will create avenues
for economic development to take place
– the government should be the primary driver of economic
progress
– many countries believed Keynes, arguing that if the
government would not spend, it would result in an anemic
economic setting, and would prove to be disadvantageous to
the economy.
– The government should always take the front seat, and
should always be there, and try to make efforts to steer the
economy (cough cough anuna bongbo–)
Neoliberalism
– The private sector, not the government, must take the lead
in improving the economy
– The government takes the back seat
NEO-LIBERALISM
● Neo - means modern
● Liberalism - a political concept
● Neoliberalism is aligned with the concept of
capitalism
● The main points of neo-liberalism include:
○ THE RULE OF THE MARKET
■ The market dictates that is
anchored on the law of supply and
demand
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■ The government may not intervene
to control the prices as the price of
commodities is dictated by how
many demand is being created
and how many supply is being
made
■ Ex: When oil prices increases, may
be from shortage supply or
increase supply, the governtment
cannot step in. They may not be
able to dictate on oil companies
the prices.
○ CUTTING PUBLIC EXPENDITURE FOR
SOCIAL SERVICES
■ If ever the public expenditure wil
be cut, it would provide ample
opportunity for them to earn, as
people may need to buy from the
private sector
○ REDUCING THE SAFETY-NET FOR THE
POOR,
○ DEREGULATION
■ Government is not given ample
power to regulate things
○ PRIVATIZATION.
■ Private companies are the prime
factor
○ ELIMINATING THE CONCEPT OF "THE
PUBLIC GOOD" or "COMMUNITY"
● The expansion and intensification of social
relations and consciousness across the world
time and across world space” (Steger)
○ Expansion – the creation of new social
networks and the multiplication of
existing connections that cut across
traditional political, economic, cultural
and geographic boundaries
○ Intensification – expansion, stretching
and acceleration of these networks
■ Many of these networks are
limited or are geared towards
providing economic dynamism for
many countries
■ The goal right now after WW2 is no
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longer political, but rather
economic, how nations can uplift
the ocnditions of their country and
eocnomy, and how to provide
better living standard for their
people
INTEGRATION OF ECONOMIES
● The increasing reliance of economies on each
other
● The opportunities to be able to buy and sell in
any country in the world
● The opportunities for labour and capital to
locate anywhere in the world
● The growth of global markets in finance
● Made possible by:
○ Technology
○ Communication networks
○ Internet access
○ Growth of economic cooperation –
trading blocs (EU, NAFTA, ASEAN, etc.)
■ Related to the collapse of
communism.
○ Collapse of ‘communism’
■ The collapse of communism
shifted the phenomenon towards
capitalism.
■ Communism as a political
theory/ideology is more into state
control
■ State control: economy is
centralized. Factors of production
are being controlled by the
government.
■ Capitalism is what neoliberalism
is all about
○ Movement to free trade
● Benefits of Trade:
○ Increased choice
■ Good thing about capitalism is
that is affords us to get the
utmost value for the money that
we spend
○ Greater potential for growth
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○ Increase international economies of
scale
○ Greater employment opportunities
■ When we create businesses and
when we do trading; it creates
jobs.
● Disadvantages of trade:
○ Increase in gap between the rich and
the poor
○ Dominance of global trade by the rich,
northern hemisphere countries
○ Lack of opportunities for the poor to be
able to have access to markets
○ Exploitation of workers and growers
○ These disadvantages of trade are the same
contention of Karl Marx when he
established Marxism in the 18th Century.
CORPORATE EXPANSION
● Multi-national or trans-national corporations
(MNCs or TNCs) – businesses with a
headquarters
in one country but with business operations in
a number of others.
● Multinational corporations actually provide the
economic resources whenever they invest and
operate in one country. It creates jobs and
opportunities for the country in which they operate.
● Characteristics:
○ Expanding revenue
○ Lowering costs
■ Instead of hiring people in their
locality, MNCs can outsource them
which means cheaper labor and
more opportunities for the country
they outsource.
■ Examples for this can be call
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centers.
○ Sourcing raw materials
○ Controlling key supplies
○ Control of processing
○ Global economies
of scale
CORPORATE DOMINATION
● Key Issues:
○ Damage to the environment?
■ Some companies and
corporations that are wantonly
destroying our environment just
for their profit seeking motives.
■ We must take the concept of
sustainable development at heart.
○ Exploitation of labour?
■ Examples: Sweatshops in Vietnam
that employ child laborers and
being operated by Nike.
○ Monopoly power
■ Creates avenues for corporations
to create a lot of emphasis on
changing the prices as they
wish/like to.
○ Economic degradation
○ Non-renewable resources
○ Damage to cultures
IT Technologies and Globalization
● The graphical user interface for personal
computers
● The Internet infrastructure
● The open source movement
● Mobile technologies
● The introduction of software to automate and
integrate business processes.
○ Software that allows people to work
together more easily
○ Software that allows different software
packages and databases to integrate
with each other more easily.
○ i.e. payment processing systems and
shipping calculator
● IT Technologies and Globalization actually work side
by side. It also tries to effectively engage countries
and people to be more economically integrated.
● It all allows for the proliferation of economic activity
in the world wide web.
○ Ex. A lot of online sellers
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