Summary of Notes for BPA-1101

The Globalization of World Economics International Trading Systems

Economic Globalization
1. Protectionism
- Protecting one’s economy from foreign competition by creating trade barriers.
2. Trade Liberalization
- Reducing trade barriers to make international trade easier between countries.
3. Tariff
- Required fees on imports and exports.
4. Free Trade
- Trading of goods or services between two or more countries without tariffs or taxes.
5. Trade Bloc
- Agreement made between governments to reduce or eliminate trade barriers.
6. Sustainability
- The degree to which the Earth can provide resources for human needs.
7. Stewardship
- Taking responsibility for Earth’s resources so that future generations will be able to have access to them.
8. Knowledge Economy
- Individuals or businesses that use education, research, innovative ideas, and informative technologies for
a variety of constructive purposes.
9. Silk Road
- An ancient network of trade routes connecting the East and West, central to cultural interaction between
regions for many centuries.
- It was international but not truly global, as it had no ocean routes to reach the American continent.
- In 1867, a more open trade system emerged - Gold Standard.
10. Great Depression
- Started during the 1920s and extended up to the 1930s.
- The world never returned to the Gold Standard.
- Today, the world economy operates based on what are called “Fiat Currencies.”
- It’s a currency whose costs are determined by the cost relative to other countries.
- This system allows governments to freely and actively manage their economies by increasing or
decreasing the amount of money in circulation as they see fit.

THE BRETTON WOODS SYSTEM

❖ Inaugurated in 1944 during the United Nations Monetary and Financial Conference
❖ Largely influenced by the ideas of British economist John Maynard Keynes
❖ Global Keynesianism

Two Financial Institutions that Bretton Woods created

a. International Bank for Reconstruction and Development (IBRD or World Bank)
b. International Monetary Fund (IMF)
c. General Agreement on Tariffs and Trade (GATT)

NEOLIBERALISM
- Became the codified strategy of the United States Treasury Department, World Bank, the IMF, and World
Trade Organization (WTO).
- It was a term first used in 1989 by John Williamson.
- Washington Consensus

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Neoliberalism created
1. Economic Stability
2. Reform trade and exchange-rate policies
3. Privatization

The Global Financial Crisis and the Challenge to Neoliberalism

Neoliberalism
- It is a policy model of social studies and economics that transfers control of economic factors to
the private sector from the public sector. It takes from the basic principles of neoclassical economics,
suggesting that governments must limit subsidies, make reforms to tax laws in order to expand the tax
base, reduce deficit spending, limit protectionism, and open markets up to trade.
- Russia’s case was just one example of how the “shock therapy” of neoliberalism did not lead to ideal
outcomes predicted by economists who believed in perfectly free markets.
- The greatest repudiation of this thinking was the recent global financial crisis of 2008-2009
- The great depression (1980s)
- To mitigate the risk of these loans, banks that were lending house owners’ 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.
- They began extending loans to families and individuals with dubious credit records- people who
were unlikely to pay their loans back. These high-risk mortgages became known as subprime mortgages.
- 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 a profit.
- In 2007, home prices stopped increasing as supply caught up with demand. And it's slowly became
apparent that families could not pay off their loans.
- The rapid reselling of MBSs
- The loss of their money spread like wildfire back to their countries

Until now, countries like Spain and Greece are heavily indebted, 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.
- Reduction in government spending has slowed down growth and ensured high levels of unemployment.
- Only individuals and groups who had accumulated wealth under the previous system had money to
purchase such industries.

Economic Globalization Today

- Exports, not just the local selling of goods and services, make national economies grow at present.
- The United States, Japan, and the member-countries of the European Union were responsible for 65% of
global exports, while the developing countries only accounted for 29%
- By 2011, developing countries like the Philippines, India, China, Argentina & Brazil accounted for 51% of
global exports while the share of advanced nations including the United States had gone down to 45%
- Developed countries are often protectionists.
- Japan’s determined refusal to allow rice imports into the country to protect its farming sector. “Rice is
sacred”
- United States likewise fiercely protects its sugar industry, forcing consumers and sugar-dependent
business to pay higher prices.
- “Race to the bottom” refers to countries’ lowering their labor standards.

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- Governments weaken environmental laws to attract investors, creating fatal consequences on their
ecological balance and depleting them of their finite resources.
- Many Philippine industries were devastated by unfair trade deals under the GATT and the WTO.
- One sector that was particularly affected was Philippine Agriculture.
- According to Walden Bello & a team of researchers at Focus on the Global South, the US used its power
under the GATT system to prevent Philippine importers from purchasing Philippine poultry and pork (even
as it sold meat to the Philippines)
- Bello & company noted that the Philippines became a net food importer under the GATT.
- Economics is just one window into the phenomenon of globalization; it is not the entire thing.
- In recent decades, partly as a result of increased exports, economic globalization has ushered in an
unprecedented spike in global growth rates.
- Yet, economic globalization remains an uneven process.
- Some countries, corporations, and individuals benefiting a lot more than others.
- Series of trade talks under the WTO were seen to be unfair, most often.
- International policymakers 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.

1. GATT provides for fair trade rules and the gradual reduction of tariffs, duties and other trade
barriers, for goods, services and intellectual property. The General Agreement on Tariffs and
Trade (GATT) is the predecessor to the World Trade Organization (WTO).

2. The World Trade Organization (WTO) is the only global international organization dealing
with the rules of trade between nations. The goal is to help producers of goods and services,
exporters, and importers conduct their business.

Prepared by:

SELWYN KEN C. ABAPO

President, BPA-1101

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