ECONOMY
1. Expression of currency in terms of gold or gold value
• Institution that has big impact on society
• Three parts: production, distribution, and consumption
• Composed of people
• Economic systems shape the lives of people
• This chapter aims to show the contributions of different
financial and economic institutions that helped in the
growth of the global economy.
SECTORS OF THE ECONOMY
(regardless of the economic system)
• Primary Sector
–Extract raw materials from the environment (i.e.miners,
farmers, loggers, fishermen)
• Secondary Sector
–Make the raw materials from the primary sector into
goods (i.e. artisans, craftsmen, industrialists)
• Tertiary Sector
–Offers services rather than goods (i.e. barbers,
manicurist, pedicurist, dentists, teachers, etc.)
CONTEMPORARY GLOBAL ECONOMY
• Characterized with high interdependence
• Brought closer by globalization
• “when the American economy sneezes, the rest of the
of the world catches a cold”
• So when the American economy catches a
fever, let us prepare for our own funeral
• Weaker economies have less impact on other
countries
INTERNATIONAL FINANCIAL
INSTITUTIONS AND ECONOMIC
ORGANIZATIONS
BRETTON WOODS SYSTEM
• World War 1, Great Depression, World War 2
• The global economy is characterized with high
protectionism and the principle of mercantilism that
hinders trade.
• To promote Free Trade on the global arena, the US
believed that it is necessary
to create a TRANSNATIONAL AGENCY which would
assist nations suffering with deficits in their international
trade account
• A nation suffering with ACCOUNT DEFICIT is forced to
control and limit imports
• These agencies would give temporary assistance to
nations suffering with deficits so that they will not be
forced to limit their importations and close their markets.
• BRETTON WOOD TWINS: WORLD BANK
(International Bank for Reconstruction
and Development [ICRB] and INTERNATIONAL
MONETARY FUND)
• World Bank and IMF are basically banks started by
different countries.
BRETTON WOODS SYSTEM (5 ELEMENTS)
to establish a par value.
2. Official monetary authority in each country (i.e.
Bangko Sentral ng Pilipinas)
3. Establishment of an overseer to these exchange rates
through the IMF
4. Eliminating restrictions on currencies of members
states in the international trade
5. US dollar as the global currency
– (we do not pay our utang to the World Bank in
Philippine peso but in US dollars. That is why
remittances of our OFWs are very important because we
are suffering from ACCOUNT DEFICITS)
INTERNATIONAL MONETARY FUND
• IMF and World Bank complement each other.
• Provides temporary relief to member countries
suffering from a shortage of international currency due
to trade
• Lender of countries who needed financial
assistance because of economic problems
• Primary function: to secure the freedom in terms of
international flow of goods and commodities
• Strings attached (structural adjustments [SAP])
WORLD BANK
• Long-term approach
• Goals involved the eradication of poverty and it funded
specific projects that helped in the realization of such
goals especially in poor countries
• Primary function: secure freedom in the
international movement of investment capital
GATT and WTO
• General Agreements on Tariffs and Trade
• Tariff – taxes imposed to imported materials.
• GATT (1947) – was a forum for the meeting of
representatives from 23 member countries. Focuses on
trade goods through multinational trade agreements
conducted in many “rounds” of negotiations
• It was in the Uruguay Round (1986-1993) of the GATT
that an agreement to create the WTO was reached.
• GATT is just an agreement; WTO is an organization
• It was GATT that gave birth to the WTO though
WTO
• World Trade Organization
• members (2008) with headquarters in Geneva,
Switzerland
• Independent multilateral organizations that became
responsible for trade in services, non-tariff-related
barriers to trade, and other broader areas of trade
liberalization
• Neoliberalism is the idea behind the WTO. It was
based in the assumption that by reducing or eliminating
barriers, all nations will eventually benefit.
• Criticism is that the trade barriers imposed by
developed countries cannot be countered enough by the
organization.
 ORGANIZATION FORECONOMIC COOPERATION
ANDDEVELOPMENT (OECD)
• Most encompassing club of the richest countries in the
world
• 35 member-states as of 2016
• Latvia is a latest member
• Highly influential organization
ORGANIZATION OF PETROLEUM
EXPORTING COUNTRIES (OPEC)
• Organization of major oil exporters in the
world
• Originally composed of Saudi Arabia, Iraq,
Kuwait, Iran, and Venezuela
• Was formed because they want to increase the price of
oil
• United Arab Emirates, Algeria, Libya, Qatar, Nigeria,
and Indonesia are now members
EUROPEAN UNION (EU)
• Made up of 28 member-states
• Most members adopted euro as the basic
currency while some nations like Britain,
Sweden, and Denmark did not.
• Brexit issue
NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
• Trade pact between United States, Mexico, and
Canada
• Originally created with US and Canada only in 1989
• Aims to increase cooperation for improving working
conditions in the region by reducing trade barriers
• Leads to the outsourcing of manufacturing jobs to
Mexico due to cheaper labor and relatively lower
government regulations
• Has both negative and positive consequences
• POSITIVE (reduced prices by removing tariffs,
opportunity for small and
medium businesses, quadrupled trade, created jobs)
• NEGATIVE (pollution, exploitation of Mexican workers,
Mexican farmers running out of business)
HISTORY OF GLOBAL MARKET INTEGRATION
• Agricultural Revolution
– Domestication of plants and animals leading to
permanent settlements
– Creation of surpluses and trade networks
• Industrial Revolution
– Rise of industries and new technologies (steam
engines)
– From manual labor to mechanization
– From family enterprise to factories and mass
production
– Because of mass production, more surpluses
– Criticized by Karl Marx (The Father of Communism)
COMPETING ECONOMIC MODELS: CAPITALISM
AND SOCIALISM
CAPITALISM
• System in which all natural resources and means of
production
are privately owned (private ownership)
• Profit maximization and competition as the drivers of
efficiency
• Adam Smith (Wealth of Nations; emphasis of the
invisible hand)
• The market has its own invisible hand that regulated
itself, thus
state intervention is discouraged
• Monopoly (form of market failure)
• Capitalism= MARKET over STATE
• There should be minimal intervention from the state.
SOCIALISM
• Production is under collective ownership
• Rejects capitalism’s private property and hands-off
approaches
• Property is owned by the government and allocated to
all citizens
• Collective goal. Meeting everyone’s basic needs rather
than profit
• Marx viewed it as the stepping stone towards
communism
• Socialism= STATE over MARKET
• Government should intervene. The state should have a
role.
INFORMATION REVOLUTION
• Technology has reduced the role of human labor
(same as in the Industrial Revolution)
• Computers and technologies already replaced jobs
through automation and outsourcing
• Primary labor market
–Jobs that provide many benefits to workers like high
incomes, job
security, insurance, and retirement packages. White
collared
professions (i.e. Engineers, accountants, etc.)
• Secondary labor market
–Provides fewer benefits and includes low-skilled jobs,
tend to pay
less, unpredictable schedules, and less job security.
• Corporations – organizations that exist as legal entities
and have liabilities that are separate from its members.
GLOBAL CORPORATIONS
• Multinational or Transnational Corporations (MNCs or
TNCs)
– Companies that extend beyond the borders of one’s
country
• Intentionally surpass national borders to take
advantage to the opportunities in different countries to
manufacture, distribute, and market their products
• Coca-Cola, General Electric, McDonald, Starbucks,
Ford
• Has wide political influence

GLOBAL CORPORATIONS
• Often locate their operations into countries with the
cheapest labor to save expenses
• States on the other hand offers tax-free trade, cheap
labor to attract these corporations
• International trade and global trade accelerate the
process of globalization
• Diffusion – the process where cultural practices and
expressions are passed between nations, spreading
group to group.
DEFINITION OF GLOBALIZATION
Globalization is a term used to describe the changes in
societies and the world economy that are the result of
dramatically increased trade and cultural exchange. In
specifically economic contexts, it refers almost
exclusively to the effects of trade, particularly trade
liberalization or "free trade".
It is a common belief that globalization plays a role just
at international levels of trade and commerce, but the
fact is that it has played an important role in making our
lives much more comfortable too. The phones, apparels,
gadgets or accessories that we use in our day-to-day
life are be available to us through globalization.
Knowingly or unknowingly, we are all under the impact
of globalization, and more importantly it has helped in
bringing international peace and justice to mankind.
NATURES OF GLOBALIZATION
1. Liberalization: It stands for the freedom of the
entrepreneurs to establish any industry or
trade or business venture, within their own countries or
abroad.
2. Free trade: It stands for free flow of trade relations
among all the nations. Each state grants
MFN (most favored nation) status to other states and
keeps its business and trade away from
excessive and hard regulatory and protective regimes.
3. Globalization of Economic Activity: Economic
activities are be governed both by the domestic market
and also the world market. It stands for the process of
integrating the domestic economy with world economies.
4. Liberalization of Import-Export System: It stands for
liberating the import- export activity and securing a free
flow of goods and services across borders.
5. Privatization: Keeping the state away from ownership
of means of production and distribution and letting the
free flow of industrial, trade and economic activity across
borders.
6. Increased Collaborations: Encouraging the process of
collaborations among the entrepreneurs with a view to
secure rapid modernization, development and
technological advancement.
7. Economic Reforms: Encouraging fiscal and financial
reforms with a view to give strength to free world trade,
free enterprise, and market forces. Globalization accepts
and advocates the value of free world trade, freedom of
access to world markets and a free flow of investments
across borders. It stands for integration and
democratization of the world’s culture, economy and
infrastructure through global investments.
GLOBALIZATION can mean:
The formation of a global village - closer contact
between different parts of the world, with increasing
possibilities of personal exchange, mutual
understanding and friendship between "world citizens",
Economic globalization - "free trade" and increasing
relations among members of an industry in different
parts of the world (globalization of an industry), with a
corresponding erosion of National Sovereignty in the
economic sphere.
ADVANTAGES OF GLOBALIZATION
Peaceful Relations - Most of the countries have
resorted to trade relations with each other in order to
boost their economy, leaving behind any bitter past
experiences if any
Employment - Considered as one of the most crucial
advantages, globalization has led to the generation of
numerous employment opportunities. Companies are
moving towards the developing countries to acquire
labor force.
Education - A very critical advantage that has aided the
population is the spread of education. With numerous
educational institutions around the globe, one can move
out from the home country for better opportunities
elsewhere.
Product Quality - The product quality has been
enhanced so as to retain the customers. Today the
customers may compromise with the price range but not
with the quality of the product. Low or poor quality can
adversely affect consumer satisfaction.
Cheaper Prices - Globalization has brought in fierce
competition in the markets.
Communication - Every single information is easily
accessible from almost every corner of the
world Circulation of information is no longer a tedious
task, and can happen in seconds. The Internet has
significantly affected the global economy, thereby
providing direct access to
information and products.
Transportation - Considered as the wheel of every
business organization, connectivity to various parts of
the world is no more a serious problem. Today with
various modes of transportation available, one can
conveniently deliver the products to a customer located
at any part of the world.
GDP Increase - Gross Domestic Product, commonly
known as GDP, is the money value of the final goods
and services produced within the domestic territory of
the country during an accounting year.
Free Trade - Free trade is a policy in which a country
does not levy taxes, duties, subsidies or quota on the
import/export of goods or services from other countries.
There are countries which have resolved to free trade in
specific regions. This allows consumers to buy goods
and services, comparatively at a lower cost.
Travel and Tourism - Globalization has promoted
tourism to great heights. International trade among
different countries also helps in increasing the number of
tourists that visit different places around the world.
External Borrowing - With the help of globalization,
there is opportunity for corporate, national, and sub-
national borrowers to have better access to external
finance, with facilities such as external commercial
borrowing and syndicated loans.
DISADVANTAGES OF GLOBALIZATION
Health Issues. Globalization has given rise to more
health risks and presents new threats and challenges
for epidemics. The dawn of HIV/AIDS. Having its
origin in the wilderness of Africa, the virus has spread
like wildfire throughout the globe in no time. Food
items are also transported to various countries, and
this is a matter of concern, especially in case of
perishable items.
Loss of Culture. With large number of people moving
into and out of a country, the culture takes a
backseat. People may adapt to the culture of the
resident country. They tend to follow the foreign
culture more, forgetting their own roots. This can give
rise to cultural conflicts.
Uneven Wealth Distribution. It is said that the rich
are getting richer while the poor are getting poorer. In
the real sense, globalization has not been able to
reduce poverty.
Environment Degradation. The industrial revolution
has changed the outlook of the economy. Industries
are using natural resources by means of mining,
drilling, etc. which puts a burden on the environment.
Disparity. Though globalization has opened new
avenues like wider markets and employment, there
still exists a disparity in the development of the
economies. Structural unemployment owes to the
disparity created. Developed countries are moving
their factories to foreign countries where labor is
cheaply available.
Conflicts. It has given rise to terrorism and other
forms of violence. Such acts not only cause loss of
human life but also huge economic losses.
Cut-throat Competition. Opening the doors of
international trade has given birth to intense
competition. This has affected the local markets
dramatically. The local players thereby suffer huge
losses as they lack the potential to advertise or export
their products on a large scale. Therefore, the
domestic markets shrink.
Cultural globalization - is the transmission of ideas,
meanings, and values around the world in such a
way as to extend and intensify social relations. This
process is marked by the common consumption of
cultures that have been diffused by the Internet,
popular culture media, and international travel.
Economic globalization refers to the increasing
interdependence of world economies as a result of
growing scale of cross-border trade of commodities
and services, flow of international capital and wide
and rapid spread of technologies (Shangquan, 2000).
Industrial Globalization Every country in the world is
moving towards specialization. Specialization may be
referred to as the phenomenon of producing only that
product in which the country has competitive advantage
in terms of cost. For example, Singapore specializes in
pharmaceutical while the US specializes in military
equipment.
Therefore, the countries exchange their industrial
products, which is known as trade, and fulfill the
requirements of their people. Every country of the
world today is involved in trade and is depended on
some other country one way or the other. The US is
the biggest economy in the world and even that is
depended on other countries for many of its needs.
Hence the industries of the world today are
considered to be working not for their native countries
but for the world as a whole.
Financial Globalization
It may be defined as the emergence of worldwide
financial markets and better access to external
financing for corporate, national and sub-national
borrowers. Some projects in the Philippines were
sponsored by foreign investors. They may be in the
form of international organizations or independent
investors.
The IMF and the World Bank today give funds to
various countries for developmental projects. We
may say, that today the financial markets of the world
have untied in such a way that finances are easily
available throughout the world.
Informational Globalization
This aspect of Globalization has perhaps had the
greatest impact on the world today. Sitting at one end
of the world, you can have access to the information
available in any other part of the world with just the
push of a button. Internet, television, telephone, fax,
etc. are some of the inventions that may be
considered as a part of the informational Globalization
process where the information flow has dramatically
increased between geographically remote areas of
the world.
Social globalization refers to the sharing of ideas
and information between and through different
countries.
In today’s world, the Internet and social media is at
the heart of this. Good examples of social
globalization could include internationally popular
films, books and TV series. The Harry Potter/ Twilight
films and books have been successful all over the
world, making the characters featured globally
recognizable. However, this cultural flow tends to flow
from the center (i.e. from developed countries such
as the USA to less developed countries). Social
globalization is often criticized for eroding cultural
differences.
Ecological globalization.
The effects of globalization in the ecology are still not
completely identified, though some studies suggest
that the process of globalization has many
consequences in our ecology.
Globalization and the Politics.
Through globalization, political issues such as the
rights of women and children are now currently
discussed, many laws are now already implemented
regarding the issues on the rights of women and
children.
Globalization with technology. Technology really
plays a huge part in the life of every individual. Also
through the advancement of technology we can now
already communicate with others despite the
distance that separate us. And through our
technology today, the process of globalization is now
taking place much faster.
Geographical.
Globalization is moving towards the trend of a border
less world. We can now explore different countries
without having any dangers.
Qualities and Characteristics of Globalization
Creation and Multiplication - involves creation of
new and multiplication of existing social networks
and cultural activities thus, breaking the traditional
norms and practices in the political, economic, and
cultural realms of most communities.
Expansion and Stretching - globalization is very
evident in the expansion and stretching of social
operations and connections, on how the financial
markets and trading operate around the globe like
the (WTO) World Trade Organization, ASEAN
Economic Community, World Economic Forum and
European Union brought to the expansion of local
economies through opening their economies to the
other parts of the world.
Consciousness and Awareness - globalization
involves the human consciousness and awareness.
People, as the primary actors of globalization are the
frontliners as reflected in their experiences. The
human consciousness is critical on how they impact
the growing outcomes and markers of globalization.
Their daily actions such as global interdependence
provide large scale implications to the norms and
practices of the borderless world.
Economic Globalization and Global Trade
∙ Economic Globalization - refers to the increasing
interdependence of world economies as a result of the
growing scale of cross border trade of commodities and
services.
TWO TYPES OF ECONOMIES IN ECONOMIC
GLOBALIZATION
1. Protectionism - a policy of protecting domestic
industries against foreign competition 2. Trade
Liberalization - is the removal or reduction of
restrictions or barriers on the free exchange of goods
between nation
Globalization made countries gain more in the global
economy at the expense of other nations. There are
various ways.
∙ Free Trade - is a trade policy that does not restrict
imports or exports
∙ Fair Trade - concern for the social, economic, and
environmental well being of marginalized small
producers. Example: American coffee chain such as
Starbucks and Dunkin’ Donuts
Economic Globalization and Sustainable
Development
∙ Economic Globalization
– is a historical process of an increasing integration
economies around the world, particularly through trade
and financial flows.
– is a worldwide phenomenon wherein countries
economic situations can depend significantly on other
countries.
∙ Sustainable Development
– is a development of our world today by using the
Earth's resources and the preservation of such sources
for the future.
– is development that that meets needs in the present
without compromising the ability of future generations to
meet their needs. The improvement of trade had
affected the environment as well.
Environmental Degradation
∙ Environmental Degradation - is the deterioration
(causing degenerative harm) of the environment
through exhaustion of natural assets such as water, soil,
and air including the ecosystem, habitat intrusion,
wildlife extermination, and environmental pollution.
CAUSES OF ENVIRONMENTAL DEGRADATION
∙ Global Climate Change - This phenomenon is a result
of the unintended consequences of burning fossil fuels
and releasing staggering amounts of carbon dioxide into
the atmosphere.
∙ Industrialization - The industrial revolution increased
human life expectancy and gave us the affordable
luxuries of the modern world.
∙ Overconsumption - As countries become wealthier,
they consume more resources per capita. ∙ Overfishing
- Improvements in fishing techniques allowed humans to
fully exploit or deplete over 90 percent of the fish in the
ocean. While fishing companies made excellent profits
for years, those same companies have collapsed as
fish stocks have disappeared.
∙ Deforestation - Another case of humans becoming too
successful in their ability to harvest resources,
deforestation has destroyed various habitats, erasing
those resources from the world forever.
EFFECTS OF ENVIRONMENTAL DEGRADATION
∙ Increased Poverty - The depletion of natural
resources leads to a loss of livelihood, leaving
communities in poverty.
∙ Weather Extremes - The increasing frequency and
intensity of tropical storms, and the increasing intensity
and duration of droughts, has been attributed to climate
change. These weather extremes increase soil erosion,
affect food production and can have devastating effects
on cities and towns.
∙ Species Loss - Species have already gone extinct due
to the habitat destruction caused by the destruction of
the Amazon rainforest, and many others are now
endangered.
∙ Disease - The World Health Organization estimates
that thirteen million people die every year as a result of
preventable environmental causes. Asthma rates are
rising as a result of increasing air pollution and rises in
malaria and cholera have been blamed on deteriorating
ecosystem.
Economic Globalization, Poverty, and Inequality
∙ Economic and trade globalization is the result of
companies trying to outmaneuver their competitors.
∙ The result is that labor-intensive products like
shoes are often produced in countries with the
lowest wages and the weakest regulations.
∙ This process creates winners (corporations,
stockholders, consumers) and losers (high
wageworkers).
∙ Multiplier Effect (John Maynard Keynes)
∙ – An increase in one
economic activity can lead to
an increase in other activities.
∙ – One person’s spending,
becomes another person’s
income.
∙ Muhammad Yunus - is a Bangladeshi social
entrepreneur, banker, economist, and civil society
leader who was awarded the Nobel Peace Prize for
founding the Grameen Bank and pioneering the
concepts of microcredit and microfinance.
Global Income Inequality
The Third World and the Global South
∙ First World Problem - a relatively trivial or minor
problem or frustration (implying a contrast with serious
problems such as those that may be experienced in the
developing world).
What are the implications of talking about countries
as First or Third World?
∙ Let us begin by deconstructing the idea of First,
Second, and Third World by looking at their origins and
implications.
∙ The date then back to cold war when policy maker
began talking about the world as three distinct political
and economic blocs (Tomlinson, 2003).
∙ The terms "First World," "Second World," and "Third
World" countries were used to differentiate between
democratic countries, communist countries, and those
countries that did not align with democratic or
communist countries.
∙ After World War ll, the world was divided into three
sides:
o Capitalist bloc - The First World countries are those
countries which were democratic, capitalist, and
industrialized and in the capitalist bloc. The First World
included most of North America and Western Europe,
Japan, and Australia.
o Communist bloc - The Second World countries are
those countries which were in the communist bloc. The
Second world included the Soviet Union, Eastern
Europe, Russia and China.
o Neutral / Non-aligned countries - The Third World
countries are those countries which were not in the
capitalist bloc as well as the communist bloc, Africa ,
Latin America etc.
∙ Second World Countries - described the communist-
socialist states. These countries were, like First World
countries, industrialized.
These areas share common problem and issues having
to do with economy and politics:
∙ The term "Global North" and "Global South" are away
in the south to make a stand about the common issues,
problems and even causes in order to have equality all
throughout the world. ∙ This distinction points largely to
racial inequality, specifically between the Black and
White. o According to Ritzer (2015), "At the global level,
Whites are disproportionately in the dominant North,
While Blacks are primarily in the south. The differences
between the "Global North" and "Global South" are
shaped by migration and globalization.
o The economic differences between the wealthy Global
North and poor Global South. According to
(Winant,2001)"have always possessed a racial
character".
The Global City
∙ Global City
– it is a city generally considered to be
an important node in the global
economic system – it is where the
rural-urban differentiation has a
significant relationship to globalization
∙ Rural - a geographic area that is
located outside towns and cities
∙ Urban - is the region surrounding a city
Globalization has deeply altered North-South
relations.
Global cities best to describe the three urban
centres:
1. Economic centres that exert control over the world’s
political economy.
2. Cities can be seen as important nodes in a variety of
global network.
3. Although cities are major beneficiaries of
globalization, they are also the most severely affected
by global problems.
Theories of Global Stratification
People in countries around the world experience
different access to resources and opportunities and
different standards of living, based on their position in
the global hierarchy.
THEORY OF DEVELOPMENT AND MODERNIZATION
∙ Dependency Theory - It blames colonialism and
neocolonialism (continuing economic dependence on
former colonial countries) for global poverty. Countries
have developed at an uneven rate because wealthy
countries have exploited poor countries in the past and
today through foreign debt and transnational
corporations (TNCs). According to dependency theory,
wealthy countries would not be as rich as they are
today if they did not have these materials, and the key to
reversing inequality is to relieve former colonies of their
debts so that they can benefit from their own industry
and resources.
∙ World System Theory - It suggests that all countries
are divided into a three-tier hierarchy based on their
relationship to the global economy, and that a country’s
position in this hierarchy determines its own economic
development.
∙ Core Countries - Own most of the world’s capital and
technology, and have great control over world trade and
economic agreements.
∙ Semi-peripheral Countries - Generally provide labor
and materials to core countries, which benefits core
countries but also increases income within the semi-
peripheral country.
∙ Peripheral Countries - Generally indebted to wealthy
nations, and their land and populations are often
exploited for the gain of other countries.
Modernization Theory
∙ Modernization Theory
- One of the two main explanations for global
stratification is the modernization theory. - This theory
frames global stratification as a function of
technological and cultural differences between
nations.
2 HISTORICAL EVENT OF MODERNIZATION
THEORY
1. Columbian Exchange - This refers to the
spread of goods, technology, education, and
diseases.
o This exchange worked out well for the European
countries. They gained agricultural staples, like
potatoes and tomatoes, which contributed to population
growth and provided new opportunities for trade, while
also strengthening the power of the merchant class. The
Columbian Exchange worked out much less well,
however, for Native Americans whose populations were
ravaged by the diseases brought from Europe. It is
estimated that in the 15 years following Columbus's first
trip, over 80% of the Native American population died
due to diseases such as smallpox and measles.
2. Industrial Revolution - This is when new
technologies, like steam power and mechanization,
allowed countries to replace human labor with
machines and increase productivity.
o The Industrial Revolution, at first, only benefited the
wealthy in Western countries, Industrial technology was
very productive that it gradually began to improve
standards of living for everyone. Countries that
industrialized in the eighteenth and nineteenth centuries
saw massive improvements in their standards of living
and countries that did not industrialize lag behind.
Modernization theory rests on the idea that affluence
could be attained by anyone. But why did the Industrial
Revolution not take hold everywhere? Modernization
theory argues that the tension between tradition and
technological change is the biggest barrier to growth. A
society that is more steeped in family systems and
traditions may be less willing to adopt new technologies
and the new social systems that often accompany
them.
Walt Rostow’s Four Stages of Modernization
∙ Walt Whitman Rostrow - was an American
economist, professor and political theorist who
published The Four Stages of Modernization.
THE FOUR STAGES OF MODERNIZATION:
1. Traditional Society - refers to societies that are
structured around small, local communities with
production typically being done in family settings.
2. Take-off - is a short period of intensive growth, in
which industrialization begins to occur, and workers and
institutions become concentrated around a new industry.
3. Drive to Technological Maturity - technological
growth of the earlier periods begins to bear fruit in the
form of population growth, reduction of poverty levels,
and more diverse job opportunities.
4. High Mass Consumption - it is when your country is
big enough that production become more wants than
needs.
∙ Capitalism - an economic system characterized by
private or corporate ownership of capital goods. ∙
Eurocentric - reflecting a tendency to interpret the world
in terms of European or Anglo-American values and
experiences.
Dependency Theory and the Latin American
Experience
∙ Dependency is the condition in which the development
of the nation-states of the South contributed to a decline
in their independence and to an increase in economic
development of the countries of the North (Cardoso and
Felato, 1979).
∙ Dependency theory was initially developed by
Hans Singer and Raul Prebisch in the 1950s and
has been improved since then.
∙ Core nations and Periphery nations are the heart of
dependency theory.
∙ 1500s, European explorers spread throughout
the Americas, Africa, and Asia, claiming lands
for Europe. At one point, the British Empire
covered about one-fourth of the world.
∙ Transatlantic slaves are slaves that transported across
the atlantic for slavery.
∙ Triangular Route
- route that transatlantic slaves or cycle.
- Europe for Guns and Factory made good
sent to Africa for exchange of slaves to
Colonies for Tobacco and cottons then sent
back to Europe.
The Modern World System
The History of Colonialism inspired American
Sociologist Immanuel Wallerstein model of what he
called the capitalist world economy.
∙ Low-income countries (Wallerstein called the
Perisphery) - whose natural resources and labor
support the wealthier countries, first as colonies and
now by working for multinational corporations under
neocolonialism.
∙ Core - Wallerstein described high-income nations of
the world economy.
∙ In Wallerstein model, the periphery remains
economically dependent on the core in a number of
ways, which tend to reinforce each other.
∙ Poor countries are also more likely to lack
industrial capacity, so they have to import
expensive manufactured goods from richer
nations.
∙ Just as modernization theory had its critics, so does
Dependency Theory.
∙ Innovation and technological growth can spill over
to the other countries, improving all nations’ well
being and not just the rich.
∙ Also, Colonialism certainly left scars, but it is
not enough, on its own, to explain today’s
economic disparities.
∙ In direct contrast to what dependency theory
predicts, most evidence suggest that, nowadays,
foreign investment by richer nations helps and do not
hurt poorer countries.