GE3 THE CONTEMPORARY WORLD

LESSON 2: THE STRUCTURE OF GLOBALIZATION

 The Global Economy
 Market Integration
 The Global Interstate System
 Contemporary Global Governance

THE GLOBAL ECONOMY

Economic Globalization
It is a historical process, the result of human innovation and technological progress. It refers to
the increasing integration of economies around the world, particularly through the movement of goods,
services, and capital across borders. The term sometimes also refers to the movement of
people(labor), and knowledge(technology) across international border. (IMF, 2008)

Interconnected Dimensions Of Economic Globalization

1. The globalization of trade goods and services.
2. The globalization of financial and capital markets.
3. The globalization of technology and communication.
4. The globalization of production.
Two Important Ideas In The Economy

1. Trade Liberalization
Trade liberalization involves removing barriers to trade between different countries and encouraging
free trade. Trade liberalization involves:
o Reducing tariffs
o Reducing/eliminating quotas
o Reducing non-tariff barriers.

2. Protectionism
Protectionism is when a country tries to shield its own industries from international competition.
Governments use quotas, subsidies, tariffs, etc., to execute diplomacy to restrict imports or exports.
TRANSNATIONAL CORPORATIONS (TNCs)
Transnational corporations (TNCs) are businesses that have a global reach. They are companies that
operate in more than one country.

 They operate (produce and sell) in more than one country.

 They aim to maximize profits and lower costs.
 They are responsible for 80 percent of global trade.
Transnational corporations (TNCs): examples

 Apple
 Microsoft
 Nestlé
 Shell
  Nike
 Amazon
 Walmart
 Sony
Differences between MNCs and TNCs
TNCs = corporations that operate in many companies and who do not have a centralized management
system. In other words, they don't have a central headquarters in one country which makes all the
decisions globally.
MNCs = corporations that operate in many companies and who do have a centralized management
system.
Role Of TNCs
The role of TNCs in development depends on the development theory used to evaluate them. These
are modernization theory, neoliberalism, and dependency theory.
 Modernization theory and neoliberalism view TNCs as a positive force and instrumental in
development strategies.
Benefits of TNCs for development

 More investment.
 Creation of more jobs...
 Encouragement of international trade - opening new markets should increase economic
growth.
 Improvement of educational outcomes as TNCs requires skilled workers.

 Dependency theory views TNCs as exploitative, unethical, and immoral. Dependency theories
argue that TNCs only exploit workers and exploit developing nations' natural resources. TNCs
(and more widely, capitalism's) pursuit of profit dehumanizes the world around them.
Criticisms of TNCs

 The exploitation of workers - their conditions are often poor, unsafe, and they work for
long hours with little pay.
 Ecological damage
 Removal of indigenous people
 Human rights abuses
 Little loyalty to countries
 Misleading consumers

THE MODERN WOLRD SYSTEM by Immanuel Wallerstein

World systems theory is a sociological and economic theory proposed in 1974 by sociologist
Immanuel Wallerstein in a paper called “The Rise and Future Demise of the World Capitalist System:
Concepts for Comparative Analysis”

 He identifies 2 main structures in the development of Modern Society.

o world empires (the Roman Empire, Han China)
-has vast area united by political system and surplus extracted from outlying districts to
build a strong army and rest for the king
o world-economies
-not politically united, nor is its dominance based on military power alone
 He used a different unit of analysis unlike other Marxian thinkers.
 He looked at a broader economic entity with a division of labor
 His unit of analysis was “WORLD SYSTEM”
World System Theory
 Wallerstein rejects the notion of a “Third World-
 He claims there is only one world connected by a complex network of economic exchange
relationships—i.e., a “world-economy” or “world-system”.
 This approach is known as the World Systems Theory
Wallerstein’s World-systems
 The world-systems theory stresses that world-systems should be the basic unit of social
analysis refers to the international division of labor.
 Core countries
 Semi-periphery countries
 Periphery countries

Core countries:

 made up of “free countries” dominating others without being dominated

 Main reason for the position of the developed countries is economic power
 These nations are economically diversified
 Wealthy and powerful
 Have strong central governments, strong bureaucracies, and powerful militaries
 Highly industrialized, produce manufactured goods rather than raw materials for export
 E.g., USA, UK, JAPAN, CANADA, NEW ZEALAND, GERMANY, ITALY, FRANCE AUSTRALIA,
SPAIN, NETHERLANDS, etc.
A core nation is dominant over all the others with three forms of economic dominance
 Productivity dominance
 Productivity dominance may lead to trade dominance
 Trade dominance often lead to financial dominance
Semi-periphery countries

 Those nations that are midway between the core and periphery
 Dominated by dominated countries (usually by core countries), at the same time dominating
others (usually peripheries)
 They tend to be countries moving towards industrialization and a more diversified economy
  Those regions often have relatively developed and diversified economy but are not dominant in
international trade.
 E.g., INDIA, SOUTH KOREA, TAIWAN, MEXICO, BRAZIL, NIGERIA, SOUTH AFRICA, CHINA,
SAUDI ARABIA
Periphery countries

 Least economically diversified

 Have relatively weak governments
 Tend to be least industrialized
 Have small bourgeois and large peasant classes
 Tend to have a high percentage of their people that are poor and uneducated
 Tend to be extensively influenced by core nations
 E.g., AFRICAN COUNTRIES, PHILIPPINES, THAILAND, MONGOLUA, KAZAKSHTAN,
YEMEN, OMAN,

MARKET INTEGRATION
 Market integration is a term used to identify a phenomenon in which markets of goods and
services that are related to one another is experiencing similar patterns of increase or decrease
in terms of the prices of those products.
 The term can also refer to circumstances in which the prices of related goods and services sold
in a defined geographical location also begin to move in some sort of similar pattern to one
another.
Types of market integration
1. Horizontal Integration
2. Vertical Integration

HORIZONTAL INTEGRATION

 Horizontal integration is the acquisition of a business operating at the same level of the value
chain in the same industry—that is, they make or offer similar goods or services.

Types of Horizontal Integration

There are three primary forms of horizontal integration: mergers, acquisitions, and internal
expansions.

1. Merger
When two companies merge, two separate entities
create a new, joint organization.
2. Acquisition
When one company outright takes over the
operations of another company. Though the two
companies technically join together, one
company remains in control.

3. Internal Expansion
A company simply chooses to strategically
change course and apply more resources in a
different way. For example, a restaurant can
expand to offer catering companies, or a
beverage manufacturer may branch off to
make food products.

VERTICAL INTEGRATION

 Vertical integration is a strategy that allows a company to streamline its operations by taking
direct ownership of various stages of its production process rather than relying on external
contractors or suppliers.
 It occurs when a company attempts to broaden its footprint across the supply chain or
manufacturing process.

Types of Vertical Integration

There are a number of ways that a company can achieve vertical integration: backward, forward,
balanced.

1. Backward Integration
A company that acquires or merges with
another Business unit that supplies raw
material for the production, eliminating the need
for suppliers.

2. Forward Integration
A company moves in the direction of controlling
the distribution of products/services, eliminating
the need for 3rd person in between the producer
and the consumer.

3. Balanced integration

An approach to vertical integration where a

company aims to merge with companies both
before it and after it along the supply chain.

Degree of Economic Integration (Levels of Economic integration)

a. Preferential Agreement is considered to be the first stage to which it lessens tariffs and quotas
between member countries who have signed the agreement.
b. Free Trade Area is considered to be the second stage of economic integration for which it reduces
barriers to trade among member countries to zero, but each member country has its own decision when
it comes to the external rate of tariff to non-member countries.
c. Custom Union is almost similar to the free trade area, but it differs from the former economic
integration as Custom Union has a common external rate of tariff to non-member countries.
d. Common Market is second to the highest degree of economic integration by which labor and capital
are included in the trade.
e. Economic Union is considered to be the final step in complete integration by which the member
countries have common policies that involve common currency among member nations, fiscal and
political policies.
GLOBAL CORPORATIONS

 A global corporation, also known as a global company, is coined from the base term ‘global’,
which means all around the world.
 It is a company that operates beyond its local boundary.
 Global corporations are deemed to be one of the major players in economic integration as their
goods and commodities allow other countries to engage in foreign trading and exchange.
Attributes of a Global Corporations
1. Value Opportunity to Expand
2. Understand Different Cultures
3. Turbo-charged by the Internet
4. Carefully Chosen International Partners
5. Think Globally and Measure Success

Types of Global Corporations

International Companies: this company operates primarily in a single country but has some exposure
to foreign markets. These are basically importers and exporters.
Multinational Companies: this Company operates in more than one country and receive substantial
income from these foreign operations qualify as multinational in nature. Multinational companies, while
usually controlled by management based in a single country, cater to markets in individual countries.
Transnational Companies: transnational companies are the very largest multinational businesses
with separate divisions that operate with a significant independence in their assigned markets. A
transnational company invests directly in dozens of countries and has a global headquarters that
distributes decision-making capabilities to its various local operations.
Global Companies: This kind of company would usually operate on a worldwide scale, but it would
not be tied legally to any nation. They have an investment in many countries but maintain a strong
headquarters in one country. They typically market their products and services to each individual global
market.

THE GLOBAL INTERSTATE SYSTEM

The Global Interstate System
 It is the whole system of human interactions.
 The modern world-system is structured politically as an interstate system – a system of
competing and allying states.
 Political Scientists commonly call this the international system, and it is the main focus of the
field of International Relations.

International Financial Institutions- An international financial institution (IFI) is a financial institution

that has been established (or chartered) by more than one country, and hence are subjects of
international law.
 provide businesses or governments with a loan for emergency purposes or for normal business
functions.

Examples of IFI’s
1. The World Bank

World Bank Groups

 a. International Bank Reconstruction & Development (IBRD) – offer loans to middle
class countries improve their economy
b. International Development Association (IDA) – provide loans and grant programs
that boost economic growth
c. International Finance Corporation – provide loans for private sectors in developing
countries
d. Multilateral Investment Guarantee Agency (MIGA) – promote foreign direct
investment in developing countries
e. International Centre for Settlement of Investments Disputes (ICSID) – forum for
investors in most of international investments
f. International Monetary Fund (IMF) – ensure the stability of international monetary
system

2. Asian Development Bank

3. African-Development Bank

Specialized Agencies
 WHO – World Health Organization
 ILO – International Labor Organization
 FAO – Food and Agriculture Organization
 UNESCO – United Nations Educational, Scientific, and Cultural
Organization.

CONTEMPORARY GLOBAL GOVERNANCE

Global governance
 Global governance emerged as the key term of a political program for international reform as
well as a conceptual tool in political research.
 Disparate issues have been examined through the lens of global governance, such as the role
of business in environmental policy the negotiation and implementation of public health policies,
peacekeeping, gender policies, weapons bans, the regulation of world trade, and the reform of
the United Nations system.
 The sum of laws, norms, policies, and institutions that define, constitute and mediate trans-
border relations between states, cultures, citizens, intergovernmental and nongovernmental
organization, and the market.

INTERNATIONAL AGREEMENTS
 treaties signed by a number of states that establish global rules of conduct. States that break
these rules are called rogue states (North Korea, Iran, Iraq, Syria).
INTERNATIONAL LAW
 collection of rules and regulations that define the rights and obligations of states.
INTERNATIONAL ORGANIZATIONS
 Some international agreements create international organizations that set rules for nations and
provide venues for diplomacy

UNITED NATIONS (UN) -The name "United Nations", coined by United States President Franklin D.
Roosevelt was first used in the Declaration by United Nations of 1 January 1942, during Second World
War.
 The United Nations is an international organization founded in 1945. It is currently made up of
193 Member States. The mission and work of the United Nations are guided by the purposes
and principles contained in its founding Charter.
 United Nations (UN) is an intergovernmental organization tasked to promote international
cooperation and to create and maintain international order.

Functions of United Nations (UN)

a) MAINTAIN INTERNATIONAL PEACE AND SECURITY
b) PROTECT HUMAN RIGHTS
 c) DELIVER HUMANITARIAN AID
d) PROMOTE SUSTAINABLE DEVELOPMENT
e) UPHOLD INTERNATIONAL LAW

Challenges faced of UN in the 21st century

1. threats from poverty, disease, and environmental breakdown (the threats to human security
identified in the Millennium Development Goals)
2. threats from conflict between states
3. threats from violence and massive human rights violations within states
4. threats from terrorism
5. threats from organized crime
6. threats from the proliferation of weapons - particularly WMD, but also conventional