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The Globalization of World Economics

 Learning Outcomes
At the end of this lesson, you should be able to:
a. Define economic globalization;
b. Identify the actions that facilitate economic
globalization;
c. Narrate a short history of global market
integration in the 20th century; and
d. Articulate your stance on global economic
integration.
The International Monetary Fund
(IMF)regards economic globalization as a
historical process representing the result of
human innovation and technological
progress. It is characterized by the
increasing integration of economies around
the world through the movement of goods,
services, and capital across borders. These
changes are the products of people,
organizations, institutions, and technologies.
International Trading Systems

 1. Silk Route.
 The oldest known international trade route
was the Silk Road- a network of pathways in
the ancient world that spanned from China to
what is now the Middle East and to Europe.
Tradersused the Silk road regularly from
130 BCE when the Chinese Han dynasty
opened trade to the West until 1453 BCE
when the Ottoman Empire closed it.

However, while the Silk Road was


international, it was not truly “global”
because it had no ocean routes that
could reach the American continent
When did full economic globalization
begin?

 2. Galleon Trade’
 According to historians Dennis O. Flynn and Arturo
Giraldez, the age of globalization began when “all
important populated continents began to exchange
products continuously both with each other
directly and indirectly via other continents-and in
values sufficient to generate crucial impacts on all
trading partners.
 Todefend their products from competitors who
sold goods more cheaply, these regimes (
mainly monarchies) imposed high tariffs,
forbade colonies to trade with other nations,
restricted trade routes, and subsidized its
exports. Mercantilism was thus also a system of
global trade with multiple restrictions.
3. Gold Standard

A more open trade system emerged in


1867 when, following the lead of the
United Kingdom, the United States and
other Europeans nations adopted the
gold standard at an international
monetary conference in Paris.
Broadly, its goal was to create a
common system that would allow for
more efficient trade and prevent the
isolationism of the mercantilist era. The
countries thus established a common
basis for currency prices and a fixed
exchanged rate system- all based on the
value of gold.
 4. Fiat Currencies
 Today the world economy operates based on
what are called FIAT currencies-currencies
that are not backed by precious metals and
whose value is determined by their cost
relative to other currencies. 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 Wood System

 TheBretton Woods 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
Two financial institutions was agreed
upon by the delegates of Bretton Woods

1. International Bank for


Reconstruction and Development (IBRD
or World Bank) to be responsible for
funding postwar reconstructionism
projects.
2. International Monetary Fund
(IMF), which was to be the global
lender of the last resort to
prevent individual countries from
spiralling 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. Both this institution
remain key players in economic
globalization
After Bretton Woods, 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.
Neoliberalism

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. As prices increased,
companies would earn more, and would
have more money to hire workers.
Economist such as Friedrich Hayek and
Milton Friedman argued that the
government’s practice of pouring
money into their economies had caused
inflation by increasing demand for
goods without necessarily increasing
supply.
 From the 1980s onward, neoliberalism became
the codified strategy of the United States
Treasury Department, the World Bank, the IMF
and eventually the World Trade Organization-
a new came to be called the Washington
Consensus 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 1980s
until the early 2000s. It advocates pushed
for minimal government spending to
reduce government debt.

 Theyalso called for the privatization of


government-controlled services like water,
power, communications, and transport,
believing that the free market can
produce best results.
The Global Financial Crisis and the
Challenge to Neoliberalism

Economic Globalization Today