Economic globalization - the intensification and stretching of

economic interrelations across the globe.

- A historical process that represents human innovation and
technological progress.
Changes in the way in which people undertake economic
production and organize the exchange of commodities:

- Gigantic flows of capital and technology have stimulated

trade in goods and services
- Markets have extended their reach around the world
- Presence of huge transnational corporations, powerful
international economic institutions, and large regional
trading systems
International Trading Systems
- Not a new concept; one of the oldest activity of human
civilization.
- Silk Road, oldest known trade route, spanning China to the
Middle East and to Europe. International but not global.
- Age of globalization began in 1571 with the establishment of the
galleon trade.
- Mercantilism, a system of global trade with multiple
restrictions. Aims to promote fair trade among nations
- Gold system, common basis for currency prices fixed exchange
system based on the value of gold
- Great Depression, a global economic crisis that started with the
stock market crash of 1929
Bretton Woods Conference

- Emergence of a new international economic order after

World War II
- Reversal of protectionist economic policies of the global
North
- Expansion of international trade
- Creation of a more stable money exchange system (fixed
gold value of every currency to the US dollar)
- Created the foundations of international economic
institutions
International Monetary Fund - created to administer the
international monetary system.

International Bank for Reconstruction and Development, later

as World Bank - initially designed to provide loans for
Europe's postwar reconstruction. However, its purpose was
expanded to fund various industrial projects in developing
countries around the world

General Agreement on Tariffs and Trade - established

in 1947 as a global trade organization charged with fashioning
and enforcing multilateral trade agreements. It was later
replaced by the World Trade Organization in 1995
The Bretton Woods regime contributed greatly to the
establishment of what some observers have called the “golden age
of controlled capitalism”:

• Existing mechanisms of state control over international capital

movements
• Rising wages and increased social services

By the early 1970s, however, the Bretton Woods system collapsed:

• characterized by global economic instability in the form of high

inflation, low economic growth, high unemployment, public
sector deficits, and two unprecedented energy crises due to
OPEC's ability to control a large part of the world's oil supply
• Movement towards neo-liberalism
Neo-liberalism

• Adam Smith and David Ricardo

• The market as a self-regulating mechanism tending
toward equilibrium of supply and demand, thus securing
the most efficient allocation of resources
• Any constraint on free competition would interfere with
the natural efficiency of market mechanisms
• Elimination of tariffs on imports and other barriers to
trade and capital flows between nations
• Free market economies constitute the most civilized form
of human competition
Concrete neoliberal measures include:

• Privatization of public enterprises

• Deregulation of the economy
• Liberalization of trade and industry
• Massive tax cuts
• 'Monetarist' measures to keep inflation in check, even at
the risk of increasing unemployment
• Strict control on organized labor
• The reduction of public expenditures, particularly social
spending
• The down-sizing of government
• The expansion of international markets
• The removal of controls on global financial flows
Three most significant developments in economic
globalization:

• Internationalization of trade and finance

• Increasing power of transnational corporations
• Enhanced role of international economic institutions like
the IMF, the World Bank, and the WTO
The internationalization of trade and finance

Economic globalization = free trade

• elimination or reduction of existing trade barriers among
nations will enhance consumer choice, increase global
wealth, secure peaceful international relations, and spread
new technologies around the world
• Problems in distribution of profits within and among
countries (widening of gap between rich and poor)
Internationalization of trade + liberalization of financial
transactions = fewer restrictions and greater investment
opportunities

• deregulation of interest rates

• removal of credit controls
• privatization of government-owned banks and financial
institutions
• internet-based technologies further accelerated
liberalization of financial transactions

However, the world's financial systems are characterized by

high volatility, rampant competition, and general insecurity.
The power of transnational corporations

• contemporary versions of the early modern commercial

enterprises
• control much of the world's investment capital,
technology, and access to international markets
• frequently merge with other corporations to maintain on
top

TNCs have become extremely important players that

influence the economic, political, and social welfare of many
nations.
Conclusion

International economic integration – central tenet of

globalization

- Economics is just one window of globalization.

- Global culture is facilitated by trade.
- Globalization of politics changed trade relations
- The challenge is how can the system be made more just.