Chapter 2: Market Globalism

CHAPTER 2
AN OVERVIEW OF
THE WORLD
ECONOMY
THE WORLD ECONOMY
• Has changed profoundly since world war II (Drucker,1986)

Perhaps the most fundamental change is the emergence of global

markets, responding to new opportunities, global competitors
have steadily displaced or aborted local ones.
Concurrently the integration of the world economy has increased
significantly.
Economic integration stood at 10 percent at the beginning of the
20th century, today is approximately 50 percent.
Integration is particularly striking in two regions European
Union (EU) and the North American free trade area (NAFTA)
Just 30 years ago, the world was far less integrated
that it is today (Krugman, 1992)

One of the Evidences of the changes that have taken

place is the automobile industry. Cars with
European nameplates such as
Renault,Citroen,Morris,Volvo and etc.were radically
different from the american chevrolet Ford, or
plymouth and from japanese models such as Toyota
or Nissan. These were local cars built by local
companies, mostly destined for local or regional
markets.
Within the past decades, there have been several
changes in the world economy.

• The first change is the Increased volume of

capital movements
• The second change concerns the Relationship
between positivity and Employment
• The third major change is the emergence of the
world economy as the dominant economic unit
ECONOMIC
SYSTEMS
THE THREE BASIC ECONOMIC
QUESTIONS

WHAT?
HOW?
FOR WHOM?
THE ECONOMIC SYSTEMS
• Is the way a nation make
economic choices about
how the nation will use its
resources to produce and
distribute goods and
services.
FOUR TYPES OF ECONOMIC
SYSTEM

• Traditional Economy
• Command Economy
• Market Economy
• Mixed Economy
TRADITIONAL ECONOMY
• Completely dictated by a tradition (As a
society)
• Doesn’t have a lot of freedom
• No Room for innovation
Advantage
- Less stress
Disadvantage
- Standard of living does not go up
COMMAND ECONOMY
• Central Authority makes economic decision
• Central authority answers all economic questions
• Prices are not determined by demand and supply

Advantage
- Social Wefare
Disadvantage
- Individual desires are secondary to societal desire
MARKET ECONOMY
• Involves people and business
• The Government is hands off when it comes to
economy
• Supply and Demand rule the market

Advantage
-Consumer satisfaction is high
-No need to wait for government to decide
Disadvantage
-Economy may increase the gap between the rich and poor
MIXED ECONOMY
• Command economy//Market Economy
• Government participates in making economic
decision
• Individual consumers and firms participate in making
economic decision
Advantage
-Individual freedom
-Government make sure the economy is moving forward
Disadvantage
-Higher taxes
THE WORLD BANK FOUR
CATEGORY SYSTEM

• The world bank has developed a four category system of

classification that uses per capita (GNP) as a base. Although
the income definition for each of the stages is arbitrary,
countries within given category generally have a number of
characteristics in common. Thus, the stages provide a useful
basis for global market segmentation and target marketing.
 Stages of market development

INCOME GROUP GNP (MILLIONS) GNP PER CAPITA PERCENT OF

BY PER CAPITA WORLD GNP
GNP
High-income $22,629.4 $24,754 81.39
countries

Upper-middle $2,130.3 $3,946 to $9,386 7.66

income countries

Lower-middle $1,506.8 $766 to $3,305 5.42

income countries

Low-income $1,537.1 463 5.53

countries
LOW INCOME COUNTRIES
• Low income countries have GNP per capita of less than $766.
The characteristics shared by countries at this income level are:

1. Limited industrialization and a high percentage of the

population engaged in agriculture and subsistence farming.
2. High Birth rates
3. Low literacy rates
4. Heavy reliance on foreign aid
5. Political instability and unrest
• Although more than 50 percent of the world’s population
is included in this economic category, many low income
countries represents limited markets for products.

• Many low income countries have such serious

economic,social and political problem that they represent
very limited opportunities for investment and operations.

• Others were once growing relatively stable countries that

have
become divided by political stuggles.
Low-Middle-Income Countries
• Sometimes, countries that can be assigned to
the lower income and lower middle income
categories are known collectively as less
developed countries (LDCs).

• The LDCs in the lower middle income

category have a major competitive advantage
in mature standardized labor intensive
Industries such as toy making and textiles.
UPPER-MIDDLE-INCOME
COUNTRIES
• These countries are also known as
industrializing or developing countries
with a GNP per capita ranging from
$3,036 to $9,385. in these countries, the
percentage of population engaged in
agriculture drops sharply as people move
to the industrial sector and the degree of
urbanization increases.
HIGH-INCOME COUNTRIES
• High income countries are also known as
advanced, developed, industrialized, or
post-industrial countries. They have GNP
per capita above $9,386 WITH exception
of a few oil-rich, the countries in this
category reached their present income
levels through a process of sustained
economic growth.
• There are 20 countries with large (GDP)
per capita in 2017. GDP is a strong
indicator of a country’s economic
performance and strenght. It is measured
by the added value of all final goods and
serviced produced and manufactured by a
country.
RANKING AND COUNTRY GDP Per in USS (in 2017)
Gross domestic product (GDP) Per capita, 2017
1. Luxembourg 107,708.22
2. Switzerland 80,836.66
3. Macao 79,563.56
4. Norway 73,615.15
5. Iceland 73,092.2
6. Ireland 68,604.38
7. Qatar 60,811.86
8. United states 59,495.34
9. Denmark 56,334.61
10. Australia 56,135.42
11. Singapore 53,880.13
12. Sweden 53,248.14
13. Netherlands 48,271.67
14. San Marino 47,302.15
15. Austria 46,435.93
16. Finland 45,692.89
17. Hong kong 44,999.31
18. Canada 44,773.26
19. Germany 44,184.45
20. Belgium 43,243.3
The Six Core Claims of Globalization
Globalization Is About the Liberalization and Global Integration
of Markets
• “In other words the concrete outcomes of
market interactions are neither intended
nor forseen, but are the result of the
workings of what Adam Smith famously
called the ‘invisible happen'” yet
Globalists usuaully convey the assertion
that globalization is integration of
markets in the form of moral imperatives
“The concept of ‘free trade’ arose as a
moral principle even before it became a
pillar of economics”- George Bush
Globalization is Inveitable and Irrerversible

• second mode of decontesting ‘globalization’ turns on the

adjacent concept ‘historical inevitability’. In the last decade,
the public discourse on globalization describing its projected
path was saturated with adjectives like ‘irresistable’,
‘inevitable’, ‘inexorable’, and ‘irreversible’.
Nobody is inCharge of Globalization
• The third mode of decontesting globalization hinges on the
classical liberal concept of the ‘self-regulating market’. The
semantic link between ‘globalization market’ and the adjacent
idea of ‘leaderlessness’ is simple: if the undisturbed workings
of the market indeed preordain a certain course of history, then
globalization does not reflect the arbitrary agenda of a
particular social class or group. In other words, globalists are
not ‘in charge’ in the sense of imposing their own political
agenda on people. Rather, they merely carry out the unalterable
imperatives of a transcendental force much larger than narrow
partisan interests.
Globalization Benefits Everyone

• “Economic growth and progress in today’s interdependent world is

bound up with the process of globalization.  Globalization provides
great opportunities for the future, not only for our countries, but for
all others too.   Its many positive aspects include an unprecedented
expansion of investment and trade; the opening up to international
trade of the world’s most populous regions and opportunities for
more developing countries to improve their standards of living; the
increasingly rapid dissemination of information,technological
innovation, and the proliferation of skilled jobs.  These
chracteristics of globalization have lead to a considerable expansion
of wealth and prosperity in the world.  Hence we are convinced that
the process of globalization is a source of hope for the future”
Globalization Furthers the Spread of
Democracy in The World
• The fifth decontestation chain links ‘globalization’ and
‘market’ to the adjacent concept of ‘democracy’, which also
plays a significant role in liberalism, conservatism, and
socialism. Globalists typically decontest ‘democracy’ through
its proximity to ‘market’ and the making of economic choices
—a theme developed through the 1980s in the peculiar variant
of conservatism Freeden calls ‘Thatcherism’. Indeed, a careful
discourse analysis of relevant texts reveals that globalists tend
to treat freedom, free markets, free trade and democracy as
synonymous terms.
Globalization Requires War on Terror
• Like the previous claims, this final decontestation chain attests to
globalism’s political responsiveness and conceptual flexibility. It
combines the idea of economic globalization with openly militaristic and
nationalistic ideas associated with the American-led global War on Terror.
At the same time, however, Claim 6 possesses a somewhat paradoxical
character. If global terror were no longer a major issue, it would disappear
without causing globalism to collapse. In that case, it seems that Claim 6
is a contingent one and thus less important than the previous five. On the
other hand, if the global War on Terror turns out to be a lengthy and
intense engagement—as suggested by the current American political
leadership— then it would become actually more important over time. No
wonder, then, that some commentators who favor the second option have
claimed to detect a dangerous turn of globalism toward fascism.
The International Economic
Environment
• What is International economic Environment?

One system all over world which only used for the trade internationally
among the developed and developing countries

the environment in different countries, with conditions similar to the home

environment of the institutions, influencing decision-making on capabilities
and resource use.

can be described as the global factors that are outside of the control of

individual organizations but that can affect the way that businesses operate.
These factors include unemployment rates, inflation rates, and labor costs.
Terms of international economic
environment
• The law of one price

• The sustainability of ecosystems on which the global economy

depends must be guaranteed

• The economic partners must be satisfied that the basis of

exchange is equitable; relationships that are unequal and based
on dominance of one kind or another are not a sound and
durable basis for interdependence
Elements of Economic
 Environment
• Economic Conditions: –Economic Policies of a business unit
are largely affected by the economic conditions of an economy.
Any improvement in the economic conditions such as standard
of living, purchasing power of public, demand and supply,
distribution of income etc. largely affects the size of the
market.
• Business cycle is another economic condition that is very
important for a business unit. Business Cycle has 6 different
stages viz. (i) Expansion, (ii) Peak, (iii) Decline/recession, (iv)
Depression, (v)Trough, (vii) Recovery.
Expansion
• This is the first stage. When the expansion occurs, there is an
increase in employment, incomes, production, and sales.
People generally pay their debts on time. The economy has a
steady flow in the money supply and investment is booming.
PEAK
• The second stage is a peak when the economy hits a snag,
having reached the maximum level of growth. Prices hit their
highest level, and economic indicators stop growing. Many
people start to restructure as the economy's growth starts to
reverse.
Recession
• These are periods of contraction. During a recession, unemployment rises, production
slows down, sales start to drop because of a decline in demand, and incomes become
stagnant or decline.
Depression
• Economic growth continues to drop while unemployment rises and production plummets.
Consumers and businesses find it hard to secure credit, trade is reduced, and bankruptcies
start to increase. Consumer confidence and investment levels also drop.
Trough
this period marks the end of the depression, leading an economy into the next step:
recovery.

Recovery
In this stage, the economy starts to turn around. Low prices spur an increase in demand,
employment and production start to rise, and lenders start to open up their credit coffers.
This stage marks the end of one business cycle.
Types of international economic
environment
Microeconomic
• Microeconomic part means focuses on the recent
economic environment and the effect of location
on business and performance. 

Macroeconomic
• The Macroeconomic part means focus on the
broader or spreader economic environment and
the world economy as all in all.
International economic system
• Finance system: International finance system explains
and researches the spread of money over the
international financial markets, and the impacts of the
exchange rates.
• Trade System: Which studies products, goods, and
services all over the world boundaries and it makes
some policy to spread up its trading system.
• Monetary Macroeconomics System: this factor
research capital and macro flows all over the world.
Challenges of International economic
environment
• Poverty, inequality and insufficiency: Almost all over
the many countries are live under the poverty line.
There have no proper system and capital to improve
them. However, inequality and insufficiency of the
products and working system they are not developed.
So, it is the challenges for it.
• Greenhouse effect: Greenhouse effect is now an n
important discussion all over the world. Economic
environment is totally effected by this. So it is the
fact.
Important of Studying International
Economic Environment

• Increasing awareness of the one country

political policies and economic system.
• Learning the system of improving relation
through appropriate communication.
• Identifying the other developed countries
economic policy.