THE GLOBAL

ECONOMY
The students should be able to:

1) define economic globalization;

2) identify the actors that facilitate globalization;
3) define the modern world system;
4) articulate a stance on global economic integration.

Introduction:

The global economic system started in 1895 and reached its peak in 1914 wherein various changes and improvements occur that
characterized economic globalization before and at present. There was a massive improvement in the structures of transportation, communication
and capital. When it comes to communication the internet today allows easy access to the global scene. Modernization of technology helped people
around the world to travel with the help of airplanes in a relatively short period of time. Free trades and elimination of trade barriers helped
strengthened global economic processes. According to experts the rich nations were the winners of this globalization while the poor nations were
the losers because the poor nations suffered most since they are forced to repay their debts to rich nations.
Surpluses and
Deficits
Trade surplus - the amount by which the value of a country’s exports exceeds the cost of it’s
import.

Trade deficit - the amount by which the cost of a country’s imports exceeds the value of it’s
exports. This is also referred to as a negative balance of trade.

Example: U.S and China (by the end of November 2007 U.S. had a trade deficit of $701.6 billion
and ended the year at $738.6 billion while China announced that it had a record trade surplus
of $177.47 billion in 2006 and it is said to be 75% greater than the previous year 2005.
Through November 2006, China’s surplus with the U.S. was almost equal to its surplus with all
other countries in the world.

Economic Chains and Networks

Gary Gereffi (2005:160-83) has outlined several of the most important economic chains and
networks involved in global trade;
• Supply Chains - from raw materials to finished products like from thread to producing t-shirts.

• International Production Networks - these refers to the multinational corporations (MNC’s).

This involve the networks of producers involved in the process of producing a finished product.

• Global Commodity Chains - is a process used by firms to gather resources, transform them into

goods or commodities and distribute them to the consumers across the world. Examples are

Nike and Toyota which are already all over the world.

• Global Value Chains - refers to international production sharing, a phenomenon where

production is broken into activities and tasks carried out in different countries.

Example: Scrap metal which is used as raw materials in producing a finished product,

waste paper used as raw material in producing new paper (Like one of the richest women

in the world Zhang Yin’s owner of Nine Dragons Paper).

T-shirts - global market is simply based on the belief that markets should be free, open and have no barriers since globalization started. One particular example
of the global value chain is Pietra Rivoli’s work (2005) about t-shirts. The global value chain here involves cotton’s grow in and shipped from the U.S. the t-shirts
manufactured in China. The shipping to and sale in the U.S. of those new t-shirts and eventually the disposal of them and finally the shipping and sale of those t-
shirts in Africa. As of today, the t-shirts that had been manufactured in China are now being shipped and sold to different parts of the world.

iPhones - the global value chain for Apple iPhone is fascinating. The story started with the mystery that while 3.7 million iPhones were sold in 2007, only 2.3
million were registered on the wireless network that are Apple’s exclusive partners in the U.S. and Europe. The phones themselves were manufactured in China
and exported to the U.S. and Europe. However, many of them end up being bought there, and then smuggled to other nations, mainly in China, where consumers
love the high tech gadgets like iPhones. In fact, the within months of the introduction of the iPhones in mid 2007, “iClones” were on sale in China at a fraction of
the cost of iPhone. While the clones clearly resemble the originals, many Chinese consumers prefer the cachet of the iPhone and are willing to pay the $400-
$500 cost for the original. The iClones that China manufactured were sold to other countries like in the Philippines.

Outsourcing - is the transfer of activities once performed by an entity to a business or businesses in exchange for money. It is a complex phenomenon that is not
restricted to the economy, not only a macro-level phenomenon , and not simply global in character. In healthcare, one example is the work of the radiologist,
which is increasingly being outsourced. This is made possible because the material with which the radiologists deal (x-ray, results of MRI) is now usually
digitized and therefore sent easily and quickly via the internet to radiologists anywhere in the world (this because of modern technology brought about by
globalization). Another example is the outsourcing of BPO industries by U.S. to other parts of the world like the Philippines and because of this jobs were
opened.
Consumption - is highly complex, involving mainly consumer objects, consumers, the consumption process, and consumption sites. It is
important to know that there has been a tendency to closely associate consumption, as well as the globalization of consumption, with
America and Americanization. This is because of the influence brought by the Americans after WWII wherein most of the countries
experienced economic difficulties and rely to the Americans. Through the years, the method of consumption all over the world was
modernized when credit cards were already used to purchase goods or commodities like Visa and Mastercard.

Consumer Objects and Services - this refers not only to the goods or commodities that consumers purchase either local or international
brands but also to the services that are being offered locally and globally such as accounting firms, package delivery service.

Consumers - increasing number of people throughout the world are spending more and more time as consumers. Not long ago, it was very
different as most people spent most of the time as producers. Not only do more people spend more time in consuming, but they are
increasingly more likely to define themselves by what they consume, than by their roles as producers and workers. Furthermore, consumers
are on the move throughout the world, often as tourists (since most tourists shop if they tour to other countries).

Consumption Process - Increasing number of people know what is expected of them as consumers; they generally know what to do in the
consumption process wherever they happen to be in the world. This includes knowing how to work their way through a shopping mall, use a
credit card, or even make a purchase online.
Consumption Sites - shopping malls, fast-food restaurants, clothing chains, discounters such as Walmart (in the Philippines,
Puregold and S&R), Disney like teamparks, Las Vegas style casino hotels, internet sites such as Amazon.com and E-bay.com are
samples of consumption sites.

Global Resistance - the global spread of chain stores, theme parks, and among others, has led to many concerns and to resistance in
many parts of the world. The resistance was mainly because of the increasing hyperconsumption meaning people has a tendency to
buy and buy goods and commodities even if these goods are non-functional purposes.

Worldwide Division of Labor and the Development of the Modern World System:

a. Core - these are areas that dominate the capitalist world-economy and exploits the rest of the system (e.g., U.S. & Japan)

b. Periphery - these are areas that provide raw materials to the core and are heavily exploited (e.g., many countries in the
African region)

c. Semi-periphery - a residual category that encompasses a set of regions somewhere between exploiting and the exploited
(e.g., India)
Race to the Bottom

- a dominant idea in thinking about less developed economies from a global perspective is the so-called “race to the

bottom”. The basic argument is that for less developed countries to compete and succeed in the global economy, they

must undercut the competition in various ways, such as offering lower wages, poorer working conditions, longer hours,

ever escalating pressure and demands and so on. It is often the case that one nation is willing to go further than the

others in order to attract the interest of Multinational Corporation (MNC’s). The current global economic system is

based, at least in part, on a race to the bottom by less developed countries and the exploitation of them and their

industries by the more developed countries. Less developed countries should go into the process of upgrading its

industries to catch up with developed countries.

The Myth of Economic Globalization

- This refers to the growing importance of economic globalization. Even if this is the predominant view, there are nations

that do not accept it. Some experts simply thinks that globalization is just a myth meaning to say these experts argue that

such a highly internationalized economy, although it may not have been labeled “global”, is not unprecedented (never

done or known before).