General Education 03

THE
CONTEMPORARY
LESSON 3

GLOBAL
ECONOM
Y
 GROUP 4
Ma. Kristine Margaret V. Alejo
Guiller R. Espinoza
Michie P. Mangulabnan
Ma. Arvhie A. Manlusoc
Jolina J. Peralta
Nicole Anne Jeanette G. Serrano
Ronnie C. Tisel
Fernando H. Valiente
ECONOMIC
GLOBALIZATION
- refers to the increasing integration of economies
around the world, particularly through the movement of
goods, services, and capital cross borders.

- is a spread of trade, transportation, and communication

systems on a global scale in the interest of promoting
international commerce.
TWO DIFFERENT ECONOMIES WE SHOULD
KNOW ABOUT ECONOMIC GLOBALIZATION

Protectionism Trade Liberalization

- is protecting one's - is the act of reducing trade
economy from foreign barriers to make
competition by creating international trade easier
trade barriers between countries
These trade barriers are usually tariffs
which are required fees on imports or
exports and quota which is the limited
quantity of a particular product that under
official controls can be produced,
exported, or imported.
ECONOMIC
GLOBALIZATION
- a historical process, the result of human
innovation and technological progress.
 In ancient times, traders traveled vast distances to buy rare commodities such
as salt, spices and gold, which they would then sell in their home countries.

According to Gills and Thompson (2006), globalization processes have

been ongoing ever since Homo sapiens began migrating from the African
continent ultimately to populate the rest of the world. Minimally, they
have been ongoing since the sixteen-century's connection of the Americas
to Afro-Eurasia.
SILK ROAD
- best known example of old-fashioned globalization

The Silk Road was an ancient network of trade routes, formally established during
the Han Dynasty of China, which connected Asia, Africa, and Europe.
 ADAM SMITH- MAGNUM OPUS, AN INQUIRY INTO THE
NATURE AND CAUSES OF THE WEALTH OF NATIONS
(1776) When he wrote this masterpiece, he considered the
discovery of America by Christopher Columbus in 1492 and
the discovery of the direct sea route to India by Vasco de Gama
in 1498 as the two greatest achievements in human history
which serve as pathways to network and trade. However, in the
course of a couple of decades these remarkable achievements
were overshadowed by the breathtaking technological
advances and organization methods of the British Industrial
Revolution.
1800S-
INDUSTRIAL
REVOLUTION
From the early 1800s, following the
Napoleonic wars, the industrial revolution spread
to Continental Europe and North America, too.
This time period saw the mechanization of
agriculture and textile manufacturing and a
revolution in power, including steam ships and
railroads which affected social, cultural and
economic conditions.
THE BRITISH AND THE DUTCH EAST INDIA COMPANIES-
ESTABLISHED IN 1600 AND 1602,RESPECTIVELY
The economic nationalism of the 17th and 18th centuries, coupled with monopolized trade
(such as the first multinational corporations, the British and the Dutch East India Companies,
established in 1600 and 1602, respectively) did not favor, international economic integration.

BETWEEN 1500 AND 1800- TOTAL NUMBER OF SHIPS SAILING TO

ASIA FROM MAJOR EUROPEAN COUNTRIES ROSE REMARKABLY
The total number of ships sailing to Asia from major European countries rose remarkably
between 1500 and 1800 (in numbers: 770 in the 16th, 3,161 in the 17th and 6,661 in the 18th
century).
 WORLD EXPORT TO WORLD GROSS DOMESTIC PRODUCT
However, world export to world GDP did not reach more than one to two percent
(GDP)
in that period. Gross domestic product (GDP) is the monetary value of all the finished
goods and services produced within a country's borders in a specific time period. GDP
is commonly used as an indicator of the economic health of a country, as well as a
gauge of a country's standard of living.

19TH CENTURY
The real break-through came only in the 19th century.
The annual average compound growth rate of world trade
saw a dramatic increase of 4.2 percent between 1820 and
1870, and was still relatively high, at 3.4 percent between
1870 and 1913.
1870 TO 1913- GOLDEN AGE OF
The relatively short period before World War I is often referred to as the
GLOBALIZATION
'golden age' of globalization, since it was characterized by relative peace, free
trade and financial and economic stability.

1913- TRADE EQUALED TO 16-17 %

By 1913, trade equaled to 16-17 per cent of world income, due to the
transport revolution: steamships and railroads reduced transaction cost sand
strengthened both internal and international exchange.

- The phenomenon has several interconnected dimensions such as the

globalization of trade of goods and services, the globalization of financial
and capital markets, the globalization of technology and communication, and
the globalization of production.
TRANSNATIONAL
CORPORATIONS
(TNCS)
- the major players of present-day global economy
- the main driving forces of economic
globalization of the last 100 years, accounting for
roughly two-thirds of world export
• Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising
parent enterprises and their foreign affiliates such as Procter & Gamble and Coca-Cola
Company.
• A parent enterprise is defined as an enterprise that controls assets of other entities in countries
other than its home country, usually by owning a certain equity capital stake.
• A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is
resident in another economy, owns a stake that permits a lasting interest in the management of
that enterprise.
• Multinational Corporation has an international identity as belonging to a particular home
country where they are headquartered.
• A transnational company is borderless, as it does not consider any particular country as its base,
home or headquarters.
• Transnational Corporation is a type of multinational corporations.
GLOBAL COMMODITY
CHAIN
- an idea that reflects upon the increasing importance of global
buyers in a world of dispersed production.
As economic integration is becoming more intensive,
production disintegrates as a result of the outsourcing activity of
multinationals (Feenstra,1998). This move induced Gereffi (1999)
to develop the concept of global commodity chains.
A commodity chain is a process used by firms to gather
resources, transform them into goods or commodities, and finally,
distribute them to consumers. It is a series of links connecting the
many places of production and distribution and resulting in a
commodity that is then exchanged on the world market
ISSUES ABOUT
GLOBALIZATIO
NEconomic globalization fosters universal
economic growth and development but we
cannot ignore the fact that it still result
into issues affecting the society.
CAPITALISM
- Capitalism, also known as the free-enterprise or
free-market system, is an economic and political
system in which a country's trade and industry are
controlled by private owners for profit, rather than
by the state.
 According to Wallerstein, capitalism is a historical social system which created the
dramatically diverging historical level of wages in the economic arena of the world
system. Powerful Transnational Corporations tend to transfer manufacturing jobs from
developed nations to less developed countries through outsourcing in order to reduce the
cost of products because economically disadvantaged countries have less government
regulations and cheaper labor cost. Workers in these countries work for very little money
therefore they often remain poor and sometimes they do not have sufficient social and
health insurance cover. Capitalism is exploitative in nature which divided society and the
rich has more power over the working class posing threats to human rights.
 INCOME
INEQUALITY
- Income inequality is the unequal
distribution of household or individual
income across the various participants in
an economy. It is often presented as the
percentage of income related to a
percentage of the population.
 Over the past two decades, income inequality has risen in most
regions and countries. The ratio of the richest region's GDP per capita to
that of the poorest was only 1.1 in 1000, 2 in 1500and still only 3 in
1820. It widened to 5 in 1871 and stood at 9 at the outbreak of World
War I. In 1950 it climbed to 15 and peaked at 18 at the turn of the new
millennium. Less equal societies have less stable economies. High levels
of income inequality are linked to economic instability, financial crisis,
debt and inflation.
ENVIRONMENTA
L PROBLEMS
- Globalization has produced ecological
problems such as global warming, climate
change, and the abuse of natural
resources.
 The use of airplanes, ships and trucks to transport goods over
international borders is constantly on the increase. Manufacturing
companies and factories release chemicals into the atmosphere. This
causes more carbon dioxide to be released into the atmosphere which in
turn is the main cause of global warming which is the gradual increase in
the overall temperature of the earth's atmosphere generally attributed to
the greenhouse effect caused by increased levels of carbon dioxide,
chlorofluorocarbons, and other pollutants.
INTERNATIONAL
MONETARY
SYSTEMS
Regimes - all the implicit and explicit principles,
norms, rules, and decision-making procedures
around which actors' expectations
converge(Krasner, 1983).
 International monetary system or regime(IMS) - refers to the rules, customs,
instruments, facilities, and organizations for effecting international payments
(Salvatore, 2007).

In the liberal tradition, IMS

facilitates cross-border transactions,
especially trade and investment.
However, it also reflects economic
power and interests, as money is
inherently political, an integral part of
"high politics" of diplomacy (Cohen,
2000)
 THE GOLD
STANDARD
The gold standard functioned as a fixed exchange
regime, with gold as the only international reserve.
rate

Participating countries determined the gold content of

national currencies(fixed exchange rates). Common
adherence to gold convertibility linked the world together
through fixed exchange rates (Bordo and Rockoff, 1996).

The modern-day IMS originated back to the early 19th

century, when the UK adopted gold mono-metallism in 1821.
In 1867, the European nations &the United States, propagated
a deliberate shift togold at the International Monetary
Conference in Paris.
 Gold-believed to guarantee a non-inflationary, stable economic environment, a means
for accelerating international trade (Einaudi, 2001)

In 1872, Germany joined the monetary regime with gold as standard, then France
(1878), United States (1879), Italy (1984) and Russia (1897).Roughly 70 percent of the
nations participated in the gold standard just before World War I (Meissner, 2005).

One of the main strengths of the system was the tendency for trade balance to be in
equilibrium. Nations with trade surpluses exports (accumulates gold) to nations with
deficits (decrease in gold reserve). But deficit nations were enforced to initiate serious
deflationary policies. The regime was indeed able to create stability, restore equilibrium
and provided an almost unlimited access to world finance.
 World War I ended the classical gold standard. Participating nations gave up convertibility and
abandoned gold export in order to stop the depletion of their national gold reserves. UK
attempted to return the gold standard but did not succeed due to overvalued pound sterling and
the emergence of new rivals (United States and France).

In 1930s became the darkest period of modern economic history. Competitive devaluations,
along with tough capital controls and the imposition of tariffs, induced a race to the bottom.
(Eichengreenand Irwin, 2009). The deep structural changes of the time, which were the causes
and the consequences of universal suffrage made the governments reluctant to defend a pegging
system at any cost. (KarlPolányi, 1944). In the classical gold standard regime, deflationary
policies were endorsed without much hesitation. After World War I, however, labourers became
more and more successful in preventing incumbents from adopting welfare reducing austerity
measures.
THE BRETTON WOODS
SYSTEM AND ITS
DISSOLUTION
Inter-war period consequences and the wish to return
to peace and prosperity impelled the allied nations to
start a new IMS in the framework of the United
Nations Monetary and Financial Conference in Bretton
Woods, New Hampshire (US), in July 1944. Delegates
of 44 countries agreed on adopting the gold-exchange
standard. The US dollar was the only convertible
currency of the time, so the United States committed
itself to sell and purchase gold without restrictions at
US$35 dollar an ounce. All other participating but non-
convertible currencies were fixed to the US dollar
 Delegates also agreed on the establishment of two international
institutions:
• International Banks for Reconstruction and Development (IBRD) -
responsible for post-warreconstruction
• International Monetary Fund (IMF) -promotes international financial
cooperation and buttress international trade. The IMF was expected to
safeguard the smooth functioning of the gold-exchange standard by
providing short-term financial assistance in case of temporary balance
of payments difficulties.
 The Bretton Woods system did not prevent countries from running large and persistent
deficits(or surpluses) in their balance of payments and were allowed to correct the official
exchange rate in order to eliminate deficits.

During the first few years of the new regime, US managed to maintain a surplus in its
balance of payments. As soon as Europe regained its pre-World War II economic power, the
external position of the United States turned into a persistent deficit as a natural consequence
of becoming an international reserve currency. Nevertheless, by the mid-1960s,the dollar
became excessively overvalued vis-à-vis major currencies. As a response, foreign countries
started to deplete the US gold reserves. Destabilizing speculations, fed by the huge balance of
payments and trade deficit, along with inflationary pressures, forced the United States to
abandon the gold-exchange standard on 15 August, 1971.
 In early 1973, industrialized countries decided to float their currencies and intervene in
financial markets. But managed floating did not perform any better, either that advanced
countries had to interfere on a few occasions in order to avoid calamity.

The 1990s saw the triumph of the Washington Consensus. Its programme points were
advocated and disseminated by the major international financial institutions such as IMF.
Several countries, such as Mexico, Brazil or the East Asian tigers, deregulated their
financial sectors and fully liberalized capital transactions. However, reforms were not
supplemented by strengthened monitoring and these currencies were pegged to the US
dollar, which appreciated substantially during the 1990s and caused a financial crisis that
first hit Mexico in 1994and reached East Asia in 1997-8.
EUROPEAN MONETARY
INTEGRATION
In the post-World War II era, the United States
advocated an economically and militarily strong
Germany and Western Europe. It activated its post-
war reconstruction programme, the Marshall Plan, in
1948, which was administered by the Organization
for European Economic Cooperation. European
Economic Community (EEC) was established and
was the first major step towards an ever-closer union.
 European six (Germany, France, Italy, Netherlands, Belgium and Luxembourg)
aimed at the creation of a common market, where goods, services, capital and labor
moved freely but not in the field of finance or exchange rate policies. But the collapse
of the Bretton Woods system pressured EEC to set up a regional monetary regime-the
European Monetary System (EMS) in 1979. The EMS was a unique system, since
neither the US dollar, nor gold could play a role in the stabilization process of
exchange rates. Instead, a symmetric adjustable peg arrangement, the European
Exchange Rate Mechanism, was created (Gros and Thygesen, 1998).
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