Market integration

2.2 Market Integration

Learning Outcomes:

At the end of the lesson, the learners are expected to

demonstrate the following:
– Explain the role of international financial insitutions in the
creation of a global economy
– Narrate a short history of global market intergration in the
20th century
– Identify the attributes of global corporations
Role of IMF
to
Globalization
 International Monetary Fund(IMF)
 is an international organization headquartered in
Washington, D.C., of 189 countries.
 working to foster global monetary cooperation,
secure financial stability, facilitate international trade,
promote high employment and sustainable economic
growth, and reduce poverty around the world
 Purpose : Promote international monetary co-
operation, facilitate international trade, foster
sustainable economic growth, make resources
available to members experiencing balance of
payments difficulties.
• The world’s major economic and political
powers—the United States (the IMF’s largest
shareholder), Great Britain, Japan, Germany,
France, China, Russia, and Saudi Arabia—
each have permanent seats on the executive
board, while the 16 other directors are elected
for two-year terms by groups of countries
divided roughly by geography, e.g., Caribbean,
Africa, Southeast Asia, etc.
 IMF’s Goals

1. Facilitate the cooperation of countries on monetary

policy, including providing the necessary resources for
both conference and the establishment of monetary
policy in order to minimize the effects of international
financial crises.

2. Assist the liberalization of international trade by

helping countries increase their real incomes while
lowering unemployment.
3. Maintain a multilateral system of payments that
eliminates foreign exchange restrictions. Countries are
thus free to trade with each other without worrying
about the effects of interest rates and currency
depreciation on their payments.

4. Help to stabilize exchange rates between countries.

Especially after the global depression of the 1930s, it was
considered vital to establish currencies that could hold
their value, serve as mediums of international exchange.
 IMF’s Goals
5. Provide a safeguard to members of the IMF against
balance of payments crises, i.e., when governments cannot
balance the money they have with the money they owe to
other countries. IMF members can have the confidence to
adjust the imbalances in their national accounts without
resorting to painful measures that would hamper their
prosperity, such as devaluing their currency in relation to
other countries’.
6. Try to reduce the effects of instability in countries’
balance of payments accounts, the IMF helps assure that
global trade and financial relationships can continue at a
steady rate without the risks of global depressions like that
of the 1930s.
 Role of IMF to Globalization

The IMF seeks to mitigate the negative effects of globalization on the

world economy in two ways:
 Safeguard the international financial system
It is working to safeguard the stability and integrity of the
international financial system as a global public good. In particular, the
joint IMF-World Bank Financial Sector Assessment Program (FSAP) is at
the core of efforts to strengthen financial sectors and combat money
laundering in member countries.
 Enable more countries to reap the benefits, while minimizing the
risks, of globalization.
helping individual countries take advantage of the investment
opportunities offered by international capital markets, while reducing
their vulnerability to adverse shocks or changes in investor sentiment.
Role of
WORLD BANK
to
Globalization
 World Bank
• is an international financial institution that provides
loans to countries of the world for capital programs.
• It comprises two institutions: the International Bank
for Reconstruction and Development (IBRD), and the
International Development Association (IDA).
• REDUCTION OF POVERTY- (The World Bank's
stated official goal).
• As in the IMF, the United States is the largest
contributor and has the most weighted voting
power, though as a practical matter, decisions are
made by consensus.
World Bank
• John Maynard Keynes (right)
and Harry Dexter White, the
"founding fathers" of both the
World Bank and the
International Monetary Fund
(IMF).
• The World Bank and the IMF
are both based in Washington,
D.C., and work closely with
each other.
 Role of World Bank to Globalization

Low-Income Countries
 It is here that the World Bank has a vital role to play by working with
governments and ensure strong governance, effective judicial systems,
and a robust financial system .
 All these would help fight corruption. If these initiatives are not taken,
attracting foreign and domestic investment would be difficult and thus
globalization shall fall back upon us.
Middle-Income Countries
Statistically, 80% of the world's poor live in middle-income countries.
These are the countries which require utmost help for a strong financial
stability.
For that, the structural and social reforms should be in place for the next
stage of development. The mission of tackling global poverty is the main
agenda and the only important tool to achieve overall development.
World Bank is focusing on -

• Secure long-term funding

• Give advisory services
• Create the right policy and institutional
framework
• Address weaknesses in the social, structural,
and sectorial policies.
• It “aims to reduce poverty in middle-income
and credit worthy poorer countries by
promoting sustainable development,
through loans, guarantees, and non-lending-
including analytical and advisory-services.”
• The World Bank aims at issues such at
building infrastructure (roads, dams, power
plants), natural disaster relief, humanitarian
emergencies, poverty reduction, infant
mortality, gender equality, education, and
long-term development issues.
• Furthermore, the World Bank tries to foster
social reforms in order to promote economic
development, such the empowerment of
women, building schools and health centers,
provision of clean water and electricity,
fighting disease, and protecting the
environment.
 The Policy Agenda
• Countless actions could be taken by developed and
developing nations to lessen the negative effects of
globalization.
• The World Bank calls on rich countries to (1) open
their markets to exports from developing countries;
(2) slash their agricultural subsidies that hurt poor-
country exports; and (3) increase development aid,
particularly in education and health.
• It calls on poor countries to improve their investment
climates and improve social protection for poor
people in a changing economic environment.
 The World Bank support the Sustainable Development
Goals (SDGs), drafted by the United Nations. The goals
are as follows:

• Goal 1. End poverty in all its forms everywhere

• Goal 2. End hunger, achieve food security and improved
nutrition and promote sustainable agriculture
• Goal 3. Ensure healthy lives and promote well-being for all
at all ages
• Goal 4. Ensure inclusive and equitable quality education
and promote lifelong learning opportunities for all
• Goal 5. Achieve gender equality and empower all women
and girls
• Goal 6. Ensure availability and sustainable
management of water and sanitation for all
• Goal 7. Ensure access to affordable, reliable,
sustainable and modern energy for all
• Goal 8. Promote sustained, inclusive and sustainable
economic growth, full and productive employment and
decent work for all
• Goal 9. Build resilient infrastructure, promote inclusive
and sustainable industrialization and foster innovation
• Goal 10. Reduce inequality within and among countries
• Goal 11. Make cities and human settlements inclusive, safe,
resilient and sustainable
• Goal 12. Ensure sustainable consumption and production
patterns
• Goal 13. Take urgent action to combat climate change and its
impacts*
• Goal 14. Conserve and sustainably use the oceans, seas and
marine resources for sustainable development
• Goal 15. Protect, restore and promote sustainable use of
terrestrial ecosystems, sustainably manage forests, combat
desertification, and halt and reverse land degradation and halt
biodiversity loss
• Goal 16. Promote peaceful and inclusive
societies for sustainable development, provide
access to justice for all and build effective,
accountable and inclusive institutions at all
levels
• Goal 17. Strengthen the means of
implementation and revitalize the global
partnership for sustainable development
 The Three Periods
Of Global Corporations

American, Japanese,
Colonialism and & European
Trade and Exchanges Imperialism Corporations
(age of exploration) (Industrial (Post –war
Revolution) reconstruction and
recovery)
 First Period
• ‘historical globalization’ locates the
phenomenon itself in early patterns of trade
and exchange
• influenced by the emergent and subsequently
dominant technologies, especially in shipping
and navigation
• Age of Exploration
 Second Period
• Coupled with an extraordinary rise in global
population that attended the industrial
revolution, the societies that arose would
invent new ways to organize the world itself
through colonialism and imperialism that
vastly attenuated their interactions between
peoples, states and regions such that a clearly
differentiated era of global interaction can be
said to exist (Harvey, 1990).
 Third Period
• As the world emerged from the vast destructions of
World War II, economic recovery and expansion were
led overwhelmingly by American corporations which for
a period from the end of the war until the reentry of
Japanese and European corporations onto the global
scene essentially stood for what by then had come to be
viewed as multinational corporations (MNCs) (Barnet
and Mueller, 1974). This period from the end of World
War II to the present can be viewed, therefore, as a third
and distinct period in the transformation of the global
corporation.
• US corporations operating internationally had
enormous advantages in the immediate post-
war period as they – virtually alone in the
world – emerged from the war with their
productive, organization and distributional
capacities intact.
 The post-war period, three structural
periods:
• investment-based globalization (1950–70);
• trade-based globalization (1970–95);
• digital globalization (1995 onwards).
(Post- war) Investment-based period (1950–
70)
• The investment-based period was dominated
by producer-driven commodity or value
chains, which in turn tended to be dominated
by firms characterized by large amounts of
concentrated capital focused on large-scale or
capital-intensive manufacturing or extractive
industries.
(Post- war) Investment-based period (1950–
70)
• Citing UN data he dates 1960 as the principal
turning point for FDI as the major driver of
extended global corporate development. In
each subsequent decade until the turn of the
century, FDI would triple (Hedley, 1999).
• FDI (Foreign Direct Investment) the entry of
private capital from a source external to a
country into a receiving country.
• DeAnne Julius indicates that the expansion of
FDI, intercorporate alliances, and intrafirm
trade during this period reached a level at
which ‘a qualitatively different set of linkages’
was created among advanced economies
(Julius, 1990). It was estimated that some
20,000 new corporate alliances were formed
just in the period 1996–8 (Gilpin, 2000: 170).
• Much of the rise in financial investment can also be
attributed to the role of International Financial Institutions
(IFIs), namely the World Bank and the International Monetary
Fund (IMF). Part of the Bretton Woods system, they were the
cornerstones of economic liberalization and globalization in
the post-war global economy. While initially designed to help
rebuild Europe, the World Bank and the IMF soon turned
their attention to the developing world including Southeast
Asia. During the Cold War, these institutions came under the
heavy influence of the West and so they simultaneously
promoted neoliberal economic policies while also propping
up Western and US allies, often times authoritarian figures.
• In Indonesia, Suharto's policies and the economic
framework under the IMF and World Bank provided
crucial assistance as well as a foundation for the legitimacy
of the authoritarian Suharto regime. And despite providing
some basis for economic coherence, the lenders looked
away from the massive amounts of corruption and
patrimonialism that occurred in the Suharto regime
(Winters, 1996: 86). In Thailand, the IFIs pushed
liberalization and export oriented growth which led to
increasing amounts of foreign investment and double digit
GDP growth (Hewison, 1999). In the Philippines, the World
Bank and the IMF had a cozy relationship with Ferdinand
Marcos whose tenure had a disastrous impact on the
country's economy and left it straddled with nearly US$30
billion in debt (Bello Kinley and Elinson, 1982).
(Post-war) Trade-based globalization (1970–
95);
• three fundamental innovations that have substantially
changed the character of the global corporation:
• 1. the advent and impact of digitalization and
instantaneous global communications
• 2. the structural transformation of global commerce
from producer-driven commodity chains to buyer-
driven
• 3. the increasing role performed through the global
system by financial elements and the emergence of
the global financial firm
(Post-war) Digital globalization (1995 onwards)

• Digitalization has affected the entire structure of how global corporations

operate. Producer driven streams have progressively integrated their
corporate structures to reduce the effects of time and distance, especially
for services performed within corporate structures such as design, finance
and accounting, advertising and brand development, legal services,
inventory control etc. These extensive capabilities of control and
management at a distance blend many of the differentiated aspects of
product and service based firms. Digitalization is transforming the classic
value chain of manufacturing focused on innovation in which:
 (Post-war) Digital globalization (1995
onwards)
• Product design and innovation are replaced with
driving innovation through digital product design
• Labour intensive manufacturing is replaced by
digitizing the factory shop floor
• Supply chain management is replaced by
globalizing through digital supply chain
management
• Marketing sales and service is replaced by digital
customization. (Capgemini, 2012)
• The 1990s saw the triumph of the neoliberal, pro-market
Washington Consensus. Its programme points were advocated
and disseminated by the major international financial
institutions. The IMF used these points as part of its adjustment
requirements (or conditionalities) in exchange for financial
assistance. Several countries, especially the so called emerging
markets such as Mexico, Brazil or the East Asian tigers,
deregulated their financial sectors and fully liberalized capital
transactions from the late 1980s onwards. Reforms, however,
were not supplemented by strengthened domestic supervision or
monitoring. Additionally, these currencies were pegged to the US
dollar, which happened to appreciate substantially during the
1990s and caused a loss in the price competitiveness of emerging
markets. The unregulated and free flow of capital, the huge
current account deficits and the soft pegging regimes made these
economies highly vulnerable, resulting in a financial crisis that
first hit Mexico in 1994 and reached East Asia in 1997.
• The Washington Consensus and its free-market ideology has
been criticized by many right from its conception. Stiglitz
(2002) blamed the IMF and its rigid “conditionalities” for
the failed development performance of the periphery. His
main argument was that free-market policies such as
liberalization or privatization could not deliver the expected
results in an environment of imperfect or incomplete
markets and inadequate or missing institutions. From a
wider perspective, Wallerstein (2005) commented the
change of economic thinking of the late 1980s and early
1990s by arguing that ‘development was suddenly out.
Globalization arrived in its wake … Now, the way to move
forward was not to import-substitute but to export orient
productive activities. Down not only with nationalized
industries but with capital transfer controls; up with
transparent, unhindered flows of capital' (2005: 1265).
Global Corporations are INSEPARABLE from the
phenomenon of globalization.
 The Three Periods
Of Global Corporations

Colonialism American,
Trade and and Japanese, &
Exchanges European
Imperialism Corporations
International Global
Companies Companies
Invested in and present in
importers many companies

Market
Exporters Products & Services to each
individual local market

No investment outside
home country
 MNCs TNCs

They have investment They are more

in other countries, complex organizations
but do not have which have invested in
coordinated product foreign operations,
offerings in each have a central
country. They are corporate facility but
more focused on give decision making,
adapting their research and
products and services development, and
to each individual marketing powers to
local market. each individual
foreign market.
 TNC
• defined by the United Nations Centre on
Transnational Corporations (UNCTC) as an
‘enterprise that engages in activities which add
value (manufacturing, extraction, services,
marketing, etc.) in more than one country (UNCTC,
1991).
 Attributes of global corporations
1. They are agents or actors of economic development

2. They are gain their economic prominence.

3. They set the balance resulting from greater global wealth

inequality, income inequality, lack of effective workers
protection, environmental degradation, and in some cases,
threatened national sovereignty.

4. They are so powerful that they can create a financial crisis if

they want to.
Global corporations has brought:

1. Global inequality
2. The systematic stability and viability of the
global financial systems
3. Positive and negative contributions to the
contemporary world
Are the following global corporations MNCs or
TNCs?