Economic Globalization

Structure of Globalization

Presented by Assistant Professor Noemi G. Estrella, M.S, L.P.T

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Introduction

Globalization and economics are inextricably linked, as globalization has fundamentally altered the way economies run around the world. It refers to the growing integration of national economies via trade, investment, technology, and labor and capital mobility. This interconnection has resulted in increased market access, more efficient resource allocation, and faster spread of innovation.

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What is Economic Globalization?

A historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. (I.M.F, 2008)

Image summary: A photograph showing a desk with financial tools, including a calculator, a pie chart, and a bar graph, symbolizing economic analysis and global finance.

What is Economic Globalization?

Economic globalization has several dimensions:

- First, the globalization of trade of goods and services.

- Second, the globalization of financial and capital markets.

- Third, the globalization of technology and communication.

- And fourth, the globalization of production.

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What is Economic Globalization?

Globalization is distinct from internationalization, which is the extension of economic activities across borders, because it is the functional integration between internationally dispersed activities, according to Dickens.

Economic globalization is rather a qualitative transformation than just a quantitative change.

Image summary: A photograph showing a desk with financial documents, a bar chart, a colorful pie chart, and a calculator, symbolizing economic analysis and global finance.

What is Economic Globalization?

Szentes (2003) states, "In economic terms, globalization is nothing but a process making the world economy an 'organic system' by extending transnational economic processes and economic relations to more and more countries and by deepening the economic interdependencies among them."

- The actors involved are State and Non-state actors.

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International Trading System

- Economy traded with limited neighboring civilizations.

Image summary: A map of the Silk Road showing a network of red trade routes connecting China in the east to the Middle East and Europe in the west.

- The Silk Road ran from China to the Middle East and Europe.

- From 130 B.C.E to 1453 B.C.E, trade was international but not global, as there were no ocean routes.

Ancient.

Image summary: A world map illustrating modern global shipping routes, showing a dense web of orange lines crossing the oceans to connect all major continents.

Modern.

- Modern trade is global.

- It involves international trading organizations and associations.

Image summary: A map showing trade routes in the medieval Islamic world. Red lines illustrate extensive land and sea trade networks connecting the Abbasid dynasty's territories across Africa, Europe, and Asia, stretching from the Atlantic Ocean and Sahara in the west to China and the South China Sea in the east.

Image summary: A world map showing historical trade routes. Red lines connect Manila in the Philippines to Acapulco in Mexico, and from Mexico across the Atlantic Ocean to Seville in Spain, illustrating the global reach of the Galleon trade.

Flynn and Geraldez state that the age of globalization began when all important populated continents began to exchange products continuously, both with each other directly and directly via other continents, and in values sufficient to generate crucial impacts on all trading partners.

- In 1571, the Galleon trade between Manila and Acapulco directly connected America to Asian trading routes.

Image summary: A black and white illustration of a busy historical harbor. Several large sailing ships with tall masts are docked along a stone pier where people in period clothing are walking, while smaller rowboats and a steamship are visible in the water.

Galleon Trade

It was part of the age of Mercantilism, which advocated that a nation should export more than it imported and accumulate bullion, especially gold, to make up the difference.

From the 16th to 18th century, countries primarily in Europe competed with one another to sell more goods as a means to boost their country's income, which was called monetary reserves later.

To defend their products from competitors, these regimes imposed high tariffs, forbade colonies from trading with other nations, restricted trade routes, and subsidized their exports.

Mercantilism is global trade with multiple restrictions.

Image summary: This slide contains three conceptual diagrams illustrating the evolution of global currency systems. The first diagram shows various currency symbols radiating from a central gold sphere and gold bars, representing the Gold Standard Era from 1870 to 1914. The second diagram shows currency symbols radiating from a US dollar sign and gold bars, representing the Bretton Woods Era from 1945 to 1971. The third diagram shows a scattered collection of various currency symbols, representing the Post Bretton Woods era from 1971 to the present.

- The first era is the Gold Standard Era, spanning from 1870 to 1914.

- The second era is the Bretton Woods Era, spanning from 1945 to 1971.

- The third era is Post Bretton Woods, spanning from 1971 to the present.

The Gold Standard: A Fixed Exchange Rate System

- Between 1867 and 1933, most of the world's economies used the gold standard.

- The gold standard is a system of fixed exchange rates in which the value of currencies was fixed relative to the value of gold, and gold was used as the primary reserve asset.

- Each country agreed to pay a specified amount of gold on demand to anyone who wanted to exchange its currency for gold.

Gold Standard

Image summary: A photograph of a gold balance scale with gold bars on both sides, symbolizing the gold standard.

U.K, U.S, and other European countries was still a very restrictive system as it compelled countries to back their currencies with fixed gold reserves.

During World War 1, when countries depleted their gold reserves to fund their armies, many were forced to abandon the gold standard.

The Great Depression was the worst and the longest recession experienced in the Western world.

Some economists argued that it was largely caused by the gold standard, thus reducing demand and consumption.

The U.S and other industrialized countries abandoned the gold standard.

The use of the gold standard lasted around the late 1970.

fiat Currency

Image summary: A photograph showing a close-up, overlapping arrangement of various international banknotes, including Indian Rupees and Euros, representing the concept of global fiat currencies.

The world economy operates based on fiat Currencies, which are not backed up by precious metals and whose value is determined by their cost relative to other currencies.

This system allows governments to freely and actively manage their economies by increasing or decreasing the amount of money in circulation as they see fit.

Bretton Woods System

In July 1944, delegates from 44 nations met in Bretton Woods, New Hampshire, to design a new international monetary system. Their goal was to prevent the economic chaos of the 1930s—competitive currency devaluations, hyperinflation, and trade wars—which had contributed to World War Two.

Bretton Woods System

The system established three monumental elements that defined global trade for decades:

The U.S Dollar as the Anchor: The system pegged major international currencies to the U.S dollar, which in turn was pegged to gold at 35 dollars per ounce. This provided unparalleled financial stability, giving nations the confidence to trade across borders without fearing sudden currency collapses.

Bretton Woods System

- The Pillars of Global Governance created three foundational institutions to manage the global economy.

- The International Monetary Fund, or I.M.F, was designed to bridge temporary balance-of-payment crises, preventing countries from closing off their economies during downturns.

- The World Bank, or W.B, was initially created to fund the reconstruction of war-torn Europe, and it later shifted its focus to developing nations.

Bretton Woods System

- The GATT, which later became the W.T.O, or the General Agreement on Tariffs and Trade, successfully lowered global trade barriers and tariffs, spurring international commerce.

Keynesianism

While Bretton Woods built the international pipes, Keynesian economics, championed by British economist John Maynard Keynes, drove the domestic policies within those nations.

Keynesianism rejected the old laissez-faire idea that markets naturally fix themselves. Instead, it argued that during recessions, the government must step in to manage aggregate demand using fiscal tools, such as spending and tax cuts, and monetary tools to achieve full employment and stability.

Keynesianism Role in Globalization

- Creating Stable Consumers: By using state intervention to keep employment high and recessions short, Keynesian policies created a massive, stable middle class in the West. This middle class had the purchasing power to buy imported goods, fueling global trade.

- The "Embedded Liberalism" Compromise: Political scientist John Ruggie called this era the age of embedded liberalism. Governments wanted global free trade, or liberalism, but they embedded it within a safety net of domestic social welfare and capital controls. This allowed nations to open up to global markets without exposing their citizens to brutal, unchecked global shocks.

Bretton Woods vs. Keynesianism

The synergy between Bretton Woods and Keynesianism created the "Golden Age of Capitalism," roughly from 1945 to 1971.

Image summary: A table compares the Bretton Woods System and Keynesian Economic Policy across three features. For primary focus, Bretton Woods emphasized international monetary stability and tariff reduction, while Keynesianism focused on domestic full employment and demand management. Regarding capital, Bretton Woods favored capital controls to protect domestic policy, and Keynesianism needed capital controls so governments could set interest rates without money fleeing abroad. For impact on trade, Bretton Woods provided predictable exchange rates and a forum to lower trade barriers, while Keynesianism created steady, resilient consumer markets capable of absorbing global exports.

Neoliberalism

Neoliberalism: an overview

- It is an economic philosophy advocating the free-market and removal of restrictions on business and trade, both domestic and international, in order to generate maximum profit. This is why it is called "liberal," though it is not necessarily mutually exclusive with social liberalism, but nonetheless these beliefs clash frequently, according to Shah, 2010.

- It supports the deregulation of public services, such as healthcare and education, which would be maintained by private businesses rather than government or other non-profit organisations, with minimum state interference, according to Shah, 2010.

- It draws major criticism from social activists due to its perceived negative effects on social welfare and the working class.

Image summary: A cartoon depicts two people talking to a seated person. The caption reads, "We've decided to support you for the rest of your life. It's cheaper than sending you to college," satirizing the effects of neoliberalism.

Neoliberalism

From the 1980s onward, neoliberalism became the codified strategy of the United States Treasury Department, the World Bank, the I.M.F, and the World Trade Organization (W.T.O).

Policies came to be called the Washington Consensus.

Neoliberalism

- The successes, or what worked, include massive wealth generation, where global G.D.P has skyrocketed, lifting hundreds of millions of people, particularly in East Asia, out of absolute poverty.

- Consumer abundance has increased, as lowered trade barriers mean cheaper goods, advanced technology, and a massive variety of products available globally.

- Interdependence has grown, as deep economic ties make outright warfare between major trading powers incredibly costly, promoting a degree of geopolitical stability.

- The criticisms, or what backfired, include skyrocketing inequality, where while the global elite and corporations accumulated vast wealth, the gap between the rich and poor within countries widened significantly.

- There has been a loss of national sovereignty, as governments often find themselves powerless against global market forces or the demands of multinational corporations.

- Economic volatility has increased, as seen in the 2008 financial crisis, where deregulation means a shock in one part of the world, like the U.S housing market, instantly triggers a global recession.

what is the Washington Consensus

The Washington Consensus is a set of 10 economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund, the World Bank, and the United States Department of the Treasury.

The term was first used in 1989 by English economist John Williamson. The prescriptions encompassed policies in areas such as macroeconomic stabilization, economic liberalization with respect to both trade and investment, and the expansion of market forces within the domestic economy.

Washington Consensus 1990

Image summary: A conceptual diagram shows a central circle containing the phrase "Stabilize, privatize and liberalize." Surrounding this center are ten key policy goals with arrows pointing inward, including deregulation, secure property rights, reorientation of public expenditures, privatization, trade liberalization, unified and competitive exchange rates, financial liberalization, tax reform, openness to foreign direct investment, and fiscal discipline.

Fiscal discipline means keeping government budgets small enough that, after debt servicing, the operating deficit is no more than 2 percent of G.D.P.

Public expenditure priorities involve redirecting expenditure from politically sensitive areas and white elephants towards neglected fields which are economically productive, strengthen the country's infrastructure, or have the potential to improve income redistribution, such as primary health and education.

Tax reform involves reducing marginal tax rates to sharpen incentives for companies and individuals to earn more, and broadening the tax base to improve horizontal equity.

Deregulation is the abolition of regulations which impede entry of new firms or restrict competition, while ensuring that all other regulations can be justified by criteria such as safety, environmental protection, or prudential supervision of financial institutions.

Foreign direct investment involves the removal of investment barriers impeding the entry of foreign firms, with all receiving national treatment, meaning the same treatment as domestic firms.

Financial liberalization means progressively moving towards market-determined interest rates within a less constrained financial marketplace.

Exchange rates should be a single exchange rate that is set at a level that encourages expansion of non-traditional exports and managed in a way that assures exporters of continued competitiveness.

Trade liberalization involves the rapid conversion of quantitative trade restrictions, such as import quotas, into tariffs and the progressive reduction of tariffs to between 10 and 20 percent.

Privatization refers to the privatization of state enterprises and assets.

Property rights involve ensuring the security of property rights under law without high costs.

Washington Consensus

In the developing world, reduction of tariffs and opening up of their economies is the quickest way to progress.

Certain industries would be affected and die, but they considered this "shock therapy" necessary for long-term economic growth.

Its advocates, such as U.S President Ronald Reagan and British Prime Minister Margaret Thatcher, justified reducing government spending by comparing national economies to households.

The case of post-communist Russia.

Washington Consensus

The phrase Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach, sometimes described as market fundamentalism or neoliberalism.

Actors that Facilitate Economic Globalization

- Non-state Actors.

- International Economic Organization.

- Multinational Companies and central banks.

- Civil society.

International Economic Organization

- International Monetary Fund.

- Organization for Economic Cooperation.

- Association of Southeast Asian Nations.

- North American Free Trade Agreement.

International Economic Organization

- Dutch and British East India.

- Muscovy Company.

- Royal African Company.

- Hudson Bay Company.

International Economic Organization

Transnational Advocacy Network

Economic Globalization

First, developed countries are often protectionists, as they repeatedly refuse to lift policies that safeguard their primary products that could otherwise be overwhelmed by imports from the developing world.

Image summary: A photograph showing a person in a business suit writing on a transparent glass board overlaid with digital financial charts and data trends, symbolizing economic analysis and global markets.

Economic Globalization

Image summary: A photograph shows a person in a business suit writing on a transparent glass board overlaid with financial line graphs and data points, symbolizing economic analysis and global markets.

The case of Japan's refusal to allow rice imports into the country to protect its farming sector and the U.S protection of its sugar industry.

Economic Globalization

Image summary: A photograph showing a person in a business suit interacting with a digital overlay of a financial line graph, symbolizing the data-driven nature of global economic activity.

The beneficiaries of global commerce have mainly been transnational corporations, not governments.

Transnational corporations are more concerned with profits than with supporting the social programs of the governments that host them.

Host countries, in turn, loosen tax laws, which prevent wages from rising, while sacrificing social and environmental programs that protect the underprivileged members of their societies.

Economic Globalization

Image summary: A photograph shows a person in a business suit interacting with a digital interface displaying financial line graphs and data points, symbolizing the analytical and global nature of economic activity.

The phrase "race to the bottom" refers to countries lowering their labor standards, including the protection of workers' interests.

This is done to lure foreign investors who are seeking high profit margins at the lowest cost possible.

Governments weaken environmental laws to attract investors, leading to fatal consequences for their ecological balance and depleting their finite resources, such as oil, coal, and minerals.

Economic Globalization

Image summary: A photograph shows a person in a business suit interacting with a digital interface displaying financial line graphs and data points, symbolizing the intersection of technology and global economics.

International economic integration is a central tenet of globalization.

As a reminder, economics is just one window into the phenomenon of globalization; it is not the entire thing.

Economic Globalization

Image summary: A photograph showing a person in a business suit interacting with a digital interface featuring glowing line graphs and data points, symbolizing the intersection of business and global economic trends.

Nevertheless, much of globalization is anchored in economic change. Global culture, for example, is facilitated by trade. Filipinos would not be as aware of American culture if not for the trade that allows locals to watch American movies, listen to American music, and consume American products.

The globalization of politics is likewise largely contingent on trade relations. These days, many foreign affairs events are held to cement trade relations among states.

World System Theory by Immanuel Wallerstein

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Synthesis

Thank You