UNIT 2 THE GLOBAL ECONOMY

LEARNING OUTCOMES

At the end of the unit, you should be able to:

1. Describe economic globalization and trade

2. Determine the challenges of economic globalization and its

sustainable development

3. Explain the impact of the global flows on the Global South

4. Differentiate various theories of global stratification

PRETEST

Unlock the meaning of the following terms:

1. tariff ____________________________________________________
2. interdependence___________________________________________
3. international capital________________________________________
4. trade laterization__________________________________________
5. free trade_______________________________________________

ECONOMIC GLOBALIZATION AND TRADE

The United Nations (UN) tried to address the different problems in the
world. Their efforts were guided by the eight Millennium Development Goals,
which ft-7 in the 1990s. Among these eight goals are:
• the eradication of extreme poverty
• achieving universal primary education,
• promoting gender equality and women empowerment
• reducing child mortality and improving maternal health
• combating diseases like HIV/AIDS and malaria
• ensuring environmental sustainability
• having a global partnership for development (United The UN tried to
achieve them by the year 2015.
 • Protectionism means "a policy of systematic government
intervention in foreign trade with the objective of encouraging
domestic production. This encouragement involves giving
preferential treatment to domestic producers and
discriminating against foreign competitors" (McAleese, 2007 as
cited in Ritzer, 2015, p. 1169).

• Trade protectionism usually comes in the form of quotas

and tariffs. Tariffs are required fees on imports or
exports. For instance, a pen that costs $1.00 in Country A
and in Country B, it would be given five-dollar tariff. The pen
would become $6 in Country B. This policy was practiced
during the mercantilist era, from sixteenth to seventeenth
centuries until the early years of the industrial Revolution
(Chorev, 2007).

➢ The Great Depression of 1929 marked the peak of protectionism.

Until today, protectionism exists in the world economy despite the
growth
of trade liberalization. Countries such as China, Japan, and the
United
States are being accused of practicing protectionism (Ritzer,
2015).

➢ World War II heavily influenced the shifting of the dominant

economic policy from protectionism to trade liberalization or free
trade.

➢ Free trade agreements and technological advances in transportation

and communication mean goods and services move around the world
more easily than ever. We are talking about everything from shoes and
bananas to innovations and ideas. Let us take mobile phones as an example.
Mobile phones seem to have good consequences everything including reducing
poverty.
➢ According to economist Jeffrey Sachs it comes mobile phones are the
"single most transformative technology" to the developing world.
Phones give people access to banking and payment systems and better access
to education and information.

➢ In some places, mobile phones help farmers get information and get the best
price for the crops they are producing. Installing cellphone towers is also a lot
cheaper than running thousands of kilometers of telephone lines.

➢ Economists call this leapfrogging, the idea that countries can skip straight to
more efficient and cost-effective technologies that were not available in the
past. International trade has also created new opportunities for people to sell
their products and labor in a global marketplace.

➢ Globalization made some countries, especially the developing ones,

to gain more in the global economy at the expense of other nations.

➢ There are various ways, however, the country can make trade easier with other
countries while lessening the inequities in the global world. One of them is
"fair trade" (Nicholls and Opal, 2005).

➢ Fair trade, as defined by the International Fair-Trade Association, is the

"concern for the social, economic, and environmental well-being of
marginalized small producers" (Downie, 2007).It aims for a more moral and
equitable global economic system. Specifically, it is concerned with:

• protection of workers and producers

• establishment of more just prices
• engagement in environmentally sound practices and
sustainable production
• creation of relationships between producers in the South
and consumers in the North
• promotion of safe working environment. Products like
coffee, bananas, cotton, wine, tea, and chocolate have been
exchanged in light of fair trade.
ECONOMIC GLOBALIZATION AND SUSTAINABLE DEVELOPMENT

There are some significant downsides to globalize trade and

perhaps the strongest argument against economic globalization is its lack
of sustainability or the degree to which the earth's resources can be used
for our needs, even in the future. Specifically, the development of our
world 'today by using the earth's resources and the preservation
of such sources for the future is called sustainable development.

➢ The relationship between globalization and sustainability

is multi-dimensional—it involves economic, political, and
technological aspects.

➢ The continuous production of the world's natural

resources, such as water and fossil fuel allow humanity to
discover and innovate many things. We were able to utilize
energy, discover new technologies, and make advancements in
transportation and communication. However, these positive
effects of development put our environment at a
disadvantage.

➢ Climate change accelerated and global inequality was not

eradicated. This means that development, although beneficial at
one hand, entails cost on the other.

Environmental Degradation

Development, especially economic

development, was hastened by the Industrial
Revolution. This is the period in human history that
made possible the cycle of efficiency. Efficiency
means finding the quickest possible way of
producing large amounts of a particular product.
This Photo by Unknown Author is This process made buying of goods easier for the
people. Then, there is an increased demand.
Ultimately, there was an increased efficiency. This
cycle harms the planet in a number of ways. For
instance, the earth's atmosphere is damaged by
more carbon emissions from factories around the
world.
 ➢ Another example is the destruction of coral reefs and
marine biodiversity as more and more wastes are thrown
into the ocean. Many experts do not think that the planet can
sustain a growing global economy. Deforestation, pollution, and
climate change will not adjust for us, especially if increases in living
standards lead people to demand more consumer goods like cars,
meat, and smartphones.

➢ Previous experience in dealing with environmental issues

indicates that a global view of the problem is required. A
focus on specific regions, such as Europe, overlooks impacts in
other regions. instead of dealing with the causes of global
warming, there is some interest in "technological fixes" such as
geoengineering (Dean, 2007).

Food Security

The demand for food will be 60% greater than it is

today and the challenge of food security requires
the world to feed 9 billion people by 2050
(Breene,2016).

➢ Global food security means delivering

sufficient food to the entire world
Population. It is, therefore, a priority of all countries, whether
developed or less developed.

➢ The security of food also means the sustainability of

society such as population growth, climate change, water
scarcity, and agriculture. Breene (2016) cited the case of India to
show how complex the issue of food security is in relation to other
factors:

➢ Agriculture accounts for 18% of the economy's output and 47%

of its workforce. India is the second biggest producer of
fruits and vegetables in the world.
 ➢ Yet according to the Food and Agriculture Organization (FAO) of
the United Nations, some 194 million Indians are
undernourished, the largest number of hungry people in
any single country. An estimated 15.2% of the population of
India are too malnourished to lead a normal life. A third of
the world's malnourished children live in India

➢ But perhaps the closest aspect of human life associated with food
security is the environment. The challenges to food security can
be traced to the protection of the environment.

➢ A major environmental problem is the destruction of natural

habitats, particularly through deforestation (Diamond, 2006).
Industrial fishing has contributed to a significant destruction of
marine life and ecosystems (Goldburg, 2008). Biodiversity and usable
farmland have also declined at a rapid pace.

➢ The destruction of the water ecosystem may lead to the

creation of "climate refugees, people who are forced to migrate due
to lack of access to water or due to flooding" (Ritzer, 2015).

➢ Pollution through toxic chemicals has had a long-term

impact on the environment. The use of persistent organic
pollutants (POPs) has led

➢ Population growth and its attendant increase in

consumption intensify ecological problems.

➢ The global flow of dangerous debris is another major

concern, with electronic waste often dumped in developing
countries.
Economic Globalization, Poverty, and Inequality

The Swedish statistician Hans Rosling once said,

"The 1 to 2 billion poorest in the world who don't
have food for the day suffer from the worst
disease, globalization deficiency. The way
globalization is occurring could be much better,
but the worst thing is not being part of it."

➢ Economic and trade globalization is the result of companies

trying to outmaneuver their competitors. While you search for
the cheapest place to buy shoes, companies search for the cheapest
place to make those shoes. They find the cheapest sources of
leather, dye, rubber, and of course, labor.

➢ The result is that labor-intensive products like shoes are

often produced in countries with the lowest wages and the
weakest regulations. This process creates winners and losers.
The winners include corporations and their stockholders who earn
more profit. They also include consumers who get products at a
cheaper price. The losers are high wage workers who used to make
those shoes. Their jobs moved overseas. But what about the low
wage foreign workers? Are they winning or losing?

➢ A lot of workers are thrown into hazardous working

conditions but it is also true that many workers in
developing countries are at least making more money.
These jobs pay above average wages. People want these jobs and
although in developed countries, they are often the best alternative.

➢ The root of many arguments against economic globalization is that

companies do not have to follow the same rules they do in
developed countries. Some developing countries have no
minimum wage laws.

➢ They do not have regulations that provide safe working

conditions or protect the environment. Although nearly
 very country bans child labor, those laws are not always
enforced.

Global Income Inequality

Globalization and inequality are closely related. We can see how

different nations are divided between the North and the South, developed
and less developed, and the core and the periphery.

➢ These differences mainly reflect one key aspect of inequality in the

contemporary world—global economic inequality. There are two
main types of economic inequality: wealth inequality and
income inequality.

• Wealth refers to the net worth of a country. It

takes into account all the assets of a nation—may
they be natural, physical, and human—less the
liabilities.

➢ In other words, wealth is the abundance of resources in a specific

country. This means that wealth inequality speaks about distribution
of assets. However, there is no widely recognized, monetary
measure that sums up these assets (Economist, 2012).

➢ In order to measure global economic inequality, economists usually

look at income using the Gross Domestic Product (GDP).

• Income is the new earnings that are constantly being

added to the pile of a country's wealth. When we talk
about income inequality, we mean that new earnings are
being distributed; it values the flow of goods and services, not
a stock of assets (Economist, 2012).

➢ According to the Global Wealth Report 2016 by the Credit Suisse

Research Institute, global wealth today is estimated to be
about 3.5 trillion dollars and it is not distributed equally.
Countries like the United States and Japan were able to increase
their wealth.
 ➢ Branko Milanovic (2011), an economist who specializes in global
inequality, explained all this by describing an "economic big
bang" wherein the Industrial Revolution caused the
differences among countries.

➢ Through this "explosion" of industry and modern

technology, some nations became economically developed
while others were developing. Ultimately, the result is the
economic gap among countries.

➢ The gap between the richest and the poorest nations are
greater today than in the past.

➢ Access to technology also contributed to worldwide income

inequality. It complemented skilled workers but replaced many
unskilled workers.

➢ In modernized economies, jobs are more technology-

based, generally requiring new skills. This is what economists
referred to as skill-based technological change. As a result, workers
who are more educated and more skilled would thrive in those jobs
by receiving higher wages. On the other hand, the unskilled
workers will fall behind. They will be left or overtaken by machines
or more skilled workers.

➢ In addition, manufacturing jobs that require low skills are

moved overseas. The result is a widening gap between the
rich and the poor as well as between high-skilled and low-
skilled workers.

The Third World and the Global South

You probably heard of "First World Problems." When someone

cracks the on to their social media accounts, you might see their complaints
flee shop, and then goes screen on their phone or gets the wrong order at
the "First World Problems." What are the implications of talking about
countries as First or Third? Where did these terms come from?
These terms are outdated and inaccurate ways of talking about global
stratification. How then are we going to talk about global stratification?

➢ The terms date back to the Cold War, when Western

policymakers began talking about the world as three distinct
political and economic blocs (Tomlinson, 2003).

➢ Western capitalist countries were labeled as the "First

World." The Soviet Union and its allies were termed the
"Second World." Everyone else was grouped into "Third
World."

➢ After the Cold War ended, the category of Second World

countries became null and void, but somehow the terms "First
World" and "Third World" stuck around in the public consciousness.

➢ Third World countries, which started as just a vague catch-

all term for non-alliance countries, came to be associated
with impoverished states, while the First World was
associated with rich, industrialized countries.

➢ In addition to being outdated, these terms are also

inaccurate. There are more than -too countries that fit the label of
"Third World," but they have vastly different levels of economic
stability.

➢ Some are relatively poor, but many are not. For example,
lumping Botswana and Rwanda into the same category does not
make much sense because the average income per capita of
Botswana is nine times larger than in Rwanda.

➢ Nowadays, social scientists sort countries into groups based

on their specific levels of economic productivity. To do this,
they use the Gross Domestic Product (GDP), which measures the
total output of a country, and the Gross National Income (GNI),
which measures GDP per capita (World Bank, n.d.).
➢ A new and simpler classification, North-South, was created
as Second World countries joined either the First World or
the Third World.

➢ First World countries, such as the United States, Canada,

Western Europe, and developed parts of Asia are regarded as the
"Global North".

➢ Global South includes the Caribbean, Latin America, South

America, Africa, and parts of Asia. These countries were used to
be called the Third World during the Cold War (Reuveny &
Thompson, 2007).

➢ By noting that countries are south of 30 degrees north latitude, they

are able to say that these areas share common problems and
issues having to do with economy and politics.

➢ The terms "Global North" and "Global South" are a way for
countries in the South to make a stand about the common issues,
problems, and even causes in order to have equality all
throughout the world.

➢ These distinctions point largely to racial inequality,

specifically between the Black and the White.

➢ According to Ritzer (2015), "At the global level, whites are

disproportionately in the dominant North, while blacks are
primarily in the south; although this is changing with South-
to-North migration" (p. 266).

➢ In other words, the differences between the Global North and

the Global South are shaped by migration and globalization.
Nevertheless, the economic differences between the wealthy Global
North and poor Global South "have always possessed a racial
character" (Winant, 2001).
The Global City

The rural-urban differentiation has a

significant relationship to globalization.
Globalization has deeply altered North-South relations
in agriculture. For instance, the relations of
agricultural production have been altered due to the
rise of global agribusiness and factory farms
(McMichael, 2007).

➢ In this scenario, the South produces non-traditional products

for export and become increasingly dependent on
industrialized food exports from the North

➢ Consequently, this leads to a replacement of the staple diet

as well as the displacement of local farmers. Schlosser (2005)
pointed out that as commercial agriculture replaces local
provisioning, the relations of social production are also altered. Rural
economies are exposed to low prices and mass migration.

➢ Sassen (1991) used the concept of global cities to describe

the three urban centers of New York, London, and Tokyo as
economic centers that exert control over the world's political
economy.

➢ World cities are categorized as such based on the global

reach of organizations found in them. Not only are there
inequalities between these cities, there also exists inequalities within
each city (Beaverstock, et. al., 2002). Alternatively, following Castells
(2000), these cities can be seen as important nodes in a
variety of global networks.

➢ Although cities are major beneficiaries of globalization,

Bauman (2003) claimed that they are also the most severely
affected by global problems. Therefore, the city faces peculiar
political problems, wherein it is often fruitlessly seeking to deal locally
with global problems and "local politics has become hopelessly
overloaded".
➢