Chapter 2: THE GLOBAL ECONOMY

➢ Introduction
➢ Economic Globalization and Global Trade
➢ Economic Globalization and Sustainable Development
- Environmental Degradation
- Food Security
➢ Economic Globalization, Poverty, and Inequality
- Global Income Inequality
- The Third World and Global South
- The Global City
➢ Theories of Global Stratification
- Modernization Theory
- Walt Rostow's Four Stages of Modernization
- Dependency Theory and the Latin American Experience
- The Modern World-System
Introduction
The United Nations (UN) tried to address the different problems in the world. Their efforts
were guided by eight Millennium Development Goals (MGD) which they created in 1900s.

8 Millennium Development Goals

1. Extreme Poverty and Hunger
2. Achieving Universal Primary Education
3. Promoting Gender Equality & Women Empowerment
4. Reducing Child Mortality
5. Improving Maternal Health
6. Combating diseases like HIV/AIDS and Malaria
7. Ensuring Environmental Sustainability
8. Having a Global Partnership for the development
The UN tried to achieve them by the year 2015.

Since there are different standards of living around the world, we can expect different
meanings attached to it. In the Philippines, a person is officially living in poverty if he makes
less than 100,534 pesos a year, around 275 pesos a day. This is called the poverty line or
poverty threshold. But we are going to focus on extreme poverty which, according to the UN
(2015), is a condition characterized by severe deprivation of basic human needs including
food, safe drinking water, sanitation facilities, health, shelter, education, and information. The
UN defines extreme or absolute poverty as living on less than $1.25 a day. The organization
aims to eliminate extreme poverty for all people in 2030.

It was three years ago and the results were in. The UN (2015) reported that 836 million people
still live in extreme poverty but that is down from 1.9 billion, so there is success or at least a lot
of progress. The World Bank predicted that by 2030 the number of people living in extreme
poverty could drop to less than 400 million. Of course that assumes everything will keep
improving as it has been. However, climate change has to be considered since it as a threat
to these improvements in global poverty. Most people who have lifted out to extreme poverty
are still poor and being poor comes with serious problems, from disease to lack of water.
Income inequality is rampant and one in seven people still live without electricity.

So why is extreme poverty falling? The answer to this is really complicated. A set of factors like
better access to education, humanitarian aid, and the policies of international organizations
like the UN have made a difference. However, the greatest contributor is economic
globalization. The world’s economies have become more interconnected and free trade has
driven the growth of many developing economies.

Global Economy
➢ Is the world economy, it is all the economies of the world – the economy of
every country – which is together as one giant economic system.
➢ It includes everything we buy, sell, make, exports, imports, all the goods and
services and everything we own.
 ➢

ECONOMIC GLOBALIZATION AND GLOBAL TRADE

Economic Globalization
➢ It is the spread of trade, transportation, communication system in a global
scale in the interest of promoting international commerce.
➢ According to the United Nations, “Economic globalization refers to the
increasing interdependence of world economies as a result of the growing
scale of cross-border trade of commodities and services, flow of international
capital, and wide and rapid spread of technologies.”

Two Types of Economies Associated with Economic Globalization:

1. PROTECTIONISM
“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)

➢ Protecting one’s economy from foreign competition by creating trade

barriers.
• Quotas, Tariffs (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.

2. TRADE LIBERALIZATION/FREE TRADE

➢ Reducing barriers to make international trade easier between countries.
➢ 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.
Ex. Mobile phones
– seem to have good consequence for everything including
reducing poverty.
- “the single transformative technology” when it comes to the
developing world. (Jeffrey Sachs)
- 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 kilometres of telephone lines.

Leapfrogging – what the economists refer to 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
inequalities 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, pp.c1-c5)
➢ It aims for 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, and promotion in safe working environment.

Ex. Products like coffee, bananas, wine, tea, and chocolate have been
exchanged in light of fair trade.

A concrete example of the growth of fair trade is the case of American coffee
chains such as Starbucks and Dunkin’ Donuts. In 2006, there are $2.2 billion dollars
spent on certified products, which is 42% greater than the preceding year (Ritzer,
2015). In turn, coffee growers such as those in Brazil “get at least $1.29 per pound of
coffee beans compared to the current market price of $1.25” (p.296)
 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 resources for the future is called sustainable development.

In other words, development has to be ensured in and for the future generations. One
significant global response or approach to economic globalization is that of
sustainable development, which seeks to chart a middle path between economic
growth and a sustainable development (Borghesi and Vercelli, 2008). The relationship
between globalization and sustainability is multidimensional – it involves economic,
political, and technological aspects.

The continuous production of the world’s natural resources, such as water and fossil
fuel allows 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

Efficiency – finding the quickest possible way of producing large amounts of a

particular product.

This process made buying of goods easier for the people. Then, there is an
increased demand. Ultimately, there is was an increased efficiency. This
cycle harms the planet in a number of ways.

• The earth’s atmosphere is damaged by more carbon emission from

factories around the world.
• The destruction of coral reefs and marine biodiversity as more and
more wastes are thrown into the ocean.
• 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.
 Harvey (2005) noted that neoliberals and environmentalists debate the impact of free
trade on the environment.

Environmentalists argue that environmental issues should be given priority over economic
issues (Antonio, 2007)

Free trade, through its emphasis on the expansion of manufacturing, is associated with
environmental damage. For their part, neoliberals see the efforts of the environmentalists
as serious impediments to trade. Some seek to integrate these approaches. For instance,
ecological modernization theory sees globalization as a process that can both protect
and enhance the environment (Yearley, 2007)

Various efforts are underway to deal with climate change. However, strong
resistance on the part of governments and corporations counter these. For instance,
the Kyoto Protocol aimed at a reduction of global carbon emissions, but failed to
take off largely because it was not ratified by the United States (Armitage, 2005).
However, momentum is being built up in corporate circled in dealing with
environmental problems.
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

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

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 decline in the availability of fresh water (Conca, 2006).

The decline in the water supply because of degradation of soil or desertification

(Glantz, 1997), has transformed what was once considered a public good into a
privatized commodity.

The poorest areas of the globe experience a disproportionate share of water-related

problems. The problem is further intensified by the consumption of “virtual water”,
wherein people inadvertently use up water from elsewhere in the world through the
consumption of water-intensive products (Ritzer, 2015).

The destruction of water ecosystem may lead to the creation of “climate refugee,
people who are forced to migrate due to lack of access to water or due to
flooding” (Ritzer, 2015, p.211).

Pollution through toxic chemicals. The use of persistent organic pollutants (POPs) has
led to significant industrial pollution (Dinham, 2007).

Greenhouse gases, gases that trap sunlight and heat in the earth’s atmosphere,
contribute greatly to global warming. In turn, this process causes the melting of land-
based and glacial ice with potentially catastrophic effects, the possibility of substantial
flooding, a reduction in the alkalinity of the oceans, and destruction of existing
ecosystems (Rekvin, 2008.

Ultimately, global warming poses a threat to the global supply of food as well as to
human health (Brown, 2007).

Furthermore, 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 umped in developing countries.

There are different models and agenda pushed by different organizations to

address the issue of global food security.
 One is through sustainability.
The United Nations has set ending hunger, achieving food security and improved nutrition, and
promoting sustainable agriculture as the second of its 17 Sustainable Development Goals (SDGs)
for the year 2030.
The World Economic Forum (2010) also addressed this issue through the New Vision for
Agriculture (NVA) in 2009 wherein public-private partnerships were established. It has mobilized
over $10 billion that reached smallholder farmers. The Forum’s initiatives were launched to
establish cooperation and encourage exchange of knowledge among farmers, government,
civil society, & the private sector in both regional and national levels (Breene, 2016).
 Economic Globalization, Poverty, and Inequality

This 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 outmanouver

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 the 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 stakeholders who earn more profit.
• They also include consumers who get their products at a cheaper price.
The losers are:
• High wageworkers 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
the pay would be unacceptable in developed countries, they are often the
best alternative.

The multiplier effect means an increase in one economic activity can lead to an
increase on other economic activities. For instance, investing in local businesses will
lead to more jobs and more income.
According to the economist Paul Krugman (as cited in The New York Times, July 8, 2013),

“The Bangladeshi apparel industry is going to consist of what we would consider

sweatshops or it won’t exist at all. And Bangladesh, in particular, really needs it
apparel industry. It’s pretty much the only thing keeping its economy afloat.”

Not everyone agrees to this. Opponents of economic globalization called the

outsourcing of jobs as exploitation and oppression, a form of economic colonialism
that puts profits before people. A few call for protectionist policies like higher tariffs
and limitations on outsourcing. Others focus on the foreign workers themselves by
demanding they receive higher wages and more protection. 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 every country bans child
labor, those laws are not always enforced.

In the absence of regulation, it is still possible that workers would not be horribly
mistreated.
First, public awareness is growing along with the pressure from the international
community to take steps to protect workers.
For example:
The United States produces an annual publication called the list of goods
produced by child labor or forced labor. If a company is buying products from
that list, they are likely to be blasted by officials and the media. So, awareness is
the first step to improvement. The second step comes from those that support
globalization. The pro-globalization set argues that as developing economies
grow, there are more opportunities for workers, which leads to more competition
for labor and higher wages.

Economic globalization has helped millions of people get out of extreme poverty but
the challenge of the future is to lift up the poor while at the same time keep the planet
livable. One of the best ways to help those in extreme poverty is to enable them to
participate in the economy. This applies to developing countries in the global
marketplace and to individuals at the local level. A perfect example is microcredit.
In 2006, a Bangladesh professor named Muhammad Yunus won the Nobel Peace
Prize for implementing a simple idea. He gave small loans, on average around $100,
to low-income people in rural areas. The borrowers, who are mostly female, often
used the money to fund plans that could raise their income. For example, they started
small businesses. Microcredit was a success and has since spread to developing
countries throughout the world. Private lenders, governments, and non-profit
organizations have jumped on board to load billions of dollars to the world’s most
disadvantaged.

By itself, microcredit is not going to solve the problem of extreme poverty but it
supports the idea that enabling people to participate in the economy can make
their lives better.

Yunus (2012) explained, “In my experience, poor people are the world’s greatest
entrepreneurs. Every day they must innovate in order to survive. They remain poor
because they do not have the opportunities to turn their creativity into sustainable
income.”

Microcredit, when it works, allows people to improve their lives by participating in the
economy on their own terms. But we cannot forget that a lot of people who
participate in the global economy are not doing it on their own terms. Many of the
people who have emerged from extreme poverty in the last 25 years have jobs,
wages, and working conditions that would be unthinkable in the developed world.
Economists say that t is all right but it is progress that is very hard to achieve.
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
• Income Inequality

Wealth
• refers to the net worth of a county. 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.

In order to measure global economic inequality, economists usually look at

income using the Gross Domestic Product (GDP).

Income
• 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.

Let us look at both types of inequality in the global level. According to the Global
Wealth Report 2016 by the Credit Suisse Research Institute, global wealth today
is estimated to be 3.5 trillion dollars and it is not distributed equally. Countries like
the United States and Japan were able to increase their wealth. Due to currency
depreciation, however, the United Kingdom had a significant decline.
Furthermore, the report showed that income inequality continues to rise: “While
the bottom half collectively own less than 1 percent of total wealth, the
wealthiest top 10 percent own 89 percent of all global assets” (Credit Suisse
Research Institute, 2016).

Branko Milanovic (2011), an economist who specializes in global inequality, explained

all this by describing an “economic big bang” wherein the Industrial Revolution caused
by 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 riches and the poorest nations are greater today than in the past. For
instance, back in 1820, the Great Britain and The Netherlands were only three times
richer than India and China, but today the ratio is 100:1 (Milanovic, 2011)
 Although it is the Industrial Revolution that allowed a significant inequality in the
past, economic globalization and international trade are the forces responsible
in today’s global income inequality. Many economists believe that the world’s
poorest people gained something from globalization. The rich, on the other hand,
earned a lot more. Harvard economist Richard Freeman (2011) noted, “The
triumph of globalization and market capitalism has improved living standards for
billions while concentrating billions among the few” (as presented in OECD Policy
Forum, Paris, May 2). In other words, the poor are doing a little better and the rich
are becoming richer due to global capitalism.

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 hear of “First World Problems.” When someone cracks the screen
on their phone or gets the wrong order at the coffee shop, and then goes on to
their social media accounts, you might see their complaints with a hashtag “First
World Problems.” What are the implications of talking about countries as Fist 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?

Let us begin deconstructing the idea of the First, Second, and Third World
hierarchy by looking at their origins and their implications. The term 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.
• The Third World countries, which started as just a vague catchall 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 100 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 in 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 GDP per capita.

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 regarded as the “Global North,”
• While the “Global South” includes the:
- Caribbean, Latin America, South America, Africa, and parts of Asia.
These countries were sued to be called the Third World during the
Cold War.

By nothing 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 term “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”.

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)
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 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 exist inequalities
within each city (Beaverstock, et al., 2002)

Alternatively, following Castells (2002), 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” (p.102).
 THEORIES OF GLOBAL STRATIFICATION

Global stratification compares the wealth, economic stability, status, and power of
countries across the world. Global stratification highlights worldwide patterns of social
inequality.

For much of human history, all of the societies on earth were poor. Poverty was the
norm for everyone but obviously, that is not the case anymore. Just as you find
stratification among socioeconomic classes within a society like the Philippines, you
would also see across the world a pattern of global stratification with inequalities in
wealth and power between societies. So what made some parts of the world
develop faster, economically speaking, than others? We may draw answers by
looking at the different theories of global stratification.

Modernization Theory

One of the two main explanations for global stratification is the modernization theory.
This theory frames global stratification as a function of technological and cultural
differences between nations.

It specifically pinpoints two historical events that contributed to Western Europe

developing at a faster rate than much of the rest of the world.

The 1st event is known as the Columbian Exchange. This refers to the spread of goods,
technology, education, and diseases between Americas and Europe after
Christopher Columbus’ so-called “discovery of the Americas”. This exchange worked
out well for the European countries. They gained agricultural staples, like potatoes
and tomatoes, which contributed to population growth and provided new
opportunities for trade, while also strengthening the power of the merchant class. The
Columbian Exchange worked out much less well, however, for Native Americans
whose populations were ravaged by the diseases brought from Europe. It is estimated
that in the 150 years following Columbus’ first trip, over 80% of the Native American
population died due to diseases such as smallpox and measles.

The 2nd historical event is the Industrial Revolution in the eighteenth and nineteenth
centuries. This is when new technologies, like steam power and mechanization,
allowed countries to replace human labor with machines and increase productivity.
The Industrial Revolution, at first, only benefited the wealthy in Western countries.
Industry technology was very productive that it gradually began to improve
standards of living for everyone. Countries that industrialized in the eighteenth and
nineteenth centuries saw massive improvements in their standards of living and
countries that did not industrialize lag behind.
Modernization theory rests on the idea that affluence could be attained by anyone.
But why did the Industrial Revolution not take hold everywhere? Modernization theory
argues that the tension between tradition and technological change is the biggest
barrier to growth. A society that is more steeped in family systems and traditions may
be less willing to adopt new technologies and the new social systems that often
accompany them.

Why did Europe modernize? The answer goes back to sociologist Max Weber’s ideas
about the Protestant work ethic. The Protestant Reformation primed Europe to take
on a progress-oriented way of life in which financial success was a sign of personal
virtue. Individualism replaced communalism. This is the perfect breeding ground for
modernization.

Walt Rostow’s Four Stages of Modernization

According to American economist Walt Rostow, modernization in the West took

place, as it always tends to, in four stages.
1st – Traditional Stage
This refers to societies that are structured around small, local communities with
production typically being done in family settings. Because these societies have
limited resources and technology, most of their time is spent on labouring to
produce food, which creates a strict social hierarchy.

Examples of these are feudal Europe or early Chinese dynasties. Traditional rules
how a society functions: what your parents do is what their parents did, and
what you will do when you grow up, too.

2nd – Take-off Stage

It is when people begin to move beyond doing what has always been done.
People begin to use their individual talents to produce things beyond the
necessities. This innovation creates new markets for trade. In turn, greater
individualism takes hold and social status is more closely linked with material
wealth.

3rd – Drive to Technological Maturity

In which technological growth of the earlier periods begins to bear fruit in the
form of population growth, reductions in absolute poverty levels, and more
diverse job opportunities. Nations in this phase typically begin to push for social
change along with economic change, like implementing basic schooling for
everyone and developing more democratic political systems.

4th – High Mass Consumption

It is when your country is big enough that production becomes more about
wants than needs. Many of these countries put social support systems in place
to ensure that all of their citizens have access to basic necessities.
Modernization theory, in general, argues that if you invest capital in better
technologies, they will eventually raise production enough that there will be more
wealth to go around and overall well-being will go up. Furthermore, rich countries
can help other countries that are still growing by exporting their technologies and
things, like agricultural machinery, information technology, as well as providing
foreign aid.

Dependency Theory and the Latin American Experience

Starting in the 1500s, European explorers spread throughout the Americas, Africa, and
Asian, claiming lands for Europe. At one point, the British Empire covered about one-
fourth of the world. The United States, which began colonies, soon sprawled out
through the North America and took control of Haiti, Puerto Rico, Guam, the
Philippines, the Hawaiian Islands, as part of Panama and Cuba. With colonialism
came the exploitation of both natural and human resources. The transatlantic slave
trade follows a triangular route between Africa, the American Caribbean colonies
and Europe. Guns and factory-made goods were sent to Africa in exchange for
slaves, who were to the colonies to produce goods like cotton and tobacco, which
were sent back to Europe. As the slave trade died down in the mid-nineteen century,
the point of colonialism came to be less about human resources and more about
natural resources. However the colonial model kept going strong. In 1870, only 10%
of Africa was colonized. By 1940, only Ethiopia and Liberia were not colonized. Under
colonial regimes, European countries took control of land and raw materials to funnel
wealth back to the West. Most colonies lasted until the 1960s and last British colony,
Hong Kong, was finally granted independence in 1997.

After the Second World War, there were many questions about international relations.
One of those questions was “Why are many countries in the world not developing?”
The traditional answer to the question was because these countries are not pursuing
the right economic policies or their governments are authoritarian and corrupt. Latin
American scholars, however, are critical of that answer and are intrigued by their
region’s underdevelopment (Sanchez 2014). Dependency theory was a product of
this experience. Dependency is the condition in which the development of the
nation-states of the South contributed to a decline in their independence and to an
increase in economic development of the countries of the North (Cardoso and
Felato, 1979). In addition, it argues that liberal trade causes greater improvement,
not economic improvement, to less developed countries (Toye, 2003). Trade
protectionism through import substitution is the key to self-sustaining path to
development, not liberal trade or export. In other words, rather than focusing on what
poor countries are doing by richer nations. It further argues that the prospects of both
wealthy and poor countries are inextricably linked. In addition, it argues that in a
world of finite resources, we cannot understand why rich nations are rich without
realizing that those riches came at the expense of another country being poor. In this
view, global stratification starts with colonialism.

Dependency theory was initially developed by Hans Singer and Raul Prebisch in the
1950’s and has been improved since then. The two main sub-theories are the North
American Neo-Marxist approach and the Latin Amican structuralist approach
(Sanchez, 2014). The terms “core nations” and “peripheral nations” are at the heart
of dependency theory. Peripheral nations are countries that are less developed and
receive an unequal distribution of the world’s wealth. Care countries, on the other
hands, are more industrialized nations who receive the majority of the world’s wealth.
Although generally divided into core or peripheral, dependency theorist recognized
that there are a number of different kinds of states in the world (Grosfoguel, 2000).
Another common assumption of the theory is that “even after de-colonization, there
are still important ties between the developed and less developed countries, which
mainly consist in the exploitation of peripheral natural resources and workforce by
the center” (Anton, 2006, p.2).

Dependency theorist saw that development of peripheral nations is stagnant

because of the exploitative nature of the core nations (Ferraro, 2008). Less developed
periphery countries are said to primarily serve the interest of the wealthier countries
and end up having little to no resources to put towards their own development. The
theory points out that the economies of periphery countries rely on manual labor to
the export of raw materials and sell them at as much higher price. Some of these
manufactured goods go right back to the periphery countries from which the raw
materials came. Periphery nations end up spreading more money on the process
goods. Their small economies may also rely on core nations for medical and
nutritional aid. The dependency theory describes a vicious cycle that enforces
hierarchy of nations across the globe. Some countries where not developing around
the world because the international system was actually preventing them from doing
so.

Andre Gunder Frank (1969) espoused the North America Neo-Marxist approach. He
contented the idea that less developed countries would developed by following the
path taken by the developed countries. Developed countries were undeveloped in
the beginning but not underdeveloped. This means that the path taken by the
developed countries does not guarantee the same fate for the underdeveloped
countries. Frank also rejected the idea that internal sources cause a country’s
underdeveloped; rather, it is there dependency to capitalist system that causes lack
of development.
A less radical theory, the structuralist approach, was developed mainly by Latin
America scientist. Palma (1978) noted that chief among the arguments accounting
for Latin America underdevelopment was the “excessive” reliance on exports of
primary commodities, which were the object of fluctuating prices in the short term
and downward trend in relative value in the long haul. Studies by Hans Singer
documented a secular deterioration in the terms of trade of Latin American
countries, whereas Presbich can be created for explaining the factors underlying this
downward trend (Sanchez, 2014). In his status as head of the UN’s Economics
Commission for Latin America (ECLA). Prebisch’s ideas came to have far reaching
political influence and profound policy implications. As a result of the influence of
structuralist though, most Latin American countries adopted strategies nominally
conducted to autonomous, self-sustaining development (Seer, 1981). In essence,
they sought for diversity exports and accelerate industrialization though import
substitutions. High tariff walls were to be erected that would reduce the region’s
dependence on foreign manufacturers, and thus on the developed North.

While Raul Prebisch focuses more on the technical details of development

economies, other authors like Cardoso and Faletto set the foundations of the
historical structural variant of the dependency theory. For authors in this tradition,
dependency is not a general theory on underdevelopment, but rather a
“methodology for the analysis of concrete situations of dependency” (Cardoso and
Feletto, 1979, p.16). They also take into account political and sociological issues
(Anton, 2006). Cardoso and Feletto (1979) believed that Latin American economies
were the results of capitalist expansion in the United States and Europe. “The idea of
dependence refers to the conditions under which alone the economic and political
system can exist and function in its connections with the world productive structure”
(p.18). In other words, the very use of term “dependency” was use to underscore the
extent to which the economic and political development of poor countries was
conditioned by the global economy, whose center of gravity was located in the
development nations. This variant of the dependence school, however, did not just
focus on the asymmetrical relations between countries. It also held that dependency
was perpetuated by the ensemble of ties among groups and classes both between
and within nations (Sanchez, 2014). This is the concept of “linkage.” In Dependencia
y Desarrollo, the authors describe it thus:

We conceive the relationship between external and internal forces as forming

a complex whole whose structural links are not based on mere external forms
of exploitation and coercion, but are rooted in coincidence of interests
between local dominant classes and international ones… (Cardoso and
Feletto, 1979, p.16).

In fact, this is one of the concept that most distinguishes the historical structural
version of dependency from previous ones: “the identification of interest networks
business, technocrats, the military, the middle class that bind the dynamics of local
political and economic processes to material and political interests in the
industrialized world” (Sanchez, 2014, p.4). This version saw development as historically
open-ended and allowed for the possibility that the nature of dependent relation
could change over time.

The Modern World-System

This history of colonialism inspired American sociologist Immanuel Wallerstein model

of what he called the capitalist world economy, Wallerstein describe high income
nations as the “core” of the world economy. This core is the manufacturing base of
the planet where resources funnel in to become the technology and wealth enjoyed
by the Western world today. Low-income countries, meanwhile, are Wallerstein
called the “periphery,” whose natural resources and labor support the wealthier
countries, first as colonies and now by working for multinational corporations under
neocolonialism. Middle-income countries, such as India or Brazil, are considered the
semi-periphery due to their closer ties to the global economic core.

In Wallerstein’s model, the periphery remains economically dependent on the core

in a number of ways, which tend to reinforce each other. First, poor nations tend to
have few resources to export to rich countries. However, corporations can buy these
raw materials cheaply and then process and sell them in richer nations. As a result,
the profits tend to bypass the poor countries. Poor countries are also more likely to
lack industrial capacity, so they have to import patterns lead to poor nations owing
lots of money to richer nations and creating debt that makes it hard to invest in their
own development, in sum, under dependency theory, the problem is not that there
is lack of global wealth; it is that we do not distribute it well.

Just as modernization theory had its critics, so does dependency theory. Critics argue
that the world economy is not a zero sum game—one country getting richer does
not mean other countries are getting poorer innovation and technological growth
can spill over to other countries are getting richer does not mean other countries,
improving all nations wellbeing and not just the rich. Also, colonialism certainly left
scars, but it is not enough, on its own, to explain today’s economic disparities. Some
of the poorest countries in Africa, like Ethiopia, were never colonized and had very
little contact with richer nations. Likewise, some former colonies, like Singapore and
Sri Lanka, now have flourishing economies. In direct contrast to what dependency
theory predicts, most evidence suggest that, nowadays, foreign investment by richer
nations helps and do not hurt poorer countries. Dependency theory is also very
narrowly focused. It points the finger at the capitalist market system as the sole cause
of stratification, ignoring the role of things like how culture and political regimes play
in impoverishing countries. There is also no solution to global poverty that comes out
dependency theory—most dependency theorist just urge poor nations to cease all
contact with the rich nations or argue for a kind of global socialism. However, these
ideas do not acknowledge the reality of the modern world economy, which make
them not very useful for combating the real pressing problem of global poverty.
The growth of the world economy and expansion of world trade have coincide with
rising standards of living worldwide, with even the poorest nations almost tripling in
the last century. But with increased trade between countries, trade agreements such
as the North American Free Trade Agreement (NAFTA) have become a major point
of debate, pitting the benefits of free trade against the cost of jobs within country
boarders.

By learning about economic globalization, we are be able to know about the issues
and debates about it. We are also able to think critically about the solutions to the
various problems brought by globalization. Questions about how to deal with global
stratification are certainly far from settled, although there is some good news: it is
getting better. The share of people globally living on less than the $25 per day has
more than halved since 1981 going from 52% to 22% as of 2008.