Chapter 2 : GLOBAL ECONOMY

Introduction
The United Nations (UN) tried to address the different problems in the world.
Their efforts were guided by the eight Millennium Development Goals, which they
created in the 1990s. Among these eight goals, the eradication of extreme poverty
and hunger ranked as the first. The other seven goals include: achieving universal
primary education, promoting gender equality and women empowerment, reducing
child mortality, improving maternal health, combating diseases like HIV/AIDS and
malaria, ensuring environmental sustainability, and having a global partnership for
development (United Nations, 2015), 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 by 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 is a threat to these improvements in global
poverty.
Most people who have been lifted out of 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.
Economic Globalization and Global Trade
According to the United Nations (as cited in Shangquan, 2000), "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. It reflects the
continuing expansion and mutual integration of market frontiers, and is an
irreversible trend for the economic development in the whole world at the turn of the
millennium." (p. 1)
There are two different types of economies associated with economic
globalization-protectionism and trade liberalization. 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 for
everything including reducing poverty. According to economist Jeffrey Sachs, mobile
phones are the "single most transformative technology" when it comes 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, pp. C1-C5). 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, and promotion of safe working environment.
Products like coffee, bananas, cotton, 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).
Process Questions
1. Do you think that the Philippines is harmed as other countries transfer their
activities to us through outsourcing?
2. In what ways do international organizations help our country’s economy?
Economic Globalization and Sustainable Development
There are some significant downsides to the globalize trade and perhaps the
strongest argument against economic globalization is it’s 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 resources and
the preservation of such sources for the future is called sustainable development.
sustainability or
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 environment (Borghesi and Vercelli, 2008). 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 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
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 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.

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 counters 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 circles in dealing with
environmental problems.

There are significant challenges involved in implementing various measures

such as "carbon tax" and "carbon neutrality" to deal with environmental problems
(Ritzer, 2015). It is also difficult to find alternatives to fossil fuels. For instance,
Barrionuevo (2007) stated that the use of ethanol as an alternative to gasoline has
an attendant set of problems-it is less efficient and it has led to an escalation in the
price of corn, which currently serves as a major source of ethanol. Although biofuels
themselves produce lower emissions, their extraction and transport contribute
significantly to total emissions.

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 (n.p.).

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.

Another significant environmental challenge is that of the decline in the

availability of fresh water (Conca, 2006). The decline in the water supply because of
degradation of soil or desertification (Glantz, 1977), 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 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, p. 211).

Pollution through toxic chemicals has had a long-term impact on the

environment. 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 (Revkin, 2008), the possibility of substantial flooding, a reduction in the
alkalinity of the oceans, and destruction of existing ecosystems. 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 dumped in developing countries.
 There are different models and agenda pushed by different organizations to
address the issue of global food security. One of this 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, and the private sector in both regiorial and national levels
(Breene, 2016).

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
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 in 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 really needs its 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 Bangladeshi 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 loan 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 it 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 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).

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 about 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 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 Sulta Research Institute, 2016).
significan

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. 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 heard 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 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?

Let us begin by deconstructing the idea of the First, Second, and Third World
hierarchy by looking at their origins and their implications. 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 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 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," while the "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, p. 131).

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"
(p. 102).

Process Questions

1. What is the impact of global flows on the global South?

2. Examine the gap between rural and urban areas across the globe. How is that gap
affected by globalization?

3. What do you think is the impact of urbanization and the rise of global city on the
agricultural sector?

Activity: The Global Free Trade on Trial

This is a debate activity which intends to show the stance of the students
regarding economic globalization. Argue based on this statement: "Global free trade
has done more harm than good."

Theories of Global Stratification

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 first event is known as the Columbian Exchange. This refers to the
spread of goods, technology, education, and diseases between the Americas and
Europe after Christopher Columbus's 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’s first trip, over 80%
of the Native American population died due to diseases such as smallpox and
measles.

The second 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. Industrial 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. First is the 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 laboring to produce
food, which creates a strict social hierarchy. Examples of these are feudal Europe or
early Chinese dynasties. Tradition rules how a society functions: what your parents
do is what their parents did, and what you will do when you grow up, too. But as
people begin to move beyond doing what has always been done, society moves to
Rostow’s second stage the take-off stage. 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.

Next, nations begin what Rostow called the drive to technological maturity, in
which technological growth of the earller periods begins to bear frult 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. The last stage is known as 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 agriculture machinery, information technology, as well as providing
foreign aid.

Critics of modernization theory argue that, in many ways, it is just a new name
for the idea that capitalism is the only way for a country to develop. These critics
point out that even as technology has improved throughout the world, a lot of
countries have been left behind. They also argue that modernization theory sweeps
a lot of historical factors under the rug when it explains European and North
American progress. Countries like the United States and the United Kingdom
industrialized from a position of global strength during a period when there were no
laws against slavery or concerns about natural resource depletion. Some critics also
point out that Rostow's markers are inherently Eurocentric, putting an emphasis on
economic progress, even though that is not necessarily the only standard to aspire
by every nation. After all, economic progress often includes downsides, like the
environmental damage done by industrialization and the exploitation of cheap or free
labor. Finally, critics of modernization theory also see it as blaming the victim. In this
view, the theory essentially blames poor countries for not being willing to accept
change, putting the fault on their cultural values and traditions rather than
acknowledging that outside forces might be holding back those countries. This is
where the second theory of global stratification comes in.

Dependency Theory and the Latin American Experience

 Starting in the 1500s, European explorers spread throughout the Americas,
Africa, and Asia, claiming lands for Europe. At one point, the British Empire covered
about one-fourth of the world. The United States, which began as colonies, 500m
sprawled out through the North America and took control of Haiti, Puerto Rico Guam,
the Philippines, the Hawaiian Islands, and parts of Panama and Cuba. With
colonialism came the exploitation of both natural and human resources. The
transatlantic slave trade followed a triangular route between Africa, the American
and Caribbean colonies, and Europe. Guns and factory-made goods were sent to
Africa in exchange for slaves, who were sent to the colonies to produce goods like
cotton and tobacco, which were then sent back to Europe. As the slave trade died
down in the mid-nineteenth century, the point of colonialism came to be less about
human resources and more abqut 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 the 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 impoverishment, 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 wrong, dependency theory focuses
on how poor countries have been wronged 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 1950s and has been improved since then. The two main sub-theories are the
North American Neo-Marxist approach and the Latin American 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. Core countries, on the other
hand, are more industrialized nations who receive the majority of the world's wealth.
Although generally divided into core or peripheral, dependency theorists recognize
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 theorists saw that the 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 interests of the
wealthier countries and end up having little to no resources to put toward their own
development. The theory points out that the economies of periphery countries rely on
manual labor and to the export of raw materials to core nations. The core countries
then process these raw materials and sell them at a 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 spending more money on the
processed goods. Their small economies may also rely on core nations for medical
and nutritional aid. The dependency theory describes a vicious cycle that enforces a
hierarchy of nations across the globe. Some countries were not developing around
the world because the international system was actually preventing them from doing
so.

Andre Gunder Frank (1969) espoused the North American Neo-Marxist

approach. He contended the idea that less developed countries would develop 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 underdevelopment; rather, it is their dependency to capitalist system that
causes lack of development.

A less radical theory, the structuralist approach, was developed mainly by

Latin American scientists. Palma (1978) noted that chief among the accounting for
Latin American underdevelopment was the "excessive" reliance on exports of
primary commodities, which were the object of fluctuating prices in the short term
and a 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 credited for explaining the factors underlying this
downward trend (Sanchez, 2014). In his status as head of the UN's Economic
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 thought, most Latin American countries adopted strategies nominally
conducive to autonomous, self-sustaining development (Seers, 1981). In essence,
they sought to diversify exports and accelerate industrialization through import
substitution. High tariff walls were to be erected that would reduce the region's
dependence on foreign manufactures, and thus on the developed North.

While Raul Prebisch focuses more on the technical details of development

economics, 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 of underdevelopment, but rather a "methodology
for the analysis of concrete situations of dependency" (Cardoso & Faletto, 1979, p.
16). They also take into account political and sociological issues (Anton, 2006).
Cardoso and Faletto (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 the term "dependency" was used 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
developed nations. This variant of the dependency 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 coincidences of interests between local
dominant classes and international ones... (Cardoso and Faletto, 1979, p. 16).

In fact, this is one of the concepts 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
relations 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 described 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 expensive manufactured
goods from richer nations. All of these unequal trade 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 a 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, improving all nations' well-
being 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 suggests that, nowadays, foreign investment by riches 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 of dependency
theory-most dependency theorists 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
coincided 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 a country's borders.

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 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.