THE GLOBAL ECONOMY

Group 2

The Contemporary World Rosario Aquino

SLU Beverly Sa-ao
January 5, 2018 Joy Sib-aten
JM Villanueva
Learning goals
Economic globalization
Actors that facilitate economic globalization
The role of international financial institutions in
the creation of a global economy
The modern world system
Attributes of global corporations
Stance on global economic integration
 N L K E

r w i π

Consumer expenditure

goods services

Subsidies Taxes

Investments Savings

Imports Exports
Major goals of Macroeconomics
 14.00

12.00

Unemployment rate (%)

10.00

8.00

6.00

4.00

2.00

0.00
1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

Source: International Monetary Fund - 2011 World Economic

International trade
International Trade

 International Trade is the process

by which nations export and
import goods, services and
financial capital

 International trade is vital to

economic growth because it
expands a nation’s consumption
possibilities.
 Economic Basis of Trade

1. Different nations are endowed with various

kinds and amount of natural resources
2. The production of varied goods and services
require different combinations of economic
resources and also particular technology.
3. Various nations have different specializations
that make their products highly differentiated.
[e]conomic globalization is a historical process,
the result of human innovation and
technological progress. It refers to the increasing
integration of economies around the world,
particularly through the movement of goods,
services, and capital across borders. The term
sometimes also refers to the movement of
people (labor) and knowledge (technology)
across international borders. (IMF, 2008]

István Benczes. 2014. The Globalization of Economic Relations.

https://www.researchgate.net/publication/293358032
‘In economic terms globalisation is nothing but a
process making the world economy an “organic
system” by extending transnational economic
processes and economic relations to more and
more countries and by deepening the
economic interdependencies among them.’
(Szentes. 2003: 69)

István Benczes. 2014. The Globalization of Economic Relations.

https://www.researchgate.net/publication/293358032
When did globalization start?
Gills and Thompson (2006)
Frank and Gills (1993)
Fernand Braudel (1973)
The real break-through came only in the nineteenth century.
(Held et al., 1999)
GOLDEN AGE OF GLOBALIZATION
Going beyond simple economics….

Economic systems must be analyzed

within the context of the overall social
system of a country and, indeed, within
an international, global context as well.
“Social system” - the interdependent
relationships between economic and
noneconomic factors.
 Development

Amartya Sen (1998 Nobel laureate in economics)

argues that the “capability function” is what really
matters for status as a poor/non-poor person.
“Economic growth cannot be sensibly treated as an
end in itself. Development has to be more
concerned with enhancing the lives we lead and the
freedoms we enjoy.”
Contemporary globalization is, however,
considered to be a myth (Bairoch, 1993)
not just because it is not without
precedents. More concerns have been
raised with regard to its impact on the
worldwide distribution of income.
 According to Wallerstein, capitalism, ‘a historical social
system’ (1983: 13), created the dramatically diverging
historical level of wages in the economic arena of the
world system. Thus, growing inequality, along with
economic and political dependence, are not
independent at all from economic globalization.
 World Economy: Defined
Large geographic zone within which there is
a division of labor and hence significant
internal exchange of basic or essential goods
as well as flows of capital and labor. A
defining feature of a world-economy is that it
is not bounded by a unitary political
structure. Rather, there are many political
units inside the world-economy, loosely tied
together in our modern world system in an
interstate system
Examples:

EU as a trading block

North Korea is supposed to be isolated but it

has continued to be a player in the global
economy trading with China, India, France
and the Philippines
What unifies the global economic system
most is the division of labor.
Although the economic global system has
some common cultural patterns, called
geoculture. (eg.US-Central America;
Australia-Pacific Islands) It does mean that
neither political nor cultural homogeneity is to
be expected or found in a world-economy
Relationship between US and Central
America
 Europe and India/Pakistan/Indonesia
Neo-colonies
 Capitalism fuels World Economy

Old concept: Capitalism is the existence of

persons or firms producing for sale on the
market with the intention of obtaining a profit.
Capitalism today: a system gives priority to the
endless accumulation of capital: it means that
people and firms are accumulating capital in
order to accumulate still more capital, a
process that is continual and endless.
Ex. Henry Sy and SM Holdings
(Malls, Banking, education,
real estate, etc)
G8 controls 50% of world
economy (CA, FR, DE, IT, JP,
RU*, UK, US, EU)
The capitalist system therefore ensures that
the economic status quo is maintained
Capitalist system requires a very special
relationship between economic producers
and the holders of political power.
Capitalists need a large market and need a
multiplicity of states, so that they can gain
the advantages of working with states but
also can circumvent states hostile to their
interests in favor of states friendly to their
interests. Only the existence of a multiplicity
of states within the overall division of labor
assures this possibility.
contemporary globalization is equated primarily
with TNCs
Ex: MNCs/TNCs based in countries that
are bastions of democracy like US and
Western European states continue to
work with China and other states even
with a poor human rights record to
maintain the capitalist system – it
ensures that the division of labor is
undisturbed
THE WORLD MARKET IN A CAPITALIST
GLOBAL ECONOMIC SYSTEM
 A market is both a concrete local structure in which
individuals or firms sell and buy goods, and a virtual
institution across space where the same kind of exchange
occurs
 In principle, in a capitalist world-economy the virtual
market exists in the world-economy as a whole
Myth: there are often interferences with these
boundaries, creating narrower and more "protected"
markets.( ex ASEAN overlapping trade agreements)
Quest for Free Market
Myth: One of the reasons it is not a day-to-
day reality is that a totally free market, were
it ever to exist, would make impossible the
endless accumulation of capital.
A free market would bring down profit levels
(Ex: It takes only USD28 to make a pair of
Nike shoes which sells for USD100)
Capitalist bat for a free market when they
have the upperhand
What sellers always prefer is a monopoly which
are extremely difficult to create, and rare, but
quasi-monopolies are not.
Quasi-monopolies are supported by patent
laws. (The patent laws gives the companies
time to establish themselves in the world market
– it protects the capitalist for a time)
Example: Pharmaceuticals
These are called OLIGOPIES instead of
monopolies
Unequal exchange is not the only way of
moving accumulated capital from
politically weak regions to politically strong
regions. There is also plunder
The conquistadores and gold in the
Americas
Diamonds and oil in Africa
TODAY: Money laundering , Enron Case
 Core-Peripheral State Relations
 Remember: Division of Labor between industrialized North
America and Central America
 Since quasi-monopolies depend on the patronage of strong
states, they are largely located-juridically, physically, and in
terms of ownership within such states. There is therefore a
geographical consequence of the core-peripheral
relationship. Core-like processes tend to group themselves
in a few states and to constitute the bulk of the production
activity in such states. Peripheral processes tend to be
scattered among a large number of states and to
constitute the bulk of the production activity in these states.
 The modern capitalist system is unique in the sense that it created
political structures that guaranteed an endless appropriation and
accumulation of surpluses from the poor (or the periphery) to the
emerging (or the semi- periphery) and – in particular – the
advanced industrialized (or the core) countries. It is, however, not
just that the periphery is dependent on the core: the latter’s
development is also conditioned on the former. The link between
these groups is provided via trade and financial transactions, and
is organized by a dense web of businessmen, merchants, financial
entrepreneurs and state bureaucrats. Globalization, the product
of the long process of capitalist development, is, therefore,
nothing new for world-system analysts; it is simply the relabelling
of old ideas and concepts (Arrighi, 2005).
Reflecting upon the division of labour between
developed and developing countries in the
nineteenth century, Bairoch claimed that ‘the
industrialisation of the former led to the de-
industrialisation of the latter’ (1998: 11).
The International-Dependence Model

Neocolonial dependence model

False-paradigm model
The Dualistic-Development Thesis
WORLD ECONOMY PATTERN
As more and more firms enter the market of the
erstwhile quasimonopoly, there will be
"overproduction“ and consequently increased price
Competition thus lowering the rates of profit,.
There will be stagnation or recession in the world-
economy.
This shift puts pressure on the wage levels in the
processes still remaining in core zones, and wages
threatened to become lower as well. (Ex. Collapse
of textile industry in the PH because of their
relocation to Indo-China or Bangladesh)
Economic recession - A downturn in
real GNP for two or more successive
quarters
 Economic Depression

A prolonged period
characterized by high
unemployment, low
output and investment,
depressed business
confidence, falling prices,
and widespread business
failure.
The process of the expansion of the
world-economy when there are quasi-
monopolistic leading industries and
contraction in the world-economy when
there is a lowering of the intensity of
quasimonopoly- can be drawn as an up-
and-down curve of so-called A-
(expansion) and B- (stagnation) phases.
 Kondratieff Cycle,
A cycle consisting of an A-phase followed by a B-
phase is sometimes referred to as a Kondratieff
cycle,
Kondratieff cycles have up to now been more or
less fifty to sixty years in length. Their exact length
depends on the political measures taken by the
states to avert a B-phase, and especially the
measures to achieve recuperation from a B-
phase on the basis of new leading industries that
can stimulate a new A-phase.
 Foreign Exchange

Foreign Exchange
Rate denotes the
price of a foreign
country’s currency
in terms of our own
• Group Activity

Simulation…..
Learning goals…

How countries take a stand on particular

issues based on their individual interests?
Find out whether globalization is driven by
integration or furthering of self interest….
 Rubrics…

Rationalization of answers  40%

Integration of concepts  40%
Clarity of presentation  20%
Audience impact
Vital Statistcs
Confidently beautiful with a heart