CHAPTER II

The Structures of Globalization

Lesson 1: The Global Economy

a. Actors in Globalization
b. Modern World System
c. Global Economic Integration

Intended Learning Outcomes

By the end of this topic/chapter, you must be able to:
1. Define economic globalization
2. Identify the actors that facilitate economic globalization
3. Define the world system theory

Lesson 1: The Global Economy

Economy is the basic foundation which should be given primary importance

and it also influences the condition of the society as well as the politics. In which the
worldwide economic status of one country clearly shows that economic mobility is
consider as major factor in competing in the global arena. Where the rich become
more richer and the poor become poorer.

Economic relationship was established then where Philippines bartered goods with
China such as porcelains, silk, and other goods. The Galleon trade which was implemented
by the Spaniards in the Philippines. The silk road which was introduced by China as the
oldest international trade route where goods transported to the other side of the globe.

The fears of another

Depression after World War II led
to the Bretton Woods system in
1944. This was an attempt to
create institutional structures
which would foster international
economic cooperation and
encourage the free flow of capital
around the world. The US dollar
was adopted as the standard,
almost a “global currency, ” in
order to establish stable
international exchange rates.

The Bretton Woods system

led to the creation, either directly
or indirectly, of various global economic structures. While the International Trade
Organization (ITO) was unsuccessful because of a lack of US support, the General
Agreement on Trade and Tariffs (GATT) sought to facilitate the liberalization of trade
by the reduction of tariff barriers. GATT was eventually replaced by the World Trade
Organization (WTO), which added a concern for the reduction of non - tariff barriers.
This included the General Agreement on Trade in Services (GATS), protection of
intellectual property through TRIPS, and TRIMS measures that allow a nation- state to
control the distorting effects of foreign investment. The WTO is a forum for international
negotiations on trade, with member countries participating in successive “rounds ” of
discussions. Bretton Woods also led to the creation of the International Monetary Fund in
order to create a stable global monetary system.
According to Hamilton ,2008 . One of the dimensions of globalization is the
economic globalization it involves trading and investing between countries. Trade is
a driving force behind international relations and trade impacts nearly every aspect
of society.
This global economy has involved the global decentralization of production
simultaneous to the centralization of command and control of the global production
system within global cities. Here Sassen draws on the basic insight from the
sociology of organization that any increase in the complexity of social activity must
involve a concomitant increase in the mechanisms of coordination.(Robinson, 2008)
Global trade operates through various economic networks such as supply
chains, international production networks, global commodity chains and, most
importantly, global value chains. Global value chains follow the creation of value
through different stages, from the creation of a product, to its disposal after use.
Commodities are often the first link in this chain. The demand for commodities is sky
- rocketing, fueled primarily by enormous demand in the developed countries and increased
consumption in developing countries (especially China). Oil is a case in point. Not only are
prices escalating because of increased demand, but it is also becoming increasingly difficult
to procure oil. These problems will be exacerbated in the future by a decrease in the global
supply of oil, as well as by the fact that some of the current oil - exporting countries will
start to import (rather than to export) oil to meet their domestic needs. Some countries
stimulate trade and investment through low prices and low wages. This often leads to a “
race to the bottom ” among countries vying for increased investment and export business.
However, some theorize that after a point, there is a move toward industrial “ upgrading. ”
Countries that entered the world market at the bottom, such as China and
Mexico, move on to produce higher - value products at higher wages. However, as
some countries upgrade, others enter at the bottom, guaranteeing a supply of low -
priced, low - wage products to the North. GE 3: The Contemporary World 13
 Outsourcing is also an important global flow. Offshore outsourcing involves
contracting work to companies located in other countries. Apart from the economic
domain, this process is also prevalent in the health care and military domains. Not
only does the process operate at a macro - level, but increasingly, it can also be
observed at micro - and meso - levels.
Over the past few decades the political economy significantly changes , in the
way that it is organized and governed by collaborating nations. These changes have
repercussions that not only affect the flow of goods and services between countries,
but also the movement of people.
Interconnection of worldwide economic activities known as Global Economy that
take place between multiple countries. These economic activities can have either a positive
or negative impact on the countries involved.

CHARACTERISTICS comprising Global Economy:

Globalization describes a process by which national and regional economies,

societies, and cultures have become integrated through the global network of
trade, communication, immigration, and transportation.
International trade: International trade is considered to be an impact of
globalization. It refers to the exchange of goods and services between different
countries, and it has also helped countries to specialize in products which they
have a comparative advantage in.
International finance: Money can be transferred at a faster rate between countries
compared to goods, services, and people; making international finance one of
the primary features of a global economy.
Global investment: This refers to an investment strategy that is not constrained by
geographical boundaries. Global investment mainly takes place via foreign direct
investment (FDI).

 How does the global economy work?

The functioning of the global economy can be explained through one word —
transactions. International transactions taking place between top economies in the world
help in the continuance of the global economy. These transactions mainly comprise trade
taking place between different countries. International trade includes the exchange of a
variety of products between countries. It ranges all the way from fruits, and foods, to
natural oil and weapons. Such transactions have a number of benefits including: providing a
foundation for worldwide economic growth, with the international economy set to grow by
4%; encouraging competitiveness between countries in various markets; raising productivity
and efficiency across countries; and helping in development of underdeveloped countries by
allowing them to import capital goods(machinery and industrial raw materials) and export
primary goods (natural resources and raw materials).
 ➢ What are the effects of global economy?
The main cause of these effects is economics — based on the production and
exchange of goods and services. Restrictions on the import and export of goods and services
can potentially hamper the economic stability of countries.

➢ What are the benefits of global economy?

Free trade: Free trade isan excellent method for countries to exchange goods and services.
It also allows countries to specialize in the production of those goods in which they have a
comparative advantage.

Movement of labor: Increased migration of the labor force is advantageous for the recipient
country as well as for the workers. If a country is going through a phase of high
unemployment, workers can look for jobs in other countries. This also helps in reducing
geographical inequality.

Increased economies of scale: The specialization of goods production in most countries has
led to advantageous economic factors such as lower average costs and lower prices for
customers.

Increased investment: Due to the presence of global economy, it has become easier for
countries to attract short-term and long-term investment. Investments in developing
countries go a long way in improving their economies.

 FACTORS affecting Global Economy

According to the latest economic news, here are some of the key factors that influence
and affect how well the global economy works:

A. Actors in Globalization
 Process of interconnecting involved many
forces which are very influential in the result of globalization. This major actors played
important roles and have been categorized either intergovernmental or supranational
organization.

 CATEGORY of Organization
Intergovernmental Organizations or International Organization
An organization composed primarily of sovereign states or of other
intergovernmental oganizations. IGO are established by a treaty that acts as a
charter creating group. Treaties are formed when lawful representatives of several
states go through a ratification process, providing the IGO with an international
personality.
• World Trade Organization
• World Health Organization
• Asian Development Bank

Supranational Organization
Organizations that extend beyond the borders of three or more states that seeks to
promote economic, political, or cultural unity between members.
• United Nations
• International Labor Organization
• European Union

International Non –Governmental Organizations

Organization extends the concept of a non-governmental organization to an
international scope. NGOs are independent of governments and can be seen as two
types, advocacy NGOs, which aim to influence governments with a specific goal and
operational NGOs, which provide services.
• Amnesty International
• International Committee of the Red Cross
• International Chamber of Commerce

Multinational Corporation(MNC)
Also known as global corporation, is an entity that owns and controls production of
goods or services in one or more countries aside from their home country.

Transnational Corporation (TNC)

A commercial enterprise that operates substantial facilities that does business in more
than one country. It is usually a large corporation incorporated in one country which
produces or sells goods or services in various countries.
The two main characteristics of TNCs are their large size and the fact that their
worldwide activities are centrally controlled by the parent companies. They are often:
• Importing and exporting goods and services
• Making significant investments in a foreign country
• Buying and selling licenses in foreign markets
• Engaging in contract manufacturing – permitting a local manufacturer in a
foreign country to produce their products.
• Opening manufacturing facilities or assembly operations in foreign countries.

B. Modern World System

World System Theory
In the study of Wallerstein ,1979 he cited that a social system is known as world system which
one that has boundaries, structures, member groups, rules of legitimation and coherence. Its
life is made up of the conflicting forces which hold it together by tension and tear it apart as
each group seeks eternally to remold it to its advantage.

There are also semiperipheral areas which

are in between the core and the periphery
on a series of dimensions, such as the
complexity of economic activities, strength of
the state machinery, cultural integrity, etc.
Some of these areas had been core-areas of
earlier versions of a given world-economy.
Some had been peripheral areas that were
later promoted, so to speak, as a result of
the changing geopolitics of an expanding
world-economy. The semiperiphery is a necessary structural element in a world-economy. These
areas play a role parallel to that played, mutatis mutandis, by middle trading groups in an
empire. They are collection points of vital skills that are often poetically unpopular. These
middle areas (like middle groups in an empire) partially deflect the political pressures which
groups primarily located in peripheral areas might otherwise direct against core-states and the
groups which operate within and through their state machineries. On the other hand, the
interests primarily located in the semi periphery are located outside the political arena of the
core-states, and find it difficult to pursue the ends in political coalitions that might be open to
them were they in the same political arena. (Thompson, 2005)

The states must be strong enough to stand and protect their own economies outside the
control of other players in the economic field in order that sovereignty of the state will be
maintained.

The BRANDT LINE

The Brandt Line is an invisible line

across the world that divides the rich
north from the poor south.
The Brandt Line corresponds with the
divide between economically developed
and industrialized countries and those
countries that are less economically
developed.
 Where the Brandt Report is the
report written by the Independent
Commission, first chaired by Willy
Brandt in 1980, to review
international development issues.
The result of this report provided an
understanding of drastic differences
in the economic development for
both the North and South
hemispheres of the world.

C. Global Economic Integration

The economic integration is not a new phenomenon. Since the travels of Marco Polo , global
economic integration has been a trend to civilization. There are number of factors that
contributes to global economic growth such as the privatization, deregulation, foreign direct
investment, trade liberalization and regional integration.

FACTORS that contributes to Global Economic Growth:

Privatization the transfer of ownership , property or business from the government to

the private sector is termed privatization The government ceases to be the owner of
the entity or business.
Deregulation is the process of removing or reducing state regulations, typically in the economic
sphere.
Foreign direct investment (FDI) is an investment in the form of a controlling ownership
in a business in one country by an entity based in another country. It is distinguished
from a foreign portfolio investment by a notion of direct control.
Trade liberalization is the removal or reduction of restrictions or barriers on the free
exchange of goods between nations. These barriers include tariffs, such as duties
and surcharges, and nontariff barriers, such as licensing rules and quotas.
Economists often view the easing or eradication of these restrictions as steps to
promote free trade.
Regional integration is the process by which two or more nation-states agree to co-operate and
work closely together to achieve peace, stability and wealth. Usually integration involves one
or more written agreements that describe the areas of cooperation in detail, as well as some
coordinating bodies representing the countries involved.