THE GLOBAL

ECONOMY
INTRODUCTION

• The global economic system begins in 1896 and reached its peak in 1914. There are various
changes and improvements that characterize economic globalization before and after.
• Not only are there structural similarities between global economic development in the two
periods but the problem are also similar in both of them.
• First, poor nations and the peoples who inhabit them were and are subjugated by operations
of the global economy.
• Second, not all parts of the world gained from the growth of the global economy.
• Third, not only were or are there losers in this economic competition among states but also
certain industries and social classes lose out.
INTRODUCTION

• Fourth, within nations, the poor tends or tended to suffer most when those nations, are
forced to repay their debts to other, more developed, nations.
• In sum, the global economy of a century “was not equally good for everyone and was bad
for many”.
SURPLUSES AND DEFICITS

SURPLUSES
• occurs when the government taxes more than it spends.
DEFICIT
• Occurs when the government spends more than its taxes.
SURPLUSES AND DEFICITS

• U.S which by the end of November, 2007, had a trade deficit of $701.6 billion. The deficit
dropped slightly in 2008 and dramatically in 2009 to about half the 2007 figure because of
the Great Recession. China announced that it had a record trade surplus of $ 177.47
billion in 2006. China’s surplus was 75% greater than it had been in the previous year.
ECONOMIC CHAINS AND NETWORKS

MOST IMPORTANT ECONOMIC CHAINS AND NETWORKS INVOVLED IN GLOBAL

TRADE
• Supply Chains – these are general label for value adding activities in the production
process. A supply begins with raw materials and follow value adding activities through
variety of inputs and outputs and ultimately to a finished product.
• International Production networks - these involve the networks of the producers
involved in the process of producing a finished product.
ECONOMIC CHAINS AND NETWORKS

• Global Commodity Chains – Gereffi and Korzeniewicz bring together the idea of value-
adding chains and the global organization of industries. They also accord a central place to
the growing importance of sellers of the global product.
• Global Value Chains – Global value chains are emerging as the overarching label for work
in this area and for all such chains.
GLOBAL VALUE CHAINS: CHINA AND US

• To give specificity to the idea of global value chains let us look at trades between china
and the US.
• SCRAP METAL – for one thing about 2/3 of the steel made in the US comes from
recycled steel rather than from iron ore. This is a big business especially since prices for
scrap metals have increase. And also the world involved in extracting usable metal from
scrap is done elsewhere in the world, especially china.
• Unsorted aluminum and copper scrap is shipped from scrap metal companies from US
to recycling companies in China.
GLOBAL VALUE CHAINS: CHINA AND US

• WASTE PAPER – one of the richest women in the world is Zhang Yin. The source of her
wealth is her business , Nine Dragons Paper and Los Angeles- based America Chung Nam that
takes mountains of waste paper from the US, ship it to china, recycled it into corrugated
boxes, the boxes are used to ship goods to various places around the world including US.
• T-SHIRTS – The neoliberalism that undergirds the global market is based on the belief that
market should be free, open, and have no barriers to free and open trade. One particularly
interesting and instructive example is the global chain for t-shirts.
• The global trade in T-shirts, especially those produced in China, has not been free and open,
especially with respect to the sale of Chinese-made T-shirts in the US. The emergence of
MULTI-FIBER AGREEMENT prevent China from garnering all or close to all of that market.
GLOBAL VALUE CHAINS: CHINA AND US

• The MULTI-FIBER AGREEMENT was state-imposed mechanism to limit the ability of the
Chinese to sell T-shirts and put quotas on the number T-shirts that could be imported
into US from various producing countries.
• IPHONE – the global value chain for the Apple iPhone is fascinating.The story started
with the mystery that 3.7 million iPhones were sold in 2007, only 2.3 million were
registered on the wireless networks that are Apple’s exclusive partners in the US and
Europe.
INCREASING COMPETITION FOR COMMODITIES

• One of the most striking development in the recent years have been the increasing global
competition for various commodities.
• The best known example for this is oil, but much the same thing has happened in the
markets for natural gas, copper, lithium and other commodities needs for cars and
mundane commodities such as corn, wheat, and soybeans. The increasing demands for
these commodities and many others is no longer fueled by mainly by the needs of the
countries we traditionally think of as highly developed but now, by the massive
development in other parts of the world.
INCREASING COMPETITION FOR COMMODITIES

• The demand for commodities goes well beyond that of specific industries needing
specific commodities to their production process.
• “It is absolutely a fundamental change in the global economic structure. Global
commodities ranging from oil to base metals to grains are moving higher as billions of
people in china and around the world get wealthier and are consuming more as they
produce products for us and increasingly for themselves” – krauss 2008.
• “The world is becoming alive and the lights are coming on across Asia. What we are
dealing with is a tremendous demand for resources”
OUTSOURCING

• Is the transfer of activities once performed by entity to a business or businesses in

exchange for money. Outsourcing in the economic realm is of the greatest importance
and the issue of concern here, it also occurs in many other institutions such as health
care and the military
• E.g – radiologist being outsourced. This is made possible because the material which
radiologist deals (x-rays, results of MRIs) is now usually digitized and therefore sent easily
and quickly via internet to radiologist anywhere in the world. Thus, a digitized x-ray taken
in London can be read quickly and easily by a lower-paid radiologist in Asia.
OUTSOURCING

• E.g – military has outsource many of its functions. North Atlantic Treaty Organization (NATO)
forces from various countries serving in Afghanistan may be flown there on leased Ukrainian
planes or by commercial airlines of NATO nations rather than on planes from their own air
forces.
• MACRO-LEVEL OF OUTSOURCING – deal with it at the meso and micro-levels. (e.g British
corp. outsourcing work to one in India)
• MESO-LEVEL OF OUTSOURCING – e.g restaurants that outsource the cooking of their
food to outside organization.
• MICRO-LEVEL OF OUTSOURCING – e.g parents who outsource the care of their young
children or aged parents to institutions, specifically daycare and assisted living centers.
OUTSOURCING

• The form of outsourcing most closely and importantly associated with globalization is
offshore outsourcing which involves sending work to companies in other countries. (e.g
Indian firms have become very important setting for outsourcing - the best known of
which is that performed by call centers).
• While blue-collar manufacturing work has long been outsourced offshore and what is
eye-catching is the increasing offshore outsourcing of high level white-collar and service
of work.
CONSUMPTION

• Is highly complex, involving mainly consumer objects, consumers, the consumption process
and consumption sites.
• It is appropriate to associate consumption with America and Americanization. The US
developed an unprecedented and unmatched consumer society for several decades after the
end of the war and at the same time, they began exporting it to much to the rest of the
world.
• To promote global consumption a and flow of global consumers the US introduce the use of
credit cards especially Visa and MasterCard. This serves to expedite the global flow of
hyperconsumption and hyperdebt. The global flow of many of the same goods and services
and the increasing global use of credit cards and other credit instrument lead more and more
societies throughout the world in the direction of American-style hyperconsumption and
hyperdebt.
CONSUMPTION

• This hyperconsumption and hyperdebt are increasingly likely to become global

phenomena and problems.
• It is also important to recognize that the heyday of the US in this area and many others is
long past and in any case, there has always been much more to the globalization of
consumption than Americanization. Local areas have certainly not always been
overwhelmed by American imports but have integrated them into the local cultural and
economic realities, that is they have “glocalized them”
CONSUMPTION

• Consumer Objects and Services – much consumption revolves around shopping for
objects of all kinds or the products as well as the various services.
• Consumers – people who spend money for a certain product or services.
• Consumption Process – knowing how to work their way through a shopping mall, use of
money and credit cards or make a purchase online.
• Consumption Sites – such as shopping malls, restaurants, clothing chains, themed park,
casino and hotels and internet site such as amazon and e-bay.
GLOBAL RESISTANCE

• Can be undertaken violently or non-violently.

• Non-violent – refers to rallies, protesting, or the so-called “civil resistance” or unarmed
groups.
• Violent – such as coup d’état, leftist party, mutiny, or revolution .
THE MODERN WORLD-SYSTEM

• The world-system is a largely self-contained system with a set of boundaries and a definable
life span that doesn’t last forever.
• It existed before but the significant is the transformation of this world-system. System that
binds the world together is based on political and military domination, and this modern
world-system relies on economic domination. It encompasses many states and a built-in
process of economic stabilization. In short, economic forces pull the people, states, and
societies towards economic transaction.
• Base on Immanuel Wallerstein’s analysis of the broad economic entity with a division of labor
that is not circumscribed by Political or Cultural boundaries.
• World is divided according to economic power.
3 CATEGORIES OF WORLDWIDE DIVISION OF
LABOR
• CORE – These are areas that dominate the capitalist world-economy and exploits the
rest of the system.
• PERIPHERY – these are areas that provides raw materials to the core and are heavily
exploited.
• SEMI-PERIPHERY – A residual category that encompasses a set of regions somewhere
between exploiting and exploited.
3 NECESSARY FACTORS FOR THE RISE OF
CAPITALIST WORLD-ECONOMY
• GEOGRAPHICAL EXPANSION – the era of exploration and colonization created wider
networks of people and markets.
• WORLD CAME TO SPECIALIZE IN SPECIFIC FUNCTION – areas came to specialize in
producing particular type of workers.
• CORE’S STATE DEVELOPMENT – involvements of the political sector and how various
groups used state structures to protect and advance their interest.
THE PRESSURE OF INCORPORATION

• Why are countries being pulled toward this system? Can the countries or areas of the
world “resist” being part of it?
• “The pressure for incorporation into the world-economy comes not from the nations
being incorporated but rather from the need of the world-economy to expand its
boundaries, a need which was itself the outcome of pressures internal to the world
economy” – Wallerstein, 1989.
RACE TO THE BOTTOM AND UPGRADING

• The argument is that for less developed countries to compete and succeed in the global
economy, they must undercut the competition in various ways, such as offering lower
wages, poorer working conditions, longer hours and other pressures and demand.
Nations or States are willing to go further than the others to attract the interest of
Multinational Corporations.
4 SEQUENTIAL STAGES FOR UPGRADING

• ASSEMBLY – refers to labor-intensive factories or manufacturer

• ORIGINAL EQUIPMENT MANUFACTURING (OEM) – produces parts and equipment
marketed to other manufacturer.
• ORIGINAL BRAND NAME MANUFACTURING (OBM) – Typical manufacturer and sells
entire product.
• ORIGINAL DESIGN MANUFACTURING (ODM) – company that designs, manufacture,
and produce for other company.