MAKILALA INSTITUTE OF SCIENCE AND TECHNOLOGY

Municipality of Makilala
Concepcion, Makilala, North Cotabato

Course No. : CW Module No. : 4

Course Title : CONTEMPORARY WORLD Duration : 1 week (Sep. 21-25, 2020)
Credits : 3 units Instructor : Percie Joy Y. Gelera, LPT

I. TOPIC(S): The Global Economy

II. LEARNING OUTCOME(S):

1. Define economic globalization; and
2. Identify the actors that facilitate economic globalization.

III. READ AND LEARN

Introduction
In this lesson the focus is on economic structures, the next focus shifts to economic processes and
flows. However, it is useful to reiterate the point that this is a largely artificial distinction since structures
are composed of processes and processes can be structured. In order to understand the major economic
structures involved in globalization today one must have a sense of their place in economic history
(Frieden 2006; Hirst and Thompson 1999).

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.
 Refers to the mobility of people, capital, technology, goods and services internationally. It is also
about how integrated countries are in the global economy. It refers to how interdependent different
countries and regions have become across the world.

In the eighteen hundreds in the world economy generally, people and capital crossed borders with ease,
but not goods. In this century, people do not cross borders easily, but technologies, capital and goods do.

Over the past two to three decades, under the framework of General Agreement on Tariffs and
Trade (GATT) and World Trade Organization, economic globalization has been expanding at a much faster
pace. Countries have rapidly been cutting down trade barriers and opening up their current accounts and
capital accounts.

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
• having a global partnership for development

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.

Types of Economy associated with economic globalization

 Protectionism
a policy of systematic government intervention in foreign trade with the objective of encouraging
domestic production.
This encouragement involves a giving preferential treatment to domestic producers and
discriminating against a foreign competitors.
• Protecting one’s economy from foreign competition by creating trade barriers.
 • Domestic products > Imported goods
TARIFF- tax levied by a government on imports and exports.
• Tariffs are required fees on imports or exports. For instance, a pen that costs $1.oo in Country A
and in Country B, it would be given five-dollar tariff. The pen would become $6 in Country B.
• The money collected from tariffs is called a customs duty.
IMPORT QUOTA- limits on the number of products that can be imported into a country.
BANS- forbid products on import goods.

This policy was practiced during the mercantilist era, from sixteenth to seventeenth centuries until
the early years of the Industrial Revolution. 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.

 Trade liberalization or free trade

World War II heavily influenced the shifting of the dominant economic policy from protectionism to
trade liberalization.
- Act of reducing trade barriers to make international trade easier between countries.
× no TARIFF
× no IMPORT QUOTA
× no BANS

Free trade agreements and technological advances in transportation and communication means,
goods and services move around the world more easily than ever. We are talking about everything from
shoes and bananas to innovations and ideas. 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.

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 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"
Fair trade
Concern for the social, economic, and environmental well-being of marginalized small producers. 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
42x greater than the preceding year. 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 1.50 USD

BRETTON WOODS AND THE BRETTON WOODS SYSTEM

A key factor in the Depression was thought to be a lack of cooperation among nation - states. That
lack of cooperation was associated with high tariffs and other import restrictions and protectionist
practices, as well as the propensity of governments to devalue their currencies in order to gain an edge in
global trade over other countries. The latter also made exchange rate wars among the nations involved
more likely.
Those concerns were the backdrop for the creation of the Bretton Woods system and its five key
elements (Bordo and Eichengreen 1993 ; Boughton 2007 : 106 – 7). First, each participating state would
establish a “par value’ for its currency expressed in terms of gold or (equivalently) in terms of the gold
value of the US dollar as of July 1944” (Boughton 2007 : 106). For example, the US pegged its currency at
$35 per ounce of gold, while, to take one example, the fi gure for Nicaragua was 175 cordobas per ounce.
This meant that the exchange rate between the two currencies was five cordobas for one dollar. “Second,
the official monetary authority in each country (a central bank or its equivalent) would agree to exchange
its own currency for those of other countries at the established exchange rates, plus or minus a one -
percent margin ” (Boughton 2007 : 106 – 7). This made international trade possible at or near the
exchange rate for the currencies of the countries involved without the need for any outside intervention.
Third, the International Monetary Fund (IMF) was created (Babb 2007: 128 – 64) (as was the
forerunner of the World Bank – see below) to establish, stabilize, and oversee exchange rates. Forty states
became IMF members in 1946 and were required to deposit some of their gold reserves with the IMF. The
IMF was empowered to approve the par values of currencies and member states could not change that
value by more than 10 percent. If a currency was destabilized, the IMF was prepared to lend member
states the money needed to stabilize their currency.
Fourth, the member states agreed to eliminate, at least eventually, “all restrictions on the use of its
currency for international trade” (Boughton 2007: 107).
Finally, the entire system was based on the US dollar (at the end of WW II the US had about three -
fourths of the world’s gold supply and accounted for over one-fifth of world exports). The US agreed to
make the dollar convertible into other currencies or gold at the fixed par value. The dollar became, in
effect, a global currency. Of course, as the Bretton Woods system came into existence and had a chance
to develop, it changed dramatically over time. Bretton Woods had its most powerful effects on global
trade, the global monetary order, and global investment (Peet 2003 ).

General Agreement on Tariffs and Trade (GATT)

GATT was a system for the liberalization of trade that grew out of Bretton Woods and came into
existence in 1947 (Hudec 1975). It operated until 1995 when it was superseded by the World Trade
Organization (WTO) (see below). While GATT focused on trade in goods, the WTO also took on
responsibility for the increasingly important trade in services. While GATT was simply a forum for the
meeting of representatives of countries, the WTO is an independent organization.
GATT was deemed more acceptable than the International Trade Organization (ITO) by the US (and
others) and in 1947 a number of initial trade agreements were negotiated by 23 nations. Since then,
multinational trade agreements have been negotiated under GATT’s (and later the WTO’s) institutional
umbrella. Over the years a number of “rounds” of negotiation were completed (e.g. the Kennedy
Round ending in 1967; the Tokyo Round which concluded in 1979). It was out of the Uruguay Round (1986
– 93) that an agreement was reached to create the WTO. While GATT has been superseded by the WTO,
many of its elements were incorporated into the WTO, although they continue to change and evolve as a
result of changing global economic realities. Negotiations on trade have continued under the auspices of
the WTO and as of this writing the highly disputatious Doha Round has just ended in failure. Over the
years, WTO negotiations have dealt with such issues as reducing tariffs on the trading of goods, dealing
with non - tariff barriers (e.g. quotas, national subsidies to industry and agriculture), and liberalizing
international trade in agriculture.
More recently, attention has shifted to such issues as “ international trade in services, trade -
related international property rights (TRIPS), and trade – related investment measures (TRIMS)” (House
2007: 477– 9).
Trade - Related Aspects of Intellectual Property Rights (TRIPS) (Correa 2000) was negotiated
through the WTO, as a result of the 1986 – 94 Uruguay Round of negotiations. This involves intangible
ideas, knowledge, and expressions that require their use to be approved by their owner. Involved here is a
wide range of intellectual property, such as movies, books, music recordings, and computer software,
which exists, or whose value lies, largely in the realm of ideas. There are other, more material products,
such as pharmaceuticals and advanced technologies that are also viewed as having a significant
intellectual component.
Trade - Related Aspects of Intellectual Property Rights (TRIPS): WTO agreement to protect
the interests of those that create ideas.

Trade- Related Investment Measures (TRIMs) “are a range of operating or performance

measures that host - country governments impose on foreign firms to keep them from having a distorting
effect on trade in goods and services” (Grimwade 2007 : 1178). There are a number of specific restrictions
and constraints on foreign firms that can be included under this heading, including requirements for
minimum amounts of local content or sourcing, how much of a foreign producer’s output must be
exported, and limits on the value of goods imported by a foreign firm in relation to the amount it exports,
and so on (Grimwade 2007:1178 – 80).
Trade-Related Investment Measures (TRIMs): WTO agreement on trade measures
governments can impose on foreign firms.

World Trade Organization (WTO)

The WTO is a multilateral organization headquartered in Geneva, Switzerland, with, as of 2008, 152
member nations (Krueger 2000; Trachtman 2007 : 1308 – 15). Its focus on trade places it at the heart of
economic globalization and has made it a magnet for those opposed either to the broader process of trade
liberalization and promotion or to some specific aspect of WTO operations. The WTO encompasses much of
what was GATT’s mandate, but has moved onto other issues and areas such as services (General
Agreement on Trade in Services [GATS] [Koivusalo 2007: 479 – 81]), intellectual property (TRIPS), and so
on.
 Each member state in the WTO has an equal vote. To a large extent, the WTO is the organization of
these member states and not (with some exceptions) a supranational organization. Agenda items to be
voted on generally flow from a number of more informal groups.
There are stresses and strains between developed and developing nations in the WTO that are
manifest in and between these groups, as well as in the WTO as a whole. One bone of contention has been
meetings of the larger trading powers in the so-called “Green Room” and the exclusion of smaller powers
from these meetings. Protests over such matters have led to greater transparency in the internal
operations of the WTO (and elsewhere). There is also no mechanism for involvement of international non-
governmental organizations (INGOs) in WTO decision - making and this has led INGOs to stage regular
protests and demonstrations against the WTO.
While GATT focused on tariff reduction, the WTO has come to focus more on non-tariff - related
barriers to trade. One example is differences between nations in relation to regulations on such items as
manufactured goods or food. A given nation can be taken to task for such regulations if they are deemed
to be an unfair restraint on the trade in such items. However, the WTO has been criticized for not going far
enough in countering the trade barriers retained by developed countries in such domains as agricultural
products and some services.
Of course, the WTO continues to be concerned with tariff barriers, as well as restrictions on trade in
services. The WTO also deals with other types of protectionism. Overall, WTO operations are premised on
the neo - liberal idea that all nations benefit from free and open trade, and it is dedicated to reducing, and
ultimately eliminating, barriers to such trade. While there are winners under such a system, there are also
losers.

International Monetary Fund (IMF)

The goal of the IMF is macroeconomic stability for both member nations and, more generally, the
global economy (Cardim de Carvalho 2007: 658 – 63). More specifically, the IMF deals with exchange rates,
balances of payments, international capital flows, and the monitoring of member states and their
macroeconomic policies. The IMF is a lightning rod for critics who see it as supporting developed countries
and their efforts to impose their policies on less developed countries. Its supporters see it as key to the
emergence and further development of the global economy.
As a result of changes in the global economy, the nature and functions of the IMF have changed
since its creation in 1944. In the beginning it managed the exchange rate system created at Bretton
Woods. The IMF closely watched a nation’s balance of payments in order to be sure it could sustain the
agreed - upon exchange rate for its currency. If there were problems in the latter, the IMF concerned itself
with two matters. The first was policy errors by a nation which, presumably, could be corrected. The
second was more fundamental economic problems (relating, for example, to productivity). Above all, the
IMF wanted to be sure that a nation did not use such problems as an excuse to lower its exchange rate and
therefore improve its competitive position vis - à - vis other nations. If a fundamental disequilibrium
occurred, the IMF had the power to authorize a change in the exchange rate of a nation’s currency.
The IMF could also give adjustment loans to nations (initially, largely developed countries) in
disequilibrium so that they were able to meet their international financial obligations. The fund was
created on the basis of quotas for member nations. The quota for each nation was related to the limits on
its borrowing (should it become necessary), as well as its voting power in the IMF.

World Bank
The World Bank (officially the International Bank for Reconstruction and Development [IBRD]), a
specialized agency of the UN, is the most important element of the World Bank Group (WBG) (Gilbert and
Vines 2000; Bradlow 2007:1262 – 7). The IBRD (or the Bank) was established in 1944 at Bretton Woods
and began operations in 1946. Membership is open to all member states of the IMF and as of this writing it
includes 184 nations. It provides funds to government – sponsored or - guaranteed programs in so - called
Part II countries (member states that are middle - income or creditworthy poorer nations). It also provides
advice and analytical services to such states. Among the missions of the Bank are:
• Encouraging “development of productive facilities and resources in less developed countries”;
• funding for “productive purposes” when private capital cannot be obtained on reasonable terms;
• encouraging international investment in order to promote international trade and development and
equilibrium in balance of payments;
• helping member countries improve their productivity, standard of living, and labor conditions (Bradlow
2007: 1264).
Over the years the Bank has expanded far beyond its original focus on projects involving physical
infrastructure (e.g. transportation, telecommunication, water projects, etc.) capable of generating income.
It now deals with a broad range of issues related to economic development including “population,
education, health, social security, environment, culture, aspects of macroeconomic policy and structural
reform and poverty alleviation” (Bradlow 2007: 1265). In addition, it now makes loans to deal with a
variety of governance matters such as “public – sector management, corruption, legal and judicial reform,
and some aspects of human rights and broader policy reforms” (Bradlow 2007: 1265). Support is also
given to help women deal with gender inequality and discrimination. The Bank continues to expand its
range of concerns and activities (e.g. most recently, child labor, reconstruction after a conflict, etc.). NGOs
and affected peoples have grown increasingly involved in projects financed by the Bank.
 Decisions are supposed to be made on purely economic, not political, grounds and the Bank is not
supposed to intervene in the political affairs of member states. However, exactly what is deemed political
is not defined and it is often difficult to ascertain whether, and to what degree, political considerations
have been involved in Bank decisions.
The resources of the Bank include both a relatively small sum paid in by member countries and a
much larger amount that can be called in by the Bank if it finds it needs the money. The Bank uses its
potential access to the latter to issue highly rated bonds and in this way raises about $25 billion per year.
It is this money that provides the bulk of the funds that it uses to finance loans of various sorts. Countries
that receive the loans benefit from the fact that the Bank offers low interest rates. Since its money is
borrowed, the Bank depends on the ability of nations to which it has loaned money to pay back those
loans. Its lending decisions are based on a given country’s ability to repay loans.
Over the years, especially since the 1980s, the operations of the Bank have become increasingly
controversial. First, the Bank is seen as dominated by rich developed nations, and less developed countries
and non-states (e.g. NGOs) have little say in it. Second, there are concerns that the Bank serves certain
interests (e.g. the nation-state, international capital, and wealthy nations) and thereby adversely affects
those of others (especially the poor and less developed nations).

Summary
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 and to act as a “lender of the last resort.” Another key institution was the
World Bank, which started out (and continues) with a specific focus on developing physical infrastructure in
middle - income nations. The IMF and the World Bank have come under criticism for furthering the neo -
liberal agenda. The IMF (and later the World Bank in consultation with it) imposed structural adjustment
programs on developing countries, extending loans only if certain “conditionalities” (reduction of
government expenditure and integration with the world market) were met by the borrowers.
IV. TEST YOURSELF

Name: ______________________________________________________ Score: __________

Year and Section: __________________________________________ Module 4 Activity

Test 1. Essay.

Answer the following questions below. Explain your answer using 3-5 sentences.

Rubric: Content - 6pts

Organization of Ideas - 4pts

1. How would you define the present economic situation in the perspective of Globalization?

_________________________________________________________

2. What is the importance of the eight Millennium Development Goals of UN?

_________________________________________________________

3. What roles do International Monetary Fund (IMF), the World Bank and the World Trade Organization
(WTO) play in Globalization?

_________________________________________________________

4. What are some effects of multinational businesses?

_________________________________________________________

References:

George Ritzer . The Globalization of Nothing , 2nd edn . Thousand Oaks, CA : Pine Forge Press , 2007 John
Tomlinson . Cultural Imperialism: A Critical Introduction . London : Cassell , 1991.
John Tomlinson . Globalization and Culture . Cambridge : Polity , 1999 .

Module Compiler: Dave B. Estrada, LPT

If you have any questions or clarifications,

you may contact me through the
following:
Contact no.: 09460191053
Email: [email protected]
FB messenger: PJ Gelera