CHAPTER 2

The Structures of Globalization

Learning Outcomes:

At the end of the lesson, the students should be able to:

• define economic globalization;

• identify the factors that facilitate economic globalization;

• define modem world system; and,

. articulate a stance on global economic integration.

Global Economy

Global economy is also referred to as world economy. This term refers to the international exchange of
goods and services that is expressed in monetary units of money. It may also mean as the free
movement of goods, capital, services, technology, and information.

In some contexts, "global” or “International" economy is distinguished and measured separately from
national economies while the “world economy" is simply an aggregate of the separate country's
measurements.

World economy is exclusively limited to human economic activity and is typically judged in monetary
terms. Typical examples are illegal drugs and other black market goods which by any standard are a part
of the world economy, but for which these is by definition no legal market of any kind.

Global economy or economic globalization is concerned on the globalization of production, finance,

markets, technology, organizational regimes, institutions, corporations, and labor. While economic
globalization has been expanding since the emergence of trans-national trade, it has grown at an
increased rate due to an increase in communication and technological advances under the framework of
General Agreement on Tariffs and Trade and World Trade Organization, which made countries gradually
cut down trade barriers and open up their current accounts and capital accounts.

This recent boom has been largely supported by developed economic integrating with majority world
through foreign direct investment ang lowering costs of doing business, the reduction of trade barriers,
and in many cases cross border migration.

Market Integration

When prices among different location ot related goods follow the same
Patterns over a long period of time, market integration exist. Similarly, when groups of prices often
move proportionally to each other and when this relation is very clear among different markets it is said
that the markets are integrated. Hence, it could be concluded that market integration is an

indicator that explains how much different markets are related to each other.

Role of International Financial Institutions in the

Creation of Global Economy

Let us first define Intermationa'Financial Institution (IFIS). An international financial institution is

chartered by more than one country and therefore are subjects to international law. Its owners or
shareholders are generally national governments, although other international institutions and other
organizations occasionally figure as shareholders. The most prominent IFI's are creations of multiple
nations, although some bilateral financial institutions (created by two countries) exist and are technically
IFI's. The best known IFI's were established after World War II to assist in the reconstruction of Europe
and provide mechanisms for international cooperation in managing the global financial system.

Today, the world's largest IFI is the European Investment Bank, (1J with a balance sheet size of E573
billion in 2016.(2) This compares to the two components of the World Bank, the IBRD (assets of $358
billion in 2014) (31and the IDA (assets of $183 billion in 2014), (3] For comparison, the largest
commercial banks each have assets of c$2, 000-3, 000billion.(Source: Website)

The International Financial Institutions (IFI's) are:

1. International Monetary Fund (IMF)

Multilateral Development Banks (MDB's) which which include

a. World Bank Group

b. African Development Bank

c. Asian Development Bank

d. Inter-American Development Bank

e. European Bank for Reconstruction and Development

The last four(4) of these each focus on a single world region and thus

are often called Regional Development Banks(RDB).

Global in scope are International Monetary Fund and the World Bank.

They are also specialized agencies in the United Nation system but are governed independently of it.
Membership Composition of IFI's

1. only sovereign countries are admitted as member-owner

2. broad country membership to include borrowing developing countries

and developed donor countries

3. membership in regional development banks include countries around the

world as members (not limited to countries from the region)

4. has its own independent legal and operational states Main Objectives:

· IMF provides temporary financial assistance to member countries to help ease balance of payments
adjustments.

· MDB's provide financing for development to developing countries

through

- long term loans (with maturities of up to 20 years) at interest rates way below market rates, Funding
comes from international capital markets and relend to borrowing government in developing countries.

very long-term loans (sometimes called credits with maturities of 30-40 years) at interest rates below
market rates, Funding for loans come from direct contributions by government in the donor countries.

- Grant financing by some MDB's for technical assistance advisory service or project preparation.

All IFI's are active in supporting programs that are for the global economy - in addition to their primary
role of financing and providing technical assistance to programs at the country level..

History of Global Market Integration in the Twentieth Century

Labor market integration occurred between 1882 and 1936 in an area of

Asia stretching from South India to Southeastern China and encompassing

the three Southeast Asian countries of Burma, Malaya and Thailand.

By the late nineteenth century, globalization, of which a principal featyn was the mass migration
nineteenth century, globalization, of which a prinoipa feature was the mass migration of Indians and
Chinese to Southeast Ass gave rise to both an integrated Asian labor market and a period of real wag
convergence. Integrationdid not, however, extend beyond Asia to include cor industrial countries. Asian
and core areas, in contrast to globally integrate commodity markets, showed divergent trends in
unskilled real wages.
By the 1880s steamships had largely replaced sailing vessels for

transport within Asia as well as to Westerm markets, and shipping fares had begun to fall sharply.

Also, already underway was the mass migration of Indian and Chinese workers, principally rom the
labor-abundant areas of Madras in India and the provinces of Kwangtung (Guangdong) and Fukien
(Fujan)in Southeasten China, to land-abundant but labor-scarce parts of Asia,

Chief among the immigrant-receiving countries were Burma, Malaya and

Thailand (Siam) in Southeast Asia. Indian and Chinese labor inflows to these

countries constituted the bulk of two of three main late nineteenth- and early

twentieth-century global migration movements, the other being European immigration to the New
World. Immigration to Southeast Asia was almost entirely in response to its growing demand for
workers which, in tum, derived from rapidly expanding demand in core industrial countries for
Southeast Asian exports. Studies by Latham and Neal (1983) and by Brandt (1985, 1989) established the
development of an integrated Asian rice market beginning in the latter part of the nineteenth century.

Global Corporation

While many use "global" in the same way as international when it comes describing a business, some
analysts make distinctions betveen how each operates, On a basic level, a global corporation is one that
operates in more than one country. Particularly in the United States, the term can mean different things
to different contexts, with the characteristics of a global corporation varying acordingly.(Craig Berman,
2017)

Business analysts and academics, such as the groundbreaking Michael!Porter at Harvard University,
defined global businesses more narrow!ly and distinguish them from other operations overseas. He
defined a global business as one that maintains a strong headguarters in one country, but has
investments in multiple foreign locations. Such investments may involve direct investments in foreign
assets, such as manufacturing facilities or sales offices. The headquarters generally is its home country,
though some moves to more favorable regulatory or taxation locations over [Link] corporations
strive to create economies of scale by seling the sarme products in multiple locations and limiting local
customization.

In the world of finance and investment, a global corporation is one that has significant investments and
facilities in multiple countries but lacks a dominant headquarters, Global dorporations are governed by
the laws of the country where they are incorporated A global business connects its talents, resources
and opportunities actoss political boundaries. Because a global corporationis more invested in its
overseas locations, itcan be more sensitive to local opportunities -- and also more vulnerable to threats.
A company

that does business in Africa, for exampie, mignt aind itseit aealing with the
implication from a local Ebola outbreak as well as its commercial operations.

In contrast, an international company is one that has a headquarters,

forexample in the United States, but also does business overseas and might have a large presence in
multiple areas, Such company would be governed by U.S. regulations, assuming its headquarters remain
in U.S, but may a่so have foreign subsidiaries such as the Philippines which is governed by local laws.

Global Intersfate System

World-sy 'tems are defined by the existence of a division of labor. The moden worid-system has a multi-
state political structure (the interstate system) and therefore its division of labor is international division
of [Link] the modern world-system, the division of labor consists of three zones according to the
prevalence of profitable industries or activities: core, semi periphery, and periphery. Countries tend to
fall into one or another of these interdependent zones core countries, semi-periphery countries and the
periphery countries, Resources are redistributed from the underdeveloped, typically raw materials-
exporting, poor part of the world (the periphery) to developed, industrialized core.

World-systems, past world-systems and the modern world-systems, have temporal features. Cyclical
rhythms represent the short-term fluctuation of economy, while secular trends mean deeper long run
tendencies, such as

general economic growth or decline. The term contradiction means a general

controversy in the system, usually concerning some short term vs. long term trade-offs. For example,
the problem of under consumption, wherein the drive-down of wages increases the profit for the
capitalists on the short-run, but considering the long run, the decreasing of wages may have a crucially
harnful effect by reducing the demand for the product. The last temporal feature is the crisis: a crisis
occurs if a constellation of circumstances brings about the end of the system.

The world-systems theory stresses that world-systems (and not nation states) should be the basic unit of
social analysis. Thus we should focus not on individual states, but on the relations between their
groupings (core, semi-periphery, and periphery).

Global Govermance

This ternt global governance is sometines referred to as world

governance. Global tS a movement towards political cooperation among transnational actors,

negotiating responses to problems that affect more than one state or region. Institutions of global
governance-the United Nations, the International Criminal Court, the World Bank, etc. -tend to have
limited or demarcated power to enforce compliance. The modern question of world governance exists in
the context of globalization and globalizing regimes of power: politically, economically and culturally. In
response to the acceleration of worldwide interdependence, both between human societies and
between humankind and the biosphere, the term "global governance" may mean the process of
designating laws, rules, or regulations intended for a global scale.

Global governance is not a singular system. There is no "world govenment'" but the many different
regimes of global governance do have commonalities:

While the contemporary system of global political relations is not integrated, the relation between the
various regimes of global governance is not insignificant, and the system does have a common dominant
organizational form. The dominant mode of organization today is bureaucratic rational-regularized and
codified. It is common to all modern regimes of political power and frames the transition from classical
sovereignty to what David Held describes as the second regime of sovereignty-liberal international
sovereignty.

Effects of Globalization Governance

According to the disciplining hypothesis, globalization restrains governaments by inducing increased

budgetary pressure. As a consequence, governments may attempt to curtail the welfare state, which is
often seen as a drag on international competitiveness, by reducing especially their expenditures on
transfers and subsidies. This globalization-induced welfare state retrenchment is potentially mitigated
by citizens' preferences to be compensated for the risks of globalization ("compensation hypothesis")

wold System al

World sy tchm deals with interregional and ransnational division

of labor, which divides the world into corecsountries, semi-periphen ounlties, and the periphery
countries Core conntries focus on higher Ski capitialintensive produiction, and the rest of the world
focuses onlow-skl)latbo-intensive production and extraction of raw materials. This constan reinforces
the dominance of the core countries. Nonetheless, the system has dynamic characteristics, in part as a
result of revolutions in transport technology, and individual states can gain or lose their core (semi-
periphery, peripheryi status over [Link] structure is unified by the division of [Link] is a world-
economy rooted in a capitalist economy. For a time, certain countries become the world hegemon;
during the last few centuries, as the

world-system has extended geographically and intensified economically,

this status has passed from the Netherlands, to the United Kingdom and (most recently) to the United
States.

World System Theory

This theory is also known as world-systems analysis or would -systems perspectives. World system
theory is a multidisciplinary, macro-scale approach to world history and social change which emphasizes
the world-system (and not nation states) as the primary (but not exclusive)unit of social analysis.
Institutions that govern International Relations.

The following institutions govern international relations; These are:

• The European Institute for International Law and International

Relations (Brussels)

• ISPI Istituto per gli Studi di Politica Internazionale (ltalian Institute for International Political Studies)
Milan, Italy

• Institute of World Politics (Washington, D.C.)

• Department of International Studies (Centro Universitario de Ciencias Sociales y Humanidades) at

University of Guadalajara located in Guadalajara, Mexico

· Department of Latin American Studies (Centro Universitario de Ciencias Sociales y Humanidades) at

University of Guadalajara located in Guadalajara, Mexico

• The Royal Institute of Intemational Affairs, (PIIA) Karachi, Pakistan

The New Zealand Institute of International Affairs (Wellington,

New Zealand)

• The Australian Institute of International Affairs (Deakin, ACT,

Australia)

· The Canadian Institute of International Affairs (Toronto, ON,

Canada)

• Geneva School of Diplomacy and International Relations (Ceneva,

Swizerland)

• Graduate Institute of International and Development Studies

(Geneva, Swizerland)

• International Strategic Research Organization (ISRO/USAK)

· EGMONT - Roval Institute for International Relations (Egmont)

Brussels, Belgium

· University of Florida International Center (U.S.A)

• Center for International Affairs Jahangirmagar University, (Savar,

Dhaka, Bangladesh)

• South American Institute for Policy and Strategy (Porto Alegre, Brazil)

Internationalism versus Globalization

(Source: Herman E. Daly, 1999)

Globalization, considered by many to be the inevitable wave of the future, is frequently confused with
internationalization, but is in fact something totally different. Internationalization refers to the
increasing importance of international trade, international relations, treatics, alliances, etc.
International, means betveen or among nations. The basic unit remains

the nation, even as relations among nations become increasingly necessary and important. Globalization
refers to global economic integration of many formerly national economies into one global economy,
mainly by free trade and free capital mobility, but also by easy or uncontrolled migration. It is the
effective erasure of national boundaries for economic purposes. International trade (governed by
comparative advantage) becomes interregional trade (governed by absolute advantage), What was
many, becomes one.

The very word “integation" was derived from “integer", meaning

"one, ”"complete, " or "whole." Integration is the act of combining into one whole. Since there can be
only one whole, only one unity with reference to which parts are integrated, it follows that global
economic integration logically implies national economic disintegration. By disintegration it does