I - Module 2 – THE STRUCTURES OF GLOBALIZATION

II – Topics

2.1 The Global Economy & Market Integration

2.2 Role of International Financial Institution in the Creation of a Global Economy
2.3 The Global Interstate System and Contemporary Global Governance

III - TIME FRAME: 6 hrs.

IV - INTRODUCTION:

Praise and criticism for globalization most of the time focuses on its economic
dimensions. People’s day-to-day experiences in globalization – buying imported products,
deciding whether or not to migrate into a developed country, watching an independent Filipino
film or another Hollywood flick, learning a foreign language, eating Korean noodles or
Japanese ramen – are certainly guided and affected by economic factors. Due to the rapid
advance of technology that makes real-time interconnectivity possible, all actors in
globalization – with the right medium and message – can have a say on or at least partly
influence contemporary global governance. After all, globalization is a choir of different voices
– dome strong and some weak, just like the engagement of countries in the global economy
and its increasing integration (San Juan, 2018).

V - INTENDED LEARNING OUTCOMES: In this lesson, students will be able to:

1. Narrate a short history of global market integration in the twentieth century;

2. Explain the role of international financial institutions in the creation of a global
economy;
3. Identify the challenges of global governance in the 21st century;

VI - PRE – ASSESSMENT. Answer briefly.

1. How do economic forces facilitate the deepening of globalization?

___________________________________________________________________

2. How is the Philippines central to the history of economic globalization?

___________________________________________________________________

3. What is Bretton Woods System?

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VII - LEARNING ACTIVITIES

The Global Economy and Market Integration

Under globalization, the global economy’s operation is shaped and

influenced by governments, global or multinational corporations (MNCs),
and global institutions – the very same sector that laid the foundations of
contemporary market integration. Governments function as leading
policymakers and implementers of globalization’s tenets. Global institutions are also partly
managed and funded by governments and their representatives. Meanwhile, global
corporations ensure a leading role in making the cogs of capitalist globalization operate as
smoothly, efficiently, and profitably as possible. The nature and workings of this partnership –
at times a tenuous one – can be better under stood if its short history is discussed.

Contemporary economic globalization has its roots in the institutionalization of

international monetary systems or the means for international payments (payment made by a
country to another or an entity of one country to another entity of another country). To some
extent, silver, gold, and other precious metals were already used as de facto currency in many
parts of the world even before the modern times. For example, other than barter or trade
among pre-colonial Asian, products can be paid for by gold and other metals. The exchange
value of gold then depends on the two sides engaged in trade or transaction. Mining coins
with arbitrary face values (for example, one cent) started the process which later led to the
formal adoption of international monetary systems, at least in the Western world.

International trading systems are not new. The oldest known international trade route
was the Silk Road – a network of pathways in the ancient world that spanned from China to
what is now the Middle East and to Europe. It was called as such because one of the most
profitable products traded through this network was silk, which was highly prized especially in
the area that is now the Middle East as well as in the West (today’s Europe). Traders used the
Silk Road regularly from 130 BCE when the Chinese Han dynasty opened trade to the West
until 1453 BCE when the Ottoman Empire closed it.

However, while the Silk

Road was international, it was
not truly “global” because it had
no ocean routes that could reach
the American continent.
According to historians Dennis
O. Flynn and Arturo Giraldez,
the age of globalization began
when “all important populated
continents began to exchange
products continuously – both
with each other directly and
indirectly via other continents –
and in values sufficient to
generate crucial impacts on all
trading partners. [Link]

The galleon trade was part of the age of mercantilism. From the 16th century to the 18th
century, countries, primarily in Europe, competed with one another to sell more goods as a
means to boost their country’s income (called monetary reserves later on). A more open trade
system emerged in 1867 when, following the lead of the United Kingdom, the united States
and other European nations adopted the gold standard at an international monetary
conference in Paris. Broadly, its goal was to create a common system that would allow for
more efficient trade and prevent the isolationism of the mercantilist era. The countries thus
established a common basis for currency process and a fixed exchange rate system – all
based on the value of gold.

Despite facilitating simpler trade, the gold standard was still a very restrictive system,
as it compelled countries to back their currencies with fixed gold reserves. During World War
I, many were forced to abandon the gold standard. Since European countries had low gold
reserves, they adopted floating currencies that were no longer redeemable in gold.

After the two world wars, world leaders sought to create a global economic system that
would ensure a longer-lasting global peace. They believe that one of the ways to achieve this
goal was to set up a network of global financial institutions that would promote economic
interdependence and prosperity. The Bretton Woods system was inaugurated in 1944 during
the United Nations Monetary and Financial Conference to prevent the catastrophes of the
early decades of the century from reoccurring and affecting international ties.

The Bretton Wood system was largely influenced by the ideas of British economist
John Maynard Keynes who believed that economic crises occur not when a country does not
have enough money, but when money is not being spent and, thereby, not moving. When
economies slow down, according to Keynes, governments have to reinvigorate markets with
infusions of capital. This active role of governments in managing spending served as the
anchor for what would be called a system of global Keynesianism.

Delegates at Bretton Woods agreed to create two financial institutions. The first was
the International Bank for Reconstruction and Development (IBRD) or World Bank) to be
responsible for funding postwar reconstruction projects. It was a critical institution at a time
when many of the world’s cities had been destroyed by the war. The second institution was
the International Monetary Fund (IMF), which was to be the global lender of last resort to
prevent individual countries from spiraling into credit crisis. If economic growth in a country
slowed down because there was not enough money to stimulate the economy, the IMF would
step in. To this day, both institutions remain key players in economic globalization. Shortly,
after Bretton Woods, various countries also committed themselves to further global economic
integration through the General agreement on Tariffs and Trade (GATT) in 1947. GATT’s main
purpose was to reduce tariffs and other hindrances to free trade.

Meanwhile, global market

integration cannot be achieved without the
growth of global corporations. Modern-day
global corporations can trace their lineage to
the era of colonialism when colonizers
exploited colonies as cheap sources of raw
materials and, oftentimes, slave labor; or as
markets for surplus goods. In the literal
sense of the word, there is “free” trade: the
colonial powers freely expropriated the finite
resources of colonies for their own budding
industries. Jan Aart Scholte explains that
“transoceanic commerce took tea, cane
sugar, spices, tobacco, furs and precious metals across the world. To conduct their trade the
English, Dutch, and Danish East India Companies as well as other prototypical ‘global
corporations’ maintained networks of head offices and overseas posts” while gold and silver
flowed to the West from the colonies, as banks started lending out money to governments
across Europe and to the US. Arthur Cotterell’s account of Southeast Asian history –
specifically on Dutch East India company operations in colonial Indonesia and British East
India Company’s attempt to occupy then Spanish-held Manila, and its operations in colonial
Singapore, Burma, and Malaya – provides more insights on the link between colonialism,
trade, and what Scholte calls as “incipient globalization.”

These colonial-era corporations that maintained a multinational reach through their

trading posts, factories, and plantations in the colonies, are precursors to modern-day global
corporations. Their operations validate Wallerstein’s description of a world of core and
peripheries.

Task 4: Make a graphic organizer narrating global market integration.

Role of International Financial Institution in the Creation of a Global

Economy

The current global economy would have been impossible to establish without the
financial power of international institutions such as the WB and the IMF, alongside privately
run banks and other financial institutions. The World Bank Group (WBG) empahasizes its two
goals: “to end extreme poverty and promote shared prosperity in a sustainable way.: Achieving
such goals will help enable developing countries in building their capacity to engage in free
trade, industrialization, and other vital development initiatives that make capitalist globalization
work. WBG is composed of five entities, namely the International Bank for Reconstruction and
Development (IBRD), “a global development cooperative owned by 189 member countries.

IMF is known as the twin institution of WB. IMF identifies that its “primary purpose” is
“to ensure the stability of the international monetary system – the system of exchanges rates
and international payments that enables countries (and their citizens) to transact with each
other. The Fund’s mandate was updated in 2012 to include all macroeconomic and financial
sector issues that bear on global stability,” while its “originals aims” include the following:
“promote international monetary cooperation; facilitate the expansion and balanced growth of
international trade; promote exchange stability; assist in the establishment of a multilateral
system of payments; and make resources available (with adequate safeguards) to members
experiencing balance of payments difficulties.

While it is clear that the WB and the IMF provide important financial services to
governments and even the private sector, critics emphasize that these international financial
institutions promoting globalization are far from perfect. Alejandro Lichauco sheds light on the
“Ideology” of the IMF and the WB which he sees as the perpetrators of the debt trap that has
ensnared Third World countries for the past decades. The debt trap refers to the developing
countries’ inability to free themselves from debts acquired from First World-dominated
multilateral financial institutions and private banks, due to the onerous nature of most loans
which structurally bind the debtor countries to economic policies that maintain and expand
economic dependency such as privatization, deregulation, premature trade liberalization, and
lifting of other protectionist schemes: and hence hamper the capability of Third World
governments to pay their debts in the long run and provide social services to their citizens at
the same time.

International economic integration is a central tenet of globalization. In fact, it is so

crucial to the process that many writers and commentators confuse this integration for the
entirety of globalization. As a reminder, economics is just one window into the phenomenon
of globalization; I is not the entire thing.

Nevertheless, much of globalization is anchored on changes in the economy. Global

culture, for example, is facilitated by trade. Filipinos would not be as aware of American culture
if not for the trade that allows locals to watch American movies, listen to American music, and
consume American products. The globalization of politics is likewise largely contingent on
trade relations. These days, many events of foreign affairs are conducted to cement trading
relations between and among states.

Given the stakes involved in economic globalization, it is perennially important to ask

how this system can be made more just.
Although some elements of global free trade can be scaled back, policies cannot do away with
it as a whole. International policymakers, therefore, should strive to think of ways to make
trading deals fairer. Governments must also continue to devise ways of cushioning the most
damaging effects of economic globalization, while ensuring that its benefits accrue for
everyone.

Task 5: Come-up a list of of the internation financial institutions and discuss its
implication to globalization. Follow the template below and add more rows if necesaary.

International Fianncial Instiutions Role of to the Global Economy

 The Global Interstate System and Contemporary Global
Governance

Globalization requires some sort of global, or at least, international governance. The

very rules of globalization – specifically trade regulations – are governed by global
institutions such as WTO. Its functions clearly outline that, “it is an organization for trade
opening. It is a forum for governments to negotiate trade agreements. It is a place for them
to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place
where member governments try to sort out the trade problems they face with each other.”
Furthermore, the WTO claims to be capable of doing ten specific things:

1. cut living costs and raise living standards;

2. settle disputes and reduce trade tensions;
3. stimulate economic growth and employment;
4. cut the cost of doing business internationally;
5. encourage good governance;
6. help countries develop;
7. give the weak a strong voice;
8. support the environment and health;
9. contribute to peace and stability; and
10. be effective without hitting the headlines.

Despite the positive declarations of WTO, even mainstream economists such as

Stiglitz, former WB chief economist, acknowledges that globalization has its “discontents”
because “unfortunately, we have no world government, accountable to the people of every
country, to oversee the globalization process. . . Instead, we have a system that might be
called global governance without global government, one in which a few institutions – the
World Bank, the IMF, the WTO – and a few players – the finance, commerce, and trade
ministers, closely linked to certain financial and commercial interests – dominate the scene,
but in which many of those affected by their decisions are left almost voiceless.”

Indeed, only bureaucrats, diplomats, big businessmen, and economists are admitted
into the “board rooms” of these powerhouses. Common folk affected by free trade policies –
from farmers to workers and indigenous people to migrants – are relegated to the sidelines,
at times allowed protesting against globalization near the centers of power, but most of the
times ignored just the same. For example, virtually every major WTO ministerial conference
from Seatlee in 1999 to Nairobi in 2015, has faced big protest actions from marginalized
groups decrying the ill effects of unbridled free trade to citizens of mostly developing countries.
Nevertheless, it must be noted that in recent years, even Americans are starting to complain
about free trade. Noah smith exposed what he calls as the “dark side of globalization,”

the clearest example is competition from foreign workers, which really has slammed
the Americans working class . . . competition from China lowered wages and increased
unemployment for American workers who were in competition with Chinese imports
. . . competition from developing countries – not the decline of unions or the rise of
Automation – has been responsible for the bulk of the recent decline in labor’s
Share of income in the United States. Chinese imports have lowered prices for
Consumers and raised the income of capital owners, but those benefits are either
Spread very thinly over a large number of people, or concentrated among the rich. The
American workers who have been hurt globalization have been hurt every badly, and
America has no system in place to compensate them for that loss. China’s accession to the
WTO in 2000, following the 1999 meeting, accelerated its rise aa an export powerhouse.
 It is very ironic that even workers in the biggest capitalist country in the world are now
negatively affected by globalization’s policies. As the economic roots of globalization cannot
be divorced from its cultural and political aspects, the United Nations (UN) and its many
specific agencies or intergovernmental bodies – from UN Educational, Scientific and cultural
Organization (UNESCO) to UN Conference on Trade and Development its limitations and
exclusivity, the UN Security Council (UNSC) composed of permanent (mostly developed
countries) and nonpermanent members (elected from the UN General assembly or UNGA) is
also an important venue for global governance.

The UNSC has the power to impose economic sanctions on any UN member nation
that violates UN rules or decisions. Amid the spread of globalization, states remain relevant
as even global institutions rely on nation-states to implement their decisions. For example, any
major decision of the powerful UNSC can only be effective if it is popular and acceptable to
most member nations of the UN. Consensus-building and cooperation are necessary for
making global governance through the UN bodies possible. A genuinely global authority will
find the world ungovernable and unmanageable as its sheer vastness and variety require
management at the regional, national, and local levels. Hence, while globalization strengthens
global institutions and the need for global cooperation, it also necessitates the continues
existence of nation-states and national authorities.

Task 6: Using a semantic web, depict the challenges of global governance in the 21st
century.

VIII - SELF- EVALUATION: In your own words, supply the statements below.
 Globalization is the result of Globalization is an immense Alongside the globalization
powerful governments….. global opportunity because of the markets there must
….. also be a corresponding
globalization of solidarity
……

IX - REVIEW OF CONCEPTS

✓ Market integration is a process of economic transformation within a region, bloc, or

group of countries, aimed at pegging one price for the same products, thereby
directly or indirectly merging previously separate markets or economic communities
into one single market or economic community.
✓ Global Corporation is a company that operates in a number of countries, in contrast
with companies that operate only in one few countries.
✓ Lender of last resort is a financial institution that offers loans to countries, banks, or
other financial institutions in times of crisis or that are in some sort of financial
difficulty and hence, considered highly risky to be served by typical lenders.
✓ Global corporations have vast influence under globalization as their economic power
can make or break a country’s economy. Some global corporations even have bigger
valuation than the GDP of several developed countries.
✓ The Philippines is among the world’s top gold exporters. Locals have been mining
various sites in the country since pre-colonial times.
✓ Despite the World Bank’s impressive development goals, it is still criticized for failing
to drastically cut poverty rates in many developing countries.
✓ Progressives have a reason to harp on the slow ideological metamorphosis of IMF.
✓ Real GDP per capita is the average income per person in a particular country in a
given year, adjusted for changes brought by inflation.

X - POST-TEST: Answer the following questions briefly.

1. Why is globalization said to be a choir of different voices?

___________________________________________________________________

2. What sectors shape and influence the global economy’s operation? How do they
interact with each other
 ___________________________________________________________________

3. Why do critics of capitalist globalization argue that regulation, rather than

deregulation, is needed?
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XI - REFERENCES

1. Aldama, PK.(2018). The Contemporary World. 1st Ed.

2. Das, K.D. (2011). Conceptual and Globalization: An Imitation. Center for the Study of
Globalization and Regionalization University of Warnick: Dept. of Politics and
Internalization Studies
3. San Juan, DM., (2018). Journey through Our Contemporary World. Vibal
Publication, Manila, Philippines
4. [Link]
5. [Link]
6. [Link]