Chapter II : The Global Economy

Eight Millenium Development Goals of United Nations.

- Eradication of extreme poverty and hunger
Note: A person is living in poverty if he makes less than 100,
534 pesos a year, around 275 pesos a day. Extreme poverty is a
condition characterized by severe deprivation of basic human
needs ( food, safe drinking water, sanitation facilities, health,
shelter, education, and information)
- Achieving universal primary education
- Promoting gender equality and women empowerment
Eight Millenium Development Goals of United
Nations.
- Reducing child mortality
- Improving maternal health
- Combating diseases like HIV/AIDS and malaria
- Ensuring environmental sustainability
- Global partnership for development
Note: 4, 5, 6 goals are health related concern.
Economic Globalization and Global Trade
- Increasing interdependence of world economies
- Cross border trade of commodities and services
- Flow of international capital
- Wide and rapid spread of technologies
- Continuing expansion and integration of markets
Two types of economies associated with economic
globalization
1. Protectionism
- Putting barriers to protect local markets
- There is a systematic government intervention in
foreign trade
- Quotas
- Tariffs
- Preferential treatment for domestic producers
- Discriminating against foreign competitors
Two types of economies associated with economic
globalization
2. Trade liberalization/Free Trade
- The dominant economic policy after WW II
- Free trade agreements were developed among nations
due to technological advancement – transportations &
communication.
- Goods and services move around the world more easily
than ever.
Fair Trade
- Making trade easier with other countries while lessening
inequalities in the global trade.
- Concern for social, economic, and environmental well being of
marginalized small producers specifically:
- 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 S and
consumers in the N.
- Promotion of safe working environment.
 Economic Globalization and Sustainable Development
- The significant downside of global trade is its lack of
sustainability due to: infinite human needs and wants while
earth’s resources are limited.
Sustainable Development
- Using the earth’s resources and the preservation of such
resources for the future.
- Development has to be ensured in and for the future
generations.
- It charts the middle part between economic growth and
sustainable environment.
 Economic Globalization and Sustainable
Development
The relationship between globalization and sustainable
development is multi-dimensional it involves economic,
political and technological aspects which includes the
following:
- Environmental Protection
- Economic Development
- Social Equity
It involves: Environmental, Social and Economic
 Environmental Degradation
- Economic development, although beneficial at one hand,
entails cost on the other.
- Economic development accelerated by the Industrial
Revolution; it is a period in human history that made possible
the cycle of efficiency – means finding the quickest possible
way of producing large amount of a particular products. It
resulted into:
It made buying of goods easier for the people,
There is an increased in demand,
Ultimately, there was an increased in efficiency,
This cycle harms the planet in a number of ways like:
 Environmental Degradation
Carbon emission from factories.
More wastes are thrown into the ocean
Deforestation, pollution, and climate change.
- Many experts believe that our planet cannot sustain a growing
global economy due to the increase in living standards of the people.
The opposing views of Neoliberals and the Environmentalists
- The neoliberals see the efforts of the environmentalists as serious
impediments to trade.
- While for the environmentalists, they argue that environmental
issues should be given priority over economic issues.
 Environmental Degradation

Note: Some seek to reconcile the issues between neoliberals

and environmentalists like introducing the concept of
ecological modernization theories which sees globalization as
a process that both protect and enhance the environment.
Various efforts to deal with climate change
Kyoto Protocol – it aimed for the reduction of carbon
emission
Carbon tax and carbon neutrality
Finding alternatives to fossil fuels.
Lectures about the impact of climate change
 Food Security
- The demand for food will be 60% greater than it is today
and the challenge of food security requires the world to
feed 9 billion people by 2050 (Breene 2016).
- Global food security means delivering sufficient food to the
entire world population.
- It also means sustainability of society despite of population
growth, climate change, water scarcity, and agricultural
problems. These are the problems affecting food security.
-The closest aspect of human life associated with food
security is the environment.
 Food Security
- The challenges to food security can be traced to the protection of the
environment.
- The major environmental problems are:
Destruction of natural habitat through deforestation
Industrial fishing – destruction of marine life and ecosystems

Biodiversity and usable farmland have also declined in rapid pace

Decline in the availability of fresh water-degradation of soil and desertification
It transformed the public good into a privatized commodity
It further intensified by the consumption of “virtual water”
Population growth increase in consumption intensify ecological
problems
Global flow of dangerous debris like electronic waste
 Food Security
- The destruction of water ecosystem may lead to the creation of “climate refugees” –
people who are forced to migrate due to lack of water or due to flooding.

- Effects of environmental problems:

Pollution through toxic chemicals has a long-term impact on the environment
The use of persistent organic chemicals has led to the significant industrial
pollution
Greenhouse gases that trap sunlight and heat in the earth’s atmosphere
contribute greatly to global warming
 Food Security
The melting of glacial ice has potential catastrophic
effects
Possibility of substantial flood
Reduction in the alkalinity of the oceans
Destruction of existing ecosystem
Ultimately, global warming poses a threat to the global
supply of food as well as to human health.
 Economic Globalization, Poverty, and Inequality

The Swedish statistician Hans Rosling once said “The 1 to

2 billion poorest in the world who don’t have food for the
day suffer from the worse disease, and globalization
deficiency. The way globalization is occurring could be
much better, but the worst thing is not being part of it.”
In economic and trade globalization companies are trying
to outmaneuver their competitors by finding:
Cheapest source of raw materials
Lowest wage labor
Weakest regulation
 Economic Globalization, Poverty, and Inequality
This process will create “winners” and “losers”
The winners
Corporations and their stockholders who earn more profit
Consumers who get the products at a cheaper price
The losers
High wageworkers which their jobs were moved overseas
Workers are thrown into hazardous working conditions
Multiplier Effect:
An increase in one economic activity can lead to an increase in
other economic activities. Investing in businesses will lead to more
jobs and more income.
 Economic Globalization, Poverty, and Inequality

Opponents of economic globalization called outsourcing of

jobs as:
Exploitation and oppression
A form of economic colonialism
To counter the exploitative nature of outsourcing few, call
for:
Protectionist policies like higher tariffs
Limitations on outsourcing
Demand for higher wages and more protection
 Economic Globalization, Poverty, and Inequality

In some extent, the reality about economic globalization

is that:
Companies do not follow the same rules they do in
developed countries.
Some developing countries have no minimum wage
laws
Have no regulations that provide safe working
conditions or protect the environment
Nearly every country ban child labor, those laws are
not always enforced.
 Economic Globalization, Poverty, and Inequality

In the absence of regulation, the following may help protect the

workers from possible exploitation due to economic globalization:
Public awareness is growing along with the pressure from
international community to take steps to protect the workers.
Pro-globalization argues that as developing economies grow,
there are more opportunities for workers, which lead to more
competition for labor and higher wages.
Economic globalization has helped millions of people get out from
extreme poverty.
One of the best ways to help those in extreme poverty is to
enable them to participate in the economy.
 Global Income inequality

- Globalization and inequality are closely related, nations are divided

between: North and South, Developed and Less Developed, Core and
Periphery
- These differences reflect one key aspect of inequality – global economic
inequality
- There are two main types of economic inequality:
 Wealth inequality
Net worth of a country
All assets of nation-natural, human less liabilities
 Income inequality
New earnings that are added to country’s wealth
From the flow of goods and services
 Global Income Inequality
- The global wealth as of 2016 based on the Global Wealth
Report is about 3.5 trillion dollars and it is not distributed
equally.
- The report further showed that income inequality
continues to rise “While the bottom half collectively own
less than 1% of the total wealth, the wealthiest top 10%
own 89% of all global assets.”
- Global income inequality according to Branko Milanovic is
a result of “economic big bang” – Industrial Revolution
 Global Income Inequality
- This “explosion” made some nations developed while
others are developing, ultimately resulted into economic
gap among countries
- Many economists believe that the world’s poorest people
gained something from globalization. The rich on the other
hand, earned a lot more.
- “The triumph of globalization and market capitalism has
improved living standards for billions while concentrating
billions among the few”
- Access to technology contributed worldwide income
inequality
 The Third World and the Global South
- The idea on First, Second, and Third World were used date
back to Cold War, when Western policy makers began
talking about the world as three distinct political and
economic blocs.
- The Western capitalist countries were labeled as “First
World”
- The Soviet Union and its allies were termed as “Second
World”
- While everyone else was grouped into “Third World”
- After the Cold War, the term Second World became null, thus
the First World and Third World were left.
 The Third World and the Global South
- The Third World a vague catchall term for non-alliance countries
and associated with impoverished states. While the First world
was associated with rich, and industrialized countries.
- The Third World countries have vastly different levels of
economic status, some are relatively poor, but many are not.
- The Global North and the Global South sharing common
problems and issues involving economic, politics and racial
inequality.
Whites are disproportionately in the dominant North.
Whiles black are primarily in the South.
- In terms of economic differences between wealthy Global North
and poor Global South.
 Global City
- Sassen (1991) used the concept global cities to describe
the three urban centers of New Yorks, London, and Tokyo
as economic centers the exert control over the world’s
political economy.
- According to Castells (2000), these cities can be seen as
important nodes in a variety of global networks.
- Cities are major beneficiaries of globalization; they are
also the most severely affected by the global problems.
 Theories of Global Stratification
Just as you find stratification among socioeconomic classes within society
like the Philippine, you would also see across the world a pattern of global
stratification in inequalities in wealth, and power between nations. There different
theories that would possibly answer question on global stratification:
Modernization Theory
- This theory frames global stratification as a function of technological and
cultural differences between nations. Specifically, it pinpoints two historical
events:
The Columbian Exchange
Industrial Revolution
- Modernization theory argues that the tension between tradition and
technological change is the biggest barrier to growth.
- The Protestant Reformation primed Europe to take a progress-oriented way of
life in which financial success was a sign of personal virtue.
 Theories of Global Stratification

Walt Rostow’s Four Stages of Modernization

The Traditional Stage
*Societies that are structured around small, local communities with
production typically being done in family settings.
*Traditional rules how a society functions: what your parents do is
what their parents did, and what you will do when you grow up too.
The Take-Off Stage
*People begin to use their individual talents to produce things
beyond the necessities.
*This innovation creates new markets for trade.
*Social status is more closely linked with material wealth
 Theories of Global Stratification

Drive to Technological Maturity

Technological growth of the earlier periods begins to

bear fruit in the form of:
population growth,
reductions on absolute poverty levels,
more diverse jobs opportunities.
Begin to push for social change along with economic
change, like implementing basic schooling for everyone
and developing more democratic political systems
 Theories of Global Stratification

High Mass Consumption

It is when a country is big enough that production becomes more about
wants than needs.
Many of these countries put social support system in place to ensure that
all of their citizens have access to basic necessities.

Note:
Modernization theory argues that if you invest in better technologies, they
will eventually raise production enough that there will be more wealth to go
around and overall well-being will go up.
Critics of Modernization theory argue that, in many ways, it is just a new
name for the idea that capitalism is the only way for a country to
develop.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
This theory is about the effect of colonialism by European colonialists claiming
lands for Europe. At one-point British Empire covered about one-fourth of the world.
*With colonialism came the exploitation of both natural and human resources.
*The transatlantic slave trade followed a triangular route between Africa,
America, and Caribbean, and Europe.
*Guns and factory-made goods were sent to Africa in exchange for slaves, who
were sent to colonies to produce goods like cotton and tobacco, which were
sent back to Europe.
*In the mid-nineteenth century, the point of colonialism came to be less about
human resources and more about natural resources.
*European countries took control of land and raw materials to funnel wealth
back to the West.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Question: Why are many countries in the world not developing?
The traditional answers are:
These countries are not pursuing the right economic policies
Their governments are authoritarian and corrupt.
The dependency theory was a product of this experience.
Dependency is the condition in which the development of the
nation-states of the South contributed to a decline in their
independence and to an increase in economic development of
the countries in the North. (Cardoso and Felato, 1979).
Dependency Theory argues that:
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
- Instead of focusing on what poor countries are doing
wrong, dependency theory focuses on how poor country
have been wronged by richer nations.
- The prospects of both wealthy and poor countries are
inextricably linked.
- In a world of finite resources, we cannot understand why
rich nations are rich without realizing that those riches came
at the expense of another country being poor.
Note: In this view, global stratification starts with colonialism
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Assumptions of this theory:
- The terms “core nations and “peripheral nations” are at
the heart of dependency theory.
- Peripheral nations – are countries that are less developed
and receive an unequal distribution of the world’s wealth.
- Core nations – are more industrialized nations who receive
the majority of the world’s wealth.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Another assumptions of this theory is that:
- “Even after de-colonization, there are still important ties between the
developed and less developed countries, which mainly consist in the
exploitation of peripheral natural resources and workforce by the
center”
- The development of peripheral nations is stagnant because of the
exploitative nature of the core nations
- Peripheral countries are said to primarily serve the interests of the
wealthier countries and end up having little to no resources to put
toward their own development.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Another assumptions of this theory is that:

- The economies of periphery countries rely on manual labor and to the

export of raw materials to core nations.
- Core countries process these raw materials and sell them at a much
higher price.
- Peripheral nations end up spending more money on the processed
goods.
- The dependency theory describes a vicious cycle that enforces a
hierarchy of nations across the globe.
Note: Some countries were not developing around the world because
the international system was actually preventing them from doing so.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Two Main Sub-Theories of Dependency Theory
1. Latin American Structuralist Approach

- Palma (1978) argues that Latin American underdevelopment was due

to “excessive” reliance on exports of primary commodities.
- Cardoso and Faletto (1979) believed that Latin American economies
were the results of capitalist expansion in the U.S and Europe.
- The term “dependency” was used to underscore the extend to which
the economic and political development of poor countries was
conditioned by the global economy whose center of gravity was
located in the developed nations.
 Theories of Global Stratification
Dependency Theory and the Latin American Experience
Two Main Sub-Theories of Dependency Theory

2. The North American Neo-Marxist Approach

- Andre Gunder Frank (1969) contended the idea that less developed
countries would develop by following the path taken by the
developed countries.
- Developed countries were undeveloped in the beginning but not
underdeveloped. This means that the path taken by the developed
countries does not guarantee the same fate for the underdeveloped
countries.
- The country’s underdevelopment is due to their dependency to
capitalist system that causes lack of development.
 The Modern World-System
- Immanuel Wallerstein model “the capitalist world
economy” described high-income nations as the “core”
of the world economy.
- The core is the manufacturing base of the planet where
resources funnel in to become the technology and wealth
enjoyed by the Western world today.
- The low-income countries the “periphery” whose natural
resources and labor support the wealthier countries as:
Colonies
Working for multinational corporations under
neocolonialism
 The Modern World System
- The periphery remains economically dependent on the core in a
number of ways:
*Poor nations tend to have few resources to export to rich
countries
*Corporations can buy these raw materials cheaply and then
process and sell them in richer nations.
*Poor countries are also more likely to lack industrial capacity,
so they have to import expensive manufactured goods from richer
nations.
*Unequal trade led to global stratification.
Note: The problem is not that there is a lack of global wealth; it is
that the distribution of it is not well.
 The Modern World System
Critics of Dependency Theory:
- Critics argue that the world economy is not a zero-sum game –
one country getting richer does not mean other countries are
getting poorer.
- Innovations and technological growth can spill over to other
countries, improving all nation’s well-being and not just the rich.
- Foreign investment by richer nations helps and DO NOT hurt the
poor countries.
- It points the finger at the capitalist market system as the sole
cause of stratification, ignoring the role of things like how culture
and political regimes play in impoverishing countries
 The Modern World System
Note: Most dependency theorists just urge poor nations to
cease all contacts with the rich nations or argue for a kind of
global socialism. This idea does not acknowledge the reality
of the modern world economy. The growth of the world
economy and expansion of world trade have coincide with
rising standards of living worldwide, with even the poorest
nations almost tripling in the last century.