Globalization

-the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life (Held, et al.,
1999)

Advances in technology such as mobile phones airplanes telephones and the Internet have made the growth of transport and
communication networks possible. Among other things, this means that people and countries can exchange information and goods
more quickly and in a less complicated way, this process is called globalization. It is the process by which businesses or other
organizations develop international influence or start operating on an international scale. Globalization represents the global
interaction & integration of international trade, investment, information technology and cultures among people, companies, and
government.

-a multidimensional phenomenon

It covers different aspects which can refer to political, technical, social, cultural, legal, and economic features. Economically,
globalization involves goods and services, and the economic resources of capital, technology, and data. Technically, advancements in
IT and the flow of information across borders have increased awareness among populations of economic trends and investment
opportunities. In social terms, globalization represents greater interconnectedness among global populations. Culturally, globalization
represents the exchange of ideas and values among cultures, and even a trend toward the development of a single world culture.
Politically, globalization has shifted countries' political activities to the global level through intergovernmental organizations like the
United Nations and the World Trade Organization. The United Nations is an international organization formed in 1945 to increase
political and economic cooperation among its member countries. (UN) was formed in the wake of World War II as a way to reduce
international tensions, promote human rights and reduce the possibility of other large-scale conflicts. On the other hand, The World
Trade Organization (WTO) is essentially a mediation entity that upholds the international rules of trade between nations. The main
function of the organization is to help producers of goods and services, exporters, and importers protect and manage their businesses.
With regards to law, globalization has altered how international law is created and enforced.

Economic Globalization

-refers to the increasing integration of economies around the world, particularly through the movement of goods, services, and capital
across borders

Economic globalization is a spread of trade, transportation, and communication systems on a global scale in the interest of promoting
international commerce. There are two different economies we should know about economic globalization. These are protectionism
and trade liberalization. Protectionism is protecting one’s economy from foreign competition by creating trade barriers while trade
liberalization is the act of reducing trade barriers to make international trade easier between countries. These trade barriers are
usually tariffs which are required fees on imports or exports and quota which is the limited quantity of a particular product that under
official controls can be produced, exported, or imported.

-a historical process, the result of human innovation and technological progress

In ancient times, traders traveled vast distances to buy rare commodities such as salt, spices and gold, which they would then sell in
their home countries.

 Gills and Thompson (2006)- migration

According to Gills and Thompson, globalization processes have been ongoing ever since Homo sapiens began migrating from the
African continent ultimately to populate the rest of the world. Minimally, they have been ongoing since the sixteen-century’s
connection of the Americas to Afro-Eurasia.

 Silk Road- best known example of old-fashioned globalization

The Silk Road was an ancient network of trade routes, formally established during the Han Dynasty of China, which connected Asia,
Africa, and Europe.

 Adam Smith- magnum opus, An inquiry into the nature and causes of the wealth of nations (1776).

When he wrote this masterpiece, he considered the discovery of America by Christopher Columbus in 1492 and the discovery of the
direct sea route to India by Vasco de Gama in 1498 as the two greatest achievements in human history which serve as pathways to
network and trade. However, in the course of a couple of decades these remarkable achievements were overshadowed by the
breathtaking technological advances and organization methods of the British Industrial Revolution.

 1800s- industrial revolution

From the early 1800s, following the Napoleonic wars, the industrial revolution spread to Continental Europe and North America, too.
This time period saw the mechanization of agriculture and textile manufacturing and a revolution in power, including steam ships and
railroads which affected social, cultural and economic conditions.

 The British and the Dutch East India Companies- established in 1600 and 1602, respectively.
The economic nationalism of the 17th and 18th centuries, coupled with monopolized trade (such as the first multinational
corporations, the British and the Dutch East India Companies, established in 1600 and 1602, respectively) did not favor, international
economic integration.

 Between 1500 and 1800- total number of ships sailing to Asia from major European countries rose remarkably.

The total number of ships sailing to Asia from major European countries rose remarkably between 1500 and 1800 (in numbers: 770 in
the 16th, 3,161 in the 17th and 6,661 in the 18th century).

 World export to world Gross Domestic Product (GDP)

However, world export to world GDP did not reach more than one to two per cent in that period. Gross domestic product (GDP) is the
monetary value of all the finished goods and services produced within a country's borders in a specific time period. GDP is commonly
used as an indicator of the economic health of a country, as well as a gauge of a country's standard of living.

 19th Century

The real break-through came only in the 19th century. The annual average compound growth rate of world trade saw a dramatic
increase of 4.2 per cent between 1820 and 1870, and was still relatively high, at 3.4 per cent between 1870 and 1913.

 1870 to 1913- golden age of globalization

The relatively short period before World War I is often referred to as the ‘golden age’ of globalization, since it was characterized by
relative peace, free trade and financial and economic stability.

 1913- trade equaled to 16-17 %

By 1913, trade equaled to 16–17 per cent of world income, due to the transport revolution: steamships and railroads reduced
transaction costs and strengthened both internal and international exchange. -The phenomenon has several interconnected
dimensions such as the globalization of trade of goods and services, the globalization of financial and capital markets, the globalization
of technology and communication, and the globalization of production.

Transnational Corporations (TNCs)

-the major players of present-day global economy

-the main driving forces of economic globalization of the last 100 years, accounting for roughly two-thirds of world export

Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign
affiliates such as Procter & Gamble and Coca-Cola Company. A parent enterprise is defined as an enterprise that controls assets of
other entities in countries other than its home country, usually by owning a certain equity capital stake. A foreign affiliate is an
incorporated or unincorporated enterprise in which an investor, who is resident in another economy, owns a stake that permits a
lasting interest in the management of that enterprise. Multinational Corporation has an international identity as belonging to a
particular home country where they are headquartered. A transnational company is borderless, as it does not consider any particular
country as its base, home or headquarters. Transnational Corporation is a type of multinational corporations.

Global commodity chain

-an idea that reflects upon the increasing importance of global buyers in a world of dispersed production

As economic integration is becoming more intensive, production disintegrates as a result of the outsourcing activity of multinationals
(Feenstra, 1998). This move induced Gereffi (1999) to develop the concept of global commodity chains. A commodity chain is a process
used by firms to gather resources, transform them into goods or commodities, and finally, distribute them to consumers. It is a series
of links connecting the many places of production and distribution and resulting in a commodity that is then exchanged on the world
market.

Issues about Globalization

Economic globalization fosters universal economic growth and development but we cannot ignore the fact that it still result into issues
affecting the society.
Capitalism, also known as the free-enterprise or free-market system, is an economic and political system in which a country's trade
and industry are controlled by private owners for profit, rather than by the state. According to Wallerstein, capitalism is a historical
social system which created the dramatically diverging historical level of wages in the economic arena of the world system. Powerful
Transnational Corporations tend to transfer manufacturing jobs from developed nations to less developed countries through
outsourcing in order to reduce the cost of products because economically disadvantaged countries have less government regulations
and cheaper labor cost. Workers in these countries work for very little money therefore they often remain poor and sometimes they
do not have sufficient social and health insurance cover. Capitalism is exploitative in nature which divided society and the rich has
more power over the working class posing threats to human rights. Contractualization applied by these corporations treat employees
unfairly in order to benefit from their work and maximize their profit.
Income inequality is the unequal distribution of household or individual income across the various participants in an economy. It is
often presented as the percentage of income related to a percentage of the population. Over the past two decades, income inequality
has risen in most regions and countries. The ratio of the richest region’s GDP per capita to that of the poorest was only 1.1 in 1000, 2
in 1500 and still only 3 in 1820. It widened to 5 in 1871 and stood at 9 at the outbreak of World War I. In 1950 it climbed to 15 and
peaked at 18 at the turn of the new millennium. Less equal societies have less stable economies. High levels of income inequality are
linked to economic instability, financial crisis, debt and inflation.
Environmental Problems
Globalization has produced ecological problems such as global warming, climate change, and the abuse of natural resources. The use
of airplanes, ships and trucks to transport goods over international borders is constantly on the increase. Manufacturing companies
and factories release chemicals into the atmosphere. This causes more carbon dioxide to be released into the atmosphere which in
turn is the main cause of global warming which is the gradual increase in the overall temperature of the earth's atmosphere generally
attributed to the greenhouse effect caused by increased levels of carbon dioxide, chlorofluorocarbons, and other pollutants.

International Monetary Systems

Regimes - all the implicit and explicit principles, norms, rules, and decision-making procedures around which actors’ expectations
converge (Krasner, 1983)

International monetary system or regime (IMS) - refers to the rules, customs, instruments, facilities, and organizations for effecting
international payments (Salvatore, 2007). In the liberal tradition, IMS facilitates cross border transactions, especially trade and
investment. However, it also reflects economic power and interests, as money is inherently political, an integral part of “high politics”
of diplomacy (Cohen, 2000).

THE GOLD STANDARD

The gold standard functioned as a fixed exchange rate regime, with gold as the only international reserve. Participating countries
determined the gold content of national currencies (fixed exchange rates). Common adherence to gold convertibility … linked the
world together through fixed exchange rates (Bordo and Rockoff, 1996). The modern-day IMS originated back to the early 19th
century, when the UK adopted gold monometallism in 1821. In 1867, the European nations & the United States, propagated a
deliberate shift to gold at the International Monetary Conference in Paris.

Gold - believed to guarantee a non-inflationary, stable economic environment, a means for accelerating international trade (Einaudi,
2001)

In 1872, Germany joined the monetary regime with gold as standard, then France (1878), United States (1879), Italy (1984) and Russia
(1897). Roughly 70 percent of the nations participated in the gold standard just before World War I (Meissner, 2005).

One of the main strengths of the system was the tendency for trade balance to be in equilibrium. Nations with trade surpluses exports
(accumulates gold) to nations with deficits (decrease in gold reserve). But deficit nations were enforced to initiate serious deflationary
policies. The regime was indeed able to create stability, restore equilibrium and provided an almost unlimited access to world finance.

World War I ended the classical gold standard. Participating nations gave up convertibility and abandoned gold export in order to stop
the depletion of their national gold reserves. UK attempted to return the gold standard but did not succeed due to overvalued pound
sterling and the emergence of new rivals (United States and France)

1930s became the darkest period of modern economic history. Competitive devaluations, along with tough capital controls and the
imposition of tariffs, induced a race to the bottom. (Eichengreen and Irwin, 2009). The deep structural changes of the time, which
were the causes and the consequences of universal suffrage made the governments reluctant to defend a pegging system at any cost.
(Karl Polányi, 1944). In the classical gold standard regime, deflationary policies were endorsed without much hesitation. After World
War I, however, labourers became more and more successful in preventing incumbents from adopting welfare reducing austerity
measures.

THE BRETTON WOODS SYSTEM AND ITS DISSOLUTION

Inter-war period consequences and the wish to return to peace and prosperity impelled the allied nations to start a new IMS in the
framework of the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire (US), in July 1944. Delegates
of 44 countries agreed on adopting the gold-exchange standard. The US dollar was the only convertible currency of the time, so the
United States committed itself to sell and purchase gold without restrictions at US$35 dollar an ounce. All other participating but non-
convertible currencies were fixed to the US dollar. Delegates also agreed on the establishment of two international institutions:

1. International Banks for Reconstruction and Development (IBRD) - responsible for post-war reconstruction

2. International Monetary Fund (IMF) promotes international financial cooperation and buttress international trade. The IMF was
expected to safeguard the smooth functioning of the gold exchange standard by providing short-term financial assistance in case of
temporary balance of payments difficulties.

The Bretton Woods system did not prevent countries from running large and persistent deficits (or surpluses) in their balance of
payments and were allowed to correct the official exchange rate in order to eliminate deficits.

During the first few years of the new regime, US managed to maintain a surplus in its balance of payments. As soon as Europe regained
its pre-World War II economic power, the external position of the United States turned into a persistent deficit as a natural
consequence of becoming an international reserve currency. Nevertheless, by the mid-1960s, the dollar became excessively
overvalued vis-à-vis major currencies. As a response, foreign countries started to deplete the US gold reserves. Destabilizing
speculations, fed by the huge balance of payments and trade deficit, along with inflationary pressures, forced the United States to
abandon the gold exchange standard on 15 August, 1971.

In early 1973, industrialized countries decided to float their currencies and intervene in financial markets. But managed floating did
not perform any better, either that advanced countries had to interfere on a few occasions in order to avoid calamity
The 1990s saw the triumph of the Washington Consensus. Its programme points were advocated and disseminated by the major
international financial institutions such as IMF. Several countries, such as Mexico, Brazil or the East Asian tigers, deregulated their
financial sectors and fully liberalized capital transactions. However, reforms were not supplemented by strengthened monitoring and
these currencies were pegged to the US dollar, which appreciated substantially during the 1990s and caused a financial crisis that first
hit Mexico in 1994 and reached East Asia in 1997–8.

EUROPEAN MONETARY INTEGRATION

In the post-World War II era, the United States advocated an economically and militarily strong Germany and Western Europe. It
activated its postwar reconstruction programme, the Marshall Plan, in 1948, which was administered by the Organization for European
Economic Cooperation. European Economic Community (EEC) was established and was the first major step towards an ever-closer
union.

European six (Germany, France, Italy, Netherlands, Belgium and Luxembourg) aimed at the creation of a common market, where
goods, services, capital and labour moved freely but not in the field of finance or exchange rate policies. But the collapse of the Bretton
Woods system pressured EEC to set up a regional monetary regime—the European Monetary System (EMS) in 1979. The EMS was a
unique system, since neither the US dollar, nor gold could play a role in the stabilization process of exchange rates. Instead, a
symmetric adjustable peg arrangement, the European Exchange Rate Mechanism, was created (Gros and Thygesen, 1998).

The success of the EMS enabled Jacques Delors, European Commission President, to establish the new European Economic and
Monetary Union (EMU) in the Maastricht Treaty in 1992. By 1999, the member states of EMU abandoned their currencies and had it
administered by the European Central Bank (ECB).

The first ten years of the EMU succeeded but the global financial and economic crisis of 2008–9 posed dramatic challenges for the
European Union (EU). The ECB cannot bail out individual countries which have lost their monetary authority. As a response to the
crisis, the EU enacted a three-pillar financial rescue programme in 2010, namely:

1. European Financial Stability Mechanism;

2. European Financial Stability Facility; and
3. the financial assistance of the IMF.

Critics say that EMU would never be able to qualify for a well-functioning and stable monetary zone without a common budget of the
size of federal countries such as the United States (Feldstein, 1997). The future of the EMU depends on the willingness of member
states to agree on more fundamental changes in the governance of the Eurozone.

INTERNATIONAL TRADE AND TRADE POLICIES

Paul Samuelson
 gave one proposition that is both valid and nontrivial
 He gave David Ricardo’s Comparative Advantage Theory

Comparative Advantage Theory

Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Opportunity
cost measures a trade-off. A nation with a comparative advantage makes the trade-off worth it. The benefits of buying their good or
service outweigh the disadvantages. The country may not be the best at producing something. But the good or service has a low
opportunity cost for other countries to import.

 It became the rationale for free trade agreements

 He (D. Ricardo) argued that a country boosts its economic growth the most by focusing on the industry in which it has the
most substantial comparative advantage.
 Example: Europe was able to manufacture cheap cloth. Portugal had the right conditions to make cheap wine. Ricardo
predicted that Europe would stop making wine and Portugal stop making cloth. He was right. Europe made more money by
trading its cloth for Portugal's wine, and vice versa. It would have cost England a lot to make all the wine it needed because
it lacked the climate. Portugal didn't have the manufacturing ability to make cheap cloth. Therefore, they both benefited by
trading what they produced the most efficiently.

Europe Portugal  Europe produces clothes more efficient than Portugal and Portugal
Clothing 20 hrs/unit 30hrs/unit produces wines more efficient than England. In this case, clothes and wine are the
Wine 10hrs/unit 5hrs/unit absolute advantage of Europe and Portugal, respectively.

Absolute Advantage Theory is the ability of a country/individual/company/region to produce a good or service at low cost price per
unit than the cost that any other country produces on the same good or service

 anything that a country does more efficiently than other countries

Competitive Advantage Theory

Competitive advantage is what a country, business, or individual does that provide a better value to consumers than its competitors.
There are three strategies companies use to gain a competitive advantage. First, they could be the low-cost provider. Second, they
could offer a better product or service. Third, they could focus on one type of customer.
Comparative advantage causes Free Trade

Alexander Hamilton and Friedrich List stated that the Comparative Advantage Theory can hinder the long-term development
prospects of the country producing the lower value added products. Friedrich List developed the INFANT INDUSTRY ARGUMENT which
gave his insights on how the national industry can protect its own economy.

The Infant Industry Argument states that …

 developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their
economy By the regulation of tariffs, imported goods are taxed in order to minimize the trade with international countries,
especially with developed nations. This also promotes the development of local products that may contribute to establish
new industries and the progress in the nation’s economy.
 trade patterns should not be considered static Some people might use trade patterns as a basis for the day-to-day trading.
They should see to it that these are dynamic and has the capacity to change because of different factors such as the supply,
demand, environmental changes, and etc.
 through temporarily restricting the free flow of goods, a national industry can be established, thereby fostering long term
economic growth and political power

Emmanuel (1972) developed the concept of UNEQUAL EXCHANGE

 is a fundamental and systemic distinguishing characteristic of modern world economy.

 The social division of labour contributes to the economic development of the core and hinders development at the periphery.

CORE – best in consumers of primary commodities and producers of manufactured articles.

PERIPHERY – worst of both worlds, as consumers of manufactures and as producers of raw materials.

According to Amin (1993), if the world economy is such that it benefits core countries at the expense of the periphery, the latter should
adopt protectionism in its extreme form of de-linking, i.e. a total breaking up of the ties between the subordinated developing
economies and the core. “International trade can trigger tensions not just between nations, but also within a particular country.”

UNILATERAL TRADE ORDER

In seventeenth and eighteenth century Europe international trade was basically a means to accumulate surplus (gold reserves) in the
balance of payments by stimulating export and restricting import. Monarchs from Portugal to England used gold reserves to
 finance wars; and
 consolidate authority over domestic constituents
The surge of international trade arrived only with Europe’s industrial revolution and the consequent repeal of the British Corn Laws
in 1846 in particular.

 Industrialists triumphed over landowners and farmers, opening the way for further industrialization in Britain. The so-called
Cobden-Chevalier treaty of 1860 allowed the UK and France to specialize in commodities based on their respective
comparative advantages and to achieve further advances in industrialization.
 Helped to avoid the eruption of an abrupt war between the two countries.

Most Favoured Nation (MFN) Principle

 States that any negotiated reciprocal tariff reductions between two parties should be extended to all other trading partners
without conditions
 (Lampe, 2008) Overall average tariffs declined…
1859 1875
Britain 16.3% 6.3% World War I, however, was a dramatic blow to free trade.
France 11.8% 6.5% Protectionism, in turn, was detrimental to development, peace and
Germany 7.1% 2.5% stability (Ruggie, 1982). Two rounds of World Economic Conferences in
Austria - Hungary 7.3% 3.6% 1927 and 1933 failed to deliver tariff reductions and exchange rate
stabilization because of the unwillingness of the United States to take the role of the hegemon as a successor of a weakened
Great Britain.
The US Reciprocal Trade Agreements Act in 1934
 put a stop to any further decline in international trade
 allowed the president to determine trade policies and eased the pressure put on the congress for protection
 a return to the principle of MFN
 provided a solid base for a renewed international trade regime following World War II
MULTILATERALISM: FROM THE GATT TO WTO
 Dollar became the world currency, backed by 2/3 of the world’s gold reserves
 United States is the largest aid donor; wherein, Afghanistan is its top recipient.
General Agreement on Tariffs and Trade (GATT)
 was the first worldwide multilateral free trade agreement
 started June 30, 1948 until January 1, 1995
  The purpose of GATT was to eliminate harmful trade protectionism. That had sent global trade down 65% during the
Great Depression. By removing tariffs, GATT boosted international trade. It restored economic health to the world
after the devastation of World War II.
 3 PROVISIONS:
1. each member must confer the most favored nation status to every other member
2. prohibited restriction on the number of imports and exports
3. Developed countries agreed to eliminate tariffs on imports of developing countries to boost their economies.

PROS: CONS:
•Destroy some domestic industries
•Reduced tariffs •High unemployment
•Promoted world peace •Reduced the rights of a nation to rule its own people
•Inspired other trade agreements •Destabilize small, traditional economies
•Improved communication •Farmers that stay often grow opium, coca or marijuana,
just because they can't grow traditional crops and stay in
business.

The major outcomes of the trade negotiations were the agreements on

 trade-related investment measures (TRIMs),

 trade in services (GATS); and
 trade related aspects of intellectual property rights (TRIPs).
World Trade Organization (WTO)
 January 1, 1995 – Uruguay Round of GATT
 The World Trade Organization is a global organization made up of 164 member countries that deals with the rules
of trade between nations. Its goal is to ensure that trade flows as smoothly and predictably as possible.

DEVELOPING COUNTRIES AND INTERNATIONAL TRADE

Developing nations did not participate actively in multilateral trade negotiations for a relatively long time. Apart from the so
called East Asian newly industrializing countries, which adopted an outward-oriented development strategy, most of the
developing countries did not manage to integrate into the post-World War II trading system successfully. On the one hand,
they followed an inward-looking, import-substitution industrialization strategy, which did not favour trade openness (Findlay
and O’Rourke, 2007)
Advanced economies were also reluctant to open their markets to commodities such as textile or agriculture products in
which developing countries had a natural comparative advantage.
United Nations Conference on Trade and Development (UNCTAD)
 was established with the joint effort of the developing world.
 The aim of UNCTAD was to promote trade and cooperation between the developing and the developed nations.
The change in the behaviour of developing countries arrived with the Uruguay Round. Originally, the round was meant to be
a grand bargain between developed and developing economies (Ostry, 2002). The former were expected to open their
markets, especially to agricultural and textile products, whereas the latter accepted the new regulation on intellectual
property rights and services. While developing countries have opened up their service markets, their export of agricultural
products is still blocked by advanced nations. Agriculture has a share of one-third to a half of the total economic output in
most developing countries. Without the liberalization of agriculture, it is simply impossible for developing nations to fully
integrate into the global economy.
Africa is the potential loser of the Uruguay Round.
Khor (1995) views the WTO as the means by which industrialized countries can gain access to the markets of developing
countries.
All in all, the current trade regime and especially its main propagator, the WTO, is heavily criticized for ‘a striking asymmetry.
National boundaries should not matter for trade flows and capital flows but should be clearly demarcated for technology
flows and labor flows … This asymmetry … lies at the heart of inequality in the rules of the game for globalization’ (Nayyar,
2002: 158)

The Modern World System: Capitalist Agriculture and the Origins of the European World Economy in the Sixteenth Century

The world systems theory, developed by sociologist Immanuel Wallerstein, is an approach to world history and social change that
suggests there is a world economic system in which some countries benefit while others are exploited. The world systems theory is
established on a three-level hierarchy consisting of core, periphery, and semi-periphery areas. This theory emphasizes the social
structure of global inequality.

Core countries are dominant capitalist countries that exploit peripheral countries for labor and raw materials. They are strong in
military power and not dependent on any one state or country. They serve the interests of the economically powerful. They are
focused on higher skill and capital-intensive production. Core countries are powerful, and this power allows them to pay lower prices
for raw goods and exploit cheap labor, which constantly reinforces the unequal status between core and peripheral countries.
The first core region was located in northwestern Europe and made up of England, France, and Holland. Today, the United States is an
example of a core country. The U.S. has large amounts of capital, and its labor forces are relatively well paid.

The world-systems analysis defines semiperiphery regions as the primary structural elements in the economy of the world. Currently,
all semiperiphery areas are industrialized, and they contribute to the manufacture and export of various commodities. The semi-
periphery level plays a significant role when it comes to stabilizing world systems since it facilitates interactions and connections
between the high-income states to the low-income nations by introducing a different level in the hierarchy of the world systems.
These regions are essential elements in the global trade system since they alleviate the pressure which the core regions exert on the
periphery areas and vice versa. Also referred to as the middle-class, they exist to divide the economic power between the periphery
and core areas.

These nations are characterized by extensive lands as demonstrated by Indonesia, Mexico, Iran, Brazil, India, China, and Argentina.
Although more land means an increased market share and size, there are other semi-peripheral regions smaller in sizes like Greece,
Poland, and Israel.

Periphery countries lack a strong central government and possesses a disproportionately small share of the world's wealth. These
areas are less developed than the core and the semi-periphery. These countries export raw materials to the core countries; are often
dependent on more developed nations for capital and; have underdeveloped industry. These countries also have low-skill,
laborintensive production, or in other words, cheap labor. Periphery countries may have an unstable government, inferior
technologies, and poor health and educational systems. At times, the exploitations of these countries with regards to cheap labor,
agriculture, and natural resources may help the core countries remain wealthy. Periphery countries are commonly also referred to as
third-world countries.

Eastern Europe and Latin America were the first peripheral zones. An example nowadays is Cape Verde, a chain of islands off the west
coast of Africa.

World-economy- is a large geographic zone within which there is a division of labor and hence significant internal exchange of basic
or essential goods as well as flows of capital and labor.

The term world economy refers to all of the economic activity within each country and between countries around the world. The
world economy or global economy is considered as the international exchange of goods and services that is expressed in monetary
units of account (money).

Capitalist system- the system gives priority to the endless accumulation of capital.

Endless accumulation means that people and firms are accumulating capital in order to accumulate still more capital, a process that
is continual and endless. A capitalist economic system is one characterized by free markets and the absence of government
intervention in the economy. In practice a capitalist economy will need some government intervention, primarily to protect private
property. This system is consist of various features such as economic freedom (individuals are free to set up business and provide
goods and services they want), consumer sovereignty (consumers are free to decide which goods and services to purchase), limited
government interventions (government intervention are limited to protection of private property and provision of public goods),
finance sector (capitalism requires a developed banking and financial system which can provide loans to companies and banking
services to households), profit motive (is seen as important for enabling an efficient distribution of resources and encouraging
innovation and responsive markets), market forces (allocation of goods is based on demand and supply), flexible labor markets (easy
to hire and fire workers), and free trade (low tariff barriers to encourage international trade).

Capitalist world-economy- a collection of many institutions, the combination of which accounts for its processes, and all of which are
intertwined with each other.

The basic institutions are the market, or rather the markets; the firms that compete in the markets; the multiple states, within an
interstate system; the households; the classes; and the status-groups. They are all institutions that have been created within the
framework of capitalist world-economy.

Market- is both a concrete local structure in which individuals or firms sell and buy goods, and a virtual institution across space where
the same kind of exchange occurs.

A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. This
type of market may either be a physical marketplace where people come together to exchange goods and services in person, as in a
bazaar or shopping center, or a virtual market wherein buyers and sellers do not interact, as in an online market. Technically speaking,
a market is any medium through which two or more parties can engage in an economic transaction, even those that do not necessarily
need to involve money. A market transaction may involve goods, services, information, currency or any combination of these things
passing from one party to another in exchange for one of these or another combination.

Firms- the main actors in the market

A firm is a business organization, such as a corporation, limited liability company or partnership that sells goods or services to make a
profit. Firms are normally the competitors of other firms operating in the same virtual market. They are also in conflict with those
firms from whom they purchase inputs and those firms to which they sell their products.

Core-periphery- the degree of profitability of the production processes.

The center–periphery (or core–periphery) model is a spatial metaphor which describes and attempts to explain the structural
relationship between the advanced or metropolitan ‘center’ and a less developed ‘periphery’, either within a particular country, or
(more commonly) as applied to the relationship between capitalist and developing societies. The center–periphery model thus
suggests that the global economy is characterized by a structured relationship between economic centers which, by using military,
political, and trade power, extract an economic surplus from the subordinate peripheral countries. One major factor in this is the
inequality between wage-levels between core and periphery, which make it profitable for capitalist enterprises to locate part or all of
their production in underdeveloped regions. The extraction of profit depends on that part of the cost of the reproduction of the labor-
force that is not met by wages being met in the non-capitalist sector. Thus, according to proponents of the core–periphery model, the
appearance that capitalism is developing traditional and backward societies by locating enterprises in underdeveloped regions masks
the structural relationship by which capital develops and prospers at the expense (or progressive underdevelopment) of non-capitalist
economies.

The world systems theory, as defined by Immanuel Wallerstein in “World Systems

Analysis,” is the argument that the social reality within which we live and which
determines what our options are has not been the multiple national states of which we
are citizens, but something larger, which we call a worldsystem (x),” World society
models shape nation-state identities, structures, and behavior through worldwide
cultural and associated processes (Meyer, Thomas, & Ramirez, p.84). The rise of human
development at the global level was intensified by the aftermath of World War II and
the Cold War (Meyer p. 85). This world system is composed of core, periphery, and
semi-periphery countries. Whether or not a nation is considered a core or a periphery
country is directly related to the degree of profitability of the production process
(Wallerstein p.28). Periphery countries supply core countries with cheap labor and resources, while core countries reap
majority of the profits (Wallerstein p.28). In this way, an unequal exchange of capital from politically weak regions to politically
strong regions occurs (Wallerstein p. 28).” Semi-peripheral states have a mix of core and periphery production, and are under
constant pressure to prevent themselves from slipping into the periphery, while simultaneously attempting to advance
towards the core status (Wallerstein p. 29). Historically, this system has caused discontent amongst many periphery countries,
who feel the sting of this exploitative system.

SEMI-PERIPHERY

 Semi-peripheral states have a mix of core and periphery production, and are under constant pressure to prevent themselves
from slipping into the periphery, while simultaneously attempting to advance towards the core status (Wallerstein p. 29)
 In the beginning of the twenty-first century, some obvious countries to be labeled semiperipheral are South Korea, Brazil,
and Indiacountries with strong enterprises that export products (for example steel, automobiles, pharmaceuticals) to
peripheral zones, but that also regularly relate to core zones as importers of more "advanced" products.
A major leading industry will be a major stimulus to the expansion of the world-economy and will result in considerable
accumulation of capital.
HOUSEHOLD
 consists of three to ten persons
 they pool multiple sources of income to survive
 Households are quite different from clans or tribes or other quite large and extended entities, which often share obligations
of mutual security and identity but do not regularly share income.
5 KINDS OF INCOME:

1. WAGE INCOME

 is the payment (usually in money form) by persons outside the household for work of a member of the household that is
performed outside the household in some production process. Wageincome may be occasional or regular. It may be payment
by time employed or by work accomplished (piecework)
 Common for adult male aged 14-18 years old to 60-65 years old.

2. SUBSISTENCE ACTIVITY

 We usually define this type of work too narrowly, taking it to mean only the efforts of rural persons to grow food and produce
necessities for their own consumption without passing through a market
 Example: When someone cooks a meal or washes dishes at home, this is subsistence production. When a homeowner
assembles furniture bought from a store, this is subsistence production. And when a professional uses a computer to send
an e-mail which, in an earlier day, a (paid) secretary would have typed, he or she is engaged in subsistence production.
 Common for adult women, children, elders

3. PETTY COMMODITY

 defined as a product produced within the confines of the household but sold for cash on a wider market.
 Example: When a small boy sells on the street cigarettes or matches one by one to consumers who cannot afford to buy them
in the normal quantity that is packaged, this boy is engaged in petty commodity production, the production activity being
simply the disassembly of the larger package and its transport to the street market.
  Common for adult women, children, elders

4. RENT

 Rent can be drawn from some major capital investment (offering urban apartments for rent, or rooms within apartments) or
from locational advantage (collecting a toll on a private bridge) or from capital ownership (clipping coupons on bonds, earning
interest on a savings account). What makes it rent is that it is ownership and not work of any kind that makes possible the
income.

5. TRANSFER PAYMENTS

 defined as income that comes to an individual by virtue of a defined obligation of someone else to provide this income or
transfer payments may occur through the efforts of the state (in which case one's own money may simply be returning at a
different moment in time), or through an insurance scheme (in which one may in the end benefit or lose), or through
redistribution from one economic class to another.

TWO MAJOR VARIETIES OF HOUSEHOLD:

1. Proletarian Household
- Households where wage-income accounts for 50% or more of the lifetime income
- receives the absolute minimum wage
2. Semi-proletarian Household
- Households where it accounts for less than the proletarian household’s dependency on wage-income
- receives below the absolute minimum wage
TWO PRESSURES ON SEMI-PROLETARIAN HOUSEHOLD

1. Wage-workers seek to be “proletarianized” because proletarian household are better paid.

2. Pressure on the employers

CLASSES IN A CAPITALIST SYSTEM

Classes are persons who are differently located in the economic system with different levels of income who have differing interests.
For example, it is in the interest of workers to seek an increase in their wages, and it is in the interest of employers to resist these
increases. Individuals who wish to be class-mobile often find that they must withdraw from the households in which they are located
and locate themselves in other households, in order to achieve such an objective.

STATUS GROUPS OR IDENTITIES

Classes however are not the only groups within which households locate themselves. They are also members of status-groups or
identities.
1. Status-groups - one is emphasizing how they are perceived by others, a sort of objective criterion
2. Identities - one is emphasizing how they perceive themselves, a sort of subjective criterion.

Status-groups or identities are ascribed labels, such as races, ethnic groups, religious communities, and also genders and categories of
sexual preferences. Most of these are often alleged to be anachronistic leftovers of pre-modern times but, in fact, are is very much a
part of modernity. Far from dying out, they are actually growing in importance as the logic of a capitalist system unfolds further and
consumes us more and more intensively.

HOMOGENIZATION

If we argue that households locate themselves in a class, and all their members share this location, is this equally true of status-groups
or identities? There’s a pressure to be part of a single status-group or identity especially to persons who are marrying. This pressure
is felt first of all by persons who are marrying. But the modern world-system and the ignorance on status-group or identity have led
to mixing of original identities and emergence of new ones.

Why is it so important for households to maintain singular class and status-group identities, or at least pretend to maintain them?
Such a homogenization aids in maintaining the unity of a household as an income-pooling unit and in overcoming any centrifugal
tendencies that might arise because of internal inequalities in the distribution of consumption and decision making.

Households serve as the primary socializing agencies of the world-system. They seek to teach us, and particularly the young, knowledge
of and respect for the social rules by which we are supposed to abide.

What however determines how the households will socialize their members? A household that is certain of its status-group identity-
its nationality, its race, its religion, its ethnicity, its code of sexualityknows exactly how to socialize its members. One whose identity is
less certain but that tries to create a homogenized, even if novel, identity can do almost as well. A household that would openly avow
a permanently split identity would find the socialization function almost impossible to do and might find it difficult to survive as a
group.

SOCIALIZATION OF HOUSEHOLD MEMBERS

Socialization results in the acceptance of the very real hierarchies that are the product of the system and internalization of the myths,
the rhetoric, and the theorizing of the system. Households also socialize members into rebellion, withdrawal, and deviance. This anti-
systemic socialization can be useful to the system by offering an outlet for restless spirits, provided that the overall system is in relative
equilibrium.

UNIVERSALISM AND RACISM & SEXISM

Universalism means in general the priority to general rules applying equally to all persons, and therefore the rejection of particularistic
preferences in most spheres. For example, the assigning of persons to positions on the basis of their training and capacities (a practice
otherwise known as meritocracy); on households, marriage should be contracted for reasons of "love" but not those of wealth or
ethnicity or any other general particularism; on state, it means such rules as universal suffrage and equality before the law.

Universalism is a positive norm (most people assert their belief in it and claims that it is a virtue). Racism and sexism are negative
norms (most people deny their belief in them). Almost everyone declares that they are vices, yet nonetheless they are norms. But
racism and sexism are observed at least as high as (in fact for the most part much higher than) the virtuous norm of universalism.

Racism and sexism (Anti-universalism) or the active institutional discrimination against all the persons in a given status-group or
identity. For each kind of identity, there is a social ranking. It can be a crude ranking, with two categories, or elaborate, with a whole
ladder. But there is always a group on top in the ranking, and one or several groups at the bottom.

We are all quite familiar with the worldwide rankings within the modern world-system: men over women, Whites over Blacks (or non-
Whites), adults over children (or the aged), educated over less educated, heterosexuals over gays and lesbians, the bourgeois and
professionals over workers, urbanites over rural dwellers.

WHY ARE THEY IMPORTANT?

Universalism is believed to ensure relatively competent performance (a more efficient world economy), which in turn improves the
ability to accumulate capital. That’s why, normally those who control production processes push for such universalistic criteria.

Racism, sexism, and other anti-universalistic norms perform equally important tasks in allocating work, power, and privilege within
the modern world system. These norms exist to justify the lower ranking, to enforce the lower ranking, and perversely even to make
it somewhat acceptable to those who have the lower ranking.

They justify the polarization of the world -system. Since polarization has been increasing over time, racism, sexism, and other forms
of anti-universalism have become ever more important, even though the political struggle against such forms of anti-universalism has
also become more central to the functioning of the world-system. The bottom line is that the modern world- system needs the
simultaneous existence, propagation, and practice of both universalism and anti- universalism.

ANSWER this!

1. Differentiate the core and the periphery in your own words or state examples of each.

2. Give two kinds of income and explain each on your own words.

3. What is your own stance with the statement “the global free trade has done more harm done good’?