GLOBAL

ECONOMY
LEARNING GOALS
• Define economic globalization
• Identify the actors that facilitate economic
globalization
• Explain the role of international financial
institutions in the creation of a global economy
• Articulate a stance on global economic
integration and how it impacts the Philippines
GLOBALIZATION (CORONACION)
• Involves the “broadening and deepening of
interdependence among peoples and states”
(Cohn, 2011)
• Is a multidimensional phenomenon comprised of
political, economic and cultural features.
DEFINITION OF ECONOMIC
GLOBALIZATION
ECONOMIC GLOBALIZATION
(CORONACION)
• As a process making the world economy an
“organic system” by extending transnational
economic processes and economic relations to
more and more countries and by deepening the
economic interdependencies among them.
(Szentes, 2003)
ECONOMIC GLOBALIZATION
(ALDAMA)
• Refers to the increasing interdependence of
world economies as a result of the growing scale
of cross-border trade of commodities and
services, flow of international capital, and wide
and rapid spread of technologies.
• It reflects the continuing expansion and mutual
integration of market frontiers, and is an
irreversible trend for the economic development
in the whole world at the turn of the millennium.
-United Nations
2 DIFFERENT TYPES OF ECONOMIES ASSOCIATED
WITH ECONOMIC GLOBALIZATION
1. Protectionism – “a policy of systematic
government intervention in foreign trade with the
objective of encouraging domestic production.
– This encouragement involves giving preferential
treatment to domestic producers and discriminating
against foreign competitors
– Usually comes in the form of quotas and tariffs (are
required fees on imports or exports)
2 DIFFERENT TYPES OF ECONOMIES ASSOCIATED
WITH ECONOMIC GLOBALIZATION
– 16th-17th century until the years of Industrial Revolution
– Great Depression of 1929- marked the peak of
protectionism
– Until today, protectionism exists in the world
economy despite the growth of trade liberalization.
2 DIFFERENT TYPES OF ECONOMIES ASSOCIATED
WITH ECONOMIC GLOBALIZATION
• World War II - shift from protectionism to trade
liberalization
2. Trade Liberalization or Free trade
– Free trade agreements and technological advances in
transportation and communication mean goods and
services move around the world more easily than
ever.
2 DIFFERENT TYPES OF ECONOMIES ASSOCIATED
WITH ECONOMIC GLOBALIZATION
– Leapfrogging – the idea that countries can skip straight
to more efficient and cost-effective technologies that
were not available in the past.
• Globalization made some countries, especially
the developing ones, to gain more in the global
economy at the expertise of other nations.
• There are various ways, however, the country
can make trade easier with other countries while
lessening the inequalities in the global world.
- Fair trade
Fair Trade
• Is the “concern for the social, economic, and
environmental well-being of marginalized small
producers.”
• It aims for a more moral and equitable global
economic systems.
• It is concerned with protection of workers and
producers, establishment of more just prices,
engagement in environmentally sound practices and
sustainable production, creation of relationships
between producers in the South and consumers in
the North, and promotion of safe working
environment.
– Example: Starbucks
BRETTON WOODS SYSTEM
BRETTON WOODS SYSTEM
• WWI, Great Depression (1930s), WW2 –major
economies in the world suffered.
• Because of fear…
– Focused on restructuring the world economy and
ensure global financial stability through reduction of
barriers to trade and free flow of money among
nations
BRETTON WOODS CONFERENCE IN
JULY 1944
• United Nations Monetary and Financial
Conference
• Delegates from 44 countries
• Convened in Bretton Woods, New Hampshire,
US
DELEGATES
• Australia • Iceland
• Belgium • Iran
• Bolivia • Liberia
• Brazil • Luxembourg
• British Raj • Mexico
• Canada • Netherlands
• Chile • New Zealand
• China • Nicaragua
• Colombia • Norway
• Costa Rica • Panama
• Cuba • Paraguay
• Czechoslovakia • Peru
• Dominican Republic • Philippines
• Ecuador • Poland
• Egypt • South Africa
• Ethiopia • Soviet Union
• France • UK
• Greece • US
• Guatemala • Uruguay
• Haiti • Venezuela
• Honduras • Yugoslavia
• Agreed on the creation of 2 international
economic organizations: (Bretton Woods
Institutions)
– International Monetary Fund
– World Bank
• General Agreement on Tariffs and Trade (GATT) –
1947
– This much more informal institution than the IMF and
WB served as the primary global trade organizations
BRETTON WOODS INSTITUTIONS
• Known as keystone international economic
organizations (KIEOs)
• Due to their central role in trade, development,
and monetary relations
5 KEY ELEMENTS OF THE BRETTON
WOODS SYSTEM
1. Expression of currency in terms of gold or gold
value to establish a par value
Example: 35 US Dollar per ounce of gold = 175
Nicaraguan cordobas per ounce of gold
Exchange rate: 5 cordobas = 1 US dollar
2. The official monetary authority in each country
(a central bank or its equivalent) would agree to
exchange its own currency for those of other
countries at the established exchange rates,
plus or minus a one-percent margin
3. Establishment of an overseer for these
exchange rates; thus the International Monetary
Fund (IMF) was founded
4. Eliminating restrictions on the currencies of
member states in the International trade
5. US dollar became the global currency
INTERNATIONAL MONETARY FUND
(IMF)
• 1945
• Primary Purpose: to promote global monetary
cooperation and international financial stability
• Designed to monitor the system of pegged or
fixed exchange rates
• In this system, official exchange rates of
currencies were related to gold and US dollar
INTERNATIONAL MONETARY FUND
(IMF)
• When states suffer from balance-of-payments
deficits, they reduce the value of their currencies
to boost exports with cheaper products and
decrease imports.
• Balance-of-payment deficit occurs when a country spends more
than it takes in.
• The role of the IMF is to provide short-term loans
to prevent devaluation and retain the state’s
fixed exchange rate in instances of the temporary
balance of payment deficits.
INTERNATIONAL MONETARY FUND
(IMF)
• Main goal: to help countries which were in trouble at
that time and who could not obtain by any means
(Perhaps, their economy collapsed or their currency
was threatened)
• Serves as a lender or a last resort for countries which
needed financial assistance.
• If economic growth in a country slowed down
because there was not enough money to stimulate
the economy, the IMF would step in.
INTERNATIONAL MONETARY FUND
(IMF)
• IMF’S role changed when the fixed-exchange
rate system collapsed and was replaced by
floating exchange rates in 1971.
– A floating exchange rate is a regime where the
currency price is set by the forex market based on
supply and demand compared with other currencies.
– This is in contrast to a fixed exchange rate, in which
the government entirely or predominantly determines
the rate.
WORLD BANK
• International Bank for Reconstruction and
Development (World Bank)
• Was created to grant long-term loans for the
economic development of less developed
countries and the reconstruction of war-torn
countries in Europe.
WORLD BANK
• Made up of 2 institutions:
– International Bank for Reconstruction and
Development (IBRD) – provides lending to
middle-income and creditworthy low-income
countries
– International Development Association(IDA) – grants
credits and loans to lowest income countries
WORLD BANK
• World Bank Group:
– World Bank
– International Financial Corporation (IFC)
– Multilateral Investment Guarantee Agency (MIGA)
– International Centre for Settlement of Investment
Disputes
WORLD BANK
• Main goals: eradication of poverty and it funded
specific projects that helped them reach their
goals, especially in poor countries
WORLD BANK
• Renewed role of the WB in the modern
economy:
– Reduce extreme poverty while addressing the
imperfections of global capital markets continues to
be secondary importance
– Donor countries work with the Bank due to the
economies of scale brought by negotiating
agreements with recipient with recipient countries
that involve policy changes.
IMF AND WORLD BANK
• The reputation of these institutions has been
dwindling, mainly due to practices such as
lending the corrupt governments or even
dictators and imposing ineffectively austerity
measures to get their money back.
General Agreement on Tariffs and Trade
(GATT) 1947
• Purpose: to avoid trade wars by raising
protectionist barriers as witnessed during the
interwar period
– To reduce tariffs and other hindrances to free trade
• Was a forum for the meeting of representatives
from 23 member countries.
• It focused on trade goods through multinational
trade agreements conducted in many “rounds” of
negotiation.
General Agreement on Tariffs and Trade
(GATT) 1947
• PROBLEMS:
– Unable to address the expansion of trade in services,
investment and intellectual property
– Incapable of providing a strong and efficient system
for dispute settlement
WORLD TRADE ORGANIZATION
(WTO) 1995
• Uruguay Round (1986-1993) – created the WTO
• Headquarters: Geneva, Switzerland
• Independent multilateral organization that
became responsible for trade in services,
non-tariff-related barriers to trade, and other
broader areas of trade liberalization.
• Neoliberalism – reducing or eliminating barriers,
all nations will benefit.
WORLD TRADE ORGANIZATION
(WTO)
• Criticisms:
– Trade barriers created by developed countries cannot
be countered enough by WTO, especially in
agriculture
– Decision-making process were heavily influenced by
larger trading powers
– International Non-Government Organizations (INGOs)
are not involve
INTERNATIONAL MONETARY
SYSTEM
• A set of general rules, legal norms, instruments,
and institutions shaping payment conditions in
foreign trade (international scale)
• It is brought by the multilateral international
agreements participants, facilitated by
international financial organizations.
INTERNATIONAL MONETARY
SYSTEM
Fixed Exchanged Rate Regime
1. Gold Standard (1816) – first international monetary
system.
2. Gold Bullion Standard (1922)
3. Dollar-gold or gold-exchange standard (1944) –
with US dollar as the only convertible currency that
is considered to be as good as gold.
– US$35 an ounce
– Abandoned by US
– Led to the collapsed of the Bretton Woods System in 1973
4. Floating Exchange Rate
OECD, OPEC, EU, AND NAFTA
ORGANIZATION OF ECONOMIC COOPERATION AND
DEVELOPMENT (OECD)
• 36 member countries
– Highly influential
– Emanated from the member countries’ rsources and
economic power

Australia France Korea Portugal

Austria Germany Latvia Slovak Republic
Belgium Greece Lithuania Slovenia
Canada Hungary Luxembourg Spain
Chile Iceland Mexico Sweden
Czech Republic Ireland Netherlands Switzerland
Denmark Israel New Zealand Turkey
Estonia Italy Norway UK
Finland Japan Poland US
ORGANIZATION OF PETROLEUM
EXPORTING COUNTRIES (OPEC)
• Was formed because member countries wanted
to increase the price of oil
Algeria Iraq
Angola Kuwait
Congo Libya
Ecuador Nigeria
Equitorial Guinea Saudi Arabia
Gabon UAE
Iran Venezuela
EUROPEAN UNION (EU)
• Adopted Euro as the basic currency (except UK,
Sweden, and Denmark)
Austria Belgium
Bulgaria Croatia
Cyprus Czech Republic
Denmark Estonia
Finland France
Germany Greece
Hungary Ireland
Italy Latvia
Lithuania Luxembourg
Malta Netherlands
Poland Portugal
Romania Slovakia
Slovenia Spain
Sweden UK
NORTH ATLANTIC FREE TRADE
AGREEMENT (NAFTA)
• 1989
• January 1, 1994 – Mexico joined
• Helps in developing and expanding world trade
by broadening international cooperation.
• US, Canada, Mexico
KEYNESIAN TO NEOLIBERALISM
KEYNESIANISM
• John Maynard Keynes
– 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, governments have to
reinvigorate markets with infusions of capital
– Market-generated equilibrium results in
unemployment which causes a decrease in demand
– Government spending – solution to revive the
economy by bolstering aggregate demand through
fiscal and monetary policies.
KEYNESIANISM
• Keynes’ liberal interventionism approach influenced
states to invest in big governments and shaped the
post-war global economic order that is grounded on the
Keynesian compromise in of open markets…

• Global Keynesianism – active role of governments in

managing spending

• State-led development (1940s-1970s)

KEYNESIANISM
• Bretton Woods System – was largely influenced
by the ideas of British economist John Maynard
Keynes
KEYNESIANISM
• High point of global Keynesianism came in the
mid-1940s to the early 1970s.
– Governments poured money into their economies
– Japan – accepted the trade-off (rice of prices for general
economic growth and reduced employment)
– Early 1970s – oil prices rose because the Organization of
Petroleum Exporting Countries (OPEC) – imposed of an
embargo in response to the decision of the US and other
countries to resupply the Israeli military with needed arms
during the Yom Kippur War.
• Led the crash of stock markets in 1973-1974 (end of Bretton Woods
System)
KEYNESIANISM
• Challenge face:
– STAGFLATION – decline in economic growth and
employment (stagnation) takes place alongside a
sharp increase in prices (inflation)
• Combination of unemployment and inflation
SHIFT TO NEOLIBERALISM
• Shift due to the technological advancement that
allowed the free flow of capital and goods across
the globe.
NEOLIBERALISM
• Market-led development (1970s-2000)
• Friedrich Hayek and Milton Friedman
• The governments’ practice of pouring money
into their economies had caused inflation by
increasing demand for goods without necessarily
increasing supply.
• The neoliberal solution was to have an
unregulated market with as little state
intervention as possible.
NEOLIBERALISM
• Key neoliberal policies:
– Privatization
– Deregulation
– Lesser public spending
– Reduced corporate taxes

• British Prime Minister Margaret Thatcher

• US President Ronald Reagan
NEOLIBERALISM
• followed by the emerging economies of
Southeast Asia
• US and UK, together with the industrialized
nations, would promote globalization and
integration into the global economy with the
promise that capitalism would lead to economic
prosperity alongside democratization
NEOLIBERALISM
• 1980s – neoliberalism became the codified
strategy of the US Treasury Department, WB,
IMF, and WTO (founded in 1995)

– The policies they forwarded came to be called the

WASHINGTON CONSENSUS
NEOLIBERALISM – WASHINGTON
CONSENSUS
• Washington Consensus – a set of ten economic
policy prescriptions for the recovering and
crisis-ridden countries implemented by the
Washington-based institutions: IMF, WB, and the
US Treasury.
– Term was coined by John Williamson (2004)
NEOLIBERALISM – WASHINGTON
CONSENSUS
• Principles of Washington Consensus
– Fiscal Discipline
– Reordering Public Expenditure Priorities
– Tax Reform
– Liberalizing Interest Rates
– Competitive Exchange Rate
– Trade Liberalization
– Liberalization of Inward Foreign Direct Investment
– Privatization
– Deregulation
– Property Rights
NEOLIBERALISM – WASHINGTON
CONSENSUS
• These policies were applied through the
structural adjustment programmes (SAP) of the
IMF and WB that imposed conditionality clauses
attached to loans which have been criticized for
its adverse effects on developing nations.
NEOLIBERALISM – WASHINGTON
CONSENSUS
• Despite the initial success of neoliberal
politicians, the defects of the Washington
Consensus became immediately palpable
Examples:
1. Post-communist Russia – IMF – privatization of
government industries
2. Global Financial Crisis (2008-2009)
• US housing market
• Iceland (banks heavily depended on foreign capital)
• Spain
• Greece (to cut back on its social and public spending)
NEOLIBERALISM – WASHINGTON
CONSENSUS
• US recovery – Keynesian-style stimulus package
that Barack Obma pushed for in his first months
in office.
• Europe – continuing economic crisis has sparked
a political upheaval
– France – Marine Le Pen unfairly blamed immigrants
for their woes, claiming that they steal jobs and leech
off welfare
• Hatred and racism
ECONOMIC GLOBALIZATION
TODAY
• Global Financial Crisis – will take decades to
resolve
• Leftist group – close national economies to world
trade (will no longer work)
• The world has become too integrated
 PAST PRESENT
• Advanced nations benefitted • more countries opened up
the most from free trade their economies to take
(US, Japan, EU = 65% of advantage of increased free
global exports) trade (Philippines, India,
China, Argentina, Brazil =
51% of global exports in
2011)
TRADE LIBERALIZATION
• Profoundly altered the dynamics of the global
economy.
• Created the large Asian economies like Japan,
China, Korea, Hong Kong, and Singapore.
ECONOMIC LIBERALIZATION
• Remains an uneven process
1. Developed countries are often protectionists
2. The beneficiaries of global commerce have
been mainly transnational corporations (TNCs)
REACTIONS TO ECONOMIC
GLOBALIZATION
• Transnational and national resistance:
– Zapatista Movement in Mexico (against NAFTA)
– Battle of Seattle (during the WTO Ministerial
Conference in 1990s)
– Spanish Indignados Movement
– Arab Spring
– Occupy Movement
ASSIGNMENT:
• ½ crosswise
• By 3’s

• Explain how economic globalization affects the

Philippines. Do you think the effects are
beneficial to us or not? Justify. (10 points)