The Globalization of World Economics .

l I3

Trade and Development (UNCTAD), the amount of foreign direct

investments flowing across the world was US$ 57 billion in 1982.
By 2015, that number was $1.76 trillion.e These figures represent a
dramatic increase in global trade in the span of just a few decades.
It has happened not even after one human lifespan!
Apart from the sheer magnitude of commerce, E--Abqgld

@Learning outcomes
ft@dsp"eg -egd. tesggryI
r{Egtsg. rhese
days, supercomputers can execute millions of stock purchases
and sales between different cities in a matter of seconds through
At the end of this lesson, you should be able to:
a process called high-frequency trading. Even the items being sold
1. define economic globalization;
and traded are changing drastically. Ten years ago, buying books
2. identiry the actors that facilitate economic globalization;
or music indicates acquiring physical items. Today, however, a
3. narrate a short history of global market integration in the twentieth
"book" can be digitally downloaded to be read with an e-reader,
century; and
and a music "album" refers to the 15 songs on mp3 format you can
4. articulate your stance on global economic integration. :

purchase and download from iTunes.

This lesson aims to trace how economic globalization came
The International Monetary Fund (IMF) regards "economic about. It will also assess this globalization system, and examine
globalization" as a historical process representing the result of who benefits from it and who is left out.
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,/ human innovation and technological progress. It is charact erized
) by the increasing integration of economies around the world
I through the movement of goods, services, and capital across lnternotionol Troding Systems
borders. These changes are the products ofpeople, organizations,
\
\ institutions, and technologies.T As with all other processes of International trading systems are not new. The gldg$@n
globalization, there is a qualitative and subjective element to this international trade route was the Silk Road-a network of
definition. How does one define "increasing integration"? When p
is it considered that trade has increased? Is there a particular now the Middle East and to Europe. It was called as such because
threshold? onell-IE @traded through this network
Even while the IMF and ordinary people grapple with the was silk, which washighly prizedespecially in the area that is now
difficulty of arriving at precise definitions of globalization, the Middle East as well as in the West (todayt Europe). Traders
they usually agree that a drastic economic change is occurring used the Silk Road regularly from 130 BCE when the Chinese
throughout the world. According to the IMF, the value of trade Han dynasty opened trade Jo the West until 1453 BCE when the
(goods and services) as a percentage of world GDP increased Ottoman Empire closed it. '.'
from 42.1 percent in 1980 to 62.1 percent in 2007.s Increased However, while the Silk Road was international, it was not
trade also means that investments are moving all over the world truly "global" because it had no ocean ror@
at faster speeds. According to the United Nations Conference on American continent. So when did full economic globalization

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t 4 I fne Structures of Globalization The Globalization of World Economics I l5

begin? According to historian s lennis O. Flynn and Arturo

Gi ralde z, thq a ge. pl_elgbelrZefp{l*Ieg3g_J{k q *e_!J- t{0Pgrlp"st
populqled coqtineqtp bsga4 tg prqfuEts _cqq.tlnupusly._
-e"*S,be*se
bothwitheacll",olhgr*4reglkegd jndif ggdy*vra_elhc1.c*o.atin€nls_-
and in values sufficient to genglelg qggle[lrrpeg!_.on all trading
p*t"r*-' Fly"" and Giralde z tricet@
establishmentof LbsgqllggLlredqlbeJ-_9qgg-e-_qls.ilgeslqi,Lthe-
pjrlippinSs gad
&eput *iV[qxlgg.', This was the first time that-j
the Americas were directly connected to Asian trading routes. For I
Filipinos, it is crucial to note that economic globalization began on J lhe sold standard, thoush once."i:ffi1,ffi,SJ::"n,o be a very restrictive form of
the country's shores.
The of the ntilism. From Returning to a pure standard became more difficult as
the 16th century to the lSth century, _countries,.-prir4gfily-_-i,s the global economic crisis called the Great Depression started
Eurqp.g.cglqpetgd lyilh gng angthef to $ell Jgore gqodsjs.a meanq during the 1920s and extended up to the 1930s, further emptying
tg_bggp*lbql.f qountql'9..,r4co_gr_q_kalled monetary reserves later on). government coffers. This depression was the worst and longest
q.r.e recession ever experienced by the Western world. Some economists
.Jry-qplx-1t-ese-rgei+es*.,ktptqly.gr-o*.ql*M argued that it was largely caused by the gold standard, since it
colonies to tr limited the amount of circulating money and, therefore, reduced
r.sulec'.arld^s_u!--s.r..d"ized ils e;5p9;t"s...Mer-c-anl_rlism demand and consumption. If governments could only spend
x,.'a"$..1_hus "41.$-s _a

s)i:tgrn9-{gl9b-e!,-Ir*,4p.*ithn}!1lpl9-re"^slri-c".tiqus. money that was equivalent to gold, its capacity to print money and
increase the money supply was severely curtailed.
A more open trade system emerged in 1867 when, following
the lead of the United Kingdom, tfre-J$ted*Stdes_egd g"thel Economic historian Barry Eichengreen argues that the
Esrgp-ea+-+etrpqs- recovery of the United States really began when, having abandoned
!0"9qqtgry qq$feJeqqe Broadly, its goal was to create a the gold-standard, the US government was able to free up money to
common system that would allow for more efficient trade and spend on reviving the economy.t2 At the height of World War II,
prevent the isolationism of the mercantilist era. The countries other major industrialized countries followed suit.
thusestablbhe4a-qq{Laqag_Uesp&rguggggyjgggg"egd"*fl 59d Though more indirect versions of the gold standard were used
glthegge_-{?t9_"ly-l-t-qp=e!lba"s-_ejg{,_!tr-9_yelE9--qf .roJd. until as late as the 1970s, the world never returned to the gold
Despite facilitating simpler trade, the gg1{qtq44+f4 ryqq standard of the early 20th century. @
still a very restrictive system, ag iJ,..ggJ_rUSlLeA_*UpISgS.lg*-hsk opql-4tgs*fured-esJ-hskre-s4leC fi4l-qurrg sjesjtr-*t
their curlengi3:"C.WiIh fixed gold fe,ggtygs. During World War I, lre_not bacllqd by preqious metals and ryhgse v?luej: {gtgryq11g{
when countries depleted their gold reserves to fund their armies, by th_err--ggst.{9]4iy .g*g{t . This system allows
many ryerq f-o1_c_9$__!9[!efr4or, the go!{_s_1q+-@gl. Since European governments to freely and actively manage their economies by
countries had low gold reserves, they adopted increasing or decreasing the amount of money in circulation as
4g[i.gg.-currencies
that were no longer redeemable in gold. they see fit.
 l6 I fne Structures of Globalization The Globalization of World Economics I l7

The Bretton Woods System a critical institution at a time when many of the world's cities
had been destroyed by the war. The second institution was the
After the two world wars, world leaders sought to create a
zlilternational Monetary Fund (IMF), which was to be the global
global economic system that would ensure a longer-lasting global l_ender of last resort to prevent individual countries fron-r spiraling

peace. They believed that one of the ways to achieve this goal was ilrto credit cfises. If economic growth in a country slowed down
I to set up a network of global financial institutions that would
promote economic interdependence and prosperity. The Bretton
because there was not enough money to stimulate the economy,
the IMF would step in. To this day, both institutions remain key
Woods system was inaugurated in 1944 during the United Nations players in economic globalization.
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I
Monetary and Financial Conference to prevent the catastrophes Shortly after Bretton Woods, various countries also committed
{
ofthe early decades ofthe century from reoccurring aird affecting themselves to further global economic integration through the
t international ties. General Agreement on Tariffs and Trade (GATT) inl947. GATT'S7
main purpose was to reduce tariffs and other hindrances to freeJ
trade.

Neoliberqlism ond lts Discontenls

The high point of global Keynesianism came in the mid-
1940s to the early 1970s. During this period, governments poured
money into their economies, allowing people to purchase more
goods and, in the process, increase demand for these products.
As demand increased, so did the prices of these goods. Western
rhe scenic a'"non wo!**,!ffi the contours
and some Asian economies like |apan accepted this rise in prices
:1;2*"J'r:::.o,ished
because it was accompanied by general economic growth and
The Bretton Woods system was largely influenced by the
reduced unemployment. The theory went that, as prices increased,
ideas of British economist John Mavnard Kevne! who believed
companies would earn more, and would have more money to
that eeonA!0ll-Erises--qegulgo-t-ffhen a--cou n try does . rtot h alre
hire workers. Keynesian economists believed that all this was a
e8ough money. but when money is nof heing sFent and,,ttrerehy,
necessary trade-off for economic development.
not movin& When economies slow down, according to Keynes,
governments have to reinvigorate markets with infusions of -i In the early 1970s, however, the prices of oil rose sharply
capital. This active role of governments in managing spending ns a result of the Organization of Arab Petroleum Exporting
f (lountries' (OAPEC, the Arab member-countries of - the
served as the anchor for what would be called a system
t o
of global I
Keynesianism. ) Oganization of Petroleum Exporting Countries or OPEC)
lmposition of an embargo in response to the decision
Delegates at Bretton Woods agreed to create two financial of the United States and other countries to resupply the
institutions. The first was the /hternational Bank for llraeli military with the needed arms during the Yom
Reconstruction and Development (IBRD, or World Bank) to be
Klppur War. Arab countries also used the embargo to
responsible for funding postwar reconstrqclion proiects_._ It was
*tabilize their economies and growth. The "oil embargo"

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 I 8 I ffre Structures of Globalization
The Globalization of World Economics I, l9
affected the Western economies that were reliant o\n oil.r3
The appeal of neoliberalism was in its simplicity. Its advocates
To make matters worse, the stock markets crashed in 1973-
like US President Ronald Reagan and British prime Minister
1974 after the United States stopped linking the dollar to gold,
Margaret Thatcher justified their reduction in government
effectivily ending the Bretton Woods system.la The result
was a phenomenon that Keynesian economics could not have
cpending by comparing national economies to households.
Thatcher, in particular, promoted an image of herself as a mother,
predicted-a phenomenon called s.lggqgtig!, in which a decline;
who reined in overspending to reduce the national debt.
in economic growth and employment (stagnation) takes place (
alongside a sharp increase in prices (inflation). -) The problem with the household analogy is that governments
gre not households. For one, governments caR print money, while
Around this time, a nelr form of economic thinking was
households cannot. Moreover, the constant taxation systems of
beginning to challenge the Keynesian orthodoxy. Economists
governments provide them a steady flow of income that allows
such as Friedrich Hayek and Milton Friedman argued that the
them to pay and refinance debts steadily.
governments' practice of pouring money into their economies
had caused inflation by increasing demand for goods without Despite the initial success of neoliberal politicians like
necessarily increasing supply. More profoundly, they argued Thatcher and Reagan, the defects of the Washington Consensus
that government intervention in economies distort the proper became immediately palpable. A good early exarnple is that of
functioning of the market. post-communist Russia. After Communisrn had collapsed in
the 1990s, the IMF called for the immediate privatization of all
Economists like Friedman used the economic turmoil to
government industries. The IMF assumed that such a move would
challenge the consensus around Keynes's ideas. WhaU+erysdlqs
free these industries from corrupt bur.eaucrats and pass them on
a new form of economic thinking that critics labeled(neoriberalisrd
to the more dynamic and independent private investors. What
From the 1980s onward, neoliberalism became im-.aZfna6
happened, however, was that_only indivi4uAlS gfguEHhgbgl
strategy of the United States Treasury Department, the World
Bank, the IMF, and eventually the World Trade Organization
qss-H1*lq!s* an_d

i*"sr-4qr" .*
money to purchase these industries. In some cases, the economic
(WTO)-a new organization founded in 1995 to continue the tariff
elites"ieiie?-ffi-Aiy accessTgovernment funds to take over the
reduction under the GATT. The policies they forwarded came to
industries. This practice has entrenched an oligarchy that still
be called the Washington Consensus.
dominates the Russian economy to this very day.
The Washington Consensus dominated global economic
policies from the 1980s until the early 2000s. Its advocates pushed
for minimal g.overnment spending to redUce goverannent*debt. The Globol Finonciol Crisis ond the Chollenge
They also called for the privatization of government-controlled to Neoliberolism
communl and
best results. Finally, Russia's case was just one example of how the "shock therapy,,
of neoliberalism did not lead to the ideal outcomes predicted by
economists who believed in perfectly free markets. The greatest
recent repudiation of this thinking was the recent global financial
crisis of2008-2009.
and die, but they considered this "shock therapy" necessary for
long-term economic growth.

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20 I ffre Structures of Globalization The Globalization of World Economics I .21

Neoliberalism came under significant strain during the apparent that families could not pay off their loans. This
global financial crisis of 2007-2008 when the world experienced realization triggered the rapid reselling of MBSs, as banks and
the greatest economic downturn since the Great Depression. investors tried to get rid of their bad investments. This dangerous
The crisis can be traced back to the 1980s when the United cycle reached a tipping point in September 2008, when major
States systematically removed various banking and investment investment banks like Lehman Brothers collapsed, thereby
restrictions. depleting maj or investments.
The scaling back of regulations continued until the 2000s, The crisis spread beyond the United States since many
paving the way for a brewing crisis. In their attempt to pro..mote investors were foreign governments, corporations, and individuals.
the free market, government authorities failed to regulate The loss of their money spread like wildfire back to their countries.
bad investments occurring in the US housing market. Taking
These series of interconnections allowed for a global multiplier
advantage of "cheap housing loans," Americans began building
effect that sent ripples across the world. For example, Iceland's
houses that were beyond their financial capacities.
banks heavily depended on foreign capital, so when the crisis hit
To mitigate the risk of these loans, banks that were lending them, they failed to refinance their loans. As a result of this credit
houseowners' money pooled these mortgage payments and sold crunch, three of lceland's top commercial banks defaulted. From
them as "mortgage-backed securities" (MBSs). One MBS would be 2007 to 2008, Iceland's debt lncreased more than seven-fold.
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a combination of multiple rnortgages that they assumed would pay
Until now, countries like Spain and Greece are heavily
a steady rate.
indebted (almost like Third World countries), and debt relief
Since there was so much surplus money circulating, the has come at a high price. Greece, in particular, has been forced
demand for MBSs increased as investors clamored for more by Germany and the IMF to cut back on its social and public
investment opportunities. In their haste to issue these loans, spending. Affecting services like pensions, health care, and various
however, the banks became less discriminating. They began forms of social security, these cuts have been felt most acutely by
extending loans to families and individuals with dubious credit the poor. Moreover, the reduction in government spending has
records-people who were unlikely to pay their loans back. These slowed down growth and ensured high levels of unemployment.
high-risk mortgages became known as sub-prime mortgages.
The United States recovered relatively quickly thanks to a
Financial experts wrongly assumed that, even if many of the large Keynesian-style stimulus package that President Barack
borrowers were individuals and families who would struggle to Obama pushed for in his first months in office. The same cannot
pay, a majority would not default. Moreover, banks thought that be said for many other countries. In Europe, the continuing
since there were so many rnortgages in just one MBS, a few failures economic crisis has sparked a political upheaval. Recently, far-
would not ruin the entirety of the investment. right parties like Marine Le Pen's Front National in France have
Banks also assumed that housing prices would continue to risen to prominence by unfairly blaming immigrants for thdir
increase. Therefore, even if homeowners defaulted on their loans, woes, claiming that they steal jobs and leech off welfare. These
these banks could simply reacquire the homes and sell them at a movements blend popular resentment with utter hatred and
higher price, turning a profit. racism. We will discuss their rise further in the final lesson.

Sometime in 2007, however, horne prices stopped increasing

as supply caught up with demand. Moreover, it slowly became
 22 I me Structures of Globalization The Globalization of World Economics lzs

led to unprecedented reductions in tariffs and other trade barriers,

Economic Globolizotion Todoy but these processes have often been unfair.

The global financial crisis will take decades to resolve. The First, developed countries are often protectionists, as they
solutions proposed by certain nationalist and leftist groups of repeatedly refuse to lift policies that safeguard their primary
closing national economies to world trade, however, will no longer products that could otherwise be overwhelmed by imports from
work. The world has become too integrated. Whatever one's the developing world. The best example of this double standard is
opinion about the Washington Consensus is, it is undeniable that fapan's determined refusal to allow rice imports into the country
some form of international trade remains essential for countries to to protect its farming sector. fapan's justification is that rice is
develop in the contemporary world. "sacred." Ultimately, it is its economic muscle as the third largest
cconomy that allows it to resist pressures to open its agricultural
Exports, not just the local selling of goods and services,
Sector.
make national economies grow at present. In the past, those that
benefited the most from free trade were the advanced nations The United States likewise fiercely protects its sugar industry,
that were producing and selling industrial and agricultural forcing consumers and sugar-dependent businesses to pay higher
goods. The United States, lapan, and the member-countries of Prices instead ofgetting cheaper sugar from plantations ofCentral:
the European Union were responsible for 65 percent of global America.
exports, while the developing countries only accounted for Faced with these blatantly protectionist measures from
29 percent. When more countries opened up their economies powerful countries and blocs, pooref countries can do very little
to take advantage of increased free trade, the shares of the to make economic globalization more just. Trade imbalances,
percentage began to change. By 2011, developing countries like the therefore, characterize economic relations between developed and
Philippines, India, China, Argentina, and Brazil accounted for 51 developing countries.
percent of global exports while the share of advanced nations-
The beneficiaries of global commerce have been mainly
including the United States-had gone down to 45 percent.ls transnational corporations (TNCs) and not governments.
The WTO-led reduction of trade barriers, known as trade And like any other business, these TNCs are concerned more
liberalization, has profoundly altered the dynamics of the global
with profits than with assisting the social programs of the
economy.
governments hosting them. Host countries, in turn, loosen tax
In the recent decades, partly as a result of these increased laws, which pfevents wages from rising, while sacrificing social
exports, economic globalization has ushered in an unprecedented tnd environmental programs that protect the underprivileged
spike in global growth rates. According to the IMF, the global members of their societies. The term "race to the bottom" refers
per capita GDP rose over five-fold in the second half of the 20th to countries' lowering their labor standards, including the
century. It was this growth that created the large Asian economies protection of workers'interests, to lure in foreign investors seeking
like ]apan, China, Korea, Hong Kong, and Singapore.r6 hlgh profit margins at the lowest cost possible. Governments
And yet, economic globalization remains an uneven process, weaken environmental laws to attract investors, creating fatal
with some countries, corporations, and individuals benefiting a lot consequences on their ecological balance and depleting them of
more than others. The series of trade talks under the WTO have their finite resources (like oil, coal, and minerals).

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 24 I fne Structures of Globalization The Globalization of World Economics lzs
Localizing the Moterial Given the stakes involved in economic globalization, it is
Many Philippine industries were devastated by unfair trade perennially important to ask how this system can be made more
deals under the GATT and eventually the WTO. One sector that Just. Although some elements of global free trade can be scaled
was particularly affected was Philippine agriculture. According to back, policies cannot do away with it as a whole. International
Walden Bello and a team of researchers at Focus on the Global policymakers, therefore, should strive to think of ways to make
South, the US used its power under the GATT system to prevent trading deals fairer. Governments must also continue to devise
Philippine importers from purchasing Philippine poultry and ways of cushioning the most damaging effects of economic
pork-even as it sold meat to the Philippines. globalization, while ensuring that its benefits accrue for everyone.
Although the Philippines expected to make up losses in
sectors like meat with gains in areas such as coconut products,
no significant change was realized. ln 1993, coconut exports
amounted to 51.9 billion, and after a slight increase to S2.3 billion
in 1997, it returned to 51.9 billion in 2000.
Most strikingly, Bello and company noted that the Philippines
became a net food importer under the GATT. ln 1993, the country
had an agricultural trade surplus of 5292 million. lt had a deficit of
5764 million in 1997 and 5794 million in2002.
- Bello, Walden, Herbert Docena, Marissa de Guzman, and Mary Lou Malig.
q_p
The Anti-Development State: The Political Economy of Permanent Crisis in the Learning Activity:
Philippines. London and New York: Zed Books, 2006, 140-142.
Global Economic lnstitutions

Conclusion With the help of the school administration, organize a school

lrip to and familiarization tour of an international economic
International economic integration is a central tenet of organization (Asian Development Bank) or an international
globalization. In fact, it is so crucial to the process that many company (Honda, McDonaldt, etc.). Gather as much information
writers and commentators confuse this integration for the entirety os you can during the tour.
of globalization. As a reminder, economics is just one window into
If this activity cannot be arranged, go to the web and
the phenomenon of globalization; it is not the entire thing.
ne:complish these tasks: (a) research the origins and history
Nevertheless, much of globalization is anchored on changes ol' the institution you have chosen; (b) map the international
in the economy. Global culture, for example, is facilitated by connections it has created; (c) identify the major country-leadrjrs
trade. Filipinos would not be as aware of American culture if ol'this institution; and (d) locate the Philippines in this map of
not for the trade that allows locals to watch American movies, Irrterconnections.
listen to American music, and consume American products. The
Then answer this question: How does this institution influence
globalization of politics is likewise largely contingent on trade
global economic activity? How does it affect economics in the
relations. These days, many events of foreign affairs are conducted
l'hilippines?
to cement trading relations between and among states.

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