HISTORY OF GLOBAL MARKET INTEGRATION

BIRTH OF CAPITALISM

Capitalism - is an economic system where private entities own the factors of production.

The four factors of Capitalism are:

1. Entrepreneurship
2. Capital Goods
3. Natural Resources
4. Labor

HOW DID CAPITALISM PROSPER?

1. Burgeoning industrialization and urbanization further weakened the feudal economy.

WHY IN THE “WEST”?

Some of the factors contributing to these changes were:

1) The Protestant Reformation - note that industrialization began in northern Europe. Protestant
work ethic - fostered hard work, frugality, sobriety and efficiency, virtues which facilitated
capitalism.

2) Rise of strong nation states - 16th through 19th century. The rise of strong nation-states
created conditions conducive to capitalism. It provided domestic markets free of barriers to
trade, a uniform monetary system, contract and property laws, police and militia protection, as
well as, basic transportation and communications infrastructure.

3) The Enlightenment - during the 17th and 18th century there were great scientific and social
advances. Discoveries of oxygen, electricity, calculus, among many other findings led to
practical applications in agriculture and industry. This period laid the scientific foundation for
the industrial revolution. This weakened the power of institutions such as the church and state,
which had patronizing relationships with the masses. It eventually led to political revolutions in
not only in the United States, but also in England, Holland, and France.

FACTORS WHICH SPURRED THE GROWTH OF CAPITALISM

1. Principle of Private Property

Colonialism is a methodology of spreading capitalism. It laid the basis for global trade
and the expropriation of the commons in Europe. The colonists created an administrative
structure which coerced the indigenous peoples to produce primary products for export to the
home countries.

Capitalism as an economic system spread beyond Europe, mainly to North America and
Australia. One may ask why capitalism and new technologies did not spread elsewhere. One
possible answer is that the indigenous peoples of North America and Australia were not
particularly numerous as compared to other regions. As the descendants of the English and
French colonists grew in number and with new immigrant waves, primarily from Europe, the
European population overwhelmed the indigenous peoples who were (at best) pushed aside.
The European immigrants using their skills and by acquiring technologies from their home
countries embarked on creating new industries. However, in Africa, the Indian Subcontinent,
East Asia, and in Latin America the indigenous peoples were relatively numerous. Being
greatly outnumbered, the colonist created an administrative structure, which encouraged or
more likely coerced, the indigenous peoples to produce primary products for export to the home
countries. These primary products were then transformed in the production process into
manufactured goods, some of which were re-exported back to the colonies. Under these
conditions there was little incentive to create new industries in these colonies.’

CAPITALISM: FAR EAST

Japan proved to be an exception. Until the Meiji Restoration (1868) Japan was basically a
closed society. Feudal structures and a strong caste system were the main characteristics of this
island nation. Being isolated and having an insular culture, which mistrusted foreigners, the
Japanese were caught unaware of the economic and military power of the Western nations when
Admiral Perry sailed into Yokohama harbor. The Japanese, understanding their great
disadvantage, began a frantic and zealous campaign to industrialize in the latter part of the 19th
century. Borrowing western technologies, the Japanese managed to build steel industries, create
a modern navy and in1906 defeat the Russians in a naval battle in the Sea of Japan.

CAPITALISM IN THE TWENTIETH CENTURY

 At the beginning of the 20th century the global economy was in turmoil. Financial
crises were common. Policies to protect domestic industries such as tariff measures
stifled trade. Political alliances in Europe divided the continent into two camps.
The assassination of Archduke Ferdinand in the Balkans sparked the century’s first
World War.
 The advent of technology in warfare had devastating effects. The machine gun,
armored tanks, and the use of poisonous gas brought warfare to a new level of
barbarity, shocking the world.
 In its aftermath, President Woodrow Wilson advocated a new-world order centered
on the League of Nations. While grand in concept the political realities of the day
made it ineffective. The cost of WWI to Britain resulted in the abandonment of the
gold standard, a system of exchange rates backed by gold.
 The post WWI era was marked by a resurgence of economic prosperity,
particularly in the United States. However, Germany saddled with reparations,
payments to Allied powers (France in particular) for damages caused during the
war faced devastating hardship. The Germany currency suffered a hyperinflation
 making it near worthless. At the end of the 1920s Germany began to get back up
on its economic feet. The US stock market crashed in 1929.
 Inappropriate policy responses led to the Great Depression. Its repercussions
spread to Europe as competitive policies of trade protection and currency
devaluations were implemented in vain attempts to protect domestic economies.
The US Congress passed the Tariff Act of 1930, better known as the SmootHawley
Tariff Act.
 Germany, resurfacing after a decade of deprivation, now faced a new economic
challenge. Political turmoil ensued and the 1933 Germany elections saw the rise of
the National Socialist Party headed by Adolf Hitler. Embarking on a re-
industrialization policy, the Nazis expanded their military capacity, built the
famous Germany highway system, the Autobahn, and encouraged production of
the peoples car, Volkswagen. Flexing their new Page 5 of 5 found military might
Germany under the Nazis, invaded Czechoslovakia in 1937 and latter precipitated
World War II with the invasion of Poland in 1939.

POST - WORLD WAR II

In 1944 it became clear that the war was coming to an end, and the western Allied powers
decided to again to attempt building a new world order. Meeting at the Mount Washington
Hotel in Bretton Woods, New Hampshire, the US and English representatives, H.D. White and
J.M. Keynes respectively, (yes, Keynes of the Keynesian Macromodel set out to create
institutions so to prevent the reoccurrence of the conditions which led to WWII. They proposed
the creation of three organizations, with each organization playing a role in the smooth
functioning of global economy.

These were:

1.) The International Bank for Reconstruction and Development ( IBRD or more commonly the
World Bank) whose original mandate was to rebuild the war torn economies of Europe and
Asia. It has evolved into the world’s most influential lender of foreign aid to developing
nations.

2.) The International Monetary Fund (IMF ) whose primary purpose was to maintain a fixed
exchange rate system known as the Bretton Woods System. After the dissolution of the Bretton
Woods System in the early 1970s the IMF has become the world’s overseer of the international
financial system, recently playing a highly visible and controversial role in the aftermath of the
East Asian financial crisis.

3.) The International Trade Organization (ITO), which was not ratified by the US Congress and
consequently did not become a reality. However, it’s primary function of liberalizing world
trade was given to the General Agreement on Tariffs and Trade (GATT). Several GATT trade
negotiations are of note. The Kennedy Round (early 1960s) originated due to US concerns with
respect to the newly formed European Common Market.

DECOLONIZATION

⦁This period saw the birth of many new nations as the European powers decolonized.
⦁This means that many developing countries are relatively young, especially those in Africa, the
Middle East and South Asia.
⦁These newly liberated countries had to choose which economic structure to adopt to achieve
their developmental objectives. Many of these countries adopted Socialist policies.

IMPORT SUBSTITUTION

⦁New nations adopted government controlled economies that relied on import substitution
industrialization strategies to achieve industrialization.

⦁While the notion might appear to be compelling, it is a movement away from efficient resource
allocation.

⦁Newly formed manufacturing industries in the young nations were relatively inefficient and
required fairly high levels of protection from imports.
⦁Import substitution policies did initially succeed in producing some economic growth. Still,
they were not sustainable.

OIL PRICE SHOCKS

⦁The 1973 oil crisis began in October 1973 when the members of the Organization of Arab
Petroleum Exporting Countries (OAPEC) proclaimed an oil embargo.
⦁The economic sanctions was targeted at nations perceived as supporting Israel during the Yom
Kippur War.
⦁By the end of the embargo in March 1974, the price of oil had risen nearly 400%, from 3 U.S
dollar per barrel to nearly $12 globally.
⦁Many exporting countries saw their export earnings rise faster than they could spend. These
earnings eventually found their way into the global financial system.
International Debt Crisis
⦁Rooted in economic policies and development choices going back to the 1970s and 1980s.
⦁At that time, the inflation in the U.S subsequently arose.
⦁Many developing countries' debt ballooned and were hurt the most in the worldwide recession

REFERENCE: History of Global Economy/Market Integration, University of Southern Indiana

(https://www.usi.edu/business/cashel/241/text%20files/History.pdf)

Reporters:

TRONO, JOHN RAY M.

ENAJE, BENSON JETH