ECONOMIC

GLOBALIZATION
JOSE RICARTE B. ORIGENES
UST DEPARTMENT OF POLITICAL SCIENCE
WHAT IS ECONOMIC GLOBALIZATION
 economic globalization is a historical process, the result of
human innovation and technological progress. It refers to the
increasing integration of economies around the world,
particularly through the movement of goods, services, and
capital across borders. The term sometimes also refers to the
movement of people (labor) and knowledge (technology)
across international borders. (IMF, 2008)
 Dimensions: the globalization of
 trade of goods and services;
 financial and capital markets;
 technology and communication; and
 the globalization of production.
ECONOMIC GLOBALIZATION
 Actors: State and Non – state actors
 Economic globalization is rather a qualitative
transformation than just a quantitative change.
 Szentes (2003) “In economic terms globalisation is nothing
but 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.”
INTERNATIONAL TRADING SYSTEM

 Silk Road – from China

to Middle East and
Europe
 130 BCE TO 1453 BCE
 Internationalbut not
global – no ocean
routes
 Flynn and Geraldez, the age of globalization began when all important populated
continents began to exchange products continuously – both with each other directly and
directly via other continents – and in values sufficient to generate crucial impacts on all
trading partners”
 1571 – Galleon trade (Manila and Acapulco) America was directly connected to Asian trading
routes
GALLEON TRADE
 Was part of the age of Mercantilism (It advocated that a
nation should export more than it imported and
accumulate bullion (especially gold) to make up the
difference)
 16th to 18th c – countries primarily Europe competed with
one another to sell more goods as a means to boost
their country’s income (called monetary reserves later).
 To defend their products from competitors, these
regimes imposed high tariffs, forbade colonies to trade
with other nations, restricted trade routes and subsidized
its exports.
 Mercantilism – global trade with multiple restrictions
GOLD STANDARD
 UK, US and other European countries
 Was still a very restrictive system as it compelled countries to
back their currencies with fixed gold reserves.
 During World War I, when countries depleted their gold
reserves to fund their armies, many were forced to abandon
the gold standard.
 Great Depression (worst and the longest recession
experienced in the Western world)
 Some economists argued that it was largely caused by the
gold standard thus reducing demand and consumption
 US and other industrialized countries abandoned the gold
standard
 The use of the gold standard lasted around the late 1970
 FIAT CURRENCY

 The world economy operates based on FIAT CURRENCIES – not backed up

by precious metals and whose value is determined by their cost relative to
other currencies.
 This system allows governments to freely and actively manage their
economies by increasing or decreasing the amount of money in
circulation as they see fit.
 After the two world wars, world leaders sought to create a global economic
system that would ensure a longer-lasting global peace.
 They believed that one of the ways to achieve this goal was to set up a
network of global financial institutions that would promote economic
interdependence and prosperity.
 Was inaugurated in 1944 during the United Nations Monetary and Financial
conference to prevent the catastrophes of the early decades from
reoccurring and affecting international ties.
 The Bretton Woods system was largely influenced by the ideas of British
economist John Maynard Keynes
 who 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. This active role of governments in managing spending served as
the anchor for what would be called a system of global Keynesianism
 Delegates at Bretton woods agreed to create two financial institutions.
 International Bank for Reconstruction and Development (IBRD, or World Bank)
 responsible for funding postwar reconstruction projects.
 critical institution at a time when many of the world's cities had been destroyed by the war.
 International Monetary Fund (IMF),
 which was to be the global lender of last resort to prevent individual countries from spiraling into
credit crises. If economic growth in a country slowed down
 because there was not enough money to stimulate the economy, the IMF would step in. To this day,
both institutions remain keyplayers in economic globalization.

 Shortly after Bretton Woods, various countries also committed themselves to further
global economic integration through the
 General Agreement on Tariffs and Trade (GATT) in 1947.
 main purpose was to reduce tariffs and other hindrances to free trade.
 WTO (1995)
 marked the biggest reform of international trade since the end of the Second World War.
 Whereas the GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in
services and intellectual property. The birth of the WTO also created new procedures for the
settlement of disputes.
KEYNESIANISM
 The high point of global Keynesianism came in the mid-1940s to the
early 1990s.
 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 and some Asian economies like ]apan accepted the rise in
prices because it was accompanied by general economic growth and
reduced unemployment.
 The theory went that, as prices increased, companies would earn more,
and would have more money to hire workers.
 Keynesian economists believed that all this was a necessary trade-off
for economic development.
OIL EMBARGO
 During the 1973 Arab-Israeli War, Arab members of the
Organization of Petroleum Exporting Countries (OPEC) imposed
an embargo against the United States in retaliation for the U.S.
decision to re-supply the Israeli military and to gain leverage in
the post-war peace negotiations.
 As a result, the prices of oil rose sharply imposition of an embargo
in response to the decision of the United States and other
countries to resupply the Israeli military with the needed arms
during the Yom Kippur War.
 Arab countries also' used the embargo to stabilize their
economies and growth.
 Affected the Western economies that were reliant on oi1.
CRASHED OF THE STOCK MARKET
 The stock markets crashed in
1973- 1974 after the United States
stopped linking the dollar to gold,
effectively ending the Bretton
Woods system.
 Stagflation - a decline in
economic growth and
employment (stagnation) took
place alongside a sharp increase
in prices (inflation).
 NEOLIBERALISM
 Around this time, a new form of
economic thinking was beginning to
challenge the Keynesian orthodoxy.
 Economists such as Friedrich Hayek
and Milton Friedman argued that the
governments' practice of pouring
money into their economies had
caused inflation by increasing
demand for goods without necessarily
increasing supply.
 Government intervention in
economies distort the proper
functioning of the market.
NEOLIBERALISM
 From the 1980s onward, neoliberalism became the
codified strategy of the United States Treasury
Department, the World Bank, the IMF, and the World
Trade Organization (WTO)
 Policies came to be called the Washington Consensus.
What is the Washington Consensus?
 The Washington Consensus is a set of 10 economic
policy prescriptions considered to constitute the
"standard" reform package promoted for crisis-
wracked developing countries by Washingtong D.C.-
based institutions such as the International Monetary
Bank (IMF), the World Bank and the United States
Department of the Treasury.
 The term was first used in 1989 by English economist
John Williiamson, The prescriptions encompassed
policies in such areas as macroeconomic stabilization,
economic opening with respect to both trade and
investment, and the expansion of market forces within
the domestic economy.
 fiscal discipline: keeping government budgets small enough that,
after debt servicing, the operating deficit is no more than 2 percent of
GDP;
 public expenditure priorities: redirecting expenditure from
politically sensitive areas and ‘white elephants’ towards neglected
fields which are economically productive, strengthen the country’s
infrastructure, or have the potential to improve income redistribution,
such as primary health and education;
 tax reform: reducing marginal tax rates to sharpen incentives for
companies and individuals to earn more, and broadening the tax
base to improve horizontal equity
 deregulation: abolition of regulations which impede entry of new firms
or restrict competition, while ensuring that all other regulations can be
justified by criteria such as safety, environmental protection, or
prudential supervision of financial institutions;
THE TEN ECONOMIC POLICY PRESCRIPTIONS
 foreign direct investment: removal of investment barriers
impeding entry of foreign firms, with all receiving ‘national
treatment’ (the same treatment as domestic firms);
 financial liberalization: progressively move towards market-
determined interest rates within a less constrained financial
market-place;
 exchange rates: a single exchange rate that is set at a level
that encourages expansion of non-traditional exports and
managed in a way that assures exporters of continued
competitiveness;

THE TEN ECONOMIC POLICY PRESCRIPTIONS

 trade liberalization: rapid conversion of quantitative
trade restrictions, such as import quotas, into tariffs and
the progressive reduction of tariffs to between 10 and 20
percent;
 privatization: of state enterprises and assets;
 property rights: ensuring security of property rights under
law without excessive costs.

THE TEN ECONOMIC POLICY PRESCRIPTIONS

WASHINGTON CONSENSUS
 In the developing world, reduction of tariffs and opening up of their
economies, is the quickest way to progress.
 Certain industries would be affected and die, but they considered
this "shock therapy" necessary for long-term economic growth.
 Its advocates like US President Ronald Reagan and British prime
Minister Margaret Thatcher justified their reduction in government
spending by comparing national economies to households.
 The case of post-communist Russia.
 thephrase Washington Consensus has
come to be used fairly widely in a second,
broader sense, to refer to a more general
orientation towards a strongly market-
based approach (sometimes described as
market fundamentalism or
neoliberalism)
NEOLIBERALISM
 The greatest recent repudiation of this thinking was the recent global financial
crisis of 2008-2009 when the world experienced the greatest economic depression
downturn since the Great Depression.
 The crisis can be traced back to the 1980s when the United States systematically
removed various banking and investment restrictions.
 Government authorities failed to regulate bad investments occurring in the US
housing market. Taking advantage of 'cheap housing loans," Americans began
building houses that were beyond their financial capacities'
 To mitigate the risk of these loans, banks that were lending houseowners' money
pooled these mortgage Payments and sold them as “mortgage-backed
securities" (MBSs)
 Since there was so much surplus money circulating' the demand for MBSs
increased as investors clamored for more investment opportunities.
NEOLIBERALISM
 Banks became less discriminating
 They began extending loans to families and individuals with dubious credit records
who were unlikely to pay their loans back.
 Financial experts - wrongly assumed that even if many of the borrowers were
individuals and families who would struggle to pay, a majority would not default'
Moreover, banks thought that since there were so many mortgages in just one MBS' a
few failures would not ruin the entirety of the investment.
 Banks also assumed that housing prices would continue to increase.
 In 2007, home prices stopped increasing as supply caught up with demand.
 This realization triggered the rapid reselling of MBSs, as banks and investors tried to
get rid of their bad investments.
 This dangerous cycle reached a tipping point in September 2008, when major
investment banks like Lehman Brothers collapsed, thereby depleting major
investments.
NEOLIBERALISM
 The crisis spread beyond the United States since many investors were foreign
governments, corporations, and individuals.
 The loss of their money spread like wildfire back to their countries.
 These series of interconnections allowed for a global multiplier effect that sent ripples
across the world.
 Until now countries like Spain and Greece are heavily indebted (almost like Third
World countries), and debt relief has come at a high price. Greece, in particular, has
been forced by Germany and the IMF to cut back on its social and public spending.
Affecting services like pensions, health care, and various forms of social security,
these cuts have been felt most acutely by the poor.
 Moreover, the reduction in government spending has slowed down growth and
ensured high levels of unemployment.
ECONOMIC GLOBALIZATION
 international trade remains essential for countries to develop in the contemporary
world.
 Exports, not just the local selling of goods and services, make national economies grow
at present. In the past, those that benefited the most from free trade were the
advanced nations that were producing and selling industrial and agricultural goods.
 The United Slates, Japan, and the member-countries of the European Union were
responsible for 65 percent of global exports, while the developing countries only
accounted for 29 percent. When more countries opened up their economies to take
advantage of increased free trade, the shares of the percentage began to change.
 By 2011, developing countries like the Philippines, India, China, Argentina, and Brazil
accounted for 51 percent of global exports while the share of advanced nations
including the United States-had gone down to 45 percent.
 The WTO-led reduction of trade barriers, known as trade liberalization, altered the
dynamics of the global economy.
ECONOMIC GLOBALIZATION
 In the recent decades, partly as a result of these increased exports,
economic globalization has ushered in an unprecedented spike in
global growth rates.
 According to the IMF, the global per capita GDP rose over five-fold in
the second half of the 20th century. It was this growth that created the
large Asian economies like Japan, China, Korea, Hong Kong, and
Singapore.
 But, economic globalization remains an uneven process with some
countries, corporations, and individuals benefitting a lot more than
others.
 The reductions in tariffs and other trade barriers, but these processes
have often been unfair.
ECONOMIC GLOBALIZATION
 In the recent decades, partly as a result of these increased exports,
economic globalization has ushered in an unprecedented spike in
global growth rates.
 According to the IMF, the global per capita GDP rose over five-fold in
the second half of the 20th century. It was this growth that created the
large Asian economies like Japan, China, Korea, Hong Kong, and
Singapore.
 But, economic globalization remains an uneven process with some
countries, corporations, and individuals benefitting a lot more than
others.
 The reductions in tariffs and other trade barriers, but these processes
have often been unfair.
 ECONOMIC GLOBALIZATION
 First, developed countries are often
protectionists, as they repeatedly refuse to lift
policies that safeguard their primary products
that could otherwise be overwhelmed by
imports from the developing world.
 Case of Japan’s refusal to allow rice imports
into the country to protect its farming sector
and the US protection of its sugar industry
 Poorer countries can do very little to make
economic globalization more just. Trade
imbalances, therefore, characterize
economic relations between developed and
developing countries.
 ECONOMIC GLOBALIZATION
 The beneficiaries of global commerce have been mainly
transnational corporations (TNCs) and not governments.
 TNCs are concerned more with profits than with assisting
the social programs of the governments hosting them.
 Host countries in turn, loosen tax laws, which prevent,
wages from rising, while sacrificing social and
environmental programs that protect the underprivileged
members of their societies.
 “race to the bottom" refers to countries' Iowering their labor
standards including the protection of workers 'interests
 Luring foreign investors seeking high profilt margins at the
lowest cost possible.
 Governments weaken environmental laws to attract
investors, creating fatal consequences on their ecological
balance and depleting them of tthelr finite resources (like
oil, coal, and minerals).
ECONOMIC GLOBALIZATION
 International economic integration is a central tenet of
globalization.
 As a reminder, economics is just one window into the
phenomenon of globalization; it is not the entire thing.
 Nevertheless, much of globalization is anchored on changes In
the economy. Global culture, for example, is facilitated by trade.
Filipinos would not be as aware of American culture if not for the
trade that allows locals to watch American movies, listen to
American music, and consume American products.
 The globalization of politics is likewise largely contingent on trade
relations. These days, many events of foreign affairs are
conducted to cement trading relations between and among
states.
 Rising import
dependency (2010)
• Rice (19%)
• Garlic (65%)
• Mongo (54%)
• Coffee (45%)
• Beef (21%)
• Chicken (10%)
• Peanuts (70%)
• Onion (8%)
• Pork (5%)

Result: Growing food insecurity

The Theory and the Reality of
TRAIN
ECONOMIC GLOBALIZATION

How to make the system more just