Module 3:

_ _ _ _ _ _ INTEGRATION

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Topic 1:
 Introduction
 International Financial Institutions
 The Bretton Woods System
 The General Agreement on Tariffs and Trade (GATT) and the World Trade
Organization
 The International Monetary Fund and the World Bank
 The Organization for Economic Cooperation and Development (OECD), the
Organization of Petroleum Exporting Countries (OPEC), and the European
Union (EU)

Learning Outcomes

At the end of this Module, the students must have:

 Understood the following terms under the different topics;
 Cited some examples of different sectors;
 Given the similarities and differences between IMF and World Bank

Let’s start off!

Take a look again at the title of this module three. As you can see it needs SIX LETTER
WORD to complete the title. Right? Now, all you have to do is answer the following
riddles below and collect every FIRST LETTER of your answer to complete the word
NEEDED for the title.

1. I may don’t shine by day time, but surely I can give you light at night time. Who am I?
2. I am the first letter in an English alphabet.
3. You can see me often right after the rain and I am often associated as the symbol of
hope.
4. You can’t run a vehicle without me.
5. I am the fifth letter in an English alphabet.
6. They often say that I am “gold.”

Write your answer here!

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We’re getting there!

The following acronyms are terms needed for you to familiarize to make it easy for you
to understand the topic ahead. Kindly spell it out and say something about it with your
own thought.

1. GATT
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2. WTO
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3. IMF
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4. OECD
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5. OPEC
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6. NAFTA
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Now, we explore!

To give you a concrete and substance understanding of the topic, together we will
explore more! Read the content of the lesson which will help you to understand about
globalization and etc.

Introduction
The social institution that has one of the biggest impacts on society is the economy. You
might think of the economy in terms of number—number of unemployed, gross
domestic product (GDP), or whatever the stock market is doing today. While we often
talk about it in numerical terms, the economy is composed of people. It is the social
institution that organizes all production, consumption, and trade of goods in the society.
There are many ways in which products can be made, exchanged, and used. Think about
capitalism or socialism. These economic systems—and the economic revolutions that
created them—shape the way people live their lives.

Economic systems vary from one society to another. But in any given economy,
production typically splits into three sectors.

 The Primary sector extracts raw materials from natural environments. Workers
like farmers or miners fit well in primary sector.
 The Secondary sector gains the raw materials and transform them into
manufactured goods. This means, for example, that someone from secondary
sector refines the petroleum to gasoline.
 The Tertiary sector involves services rather than goods. It offers services by
doing things rather than making things.
This chapter will show the contributions of the different financial and economic
institutions that facilitated the growth of the global economy.

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 INTERNATIONAL FINANCIAL
INSTITUTIONS
World economies have been brought closer together by globalization. It is reflected in
the phrase “When the American economy sneezes, the rest of the world catches cold”.
But it is important to remember that is not only the economy of the United States but
also other economies in the world that have a significant impact on the global market
and finance. For instance, the financial crises experience by Russia and Asia affected the
world economy of a powerful economy brings greater effect on other countries. For
example, Argentina’s serious financial crisis in the late 1990s and 2000s had a
comparatively small impact on the global economy.
Although countries are heavily suffered by the gains and crises in the world
economy, the organization that they consist also contribute to these events. The
following are the financial institutions and economic organization that made countries
even closer together, at least, when it comes to trade.

THE BRETTON WOODS SYSTEM

The major economies in the world had suffered because of World War 1, the
Great Depression in the 1930s, and World War II. Because of the fear of the recurrence
of lack of cooperation among nation-states, political instability, and economic turmoil
( especially after the Second World War ), reduction of barriers to trade and free flow of
money among nations became the focus to restructure the world economy and ensure
global financial stability (Ritzer,2015). These consist the background for the
establishment of the Bretton Wood system.

FIVE KEY ELEMENTS OF BRETTON WOODS SYSTEM

 First element is the expression of currency in terms of gold or gold value to

establish a par value (Boughton,2007). For instance, a 35 U.S. dollar pegged by
the United States per ounce of gold is the same as 175 Nicaraguan Cordoba’s per
ounce of gold. The exchange rate therefore would be 5 Cordoba’s for 1 dollar.

 Another element is that “the official monetary authority each country ( a central
bank or its equivalent ) would agree to exchange its own currency for those
other countries at the established exchange rates, plus or minus a one-percent
margin “ (Boughtin, 2007, pp. 106-107).

 The third element of the Bretton Woods system is the establishment of an

overseer for these exchange rates; thus, the International Monetary Fund (IMF)
was founded.

 Eliminating restrictions on the currencies of member states in the international

trade is the fourth key element.

 The final element is that the U.S. dollar became the global currency.

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 THE GENERAL AGREEMENT ON TARTIFFS AND TRADE (GATT) AND THE WORLD
TRADE ORGANIZATION (WTO)

According to Peet (2003), global trade and finance was greatly affected by the
Bretton Woods system. One of the systems born out of Bretton Woods was the General
Agreement on Tariffs and Trade (GATT) that was established in 1947 (Goldstein et al.,
2007). GATT 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. However, ‘it was out of the Uruguay Round (1986-1993) that an
agreement was reached to create the World Trade Organization (WTO)” (Ritzer, 2015)
The two headquarters is located in Geneva, Switzerland with 152 member states
as of 2008 (Trachtman,2007). Unlike GATT, WTO is an independent multilateral
organization that became responsible for trade in services, nontariff-related barriers to
trade, and other broader areas of trade liberalization. An example cited by Ritzer (2015)
was that of the “differences between nations in relation to regulations on items as
manufactured good or food. A given nation can be taken to task for such regulations if
they are deemed to be an unfair restraint on the trade in such items.“ The general idea
where WTO is based was that of neoliberalism. This means that by reducing or
eliminating barriers, all nations will benefit.
There are, however, significant criticisms to WTO. One is that trade barriers
created by developed countries cannot be countered enough by WTO, especially in
agriculture. A concrete case was that the emerging markets in the Global South made the
majority in the WTO, but they suffered under the industrial nations which supported the
agriculture with subsides. Grain prices increased and food riots occurred in many
member states of WTO, like Mexico, Egypt, and Indonesia in 2008. Aside from issues in
agricultural sector, the decision-making processes were heavily influenced by larger
trading powers, in the so-called Green Room, while excluding smaller powers in
meetings. Lastly, Ritzer (2015) also pointed out that International Non-Government
Organizations (INGOs) are not involved, leading to the staging of “regular protests and
demonstrations against the WTO”

THE INTERNATIONAL MONETRARY FUND (IMF) AND THE WORLD BANK

IMF and World Bank were founded after the World War II. Their establishment
was mainly because of peace advocacy after the war. These institutions aimed to help
the economic stability of the world. Both of them are basically banks, but instead of
being started by individuals like regular banks, they were started by countries. Most of
the world’s countries were members of the two institutions. But, of course, the richest
countries were those who handled most of the financing and ultimately, those who had
the greatest influence.
IMF and the World Bank were design to complement each other. The IMF’s main
goal was to help countries which were in trouble at the time and could not obtain money
by any means. Perhaps, their economy collapsed or their currency was threatened. IMF,
in this case, served as the lender or a last resort for countries which needed financial
assistance. For instance, Yemen loaned 93 million dollars from IMF on April 5, 2012 to
address its struggle with terrorism. The World Bank, in comparison, had a more long-
term approach. Its main goals revolved around the eradication of poverty and it funded
specific projects that helped them reach their goals, especially in poor countries. An
example of such is their investment in education since 1962 in developing nations like
Bangladesh, Chad, and Afghanistan.
Unfortunately, the reputation of these institutions has been dwindling, mainly
due to practices such as lending the corrupt governments or even dictators and
imposing ineffective austerity measures to get their money back.

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THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD),
THE ORGANIZATION OF PETROLEU EXPORTINGCOUNTRIES (OPEC), AND THE
EUROPEAN UNION (EU)

The most encompassing club of the richest countries in the world is the
Organization for Economic Cooperation and Development (OECD) with 35 member
states as of 2016, with Latvia as its latest member. It is highly influential, despite the
group having little formal power. This emanates from the member countries’ resources
and economic power.
In 1960, the Organization of petroleum Exploring Countries (OPEC) was
originally comprised of Saudi Arabia, Iraq, Kuwait, Iran, and Venezuela. They are still
part of the major exporters of oil in the world today. OPEC was formed because member
countries wanted to increase the price of oil, which in the past had a relatively low price
and had failed in keeping up with inflation. Today United Arab Emirates, Algeria, Libya,
Qatar, Nigeria, and Indonesia are also included as members.
The European Union (EU) is made up of 28 member states. Most members in the
Eurozone adopted the euro as basic currency but some Western European nations like
Great Britain, Sweden, and Denmark did not. Critics argue that the euro increased the
prices in Eurozone and resulted in depressed economic growth rates, like in Greece,
Spain, and Portugal. The policies of the European Central Bank are considered to be a
significant contributor in these situations.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

The North American Free Trade Agreement (NAFTA) is a trade pact between the
United States, Mexico, and Canada created on January 1, 1994 when Mexico joined the
two other nations. It was first created in 1989 with only Canada and the United States as
trading partners. NAFTA helps in developing and expanding world trade by broadening
international cooperation. It also aims to increase cooperation for improving working
conditions in North America by reducing barriers to trade as it expands the markets of
the three countries.
The creation of NAFTA has caused manufacturing jobs from developed nations
(Canada or the United States) to transfer to less developed nations (Mexico) in order to
reduce the cost of their products. In Mexico, producer prices dropped and some two
million farmers were forced to leave their farms. During this time, consumer food prices
rose, causing 20 million Mexicans, 25% of their population, to live in “food poverty.”
The free trade, however, gave a modest impact on US GDP. It has become $127
billion richer each year due to trade growth. One can argue that NAFTA was to blame for
job losses and wage stagnation in the United States because competition from Mexican
firms had forced many U.S. firms to relocate to Mexico. This is because developing
nations have less government regulations and cheaper labour. This is called
outsourcing. As an example, the United States outsourced approximately 791,000 jobs to
Mexico in 2010.
As for Canada, 76% of Canadian exports go to the United States and about a
quarter of the jobs in Canada are dependent in some way on the trade with the United
States. This means that if NAFTA changes or is eradicated, it would be devastating for
Canada’s economy.
Generally, NAFTA has its positive and negative consequences. It lowered prices
by removing tariffs, opened up new opportunities for small- and medium-sized
businesses to establish a name for itself, quadrupled trade between the three countries,
ad created five million U.S. jobs. Some of the negative effects, however, include excessive
pollution, loss of more than 682,000 manufacturing jobs, exploitation of workers in
Mexico, and moving Mexican farmers out of business.

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TRY THIS!
I believe that you have understood the topic above. Now to measure how far you have
understood kindly do the following activities.

ACTIVITY #1
Kindly provide examples of the following sectors. (15PTS.)
PRIMARY SECTOR SECONDARY SECTOR TERTIARY SECTOR

ACTIVITY #2
Kindly compare and contrast between IMF and World Bank using Venn diagram.
(10PTS)

IMF WORLD BANK

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TOPIC 2
 History of Market Integration
 The Agricultural Revolution and the Industrial Revolution
 Capitalism and Socialism
 The Information Revolution
 Global Corporation
Learning Outcomes

At the end of this Module, the students must have:

 Understood the different topics;
 Cited the advantages and disadvantages;
 Appreciated the roles of agriculture and technology in our lives.

Let’s start off!

To warm you up with the topics ahead, kindly share your thoughts about the following
terms in your own words.

1. Agricultural revolution
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2. Industrial revolution
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3. Capitalism
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4. Socialism
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5. Information revolution
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6. Global corporations
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We’re getting there!

Before exploring more, kindly answer first the following questions which will lead you
to the main topics.
1. What do you think is the greatest role of agriculture in our lives?
2. Do you agree that technology has reduced the role of human labor? Why or why not?
3. Say something about “global corporations.”

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Now, we explore!
Get ready to learn more by reading and understanding the following topics ahead!

HISTORY OF GLOBAL MARKET INTEGRATION

Before the rise of today’s modern economy, people only produced for their
family. Nowadays, economy demands the different sectors to work together in order to
produce, distribute, and exchange products and services. What caused this shift in the
way people produce for their needs? In order to understand this we will be going back in
time, 12,000 years ago.

THE AGRICULTURAL REVOLUTION AND THE INDUSTRIAL REVOLUTION

AGRICULTURAL REVOLUTION
The first big economic change (Pomeranz, 2000). When people learned how to
domesticate plants and animals, they realized that it was much more productive than
hunter-gatherer societies. This became the new agricultural economy. Farming helped
societies build surpluses meaning, not everyone had to spend their time producing food.
This, in turn led to major developments like permanent settlements, trade networks,
and population growth.

INDUSTRIAL REVOLUTION
The second major economic revolution is the Industrial Revolution of the 1800s.
With the rise of industry came new economic tools, like steam engines, manufacturing,
and mass producing. Factories popped up and changed how work functioned. Instead of
working at home where people worked for their family by making things from start to
finish, they began working as wage laborers and then becoming more specialized in
their skills. Overall, productivity went up, standards of living rose, and people had access
to a wider variety of goods due to mass production.

However, every economic revolution comes with economic casualties. The

workers in the factories—who were mainly poor women and children—worked in
dangerous conditions for low wages. As a result, nineteenth-century industrialists were
known as robber barons—with more productivity came greater wealth, but also greater
economic inequality. In the late nineteenth century, labor unions began to form. These
organizations of workers sought to improve wages and working conditions through
collective action, strikes, and negotiations. Inspired by Marxist principles, labor unions
gave way for minimum wage laws, reasonable working hours, and regulations to protect
the safety of workers.

CAPITALISM SOCIALISM
 Capitalism is a system in which all  Socialist system, the means of
natural resources and means of production are under collective
production are privately owned. ownership. It rejects capitalism’s
It emphasizes profit maximization private property and hands-off
and competition as the main approaches.
drivers of efficiency. This means  Socialism property is owned by
that when one owns a business, the government and located to all
he needs to outperform his citizens, not only those with the
competitors if he is going to money to afford it.
succeed.  Socialism emphasizes collective

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 goals, expecting everyone to work
for the common good and placing
a higher value on meeting
everyone’s basic needs than on
individual profit.

THE INFORMATION REVOLUTION

Ours is the time of the information revolution. Technology has reduced the role
of human labor and shifted it from a manufacturing-based economy to one that is based
on service work and the production of ideas rather than goods. This has had a lot of
residual effects on our economy. Computers and other technologies are beginning to
replace many jobs because of automation or outsourcing jobs offshore. We also see the
decline in union membership. Nowadays, most unions are for public sectors jobs, like
teachers.
What do jobs in a post-industrial society look like? Agricultural jobs, which once
were massive part of the Philippines labor force, have fallen drastically over the last
century. In other countries such as the United States, manufacturing jobs, which were
the lifeblood of their economy for much of the twentieth century, have declined in the
last 30 years. The U.S economy began with their many workers serving in either the
primary or secondary economic sectors. But today, much of their economy is centered
on the tertiary sector or the service industry.
The service industry includes every job such as administrative assistants, nurses,
teachers, and lawyers. This is a big and diverse group because the tertiary sector, like all
the economic sectors we have been discussing, is defined mainly by what it produces
rather than what kinds of jobs it includes. Sociologist have a way of distinguishing
between types of jobs, which is based more on the social status and compensation that
come with them. These are the primary labor market and the secondary labor market.
The primary labor market includes jobs that provide many benefits to workers, like high
incomes, job security, health insurance, and retirement packages. These are white-collar
professions, like doctors, accountants, and engineers. Secondary labor market jobs
provide fewer benefits and include lower-skilled jobs and lower-level service sector
jobs. They tend to pay less, have more unpredictable schedules, and typically do not
offer benefits like health insurance. They also tend to have less job security.
What is next for capitalism? No one knows what the next economic revolution is
going to look like. Nowadays, a key part of both our economic and political landscape is
corporations. Corporations are defined as organizations that exist as legal entities and
have liabilities that are separate from its members. They are in their own thing. More
and more these days, corporations are operating across national boundaries which
means that the future of the Philippine economy-and most countries’ economies-will
play out on a global scale.

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 GLOBAL CORPORATIONS
The increase in international trade has both created and been supported by
international regulatory groups, like WTO, and transnational trade agreements, like
NAFTA. There is not a single country that is completely independent al are dependent to
some degree on international trade for their own prosperity. Without international
trade, there would be no need for international regulatory groups. Without the
international regulatory groups, international trade at the current massive scale would
be impractical. The trade regulatory groups and agreements regulate the flow of goods
and services between countries. They reduce tariffs, which are taxes on imports, and
make customs procedures easier. This make trading across national borders much more
feasible.
These international trade agreements often benefit private industries the most.
Companies can produce their goods and services across many different countries, for
instance, you can have a backpack that was designed in the United States but the
materials came from China, and it was put together in Mexico before it was shipped back
to the United States to be sold.
These companies that extend beyond the borders of one country are called
multinational or transnational corporations (MNCs or TNCs). They are also referred to
as global corporations. They intentionally surpass national borders and take advantage
of opportunities in different countries to manufacture, distribute, market, and sell their
products. Some global corporations are ubiquitous, like McDonalds’s or Coca-Cola, and
yet, they still market themselves as American companies. Others can be surprising like
General Electric, which is based in the United States but has more than half of its
business and employees working in other countries. Another example is Ford Motor
Company, the classic American car company, headquartered in Michigan that
manufactures cars worldwide.
Transnational corporations have a significant role in the global economy. Some
have greater production advantages than an entire nation. They influence the economy
and politics by donating money to specific political campaigns or lobbyists. They can
even influence the global trade law of the international regulatory groups.
Global corporations often locate their factories in countries which can provide
the cheapest labor in order to save up for expenses in the making of a product. As a
result, developing nations will provide incentives, like tax-free trade zones or cheap
labor. The companies will set up shop in their country in hopes of bringing jobs and
industry to beleaguered agricultural areas. This promotes more rapid advances in the
developing nation because of the ideas and innovations brought over from the
industrialized nations. It also makes nations around the word more interdependent,
which minimizes the potential for conflict.
In the end, however, these incentives often hurt the working population of the
developing nation. The upper class may benefit from the business of these corporations
but the people working in the factories are exploited as their wages are cut. In addition,
they are often prohibited from unionizing. It can even result in sweatshop conditions
with long working hours, substandard wages, and poor working conditions. If the labor
laws in one country become too restrictive to TNCs, they can just move their factory to a

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new country, leaving widespread unemployment in their wake. Setting up factories in
these developing nations may also hurt the core country where TNC is based because
many potential jobs are being sent abroad. The same thing happens when companies
outsource their labor to other countries. Outsourcing has been enabled by technological
advances, allowing immediate communication across the world and the ease of
transporting people, goods, and information. When companies outsource find people in
other countries willing to work for a lower wage, they will often employ them, which is
good for the company because they save money, and it is good for the people in other
countries because they now have a job. But it also means that the people in the core
country are losing jobs and having difficulty finding new ones.
There seems to be a lot of negative effects of globalization from transnational
corporations. Trade does not promote the self- interested agendas of corporations and
give them autonomy. The global corporations also influence politics and allow workers
to be exploited. There are, however, positive effects. These include better allocation of
resources, lower prices for products, more employment worldwide, and higher product
output.
The changes a country from international trade are not only economic. Many of
the cultural changes are as important and sometimes, even more obvious than the
economic changes the nation can experience. As international trade become easier and
more widespread, more than just goods and services are exchanged. Cultural practices
and expressions are also passed between nations, spreading from group to group. This is
called diffusion. Ideas and practices spread from where they are well known and
frequently apparent to places where they are new and not often observed. In the past,
exploration, military conquest, missionary work, and provide the means for the trading
ideas. But technology has exponentially increased the speed of diffusion. Nowadays,
mass media and the internet allow the transfer of ideas almost instantaneously. This is
most commonly seen in the transmission of scientific knowledge and the spreading of
the North American culture, which dominates the internet.
International trade and global corporations along with the Internet and more
global processes, contribute to globalization because people and corporations bring
their own beliefs, their traditions, and their money with them when they interact with
other countries. These ideas and capital can then be incorporated in other countries.
These ideas and capital can then be incorporated in other countries and economies of
these foreign nations.

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Try this!
In every action of a human being there will always be some advantages and
disadvantages. And since you are done studying the topics above I am sure enough that
you will be able to express your thoughts of what is needed in the activity.
CRITERIA
Content of the ideas 15pts
Grammar 10pts
Spelling 5pts
Total 30pts

ADVANTAGES DISADVANTAGES
Agricultural revolution

Industrial revolution

Capitalism (cite at least 3

examples)

Socialism (cite at least 3

examples)

Information revolution

Global corporations

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