Market Integration

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 a numerical term, 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, exchange, 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 the primary sector. The secondary sector gains the raw materials and transforms them into manufactured goods.
This means, for example, that someone from the primary sector refines the petroleum to gasoline. Whereas, the tertiary
sector involves services rather than goods. It offers services by doing things rather than making things. Thus, economic
system is more complicated or at least more sophisticated than the way things used to be for much of human history.
This topic will show the contribution of the different financial and economic institution that facilitated the
growth of the global economy.

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 a cold”. But it is important to remember that it 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 experienced by Russia and Asia affected the world economy. The
strength of a more powerful economy brings greater effect on other country. In same manner, crises on weaker
economies have less effect on other countries.
Although countries are heavily affected by the gains and crises in the world economy, the organizations that
they consist also contribute to these events. The following are the financial institutions and economic organizations 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 I, the Great Depression in 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
consists the background for the establishment of the Bretton Woods system.
In general, the Bretton Woods system has five key elements. 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 US dollar pegged by the United
States per ounce of gold is the same as 175 Nicaraguan cordobas per ounce of gold. The exchange rate therefore would
be 5 cordobas for 1 dollar. Another element is that “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” (Boughton, 2007). 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 US dollar became the global currency.

The General Agreement on Tariffs 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 WTO 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, non-tariff-
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 goods 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 item”. The general
idea where the WTO is based was that of neoliberalism. This means that by reducing or eliminating barriers, all nations
will benefit.
There are, however, significant criticism 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 subsidies. Grain process 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 Monetary Fund (IMF) and the World Bank

IMF and the 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 designed to complement each other. The IMF’s main goal was to help countries
which were in trouble at the time and who could not obtain money by any means. Perhaps, their economy collapsed or
their currency was threatened. IMF, in this case, served as a 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
corrupt governments or even dictators and imposing ineffective austerity measures to get their money back.

The Organization for Economic Cooperation and Development (OECD), the Organization of Petroleum Exporting
Countries (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 Exporting Countries (OPEC) was originally comprised of Saudi Arabia,
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, the 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 the Great Britain, Sweden, and Denmark did not. Critics argue
that the euro increased the prices in Eurozones 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, about 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 US firms to relocate Mexico. This is because developing nations have
less government regulations and cheaper labor. 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 business to establish a name for itself, quadrupled trade between three
countries, and created five million US 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.

-Sir Rodel Baral