Chapter 2: The Structures of Globalization

The Global Economy

Market Integration
The Global Interstate System
Contemporary Global Governance

Learning outcomes:

1. Define economic globalization.

2. Explain the role of international financial institution in the creation of global
economy.
3. Differentiate internationalism from globalism.
4. Identify the roles and functions of the United Nations.

The global economy is the world economy or the worldwide economy.

It is all the economies of the world which we consider together as one economic
system. Put simply; it is one giant entity. It is also the system of trade and industry
across the world that has emerged due to globalization. In other words, the way in
which countries’ economies have been developing to operate collectively as one
system.

The term has two meanings:

• The economy of the whole planet, i.e., global GDP. GDP stands for Gross
Domestic Product.
• The way the world is today, with countries’ economies so intertwined and
interdependent that they all seem like parts of one whole. That ‘whole’ we call the
‘global economy.’
When we say ‘We live in a global economy,’ we are describing how intertwined
countries’ economies currently are.

According to BusinessDictionary.com, the global economy is:

“Worldwide economic activity between various countries that are considered intertwined
and thus can affect other countries negatively or positively.”
There is a growing movement today against globalization from both sides of the political
spectrum. Many people in the advanced economies say that the current global economy
keeps their wages low.

Global economy – the economy of the world

The global economy or world economy is the economy of the world. Some people
say the two terms do not have exactly the same meaning.
We measure the global economy separately from national economies.
The world economy is simply an aggregate of all the separate countries’
measurements.
However, this is a very loose difference, i.e., many people use both terms
interchangeably.

We live in a global economy

When people use that phrase what exactly do they mean? Does it mean that any
economic activity today occurs across the planet whereas before it did not? Does it
mean that all economic activities occur at a significantly faster pace than they used to?
Are we saying that our society has changed so much that one country cannot separate
itself from other nations anymore?
According to David, W. Cooney, editor of Practical Distributism, the answer to all the
questions above is ‘no.’
Cooney writes:
“I submit that the global economy is really nothing more than the fact that the banking
industry and some very large companies have expanded to the point where they don’t
really have any national loyalty.”
Banks, Cooney claims, hold no national allegiance because their only interest anywhere
is to make a profit.

Giant multinational corporations claim to have nationalities. However, their operations

are global, and their national claims are hollow. Their national allegiance forms part of a
marketing strategy in their home countries. Multinational corporations are companies
that have businesses, staff, and premises in several countries.

The term ‘marketing strategy’ refers to a business’ marketing goals and objectives, all
combined into one single plan.

Multinational companies love free trade agreements, Cooney adds. They love them
because they can then fire expensive workers in their home country and replace them
with cheaper workers elsewhere.

As more and more companies sell beyond their borders, the need for effective global
marketing has increased significantly. Global marketing refers to planning, producing or
creating, placing, and promoting a company’s products or services in the worldwide
market.

Ref: marketbusinessnews.com extracted from:

https://marketbusinessnews.com/financial-glossary/global-economy/

Market integration-Definition
Market integration occurs when prices among different location or related goods follow
similar patterns in a long period. Group of prices often move proportionally to each other
and when this relation is very clear among different markets it is said that the markets
are integrated.

Market integration is defined as a process which refers to the expansion of firms by

consolidating additional marketing functions and activities under a single management.
Removal of barriers between two markets for the same product, so that prices on the
two markets become more closely linked. Trade liberalization contributes to
international market integration.

Reasons for market integration

• To remove transaction costs
• Foster competition
• Provide better signals for optimal generation and consumption decisions.
• Improve security of supply
• Theoretically one can integrate two markets without interconnection.

Types of market integration

1. Horizontal integration
This occurs when a firm or agency gains control of other firms or agencies performing
similar marketing functions at the same level in the marketing sequence. In this type of
integration, some marketing agencies combine to form a union with a view to reducing
their effective number and the extent of actual competition in the market. It is
advantageous for the members who join the group.

2. Vertical integration
This occurs when a firm performs more than one activity in the sequence of the
marketing process. It is a linking together of two or more functions in the marketing
process within a single firm or under a single ownership. This type of integration makes
it possible to exercise control over both quality and quantity of the product from the
beginning of the production process until the product is ready for the consumer. It
reduces the number of middle men in the marketing channel.
a) Forward integration
If a firm assumes another function of marketing which is closer to the
consumption function, it is a case of forward integration. Example: wholesaler
assuming the function of retailing
b) Backward integration
This involves ownership or a combination of sources of suppl. Example: when a
processing firm assumes the function of assembling/purchasing the produce from
the villages.

3. Conglomeration
A combination of agencies or activities not directly related to each other may, when it
operates under a unified management, be termed a conglomeration.

Degree of integration
• Ownership integration
This occurs when all the decisions and assets of a firm are completely assumed
by another firm.
Example: a processing firm which buys a wholesale firm.
• Contract integration
This involves an agreement between two firms on certain decisions, while each
firm retains its separate identity.
Example: tie up of a dhal mill with pulse traders for supply of pulse grains.

Effects of integration
Vertical integration
• More profits by taking up additional functions
• Risk reduction through improved market co-ordination
• Improvement in bargaining power and the prospects of influencing prices
• Lowering costs through achieving operational efficiency
Horizontal integration
• Buying out a competitor in a time bound way to reduce competition
• Gaining larger share of the market and higher profits
• Attaining economies of scale
• Specializing in the trade
Conglomeration
• Risk reduction through diversification
• Acquisition of financial leverage
• Empire – building urge
The Global Interstate System
Global Interstate System
It is the whole system of human interactions. The modern world-system is structured
politically as an interstate system – a system of competing and allying states. Political
Scientists commonly call this the international system, and it is the main focus of the
field of International Relations
STRENGTHS
• It will make travel less cheaper, faster and better.
WEAKNESSES
• Imposed long-term costs on the country
• Cut down on competition between shippers and passenger carriers.
• Rising consumption of gasoline led to air pollution and a dependence on oil that
affected consumers and foreign policy for generations to come.

Institution that govern international Relations

UNITED NATION
United States President FRANKLIN ROOSEVELT coined the name united nations that
was used in the declaration of United Nation on 1 of January 1942. UN means allies to
fight against the Axis Powers in the Second World War II. Only 26 nation’s
representatives pledge their governments to:
1. Each Government pledges itself to employ its full resources, military or
economic, against those members of the tripartite pact and its adherents with
which such government is at war.
2. Each Government pledges itself to cooperate with the Governments signatory
hereto and not to make a separate armistice or peace with the enemies.

Trade agreements are when two or more nations agree on the terms of trade between
them. They determine the tariffs and duties that countries impose on imports and
exports. All trade agreements affect international trade.

IMPORTS are goods and services produced in a foreign country and bought by
domestic residents. That includes anything shipped into the country even if it's by the
foreign subsidiary of a domestic firm. If the consumer is inside the country's boundaries
and the provider is outside, then the good or service is an import.
Exports are goods and services that are made in a country and sold outside its
borders. That includes anything shipped from a domestic company to its foreign affiliate
or branch.

3 TYPES OF TRADE AGREEMENT

1. UNILATERAL
It occurs when a country imposes trade restrictions and no other country
reciprocates.
A country can also unilaterally loosen trade restrictions, but that rarely happens.

2. BILATERAL
are between two countries. Both countries agree to loosen trade restrictions to
expand business opportunities between them. They lower tariffs and confer
preferred trade status with each other.

3. MULTILATERAL
are the most difficult to negotiate. These are among three countries or more. The
greater the number of participants, the more difficult the negotiations are. They are
also more complex than bilateral agreements. Each country has its own needs and
requests.

Global Governance
Governance, broadly, refers to the various ways in which social life is coordinated, of
which government is merely one. Global governance refers to the various processes
through which decision-making and co-operation at a global level is facilitated, operating
through multilateral systems of regulation.
Global governance encompasses activities that transcend national boundaries at the
international, transnational, and regional levels and is based on rights and rules that are
enforced through a combination of economic and moral incentives.

Effective global governance will allow us to end armed conflict, deal with new and
emerging problems such as technological risks and automation, and to achieve levels of
prosperity and progress never before seen. The most important challenge for humanity
to overcome is that of existential risks.

Global governance encompasses the totality of institutions, policies, norms, procedures

and initiatives through which States and their citizens try to bring more predictability,
stability and order to their responses to transnational challenges.

The future of global governance will be mainly shaped by the following five factors:
individual empowerment, increasing awareness of human security, institutional
complexity, international power shift and liberal world political paradigm.

Climate change, poverty, violent conflict, intolerance and extremism present direct
threats to the unity and well-being of the international community were the challenges of
global governance.