Chapter 1:
The Structures of
Globalization
The structures of globalization
can be understood as interconnected
systems that facilitate worldwide
connectivity and interdependence.
These structures span multiple
dimensions of human activity and
organization.
Economic structures form the backbone, consisting of
international trade networks, global financial markets,
and multinational corporations. For example, modern
supply chains stretch across continents, with products
assembled from components made in multiple
countries before reaching consumers worldwide.
Political structures provide the framework for
international cooperation through institutions like the United Nations, World Trade Organization,
and various regional alliances. These enable countries to coordinate on shared challenges and
establish rules for global interaction.
Technological infrastructure serves as the enabler of global connectivity, with digital networks,
transportation systems, and communication platforms allowing for instant information exchange and
efficient movement of goods and people across borders.
Cultural and social structures manifest through the exchange of ideas, values, and practices across
national boundaries. This includes the spread of popular culture, educational exchange, migration
patterns, and the emergence of increasingly cosmopolitan identities.
These structures don't operate in isolation but rather reinforce and influence each other. For
instance, advances in technology facilitate both economic transactions and cultural exchange, while
political frameworks help govern economic relationships. This interconnectedness makes
globalization both robust and vulnerable to systemic disruptions
At the end of this Module, the student will be able to analyze the various drivers of
globalization, and describe the emergence of global economic and political systems.
Lesson 2: Global Market Integration
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At the end of the lesson, students should be able to:
1. Define economic globalization
2. Identify the actors that facilitate economic globalization
3. Narrate a short history of global market integration in the 20th century;
4. Articulate your stance on global market integration
This lesson aims to trace how economic globalization came about. It will
also assess this globalization system, and examine who benefits from it and who
is left out.
What is economic globalization?
● It is defined as a historical process representing the result of human innovation and
technological progress (IMF)
● It is characterized by the increasing integration of economies around the world through the
movement of goods, services, and capital across borders.
● These changes are the products of people, organizations, institutions, and technologies.
Keywords: Integration of economies
Brief History of Development of Economic Integration
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Many scholars would try to locate the start of economic integration during the Silk Road.
The Silk Road is the oldest known international trade route. It is a network of pathways in the
Ancient world that spanned from China to what is now the Middle East and to Europe. However, the
silk road was international, but was not truly ‘global’ because it had no ocean routes that could
reach the American Continent. Therefore, many disagree that economic globalization started here
but it’s a good starting point.
If this is the case, when did full economic globalization begin?
According to the historians Dennis O. Flynn and Arturo Giraldez, economic globalization
began when “All important populated continents began to exchange products continuously – both
with each other directly and indirectly via other continents – and in values sufficient to generate
crucial impacts on all trading partners.”
According to Flynn and Giraldez, the establishment
of the Galleon Trade in 1571 was the first truly global
economic connection. It is because it is the first time in
recorded history that trade routes have connected Asia and
the American continent.
For Filipinos, it is crucial to note that economic
The galleon trade was part of the Age of
globalization began on the country’s shores.
Mercantilism. From the 16th – 18th century, European
superpowers have competed with one another to sell
more goods as means to boost their country’s income (called monetary reserves later on). To
protect their products who sold more goods cheaply, these regimes:
1. Imposed high tariffs. Tariffs – tax imposed on goods coming in or leaving a country
2. Forbade colonies to trade with other nations
3. Restricted trade routes
4. Subsidized its exports
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At this point in time, global economic connections were starting to form. It was also
the first instance of a global economic policy being implemented through mercantilism.
However, this did not yet signify the complete globalization of economies, as mercantilism,
though a system of global trade, still involved various restrictions.
In 1867, a more open trade system emerged following the lead of the UK, US, and other
European nations; this new system was the Gold Standard. The Gold Standard was a monetary
system in which paper money is freely convertible to gold. In other words, gold backs up the value of
money. See the illustration below to visually understand the system.
Currency =
The goal of the gold standard system was to create a common system that would allow
for more efficient trade and prevent the isolationism of the mercantilist era. An example of the
gold standard system in action was the United Kingdom's adoption of the gold standard in 1821,
which allowed the British pound to be directly convertible into a fixed amount of gold. This system
helped streamline trade between nations by providing a stable and universally accepted currency,
making international transactions more predictable and reducing the need for protectionist policies
like tariffs and import restrictions that were common during the mercantilist period.
However, the gold standard system was still very restrictive as it compelled countries to
back their currencies with fixed gold reserves. The gold standard system was restrictive because it
forced countries to tie the value of their currencies directly to gold reserves, limiting their ability to
manage economic conditions. For instance, during the Great Depression, nations like the United
States found it difficult to increase the money supply to stimulate growth, as they were constrained
by the amount of gold they held, making it harder to combat the economic downturn effectively.
The great depression was the worst and longest recession ever experienced by the western
world that lasted for 10 years. (A recession is a business cycle contraction when there is a general
decline in economic activity. It generally occurs when there is a widespread drop in spending.)
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Some economists argued that it was caused by the gold standard since it limited the amount
of circulating money and, therefore reduced demand and consumption. If governments could only
spend money that was equivalent to gold, its capacity to print money and increase the money supply
was severely curtailed.
The gold standard system was abolished by many during WW1, when countries depleted
their gold reserves to fund their armies. For example, the United Kingdom suspended the gold
standard in 1914, as it needed to print more money to finance military expenditures, leading to
inflation and a breakdown of the gold-backed monetary system. During World War I, the United
Kingdom, like many other nations, faced massive financial demands to fund the war effort. To meet
these needs, the British government suspended the gold standard in 1914, allowing it to print more
money to cover military expenses without being limited by gold reserves. This decision was
necessary because the country’s gold reserves were quickly depleted due to the high costs of
maintaining an army and purchasing war supplies. By abandoning the gold standard, the UK and
other countries could manage wartime inflation and continue financing the war, but it also led to
economic instability and the eventual abandonment of the gold standard by many nations in the
years following the war.
Though more indirect versions of the gold standard were used until as late as the 1970s, the
world never returned to the gold standard of the early 20 th century. The world economy operates
based on what are called fiat currencies – currencies that are not backed by precious metals and
whose values are determined by their cost relative to other currencies.
This system allows governments to freely and actively manage their economies by
increasing and decreasing the amount of money in circulation as they see fit. For example, if the
economy is slow, the government can print more money to help boost spending and create jobs. On
the other hand, during a financial crisis, they can increase the money supply to help banks lend more,
supporting businesses and preventing the economy from collapsing. This flexibility allows
governments to respond to economic changes and try to keep things stable.
But the big question is why can’t the government print more money then? The simple
answer is to avoid inflation. If there is too much money in circulation, prices will rise causing inflation
and the money will eventually be devalued.
Looking back a bit further in history, another significant economic integration took place in
the 1940s, shortly after the world wars, with the creation of the Bretton Woods System.
Why was the Bretton Woods System created?
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To create a global economic system that would ensure a longer lasting global peace
following the two (2) world wars. Originally, it was designed to prevent another Great Depression
and advance the economic interests of the US.
When, where and who are involved in the establishment of the system?
It was inaugurated in July 1944 at Bretton Woods, New Hampshire, USA (thus the name)
where forty-three (43) countries took part in the creation of the system.
How did the Bretton Woods System work?
1. Keynesianism – Bretton Woods primary economic thinking.
This economic thinking was formulated by John Maynard
Keynes. According to Keynes, economic crises occur when
countries don’t actively spend money, not the lack of money.
When economies slow down, governments have to reinvigorate
markets with infusions of capital. The active role of governments
in managing spending is called global keynesianism.
(An example of global keynesianism today: A good example of
Global Keynesianism is the response to the COVID-19 pandemic. In 2020, many
governments around the world increased public spending to provide stimulus packages,
support businesses, and protect jobs. For instance, the U.S. introduced the CARES Act,
which provided direct financial aid to individuals, expanded unemployment benefits, and
helped struggling businesses. These measures aimed to counteract the economic slowdown
caused by the pandemic, reflecting the Keynesian principle of government intervention to
stabilize the economy during a crisis.)
2. Global Exchange Rate System. It is the first system used to control the value of money
between different countries. It meant that each country had to have a monetary policy that
kept the exchange rate of its currency within a fixed value – plus or minus 1% - in terms of
gold.
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The Bretton Woods System also created two (2) financial institutions (that are important today):
1. The International Bank for Reconstruction and Development (IBRD), later
called the World Bank. As IBRD, it shall be responsible for funding postwar
reconstruction projects. Nowadays, the IBRD is one of the five (5) banks under
the world bank.
2. International Monetary Fund (IMF)
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 key players in economic globalization.
In addition, to further intensify the global economic
connect during this time, the General Agreement on Tariffs and
Trade (GATT) was made. GATT was established in 1947
(shortly after the Bretton Woods system), where various
countries also committed themselves to further global economic
integration. Its main purpose was to reduce tariffs and other
hindrances to free trade.
An example of actions taken under the General Agreement on Tariffs and Trade (GATT) is
the series of negotiations and trade rounds aimed at reducing tariffs and other trade barriers
between countries. One key action was the "Kennedy Round" in the 1960s, where participating
nations agreed to lower tariffs on industrial goods by about 35%. Another significant example is the
"Uruguay Round" (1986-1994), which resulted in the creation of the World Trade Organization
(WTO) and expanded GATT's scope to include services and intellectual property protections, further
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promoting global trade liberalization. These actions helped open up international markets and
facilitated more global economic integration.
However, by the late 1960s and early 1970s, problems began to surface. The US had been
running persistent trade deficits, and the amount of dollars circulating globally began to exceed the
amount of gold the US held in reserve, leading to
concerns about the dollar's stability.
In 1971, President Richard Nixon announced the
suspension of
the dollar's
convertibility
into gold, a
move intended
to stop the
draining of US
gold reserves and address rising inflation. This effectively
ended the Bretton Woods system and shifted the world
toward a system of floating exchange rates. The US dollar
was no longer directly tied to gold, making it a "fit
currency" based on trust in the US economy rather than physical reserves.
This shift to fiat money marked the beginning of a new economic era, but it also led to
significant challenges. During this time, governments pour money into their economies (following
Keynesianism), allowing people to purchase more goods and, in the process, increase demand for
these products. As demand increases, so are the prices of these goods. This caused inflation.
Moreover, in the early 1970s, the process of oil rose sharply as a result of the OAPEC (Organization
of Arab Petroleum Exporting Countries Imposition of an embargo in response to the decision of the
US and other countries to resupply the Israeli military with the need of arms during the Yom Kippur
War. It has affected Western economies that were reliant on oil. Finally, in 1973 – 1974, the stock
market crashed after the US stopped linking the dollar to goals, effectively ending the Bretton
Woods System.
After the collapse of the Bretton Woods system, there was a lot of instability, with
fluctuating exchange rates, rising inflation, and economic problems. The world experienced severe
STAGFLATION (in which a decline in economic growth and employment (stagnation) takes place
alongside a sharp increase in prices (inflation). What caused the stagflation according to economists
Friedrich Hayek and Milton Friedman (Father of Neoliberalism)?
They argued:
1. The government’s practice of pouring money into their economies had caused
inflation by increasing demand for goods without necessarily increasing supply. This
challenged the consensus to Keynesianism.
2. The government’s intervention in economies distorts the proper functioning of the
market.
In response, many governments in the late 1970s and 1980s turned to neoliberal policies,
which focused on reducing government control over the economy, promoting free markets, and
encouraging privatization and deregulation. The collapse of Bretton Woods showed that a new way
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of managing economies was needed, and neoliberalism offered that by putting more power in the
hands of the market instead of the government. This shift was pushed forward by leaders like
Margaret Thatcher in the UK and Ronald Reagan in the US, whose reforms changed the global
economic landscape.
Neoliberalism is a belief in the free market. Its principles point to reduced government
spending, deregulation, globalization, free trade, and privatization. The main characteristics of
neoliberalism are as follows:
1. Privatization – Every service could/should be private. Industries such as energy,
water, transportation, hospitals, banks, schools, etc. should be privatized.
2. Deregulation – Free Trade “Let businesses be free” with little government
intervention.
3. Reduced Government Spending
Neoliberalism became the codified strategy of the US Treasury Department, the World
Bank, the IMF, and the WTO which was called the Washington Consensus.
It has dominated global economic policies from the 1980s until the early 2000s. Its
advocates pushed for:
1. Minimal government spending to reduce government debt.
2. Privatization of government-controlled services like water, power communications,
and transport.
3. They pressured developing countries to reduce tariffs and open up their economies.
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The Washington Consensus promoted economic policies like free markets, privatization, and
trade liberalization, which encouraged countries to open up their economies and integrate more with
global markets. This helped boost global
economic integration by making international
trade and investment easier and more
widespread. An example of the Washington
Consensus in action is the economic reforms
implemented in Latin American countries in the
1990s, such as Mexico's trade liberalization
through the North American Free Trade
Agreement (NAFTA). These reforms opened up
markets, reduced trade barriers, and
encouraged foreign investment, aligning with
the Washington Consensus principles and
boosting global economic integration.
However, neoliberalism, which focuses on free markets, less government control, and
deregulation, was severely tested during the global financial crisis of 2007-2008. The crisis showed
the problems with the neoliberal approach, especially the dangers of too much deregulation and
depending too much on financial markets. Before the crisis, banks and financial institutions had little
regulation and sold risky financial products, like subprime mortgages. When these risky investments
collapsed, it caused a global recession, resulting in millions of job losses, people losing their homes,
and stock markets crashing.
What’s the story before the financial crisis occurred?
In the 1980s, the US systematically removed various banking and investment restrictions.
The scaling back of regulations continued until the 2000s paving the way for a brewing crisis. In
their attempt to promote the free market, government authorities failed to regulate bad investments
occurring in the US housing market. Taking advantage of the “cheap housing loans”, Americans
began building houses that were beyond their financial capacities. To mitigate the risk of these
loans, banks that were lending house owner’s money pooled these mortgage payments and sold
them as “mortgage-backed securities” (MBSs). One MBS would be a combination of multiple
mortgages that they assumed would pay a steady rate. Since there was so much surplus money
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circulating, the demand for MBS increased as investors clamored for more investment opportunities.
In their haste to issue these loans however, the banks became less discriminating. They began
extending loans to individuals with dubious credit records – people who were unlikely to pay their
loans back. These high-risk mortgages became known as “sub-prime mortgages”.
What went wrong?
Financial experts wrongly assumed that:
1. Even if many of the borrowers were individuals and families who would struggle to pay,
majority would not default,
2. Banks thought that since there were so many mortgages in just one MBS, a few failures
would not ruin the entirety of the investment.
3. Banks also assumed that housing prices would continue to increase. Therefore, even if
homeowners could simply reacquire the homes and sell them at a higher price, turning a
profit.
What happened next?
In 2007, the home prices stopped The individuals could no longer pay off
increasing as supply caught up with their loans.
demand.
This triggered the rapid reselling of MBSs, as banks and investors tried to get rid of
their bad investments!
How did it affect the US Economy and the economies of the World?
In September 2008, the Lehman Brothers collapsed (US major investment banks) collapsed,
depleting major investments.
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These series of interconnections allowed for a global multiplier effect that sent ripples across the
world.
1. Iceland’s banks depended on foreign capital, so when the
crises hit them, they failed to refinance their loans. As a result,
its top commercial banks defaulted. Its debts increased more
than seven-fold in 2007-2008.
2. Spain and Greece (almost like 3rd world countries), are heavily
indebted, and debt relief comes at a high price.
3. Greece has been forced by Germany and IMF to cut back on its social and public spending.
4. In Europe, the economic crises have sparked a political upheaval.
Meanwhile, the US relatively recovered thanks to a large Keynesian-style stimulus package
that President Obama implemented.
ECONOMIC GLOBALIZATION TODAY
The world had become too integrated,
including the economies. The following are the
clear manifestations of the economic integration of
the world:
Exports (to send a product to be sold in
another country), not just local selling of goods and
services make national economies grow at present.
Trend of Global Trade Today: Exports, Markets
Trade liberalization (the WTO-led reduction of trade
barriers) has profoundly altered the dynamics of the
global economy.
Trade in goods exceeded its pre-COVID-19 level and
reached US$9.6 trillion. Trade in services, however,
still falls short of pre-pandemic levels, despite
estimated 16.7 per cent growth in 2021 (based on
UNCTADstat, see UNCTAD, 2022b). In 2020,
developing economies shipped most of their exports
to the United States of America (US$1.4 trillion),
China (US$1.1 trillion) and other Asian economies
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In the last twenty years, China has become a major
player in global trade. Its share in world exports of
goods increased from 4 per cent in 2000 to 15 in
2021. To compare, the share of the United States of
America in global exports of goods amounted to 8
per cent, Germany to 7 per cent, and Japan to 3 per
cent in 2021. Between 2000 and 2021, China’s share
of total imports of goods expanded rapidly from 3.4
per cent to almost 12 per cent.
However, economic globalization remains an uneven process. With some
countries, corporations, and individuals benefiting a lot more than others. Here are some
examples:
Protectionist policies and trade imbalances
Developed countries such as the US and
Japan are often protectionists as they repeatedly
refuse to lift policies that safeguard their
primary products that could otherwise be
overwhelmed by IMPORTS (to bring a product
into a country to be sold) from the developing
countries.
For example:
1. Japan’s determined refusal to allow rice imports into the country to protect its
farming sector, on the rhetoric that rice is sacred and needs to be protected.
2. The US fiercely protects its sugar industry, forcing consumers and sugar-dependent
businesses to pay higher prices instead of getting cheaper sugar from plantations
from Central Americas.
Since developed countries are often protectionists, and developing countries are
more open in terms of trade, the latter is most infringed among the two.
Race to the bottom
Race to the Bottom (n.) – refers to countries’ lowering their labor standards,
including the protection of worker’s interests, to lure in foreign investors seeking high profit
margins at the lowest cost possible.
Transnational Corporations (TNCs) are the primary beneficiaries of global commerce.
And, it is a fact that they are more concerned with profit than with assisting social programs
of the governments hosting them. Host countries, in turn, loosen tax laws, which prevents
wages from rising, while sacrificing social and environmental programs that protect the
underprivileged members of their societies.
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Case in point: The Rana Plaza Disaster in
Bangladesh in 2013
The Rana Plaza Disaster in Bangladesh
in 2013 was an example of the perils of race to
the bottom. On the back of low wages and
cheap costs to set up shop. Bangladesh has
become the world’s 2nd-biggest garment
factory that violated several building codes of
local laws. But enforcement of those codes was lax, resulting in a collapse that killed 1000
workers.
Conclusion
1. International Economic Integration is a central tenet of globalization.
o It is crucial to the process that many writers and commentators confuse this
integration for the entirety of globalization.
o Again, economics is just one window into the phenomenon of globalization; it is not
the entire thing.
2. Nevertheless, much of globalization is anchored on changes in the economy.
o For example, global culture is facilitated by trade. Filipinos wouldn’t be aware of
American or Korean culture if not
for the trade that allows locals to
watch American or Korean movies,
music, and products.
o 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.
3. How to make this system just?
o In terms of trade, trade must be fair and just.
o Governments should also devise a way of cushioning the most damaging effects of
economic globalization, while ensuring that its benefits accrue to everyone.
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