CHAPTER 2: THE GLOBAL ECONOMY
The global economy linkages between the regions and nations of the world in a system of
economic relationships. These relationships involve the exchange of goods and services,
financial flows across borders, exchanging different nations' currencies, movement of
people in search of better standards of living.
Started on 1896, global economic system had reached its peak in 1914. There are various
changes and improvements that characterize economic globalization before and at the present.
Structures of transportations, communication, and capital are comparable then and now.
Transportation- railroads and steamships are the significant inventions that hastened
development in the past. Today, airplanes have been transporting humans and objects all over
the world in a relatively shorter period of time.
Communication- In the past it was the telegraph that assisted the early 20th century
communication. Today, the internet made the world open to everyone. The access to different
social media and websites allows one to have access to overwhelming information pf other
people, organization, and countries.
Capital- Today and even then, large-scale flows of capital and large-scaleimmigration are key
processes that became the worldwide norm. one key of these is the remittance. These are the
transactions by which migrants send money back to their country of origin. Free trades and
elimination of trade barriers strengthened global economic process in both periods.
Though there are structural similarities between global development in the two periods, but the
problems are also similar in both of them. First, poor nations and the people who inhabit them
were and are subjugated by the operations of the global economy. Second, not all parts of the
world gained from the growth of the global economy. Third, not only were or are there losersin
this economic competitionamong geographic areas, but also certain industries and social
classes lose out. Fourth, within nations, the poor tends or tended to suffer most when those
nations, are forced to repay their debts to other, more developed, nations.
Surpluses and Deficits
A positive trade balance (surplus) is when exports exceed imports. A negative trade
balance (deficit) is when exports are less than imports.
Of special interest and important as far as trade surpluses and deficits are concerned are the
positions of the global economic giants- the US and CHINA-in terms of their trade balances. The
US is negotiating with China over the size of its deficit, blaming it, at least in part on Chinese
monetary policies that, in the US view, artificially undervalue the yuan, thereby making Chinese
export less expensive and therefore more affordable to Americans. Of course, there is much
more to American attraction to Chinese products than their low process traceable to China’s
undervalued currency. The fact, is many Chinese products are attractive because they are
priced low, mainly as result of the low cost of labor there and because their quality ids high, at
least for the price being paid.
Economic Chains and Networks
Trade in goods and services are clearly central to the global economy. Much of that
trade takes place in interconnected circuits of one kind or another. Gary Gereffi (2005:160-83)
has outlined several of the most important economic chains and involved in global trade:
*Supply Chains. These are general label for value-adding activities in the production
process. A supply chain begins with raw materials and follows the value-adding process
through a variety of inputs and outputs and ultimately to a finished product.
*International production networks. These involve the networks of producers involved
in the process of producing a finished product. Multinational corporations (MNCs) are
seen as playing a central role, as being the “flagships”, in these networks.
*Global community chains. This includes buyer-driven chains such as Wal-Mart which
play an increasing role in determining what industries produce and how much they
produce. Since such companies do not manufacture their own products, they are buyers
of products that are then sold under their brand names, and also included here are
“brand companies” or “manufacturers without factories”.
*Global Value Chains: Global value chains (GVCs) refer to international production
sharing, a phenomenon where production is broken into activities and tasks carried out
in different countries. For example, a smart phone assembled in China might include
graphic design elements from the United States, computer code from France, silicone
chips from Singapore, and precious metals from Bolivia.
GLOBAL VALUE CHAINS: CHINA AND THE UNITED STATE
To give specificity to the idea of global value chains, look at the several specific
examples of such chains, all of which involves trade between China and the US, although many
other countries in the world are involved in these or similar chain.
Scrap Metal
An important example of a global value chain involves scrap metal. This seems like a
rather prosaic commodity, but it is more important than many think and its fate tells us a great
deal about globalization.
Scrap metal is interesting in this regard because, by definitions, its origins go back to
other chains involved in the use of raw materials and the production of finished products.
Furthermore, it also includes consumption of those products as well as their ultimate disposal as
scrap or junk.
Waste Paper
Nine Dragons Paper is already one of the world’s largest producers of paper and it could
possibly soon be number one in the world. It is difficult to compete with Nine dragons Paper
because the company works with less expensive paper, its factory burns comparatively
inexpensive coal, and it uses the latest technologies while competitors are saddled with less
efficient technology that is three or four decades old.
T-shirts
One particularly interesting and instructive example is found in Pietra Rivoli’s
work on the Global value chain for T-shirts. The global value chain here involves,
among other things, cotton grown in and shipped from the US; T-shirts manufactured in
China; the shipping to; and sale in, the US of those new T-shirts; the eventual disposal
of them; and finally the shipping and sale of those used T-shirts in Africa.
iPhones
The global chain for the Apple iPhone is fascinating. The phones themselves are
manufactured in China and exported to the US and Europe. However, many of them
end up being bought there, and then smuggled to other nations, mainly China, where
consumers love high-tech gadgets like the iPhones.
The phones are being bought in the US and Europe, sometimes in large
quatities, by tourists, airline personnel, small businesspeople, and full-time smugglers,
and brought back to China.
Outsourcing
Outsourcing is the transfer of activities once performed by an entity to a business
or businesses in exchange for money. It is a complex phenomenon that is not restricted
to the economy, not only a macro-level phenomenon, and not simply global in
character. Dealing with the first issue, while outsourcing in the economic realm is of
greatest importance and the issue of concern here, it also occurs in many others
institutions such as health care and the military.
The form of outsourcing most closely and importantly associated with
globalization is offshore outsourcing which involves sending work to companies in other
countries
In-sourcing involves the fact that offshore outsourcing necessarily involves tasks
being taken in by firms in other countries. In the case of the US and other developed
countries, the work that is outsourced to, say, India is simultaneously in sourced by that
country. It is also the case that while they are offshore outsourcing a great deal of work,
the US and Great Britain, among others are also in-sourcing some work that had been
performed in other countries.
--->>> Group Activity #1: “Follow the Product” (Posted in Google Classroom)
CONSUMPTION
Consumption is highly complex, involving mainly consumer objects and services,
consumers, the consumption process, and consumption sites. It is important to note that
there has been a tendency to closely associate consumption, as well as the globalization of
consumption.
Consumer Objects and Services
Much of consumption resolves around shopping for and purchasing objects of all kinds
(Quarter Pounders, snowboards, and automobiles, among others.), but in recent years, an
increasing amount of consumption relates to various services (legal, accounting, and
educational, among others.) While many objects and services remain highly local, an increasing
number have globalized.
There are global services such as those offered by accounting firms, as well as package
delivery services. Of particular importance in terms of objects and services is the issue of
brands and branding. Brands are great importance both within nations as well as globally.
Indeed, much money and effort is invested in creating brand names that are recognized and
trusted throughout the world.
Consumers
Increasing numbers of people throughout the world are spending more and more time as
consumers. Not long ago, it was different as most people spent most of their time as producers.
Not only do more people spend more time consuming, but they are increasingly more likely to
define themselves by what they consume, than by their roles as producers and workers.
Furthermore, consumers are on the move throughout the world, often as tourists. Not only is
tourism a form of consumption, but much tourism is undertaken in order to consume the goods
and services on offer at other locales throughout the world.
Consumption Process
Increasing numbers of people know what is expected of them as consumers; they
generally know what to do in the consumption process wherever they happen to be in the world.
This includes knowing how to work their way through a shopping mall, use a credit card, or
make a purchase online. Where these processes are known, there is a remarkable similarity
throughout the world in the process of consuming in a supermarket, a shopping mall, or a fastfood restaurant.
THE MODERN WORLD SYSTEM
One of the famous works that captures the socio-historical economic nexus of pre-capitalist
economies and the present world was that of Immanuel Wallerstein’s research on the modern
world-system. His analysis focused on the broad economic entity with a division of labor that is
not circumscribed by political or cultural boundaries. This is to say that Wallerstein’s idea of the
world-system is larger than workers, classes, or even states. We can say that through the global
economic activity, countries around the world have been divided according to their economic
power in the global arena.
The world system, by definition, is a largely self-contained system with a set of boundaries and
a definable life span; that is, it does not last forever. It is composed internally of a variety of
social structures and member groups.
The modern world system is also known as the modern capitalist world-economy. It is a system
which relies economic domination. It compasses many state and built in process of economic
stabilization. This means that it is economic toward the arena worldwide economic transactions.
Worldwide Division of Labor and the Development of the Modern World System
Not all countries are equal in the modern world system according to Wallerstein. A three-level
hierarchy is a remarkable feature of the modern capitalist world-economy. The world is now
divided into three categories and thereby creating worldwide division of labor. They are the
following:
Core. These are areas that dominate the capitalist world-economy, and exploits
the rest of the system, (e.g.US and Japan)
Core countries are dominant capitalist countries that exploit peripheral countries
for labor and raw materials. They are strong in military power and not dependent
on any one state or country. They serve the interests of the economically
powerful. They are focused on higher skill and capital-intensive production.
Periphery. There are areas that provide raw materials to the core and heavily
exploited (e.g., many countries in African region)
In world systems theory, the periphery countries (sometimes referred to as just
the periphery) are those that are less developed than the semi-periphery and
core countries. These countries usually receive a disproportionately small share
of global wealth.
Semi-periphery. A residual category that encompasses set of regions
somewhere between exploiting and exploited (e.g., India)
Its often used to describe countries that are somewhere in between the most
industrialized nations and those other countries that are peripheral, meaning
more rural and not as relevant in the scope of the world economy.
The eight (8) Myth of Economic Globalization
#1 Economic Globalization Is Inevitable.
Advocates of economic globalization try to describe it as an inevitable process, the logical
outgrowth of economic and technological forces that evolved over centuries to their present
form, nearly as if they were forces of nature, like gravity. But while global trade activity and
concepts of free trade have existed since the distant past, they do not not nearly begin to
resemble the volume, speed, form or impact of today’s activities, nor were they as deliberately
plotted and structured.
Economic globalization in the modern era is not some kind of accident of evolution; it directly
emerges from a set of institutions and rules created on purpose by human beings for a specific
goal: to give primacy to certain economic processes and values, and place them above all
others.
In fact, modern day globalization had a birthdate and a birthplace: Bretton Woods, New
Hampshire, July 1944. That’s when the world’s leading economists, bankers, corporate heads,
and heads of western governments tried to create a new economic system, following the
devastation of World War II. They decided on a globally centralized system with global
corporations as the engines of economic growth.
The primary function of these bodies is to place economic values above all others, and to
establish rules that suppress the ability of nation-states to sustain laws that protect nature,
workers, consumers and even national sovereignty and democracy if they can be construed as
slowing down free trade. The net result is the greatest transfer of economic and political power
from nation-states to corporations ever in history.
But none of it is inevitable. All of it can be reversed once citizen movements and their
governments realize the full consequences. To call what is essentially a collection of rules—very
consequential rules—"inevitable," is really designed to make everyone feel there is nothing to
be done about it, thus promoting passivity.
#2 We Need Globalization to Feed the Hungry
The globalization of corporate industrial-style agriculture has failed to address the world’s
hunger crisis; in fact, it makes it worse. During the past two decades, the total amount of food in
the world has increased, but hunger rates have also increased, far faster even than population
growth.
The main problem is that globalization of food production is actually pushing small, self-reliant
farmers—who now account for 40 percent of global food production—off their lands and
replacing them with large chemical and machine intensive corporate farms. Evicted, landless
farmers find themselves without jobs or money to buy food.
A 1993 study reported alarming percentages of rural families who now have insufficient land to
support themselves or their communities. In Peru, the number of landless or land-poor was 75
percent, in Ecuador 75 percent, 66 percent in Columbia, 32 percent in Kenya, and 95 percent in
Egypt, among many others. Even in the U.S., we are losing a record number of family farms
every year.
The globalized industrial agricultural model does not emphasize food for hungry local
communities. Instead, it encourages export economies resulting in monocultures—a single crop
grown over thousands of acres. These crops are usually luxury high profit items such as
flowers, beef, shrimp, cotton, coffee, and soybeans cultivated for export to well-fed countries. In
addition, monocultures are notoriously vulnerable to insect blights and bad weather, and greatly
contribute to soil infertility.
The big new trade institutions and agreements like the WTO and NAFTA—as well as the World
Bank and the IMF—all strongly favor the transition of agriculture from small-scale, locally
oriented diverse agriculture to large scale monocultural production, using heavy chemical and
machine inputs, directed toward export markets.
WTO policies of restricting direct payments to farmers yet encouraging subsidies for corporate
export-oriented agribusiness brought global corporations into local communities, making
survival difficult for small scale farmers in every country of the world. Once driven from their
lands, it is a short route to urban hunger lines. Meanwhile, traditional livelihoods and
communities disappear.
Industrial agriculture advocates also suggest that global biotechnology companies have the
answer to world hunger. But biotech production is also a monoculture that does nothing to solve
local hunger problems. It too produces luxury crops for export. Does anyone believe that the
invention of biotech plants whose seeds are sterile—and therefore force farmers to buy new
seeds every year—has something to do with stopping hunger? The biotech industry’s goal is not
to feed the hungry, only to feed itself.
A recent United Nations study confirms that the world already has enough food to feed the
global population. The problem is one of distribution. Global trade rules put food production and
distribution in the hands of agribusiness giants, supplanting the traditional system of local
production for local consumption. As a result, the world is producing the wrong kind of food for
export to the already well-fed, by a process that leaves millions of people landless, homeless,
cashless, and unable to feed them as they traditionally had.
#3 Globalization Will Alleviate Poverty
This has been the theme strongly trumpeted since Bretton Woods; free trade and globalization
will "lift all boats," and end poverty. But in the half century since this big push began, the world
has more poor and more hungry than ever before, and the situation is getting steadily worse as
we approach the millennium.
According to a recently published (September, 1999) UN report, global economic inequality has
increased dramatically as a direct result of economic globalization and current rules of trade.
"When the market goes too far in dominating social and political outcomes, the opportunities
and rewards of economic globalization spread unequally and inequitably, concentrating power
and wealth in a select group of people, nations, and corporations, marginalizing the others."
Economic globalization creates wealth, but only for the few elite who can sit at the hub of the
process, able to benefit from the surge of consolidations, mergers, global scale technology and
financial activity. Recent figures confirm how it all works.
Benefits are so concentrated that the number of billionaires in the world has increased by 25
percent in only the last two years; collectively these 475 individuals are worth more than the
combined incomes of the bottom 50 percent. Three of these billionaires are now worth more
than the combined GNP of all the UN-designated "least developed countries" and their 600
million people.
Of the 100 largest economies in the world, 52 are now corporations. Mitsubishi is the twentysecond largest economy in the world; General Motors is twenty-sixth; Ford is thirty-first. All are
larger than the national economies of Denmark, Thailand, Turkey, South Africa, Saudi Arabia,
Norway, Finland, Chile, etc., to name only a few. If anyone thinks larger corporations means
more jobs, an Institute for Policy Studies (IPS) report shows that the largest 200 corporations
now control 28 percent of global economic activity, but employ less than one-half of one percent
of the global workforce. This is because they enjoy tremendous efficiencies of scale, and new
technology.
Some people point to the booming stock market and record low unemployment as evidence that
economic globalization is working. But while the stock market has boomed, it actually does not
reflect the reality of life for most people. Almost 90 percent of the value of all stocks and mutual
funds owned by households is owned by the richest 10 percent.
So much for the rising tide that lifts all boats. Actually, it lifts only yachts.
#4 Economic Globalization Increases Choice
The ultimate expression of choice is diversity, and economic globalization destroys both cultural
and biological diversity. Globalization is homogenizing values and behaviors, producing a new
global "monoculture," just as it creates monocultures in agriculture. While economic
globalization may increase consumer choices in some cases, it drastically diminishes our
choices in almost every sphere of life. Also, domination of major industries by a handful of
multinational corporations makes it next to impossible for small, local producers to compete.
When brands like Coca-Cola and Levi’s proliferate around the globe they put local operators out
of business, which limits consumer choice.
While Indian villagers may now have access to CNN and Baywatch, the dissemination of
western popular culture by global media companies is destroying diverse local cultural and
artistic traditions. Some would argue that the western cultural cloning now underway is the
direct result of deliberate corporate intrusion into other nations. Corporate advertising portrays
not-so-subtle images that glorify western taste, dress, food and lifestyle as being a sign of
progress, while non-western traditional values and cultures are viewed as backward and out of
date.
#5 Economic Globalization Increases Environmental Standards in Developing Countries
by Making Countries Wealthier
First of all, economic globalization does not produce wealth, save for a small percentage of
people (see above). The wealth that is produced is rarely spent on environmental programs.
Multilateral lending agencies set up to further the agenda of economic globalization, such as the
International Monetary Fund and the World Bank, practically ensure environmental destruction.
The conditions attached to loans from the IMF and World Bank require that governments open
up their natural resources to corporate exploitation and cut spending for environmental
programs. In any case, some kinds of environmental destruction cannot be reversed through
increased expenditures. No amount of money can bring back species pushed to extinction.
Globalization is inherently destructive to the natural world because it requires that products
travel thousands of miles around the planet, resulting in staggering environmental costs such as
unprecedented levels of ocean and air pollution from transport, increased energy consumption
and use of fossil fuels (furthering climate change), and increased use of packaging materials. It
also requires devastating new infrastructure developments: new roads, ports, airports, pipelines,
power grids—often constructed in formerly pristine places.
WTO agreements have already rolled back years of hard-won environmental gains made
through national legislation and multilateral environmental agreements (MEAs), including
measures agreed upon at the 1992 Rio Summit. To date, in every dispute case challenging a
domestic environmental regulation, the WTO has ruled against the environment. Its very first
ruling, in fact, seriously weakened a part of the U.S. Clean Air Act. In 1997, the U.S.
Environmental Protection Agency changed some of its clean air rules to allow dirtier gasoline as
a result of this ruling. In addition, the WTO has ruled against provisions of the U.S. Endangered
Species Act and the U.S. has changed its regulations to comply with the WTO.
In the interests of advancing trade liberalization, commercial interests advising governments say
trade rules must be consistent from country to country. However, instead of setting minimum
standards for environmental protection, WTO agreements and dispute rulings effectively place a
ceiling on environmental standards. This ensures that environmental regulations sink to the
lowest common denominator, resulting in a downward harmonization of global standards.
Proponents of globalization point to the rising number of MEAs as evidence that environmental
concerns are being addressed. However, most MEAs are largely voluntary and do not have
effective enforcement mechanisms.
#6 Opposition to Economic Globalization Is Protectionist
Advocates of economic globalization have succeeded in making the term "protectionism" a dirty
word. They use it to offhandedly dismiss everyone from environmentalists to consumers to small
businesspeople to organized labor. Peasant farmers are lampooned as protectionists for
resisting trade liberalization and for trying to preserve a so-called "inefficient" way of life that has
served them and their communities well for centuries.
If protectionism refers to protecting local jobs, public health, cultural diversity, and natural
resources, then protectionism is a good thing. The structure of economic globalization is itself
corporate protectionism, because it is set up to protect corporations from the regulations of
democratic societies.
#7 Developing Countries Are Depending on Economic Globalization to Achieve First
World Standard of Living
Developing countries are, in fact, becoming poorer, not richer. They are already paying the
highest price for globalization. This is because the rules of the global bureaucracies invariably
favor Northern corporate interests.
While it is widely accepted that the biosphere is incapable of sustaining six billion people at the
consumption levels of the North, one cannot argue that poor countries should stay poor while
rich countries continue to consume more than their share.
The overconsumption of the north has been fueled by centuries of exploitation of the South’s
natural resources. So we must give a much higher priority to cutting Northern overconsumption,
sharing resources and wealth and recognizing the South’s legitimate need for sustainable
development.
#8 There Is No Realistic Alternative to Economic Globalization
There are many alternatives. But for the reasons outlined above, our current course is the one
that is not realistic. By punishing countries and communities that fail to follow its rules, economic
globalization actually precludes the development of other alternatives and growth models.
The expansion of the global economy inevitably marginalizes and renders obsolete the
livelihoods of a large segment of the world’s population. At the same time, it devastates the
natural world, homogenizes cultures, and destroys communities.
The better path is to do exactly the opposite of what economic globalization advocates suggest.
The more they say to remove restrictions on currency flows, the clearer it is there should be
strict restrictions on currency. The more they say free trade, the more we must fight for the
powers of local communities and regions to act in the interests of their own resources, people
and land.
We should move away from economic globalization—and toward a revitalization of local political
and economic control, self-reliance and ecological preservation.
International Forum on Globalization
--->>> Individual Activity #2: “Process Questions” (Posted in Google Classroom)