Chapter 2: The Structures of Globalization
Introduction
This chapter is focused on the economic aspect as the main driving force of globalization.
Economic globalization will be defined and this chapter introduces the different actors that facilitates
economic globalization. This chapter will also define the modern world system we live in and hope to give
us enough information to decide our stand on global economic integration.
Learning Outcomes
1.
2.
3.
4.
5.
Define economic Globalization
Identify the actors that facilitate economic globalization
Define the modern world system
Articulate a stance on global economic integration
Differentiate the economic systems
Content
Held et al. (1999) offer a convenient starting point for any discussion on globalization by claiming
that it ‘may be thought of initially as the widening, deepening and speeding up of worldwide
interconnectedness in all aspects of contemporary social life’ (1999: 2). ‘Aspects’ can refer to ‘political,
technical and cultural, as well as economic’ features (Giddens, 1999: 10), implying that globalization is best
thought of as a multidimensional phenomenon.
Economic globalization does not constitute the whole story of contemporary globalization, but in order to
fully understand its meaning and implication, the economic dimension, as one of the major driving forces of
the process of globalization, requires special attention.
What Is Economic Globalization?
According to one of the most often cited definitions,
Economic globalization is a historical process, the result of human innovation and technological
progress. It refers to the increasing integration of economies around the world, particularly through the
movement of goods, services, and capital across borders. The term sometimes also refers to the movement
of people (labor) and knowledge (technology) across international borders. (IMF, 2008)
The phenomenon can thus have several interconnected dimensions, such as
(1) the globalization of trade of goods and services;
(2) the globalization of financial and capital markets;
(3) the globalization of technology and communication; and
(4) the globalization of production.
What makes economic globalization distinct from internationalization is that while the latter is about
the extension of economic activities of nation states across borders, the former is ‘functional integration
between internationally dispersed activities’ Dicken (2004: 12). That is, economic globalization is rather a
qualitative transformation than just a quantitative change.
ACTORS OF ECONOMIC GLOBALIZATION
1. Nation-states
Globalization is a force that changed the way nation-states deal with one another, particularly in the
area of international commerce.
One commonly recognized effect of globalization is that it favors Westernization, meaning that other
nation-states (Like US and UK) are at a disadvantage when dealing with the Americas and Europe. This is
particularly true in the agricultural industry, in which second- and third-world nations face competition from
Western companies. Another potential effect is that nation-states are forced to examine their economic
policies in light of the many challenges and opportunities that multinational corporations and other entities
of international commerce present.
Nation-states to confront the unique issue of foreign direct investments from MNCs/TNCs, forcing
nation-states to determine how much international influence they allow in their economies. Globalization
also creates a sense of interdependence among nations, which could create an imbalance of power among
nations of different economic strengths.
The role of the nation-state in a global world is largely a regulatory one as the chief factor in global
interdependence. While the domestic role of the nation-state remains largely unchanged, states that were
previously isolated are now forced to engage with one another to set international commerce policies.
Through various economic imbalances, these interactions may lead to diminished roles for some states and
exalted roles for others.
2. Global Corporations
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Multinational corporations (MNCs)
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Transnational corporations (TNCs)
The pervasive influence of TNCs resulted in a change in the politics of trade. According to Held and
McGrew (2001: 325), ‘it is global corporate capital, rather than states, which exercises decisive influence
over the organization, location and distribution of economic power and resources”’ in the contemporary
world economy.
Contemporary globalization is equated primarily with TNCs, the main driving forces of economic
globalization of the last 100 years, accounting for roughly two-thirds of world export (Gereffi, 2005)
3. International Monetary Systems
According to Krasner (1983: 2), regimes can be thought of as all the ‘implicit and explicit principles,
norms, rules, and decision making procedures around which actors’ expectations converge'. Consequently,
an international monetary system or regime (IMS) ‘refers to the rules, customs, instruments, facilities, and
organizations for effecting international payments’ (Salvatore, 2007: 764). In the liberal tradition, the main
task of an IMS is to facilitate cross border transactions, especially trade and investment. An international
monetary system is, however, more than just money or currencies; it also reflects economic power and
interests, as ‘money is inherently political, an integral part of ’“high politics” of diplomacy' (Cohen, 2000:
91).
The Gold Standard
The origins of the first modern-day IMS dates back to the early nineteenth century, when the UK
adopted gold mono-metallism in 1821. Half a century later, in 1867, the European nations, as well as the
United States, propagated a deliberate shift to gold at the International Monetary Conference in Paris. Gold
was believed to guarantee a non-inflationary, stable economic environment, a means for accelerating
international trade (Einaudi, 2001). Roughly 70 per cent of the nations participated in the gold standard just
before the outbreak of World War I (Meissner, 2005).
The Bretton Woods System and Its Dissolution
As soon as Europe regained its pre-World War II economic power, the external position of the
United States turned into a persistent deficit as a natural consequence of becoming an international reserve
currency. Nevertheless, by the mid-1960s, the dollar became excessively overvalued vis-a-vis major
currencies. As a response, foreign countries started to deplete the US gold reserves. Destabilizing
speculations, fed by the huge balance of payments and trade deficit, along with inflationary pressures, forced
the United States to abandon the gold-exchange standard on 15 August, 1971.
European Monetary Integration
The miraculous growth performance of Western Europe prompted a closer cooperation on a regional
level, resulting finally in the European Coal and Steel Community in 1951.9 This was followed by the
signing of the Rome Treaty in 1957, which established the European Economic Community (EEC), and was
the first major step towards an ‘ever closer union’. The original six founding members (Germany, France,
Italy, Netherlands, Belgium and Luxembourg) aimed at the creation of a common market, where goods,
services, capital and labour moved freely. Originally, the European six did not plan any direct cooperation in
the field of finance or exchange rate policies. The collapse of the Bretton Woods system, however, placed
the EEC under pressure, and member countries eventually agreed on setting up a regional monetary regime,
the European Monetary System (EMS) in 1979.
Bretton Woods also set the institutional foundations for the establishment of three new international
economic organizations. International Bank for Reconstruction and Development (IBRD) later became
World Bank (WB), General Agreement on Tariffs and Trade (GATT) later became World Trade
Organization (WTO) and International Monetary Fund (IMF)
4. International Financial Institutions
International Financial Institutions were founded by groups of countries to promote public and
private investment to foster economic and social development in developing and transitioning countries.
The first International Financial Institutions, also known as Multilateral Development Banks
(MDBs), were established after World War II to help rebuild war-torn countries and manage the global
financial system. Later, regional development banks were founded to promote economic growth and
cooperation.
IFIs are owned and managed by national governments acting as borrowers, lenders or donors.
Example: World Bank (WB) and International Monetary Fund (IMF)
5. International Economic Cooperation Organizations
International economic and financial organizations provide the structure and funding for many
unilateral and multilateral development projects. Such organizations deal with the major economic and
political issues facing domestic societies and the international community as a whole. Their activities
promote sustainable private and public sector development primarily by: financing private sector projects
located in the developing world; helping private companies in the developing world mobilize financing in
international financial markets; and providing advice and technical assistance to businesses and governments
The three major international economic organizations are the World Bank, the International
Monetary Fund (IMF), and the World Trade Organization (WTO). The WTO emerged out of the General
Agreement on Tariffs and Trade (GATT) in 1995; it is an arrangement across countries that serves as a
forum for negotiations on trading rules as well as a mechanism for dispute settlements in trade issues.(1) By
contrast, the World Bank and IMF deal with their member countries one at a time. They have little influence
with industrial countries but can affect developing countries during times of economic crisis and when those
countries seek additional foreign exchange resources.
Convergence versus Divergence
Those in support of economic globalization emphasize its ability to foster universal economic growth
and development. Dollar and Kraay (2002) argue that only non-globalizer countries failed to reduce absolute
and relative poverty in the last few decades. On the other hand, countries that have embraced globalization
(proxied by trade openness) have benefited from openness considerably.
The World Bank (2002) claims that globalization can indeed reduce poverty but it definitely does not
benefit all nations. Why are less developed regions unable to catch up with developed ones, as predicted by
standard economic theories such as the neoclassical Solow growth model, Bairoch (1993) argues that while
in the developed part of the world, industrial revolution and intensified international relations reinforced
growth and development on an unprecedented scale (as compared to the previous era), the rest of the world
did not manage to capitalize on these processes. Reflecting upon the division of labour between developed
and developing countries in the nineteenth century, Bairoch claimed that ‘the industrialisation of the former
led to the de-industrialisation of the latter’ (1998: 11).
The structural deficiencies of the world economy are heavily emphasized by the so-called
structuralists. Structuralism is a ‘cluster of theories which emerged in the 1950s, 1960s and 1970s … [and]
share the idea that North and South are in a structural relationship one to another; that is that both areas are
part of a structure that determines the pattern of relationships that emerges' (Brown, 2001: 197). The best
known critical approach to the prevailing social division of labour and global inequalities is offered by
‘world-systems analysis, which claims that capitalism under globalization reinforces the structural
patterns of unequal change. According to Wallerstein, capitalism, ‘a historical social system”’ (1983: 13),
created the dramatically diverging historical level of wages in the economic arena of the world system.
Thus, growing inequality, along with economic and political dependence, are not independent at all from
economic globalization.
Accordingly, underdevelopment (i.e. a persistent lack of economic growth and development,
together with impoverishment and even malnutrition) is not the initial stage of a historical and evolutionary
unilinear development process (as predicted by Rostow, 1960), but a consequence of colonialism and
imperialism. But while for Hobson (1902/2005) imperialism was a kind of ‘conscious policy’ adopted by
leading capitalist nations, Wallerstein and his followers identified imperialism as the product of the world
capitalist system which has perpetuated unequal exchange.
The modern capitalist system is unique in the sense that it created political structures that guaranteed
an endless appropriation and accumulation of surpluses from the poor (or the periphery) to the emerging (or
the semi-periphery) and in particular, the advanced industrialized (or the core) countries. It is, however, not
just that the periphery is dependent on the core: the latter's development is also conditioned on the former.
The link between these groups is provided via trade and financial transactions, and is organized by a dense
web of businessmen, merchants, financial entrepreneurs and state bureaucrats. Globalization, the product of
the long process of capitalist development, is, therefore, nothing new for world-system analysts; it is simply
the relabelling of old ideas and concepts (Arrighi, 2005).
POLITICAL- ECONOMIC SYSTEMS
1. Capitalism: Under capitalism (aka market system), each individual or business works in its own interest
and maximizes its own profit based on its decisions. A market economy is one where the allocation of
resources and the trading of goods and services are through the decentralized decisions of many firms and
households.
The market system fosters competition that generally produces the most efficient allocation of resources. In
pure capitalism, also known as laissez-faire capitalism, the government's role is restricted to providing and
enforcing the rules of law by which the economy operates, but it does not interfere with the market.
(Laissez-faire means "let it be.")
The essential characteristics of capitalism are that:
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the factors of production are privately owned;
economic transactions take place in markets, where buyers and sellers
interact;
businesses and employees are free to pursue their own self-interest and
are motivated to do so by the potential to earn a profit;
2. Socialism: The definition of socialism varies widely, and many people use it synonymously for
communism, but it is often distinguished as an economic system between communism and
capitalism. Socialism also believes that wealth and income should be shared more equally among
people. Socialists differ from communists in that they do not believe that the workers will overthrow
capitalists suddenly and violently. Nor do they believe that all private property should be eliminated. Their
main goal is to narrow, not totally eliminate, the gap between the rich and the poor. The government, they
say, has a responsibility to redistribute wealth to make society more fair and just.
Socialism is the social and economic doctrine opposite from Capitalism that espouses public over private
ownership and control of property and natural resources.
3. Communism: also known as a command system, is an economic system where the government owns
most of the factors of production and decides the allocation of resources and what products and services will
be provided.
The end goal of communism was to eliminate class distinctions among people, where everyone shared
equally in the proceeds of society, when government would no longer be needed.
There is no purely capitalist or communist economy in the world today. The capitalist United States has a
Social Security system and a government-owned postal service. Communist China now allows its citizens to
keep some of the profits they earn. These categories are models designed to shed greater light on differing
economic systems.
References
Benczes, István. 2014. Chapter 9 of textbook: “The Globalization of Economic Relations”
Wallerstein, Immanuel. 2004. “The Modern World-System as a Capitalist World Economy: Production,
SurplusValue, and Polarization.” In WorldSystems Analysis: An Introduction. Durham & London: Duke
University Press, pp. 23-4130.
Steger, Manfred B. 2003, Globalization, A very short Introduction. Oxford University Press