LESSON 1: THE GLOBAL ECONOMY

Learning Outcomes:
At the end of this lesson, the learners are expected to demonstrate the following:
 Define economic globalization

 Analyze the actors that facilitates economic globalization

 Articulate a stance on global economic integration

Economic Globalization
Steger’s (2014) definition of globalization as the expansion and intensification of social
relations and consciousness across world time and space implies that there are various forms of
connectivity. Globalization is a multidimensional phenomenon, creating economic, political,
cultural, and even technological forms of connectivity. This lesson focuses on the economic
dimension.
Economic globalization refers to the expanding interdependence of world economies.
(Shangquan 2000) attributes this to the growing scale of cross-border trade commodities and
services, flow of international capital, and wide and rapid spread of technology. In the Philippines,
cross-border trading can be best illustrated by the country’s trading partnerships with China, the
United States, and Australia. Moreover, the flow of international capital can be observed in foreign
direct investments (FDI), a type of investment in which a company establishes a business in
another country for production of goods or services and still takes part in the management of that
business. A good example of this is Toyota Motor Philippines Corporation which is a subsidiary
of Toyota Motor Philippines Corporation based in Toyota, Japan. This flow of international capital
can also be observed in foreign portfolio investments, trade flows, external assistance and
external commercial borrowings, and private loan flows.
In 2008, the International Monetary Fund (IMF) defined economic globalization as a
historical process, the result of human innovation and technological progress. “It refers to the
services increasing integration of economies around the world, particularly through the movement
of goods, and capital across borders” (IMF, 2008). Economic globalization can be traced from the
time when there was economic movement in Asia, Africa and Europe through the Silk Road, a
network of trade routes that connected the East, particularly China, and the West. Historically,
these routes also led to the discovery of the Philippine Islands when Portuguese and Spanish
envoys were in search of spices, which then spawned colonization. In the contemporary period,
foreign expatriates come to the country to manage their company’s foreign subsidiaries. Likewise,
the Philippines sends thousands of skilled workers to the Middle East as construction workers,
seafarers, and nurses.
Benczes (2014) identifies four interconnected dimensions of economy namely: (1)
globalization of trade and goods and services; (2) globalization of financial and capital markets;
(3) globalization of technology and communication; and (4) globalization of production. The first
dimension of economic of economic interconnectedness is demonstrated in the establishment of
the World Trade Organization (WTO) that eases trade among countries. WTO, established in
1995, “ensures that trade flows as smoothly, predictably and freely as possible “(WTO, 2012).
Another indicator is the emergence of China as a major supplier and exporter of manufactured
goods that has affected the world economy. China-made products or parts are sent to the United
States. To meet this demand, China creates more jobs for its citizens. Another good example of
economic globalization of trade and services is the increasing number of business process
outsourcing (BPO) companies in the Philippines. The second dimension is evident in the
liberalization of financial and capital markets. This is seen in cross-listing of shares on one or
more foreign stock exchange, cross-hedging and diversification of portfolio, and round the clock
trading worldwide (National Research Council, 1995). The third dimension emphasizes that
various transactions and interactivities that transpire instantly due to the internet and
communication technology. Moreover, the fourth dimension is best illustrated by the existence of
multinational corporations (MNCs) and transnational corporations (TNCs). The Coca Cola
Company is an example of an MNC. Based in Atlanta, Georgia, USA, the company only
manufactures syrup concentrates and sells them to various bottlers that hold exclusive territories
in different countries including the Philippines.
The most fitting definition of economic globalization is that of Szentes’ (2003): the process of
“making the world economy an ‘organic system’ by extending transnational economic processes
and relations to more and more countries and by deepening the economic interdependencies
among them” This implies that the world economy is no longer controlled by the nation-states, but
it must be seen from a global context – the reliance and integration of world economies.
Actors that facilitate Economic Globalization
After recognizing the definition of economic globalization, it is important to discuss the
different agents that bring about interdependencies of global economies. There are different views
on who or what the actors are that facilitate economic globalization. On one hand, some scholars
believe that it is still the nation-state but of different levels. Boyer and Drache (1996) state that
the role of nation-states as manager of the national economy is being redefined by globalization.
Although such is the case, nation-states still act as buffer to negative effects of globalization. In
support, Brodie (1996) calls the government as the “midwives” of globalization. It means that
nation-states are still relevant despite assuming a global perspective and act as mediators
between the effects of globalization and the national economy. Government policies and
regulation either permit or deny the smooth connection among world economies. On the other
hand, some experts claim that the actors are now the global corporations. Ohmae (1995) argues
that the nation-state has ceased to exist as the primary economic organization unit in the global
market. Filipino consumers, for instance, prefer to consume and avail of global products and
services like H&M, Uniqlo, Accenture, Amazon, Alibaba and FedEx. As a result of transforming
the national economy into a global one, Reich (1999) posits that national products, technologies,
corporations, and industries become obsolete. San Miguel Corporation and Jollibee Foods
Corporation are good illustrations of this effect. These two Filipino companies have expanded
outside their home country as they are present in Europe, US and the rest of Asia. According to
Gereffi (2005) , such TNCs are the main driving force of economic globalization accounting for
two thirds of the world export. Forbes lists down companies from 63 countries that together
account for $35 trillion in revenue, $2.4 trillion in profit, $162 trillion of assets and have a combined
market value of $44 trillion (Schaefer, 2016).
An international structure for money, power and interest was created in order to set a
system in the financial and economic relations in the modern day. The establishment of an
international monetary system (IMS) is one of the actors that facilitate economic globalization.
IMS refers to internationally agreed rules, conventions, and institutions for facilitating international
trade, investments and flow of capital among nation-states. Historically, there are three global
IMS – the gold standard, the Bretton Wood System, and the European Monetary System (EMS).
The gold standard functions as a fixed exchange rate regime, with gold as the only international
reserve and participating countries determine the gold content of national currencies (Benczes,
2014). In the Bretton Woods System, the US dollar was the only convertible currency. Thus, it
was agreed by 44 countries to adopt the gold-exchange standard. Also two financial institutions
were established: the International Bank for Reconstruction (IBRD) and the IMF. The former, now
known as the World Bank, is responsible for post-war reconstructions while the latter aims to
promote international financial cooperation and strengthen international trade. Another form of
integration is the establishment of the EMS. It came about after the collapse of the Bretton Woods
System. EMS was successful in the stabilization process of exchange rates. It then prompted the
foundation of a new European Economic and Monetary Union (EMU). National currencies were
abandoned and member states delegated monetary policy onto a supranational level
administered by the European Central Bank (European Commission, 2008). The development of
international trade and trade policy is also a form of such economic integration. Trade patterns
must not be stagnant. Flow of goods must be voluntary but restricting it might affect the
relationship between and among states.
Does economic globalization divides or unites the world?
With the nation-states, global corporations and international monetary systems as actors
of economic globalization, the world is now confronted with a number of ongoing debates as to
whether economic globalization unites or divides the world. Benczes (2014) believes that
economic globalization fosters universal economic growth and development. For one,
globalization allows a worldwide distribution of incomes. Australia, for instance, cannot provide all
the raw materials they need for certain products or services, so it needs other nation-states to
produce or provide these materials. Also, economic globalization reduces poverty (World Bank,
2002). As foreign countries are in need of workforce and human capital, Filipino nurses become
overseas workers ; they go to Europe and other foreign countries to support their families in the
Philippines. Lastly globalization creates mutual dependence between developing and developed
countries (Arrighi, 2005). Some developing countries rely on developed countries for employment
and income while the latter relies on the former for raw and services like labor.
On the other hand, some observers of economic globalization believe that it divides the
world further. First, one might observe that the sources of goods and services are exploited, since
these economically poor nation-states depend on industrialized countries for employment and
income, these industrialized countries compensate their labor with cheap cost. These
industrialized countries even source materials from natural resources of poor nation-states as
another form of exploitation. Some even destroy nature without doing anything to rehabilitate it.
Second, economic globalization does not benefit all nations (World Bank, 2002). There is an
uneven experience among nations. Workers in TNCs are paid less compared to their counterparts
in the companies’ home countries. This shows how cheap labor is in the Philippines. Third,
Wallerstein (2005) claims that capitalism created the different levels of wages in the economic
arena of world systems. It further divides the world for it leads to inequality according to expertise,
experience and skills.