BINALBAGAN CATHOLIC COLLEGE

BINALBAGAN, NEGROS OCCIDENTAL

GE 5 The Contemporary World
INSTRUCTOR: MICHAEL B. DORONILA, LPT, MAEd
2nd Semester, A.Y. 2021-2022

MODULE 2 – The Structures of Globalization

THE STRUCTURES OF GLOBALIZATION – MODULE 2

OBJECTIVES This module enables you to;
▪ Discuss the structure of globalization;
▪ Differentiate different worlds exist in terms of economic status and development;
▪ Appreciate the value of globalization.
CONTENT The Structures of Globalization
COURSE MATERIAL Module,
GoogleClassroom
https://classroom.google.com/c/NDQ4MTcxMDQwMjc5?cjc=3tt7ris

TIME FRAME 6 hours

LESSON PROPER
ENGAGE It is the increasing economic integration and interdependence of national,
regional, and local economies across the world through an intensification of cross-
border movement of goods, services, technologies and capital. Economic globalization
is a historical process, the result of human innovation and technological progress.
STUDY Discussion Questions:
1. Distinguish the structure of Globalization?
2. What are the reasons and agents of globalizations?
3. What are the roles of financial institutions in the creation of global economy?
ASSESS Articulate how structure of globalization reflects our culture, economics, life style and
nation development.
EVALUATION Worksheet 2 – Google Forms
CONSULTATION Mobile No: 09704930663
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MENTOR’S LINKS

Prepared By:

MICHAEL B. DORONILA LPT, MAED

GE 5 instructor
 BINALBAGAN CATHOLIC COLLEGE
BINALBAGAN, NEGROS OCCIDENTAL
GE 5 The Contemporary World
INSTRUCTOR: MICHAEL B. DORONILA, LPT, MAEd
2nd Semester, A.Y. 2021-2022

MODULE 2 – The Structures of Globalization

ECONOMIC GLOBALIZATION
It is the increasing economic integration and interdependence of national, regional, and local economies
across the world through an intensification of cross-border movement of goods, services, technologies and
capital. Economic globalization is a historical process, the result of human innovation and technological
progress.

REASONS AND AGENTS of ECONOMIC GLOBALIZATION

Four Main Reasons
• conquest (the desire to control other countries);
• prosperity (the search for a better life);
• exploration (the desire to discover new lands); and
• trade (the desire to sell goods profitably).

Primary Agents of Globalization (in the past)

• Soldiers
• Sailors
• Traders
• Explorers

WAVES OF ECONOMIC MIGRATION

Certain milestone indicating leaps in economic globalization
The Silk Road linking China to Middle East to Roman Empire in the Middle Ages (Han Dynasty). The Silk
Road or Silk Route was an ancient network of trade routes that were for centuries central to cultural interaction
through regions of the Asian continent connecting the East and West and stretching from the Korean peninsula
and Japan to the Mediterranean Sea.
Islamic Golden Age (8th to 13th century): Muslim traders established some globalization of crops, trade,
technology. Cultural revolution in the Middle East.

Leaps and retrogressions in economic globalization

1492 – 1800: Colonization period – increased trade in Europe, extraction of minerals and exotic spices in
colonies, setting up of plantations, slavery, forced trade with colonies, British and East India
Companies, migration to Americas.
1800 – 1914: Industrial Revolution, massive technological progress, railroads, mass migration to Americas,
corporations looking for markets worldwide (setback during WWI)
1914 – 1946: Two World Wars, Great Depression – setback in globalization
1970 – 1990: Latest Waves of Globalization
• Increasing trade liberalization
• Capital movements across borders (at first FDIs and loans)
• Multilateral institutions pushing for trade and financial liberalization – to open up goods and financial
markets
• Foreign direct investment (FDI) is an investment made by a company or individual in one country in
business interests in another country, in the form of either establishing business operations or acquiring
business assets in the other country, such as ownership or controlling interest in a foreign company.
 • Multilateral institutions (IMF, WB, DB) and national policy makers use market ideology to effect market
liberalization, deregulation and privatization, as well as trade and financial liberalization
• Latin American debt crisis (1981 – 1983) – severe debt crisis in the Third World
• The Bretton Woods System (1944 – 1973) was a remarkable achievement of global coordination. It
established the U.S. dollar as the global currency, taking the world off of the gold standard. It created the
World Bank and the International Monetary Fund. These two global organizations would monitor the new
system.
• 1990 – present (Globalization mostly premeditated):
• World Trade Organizations (WTO)
• Regional trade formations: EU, NAFTA, AFTA, ASEAN + 3, AEC etc.
• China entry into global economy
• Bilateral trade and investment agreements
• Tequila and Asian financial crises (1990s)
• Argentinian debt default (1999 – 2001)
• Global Financial Crisis (2008 – 2009)

Factors facilitating economic globalization among countries

For trade and finance (capital):
• Improved transportation systems
• Improved technology, information and telecommunications
• Increased surpluses and capital searching for markets (corporations and MNCs)
• Economic policies aimed at opening up trade and capital account liberalization (opening up flow and
capital and money going in and out of country)

For labor or personal flows:

• Lack of economic opportunities in poorer countries driving people to look for employment abroad
• Improved transportation, cross border arrangements, and info system

Strong initiative to open up global markets to trade and investments

• Since 1948, the General Agreement on Tariffs and Trade (GATT), had gathered countries in getting them
to continuously open up their economies to the trade of goods, and later, services.
• The GATT meetings eventually led to the creation of the World Trade Organization in 1995
• Since 1970s, the developed countries and multilateral institutions (IMF, WB, ADB) had been aggressively
pushing developing countries
To open up their economy to world imports
To promote their exports
In 1980s up to now, persuading emerging markets to open up capital and finance accounts

THE ROLE OF FINANCIAL INSTITUTIONS IN THE CREATION OF GLOBAL ECONOMY

• Reducing poverty
• Advancing educational attainment
• Raising the status of women
• Reducing child mortality
• Improving maternal health
• Combating HIV/ AIDS, malaria and other diseases
• Ensuring environmental sustainability
• Enhancing development cooperation

HISTORY OF GLOBAL MARKET INTEGRATION IN THE 20TH CENTURY

Post-World War II
In 1944 it became clear that the war was coming to an end, and the western Allied powers decided to
again to attempt building a new world order. Meeting at the Mount Washington Hotel in Bretton Woods, New
Hampshire, the US and English representatives, H.D. White and J.M. Keynes respectively, (yes, Keynes of the
Keynesian Macro model!) set out to create institutions so to prevent the reoccurrence of the conditions which
led to WWII.
They proposed the creation of three organizations, with each organization playing a role in the smooth
functioning of global economy. These were:
1) the International Bank for Reconstruction and Development (IBRD or more commonly the World Bank) whose
original mandate was to rebuild the war-torn economies of Europe and Asia. It has evolved into the world’s
most influential lender of foreign aid to developing nations.
2) the International Monetary Fund (IMF) whose primary purpose was to maintain a fixed exchange rate system
known as the Bretton Woods System. After the dissolution of the Bretton Woods System in the early 1970s
the IMF has become the world’s overseer of the international financial system, recently playing a highly
visible and controversial role in the aftermath of the East Asian financial crisis.
3) the International Trade Organization (ITO), which was not ratified by the US Congress and consequently did
not become a reality. However, it’s primary function of liberalizing world trade was given to the General
Agreement on Tariffs and Trade (GATT). Several GATT trade negotiations are of note. The Kennedy Round
(early 1960s) originated due to US concerns with respect to the newly formed European Common Market. It
resulted in a reduction in world tariffs by approximately 30%. The Tokyo Round (1970s) further reduced tariffs
and addressed issues of non-tariff barriers, such as quotas. Most recently is the Uruguay Round, which
concluded in 1994. Its major accomplishments included reduced barriers to trade in services, protection of
intellectual property and liberalization in agriculture. One consequence of the Uruguay round was the
transformation of GATT into the World Trade Organization (WTO), a new institution with the same primary
objective of trade liberalization.

The post-World War II era is marked by two major geopolitical events, the Cold War and the period of
decolonization. Some political scientists viewed the world as being divided into three groups of nations. The
first-world consisted of the western democratic industrial nations. The second-world was made up of the
communist nations and the third-world, a term still in use today refers to the developing nations. The Cold War
was an ideological battle between the first and second worlds. Each believed the other wished to spread its
influence and dominate the world. The actual hostilities that took place were in the third world. The Korean
War, Vietnam War, and numerous other conflicts were at their core battles between the first and second worlds
for the allegiance of third world nations. The end of the Cold War occurred in the beginning of the 1990s with
the fall of the Soviet Union.

De-colonization
This period also saw the birth of many new nations as the European powers decolonized. Shortly after
World War II, Great Britain de-colonized South Asia leading to the partition of British India into India and
Pakistan. France, as a result of the Algerian Civil war, decolonized later in late 1950s and early 1960s. Portugal,
the last of the European colonizer granted independence to the last of its colonies in the middle 1970s. This
means that many developing countries are relatively young, especially those in Africa, the Middle East and South
Asia. These newly liberated countries had to choose which economic structure to adopt to achieve their
developmental objectives. Many of these countries adopted Socialist policies giving government a very large
role in their economies. Their choices, by and large, were a function of distancing themselves from their former
colonial masters.
Furthermore, Keynesian policy, whose central tenet was that government should play an active role in
the economy to combat recessions and unemployment, was being practiced in the United States and other
stalwarts of market economics. A third reason was the example of Stalinist Russia which in relatively quick time
transformed the Soviet Union from an agrarian to industrial society.

Import Substitution
These new nations adopted government-controlled economies that relied on import substitution
industrialization strategies to achieve industrialization. Import substitution meant that these countries fostered
the growth of industries that produced goods that were being imported, usually from the former colonialist.
The basic premise for this policy was that their former colonial economic relationship was one in which the
colonialist exploits its colony by importing its raw materials and then exporting high-valued manufactured goods
back to it. This cycle of exploitation could be broken if the colony used its raw materials itself to manufacture
its own goods. While the notion might appear to be compelling, it is a movement away from efficient resource
allocation.
Newly formed manufacturing industries in the young nations were relatively inefficient and required
fairly high levels of protection from imports, mainly from the industrialized countries. Behind protectionist
barriers these industries did not have the incentive to become efficient. While import substitution policies did
initially succeed in producing some economic growth, they were not sustainable. Many nations in Africa, South
Asia and Latin America saw their economies stagnate after an initial growth spurt. Several Southeast Asian
nations, after initially implementing import substitution policies, adopted export promotion strategies. Here
they would focus their industrial efforts on producing goods that were competitive in global markets. They
created industries whose products had high world demand, required labor-intensive production, and had
economies of scale. What was not consumed at home could be exported.

Oil Price Shocks

The oil price shocks of the1970s forced many Americans for the first time to realize that the US economy
was not independent from the rest of the world. The recessions following the oil crises of 1973 and in 1979 led
to both recession and inflation simultaneously. The oil price shocks set into motion events that are still present
in today’s global economy. Many oil exporting countries, especially in the Persian Gulf area, saw their export
earnings rise faster than they could spend them. The surplus earnings, which were denominated in US dollars,
found their way into the global financial system. In other words, these petro-dollars were deposited in the major
banks of the US and Europe.
These banks now flush with new deposits had to find new borrowers in order to remain solvent. Many
oil importing developing countries had a great need for these resources in order to finance the now higher cost
of oil. Some oil-exporting developing countries enacted development programs that outspent their oil earnings.
The size of many developing countries debt ballooned.

International Debt Crisis

Two events in the US precipitated an international debt crisis. Mr. Paul Volker, then the Chairman of the
Federal Reserve System, instituted a very tight monetary policy to fight the double-digit inflation in the US.
Reducing the money supply resulted in an increase in interest rates. This increase in interest rates increased the
interest payments that developing countries had to pay in order to service their huge debt. Secondly, President
Ronald Reagan instituted a supply side economic policy plunging the US economy into the worst recession since
the Great Depression. With the economy in the US in a severe downturn the demand for developing countries
products fell. Developing countries were now between a rock and a hard place. On the one hand their debt
service payments were rising while at the same time their ability to earn the income to pay their debt obligations
was falling. Mexico, Argentina, Brazil and many other developing countries either defaulted on their debt or
underwent IMF restructuring programs requiring stringent austerity measures. On group of countries, however,
weathered the storm. Export promoters allowed price adjustments to shift their production away from energy
intensive production. Countries who followed import-substituting policies stagnated. The 1980s is often
referred to as the “lost decade” in Latin America. Using the Asian Tigers of Korea, Hong Kong, Taiwan and
Singapore as a model, many import substituting countries changed their policies. They became more market
friendly, opening up their economies to the global economy. One major example is Mexico, who joined the US
and Canada in the North American Free Trade Agreement in 1994.
Most developing nations saw the benefits of becoming linked to the global economy. Industrial nations
no longer were viewed as neo-colonial exploiters, but as markets for developing countries goods. Further
integration of capital markets led to the emerging market phenomena. Investors in industrial countries could
now purchase equities from a variety of newly formed stock markets in Argentina, Chile, Thailand, Malaysia,
and so on. This inflow of financial capital allowed developing countries to invest in building new factories and
infrastructure speeding up their economic development. Also, at this time the Soviet Union disintegrated after
its Eastern European allies overthrew their communist governments.

THE ATTRIBUTES OF GLOBAL CORPORATIONS

• An international company has no foreign direct investment and makes its wares only in its home country.
Its involvement outside its borders is essentially limited to importing and exporting goods.
• A multinational company invests directly in foreign nations, but this is usually limited to a few areas.
Products are customized to local preferences, rather than homogenized, limiting the ability to create
economies of scale.
 • Transnational companies take the global corporation a step further. A transnational company invests
directly in dozens of countries and distributes decision-making capabilities to its various local operations.

Worlds within the World?

And why is our music called world music? I think people are being polite. What they want to say is that
it's third world music. Like they use to call us underdeveloped countries, now it has changed to developing
countries, it's much more polite.

The First, the Second, and the Third World.

When people talk about the poorest countries of the world, they often refer to them with the general
term Third World, and they think everybody knows what they are talking about. But when you ask them if there
is a Third World, what about a Second or a First World, you almost always get an evasive answer. Other people
even try to use the terms as a ranking scheme for the state of development of countries, with the First World
on top, followed by the Second World and so on, that's perfect - nonsense.
To close the gap of information you will find here explanations of the terms.
The use of the terms First, the Second, and the Third World is a rough, and it's safe to say, outdated
model of the geopolitical world from the time of the cold war.
There is no official definition of the first, second, and the third world. Below OWNO's explanation of the
terms.

Four Worlds
After World War II the world split into two large geopolitical blocs and spheres of influence with contrary
views on government and the politically correct society:
1 - The bloc of democratic-industrial countries within the American influence sphere, the "First World".
2 - The Eastern bloc of the communist-socialist states, the "Second World".
3 - The remaining three-quarters of the world's population, states not aligned with either bloc were regarded
as the "Third World."
4 - The term "Fourth World", coined in the early 1970s by Shuswap Chief George Manuel, refers to widely
unknown nations (cultural entities) of indigenous peoples, "First Nations" living within or across
national state boundaries.
First there was the three worlds model
The origin of the terminology is unclear. In 1952 Alfred Sauvy, a French demographer, wrote an article
in the French magazine L'Observateur which ended by comparing the Third World with the Third Estate: "ce
Tiers Monde ignoré, exploité, méprisé comme le Tiers État" (this ignored Third World, exploited, scorned like
the Third Estate). Other sources claim that Charles de Gaulle coined the term Third World, maybe de Gaulle only
has quoted Sauvy.
“First World" refers to so called developed, capitalist, industrial countries, roughly, a bloc of countries aligned
with the United States after World War II, with more or less common political and economic interests: North
America (USA and Canada), Western Europe (United Kingdom,France, Germany, Italy), Japan and Australia.
"Second World" refers to the former communist-socialist, industrial states, (formerly, the territory and sphere
of influence of the Union of Soviet Socialists Republic) today: Russia, Kazakhstan, Uzbekistan, Turkmenistan,
Armenia, Georgia, etc. China and Vietnam also belong to the sphere of the 2nd world.
"Third World" are all the other countries, today often used to roughly describe the developing countries of
Africa, Asia and Latin America. The term Third World includes as well capitalist (e.g., Venezuela) and communist
(e.g., North Korea) countries, as very rich (e.g., Saudi Arabia) and very poor (e.g., Mali) countries.

Third World Countries classified by various indices: their Political Rights and Civil Liberties, the Gross
National Income (GNI) and Poverty of countries, the Human Development of countries (HDI), and the Freedom
of Information within a country.
What makes a nation third world?
Despite ever evolving definitions, the concept of the third world serves to identify countries that suffer
from high infant mortality, low economic development, high levels of poverty, low utilization of natural
resources, and heavy dependence on industrialized nations. These are the developing and technologically less
advanced nations of Asia, Africa, Oceania, and Latin America. Third world nations tend to have economies
dependent on the developed countries and are generally characterized as poor with unstable governments and
having high rates of population growth, illiteracy, and disease. A key factor is the lack of a middle class — with
impoverished millions in a vast lower economic class and a very small elite upper class controlling the country's
wealth and resources. Most third world nations also have a very large foreign debt.
The term "Fourth World" first came into use in 1974 with the publication of Shuswap Chief George
Manuel's: The fourth world: an Indian reality (amazon link to the book), the term refers to nations (cultural
entities, ethnic groups) of indigenous peoples living within or across state boundaries (nation states).

Prepared By:

MICHAEL B. DORONILA LPT, MAED

GE 5 instructor