Module 4: Market Integration

Topic 1: international financial institutions and organizations

o Crucial to market integration is international financial institutions and organizations that shapes patterns
of exchanges and businesses among different players and actors of world's economic activities.

o Market Integration
 Economy became one of the social institutions that has the biggest impacts on society. It is a social
institution that organizes all production, consumption, and trade of goods in the society. Economic systems
vary from one society to another. But any given economy, production typically splits into three sectors.

 The primary sector extracts raw materials from natural environments. The secondary sector gains the
raw materials and transforms them into manufactured goods. The tertiary sector involves services rather
than goods. It offers services by doing things rather than making things.

o International Financial Institutions

 The following are the financial institutions and economic organizations that made countries even closer
together, at least, when it comes to trade:

 Bretton Wood System

 Because of the fear of the recurrence of lack of cooperation among nation-states after WW I and II,
political instability and economic turmoil, reduction of barriers to trade and free flow of money among
nations became the focus to restructure the world economy and ensure global financial stability. It has
five elements:

1) The expression of currency in terms of gold or gold value to establish a par value.
2) The official monetary authority in each country (central bank or equivalent) would agree to exchange its
own currency for those of other countries at the established exchange rates, plus or minus a one-percent
margin.
3) The establishment of an overseer for these exchange rates; thus, the International Monetary Fund (IMF)
was founded.
4) Eliminating restrictions on the currencies of member states in the international trade.
5) That the U.S. dollar became the global currency.

 One of the systems born out of Bretton Woods was the General Agreement on Tariffs and Trade (GATT)
that was established in 1947. GATT was a forum for the meeting of representatives from 23 member
countries. It focused on trade goods through multinational trade agreements conducted in many “rounds” of
negotiation. However, it was out of Uruguay Round (1986-1993) than agreement was reached to create the
World Trade Organization (WTO).

 Unlike GATT, World Trade Organization is an independent multilateral organization that became
responsible for trade in services, non-tariff related barriers to trade, and other broader areas of trade
liberalization. The general idea where the WTO is based was that of neoliberalism. This means that by
reducing or eliminating barriers, all nations will benefit. There criticisms against WTO, one is that the trade
barriers created by developed countries cannot be countered enough by WTO, especially in agriculture.

 International Monetary Fund (IMF) and World Bank (WB) were founded after the World War II. Their
establishment was mainly because of peace advocacy after the war. They were designed to complement each
other. The IMF’s main goal was to help countries which were in trouble at that time and who could not
obtain money by any means. IMF served as a lender or a last resort for countries which needed financial
 assistance. The WB, in comparison, had a more long-term approach, its main goals revolved around the
eradication of poverty and it funded specific projects that helped them reach their goals, especially in poor
countries.

 Organization for Economic Cooperation and Development (OECD) has 36 rich countries membership
founded in 1961. It is highly influential, despite the group having little formal power. This emanates from the
member countries’ resources and economic power. It is a forum of countries describing themselves as
committed to democracy and the market economy, providing a platform to compare policy experiences, seek
answers to common problems, identify good practices and coordinate domestic and international policies of
its members.

 Organization of Petroleum Exporting Countries (OPEC) was founded in 1960, originally comprises of
Saudi Arabia, Iraq, Kuwait, Iran and Venezuela. OPEC was formed because member countries wanted to
increase the price of oil, which in the past had a relatively low price and had failed in keeping up with
inflation. Today, the United Arab Emirates, Algeria, Qatar, Nigeria and Indonesia are also included as
members.

 The European Union (EU) is made up of 28 member states. Most members in the Eurozone adopted the
euro as basic currency but some Western European nations like Great Britain, Sweden and Denmark did not.
Critics argue that euro increased the prices in Eurozones and resulted in depressed economic growth rates,
like Greece, Spain and Portugal.

 North American Free Trade Agreement (NAFTA) is a trade pact between the Unites States, Mexico and
Canada created on January 1, 1994 when Mexico joined the two nations. It was created in 1989, with only
Canada and U.S. as trading partners. It helps in developing and expanding world trade by broadening
international cooperation. It also aims to increase cooperation for improving working conditions in North
America by reducing barriers to trade as it expands the markets of the three countries.

o Brexit ("British" and "exit") is the withdrawal of the United Kingdom (UK) from the European Union (EU).
Following a referendum held on 23 June 2016 in which 51.9 percent of those voting supported leaving the EU,
the Government invoked Article 50 of the Treaty on European Union, starting a two-year process which was
due to conclude with the UK's exit on 29 March 2019—a deadline which has since been extended to 31
October 2019.

o Brexit is the exit of the United Kingdom from the European Union. After several years of membership of the
EU, the British people will retake control of their borders, trade, owns laws, own courts. They will decide
their own destiny and future. Brexit is all about the principles of sovereignty, a freedom liberty, a self-
determination and economic freedom. It is the biggest single event in British history since the end of World
War II. It is a great event for the British people and it is also a tremendous event for the American people.
Brexit will strengthen the transatlantic alliance, US-UK special relationship and a great event for the entire
free world.

Topic 2: History of Global Market Integration

o As early as 19th century global market integration became a reality because of the advance development of
technology. From the development of steam engines down to the development of railroads and ports which
paved way to faster world transport network.

o The Agricultural Revolution

 The first big economic change was Agricultural Revolution. When people learned how to domesticate plants
and animals, they realized that it was much more productive than hunter-gatherer societies.
  This became the new agricultural economy. Farming helped societies build surpluses. This led to major
developments like permanent settlements, trade networks, and population growth.

o Industrial Revolution (1800s)

 With the rise of industry came new economic tools, like steam engines, manufacturing and mass production.
Factories popped up and changed how work functioned. People began working as wage laborers and then
becoming more specialized in their skills. Productivity went up, standards of living rose, and people had
access to a wider variety of goods due to mass production.

 There were economic casualties, especially the workers in factories who worked in dangerous conditions for
low wages. It resulted a greater economic inequality because 19thcentury industrialists accumulated greater
wealth. This is the beginning of labor unions. These organizations of workers sought to improve wages and
working conditions through collective action, strikes, and negotiations. Inspired by Marxist principles, labor
unions gave way for minimum wage laws, reasonable working hours, and regulations to protect the safety of
workers.

 Capitalism is one of the two competing economic models the other one is Socialism. It sprung up around the
time of Industrial Revolution, as economic capital became more and more important to the production of
goods. Capitalism is a system in which all natural resources and means of production are privately owned. It
emphasized profit maximization and competition as the main drivers of efficiency.

 This means that when one owns business, he needs to outperform his competitors if he is going to succeed. He
is incentivized to be more efficient by improving quality of one’s product and reducing its prices. From the
idea of Adam Smith in the 1770s, that if one leaves a capitalist economy alone, consumers will regulate
things themselves by selecting goods and services that provide the best value.

 In a socialist system, the means of production are under collective ownership. It rejects capitalist’s private
property and hand-off approaches. Instead, in socialism, property is owned by the government and allocated to
all citizens, not only those with the money to afford it. Socialism emphasizes collective goals, expecting
everyone to work for the common good and placing a higher value on meeting everyone’s basic needs than on
individual profit.

 When Karl Marx first wrote about socialism, he viewed it as a stepping stone toward communism, a political
and economic system in which all members of a society are socially equal. In practice, this has not played out
in countries that have modeled their economies on socialism like Cuba, North Korea, China and the USSR.

o The Information Revolution

 Technology has reduced the role of human labor and shifted it from a manufacturing-based economy to one
that is based on service work and the production of ideas rather than goods. This has had a lot of residual
effects on our economy. Computers and other technologies are beginning to replace many jobs because of
automation or outsourcing jobs offshore. Agricultural jobs have fallen drastically over the last century even
the manufacturing jobs also declined over the years. Most the economies shifted to tertiary sector or the
service industry.

 The service industry is a big and diverse group as defined mainly by what it produces rather than what kinds
of jobs it includes. The primary labor market includes jobs that provide many benefits to workers, like
high incomes, job security, health insurance, and retirement packages. Secondary labor market jobs
provide fewer benefits and include lower-skilled jobs and lower-level service sectors jobs. They tend to pay
less, have more unpredictable schedules, and typically do not offer benefits like health insurance. They also
tend to have less job security.

 Part of the contemporary economic and political landscape is corporation. Corporations are defined as
organizations that exist as legal entities and have liabilities that are separate from tis members. They are
 their own thing. Corporations are operating across national boundaries which means that the future of most
countries’ economies will play out on a global scale.

o Capitalism is an economic system in which private individuals or businesses own capital goods. The
production of goods and services is based on supply and demand in the general market—known as a market
economy—rather than through central planning—known as a planned economy or command economy.

o What is Capitalism?
1) Supply and Demand
 It is how you set prices. If you are selling something, you can charge any price you like for it. But, if
you are buying something, you can pay what you like for it. The actual price is what the seller and the
buyer both agree on.
2) Freedom
 Heart of capitalism. Nobody can tell you what to do to earn money, nor how to spend it.
3) Choice
 Capitalism creates a vast range of choice.
4) Incentive
 You want more money, you will be more inventive either to make something to new and desirable or
cuts costs on existing products.

Topic 3: Global Corporations

o A global corporation, also known as a global company, is coined from the base term ‘global’, which means all
around the world. It makes sense to assume that a global company is a company that does business all over the
world. Global companies conduct some form of business in more than one part of the world. To be considered
international or global, a company generally must have some sort of presence in two or more countries.
Exactly what constitutes a presence, however, is subject to debate. While merely purchasing a product from
another country probably won't make a company global, visiting that country and conducting business there
may allow a company to call itself "global."

o The increase in international trade has both created and been supported by international regulatory groups, like
WTO, and transnational trade agreements, like NAFTA. There is not a single country that is completely
independent. All are dependent to some degree on international trade for their own prosperity. Without
international trade, there would be no need for international regulatory groups.

o Without the international regulatory groups, international trade at the current massive scale would be
impractical. The trade regulatory groups and agreements regulate the flow of goods and services between
countries. They reduce tariffs, which are taxes on imports, and make customs procedures easier. This make
trading across national borders much more feasible.

o The international trade agreements often benefit private industries the most. Companies can produce their
goods and services across many different countries. These companies that extend beyond borders of one
country are called multinational or transnational corporations (MNCs or TNCs). They are also referred to
as global corporations. MNC has an international identity as belonging to a particular home country where
they are headquartered.

o A transnational company is borderless, as it does not consider any particular country as its base, home or
headquarters. Transnational corporations (TNCs) are a type of multinational corporations.

o Global corporations intentionally surpass national borders and take advantage of opportunities in different
countries to manufacture, distribute, market, and sell their products.
o Global corporations often locate their factories in countries which can provide the cheapest labor in order to
save up for expenses in the making of a product. As a result, developing nations will provide incentives, like
tax-free trade zones or cheap labor. In the end, these incentives often hurt the working population of the
developing nation. The global corporations also influence politics and allow workers to be exploited.
o Positive effects of global corporations include better allocation of resources, lower prices for products, more
employment worldwide, and higher product output.

o The changes a country experiences from international trade are not only economic. Many of the cultural
changes are as important and sometimes, even more obvious than the economic changes the nation can
experience. Cultural practices and expressions are also passed between nations, spreading from group to
group.

o Nowadays, mass media and the internet allow the transfer of ideas almost instantaneously. This is most
commonly seen in the transmission of scientific knowledge and spreading of the North American culture,
which dominates the Internet. International trade and global corporations, along with the internet and more
global processes, contribute to globalization because people and corporations bring their own beliefs, their
traditions, and their money with them when they interact with other countries.