CHAPTER II: THE STRUCTURES OF GLOBALIZATION

LESSON 1: GLOBAL ECONOMY

Nowadays, goods can be sold and bought all over the world. Just because people grow cotton in
Alabama or wheat in Kansas, or create computers in California or cars in Michigan does not mean that
they have to sell them to the people in their town, state, or country. In the age of lightning-speed
communication and transportation today, products like wheat, cotton, cars, and computers can be sold
to people all over the world. In a blink of an eye, transactions are made through gadgets, apps, and
Internet, and goods are carried by ships, airplanes, trains, and trucks all over the globe.

Indeed, various forms of computers and computer applications have made the worldwide buying and
selling all the more easier by calculating payments in split seconds and innovatively keeping track of
shipments. The Internet has been helping significantly also by making people aware that such worldwide
buying and selling can be done with ease.

GLOBAL ECONOMY

The phenomenon explained above manifests a global economy today. Global economy refers to the
system of trade and industry around the globe that has developed as the outcome of globalization, that
is, the manner in which economies have been developing to function together as seemingly one system.
The concept also denotes global economic activities among various countries that are deemed
interconnected and thus can affect other countries either positively or negatively.

Through global economy, countries today can plan to get their goods from anywhere in the world, not
just from locations they have always acquired them. A typical example of this is cars: America used to
produce almost all the cars vended to Americans; nowadays, most cars driven by Americans are
produced by Japanese companies. Ironically, some Japanese companies have put up auto plants in
America; so technically, some cars are American-made sold to Americans by Japanese companies.

Global economy is oftentimes equated to the international spread of capitalism, especially in recent
decades, across national borders and with slight restraints by governments. Capitalism's global economy
has become divisive as some critics claim that its mechanism, free markets, and free trade take
occupations away from productive workers in affluent nations while producing factories in the poor
ones. However, its advocates contend that the free movement of capital motivates investment in poor
countries and generates jobs in the process called globalization.
DEFINING ECONOMIC GLOBALIZATION

The International Monetary Fund (IMF) defines economic globalization as "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" (Benczes, 2014).

This phenomenon has some interrelated dimensions: (a) 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.

Economic globalization is distinct from internationalization. While internalization is simply about the
extension of economic activities of nation states across borders, economic globalization is said to be
functional integration among globally distributed activities. That is, economic globalization is a
qualitative transformation rather than merely a quantitative change.

Professor Emeritus at the Corvinus University of Budapest Tamás Szentes expounds economic
globalization by explaining that in economic terms, "globalisation is nothing but a process making the
world economy an 'organic system' by extending transnational economic processes and economic
relations to more and more countries and by deepening the economic interdependencies among them"
(Benczes, 2014). Among other things, this explanation asserts that economic activities and processes in
economic globalization, such as production, can be interpreted only in a global context, that is, in an
integrated world economy.

The term economic globalization is also used to denote the growing interdependence of world
economies as a consequence of the increasing scale of cross-border trades of merchandises and
services, flow of international capital, and fast and wide-ranging spread of technologies. The concept
reflects the ongoing expansion and mutual integration of market frontiers, and is considered by some as
an irreversible trend for the economic development in the whole world at the turn of the millennium.

Globalization has significant impacts on the economic scenario of both individual countries and the
global economy. Undertaken in the light of globalization, international economic relations have gained
principal importance and are claimed to have led to prompt development and decline in poverty in
many developing countries like India and China.
EconomyWatch.com enumerates some important aspects of globalization and international economic
relations ("Globalization and International Economic Relations," 2010):

1. Globalization ensures easier movement of goods and services across nations. This is an absolute
necessity for fostering international economic relations.

2. Easier movement of people between countries has also been made possible by globalization which is
conductive to international economic relations. This also helps people in one country to migrate to
another for employment, thereby addressing the problem of unemployment in many countries.

3. Globalization leads to free trade between countries. Since the early days. of globalization, numerous
bilateral trade agreements have been signed between countries.

4. Globalization has ensured easier and faster flow of information across geographical boundaries. The
success of economic relations is often dependant on information.

5. Globalization has led to reduction in cultural barriers which has proved to be conductive for economic
co-operations among nations.

6. Movement of capital between countries due to globalization has also played an important role in
international economic relations.

7. Globalization has given rise to several multi-national corporations who undertake economic activity
across geographical borders.

8. Globalization has helped to address environmental issues which are strategic to international
economic relations.

ACTORS THAT FACILITATE ECONOMIC GLOBALIZATION

The following are the major actors or players of present-day global economy as they facilitate economic
globalization:

1. Intergovernmental organizations (IGOs), also known as international governmental organizations, are

organizations that have national governments as members (referred to as member-states). Remarkable
examples are the United Nations (UN) and its various agencies. The world's economic coordinating
institutions, such as the World Bank, the International Monetary Fund (IMF), and the Group of Eight (G-
8), are also IGOS. Other IGOs are military coalitions, such as the North Atlantic Treaty Organization
(NATO), and political alliances, such as the Arab League and the African Union. Other examples include
the Organization of Petroleum Exporting Countries (OPEC), the International Atomic Energy Agency
(IAEA), and the World Trade Organization (WTO).

International governmental organizations (IGOS) are formed by treaty. involving two or more nations, to
work in good faith, on concerns of common interest. IGO's endeavor for security and peace, and take
care of social and economic issues.
2. International nongovernmental organizations (INGOs) are nonstate institutions. They have the same
mission as non-governmental organization (NGOs), but are international in scope and have
headquarters around the world to deal with definite issues in several countries.

A non-governmental organization (NGO) is an institution that is neither a part of a government nor a

traditional profit-oriented business. According to the UN, "any kind of private organization that is
independent from government control can be termed an NGO, provided it is not-for-profit, non-criminal
and not simply an opposition political party" ("Non-Governmental Organization," n.d.).

INGOS are commonly geared toward advocating human rights, promoting the interests of the poor,
relieving suffering, providing social services, taking on community development, and protecting the
environment. Usually established by ordinary citizens, INGOS may be funded by foundations, businesses,
or private philanthropies, although some avoid formal funding and prefer instead to be run by
volunteers. Some examples of INGOs are Greenpeace, the International Olympic Committee, and the
International Committee of the Red Cross.

INGOs arose from the need to coordinate special activities across national borders. The Red Cross, for
instance, was organized in 1863 to institute and monitor the laws of warfare. In other matters, like aid
for refugees or disaster assistance, many nations also depend on INGOS to provide necessary services
that states are unwilling or unable to offer. In the 20th century, specialized

INGOS also emerged in such areas as tourism, sports, business, and communication. Public surveys
reveal that NGOs and INGOS "often enjoy a high degree of public trust" ("Non-Governmental
Organization," n.d.).

Notwithstanding its activity within one country, NGOs endeavor towards solutions that can profit
undeveloped countries that face the backlash of economic globalization. NGOS and INGOS carry out
several services and humanitarian tasks, bring citizen concerns to governments, promote and monitor
policies, and advocate political participation through provision of information.

3. Multinational corporations (MNCs) are companies that have facilities and other assets in at least one
country other than its home country. MNCs have offices and/or factories in various countries and
typically have a centralized head office where they coordinate global management. These corporations
generally derive at least a quarter of their revenues outside their home country.

Almost all major multinationals are American, Japanese, or Western European, such as Honda, Nike,
Toshiba, Coca-Cola, BMW, Wal-Mart, and AOL. Supporters of multinationals claim that they generate
technologically advanced goods and high-paying jobs in countries that otherwise would not have access
to such things. On the other hand, detractors allege that multinationals exert unjustified political
influence over governments, abuse developing nations, and produce job losses in their own home
countries. Multinational corporations are said to have brought increased automation to developing
countries, which may injure less automated local firms and thus oblige their workers to develop new
skills in order to adapt into the changing economy, leaving some behind.

There are four categories of multinationals: (a) a decentralized corporation with a strong presence in its
home country; (b) a global, centralized corporation that acquires cost advantage where cheap resources
are available; (c) a global company that builds on the parent corporation's R&D; (d) a transnational
enterprise that uses all three categories. R&D means research and development). that is, the work a
business conducts toward the innovation, introduction, and improvement of its products and
procedures. It involves exploratory activities to improve current products and procedures or to lead to
the generation of new products and procedures.

Globalization is seen by some as a cause of a phenomenon called the race to the bottom which implies
that multinational companies are persistently attempting to increase or maintain their influence in
countries that are already dependent solely on foreign investment. Multinationals are alleged to target
export-reliant countries. In turn, these underdeveloped countries undercut their competitors by
dropping their labor standards, thereby lowering their labor costs for the investing MNCs. To be able to
do what they want, multinational corporations purposely move into countries with the most relaxed
laws and regulations for labor standards. This phenomenon generates sweatshops with harsh labor
conditions, job insecurity, and low wages.

4. Transnational corporations (TNCs) refer to incorporated or unincorporated enterprises consisting of

parent enterprises and their foreign affiliates. A parent enterprise is that which controls assets of other
entities in countries other than its home country, typically by owning a particular equity capital stake.
Examples include General Electric, Royal Dutch, Ford Motor, Allianz, AXA, and ExxonMobil.

MNCs and TNCs are types of international corporations. Both MNCs and TNCS maintain management
headquarters in one country, known as the home country, and operate in a number of other countries,
known as host countries. Most TNCs and MNCs are gigantic in terms of budget and are vastly influential
to globalization. They are also seen as major drivers of government policies, local economy,
environmental and political lobbying.

Not all MNCs are transnational companies whereas TNCs are a type of multinational corporations. MNCs
have an international identity as belonging to a specific home country where they are headquartered:
TNCs are borderless, as they do not consider any certain country as their base, home, or headquarter.
An MNC has investment in other countries, but does not have coordinated product offerings in each
country as it is more engrossed with adapting their products and service to each distinct local market. A
TNC, on the other hand, has invested in external operations, has a central corporate facility, but gives
decision-making, R&D, and marketing powers to each individual foreign market.

István Benczes, head of the Institute of World Economy at the Corvinus University of Budapest (CUB),
believes that the major actors of contemporary global economy are the TNCs. In fact, he claims that
contemporary globalization is seen by some as equated principally with TNCs, considered the foremost
driving forces of economic globalization of the last 100 years as they account for roughly two-thirds of
world export (Benczes, 2014). While some consider TNCs as (still) representing national interest, others
identify TNCs with the mechanisms through which the rich can exploit the poor.

THE MODERN WORLD-SYSTEM

A world-system is "a socioeconomic system, under systems theory, that encompasses part or all of the
globe, detailing the aggregate structural result of the sum of the interactions between polities" ("World-
system," n.d.). World-systems are typically larger than single states, but do not have to be global.

The Westphalian System is said to be the foremost world-system functioning in the contemporary
world, standing for the system of sovereign states and nation states formed by the Westphalian Treaties
in 1648. Westphalian sovereignty, or state sovereignty, is the principle in international law which states
that every nation state has exclusive sovereignty over its territory. This principle that nothing should
authorize intervention in matters essentially within the domestic jurisdiction of any state is enshrined in
the United Nations Charter. This sytem upholds that every state, no matter how large or small, has an
equal right to sovereignty.

Some sociologists nonetheless begin to doubt the Westphalian System as the real modern world system,
especially that globalization has made nation-states appear to be like borderless territories. Immanuel
Wallerstein, a senior research scholar at Yale University and director of the Fernand Braudel Center at
Binghamton University, defines the modern world-system as "specifically a capitalist world economy,"
with capitalism explained as "the endless accumulation of capital"(Wallerstein, 2004).

Capitalism is typically defined as an economic and political system in which the industry and trade are
controlled not by the state but by private owners for profit. It is an economic system which recognizes
private property rights. Both globalization and capitalism promote free exchange of goods and services.
Capitalism benefits from global trades and global labor, and so globalization is fueled and financed by
international capitalists.
Wallerstein defines the world-system as a geographical division of labor in which the basic linkage is
economic, although it is fortified by political and cultural factors. For him, it is "a social system, one that
has boundaries, structures, member groups, rules of legitimation, and coherence" (2004).

Thus far, there have been only two varieties of world-systems: (1) world-economies and (2) world
empires. A world-empire (e.g., the Roman Empire, Han China) are huge bureaucratic structures with a
sole political center and an axial division of labor, but multiple cultures. A world-economy is a large axial
division of labor with multiple political centers and multiple cultures. Therefore, world-systems can be
categorized as politically unified (e.g., world-empires) and not politically unified (e.g., world-economies).
Small non-state units, such as tribes, are considered micro-systems.

WALLERSTEIN'S WORLD SYSTEMS THEORY

World systems theory, an approach to world history and social change, was developed by sociologist
Wallerstein. It indicates, among other things, that a country's economic system cannot be understood
without reference to the world system of which it is a part.Wallerstein's world systems theory proposes
that there is a world economic system in which some nations profit while others are exploited.

Wallerstein proposes a theoretical model to comprehend the modern world system, fundamentally
capitalist in nature, which followed the crisis of the feudal system and the advent of Western Europe to
world supremacy. For him, the new capitalist world system has been based on an international division
of labor that defines relationships among various regions and the kinds of labor conditions within each
region. In his framework, the kind of political system was also directly related to each region's position
within the world economy.

As a foundation for comparison, Wallerstein offers four various categories: (1) core, (2) semi-periphery,
(3) periphery. and (4) external, into which all regions of the globe can be located. The categories
pronounce every region's relative position within the capitalist world economy and some internal
economic and political features. All parts of the system are reliant on and interact with each other that
any change in the system will influence the system as a whole:

1. The Core. The core countries control and exploit the peripheral countries for labor and raw materials.
They dominate the economic arrangement of their historical time and endeavor to maintain or magnify
this authority. One central element of a core nation is its capacity to produce and allocate products. This
is often coupled with resilient state machinery connected to a unified national culture. A core natin's
culture usually serves as an ideological justification for its dominance.
The core nation's government supports economic influence exerted by merchants, private
businesspeople, and financial institutions, which typically play a dynamic role in core countries. The
state also affords military force to defend and expand economic interests. Contemporary core countries
take over financial institutions, high technology, and high-profit businesses. For economic gain, core
countries compete among themselves within the context of the modern world-system.

2. The Periphery. The peripheral nations are dependent on core countries for capital. Historical
examples include some colonies from the 16th to the 20th centuries and those termed as
underdeveloped or semideveloped for a short time in the 20th century. Peripheral areas usually lack
strong central governments or are directly or indirectly controlled by other states, export raw materials
to the core, and depend on forced labor practices.

Peripheral nations serve the interests of the core nations as they provide cheap sources of labor,
agricultural crops, luxury goods, and raw materials. On occasion, peripheral nations gain importance,
serving as strategically situated posts to protect trade routes between the core and other peripheral
countries. Peripheral areas have often been a source of conflict among core nations. Core methods of
domination range from various forms of economic dependency. colonialism, and anticolonial
imperialism. The core seizes much of the capital surplus engendered by the peripheral areas through
uneven trade relations.

3. The Semi-Periphery. The semi-peripheries lie between the two extremes. Semi-peripheral areas
represent either core nations in decline or peripheral countries attempting to improve their relative
position in the capitalist world economic system. Hence, the semi-peripheries share characteristics of
both core and peripheral countries.

Often, the semi-peripheries also serve as buffers between the core and the peripheries. As such, semi-
peripheries display tensions between the central government and a strong local landed class.
Wallerstein explains that the semi peripheries are exploited by the core but often are themselves
exploiters of peripheries. Semi-peripheries serve as intermediary trading areas between the core
countries and the peripheries. They also have lesser manufacturing sectors for either local or
international trade, and some capital amassing.

4. External Areas. External areas maintain their own economic systems as they manage to remain
outside the modern world-system either by choice or neglect. Russia serves as a good example. Unlike
Poland, Russia's wheat has served principally to supply its internal market. Although it traded with Asia
and Europe, its internal commerce remained more significant than its external trade. Likewise, the
substantial power of the Russian state helped regulate its economy and constrained external
commercial influence. However, practically every region in the world had been consolidated into the
modern capitalist world-system by the 20th century.
In Wallerstein's theory, what binds the three units or categories into a system is interaction that
engenders an ever-changing systemic dynamic. While there is a hierarchy of core, periphery, and
semiperiphery, the activities of one have an effect upon the others. Furthermore, while the structural
process remains constant, the individual parts of the system change over time.

In other words, Wallerstein's world-systems theory is about a certain dialectic which reached a climax in
the modern, capitalist, world-system. He nonetheless theorizes that there is an end to this dialectics as
this cannot go on forever, as no system goes on forever. All systems are said to have lives: they come
into existence at some point, survive according to some rules, and then move far from equilibrium and
cannot survive any longer. "Our system has moved far from equilibrium. So the processes, which one
can describe, that maintained a moving equilibrium for five hundred years no longer function well, and
that's why were in this structural crisis" (Wallerstein, 2004).

GLOBAL ECONOMIC INTEGRATION

Economic integration is an agreement among different regions that usually includes the lessening or
abolition of trade barriers, and the coordination of monetary and fiscal policies. Fiscal policy refers to
the means by which a government adjusts its tax rates and expenditure levels to monitor and influence
a country's economy. Monetary policy involves the actions of a central bank, currency board, or other
regulatory committee that determine the rate and size of growth of the money supply, which in turn
affects interest rates. These two policies are used in various combinations to direct a country's economic
goals.

Economic integration aims to reduce costs for both producers and consumers and to increase trade
between the countries involved in the agreement. Global economic integration is simply economic
integration in a more or less global level.

Global economic integration is said to be not a new phenomenon as even in ancient times, some
communication and trade took place among distant civilizations. This process carried out through trade,
factor movements, and communication of economically beneficial knowledge and technology has been
on a mostly growing trend since the travels of Marco Polo seven centuries ago. Despite intermittent
interruptions, such as following the collapse of the Roman Empire or during the interwar period in this
century, the amount of economic integration among various civilizations around the globe has largely
been increasing.
Global economic integration has various dimensions such as (a) through human migration; (b) through
trade in goods and services; and (b) through movements of capital and integration of financial markets.
The pace and behavior of economic integration in these dimensions are affected by three fundamental
factors (Mussa, 2000).

1. Improvements in the technology of transportation and communication have reduced the costs of
transporting goods, services, and factors of production and of communicating economically useful
knowledge and technology.

2. The tastes of individuals and societies have generally, but not universally, favored taking advantage of
the opportunities provided by declining costs of transportation and communication through increasing
economic integration.

3. Public policies have significantly influenced the character and pace of economic integration, although
not always in the direction of increasing economic integration.

Taking a Stand on Global Economic Integration.

Contemporary sociolologists mention some potential benefits as well as costs of economic integration.
These pros and cons may help people to build their stand on globalization. Some of the usually
mentioned advantages of economic integration are the following:

1. As regards trade benefits, global economic integration characteristically leads to a decrease in the
cost of trade, better availability and a broader selection of goods and services, and efficiency gains that
cause greater purchasing power.

2. In employment, opportunities tend to increase because trade liberalization causes market expansion,
technology sharing, and cross-border investment flows.

3. Because of tighter economic ties, political cooperation among nations can improve, which can help
resolve clashes peaceably and thus lead to greater stability.

4. Global economic integration upholds free trade which promotes global economic growth, generates
jobs, makes companies more competitive, and lowers prices for consumers. Economic integration
prompts transnational companies to invest and install plants in other countries, thereby providing
employment for the people in those nations usually getting them out of poverty.

5. There are more inflow of information among two countries and cultural intermingling where each
nation learns more about other cultures. Socially, people have become more open and tolerant towards
each other as those who live in the other parts of the globe are not considered aliens.

6. Many consider swift travel, mass communications, and speedy dissemination of information, such as
through the Internet, as benefits of economic integration and globalization.

In spite of the advantages, economic integration has also assumed costs like the following:

1. Economic integration results in the erosion of national sovereignty. Members of economic unions are
normally mandated to adhere to rules on trade, monetary policy, and fiscal policy, which are developed
by an unelected external policymaking body.

2. Big multinational corporations can exploit tax havens in other nations to avoid paying taxes. They are
also accused of social injustice, unfair working conditions (including slave labor wages, child labor, and
prisoners used to work), as well as lack of concern for environment (such as mishandling of natural
resources and ecological damage).

3. Transnational companies and multinational corporations are progressively influencing political

decisions. There is thus a threat of these corporations ruling the globe as they gain more and more
power due to economic integration and globalization..

4. Some claim that economic integration and globalization lead to the infiltration of communicable
diseases. Fatal diseases like HIV/AIDS are disseminated by tourists even to the remotest corners of the
world. Increase in human trafficking is also attributed to globalization.

5. Globalization and economic integration are said to have made the rich richer and the non-rich poorer.
Global economic integration may be wonderful for managers, owners, and investors, but "hell" on poor
laborers. Although competition among countries is supposed to drive prices down, in many cases, this is
not happening as countries manipulate their currency to get a price advantage.
6. For developed countries, jobs are lost and moved to lower cost countries. Laborers in developed
countries face pay-cut demands from establishments who threaten to export jobs. This produces a
culture of fear for many middle class workers who have slight leverage in this global game.

LESSON 2: MARKET INTEGRATION

Market integration is a condition in which separate markets for the same product virtually become one
single market, like when when an import tax in one of the markets is abolished. It is an indicator that
explicates how much different markets are related to each other. Market integration happens when
prices among various locations or related goods follow similar patterns over a long period of time.
Groups of prices regularly move proportionally. to each other and when this relation is very noticeable
among various markets, the markets are said to be integrated.

Market integration refers to an occurrence in which markets of goods and services that are in some way
related to one another experience similar patterns of increase or decrease in the price. On occasion,
market integration may be planned, with a government carrying out certain approaches as a way to
control the course of the economy. At other times, the integration may be due to factor such as changes
in supply and demand that cause spillover effects on some markets ("Market Integration," n.d.).

When market integration occurs, the events happening within two or more markets wield effects that
also prompt similar shifts in other markets that center on related goods. If the demand for cars within
countries in Asia, for instance, were to suddenly be reduced by 50%, there is a good probability that the
demand for car accessories would also decrease in proportion within Asia market. Should the car market
increase, this would typically mean that the market for car accessories would also increase. Both
markets would have the chance to adjust pricing in order to deal with the new circumstances
surrounding the demand, as well as adjust other factors, such as production.

INTERNATIONAL FINANCIAL INSTITUTION International financial institutions play a big role in

globalization. An international financial institution (IFI) is that financial institution which has been
founded or chartered by more than one nation, and thus are subjects of international law. Owners or
shareholders of IFIs are normally national governments, though other international institutions and
organizations sometimes serve as shareholders. The most known IFIs were created by multiple nations,
while there are also bilateral financial institutions (founded by two nations) which are technically IFIs.
The most recognized IFIs were established after World War II to help in the reconstruction of the
damaged countries in Europe.

The term international financial institution characteristically refers to the International Monetary Fund
(IMF) and the five multilateral development banks (MDBS): (1) the World Bank Group, (2) the African
Development Bank, (3) the Asian Development Bank, (4) the Inter American Development Bank, and (5)
the European Bank for Reconstruction and Development. Each of the last four banks focuses on a single
world region and hence they are frequently called regional development banks. In contrast, IMF and the
World Bank are worldwide in their scope as both are specialized agencies in the UN system, although
they are governed independently of it.

Generally speaking, IMF delivers provisional financial assistance to member nations to help ease balance
of payments adjustment. On the other hand, MDBS grant financing for development to developing
countries through the following ("International Financial Institutions," n.d.):

1. Long-term loans, with maturities of up to 20 years, based on market interest rates. To acquire the
financial resources for these loans, MDBS borrow on the international capital markets and re-lend to
borrowing developing countries.

2. Very-long-term loans (usually termed credits, with maturities of 30 to 40 years) at interest rates well
below market rates. These loans are funded through direct contributions by governments in the donor
countries.

3. Grant financing (offered by some MDBs), typically for technical assistance, advisory services, or
project preparation.

Former director of international affairs at the World Bank Vinay Bhargava further explains the typical
IFIs and their functions (Bhargava, 2006): The International Monetary Fund (IMF). In 1945, the
International Monetary

1. Fund (IMF) was founded by international treaty as the central institution of the international
monetary system, that is, the system of exchange rates and currency trading that allows business to take
place among countries with different currencies. As a fund, IMF can be tapped by members who are in
need of provisional financing to address balance of payments problems. Headquartered in Washington,
D.C.. IMF is governed by its almost-worldwide membership of 189 countries (as of 2018).
IMF's constitutional purposes consist of upholding the balanced expansion of world trade, the
steadiness of exchange rates, the evasion of competitive currency devaluations, and the orderly
correction of balance of payments problems. For these purposes, IMF engages in three types of
activities (Bhargava, 2006):

a. monitoring of economic and financial developments and policies, both in its member countries and at
the global level, and offers policy advice to its members (based on its more than 50 years of experience);

b. lending to member countries experiencing balance of payments problems, not only to grant
temporary financing but also to support economic adjustment and reforms intended for correcting the
underlying problems; and

c. providing the governments and central banks of its member countries with technical training and
assistance in its areas of expertise.

2. The World Bank Group. The World Bank was established in 1945 at the same international conference
as IMF. At first, it was involved primarily in the reconstruction of countries distraught by World War II.
But as those countries recuperated, the Bank turned its chief focus to the second mission intended for
it-the economic development of the world's nonindustrialized countries, with the aim of lifting the world
out of poverty.

Organized much like a cooperative, the World Bank's shareholders are basically the same countries that
compose IMF's membership. The shareholding nations are represented by a Board of Governors, which
is the Bank's ultimate policymaking body. Also headquartered in Washington, D.C., the World Bank
Group is made up of five institutions:

a. The International Bank for Reconstruction and Development (IBRD). IBRD focuses on creditworthy
low-income countries and middle-income countries. It lends only to governments by financing these
loans chiefly: through selling triple-A-rated bonds in the globe's financial markets. IBRD produces just a
small margin on this lending. It generates much larger income from lending out its own capital which
comprises money paid from the World Bank's shareholders and reserves built up over the years, This
income is also used for the World Bank's operating expenses and for contribution to International
Development Association) and debt relief.

b. The International Development Association (IDA). Focusing on the world's poorest countries, IDA is
the world's biggest source of grant assistance and interest-free loans to the governments of the lowliest
countries. IDA's funds are refilled every three years by its 40 donor country members. Supplementary
funds are engendered through repayments of principal on its 35- to 40-year no-interest loans, which are
then obtainable for re lending. Its lending amounts normally account for about 40 percent of the total
World Bank Group lending.

c. The International Finance Corporation (IFC). IFC centers on financing private sector projects. In so
doing, it may take an equity stake along with lending.

d. The Multilateral Investment Guarantee Agency (MIGA). MIGA endorses foreign direct investment in
developing countries. It does so by insuring investors against noncommercial or political risks in those
states.

e. The International Centre for Settlement of Investment Disputes (ICSID). ICSID serves as a forum for
mediating disputes between investors and governments. It also offers advices for governments as
regards their efforts to draw investment.

Each institution performs a different but significant role in the group's corporate mission of improving
living standards in the developing world and decreasing worldwide poverty. Together, they deliver
grants, low-interest loans, and interest-free credits to governments and the private sector in developing
nations for investments in infrastructure, education, health, communications, and many other purposes,
along with services in support of those investments.

3. The Inter-American Development Bank (IDB). In 1959, the IDB was founded as a development
institution. This oldest regional development bank is owned by its 48 member countries (as of 2018),
which include many Latin American and Caribbean states, the United States, Canada, several European
countries, Israel, the Republic of Korea, and Japan. Headquartered in Washington, D.C., IDB is the chief
source of multilateral financing for economic, social, and institutional development projects in both the
public and the private sectors, as well as for regional integration programs and trade within its region.

To achieve these goals, IDB focuses on four priority areas (Bhargava, 2006):

a. Promoting competitiveness through support for programs and policies that increase a country's
potential for development in an open global economy:

b. Reforming the state by strengthening the efficiency and transparency of public institutions:

c. Investing in social programs that magnify opportunities for the poor;

d. Endorsing regional economic integration by forging links among nations to develop larger markets for
their goods and services.
IDB backs regional initiatives by funding technical cooperation to strengthen regional integration and
developing information and knowledge for policy discussion. It offers technical support to governments
on integration and trade issues and conducts public outreach undertakings to endorse such integration.

4. The Asian Development Bank (ADB). The ADB is owned by its member countries. From 31 members at
its formation in 1966, ADB has grown to include 67 members (as) of 2018) of which 48 are from within
Asia and the Pacific and 19 outside. Headquartered in Manila, ADB's vision is a region free of poverty. Its
mission is to aid its developing member countries lessen poverty and improve the quality of life of their
citizens through loans, grants, guarantees, policy dialogue, technical assistance, and equity investments.

ADB's operations are funded by contributions from members, bonds, and recycled repayments on its
loans. More than half of its cumulative lending comes from its ordinary capital resources, but "ADB also
provides loans from several special funds. Among these is the Asian Development Fund, which provides
concessional loans to the least-developed member countries. ADB also manages several trust funds and
channels grants provided by bilateral donors to their ultimate recipients" (Bhargava, 2006).

5. The African Development Bank. Founded in 1964 and headquartererd in Abidjan, Cote d'Ivoire, the
African Development Bank (AfDB) is owned by 80 member countries (as of 2018), that is, by more than
50 African countries and by more than 20 countries in the Americas, Europe, and Asia. The AfDB is
engaged in endorsing the social progress and economic development of its shareholder countries,
especially in Africa.

AfDB's chief functions include the following ("The African Development Bank," n.d.):

a. Creating loans and equity investments for the social and economic advancement of the regional
member countries;

b. Offering technical assistance for the preparation and execution of development projects and
programs;

c. Endorsing the investment of public and private capital for development purposes;

d. Answering the requests for assistance in coordinating the development policies and plans of the
regional member countries.
AfDB affords special attention to national and multinational projects and programs that promote
regional integration. AfDB acquires its financial resources from funds raised through borrowings,
subscribed capital, reserves, and accumulated net income.

6. The European Bank for Reconstruction and Development. The European Bank for Reconstruction and
Development (EBRD) is owned by 67 meber countries from five continents, and two intergovernmental
institutions: the European Union and the European Investment Bank. It was established in 1991, when
communism was decomposing in Central and Eastern Europe and these regions needed support to
cultivate a new private sector in a democratic setting. EBRD's charter is thus distinctive among MDBS in
that it lays down that EBRD may work only in nations that are faithful to democratic principles.

Headquartered in London, EBRD does not directly use shareholders' capital to finance its loans. Rather,
its triple-A creditworthiness rating qualifies it to borrow funds in the international capital markets by
dispensing bonds and other debt instruments at vastly favorable market rates. EBRD invests mostly in
private enterprises (typically together with commercial partners), though its shareholders are in the
public sector.

To promote policies that will bolster the business environment, EBRD employs its close relationship with
governments in the region. It operates with publicly owned companies to support restructuring of state-
owned firms, privatization, and improvements in municipal services. It also provides project financing
for individual businesses, banks, and industries in the form of investments in existing companies and
new ventures

THE ROLE OF IFIS IN THE CREATION OF A GLOBAL ECONOMY

The most known international financial institutions (IFIs) were founded after World War II not just to
help the damaged nations but also to provide mechanisms for international cooperation in managing
the global financial system. The mobilization of economic and financial cooperation, including issues
connected to the transfer of resources, has been one of the crucial tasks of the IFIS. Together, the
United Nations and the IFIs make up the bulk of the global governance system in place nowadays.

IFIS offer financial support and professional advice for economic and social development undertakings in
developing countries and endorse international economic cooperation and stability. The World Bank, for
instance, is a chief source of development knowledge, circulating researches that outline discussions on
development issues. Other donor institutions regularly take their lead from the World Bank and the IMF,
thus magnifying the bearing of those institutions' lending strategies and decisions.
IFIS, and specifically IMF and the World Bank, have a mandate from their shareholders to provide
refined analysis and effective financing to address various global issues especially those related to global
economy. Unquestionably, IFIs have comparative advantage in organizing resources and directing them
into projects that can effectively address global issues. Truly, IFIs have been playing this role for many
years though their efforts are sometimes hampered by concerns related to their legitimacy, their
effectiveness, their use of conditionality, and their financial capacity.

We can identify at least two ways through which the IMF openly plays a role in the creation of a global
system:

1. It is the chief forum for discussing not only national economic policies in a global context but also
matters vital to the stability of the international monetary and financial system.

These comprise the design of internationally recognized standards and codes for policies and
institutions, nations' choice of exchange rate arrangements, and the risks of destabilizing international
capital flows.

2. It plays a fundamental role in addressing global issues related to promoting a stable and open global
economic and financial environment. IMF does so through two ways: (1) It does surveillance of the
economic policies of those states that, because of their size or their critical role in international trade or
finance, are significant to the wellbeing of the global economic system; (12) It provides financial support
to member nations experiencing prolonged balance of payments problems.

Under Article IV of its Articles of Agreement, IMF conducts consultations with industrial countries
through which it also promotes suitable policies, such as reduction of domestic imbalances that may
pose risks for the global economy. IMF also does multilateral surveillance, underlining financial and
macroeconomic risks as they surface at the global level. IMF makes its surveillance more effective
through keener analysis of certain distortions and weaknesses in the global financial system that raise
the risk of crisis or contagion or deter adjustment to the creation of global economy. It also endorses
international dialogue within the international community on multilateral actions needed to guarantee
global financial stability.

IMF's lending to member countries suffering from protracted balance of payments difficulties helps
stabilize the affected economy and at the same time safeguards global financial stability. IMF extends
stabilization loans at market interest rates for high- and middle-income nations and on concessional
terms for low-income states.
Globally, the IFIs are the biggest source of development finance, normally lending between US$30-$40
billion to low- and middle-income nations every year. The IFIs provide loans to finance investment
projects and policy reforms projected to lessen poverty and encourage economic development in
developing countries. Nonetheless, some blame IFIS for some economic setbacks and ecologocial
damages caused by those loans and projects. (For more discussions on the IFI's roles in the creation of a
global economy, you may read the Appendix D: "International Financial Institutions' Role in Global and
Regional Issues".).

A SHORT HISTORY OF GLOBAL MARKET INTEGRATION

IN THE 20TH CENTURY The 20th century started on January 1, 1901 and ended on December 31, 2000.
This 10th and final century of the second millennium saw the fast rate of global market integration.

19th Century: A Prelude

The 19th century saw considerable improvements in global market integration, and the formation of a
truly world economy due to some technological advances. The marine steam engine and railroad
locomotive revolutionized world transport from the 1830s onwards. The world's ports were connected
to each other by steamships, and from the ports the railroads ran inland, generating a new and faster
world transport network.

There was also the electric telegraph, whose lines regularly ran along the new railroad networks.
Telegraph systems were installed in most countries, including the major market of British India, until
1854. The first transatlantic cable was laid by steamship in 1866. The ensuing international information
network was vital in communicating details of prices and price movements, dropping the cost of closing
deals and transactions.

In 1869, the opening of the Suez Canal linked the Mediterranean Sea by way of Egypt to the Red Sea.
Asia became some 4,000 miles closer to Europe in transport terms, and freight costs thus fell.
Technological innovation in the shape of steel hulls and steel masts made sailing ships larger and more
efficient. During the last quarter of the 19 century, the more efficient triple-expansion engine drove the
sailing ships from the oceans.

Aside from lowering freight and transaction costs, the rise of free trade stimulated market integration.
In 1846, the merchants of Manchester, England, the center of the world's cotton textile industry, had
forced the British government to remove tariffs on all imported goods aside from a few luxury items.
The first to go were the tariffs on wheat which caused the opening up of the Great Plains of the United
States for wheat production to supply Britain.

This policy of open markets became a leading principle extended through much of the British Empire,
including the vital market of India. The British Empire's open-market polices played a critical role in
sustaining a complicated interrelated mesh of world payments, and newly industrializing countries took
advantage of the system (while somewhat maintaining their own protective walls). Through free trade,
countries could specialize in producing goods they were best endowed by nature to produce, and could
exchange them for the other merchandises they needed. India, for instance, also benifitted because of
its big surpluses on the sales of opium, cotton yarn, and textiles from Bombay.

Start of the 20th Century

The international economy entered the 20th century with the freest flow of goods, services, and capital
in human history. The previous century had witnessed expansion of international trade and products,
and escalating living standards in Europe and North America at a speed never before seen in human
history. Observers of the international scene then would have described globalization of the preceding
century, especially in the period 1870-1914, as nothing less than very phenomenal..

The beginning of the 20th century observed the progression of real incomes and the growth of world
trade through the elimination of artificial barriers to trade such as tariffs, reduced costs of transport,
and the drop in costs of international transactions. At the same time, the integration of world capital
markets proceeded rapidly. In fact, by the early 20th century, "it is estimated that foreign-owned assets
were about equal in value to about 20 percent of world GDP. The United Kingdom was, as is well known,
the world's banker and at its peak, owned 80 percent of foreign assets globally. Its capital outflows were
as much as 10 percent of GDP in some years, and averaged 4.5 percent of GDP per year between 1870
and 1914" (Krueger, 2006).

The First and Second World War

Nonetheless, World War I led to a sudden reverse in the pace of globalization. The earlier integration of
the global economy was fundamentally reversed as transport paths were disrupted and nations
experienced different degrees of inflation due to the differential strains of their wartime costs.
Notwithstanding efforts to reinstate the status quo ante after the war, imbalances related to the
overvaluation of the pound sterling following the British return to the Gold Standard in 1925 and
German reparations led to sluggish progress in the 1920s, From 1929 to 1939, the industrialized world
experienced its worst economic downturn, the Great Depression. It started after the stock market crash
of October 1929, which sent Wall Street into a panic and wiped out millions of investors. This Great
Depression reversed even more the degree of globalization. The 1930s were marked by mounting trade
barriers (both tariffs and non-tariff restrictions) and competitive devaluations, usually referred to as
"beggar they neighbor policies," and by swiftly falling bulks of trade and prices of traded goods.

Recovery was underway by the late 1930s, but then World War II erupted and hasty expansion ensued
in response to wartime demand. Obviously, output and trade patterns were once again upset, as
manufacture of consumer and investment goods required in peacetime were replaced in substantial
part by production linked to the Second World War.

Postwar Situation

With the resolution of China and the Soviet Union to insulate their economies after the war, the global
economy was in effect split into three (Krueger, 2006): the industrial countries, the "underdeveloped"
economies, and the centrally planned economies. The industrial countriesinclude those where
production had fallen largely during

the war and those where the structure of production had shifted but output increased. Many of these
so-called underdeveloped countries had been able to export key commodities at high prices to the
combatants during World War II and had accumulated hefty reserves of foreign exchange. They were
nonetheless largely concentrated on producing raw materials and small-scale labor-intensive consumer
goods, with very

low standards of living compared to the industrial countries. In the centrally planned economies, the
state or government makes economic decisions rather than these being done by the interaction
between consumers and businesses. A centrally planned economy controls what is produced and the
use and distribution of resources. Until the 1990s, the evolution of the centrally planned economies was
almost completely independent of that of the rest of the world. Moreover, the postwar proposers
planned the creation of the United Nations for

political cooperation and a framework for international economic cooperation in which there would be
international organizations for the following: 1. International Monetary Cooperation. It aimed to
facilitate international trade

by encouraging currency convertibility, inhibiting competitive devaluations, and allowing coordinated

international financial policies. The Articles of Agreement for the International Monetary Fund were
thus drafted, and afterwards ratified by 38 nations by the time its Board of Governors held its inaugural
meeting in March 1946. Signatories to the Articles also agreed to Article VIII, which is about the
convertibility of their currencies for current account transactions, although it took more than 15 years
before even the chief industrial countries had eradicated exchange control regulations to the degree
necessary to conform to Article VIII.

2. Reconstruction and Development. To provide capital for the acceleration of the reconstruction of the
war-damaged nations, the postwar planners decided that longer term financing would have to come
from official sources given the supposed absence of private sources of capital. As a spring of longer-term
official finance, the International Bank for Reconstruction and Development, now generally known as
the World Bank, was instituted. This was also intended to facilitate higher rates of investment, and thus
of growth, of the "underdeveloped" economies.

3. International Trade in Goods and Services. This was for multilateral cooperation for an open
international trading system. Signed in 1947, the General Agreement on Tariffs and Trade (GATT) was
seen as an interim agreement pending the formation of the planned International Trade Organization
(ITO), but proved noticeably resilient in the absence of ratification of the ITO charter. The GATT
arrangements afforded nondiscriminatory treatment of all trading partners, abolition of quantitative
restrictions on trade, and fora in which nations could mutually negotiate tariff decreases and in which
trade disagreements among nations could be settled.

The IMF and World Bank began operating in 1946. The GATT (which started functioning in 1947) and
later the World Trade Organization (WTO) included two crucial provisions: "(a) that member countries
would not impose and/or would eliminate nontariff barriers to trade; (b) that member countries would
grant "most favored nation" status to their GATT/WTO trading partners so that all trading partners
would face the same trade barriers unless there was a preferential trade arrangement (the conditions
for which including coverage of all trade items, zero tariffs between the PTA countries, and a certain
timetable for achieving zero tariffs)" (Krueger, 2006).

A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that provides
preferential access to some products from the participating countries. This is done by decreasing tariffs
but not by eliminating them completely. A PTA can be founded through a trade pact.

When the war ended, the United States emerged dominant. When the postwar reconstruction
necessities were far greater than had been predicted, it fell principally to the United States to support
the European and other countries in their reconstruction efforts, first through Point Four Program, and
then through the Marshall Plan. Point Four Program is the U.S. policy of economic aid and technical
assistance to underdeveloped countries, so named because it was the fourth point of President Harry S.
Truman's 1949 inaugural address. Its first appropriations were made in 1950. On the other hand, the
Marshall Plan (officially the European Recovery Program, ERP) was an American initiative to help
Western Europe, in which the U.S. gave over $12 billion in economic assistance to help reconstruct
Western European economies after the Second World War.

From a condition in the late 1940s when many European economies traded with each other through
bilateral payments arrangements (using Marshall Plan aid), countries shifted to multilateral clearing
arrangements by the early 1950s. This started a period of sustained rapid growth where tariff reductions
took place and quantitative restrictions were lifted. With the foundation set by the Marshall Plan,
progressively free exchange systems and tariff drops (as incited also by the GATT multilateral tariff
reductions), the world economy boarded upon a quarter century of persistent and unprecedentedly
quick economic growth.

Although it could legitimately be said that the United States dominated in 1950s. Europe and Japan
became chief players too in the world economy by the early 1970s. Tariff reductions persisted during
the golden quarter century. These reductions in tariff and nontariff barriers to trade became the main
impetus to the growth of trade in the postwar years. The IMF played a key role in enabling adjustment
to take place without the disruption to the international system through the provision of financial
assistance to countries in balance of payments crises. In 1977, Britain was the last main industrial
country to borrow from the Fund on a big scale.

The 1970s, '80s, and '90s

The years 1972 and 1973 marked a turning point in the global economy as inflationary pressures had
been increasing, especially in the United States, and there was a commodity price boom. The United
States by that time had been suffering account deficit for more than a decade, prompted by a quicker
rate of U.S. inflation and American demand resulting from the expenses in the Vietnam War (1955-
1975). In 1971, the United States declared that it was suspending the gold convertibility of the dollar,
thereby abandoning the Bretton Woods system.

The Bretton Woods system of monetary management founded the rules for financial and commercial
relations among the United States, Canada, Western Europe, Australia, and Japan after the 1944 Bretton
Woods Agreement. It involved the obligation of each country to adopt a monetary policy that
maintained its external exchange rates within 1 percent by tying its currency to gold and the capacity of
the IMF to bridge brief payment imbalances.

As U.S. abandoned the Bretton Woods system. floating exchange rates between the U.S., Japan, and the
major European currencies had become the the prevailing state by 1973. At that same time, the oil price
shock of 1973-74 quadrupled nominal oil prices for the time being. Many oil importing countries found
their import costs greatly increased; some (mainly industrial) went into recession, while others (mainly
developing) borrowed from private financial sources. After a recession following the oil price shock,
economic growth in most industrial countries and in oil importing countries resumed nonetheless.

By the early 1980s, after the second major oil price increase, the global economy went again into
recession as the United States reformed its monetary policy to contain and later lower its inflation. This
resulted in debt-servicing problems for many of the developing countries that the 1980s became a "lost
decade" for them. The Latin American debt crisis, also called LDC (less-developed-country) debt crisis,
started in 1982, when a number of countries, mainly in Latin America, met by high interest rates and low
commodities prices, confessed their incapacity to service hundreds of billions of dollars of their
commercial bank loans. As these economies were then reliant on commercial bank financing, continued
debt reschedulings and the ensuing perception of uncreditworthiness led to a "lost decade" of economic
sluggishness, during which capital flows and voluntary international credit were harshly interrupted to
these countries and their private sectors.

This lost decade of the 1980s, in turn, led a many countries to start dropping their barriers to trade and
other obstacles to growth. For instance, Mexico went on a series of crucial economic policy reforms in
the late 1980s, basing them in the North American Free Trade Agreement (NAFTA), which lastingly
assured outward looking economic policies. The NAFTAis an agreement signed by Mexico, Canada, and
the United States, forming a trilateral trade bloc in North America.

Inflation was nevertheless controlled in most industrial countries by the late 1980s, and through the
Brady Plan, debt was being restructured in the deeply indebted developing countries. The Brady Plan,
the principles of which were first pronounced by U.S.

Treasury Secretary Nicholas F. Brady in March 1989, was intended to resolve the LDC debt crisis. The
plan's basic tenets were derived from common practices in domestic U.S. corporate work-out
transactions ("The Brady Plan, n.d.):

1. bank creditors would grant debt relief in exchange for greater assurance of collectability in the form
of principal and interest collateral:

2. debt relief needed to be linked to some assurance of economic reform; and 3. the resulting debt
should be more highly tradable, to allow creditors to diversify risk more widely throughout the financial
and investment community.

In 1986, the oil price fell sharply. Lower oil prices and stable price levels led to a period of persistent
growth of the industrial countries. Trade barriers among these economies continued to drop, as
quantitative restrictions had been virtually completely removed and tariffs were being further lessened
due to successive rounds of trade negotiations under the GATT. A new round of GATT trade talsk was
suggested in the late 1990s, but not agreed upon until the Doha Round was inaugurated in November
2001. The GATT Doha Round (known semi-officially as the Doha Development Agenda) aims to realize
major reform of the international trading system through the institution of lower trade barriers and
revised trade rules and to improve the trading prospects of developing countries.

The final decade of the 20th century also witnessed the collapse of the Soviet Union. This dissolution of
the Soviet Union happened on December 26, 1991, officially granting self-governing independence to
the former Soviet republics. On the previous day, December 25, Soviet President Mikhail Gorbachev
resigned, declared his office extinct, and handed over its powers to Russian President Boris Yeltsin. This
event led to the emergence of formerly centrally planned economies into the global economy. Hence,
their transition economies adjusted to their new economic structure for most of the 1990s, adapting
their economic policies for greater integration into the global economy.

The 1990s also saw the weakness of some of the developing markets to changes in investment flows.
For example, Mexico's exchange rate policy did not sufficiently accommodate domestic credit expansion
which led to taking a large loan from the IMF. The decade's latter part witnessed more capital account
crises, including most remarkably South Korea, which had substantial borrowing mainly from the IMF.
On the other hand, the United States experienced rapid growth, with more fast rates of productivity
increase than had earlier occurred.

Under the Marshall Plan, Europe had started a process of increasing integration with the opening of
trade and financial flows. Movement toward an integrated internal market, taken on within the
framework of decreased trade barriers from the multilateral trading rounds under the GATT was started
by the Treaty of Rome. Oficially the Treaty on the Functioning of the European Union (TFEU), this Treaty
of Rome is one of two treaties establishing the constitutional basis of the European Union (EU) (the
other being the Treaty on European Union (TEU), also referred to as the Treaty of Maastricht).

The Treaty of Rome brought about the creation of the European Economic Community (EEC), the best
known of the European Communities (EC). It was signed on 25 March 1957 by Belgium, France, Italy,
Luxembourg, the Netherlands and West Germany and came into force on 1 January 1958. It
recommended "the progressive reduction of customs duties and the establishment of a customs union It
proposed to create a single market for goods, labour. services, and capital across the EEC's member
states. It also proposed the creation of a Common Agriculture Policy, a Common Transport Policy and a
European Social Fund, and established the European Commission" (Treaty of Rome," n.d.).

As more nations joined the European enterprise and policy harmonization developed, the European
Union arose as a key force in the world economy with 38 percent of global trade and 26 percent of
world GDP as of 2000. The European Union (BU) is a political and economic union of 28 member states
which has developed an "internal single market through a standardised system of laws that apply in all
member states in those matters (only) where members have agreed to act as one. EU policies aim to
ensure the free movement of people, goods, services and capital within the internal market, enact
legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries and
regional development ("European Union." n.d.). In 1999, a monetary union was founded (but came into
full force only in 2002) and is composed of 19 EU member states which use the euro currency.

In spite of the difficulties of some countries during the 1990s, growth in developing countries
accelerated as caused by policy reforms and the helpful global environment. By 2000, growth rates in
South Korea, the ASEAN countries, China, and India, in addition to Japan, were beginning to accelerate.

At the Turn of the Century

At the turn of the century, the world was a much more open place. The Internet, and access to it, had
grown rapidly. Internet refers to a global computer network delivering a variety of information and
communication facilities, consisting of interconnected networks using standardized communication
protocols. It makes possible the so called electronic business (e-business) which comprises business
processes spanning the entire value chain: purchasing, supply chain management, marketing, sales,
customer service, and business relationship. E-commerce aims to add revenue streams using the
Internet to establish and enhance relationships between clients and partners.

There were also significant drops in transport and communications costs. More advanced technical
changes and the reduction in tariff and other barriers to trade played a role in opening up the global
economy. "For manufactured goods, at least, average tariff rates among industrial countries are now
less than 5 percent; within areas such as the European Union, they are zero. With airfreight, the
internet, and other changes, goods can be ordered from one part of the world and received elsewhere
in a matter of hours" (Krueger, 2006).

By 2000, emerging Asia-especially China and India, but also other Asian countries-had become a
noteworthy economic force in the global economy. Likewise, most of the transition economies of the
former Soviet Union and Eastern Europe are integrating into the global economy and achieving above-
average rates of economic growth. At the same time though, some other countries, such as many Sub-
Saharan African countries, are still awfully poor and their relative status has even worsened.

At the turn of the century, one of the remarkable changes has been the rapid increase in integration of
global financial markets. In 1952, only seven countries (U.S.. Canada, and five Latin American countries)
had free exchange rate regimes for current account transactions as set out in Article VIII of the IMF.
Today, 165 countries (including Vietnam) have accepted Article VIII obligations, and capital account
transactions are much freer than they were. Under IMF Article VIII, Sections 2, 3 and 4, IMF members
undertake not to enforce restrictions on the making of payments and transfers for current international
transactions, and not to engage in, or permit any of their fiscal agencies to engage in, any discriminatory
currency arrangement or multiple currency practice, except with IMF approval.

THE ATTRIBUTES OF GLOBAL CORPORATIONS Simply defined, a global corporation is a business that
operates in two or more nations. The contemporary global corporation is simultaneously and usually
referred to either as (a) a multinational corporation (MNC), (b) a transnational corporation (TNC), (c) an
international company, or (d) a global company. The following distinctions are practically useful ("The
Rise of the Global Corporation," n.d.):

1. International companies are exporters and importers, normally without investment outside of their
home country.

2. Multinational companies have investment in other countries, but do not have coordinated product
offerings in each country. They are more engrossed in adapting their services and products to each
individual local market.

3. Global companies have invested in and are present in many countries. They normally market their
products and services to each individual local market.

4. Transnational companies are more complex organizations which have invested in foreign operations,
have a central corporate facility, but give decision-making, research and development (R&D), and
marketing powers to each individual foreign market.

Some claim that a global company must have an existence in all major world markets-Europe, the
Americas, and Asia. Others explain globality in terms of how globally a company sources, that is, how far
its supply chain reaches across the globe. Still other sociologists use as their key criterion the company
size, the makeup of the senior management team, or where and how it finances its operations.
SOME ATTRIBUTES OF MNCS

The attributes of many global corporations are based on the type of the organisation, although there are
some common characteristics which can be found in them (especially in all kinds of US-based MNCs).
The following are some of their common traits ("Characteristics of US-Based MNCs," n.d.):

1. They typically have similar organisational structures but they differ in terms of their operations.

2. They can be characterised on the basis of their size, structure, and performance in parent country as
well as in other parts of the world.

3. They are among the world's biggest firms with revenues in billion dollars such as Wal-mart,
ExxonMobil, and General Motors.

4. They run their businesses internationally through an organized network of dispersed branches and
subsidiaries that own and control their assets worldwide.

5. They usually have oligopolistic approach in acquiring economic power through the process of mergers
and takeovers.

6. They have the capabilities of collective transfer of resources in international markets with
professional management and multiple objectives.

7. Those from developed countries always conduct extensive market researches before transferring
their operations to target country and also look for growth opportunities.

8. They have common characteristics which are based on formalization, specialization, and
centralization.

Formalization deals with defined-structures, communication patterns, and controlling business

operations. Specialization is an organizational characteristic of apportioning job roles to individuals to
accomplish a specific task such as marketing. customer service, sales, recruitment, and purchasing.
Finally, centralization is a very typical characteristic of global corporations (especially U.S.-based MNCs)
in which the top management possesses control over decisions and entire activities of the business.
U.S.-based MNCs are chiefly different from European MNCs in terms of many things such as,
centralization, formalization, and specialization, and corporate cultures.

FOUR DIMENSIONS OF CORPORATE GLOBALITY

Some globalization scholars define corporate globality in terms of the following four dimensions ("Global
Corporation," n.d.):

1. The globalization of market presence. This dimension refers to the degree the corporation has
globalized its market presence and customer base. Car and oil companies score high on this dimension.
On the other hand, Wal-Mart, the world's largest retailer, produces less than 30% of its revenues
outside the United States.

2. The globalization of the supply base. It deals with the extent to which a company sources from various
locations and has located chief parts of the supply chain in optimal locations around the globe. For
instance, Caterpillar serves customer in about 200 countries worldwide, manufactures in 24 of them,
and maintains research and development facilities in nine.

3. The globalization of the capital base. This dimension measures the degree to which a corporation has
globalized its financial structure. This deals with issues such as on what exchanges the company's shares
are listed, where it attracts operating capital, where it pays taxes, how it finances growth and
acquisitions, and how it repatriates profits.

4. The globalization of the corporate mind-set. This refers to a company's capacity to cope with diverse
cultures. Companies with an increasingly global mind-set include GE, Nestlé, and Procter & Gamble.
Their businesses are operated on a global basis, top management is progressively international, and new
ideas customarily come from all parts of the world.