The economic dimension of globalization’ explores how the way people have undertaken economic production has changed. The global economic order emerged after World War II, when the Bretton Woods Conference laid the foundations for the IMF, World Bank, and WTO. In the 1980s neoliberalism liberalized financial transactions. However, this unstable growth led to the Great Financial Crash, where banks traded toxic assets without regulation. Transnational corporations rival nation-states in economic power, and have had a profound effect on the structure and function of the global economy. The Washington Consensus was drafted to reform indebted developing countries, but it has thus far rarely helped countries develop.
LEARNING OUTCOMES
At the end of this module, you should be able to:
1. Discuss the economic dimension of globalization.
2. Discuss the effects of globalization to Philippine economy
Economic Globalization Economic "globalization" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. At its most basic, there is nothing mysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions—both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity—village markets, urban industries, or financial centers. 29
Economic globalization often refers to globe-spanning economic relationships—
more specifically, the interrelationships of markets, finance, and the production and sale of goods and services. The economic networks created by transnational corporations are the most important examples of this dimension. The International Monetary Fund (IMF), the World Bank (WB), and other unilateral and bilateral assistance agencies have not only preached the gospel of free trade, they have actively pursued it through structural and sector adjustment packages that have allowed private international capital to flow into the global south.
Markets promote efficiency through competition and the division of labor—the
specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.
As globalization progressed, living conditions (particularly when measured by
broader indicators of well-being) have improved significantly in virtually all countries. However, the strongest gains have been made by the advanced countries and only some of the developing countries. The income gap between high-income and low-income countries has grown wider is a matter for concern. And the number of the world’s citizens in abject poverty is deeply disturbing. But it is wrong to jump to the conclusion that globalization has caused the divergence, or that nothing can be done to improve the situation. To the contrary: low-income countries have not been able to integrate with the global economy as quickly as others, partly because of their chosen policies and partly because of factors outside their control. No country, least of all the poorest, can afford to remain isolated from the world economy. Every country should seek to reduce poverty. The international community should endeavor—by strengthening the international financial system, through trade, and through aid—to help the poorest countries integrate into the world economy, grow more rapidly, and reduce poverty. That is the way to ensure all people in all countries have access to the benefits of globalization. (www.imf.org/external/np/exr/ib/2000/041200.htm)
The study of globalization revolves around two main classes of phenomena that have become increasingly significant, again largely facilitated by changes in information technology. The first phenomenon is the emergence of a globalized economy based on new systems of production, finance, and consumption. This aspect of 30
globalization refers to the ways in which transnational corporations (TNCs) have brought about a globalization in capital and production.
The second phenomenon refers to the global transformation that TNCs have been able to exert, namely those TNCs that own and control the mass media, particularly television channels and the transnational advertising agencies. Such TNCs are connected to the spread of one particular brand of culture and consumption patterns, as well as the ideology of consumerism at the global level (Sinklair, 2002). TNCs, as opposed to nation-states, are seen to be the primary source for increasing globalization. In fact, the largest TNCs have assets and annual sales far in excess of the Gross National Products of most countries in the world. Moreover, globalization has also increased the speed of trade. The development of computer and communication technologies and the information of the information technology era have led to the development of high frequency trading (HFT). In essence HFT is the use of computer algorithms to rapidly trade stocks. Hence, the speed of trade as embodied by HFT is brought about by globalization since trading in this manner cross national boundaries. This makes people interact with each other across the globe without personally knowing each other, which manifest how relationships among people are intensified across world space and world time- a manifestation of the workings of globalization.
Aside from HFT, Global Economic Organizations (GEOs) have also played an important role on the spread and influence of globalization in the economic arena. The three major international economic organizations are the World Bank (WB), the International Monetary Fund (IMF), and the World Trade Organization (WTO). The WTO emerged out of the General Agreement on Tariffs and Trade (GATT) (Krueger, 1998). There is a phrase that when the United States sneezes, the rest of the world catches “cold”. When they experience financial crisis (like in 2008 US financial crisis) in their homeland, a large number of countries would also be affected by such crisis. The reason for this is that most countries in the world have financial connectivity with the United States (OFW and Imports and exports). If the US is in crisis, and American consumers cut back spending on things like computers or clothes, the countries that manufacture those products are in trouble. However, one nation may be greatly affected by a financial crisis while one may not be affected at all. This manifests the uneven nature of the effects of globalization. Effects are more often not uniform and mostly unequal. Growth of economic cooperation (APEC, EU, NAFTA, WTO, etc.) and movement to free trade. Immigration, tourism, and spread of MNCs throughout the planet paving the way for the so called “free world”. MNCs opened factories in other countries. But with the present technologies, MNCs and TNCs can bring its products to any country disregarding 31
its territory like Microsoft, antivirus software, trading of stocks, and others that can be bought online.
Brinkerhoff and Brinkerhoff (2006) summarize the new global economic order as having the following characteristics: 1. the dominance and independence of transnational corporate investment 2. interconnected markets 3. an emphasis on export trade and competitive advantage, 4. unfettered international financial flows 5. rapid communication. New contours have superseded the old boundaries. At the supranational level, taxing arrangements, such as the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization), and NAFTA (North American Free Trade Agreement) reconfigure economic relationships among nations. At the regional and local levels, free trade areas, economic empowerment zones, regional development authorities, direct overseas links, and so on shape new forms of public-private interaction (Brinkerhoff & Brinkerhoff, 2006). Although, the capitalist world-system has been in essence international for centuries, globalization has greatly increased the extent and degree of trade and investment in recent decades, accelerated by what information technology has done to the movement of money. It is commonly argued that the ability to shift money throughout global markets changes the rules of policy-making by making economic decisions subject to international market forces, which are beyond the control of any one group. According to Sklair (2002), a useful model of the global capital system is based on the concept of transnational practices, which are practices that originate with non-state actors and across state borders. She distinguishes three spheres of transnational practices: 1) economic, 2) political and 3) cultural-ideological. She suggests that primarily, but not exclusively, one major institution characterizes each of these practices: the transnational corporation (TNC) is the most important institution for economic transnational practices; the transnational capitalist class (TCC) for political transnational practices; and the culture-ideology of consumerism for transnational cultural-ideological practices (Sinklair, 2002). TNCs, TCCs and the culture-ideology of consumerism operate to transform the world in terms of the global capitalist project. If and when it is empirically proven, a theory such as this would have important implications for policy analysis and policy development theory. Put simply, globalization is the connection of different parts of the world. In economics, globalization can be defined as the process in which businesses, organizations, and countries begin operating on an international scale. Globalization is 32
most often used in an economic context, but it also affects and is affected by politics and culture. In general, globalization has been shown to increase the standard of living in developing countries, but some analysts warn that globalization can have a negative effect on local or emerging economies and individual workers. Globalization is not new. Since the start of civilization, people have traded goods with their neighbors. As cultures advanced, they were able to travel farther afield to trade their own goods for desirable products found elsewhere. The Silk Road, an ancient network of trade routes used between Europe, North Africa, East Africa, Central Asia, South Asia, and the Far East, is an example of early globalization. For more than 1,500 years, Europeans traded glass and manufactured goods for Chinese silk and spices, contributing to a global economy in which both Europe and Asia became accustomed to goods from far away. Following the European exploration of the New World, globalization occurred on a grand scale; the widespread transfer of plants, animals, foods, cultures, and ideas became known as the Columbian Exchange. The Triangular Trade network in which ships carried manufactured goods from Europe to Africa, enslaved Africans to the Americas, and raw materials back to Europe is another example of globalization. The resulting spread of slavery demonstrates that globalization can hurt people just as easily as it can connect people. The rate of globalization has increased in recent years, a result of rapid advancements in communication and transportation. Advances in communication enable businesses to identify opportunities for investment. At the same time, innovations in information technology enable immediate communication and the rapid transfer of financial assets across national borders. Improved fiscal policies within countries and international trade agreements between them also facilitate globalization. Political and economic stability facilitate globalization as well. The relative instability of many African nations is cited by experts as one of the reasons why Africa has not benefited from globalization as much as countries in Asia and Latin America. Globalization provides businesses with a competitive advantage by allowing them to source raw materials where they are inexpensive. Globalization also gives organizations the opportunity to take advantage of lower labor costs in developing countries, while leveraging the technical expertise and experience of more developed economies.
With globalization, different parts of a product may be made in different regions of
the world. Globalization has long been used by the automotive industry, for instance, where different parts of a car may be manufactured in different countries. Businesses in several different countries may be involved in producing even seemingly simple products such as cotton T-shirts. 33
Globalization affects services, too. Many businesses located in the United States have outsourced their call centers or information technology services to companies in India. As part of the North American Free Trade Agreement (NAFTA), U.S. automobile companies relocated their operations to Mexico, where labor costs are lower. The result is more jobs in countries where jobs are needed, which can have a positive effect on the national economy and result in a higher standard of living. China is a prime example of a country that has benefited immensely from globalization. Another example is Vietnam, where globalization has contributed to an increase in the prices for rice, lifting many poor rice farmers out of poverty. As the standard of living increased, more children of poor families left work and attended school . Consumers benefit also. In general, globalization decreases the cost of manufacturing. This means that companies can offer goods at a lower price to consumers. The average cost of goods is a key aspect that contributes to increases in the standard of living. Consumers also have access to a wider variety of goods. In some cases, this may contribute to improved health by enabling a more varied and healthier diet; in others, it is blamed for increases in unhealthy food consumption and diabetes.
You may take a break before answering the following activity.
ACTIVITY
1. Give at five factors that globalization help shaped the Philippine economy. 34
References
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