The Globalization

of World
Economics
Here’s where my presentation begins
Table of contents

01 02 03

INTRODUCTION International Bretton Woods

Trading Systems System
Table of contents

01 02

The Global Financial

Neoliberalism and
Crisis and the Challenge
it’s Discontents
to Neoliberalism
Whoa!
 01
Introduction
INTRODUCTION:
● The International Monetary Fund (IMF) regards
"economic globalization“. Even while the IMF and
ordinary people grapple with the difficulty of arriving at
precise definitions of globalization, they usually agree
that a drastic economic change is occurring throughout
the world. Apart from the sheer magnitude of
commerce, we should also note the increased speed and
frequency of trading. These days, supercomputers can
execute millions of stock purchases and sales between
different cities in a matter of seconds through a process
called high-frequency trading.
 02

International
Trading Systems
International Trading Systems
● International trading systems are not new.

● Traders used the Silk Road regularly from 130 BCE

when the Chinese Han dynasty opened trade to the West
until 1453 BCE when the Ottoman Empire closed it.

● So when did full economic globalization begin?

According to Historians
the age of globalization began
when "all important populated
continents began to exchange
products continuously- both with
each other directly and indirectly
via other continents- and in values
sufficient to generate crucial
impacts on all trading partners.“
Trace this back on 1571.

Dennis O. Flynn Arturo Giraldez

International Trading Systems
● With the establishment of the galleon trade that
connected Manila in the Philippines and Acapulco
in Mexico.

● From the 16th century to the 18th century,

countries, primarily in Europe, competed with one
another to sell more goods as a means to boost
their country's income.
International Trading Systems
● A more open trade system emerged in 1867 when,
following the lead of the United Kingdom, the United
States and other European nations adopted the gold
standard at an international monetary conference in Paris.

● During World War I, when countries depleted their gold

reserves to fund their armies.

● Returning to a pure standard became more difficult as the

global economic crisis called the Great Depression
International Trading Systems
● If governments could only
spend money that was
equivalent to gold, its capacity
to print money and increase the
money supply was severely
curtailed.

● The recovery of the United

States really began when,
having abandoned the gold
standard
Economic Historian
Barry Eichengreen
International Trading Systems
● Though more indirect versions
of the gold standard were used
until as late as the 1970s.

● Today, the world economy

operates based on what are
called fiat currencies.
International Trading Systems
● To make matters worse, the stock markets
crashed in 1973- 1974 after the United States
stopped linking the dollar to gold, effectively
ending the Bretton Woods system.
● The result was a phenomenon that Keynesian
economics could not have predicted.
● Around this time, a new form of economic
thinking was beginning to challenge the
Keynesian orthodoxy.
International Trading Systems
● Argued that the
governments' practice
of pouring money into
their economies had
caused inflation by
increasing demand for
goods without
necessarily increasing
supply.
Friedrich Hayek Milton Friedman
International Trading Systems
● Economists like Friedman Milton Friedman
used the economic turmoil
to challenge the consensus
around Keynes's ideas.
● What emerged was a new
form of economic thinking
that critics labeled
neoliberalism.
International Trading Systems
● From the 1980s onward, neoliberalism became the
codified strategy of the United States Treasury
Department, the World Bank, the IMF, and eventually
the World Trade Organization (WTO)-a new
organization founded in 1995 to continue the tariff
reduction under the GATT.
● The policies they forwarded came to be called the
Washington Consensus.
● Its advocates pushed for minimal government spending
to reduce government debt.
International Trading Systems
● Advocates of the Washington Consensus conceded that,
along the way, certain industries would be affected and
die, but they considered this "shock therapy" necessary
for long-term economic growth.

● Its advocates like US President Ronald Reagan and

British Prime Minister Margaret Thatcher justified their
reduction in government spending by comparing
national economies to households. Thatcher, in
particular, promoted an image of herself as a mother,
who reined in overspending to reduce the national debt.
International Trading Systems
● The problem with the household analogy is that
governments are not households. For one,
governments can print money, while households
cannot. Moreover, the constant taxation systems
of governments provide them a steady flow of
income that allows them to pay and refinance
debts steadily.
International Trading Systems
● Despite the initial success of neoliberal politicians like Thatcher and
Reagan, the defects in the Washington Consensus immediately
became evident. A good early example is post-communist Russia.
The IMF assumed that such a measure would free these industries
from corrupt bureaucrats and place them in the hands of more
dynamic and independent private investors. However, it happened
that only those individuals and groups who accumulated wealth
under the former communist regime had the money to buy these
industries. In some cases, the economic elite relied on the fact that it
was easy to get public money to take over industry.
 03

The Bretton Woods

What is the Bretton Woods Agreement?
● The Bretton Woods Agreement was
reached in a 1944 summit held in New
Hampshire, USA on a site by the same
name.

● The delegates, within the agreement,

used the gold standard to create a fixed
currency exchange rate.

● The agreement also facilitated the

creation of immensely important
structures in the financial world
History and Functionality of the Bretton Woods
Agreement
● As mentioned above, 44 allied nations met in Bretton Woods,
NH in 1944 for the United Nations Monetary and Financial
Conference.
● The summit was also looking for policies and regulations that
would maximize the potential benefits and profits that could
be derived from the global trading system.
● is a set of unified rules and policies that provided the
framework necessary to create fixed international currency
exchange rates.
● Every represented country assumed the responsibility of
upholding the exchange rate, with incredibly narrow margins
above and below.
The Collapse of the Bretton Woods System
● Backing currency by the gold
standard started to become a
serious problem throughout the
late 1960s.

● There were several attempts by

representatives, financial
leaders, and governmental
bodies to revive the system and
keep the currency exchange rate
fixed.
Significance of the Bretton Woods Agreement
● Bretton Woods summit and agreement are responsible for
a number of notably important aspects in the financial
world.

● the agreement unified 44 nations from around the world,

bringing them together to solve a growing global
financial crisis. It helped to strengthen the overall world
economy and maximize international trade profit.

Reference: https://corporatefinanceinstitute.com/resources/economics/bretton-woods-
agreement/
 04

Neoliberalism and
it’s Discontents
What is Neoliberalism?
● Neoliberalism, promotes, above all, total
freedom of movement for capital, goods and
services. It advocates the opening of
economies, and competition in the world
market in conditions of absolute freedom.

● This regulation can include everything from

legal measures, to the repression of strikes
and the co-optation of union leaders.
● Neoliberalism would eliminate the regulatory
functions of the state and promote the
denationalization and privatization of its goods
and services. Instead of the state, it favors
using the market to determine distribution and
stimulation. The invisible hand of the market is
to take care of the movement of resources, the
growth in productivity, the renovation of
technology, and the reinforcement of
comparative advantages.
● To attenuate the negative social
consequences of the model, neoliberals
have designed certain instruments and
escape valves, such as the negotiation of
conflict (firm or flexible, according to the
case), the growth of the informal economy,
and programs of social assistance which are
more propagandistic than effective.
● The reformulation of the world economy
according to the new interests and needs
of the great capitalist corporations is
explained by proponents of neoliberalism
as the natural result of historical
evolution, a process all countries must
inevitably join.
● The concepts of sovereignty, development, social
justice and democracy have also been redefined.
The so-called new “interdependence” among
nations sets the limits for national sovereignty.

● Social justice becomes a function of the

opportunities created by individual effort, while
democracy is a universal value with no class or
political qualifications whatsoever.
● Sectors of that bourgeoisie put up some resistance,
but most jumped on the bandwagon and accepted
the role of junior partners. In most countries, save a
few temporary and partial exceptions, governments
tried to avoid the negative effects of the new
subordination by borrowing money, which was
readily available during the 1970s.

Reference: https://nacla.org/article/neoliberalism-and-its-discontents
 05
The Global Financial
Crisis and the
Challenge to
Neoliberalism
● Russia's case was just one example of how the "shock
therapy" of neoliberalism did not lead to the ideal
outcomes predicted by economists who believed in
perfectly free markets.

● Neoliberalism came under significant strain during the

global financial crisis of 2007-2008 when the world
experienced the greatest economic downturn since the
Great Depression.

● The scaling back of regulations continued until the 2000s,

paving the way for a brewing crisis.
● One MBS would be a combination of multiple
mortgages that they assumed would pay a steady rate.

● They began extending loans to families and individuals

with dubious credit records-people who were unlikely
to pay their loans back.
● Financial experts wrongly assumed that, even if many
of the borrowers were individuals and families who
would struggle to pay, a majority would not default.
Moreover, banks thought that since there were so mans
mortgages in just one MBS, a few failures would not
ruin the entirety of the investment.
● Sometime in 2007, however, home prices stopped
increasing as supply caught up with demand.
Moreover, it slowly became apparent that families
could not pay off their loans.

● This dangerous cycle reached a tipping point in

September 2008, when major investment banks like
Lehman Brothers collapsed, thereby depleting major
investments.
● The crisis spread beyond the United States since many
investors were foreign governments, corporations, and
individuals. The loss of their money spread like
wildfire back to their countries.

● As a result of this credit crunch, three of Iceland's top

commercial banks defaulted. From 2007 to 2008,
Iceland's debt increased more than seven-fold.

● Affecting services like pensions, health care, and

various forms of social security, these cuts have been
felt most acutely by the poor.
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