Understanding Globalization

Introduction to Globalization

• Globalization involves the spread of people, ideas, and goods worldwide, fostering interaction and integration among nations.
• It's a process fueled by international trade, investment, and information technology.
• Globalization affects the environment, culture, political systems, economic development, human well-being and prosperity globally.
• According to Steger, it entails expanding and intensifying social relations and awareness across time and space.
• Globalization encompasses both macro-level global communities and micro-level individual identities.

Aspects of Globalization

• A potential effect is the favoring of Westernization, possibly disadvantaging other nations.
• Globalization is the increasing economic interdependence of countries through growing cross-border transactions in goods and services.
• Adoption of free-market economic systems by many governments.
• Negotiation of dramatic commerce reductions and establishment of international trade agreements.
• Factors that lead to the increase and acceleration of movement of people, information, commodities and capital include:
  • Lifting of trade barriers
  • Liberalization of world capital markets
  • Swift technological progress

Issues Associated with Globalization

• Addressing increasingly transnational problems, like poverty, environmental pollution, economic crises, organized crime, and terrorism which cannot be solved at a national level.
• Decision-making occurs at sub-national, national, and global levels, leading to a multi-layered governance.
• Technology is a major driver of globalization and it has transformed economic life through advancements in information technology.

Characteristics of Globalization

• Creation of new social networks, multiplication of existing connections, and those connections cut across traditional boundaries.
• Expansion and stretching of social relations, activities, and connections.
• Intensification and acceleration of social exchanges and activities.
• Globalization effects include the subjective realm of human consciousness.

Global Economy

• Economic Globalization involves the increasing interdependence of world economies caused by the growing scale of cross-border trade, flow of international capital and rapid spread of technologies.
• This reflects the ongoing expansion and mutual integration of market frontiers, and an irreversible trend for economic development at the turn of the millennium.
• According to the IMF, economic globalization is a historical process, the result of human innovation and technological progress.
• It involves the increasing integration of economies worldwide through the movement of goods, services, and capital.
• Movement of people and knowledge across international borders.
• It creates an organic system of the world economy, Functional entregration between dispersed activities which is qualitiative.
• Internationalization is the extension of economic activities between internationally dispersed activities.

Two Major Driving Forces for Economic Globalization

• Rapid growth of information.
• Marketization enables state enterprises to operate as market-oriented firms achieved through reduction of state subsidies, organizational restructuring, decentralization, and privatization.

Origin of Economic Globalization

• The Silk Road is the best example of archaic globalization.
• The silk road started in western China, Parthian Empire, Rome in the 16th Century and connected Asia, Africa, and Europe.

Evolution of International Monetary System

• 1870 to 1914, the exchange of gold and silver was carried without any institutional support.
• The decentralized monetary system at the time featured market-based money.
• Gold guaranteed stable economic environment and served as a standard for trade until its diminished use after World War I.

The European Monetary System (EMS)

• The EMS was established in 1979.
• The EMS was an arrangement linking the currencies of several countries in an attempt to stabilize exchange rates
• The EMS originated in an attempt to stabilize inflation and exchange rate fluctuations between European countries.
• In June 1998, The European Central bank created a unified currency, the euro, came to be used most EU member countries in January 1999.

Three Pillar Financial Rescue Program

• The components are:
  • European Financial Stability Mechanism (EFSM).
  • European Financial Stability Facility (FSF).
  • Financial Assistance of International Monetary Fund (FAIMF).
• EFSM is a permanent fund established by the EU to provide emergency assistance to member states.
• EFSM raises money, is guaranteed by the European Commission through financial markets.
• The goal of the FSF to provide assistance of member states with unstable economies, and created by the EU.

International Trade and Trade Policies

• International Trade is the exchange of goods, services, and capital across national borders, a multi-million-dollar activity central to the GDP of many countries.
• Trade is the way for many people in many countries to acquire resources.
• Trade allows for greater competition and more competitive pricing in the market.
• Key Concepts of International Trade include specialization and comparative advantage .
  • Specialization: countries direct resources to most productive goods and trade for those less productively made.
  • Comparative advantage: both countries benefit when having different relative efficiencies.
• Global trade allows to expose consumers and countries to goods and services not available in their own countries.
• Trade Policies are the regulations and agreements of foreign countries and it defines standards, goals, rules, and regulations to trade relations between countries.
• Tariffs are taxes paid for imports or exports.
• Trade barriers make imported goods less competitive.
  • Tariffs, duties, subsidies, embargoes, and quotas are common trade barriers.
• Safety ensures that imported products in the country are of high quality.

Types of Trade Policies

• National Trade Policy safeguards the trade of it's citizens.
• Bilateral Trade Policy regulates the business relations been two countries.
• International Trade Policy is under their charter like the World Trade Organization (WTO) and International Monetary Fund (IMF).
• In developed countries with open market economies, international economic organizations support free trade policies.
• Developing nations partially shield trade practices their local trade industries.
• The World Trade Organization (WTO) deals with the global rules of trade between nations with the main function of ensuring that trade flows smoothly, predictably and freely.
• Global Economy Outsourcing

Global Economy Outsourcing

• It requires search for a partner and relation-specific investments governed by incomplete contracts.
• The extent of international outsourcing depends on the market for input suppliers, the relative cost of searching in each market, the relative cost of customizing inputs and the contracting environment.
• Firms establish bilateral relationships and for related goods events in other markets.

Market Integration

• Easiness of trade between or within markets.
• Occurs when prices among different locations/goods follow similar patterns over extended period.
• The financial integration encourages free flow of capital and investment, and it is facilitated by a common currency/elimination differences.
• It is used to identify related market trend of goods/services.
• Exists when prompted shifts caused exerted effects.

Types of related markets where Market Integration Occurs

• Stock Market Integration: stock markets trend together and depict expected risk returns.
• Financial Market Integration ensures equivalence of stock prices, and facilitates open economy.

Global Corporation

• They operate in two or more countries, also known as multinational companies.
• They expand revenue opportunities of business and diversify risk.
• Examples: Mcdonalds, IKEA, Samsung, Apple, Jollibee, Nike, etc.
• Historical Periods of Global Corporations.
  • Combination of invention and social organization: increases wealth, capital to nations, allowed by modern nation state.
  • Barter trade, silk road, dutch east india, british india, american corps, japanese & european corps
  • Dutch east India was the 1st and most successful international corporation.
  • British india had goods only.
  • Silk road was 1st trade.
  • American Corps: not involved in WWII

The Finance Function in a Global Corporation:

• CFOs, or Chief Financial Officers
  • Financing.
    • reducing tax bill across the group
      • borrowing from countries with high tax rates and lending to operations in countries with lower rates.
    • Tax arbitrage; access to capital markets
  • Risk Management includes offsetting natural currency fluctuation.
  • Capital Budgeting includes getting smarter on valuing investment opportunities. Foreign Direct Investment (FDI) and GATS

Foreign Direct Investment (FDI)

• A major driver of extended development of global corporation.
• FDI is an investment a company /individual made to one country into business interests.

BRICS Economies

• An acronym of the combined economies of Brazil, Russia, India, China and South Africa.
• The first covering trade in services agreement was negotiated during the Uruguay Round: called the Uruguay Round, and came into force in 1995.

Globalization and the Nation-States

• Max Weber defines state as an organization with a centralized government that maintains a monopoly of the legitimate use of force.
• Hedley Bull states that states are independent, have a government, and asserts sovereignty.
• Nation-State

Nation-State

• Has dual concept, used interchangeably.
• The territorial organizations are characterized by monopolization of legitimate violence.
• The nation-states have collective identity, and pretension to rule.
• Globalized multinational corporations are challenged to address the issue of foreign direct investments to force nation-states to ascertain the allowable international influence in their economies.

Challenges for Nation-States

• Nation-states are divided by physical and economic boundaries.
• There is economic interdependence imbalance of power.
• Nation-states examine their economic policies to opportunities and challenges.
• The role of the nation-states is a regulator factor.

The State and the Economic Interdependence

• The Golden Straitjacket belief has globalization forces a market to conform to free market principles or risk being left behind.
• illustrates the preferences of investment houses and corporate executives that swiftly move money into adaptable countries.
• It is a narrow straitjacket which makes it difficult to find real differences.
• Neoliberalism and Economic Sovereignty

Neoliberalism and Economic Sovereignty

• Neoliberalism intensifies the influence and dominance of capital.
• It is the elevation of capitalism as an ethic, a set of political imperatives, and a cultural logic. Four Concepts of Sovereignty

Four Concepts of Sovereignty

• International, Westphalian, Interdependence, and Domestic.
• Global economic trends influence the economic sovereignty of individual members.
• There is restricted individual countries sovereignty.

Economic and Political Integration

• Is the process of state industrial, political, legal, economic, social and cultural integration.
• Wholly or partially. in the European continent.
• Come about through the European Union and its policies.

European Union

• Has a group of countries, which strives to increase their wellness level
• They are the an international organization, and governing common economic, social, and security policies.

Seven Stages of Economic Integration

• They are Preferential trading area (PTA), Free trade area, Customs union, Common market, Economic union, Economic and monetary union and Complete economic integration.
• Trade happens with an agreement on reducing/eliminating tariffs within the region or areas.
• Trade Agreements between countries in all goods from other members.

Theories of European Integration

• Neo-functionalism-focuses on institutions which is integrate by interest group.
• Intergovernmentalism-explains the process by the role or integration of nationalization.

Transnational Activism in States

• It is defined as the mobilization of collective claims by actors located in more than one country.
• Social movements/organizations and individuals operating across states borders.
• Coordinated campaigns on the part of networks of activists are against international actors.

Global Justice Movement

• is against anti-globalization.
• A new faction emerges - supporting globalization.

2.4 Contemporary Global Governance

• A product of neo-liberal paradigm shifts in economic relations.
• Is movement towards political integration.
• Aims to get responses to regional problems.
• The United Nations, and the International Criminal Court.

The United Nations

• The organization is to have international cooperation.
• Prevent managing rights and humanitarian.

Four Main Purpose of UN Charter

• Maintaining worldwide peace and security.
• Developing relations among nations.
• Fostering cooperation between nations.
• Providing a forum of bringing nations together.

UN security Council

• The council has (5) permanent, to determine the existence to peace.

UN Councils

• Economic and Social: a principle coordination body.
• Central platform for reflection/debate.
• Trusteeship Council established by charter XIII.
• Provide international supervision.

International Court of Justice

• Only 6 councils are not located that settles.
• A symbol/idealization of organization and world of people.

The state has the roles

• Operating which shape global activities.
• Clearly pronouncing political leverage of some states.

##3.1 Global Divides

Global Divides: The North and South

• Regions of Asia and Africa in politically marginalized.
• Symbolizes the projects of decolonization.
• Development by drawing financial resources which creates global dependency.
• Continues to be globalized and recognizes the new south.
• Provides a model or resistance towards global issues.

The Rise of the Asian Pacific & South Asia

• This region is a foreign policy shifting system.
• It is called a pivot to commit to states that drives globalization.
• A process transforms pacific and south Asia to bring cultural changes

Japan (Asia)

• This county plays a central global driving force.
• They provided modern advanced technology.
• It is “laboratories of modernity”

China and India

• Worlds largest/ importers/exporters

Open globalization

• Migration with outside interaction.
• It offers international and migration.
• The regions serves the source which can seen in history/ economy and structure.

Region-Making

• Resulted in hybrid asia.
• explained by waves of global/ regional movements for economic freedom/trade.

Regional middle classes

• Took place with American trade
• Were created by textile traders.