Lesson 3 Part A - The Global Economy PDF

BSMT 2 | 1ST SEMESTER PRELIM PERIOD NGEC 3: THE CONTEMPORARY WORLD LESSON 3: THE GLOBAL ECONOMY The Modern World System Introduction: The world –system is composed internally...

BSMT 2 | 1ST SEMESTER PRELIM PERIOD NGEC 3: THE CONTEMPORARY WORLD LESSON 3: THE GLOBAL ECONOMY The Modern World System Introduction: The world –system is composed internally of a variety of social structures and member groups. It is a largely self-contained As a member of global community, our local economic system with a set of boundaries and a life span that does not last activities are shaped by the prevailing global economy. The food we forever. The modern-world system is also known as the modern eat, the clothes we wear, the cars we drives, the gadgets we use, the capitalist world economy which relies on the economic domination. It is movies we watch, the different business transactions we engage in as the economic forces that pull the people, state, and societies together buyers and sellers of goods and services are all influenced by the toward the field of worldwide economic transactions (Aldama, 2018). global economic integration. This lesson acquaints us with the complex system of global economy, the various factors that play a significant Immanuel Wallerstein (2004) analyzes the modern – role in facilitating economic globalization and the existing world world system centers on the broad economic entity with systems which can positively or negatively impact our local economy. an extensive division of labor that is not limited to political or cultural boundaries. The range of economic tasks in world-system is not evenly The Global Economy distributed throughout the world-system. According to Wallerstein, in part, this is the consequence of ecological considerations. For the Global economy is to the worldwide economic activity most part, it is a function of the social organization of work which between various countries that are considered intertwined, thus, can magnifies and legitimizes the ability of some groups within the system affect other countries negatively or positively. It is all the economies of to exploit the labor of others, that is, to receive a larger share of the the world which we consider together as one economic system, that is, surplus. a giant entity or a system of trade and industry across the world that has emerged due to globalization (BusinessDictionary.com., n.d.). In the past, what held the world together was the political and military domination and it was called world empire. In an empire, the The International Monetary Fund (2008) defined globalization political structure tends to link culture with occupation, in a world- as the increasing integration of economies around the world, economy, the political structure tends to link culture with spatial particularly through the movement of goods, services, and capital location. In a world-economy the first point of political pressure across borders. Shangquan (2000) defined economic globalization as available to groups is the local (national) state structure. Cultural the expanding interdependence of world economies through the homogenization tends to serve the interests of key groups and the growing scale of cross- border trade commodities and services, flow of pressures build up to create cultural-national identities (Wallerstein, international capital, and wide and rapid spread and technology. The 2004). Philippines now is doing a cross-boarder trading with the US, China and Australia. doing a cross-boarder trade means that a company from It is evident that in the modern-world system that there is one country establishes and takes part in a business in another inequality among all countries. Wallerstein (2004) presented the country for production of goods or services. For example,r Toyota features of the modern capitalist world-economy by dividing the world Motor Philippines Corporation which is a subsidiary of Toyota Motor into three categories, thus creating the worldwide division of labor: Corporations based in Toyota, Japan. This is how the international capital flows through a foreign direct investment (FDI). Along with this There are advantaged areas of the world-economy--what we foreign portfolio investments come the private loans, and external have called the core-states. In such states, the creation of a strong assistance and commercial borrowings. state machinery coupled with a national culture, a phenomenon often referred to as integration, serves both as a mechanism to protect When we think of global economy, it usually means the disparities that have arisen within the world-system, and as an economy of the world and they can be used interchangeably. ideological mask and justification for the maintenance of these However, The global economy is measured separately from national disparities. economies, while the economy is simply an aggregate of all the separate countries’ measurements (Cooney, 2017). He considers that Aside from the core-state, there are some peripheral “the global economy is really nothing more than the fact that the areas. According to Wallerstein (2004), peripheral states because banking industry and some very large companies have expanded to one characteristic of a peripheral area is that the indigenous state is the point where they don’t really have any national loyalty.” He weak, ranging from its nonexistence (that is, a colonial situation) to one explained that banks hold no national allegiance because their only with a low degree of autonomy (that is, a neo-colonial situation). interest anywhere is to make a profit. The giant multinational corporations’ operations are global, yet, their national claims are There are areas which are called semi-peripheral which hollow. Their national allegiance forms part of a marketing strategy in are in between the core and the periphery on a series of dimensions, their home countries. such as the complexity of economic activities, strength of the state machinery, cultural integrity, etc. Some of these areas had been core- Factors that Facilitate Economic Globalization areas of earlier versions of a given world-economy. As a result of the changing geopolitics of an expanding world-economy, some had been There are many points of view to consider regarding different peripheral areas that were later promoted. factors that facilitate economic globalization, the so-called actors of globalization. The most renowned agents are the multinational The semi-periphery is a necessary structural element in a corporations (MNCs), state, non-government organization (NGOs), world-economy. It is not a residual category nor an artifice of statistical intergovernmental organization (IGO), government, and activists cutting points. Areas in this category play a role parallel to that groups. On the other hand Boyer and Drache (1996), in Brazalote, et played, mutatis mutandis, by middle trading groups in an empire. In al. (2019), believe that it is still the nation-state that rules over the these middle areas (like middle groups in an empire) partially deflect national economy. According to Brodie (1996), the government are the political pressures which groups primarily located in peripheral the ‘midwives” of globalization. In other words, that nation-states are areas might otherwise direct against core-states and the groups which still relevant despite assuming a global perspective and act as operate within and through their state machineries. On the other hand, mediators between the effect of globalization and the national the interests primarily located in the semi-periphery are located outside economy (Brazalote, et al.,2019). the political arena of the core-states, and find it difficult to pursue the BSMT 2 | 1ST SEMESTER PRELIM PERIOD NGEC 3: THE CONTEMPORARY WORLD ends in political coalitions that might be open to them were they in the What Causes Global Economic Inequality? same political arena. Economists, sociologists, politicians, historians, and the “The division of a world-economy involves a hierarchy of World Bank all struggle to define and understand global occupational tasks, in which tasks requiring higher levels of skill and economic inequality. greater capitalization are reserved for higher-ranking areas. Since a While there has been some global economic convergence in capitalist world-economy essentially rewards accumulated capital, recent years, with countries catching up to the developed including human capital, at a higher rate than “raw” labor power, the world, there are still many countries, referred to as the geographical mal-distribution of these occupational skills involves a "bottom billion," that are being left behind and experiencing strong trend toward self-maintenance. The forces of the marketplace worsening inequality. reinforce them rather than undermine them. And the absence of a central political mechanism for the world-economy makes it very Inequality is not just about the disparity between developed and developing countries, but also about the rising inequality difficult to intrude counteracting forces to the mal-distribution of within societies. rewards” (Wallerstein, 2004). The Challenge of Measuring and Confirming Inequality Social gaps among different areas in the ongoing process of a world-economy tend to develop because of the technological advances which make it possible to expand the boundaries of a world- One problem in understanding global economic inequality is the difficulty in measuring and confirming the extent of economy. The structural role in the world-economy of some particular convergence. regions of the world may change to their advantage, even the disparity of reward between different sectors of the world-economy as a whole Highlighting this issue, many countries in the "bottom billion" may also widen. There is a distinction between a peripheral area of a are falling behind, even as global GDP shares show a given world-economy and the external arena of the world-economy, in convergence between developed and emerging countries which, the external arena of one century often becomes the periphery over the past 15 years. of the next--or its semi-periphery. Core-states can become semi- The Cold War and Two Schools of Thought peripheral and semi-peripheral can become peripheral. Economic Globalization: Does it unite or divide the world? During the Cold War, two distinct trains of thought emerged regarding global economic inequality: modernization theory With the nation-states, global corporations and international and structuralism. monetary systems as leading actors, the world is now confronted with Modernization theory, primarily supported in the Western ongoing debates as to whether economic globalization unites or world, claimed that countries would progress towards divides the world. Benczes (2014) believes that economic globalization modernity through inclusion in the global capitalist market. fosters universal economic growth and development. For one, Structuralism, in its various forms, argued that the very globalization allows a worldwide distribution of incomes. For instance, structures of the capitalist system prevented poorer raw materials needed for certain products may come from other economies from developing and that exploitation by richer nation-states. Also economic globalization reduces poverty (World countries played a role. Bank 2002) Lastly, globalization creates mutual dependence between developing and developed countries. Developing countries rely on Dependency Theory and World Systems Theory developed countries for employment while the latter relies on the former for raw materials and labor. Structuralism in international relations can be divided into two schools of thought: dependency theory and world On the other hand some experts believe that economic systems theory. globalization even divides the world further. First, it is observed that Dependency theory, associated with Latin American the sources of goods and services are exploited. And since poor countries, asserts that resources tend to flow from poor, countries depend on industrialized ones for employment,they usually underdeveloped countries (periphery) to the wealthy compensate their labor with cheap cost. Second, economic Western world (core), leading to a unilateral flow of capital globalization does not benefit all nations. Third, Wallerstein (2005) and exploitation. claims that capitalism created the different levels of wages in the economic arena of world systems leading to inequality according to World systems theory, developed by Immanuel Wallerstein, expertise, experience and skills. also focuses on the global capitalist system but analyzes world history and economic development from the Understanding Economic Globalization perspective of the total world system. Economic globalization refers to the worldwide movement Exclusion from or Malpractice within the Capitalist System and interconnectivity of people, capital, technology, goods, and services. It highlights the growing dependence among Recent arguments suggest that exclusion or malpractice countries, regions, and trading blocs in today’s economy. within the structures of the capitalist system may be the primary cause of poverty, rather than inclusion or This interdependence manifests in various forms, such as dependence. reliance on raw materials, vehicle parts, food, and countless other products. For instance, when purchasing a new car, it Inclusiveness of political institutions, democratic systems, is common for its parts to be sourced from numerous and strong laws are argued to encourage innovation and different countries, illustrating the complex web of global create successful businesses, leading to economic growth trade. and lifting people out of poverty. Economists generally argue that economic globalization contributes to overall wealth creation. However, it is important to note that this phenomenon is also associated with increasing inequality within and among nations. Transfer Pricing and Exploitation BSMT 2 | 1ST SEMESTER PRELIM PERIOD NGEC 3: THE CONTEMPORARY WORLD In the past, Mexico would extract barbasco and sell it to a speculate on the negative aspects of a model of free trade and sister company within the same corporation at a lower price. openness that has lifted billions out of poverty." This allowed the corporation to make higher profits by Actors of Globalization moving the profits out of Mexico and declaring them in tax havens. Activist Group – a group of people in favor or against of a Eventually, Mexico nationalized the gathering, processing, cause and make protests and sale of barbasco and fixed the price for sale to the multinational corporations. Government – the body of a nation, state, or community. It However, this did not happen until 1975, around twenty has control over citizens, or inhabitants of communities, societies or years later. states "Barbasco in Mexico and sell it on to a sister company owned by Leaders – a guiding or directing head, as of an army, the same corporation at a much lower price than it was worth. The movement, or political group profits would then be moved out of Mexico and declared in tax havens Multinational Corporation – is usually a large corporation like Porto Rico and Panama." incorporated in one country that produces or sells goods or services on Dependency and Exploitation not caused by Capitalism various countries. The two main characteristics are their large size and the fact that their world wide activities are centrally controlled by the Situations of dependency and exploitation do occur, but they parent companies are not a systemic inherent aspect of capitalism. Non-governmental Organizations – are international Dependency and exploitation are social issues that can be organizations and generally nonprofit organizations independent of addressed, and solutions can be found to create a more specific governments. Active in humanitarian, educational, healthcare, even and fair global playing field. public policy, social, human rights, and environmental, according to their objectives examples: "I think what Jerry Fee study shows is that yes situations of dependency and exploitation do of course occur but this is not a World Wildlife Fund (WWF) systemic inherence of capitalism, it's social and solutions can be found that can create an even and fair playing field around the world." Red Cross Practical Steps for Solutions International Organization – is an organization composed primarily of sovereign states, or of other intergovernmental Practical steps proposed by authors like Collier and organization examples: Acemoglu can help address global economic inequality. United Nations (UN) Governments, countries, and societies have the ability to take actions that can bring about positive change. Arab League For example, the second part of the democratic process, Nations – a large body of people, associated with a particular checks and balances within government, are important in territory, that is sufficiently conscious of its unity to seek or to possess discouraging corruption. a government peculiarly its own Transparency, freedom of speech, and budget transparency from the bottom can also aid in reducing exploitation. States – a politically unified people occupying a definite territory. "Who like Collier and Acemoglu are replete with practical steps that governments, countries, and societies can take. Kaalia, for example, reminds us that while elections are incredibly powerful in bringing about change in underdeveloped nations, the second part of the democratic process, checks and balances, are more important and frequently overlooked." "Freedom of speech and transparency is obviously key...Kaalia suggests that emphasis should be placed on radio being kept from government control and freed from government restraints on entry." "He also suggests budget transparency from the bottom, audits of schools and hospitals, etc., instead of from the top." Practical Solutions vs. Speculation Practical solutions to global economic inequality are more likely to be found in the studies of those actively trying to solve the issues. Speculating on the negative aspects of free trade and openness, which has lifted billions out of poverty, is less constructive in finding answers to the nuanced problems. "But I think practical solutions are more likely to be found in the studies of those trying to solve the issues rather than those who simply