Module 3: Globalization of World Economics PDF

**MODULE 3** (GenEd. 3 -- Contemporary World) **Lesson/Topic** : **The Globalization of World Economics** (International Trading Systems; The Bretton Woods **Learning Target(s) :** [(1) Define economic globalization] **:** [(2) identify the actors that facilitate economic globalization] **:**...

**MODULE 3** (GenEd. 3 -- Contemporary World) **Lesson/Topic** : **The Globalization of World Economics** (International Trading Systems; The Bretton Woods **Learning Target(s) :** [(1) Define economic globalization] **:** [(2) identify the actors that facilitate economic globalization] **:** [(3) articulate your stance on global economic integration] **Reference(s) :** Claudio, L. & Abinales, P. (2018). *The Contemporary* **Concept/Digest :** **International Monetary Fund (IMF)** - regards "economic globalization" as a historical process representing the result of human innovation and technological progress. - the value of trade (goods & services) as a percentage of world GDP increased from 42.1 percent in 1980 to 62.1 percent in 2007. - Increased trade means that investments are moving all over the world as faster speeds. **High-frequency trading** - \- process where supercomputers can execute millions of stock purchases and sales between different cities in a matter of seconds **International Trading Systems** **Silk Road** - the oldest known international trade route - A network of pathways in the ancient world that spanned from China to what is now the Middle East to Europe - The most profitable products was **silk** - Traders used the Silk Road regularly from 130 BCE until 1453 BCE - Chinese Han Dynasty opened trade to the West - Ottoman Empire closed it - Silk Road was international and not truly "global" because it had no ocean routes that could reach the American continent. **The Age of Globalization** - Began when "all important populated continents began to exchange products continuously - Flynn and Giraldez traced this back to 1571 with the establishment of the **galleon trade** that connected Manila (Philippines) and Acapulco (Mexico) - the **galleon trade** made the first time that America was directly connected to Asian trading routes. - the **galleon trade** was part of the age of **mercantilism** **-** *an economic system (Europe in 18th century) to increase a nation's wealth by government regulation of all of the nation\'s commercial* *interests* *- a system of global trade with multiple restrictions* *- Mercantilism, also called \"commercialism," is a system in which a* *country* *attempts to amass wealth through trade with other countries,* *exporting* *more than it imports and increasing stores of gold and* *precious metals. It* *is often considered an outdated system.* **Gold Standard** - **1867** -- a more open trade system emerged when the United States and other European nations adopted the **gold standard** at an international monetary conference in Paris. - The countries established a common basis for currency prices and a fixed exchange rate system -- all based on the value of gold - The gold standard was still a very restrictive system, as it compelled countries to back their currencies with fixed gold reserves - During the WW1, when countries depleted their gold reserves to fund their armies, many were forced to abandon the gold standard. - Since European countries had low gold reserves, they adopted floating currencies that were no longer redeemable in gold. - **Great Depression** started during the 1920's and extended up to the 1930's, further emptying government coffers. - This depression was the worst and longest recession ever experienced by the western World. - Some economists argued that it was largely caused by the gold standard, since it limited the amount of circulating money and, therefore, reduced demand and consumption. - recovery of the U.S. really began when having abandoned the gold standard, the US government was able to free up money to spend on reviving the economy\ - Indirect versions of the gold standard were used until as late as the 1970's\ - The world never returned to the gold standard of the early 20^th^ century. **Fiat currencies --** currencies that are not backed by precious metals and whose value is determined by their cost relative to other currencies. This system allows governments to freely and actively manage their economies by increasing or decreasing the amount of money in circulation as they see fit. **Bretton Woods System** - After the 2 world wars, world leaders sought to create a global system that would ensure a longer-lasting global peace. - Bretton Woods system was inaugurated in 1944 during the United Nations Monetary and Financial Conference - influenced by the ideas of **John Maynard Keynes**, a British economist *"Economic crises occur not when a country does not have enough money, but* *when money is not being spent and, thereby, not moving."* ***global Keynesianism** --* the active role of governments in reinvigorating markets with infusion of capital when economies slow down Delegates of BWS agreed to create **two** (**2**) financial institutions: 1\) International Bank for Reconstruction and Development (IBRD or World Bank) 2\) International Monetary Fund (IMF) \**To this date, both institutions remain key players in economic globalization.* **IBRD** -- responsible for funding postwar reconstruction projects **IMF** -- the global lender of last resort to prevent individual countries from spiraling into credit crises \* *If economic growth in a country slowed down because there was not enough money to stimulate the economy, the IMF would step in.* - Shortly after BWS, General Agreement on Tariffs and Trade (GATT) was established in 1947. **Neoliberalism and Its Discontents** **Global Keynesianism (mid-1940s to early 1970s)** \- Governments poured money into their economies, allowing people to purchase more goods - There was an increase in demand for these products - As demand increased, so did the prices of these goods - Western & some Asian countries like **Japan** accepted this rise in prices because it was accompanied by general **economic growth** and **reduced unemployment**. - However, **in the early 1970s**, the prices of oil rose sharply as a result of the Organization of Arab Petroleum Exporting Countries (OAPEC) imposition of an **embargo** ( *a gov't. order that limits trade in some way* ) - The **embargo** was in response to the decision of the U.S. and other countries to resupply the Israeli military with the needed arms during the Yom Kippur War - Arab countries used the **embargo** to stabilize their economies and growth - (OAPEC) -- the Arab member-countries of the Organization of Petroleum Exporting Countries (OPEC) - The "oil embargo" affected the Western economies that were reliant on oil. - The worst thing, the **stock markets** crashed in 1973-1974 after the U.S. stopped linking the dollar to gold, effectively ending the Bretton Woods system. - **Stagflation** -- in which a decline in economic growth and employment (stagnation) takes place alongside a sharp increase in prices (inflation) - a phenomenon that the Keynesian economics failed to predict - Friedrich Hayek and Milton Friedman' s new form of economic thinking challenged the Keynesian orthodoxy - They argued that the government's pouring money into their economies had caused inflation by increasing demand for goods without necessarily increasing supply. - They also argued that government intervention in economies distort the proper functioning of the market. - ***Neoliberalism --*** a new form of economic thinking; free-market capitalism ***\ Neoliberalism*** the codified strategy of: \- the United States Treasury Department\ - the World Bank\ - the IMF \- eventually, the WTO -- a new organization founded in 1995 to continue the tariff reduction under the GATT - The policies they forwarded were called the ***Washington Consensus*** - dominated global economic policies from 1980s until the early 2000s. - Its advocacy: pushed for minimal government spending to reduce government debt. - They called for privatization of government-controlled services like water, power, communications, and transport, believing that the free market can produce the best results. - They pressured governments of developing countries to reduce tariffs and open up their economies - *Possibility and belief*: certain industries would be affected and die but this "shock therapy" is necessary for long-term economic growth **Questions:** (to be answered comprehensively) 1. Using the Venn Diagram, compare and contrast the assumptions of the original Bretton Woods system with those of the Washington Consensus. Anna Liza C. Cerbo June 06, 2021 **Teacher Date**