Reference: SAGE Handbook of Globalization.

Article by Istvan Benczes

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 the
movements of goods, services, and capital across
borders. The term also refers to the movement of
people (labor), and knowledge (technology) across
international borders. (IMF, 2008)
1. The globalization of goods and services.
2. The globalization of financial and capital
markets.
3. The globalization of technology and
communications.
4. The globalization of production.
Internationalism – the extension of economic
activities of nation states across borders.

Globalization – functional integration between

internationally dispersed activities (Dicken,
2004).
States still exist and are important....but they
are, in one way or another, influenced by the
workings of globalization.....but
globalization’s influence among states are
also very uneven.

With globalization, the role of governments

and states seemed to be midwives of
globalization.
United Nations

Non Government Organizations

Transnational Corporations
The Process of Opening Up the World
 Early migration (early homo sapiens)
 Silk Road
Great Discoveries (According to Adam Smith)
Columbus’ Discovery of America
Vasco de Gama’s Discovery of a Direct Route to
India
Economic Nationalism (Though it did not greatly favor
international trade because they also serve as
instruments of colonization)

 British East Indies Company

 Dutch East Indies Company

19th Century Dramatic Rise of Exchange and Trade

 Steamships

 Railroads

The peaceful years before World War I intensified

the process of economic integration

 It is referred to as the “golden age of

globalization.”
 Countries benefit, but not all.

 The unequal and uneven process of

globalization is good for some countries but
not for others.

 Itcaused some countries to advance while it

also caused others to stagnate.
 Theindustrial revolution of the 18th century
caused countries in Europe to advance early
than others.

 Countriesthat stagnate are the ones who

were the subjects of colonization and
imperialism.

 Globalization is not a new to the world.

 Created to facilitate cross border
transactions.

 It is more than just money and interests.

 It reflects economic power.

 Money is inherently political and is an

integral part of high politics and diplomacy.
 Gold as the standard basis for currency
because of its nature that it is not affected
by inflation.

 Gold as a standard of a fixed exchange rate

and served as the only international reserve.

 Itpaved the way to a well-balanced trading

activities.
 Somecountries with lesser reserves lost their
autonomy on monetary policy.

 IMS
came in to lend a balance and give
access to international credits.

 Theoutbreak of World War I saw the end of

the gold standard.
The 1930’s was construed to be the darkest
moment of economic history.
 Devaluation
 Tough capital control
 Prohibitive tariffs
 Drop of international trade transactions.
Preparing to rebuild the international
economic system while World War II was still
raging, 44 Allied Nations gathered at the
Bretton Woods, New Hampshire, United
States, for the United Nations Monetary and
Financial Conference, also known as the
Bretton Woods Conference.
I t was the first example of a fully negotiated
monetary order intended to govern monetary
relations among independent nation-states.

 Itwas designed for the participating country

to adopt a monetary policy that maintained
the exchange rate by tying its currency to
gold and the ability of the IMF to bridge
temporary imbalances of payments
 Established the International Monetary Fund
(IMF)

 Establishedthe International Bank for

Reconstruction and Development (IBRD),
which today is part of the World Bank Group.

 In 1971, the United States unilaterally

terminated convertibility of the US dollar to
gold, effectively bringing the Bretton Woods
system to an end.
 After
World War II, US wanted West
Germany’s economy to be agricultural.

 USSR’spush for communism forced the US to

empower Western Europe to be an industrial
might and military power.

 TheEconomic Advancement of Europe paved

the way for the creation of the European
Economic Council (EEC). It was Europe’s first
step to have a closer union.
 Germany, France, Italy, Netherlands, Belgium, and
Luxembourg, the original founding members of the
EEC aimed to create a common market where
goods, services, capital, and labor could flow
freely.

 TheEuropean Monetary System (EMS) was

established in 1979 where neither the US dollar nor
gold could play of the stabilization process of
exchange rates.
 The success of the EMS paved the way for European
economic integration.

 In1992, the European Economic and Monetary

Union (EMU) was established.

 In1999, member states of the EMU abandoned their

national currencies and delegated monetary policy
onto a supranational level, administered by the
European Central Bank (ECB).
 ECB’s role is to maintain price stability.

 Euro became a very strong currency.

 The global financial crises in 2008 posed a

big problem to the European Union.

 Itmade mechanisms to cope with the crises

on a temporary basis. It also sought the aid
of the IMF.
David Ricardo’s Comparative Advantage
Theory: Every single nation must have a
comparative advantage in something
irrespective of its condition (Ricardo, 1817).
 Yet trade is not without politics.
 Free trade can also disadvantage nations
producing lower value added products.
 Temporarily restricting the free flow of goods
could establish a national industry.
 Protectionism is a natural way to achieve a
national objective.
 Unequal exchange is the fundamental
distinguishing characteristic of the modern
world economy.

 Thesocial division of labor contributes to the

development of the “core” and the
underdevelopment of the “periphery.”

 Core– consumers of primary commodities

and producers of manufactured articles

 Periphery
– Consumers of manufacturers and
as producers of raw materials.
 The core has developed at the expense of the
periphery.

 The best thing for the periphery to do is to

advocate “protectionism.”

 But international trade can trigger tensions

among nations.

Sometimes, the mighty would wilfully use their

power to achieve their goals.
e.g. Noriega of Panama
Saddam Hussein of Iraq
Kaddafi of Libya
International Trade – triggered by Europe’s
Industrial Revolution.
 It triggered UK and France to produce
products based on their comparative
advantage.
 Voluntary trade had prevented wars.
 Bilateral trade was practiced in line with the
principle of Most Favored Nations (MFN).
 MFN Principle: agreements on tariffs
reduction will be extended to other trading
partners without restrictions.
After the second world war, the US became the
leader in industry.....and also the biggest
donor to the nations who were greatly
devastated by war.
 The International Trade Organization, or
ITO, was the proposed name for an
international institution for the regulation of
trade.

 Itdid not succeed much because it was not

approved by the US Congress.
 General Agreement on Tariffs and Trade
(GATT) was a multilateral agreement
regulating international trade. According to
its preamble, its purpose was the "substantial
reduction of tariffs and other trade barriers
and the elimination of preferences, on a
reciprocal and mutually advantageous basis.

this is a new mechanism that nations entered

into a commitment into a world of lowered
tariffs.
 GATT was discussed during the United
Nations Conference on Trade and
Employment and was the outcome of the
failure of negotiating governments to create
the International Trade Organization (ITO).
 In 1995, the World Trade Organization was
launched and started to become an official
forum for trade negotiation. It has a legal
personality.

 The World Trade Organization (WTO) is an

intergovernmental organization that regulates
international trade.

 The WTO deals with regulation of trade between

participating countries by providing a framework
for negotiating trade agreements and a dispute
resolution process aimed at enforcing
participants' adherence to WTO agreements,
which are signed by representatives of member
governments.
 The WTO is a mechanism of the exploitative
aspect of globalization. It pushed for the
dominance of the US economy, protected the
selfish interests of large transnational and
multinational corporations, and its workings
were presumed to be discriminatory

to combat this, developing countries made

moves to unite themselves to strengthen
their position within the WTO to form a
pressure group referred to as the G20.
 Mostof the developing countries did not
participate in multi-lateral trade
negotiations for a relatively long time.

 Aside from the industrializing East Asian

Countries, developing countries did not
manage to integrate into the post World War
II trading system.
 Thedeveloping countries followed an inward
looking import substitution strategy that did not
favor trade openess.

 The advanced economies were also reluctant to

open their markets to commodities of textile and
agriculture products in which the developing
countries had a natural comparative advantage.
 1964– United Nations Conference on Trade
and Development (UNCTAD) with the joint
effort of the developing states.

 UNCTAD’s aim was to promote trade and

cooperation between the developing and
developed nations.
 Theoil crisis following UNCTAD stalled to
materialize its mechanism to for the
developed-developing countries’ trade
partnership

 Thegoal to bargain the concerns of the

developing and developed countries was
again revisited in the Uruguay Round.
 Inthe Uruguay round, the developed countries were
expected to open their markets, especially to
textile and agricultural products.
 The developing countries agreed to accept
regulations on intellectual property rights and
services.
 The developing countries also opened their service
markets
 Yet,
the developing countries’ exports were still
blocked by the advanced nations.

 Without liberalization of agriculture, it is simple

impossible for developing nations to fully integrate
into the global economy.

 Thedeveloping countries were the losers in the

Uruguay round.
 WTO served as a means for the developed
nations to access of the developing nations
and, at the same time, protecting its
markets.
e.g. In VSU NARC and Auto Companies.

Trade agreements were designed to serve the

needs of the developed nations.