Contemporary World

Module 2

Chapter 1
The Structures of Globalization

The Globalization of Economic Relations

The Modern World-System as a Capitalist World
The Rise of the Global Corporation
The Multiple Crises of Global Capitalism
An International Civilization?
Governments and Citizens in a Globally Interconnected World of States
Global Governance in the 21st Century

Learning Outcomes:
1.Identify the actors that facilitate economic globalization.
2.Describe the modern world system.
3.Explain the role of international financial institutions in the creation of global economy.
4.Determine the attributes of global corporations.
5.Explain the effects of globalization on governments.
6.Cite institutions that govern international relations
7.Identify the challenges of global governance in the 21st century.

Topic 1.
GLOBALIZATION OF ECONOMIC RELATIONS
What is Economic Globalization?
1. 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.
2. It also refers to the movement of people and knowledge across international borders.

Several Inter-connected Dimensions of Economic Globalization:

1. Globalization of trade of goods and services
2. Globalization of financial and capital markets
3. Globalization of technology and communication
4. Globalization of production

TNCs (Transnational Corporations)

- Are the major players pf present-day global economy

UN ( United Nations) and NGOs ( Non Government Organizations)

- New actors on the stage of political and cultural globalization
Is Economic Globalization a new phenomenon?
- Economic globalization as a process that creates an “ organic system” of the world
economy goes beyond the last 30 years…
- However, globalization processes have been going on since the migration times.
- Example: Silk Road which connected Asia with Africa and Europe.

2 Achievements in Human History( in terms of globalization)

1. Discovery of America in 1492
2. Discovery of the direct sea route to India in 1498

British Industrial Revolution:

This has overshadowed the 2 achievements by the breath-taking technological advances and its
organization methods
By 1800s, this revolution has spread to Europe and North America

The economic nationalism of the 17th and 18th centuries, coupled with monopolized trade, did not
favour international economic integration. Although there were many ships going to Asia from European
countries in these centuries, world export to world GDP did not reach more than 1 to 2 percent. Global
economy in this period was simple a “ trade and exchange”, rather than “ production.”

Breakthrough came only in the 19th century when there was a dramatic increase in GDP ( around 16-
17 percent of world income) due to transport revolution: steamships and railroads reduced transaction
costs and had bolstered exchange.

Convergence vs Divergence
In world economies, finance and trading, divergence and convergence are terms used to describe the
directional relationship of two trends, prices or indicators.

Divergence generally means two things are moving apart while convergence implies that two forces are
moving together.

Divergence
 Occurs when the price of an asset and an indicator move away from each other
 Can be either positive or negative…ex. Positive divergence occurs when a stock is nearing a
low but its indicators start to rally
 Warns that the current price trend may be weakening , and in some cases may lead to the
price changing direction

Convergence
 Happens when the price of an asset and an indicator move toward each
 Occurs because an efficient market won’t allow something to trade for two prices at the same
time
 It is used to describe the phenomenon of the future price and the cash price of the underlying
commodity.
 Traders refer to it as a way to describe the price action of futures contract
International Monetary System:

Historical Background:
Ancient Egypt and Mesopotamia: began to use a system based on highly coveted coins of gold and silver,
also known as bullion, which is the purest form of precious metal. However, bartering remained the most
common form of exchange and trade.

The monetary system has evolved from using gold and silver to represent national wealth and economic
exchange to the current system.

Examples of the most powerful currencies in history:

1. Persian Daric: gold coin used in Persia in 522 BC to 330BC
2. Roman currency: gold, silver, bronze and copper were used during the Roman empire around
250BC to AD250.
3. Spanish and American pesos: Around 1500 to the early 19th century was widely used in Europe,
the Americas and the Far East: it became the first world currency by the late 18th century
4. British pound: dates as early as AD800 but its influence grew in the 1600s; from 1816 to 1939 the
pound was the global reserve currency until the collapsed of the gold standard
5. US dollar: The Coinage Act of 1792 established the dollar as the basis for a monetary account,
and went into circulation as a silver coin. Its strength as a global reserve currency expanded in
the 1800s and continues today.
6. Euro. Serves as the currency in many European countries today.

The Gold Standard

The origin of the first modern-day IMS dates back to the early 19th century when the UK adopted
gold mono-metallism. In 1867, European nations as well as the United States propagated a shift to gold at
the International Monetary Conference in Paris. Gold was believed to guarantee a non-inflationary , stable
economic environment, a means for accelerating international trade.
In practice, the gold standard functioned as the fixed exchange rate regime, with gold as the only
international reserve. Participating countries determined the gold content of national currencies, which in
turn defined fixed exchange rates as well.

This gold standard is a monetary system where a country’s currency or paper money has a value directly
linked to gold.

For example, if the US sets the price of gold at S500 an ounce, the value of the dollar would be 1/500th of
an ounce of gold.

The Bretton Woods System:

Bretton Woods Agreement of 1944 – A summit held in USA where 44 allied nations agreed to use
the gold standard to create a fixed currency exchange rate.
The agreement also facilitated the creation of immensely important structures in the financial
world: the IMF ( International Monetary Fund) , and the International Bank for Reconstruction and
Development ( IBRD) which is known today as the World Bank.
European Monetary System ( EMS)

 Was an adjustable exchange rate arrangement set up in 1979 to foster closer

monetary policy cooperation between members of the European Community.
 This EMS was later succeeded by the European Economic and Monetary Union
( EMU) which established a common currency, the euro.
 It was established to stabilize inflation and stop large exchange rate fluctuations
between these neighbouring nations, with the intended goal of making it easy for
them to trade goods with each other.
Topic 2.
MODERN WORLD SYSTEM AS A CAPITALIST WORLD ECONOMY
Modern World System
 Refers to this world we’re living in now
 Had its origin in Europe and the America in the 16th cent
 Expanded to cover the whole world
 It is a capitalist world economy

Capitalism
 An economic and political system in which a country’s trade and industry are
controlled by private owners for profit, rather than by the state

World Economy/ Global Economy

 Global economic system which includes all economic activities such as
Production, consumption, economic management, work, trade of goods and services, etc)
 Middle 19th cent: China and India dominated global output
 2021: countries with the highest GDP are the following:
1st- USA
2nd- China
3rd – Japan
Other countries: Germany, European Union, Russia, France, Indonesia, South Korea

*** GDP: Gross Domestic Product- is used to provide a snapshot of a country’s

monetary market value of all goods and services of a country

Capitalist World Economy

 Is a collection of many institutions, the combination of which accounts for its
processes, and all of which are intertwined with each other

Basic Institutions:
- market/ markets
- firms that compete in the markets
- multiple states w/in interstate system
- the households
- the classes
- status-groups
**** They are all the institutions created within the framework of the capitalist world
economy.

a. Markets: a market is both a concrete local structure in which individuals or firms sell
and buy goods
b. Firms: main actors in the market
: They are the competitors of other firms operating in the same market.
: “ Fierce inter-capitalist rivalry” is the name of the game
: bankruptcy ( absorption by a more powerful firm) is the daily bread of
capitalist enterprises)

c. Households ( families)
: 2 to 10 persons who pool multiple sources of income in order to survive
collectively
 5 Kinds of Income:
1. Wage income – payment for work in some production process
-pccasional or regular

2. Subsistence activity – efforts of rural persons to grow food and produce necessities
for their own consumption ( does not pass thru a market)
3. Petty commodity – product produced within the household but sold for cash in the
market
4. Rent – offers of capital investment, say apartments or rooms for rent
5. Transfer payment- comes in the form of insurance, loans, etc

D. Classes – person in the economic system with different levels of income

-status groups/identities
Topic 3.
THE RISE OF THE GLOBAL CORPORATION
Global corporation – also known as global company
- Is coined for the base term ‘global’
- A global company is any company that operates in atleast a country other than the
country where it originated
- A global company is generally referred as a multinational corporation ( MNC)
- MNC operations often attain economies of scale, thru mass producing in external
markets at substantially cheaper costs, economies of scope, thru horizontal expansion
into new geographic markets
- Significance of a global corporation:
 To expand revenue opportunities and to diversify business rinks.
 Operating in multiple countries allows us to achieve success in different types of
economies

What makes a company successful globally?

To be successful in an international market, a company’s brand must appeal to the resident
culture.

Top Global Corporations in the world:

Rank Company Sector
1 Apple technology
2 Saudi Aramco energy
3 Amazon Consumer services
4 Microsoft technology

6 Corporations that control the media ( 2020)

ATT, CBS, News Corp., Viacom, Disney, Comcast

Most Famous Business:

Walt Dsiney Corp
Amazon
Nike
J.P. Morgan
Netflix
Tesla

Historic Rise of Global Corporation:

Historical globalization – understanding globalization along the pattern of historical accounts;
patterns of trade and exchange occurred

Firs Historical Period:

 Early historical period
 Interactive relationship on trade
 Own organizational framework
 There were head offices, corporate hierarchies, and foreign direct investment

Second Historical Period:

 Commencement of WW2
 Increase in world capital
 Rise to Industrial Revolution
  Emergence of colonialism and imperialism

Third Historical Period:

 End of the WW2
 Economic recovery took place
 American, Japanese and European corporations post-war recovery
 Emergence of multinational corporations

According to Geriffi, post war period is characterized by 3 structural periods:

1. 1950-1970
Investment-based
2. 1970-1995
Trade-based
3. 1995- onwards
Digital

Contemporary global corporations

 Referred to as a multinational corporation (MNC), a transnational corporation (TNC),
an international company, or a global company

International companies
 Are importers and exporters, typically without investment outside of their home
country
 Examples: Apple, Nike ( also a global company),

Multinational Corporations
 Have investments in other countries, but do not have coordinated product offerings in
each country
 More focused on adapting their products and services to each individual local market
 Examples: Coca-Cola, Philip Morris, Pepsi, Pampers, Nescafe, Gilette

Global Corporations
 Have invested in and are present in many countries
 They market their products and services to each individual local market
 Examples: Hilton and Hyatt hotels, Adobe, American Express

Transnational companies
 Are more complex organizations which have invested in foreign operations, have a
central corporate facility but give decision-making, research and development and
marketing powers to each individual foreign market
 Examples: Nestle, Apple, McDonalds, Unilever, Shell, Coca-Cola

What makes a country an emerging market?

Countries classified as emerging market economies are those with some, but not all, of the
characteristics of a developed market.
Critically, an emerging market economy is transitioning from a low income, less developed, often
pre-industrial economy towards a modern, industrial economy with a higher standard of living.
Module 2 Tasks:
Task 2.1
1. Differentiate globalization from internationalization.
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2. Describe the modern capitalist system.

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3. How did the European Monetary System differe from the Bretton Woods System?
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Task 2.2

1. What is the concept of the modern world?

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2. What is core is modern world system?

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Task2.3
1. What nations are said to have the most dynamic economies? Why are they the most dynamic?
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2. How do global corporations operate?

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3. Is the Philippines an emerging market?Explain and cite sources.
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4. What are some emerging markets in the Philippines?
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