Lesson 2 Reviewer

International Monetary Fund(IMF)- regards ‘’economic globalization” as a historical

process representing the result of human innovation and technological process.

- It also characterized by the increasing integration of economies around the world

through the movement of goods, services, and capital across borders.
- The value of trade (goods and services) world GDP increased from 42.1 percent
in 1980 to 62.1 percent in 2007.

United Nation Conference on Trade and development(UNCTAD)- the amount of

foreign direct investments flowing across the world was 57 billion dollar in 1982.

Supercomputers- can execute millions of stock purchases and sales between cities I
a matter of seconds through a process called high-frequency trading.

Silk Road – the oldest known international trade route.

- A network of pathway from China to what is now the Middle East and to Europe.
- It is called Silk Road because silk was the one that is a very profitable product at
that time.
- From 130 BCE when Chinese han dynasty opened trade and up to 1453 BCE
when Ottoman Empire closed it.
- It is not truly “global” because it had no ocean routes that could reach America.

Dennis O. Flynn and Arturo Giraldez- the age of globalization began to exchange
products continuously both with each other other directly and indirectly via other
continents – and in values sufficient to generate crucial impacts on all trading partners”

-1571 with the established of galleon trade

Galleon Trade – part of mercantilism.

- 16th to 18th century, countries competed with one another to sell more goods as
means to boost their country’s income. (called monetary reserves later on)

Mercantilism- a system of global trade with multiple restriction.

Gold standard – 1867, Lead by United kingdom , United states and other European.

-its goal was to reate a common system that would allow for more efficient trade
and prevent the isolation of the mercantilism era.

Great depression- started during 1920s up to 1930s

 - The worst and longest government recession ever experienced bt the western
world.
- Economist says that this was the cause of Gold standard.

Barry Eichengreen – argues that the recovery of the United states began by
abandoning gold standard.

Fiat currencies- today, countries operate based on this.

THE BRETTON WOODS SYSTEM

- World leaders sought to create a global economic system that would ensure a longer
lasting global peace. They believed that one of the ways to achieve this goal was to set
up a network of global financial institutions that would promote economic
interdependence and prosperity.

- The Bretton Woods system was inaugurated in 1944 during the United Nations
Monetary and Financial Conference to prevent catastrophes.

This system was largely influenced by the ideas of British economist John Maynard
Keynes who believed that economic crises occur not when a country does not have
enough money, but when money is not being spent and thereby not moving.

- This active role of governments in managing spending served as the anchor for what
would be called a system of global keynesianism.

The Bretton woods system

- Agreed to create two financial institutions.

- The International Bank for Reconstruction and Development (IBRD or World Bank) to
be responsible for funding postwar reconstruction projects. The second institution was
the International Monetary Fund (IMF), which was to be the global lender to prevent
individual countries from spiraling into credit crises.

- Various countries committed themselves to further global economic integration through

the General Agreement on Tariffs and Trade (GATT) in 1947. GATT's main purpose
was to reduce tariffs and other hindrances to free trade.
NEOLIBERALISM AND ITS DISCONTENTS

- The high point of global Keynesianism came in the mid 1940's to the early 1970's.

- The prices of oil rose sharply as a result of the Organization of Arab Petroleum
Exporting Countries (OAPEC).

- Imposition of an embargo in response to the decision of the United States and other
countries to resupply the Israeli military with the needed arms during the Yom Kippur
War. This oil embargo affects the Western economies that were reliant on oil.

- The stock markets crashed in 1973-1974 after the united states stopped linking the
dollar to gold, effectively ending the Bretton Woods system.

- The result was a phenomenon that Keynesianism economics could not have predicted
a phenomenon called stagflation, in which a decline in economic growth and
employment (stagnation) takes place alongside a sharp increase in prices (inflation).

- Economists such as Friedrich Hayek and Milton Friedman argued that the
governments practice of pouring money into their economies had caused inflation, they
argued that government intervention in economies distort the proper functioning of the
market.

- What emerged was a new form of economic thinking that critics labeled
neoliberalism.

- World Trade Organization (WTO) -- a new organization founded in 1995 to continue

the tariff reduction under the GATT. The policies they forwarded came to be called the
Washington Consensus.

The Washington Consensus

- Dominated global economic policies from the 1980's until the early 2000's. Its
advocates pushed for minimal government spending to reduce government debt.

- Finally, they pressured governments, particularly in the developing world, to reduce

tariffs and open up their economies, arguing that it is the quickest way to progress.

- Washington Consensus conceded that certain industries would be affected and die,
but they considered this shock therapy which is necessary for long term economic
growth.

- US presidents Ronald Reagan and British Prime Minister Margaret Thatcher

justified their reduction in government spending by comparing national economies to
households.
The Global Financial Crisis and the Challenge to Neoliberalism

Russia's case was just one example of how the "shock therapy" of neoliberalism. The
greatest recent repudiation of thinking was the recent global financial crisis of 2008-
2009. The world experienced the greatest economic downturn since the Great
depression in 2007-2008 and this crisis canbe traced back to the 1980s when the
United States removed banking and investment.

In their attempt to promote the free market, government authorities failed to

regulate bad investments occurring in the US housing market.

Since there was so much surplus money circulating, the demand for Moratge-backed
securities (MBSs) increased as inventors clamored for more investment opportunities.

The crisis spread beyond the United States since many investors were foreign
governments, corporations, and individuals.

Until now, countries like Spain and Greece are heavily indebted (almost like the
Thrid World countries), and debt relief has come at a high price.

The United states recovered relatively quickly thanks to a large Keynesian-style

stimulus package that president Barack Obama pushes lld for his first months in office.

Marine Le Pen's Front National in France have risen to prominence by unfairly

blaming immigrants for their woes, claiming that they steal jobs and leech off welfare.

Washington Consensus (opinion)- it is undeniable that some form of international trade

remains essential for countries to develop contemporary world.

The united states, japan, and the member countries of the european union were
responsible for 65% of global export while developing countries only 29%.

By 2011, developing countries like (Ph,India,china,argentina,brazil) accounted for 51%

while advance nation including US had gone down to 45%.

According to IMF, the global per capita GDP rose over five-fold in the second half of the
20th century. It was this growth that created the large Asian Economies like Japan,
China, Korea, Hong kong, and Singapore.
Developed countries are often protectionist. as they refuse to lift policies that protect
their primary products. Japan justification is that rice is "sacred".

The US fiercely protects its sugar industry in order to be pay in higher prices.

Faced with these blatantly protectionist measures from powerful countries and bloc,
poorer countries can do very little to make economic globalization more just.

Beneficiaries of global commerce have been mainly transational corporations (TNCs)

and not governments.

The term "race to the bottom" refers to countries lowering their labor standards.

Conclusion

International economic integration is a central tenet of globalization. Economics is just

one window into the phenomenon of globalization which their politics is likewise largely
contingent on trade relations.