THE

CONTEMPORARY
WORLD

MODULE 2:
Global Economy,
Interstate System
and Governance

2.1. The Global Economy

2.2. Market Integration
2.3. Global Interstate System and
Contemporary Governance
2.4. Aviation Industry and the
Global Economy

JOSEPH VINCENT P. INVIERNO

Faculty, Social Sciences Area
Institute of Liberal Arts and Sciences

Academic Year 2020-2021

PHILIPPINE STATE COLLEGE OF AERONAUTICS

Villamor Air Base Campus

1
 TABLE OF CONTENTS

INTRODUCTION 3

LEARNING OUTCOMES 4

HONESTY CLAUSE 5

MODULE TOPICS 6

The Global Economy 6

Market Integration 13

Global Interstate System and Contemporary Governance 20

Aviation Industry and the Global Economy 23

ASSESSMENT 28

REFERENCES AND RECOMMENDED READINGS 29

2
 INTRODUCTION
Welcome! This school year is considered the most challenging time for
all of us. Due to the pandemic situation, the College had to design
flexible means to be able to still facilitate learning while making sure that
both students and faculty members maintain their good health and
safety amidst the pandemic.

The overall design of the progression of topics for this course has been
designed with the current pandemic situation in mind. These learning
modules are designed for students to be able to learn at their own pace
while staying at home, with the related exercises and activities ensured
to stimulate independence and initiative in learning. In order to help
students to further explore and learn, external references in relation to
the given topics are provided.

Module learning outcomes have been set to be able to determine the

scope and breadth of learning that is to be expected from student upon
accomplishing the modules. There will be assessments to evaluate and
measure each student’s individual progress.

While these modules indeed provide students flexibility in learning,

instructors’ roles are not negated or superseded as a whole. It is the role
of the subject instructors concerned to guide their students to be able
to help them accomplish these modules. Further, major assessments
and final evaluation of student output still rests on the instructors. And
as per the College’s academic officials’ directive, there would still be
synchronous methods such as online and residential means aside from
these modules. So, instructors still have an important role in the
facilitation of learning in this time of situation. It is important that
instructors are available at times should students require assistance,
clarification and other matters relevant to the accomplishment of this
module.

May this learning module help you, the student, to be able to continue
your learning experience as you go on with your life in PhilSCA in these
trying times.

Stay safe, healthy and blessed!

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 LEARNING OUTCOMES
COURSE LEARNING OUTCOMES

CLO 1. Distinguish different interpretations of, and approaches to globalization;

CLO 2. Describe, examine, and analyze the emergence of global economics, politics,
social, and cultural systems;
CLO 3. Determine the various contemporary drivers of globalization, particularly the
aviation industry;
CLO 4. Assess and understand issues, as well as responses to, confronting nation-
states and various social units across the globe.
CLO 5. Determine, analyze, and formulate solutions to global issues, in relation to
Filipinos and the Philippines, and other citizens, contained in contemporary news
events, as well as local and global historical developments, in the context of
globalization, through listening, reading, and viewing, writing and speaking, and
collaboration;
CLO 6. Write and present a stance on current issues, and a research note with proper
citation/referencing on a topic related to the consequences of globalization and its
relation to significance of aviation industry.
CLO 7. Execute oral presentation of rationale on the current globalization issues and
the significance of aviation industry.
CLO 8. Articulate specific observed principles and personal position, and their
functionality to solving various global issues;
CLO 9. Recommend innovative strategies in integrating observed ethical principles for
confronting global issues.

TOPIC LEARNING OUTCOMES

Global Economy:
TLO 6. Define economic globalization;
TLO 7. Identify the factors that facilitate economic globalization.

Market Integration:
TLO 8. Explain the significance of market integration to the global economy;
TLO 9. Narrate a short history of global market integration in the twentieth century;
TLO 10. Identify the attributes of global corporations, particularly those of the aviation
sector.

Global Interstate System and Contemporary Governance:

TLO 11. Differentiate internationalism from globalism;
TLO 12. Identify the role players in the contemporary government and explained its
significance and effects to globalized governance.

Aviation Industry and the Global Economy:

TLO 13. Determine the significant role of the aviation industry in the global economy.

MODULE LEARNING OUTCOMES

MLO 1. Explain how national economies are inter-related and dependent on a global
scale.
MLO 2. Define what markets are, and discuss how market integration is significant to
the global economy.
MLO 3. Illustrate how the global interstate system works in relation to the different
national governments of countries.
MLO 4. Identify how the global economy is intertwined with the aviation industry as a
whole.

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 HONESTY CLAUSE
Intellectual development requires honesty,
responsibility, and integrity. In the course of
accomplishing this learning module, you hereby
affirm that all outputs you have submitted are
from your own efforts, and any part thereof which
is discovered to have been copied, plagiarized or
duplicated shall be considered a commission of
serious academic misconduct and shall be dealt
with accordingly in accordance with the
provisions set in the Student Manual. By affixing
your signature below, you agree to abide by the
principles of academic honesty and individual
accountability.

e-Signature and Full Name: ______________________________________

Student Number: ______________________________________

Year, Course, Section: ______________________________________

Date: ______________________________________

5
 The GLOBAL ECONOMY
Global Economy TIME ALLOTMENT: 45 minutes

Definition LEARNING OUTCOMES:

Global Economy:
Defining what constitutes the global economy has many various TLO 6. Define economic globalization;
formulations, depending on the perspective it is viewed on. TLO 7. Identify the factors that facilitate
economic globalization.
One such definition defines global economy is the exchange of goods
and services integrated into a huge single global market. It is virtually a
world without borders, inhabited by marketing individuals and/or
companies who have joined the geographical world with the intent of
conducting research and development and making sales (Maxwell,
2018).

Another definition is that global economy refers to the interconnected

worldwide economic activities that take place between multiple
countries. These economic activities can have either a positive or
negative impact on the countries involved (Edology, n.d.). INTERNATIONAL MONETARY FUND

The IMF is an international financial

Basically, the abovementioned definitions points to the essence of the institution, composed of 190 member
global economy: free trade, markets, integration. Global economy is a countries. According to the IMF, its
process of a worldwide integration of economic activities of all countries purpose is to promote international
in the world. As discussed in your Economics subject in high school, financial stability and monetary
markets refer to the arena or process in which the exchange of goods cooperation. It also facilitates international
and services commences. trade, promotes employment and
sustainable economic growth, and helps to
reduce global poverty.
Economic globalization
However, the IMF has been criticized for its
As globalization is defined primarily from the concepts of economics, we structural adjustment programs, or SAP’s.
can correlate global economy to the process of economic globalization. It is a set of conditionalities set by the IMF
before a member country can avail loans
The International Monetary Fund (IMF) defines it as a historical process
from it. These conditionalities include:
representing the result of human innovation and technological progress,
decreasing government spending, raising
characterized by:
taxes to increase government revenues
and to balance its budget, currency
❖ Increasing integration of economies around the world; devaluation, liberalization of trade, removal
❖ Movement of goods, services and capital. of price controls and subsidies, and
providing of laws to benefit foreign
From history we have already discussed in this module how the process investors.
of globalization has its roots from the Silk Road between East and West.
Additionally, the Manila-Acapulco Galleon Trade in 1571 between Critics have pointed out that these
Mexico and the Philippines during the Spanish colonial era is considered conditionalities are detrimental rather than
among the trade routes which have a global character. It managed to beneficial to the countries availing of those
connect Asia to the trade routes between the Americas and Europe. loans. It is because the country loses its
capability to set its own economic policy,
and ties it to the larger economies of the
advanced member-states, which affects
the people of the country availing the loan.

6
 The GLOBAL ECONOMY
Ideas behind economic globalization

The process of economic globalization has its theoretical foundations,

starting way back in the late 1700’s from the ideas of Adam Smith in his
book Wealth of Nations. His ideas elaborated the importance of the free
market, division of labor and the concept that the economic
performance of a country should be evaluated based on the level of their
productive outputs and commercial activity, giving rise to the concept of
the gross domestic product, or GDP.
ADAM SMITH (1723-1790)
But the hallmark of Smith’s ideas
was the “invisible hand”. This Adam Smith is a Scottish economist and
concept explains that it guides the philosopher, whose ideas influenced
forces of supply and demand in an political and economic thought in the 18th
economy. Every person, by looking century was known for his written works An
out for themselves, inadvertently Inquiry into the Nature and Causes of the
helps to create the best outcome for Wealth of Nations and The Theory of Moral
Sentiments. But his economic ideas
all. By selling products that people
became the precursor to the study of
want to buy, a hypothetical butcher,
Economics as we know today. Thus, he is
brewer, and baker in this economy
considered as the Father of Economics.
hope to make money. If they are
effective in meeting the needs of
Adam Smith their customers, they will enjoy
financial rewards, and while they are engaging in enterprise for the
purpose of earning money, they are also providing products that people
want. Smith argued that this kind of system creates wealth for the
butcher, brewer, and baker, in addition to creating wealth for the entire
nation (Investopedia, 2020). Smith was also the first to advocate less
government interference in economic affairs, which gave rise to laissez
faire, a term in French which means “let do”, or “leave alone”. LIBERALISM

Thus, his works became the foundations for the formal study of A political idea which espouses individual
Economics as a social science. The economists who came to and personal liberty of a person to pursue
his or her own interests, for as long as it
prominence shortly after Smith’s death were called classical
does not infringe on others’ interests. It
economists. They further expanded and enriched Smith’s ideas, and
views government as a necessary tool to
these ideas later were associated and connected with the political ideas
protect and guarantee these rights and
of liberalism. Eventually, modern economists put forward the concept of
liberties, albeit warily. Thus, it champions
free trade, drawing from much of Smith’s ideas. These modern-day private enterprise and free trade in its
economists are termed as neoclassical economists. Fused with political economic viewpoint.
theory, it is now known in modern discourse as neoliberalism. #

KEY POINTS TO REMEMBER:

• The concept of a globalized economy has its historical origins.

• Economic globalization involves integration and free flow of goods, services

and capital.

• Adam Smith’s works were highly influential in the development of today’s

ideas and principles in economic globalization.

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 The GLOBAL ECONOMY
Foundations of economic globalization
CAPITALISM
From the ideas of Adam Smith in the 1700’s to the next generation of
economists that came after, all were in agreement that free trade and The economic and social system that arose
in the late 18th century in which the primary
enterprise is the foundation of a prosperous nation, thus it was
actors in the economy are private
imperative for governments to leave alone private enterprises and limit
proprietors, called capitalists. In capitalism,
themselves to safeguarding the right for private initiative. But in the
trade and enterprises are operated and
1800’s as the Industrial Revolution went into full swing and the capitalist goods are produced with the aim of
economic system solidified, some had deplored and criticized the ill accumulating profits.
effects and the increasing enrichment of a few at the expense of the
many, especially the working people. These people were called Capitalism emerged as a result of the shift
socialists, and socialists had advocated for a reform or revolutionary of economic and political power and
transformation of the emerging social and economic formation and influence from the aristocratic classes to
replaced with the economic system of Socialism (will be discussed on the wealthy merchants in the cities. As
the next section). Some, such as John Maynard Keynes, advocated in technology progressed, so did production.
“managing” the capitalist system with significant government role, The invention of mechanical engines such
especially on the demand side to be able for an economy to weather as the steam engine increased production
through crises such as the Great Depression. His theories, known as of goods which saw the increase in profits.
Keynesianism, were adopted by much of the major economies of the However, its darker side were evident as
world after the Second World War. workers who work in factories lived in
deplorable conditions while the capitalists
raked and went rich on profits.
The new generation of “pro-liberty”, pro-capitalist economists, labelled
earlier as neoclassical economists was a big factor in initiating a
This sparked a reaction from the more
globalized, free market economy in the contemporary era. Their ideas, concerned sections in society, especially
while not new, once again came into prominence in the mid-1970’s until from the socialist and workers’ movements.
the late 1980’s as a reaction to Keynesianism which was not able to
stem the tide of stagflation as a result of the Oil Crisis in the late 60’s
until the early 70’s. JOHN MAYNARD KEYNES

With the luster of Keynesianism gone due to the crisis, it became One of the contemporary era’s influential
politically costly for political parties advocating a state-managed economic thinkers, John Maynard Keynes
economy lost to more conservative, neoliberal-oriented and pro-free was a British economist whose ideas
market parties. This was manifested in the election of Ronald Reagan in challenged the prevailing view of the
the US and Margaret Thatcher in the UK. superiority of the free market economy with
minimal government role. For him, the
Neoclassical and neoliberal economic policy can be summed up in three overall level of economic activity is
centered on total spending in the economy
concepts:
(aggregate demand), thus government
should take a role in managing the
Privatization is the policy of selling or giving up control of all state and
economy through fiscal and monetary
government operated ventures and enterprises, as well as services, and policies to be able to weather through a
transfer its control to private corporations. major economic crisis. His ideas, known as
Keynesianism were adopted by most
Deregulation refers to the loosening, or removal of government policies countries until the late 70’s, and was
that tend to restrict business and private enterprise. superseded once again by neoclassical
thought. But after a major global crisis in
Liberalization seeks to create an open, free market for competition 2007, his ideas found a place anew in
between private enterprises for investment in various economic sectors today’s economies.
with minimal government interference, such as tariff reduction or
removal.

8
 The GLOBAL ECONOMY
Foundations of economic globalization (continued)
TARIFFS
The three abovementioned concepts are the pillars of economic
globalization. In the aim of truly establishing a fully integrated, Tariffs are taxes levied by a national
functioning global economy, neoclassical economists holding positions government upon the exporting or
importing of goods. Also referred to as
in government usually make policy proposals such as enacting laws that
duties, levying of tariffs have a two-fold
would make a country ready for a globalized economy, such as
purpose; to be a source of government
investment and trade laws.
revenues and to also ensure that imported
goods will not saturate the local market,
In the Philippines, these policies were manifested in various means. One which can be detrimental to local
such example is the enactment of R.A. 8762, or the Retail Trade producers if the particular imported goods
Liberalization Act of 2000. Privatization programs are also pushed, for are also being produced in the country of
example, the privatization of the water utilities. In 1997, a law was destination. Tariffs act as a safeguard for
passed which saw the privatization of the Metropolitan Waterworks and domestic and local industries and
Sewerage System (MWSS). The Water Crisis Act (R.A. 8041) aimed to producers.
improve services and modernize the water distribution system in Metro
Manila, which were divided into the west and east zones operated by In the process of economic globalization,
private companies. The west was operated by Maynilad Water Services, tariffs are barriers to the smooth flow of
and the east by Manila Water Company. The energy sector, which was goods and services across borders, thus it
represented by the government-owned National Power Corporation has to be minimized or removed entirely, as
(NAPOCOR) and the transmission arm National Transmission it is contrary to the liberalization aspect of
economic globalization.
Corporation (TransCo) was liberalized by virtue of R.A. 9136, or the
Electric Power Industry Reform Act of 2001. It opened up the energy
sector in the Philippines to foreign and local private investment, and
broke the monopoly of NAPOCOR. STAGFLATION

The aviation sector in the country, particularly the airline industry had a A portmanteau of “stagnant” and
history of nationalization and privatization. Philippine Airlines (PAL) was “inflation”, it is an economic situation in
originally founded as a private company, but was nationalized and put which economic growth remains negative
under government control in 1941. In 1966 it was back in private hands, or slow coupled with high inflation and high
and shortly after then President Ferdinand Marcos declared Martial Law, unemployment. It is also termed as
PAL was nationalized once more, absorbing two smaller airlines, Air recession-inflation.
Manila and Filipinas Orient, granting it a monopoly in the airline industry.
In 1992, PAL was re-privatized once more and still remains private until Historically, stagflation manifested during
today. the 1970’s as a result of the sudden
increase in oil prices caused by wars in
To put it basically, the aims of privatization, deregulation and Western Asia (Middle East) between Arab
liberalization are to: states and Israel in the Yom Kippur War. As
Israel was supported by Western countries,
who were heavily dependent on petroleum
❖ Relieve financial burden from the government in the operation of
products for their industries, the oil-
utilities, ventures and services, saving the government money;
producing Arab countries declared an oil
embargo on the Western countries,
❖ Ensure conduciveness for free competition and private investment particularly the US, the UK, Canada and
towards profitable ventures; also Japan. It led to a drastic increase in oil
prices, and greatly affected the economies
❖ Ensure the smooth flow of goods, products, and services across of the abovementioned countries.
borders.

❖ Optimize prices of goods and services, provide choices to

consumers, and making local industry competitive.

9
 The GLOBAL ECONOMY
Criticisms

From an economic standpoint – Economic globalization, despite of its

positive promises of growth and stability, had been criticized as
economically detrimental, especially to countries with weaker and
smaller economies. The influx of imported products with cheaper prices
that are made possible by minimal or non-existent tariffs tend to saturate
the domestic market and stifle local producers. This is evident in the
agriculture sector, where smaller agricultural countries are not in the
position to compete with the larger, technologically-advanced nations.

From a cultural standpoint – Free and open markets are not only
confined to physical goods but also to people, as under economic
globalization, free flow of peoples between borders are also ensured.
This policy has led into an influx of migrant workers from the poorer
countries to the richer countries of the world as cheap labor. This led to Anti-WTO protesters during the WTO
much friction due to cultural differences, as well as extreme nationalism. Ministerial Conference in Seattle, USA in
It has also been argued that globalization is just a cover for cultural 1999.
hegemony by the West.

From a political standpoint – Many from the impoverished countries view

globalization as political domination and undermining of their sovereignty
by the more powerful and richer countries. Most of the criticisms point
to the global organizations, such as the UN or the WTO, as a way for the
advanced countries to control, dominate and undermine smaller,
impoverished and underdeveloped countries.

10
 The GLOBAL ECONOMY
Criticisms (continued)
SOCIALISM

Perhaps the most controversial and the

Socialist views against globalization – Critical economists, especially
most criticized and studied political and
coming from the left-wing, have seen economic globalization as a way economic theory, Socialism is the theory
for advancing the interests of capitalists in the aim of greater that all economic means of production in
appropriation of profits, access to resources, such as raw resources and society must be controlled, owned and
cheap labor, enriching the capitalists while putting the working class in regulated collectively by the community
a dire state. and the wealth produced by society should
be utilized and shared by all.
Nationalist views against globalization – A nationalist point of view in the
criticism of economic globalization is that it undermines the domestic Socialism has various strands and schools
economy by flooding the local market with cheaper, mass produced of thought. Early socialists were called
goods from the advanced countries to the detriment of the domestic utopians, among them Robert Owen and
producers. Further, nationalists view economic globalization as Claude Henri de Rouvroy, comte de Saint-
impinging on national interests of their country, whether political or Simon, in which they aimed to establish a
cooperative and social society through
cultural. #
evolutionary means. Later, the more radical
socialists, such as the Anarchists led by
Pierre-Joseph Proudhon and Mikhail
KEY POINTS TO REMEMBER: Bakunin, and the Communists led by Karl
• Defining what global economy is has various formulations and interpretations. Marx and Friedrich Engels became more
But putting it simply, it refers to the integration of economies of the world and prominent as the socialist-oriented trade
the free movement of trade, goods and people. union movements grew. The Anarchists
aimed to establish socialism through the
• There are historical roots of the globalization of the economies of the world.
abolishment of the state (government)
outright and the establishment of
• Presently, economic globalization is anchored on three foundations:
privatization, deregulation and liberalization, which are highly-influenced by autonomous workers’ councils. The
the theories of Adam Smith, considered as the Father of Economics and a Communists were similar to the Anarchists
proponent of classical economics. in the dismantling of capitalist society but
saw the state to be necessary in the
• Modern-day economists influenced by Smith’s ideas are termed as transition from capitalism to socialism.
neoclassical economists. Fused with political theory, it is now known in
Eventually, the state itself shall wither, or
modern discourse as neoliberalism.
disappear as full socialization of all means
• In the Philippines, economic globalization is manifested through the policies of production are achieved, and the
implemented by the government for the country’s economy to be in harmony existence of any form of governmental
with economic globalization. structure will no longer be necessary.

• Despite its promises of growth, there are criticisms on the process of Historically, the Russian communists led by
economic globalization, varying from several viewpoints.
V.I. Lenin was the first successful socialist
revolution in 1917, leading to the
establishment of the USSR in 1922 (see
the USSR, Module 1) and the formulation of
Marxism-Leninism, a set of socialist
theories based from Marx and Lenin’s
ideas. However, in 1949 Marxist-Leninists
in China led by Mao Zedong won out in the
ensuing civil war after World War II and
founded the People’s Republic of China.

11
 Module activity 1:

DIRECTIONS: Answer the following as instructed. Provide your answers on a separate file.

1. Do you think that the Manila-Acapulco Galleon Trade was an embryo of economic globalization in history? Research
more on its historical circumstances and explain if it is indeed the first seeds of economic globalization.

2. What is neoliberalism? What is influence of its ideas in the pursuance of economic globalization? State the pros and
cons of these ideas.

3. Is there any veracity on the benefits of privatization for the government and the people? If so, cite examples of
successful privatizations in the Philippines as well in other countries in which there is significant success in privatization.

4. How can deregulation benefit the economy? Provide your explanations. If there is any, cite examples in the Philippines
as well as in other countries that deregulation indeed provided economic growth.

5. Does economic liberalization guarantee growth? Research more on its ideas, then provide your own insights on the
matter of liberalization.

6. The socialist movement is the largest among the significant opposition against economic globalization and the
capitalist system. It is known to have two major blocs, the Anarchists and the Communists. Research more on these
two socialist forces. What are their commonalities? What are their differences? What are their views towards
globalization?

12
 MARKET INTEGRATION
Market Integration TIME ALLOTMENT: 45 minutes

A part of global economic integration is the integration of the various Market Integration:
aspects of the economy. One specific aspect are markets. TLO 8. Explain the significance of market
integration to the global economy;
TLO 9. Narrate a short history of global
Technically speaking, a market is any place where two or more parties market integration in the twentieth century;
can meet to engage in an economic transaction—even those that don't TLO 10. Identify the attributes of global
involve legal tender. A market transaction may involve goods, services, corporations, particularly those of the
aviation sector.
information, currency, or any combination of these that pass from one
party to another (Kenton, 2020).

Also, a market is defined as the sum total of all the buyers and sellers in
the area or region under consideration. The area may be the earth, or
countries, regions, states, or cities. (The Economic Times, n.d.)

Market integration occurs when prices among different locations or

related goods follow similar patterns over a long period of time. Groups
of goods often move proportionally to each other and when this relation
is very clear among different markets it is said that the markets are
integrated.

Market Integration
from Encyclopedia.com: https://www.encyclopedia.com/history/news-wires-white-
papers-and-books/market-integration

The nineteenth century saw substantial advances in international market

integration, and the creation of a truly world economy. Technological
advance was critical in this. The railroad locomotive and the marine
steam engine revolutionized world transport from the 1830s onwards.
Steamships connected the world's ports to each other, and from the
ports the railroads ran inland, creating a new and faster world transport
network. Freight rates fell, and goods could be carried across the world
to ever more distant markets and still be cheaper in those faraway
places than the same item produced locally. Linked closely to these
changes was the electric telegraph, whose lines often ran along the new
railroad networks. Telegraph systems were established in most
countries, including the major market of British India, until 1854.
Beginning with the first transatlantic cable, which was laid by steamship
in 1866, these existing domestic telegraph systems were linked together
by marine cables. The resulting international information network was
crucial in communicating details of prices and price movements,
reducing the cost of making deals and transactions. Telegraph systems
were established in most countries, including the major market of British
India, until 1854. Beginning with the first transatlantic cable, which was
laid by steamship in 1866, these existing domestic telegraph systems
were linked together by marine cables. The resulting international
information network was crucial in communicating details of prices and
price movements, reducing the cost of making deals and transactions.

13
 MARKET INTEGRATION
An infrastructural change of
major significance came in
1869 with the opening of the
Suez Canal, which linked the
Mediterranean Sea by way of
Egypt to the Red Sea: now
ships sailing from Europe to
Asia could take the new
shortcut rather than sail all the
way around Africa. Immediately
Asia was some 4,000 miles closer to Europe in transport terms, and
freight costs fell. Yet the low efficiency of early steamships meant that
many bulk cargoes such as rice still were carried to Europe from Asia by
sail around the Cape of Good Hope. Technological change in the shape
of steel hulls and steel masts made sailing ships larger and more
efficient, and they continued to be active until the more efficient triple-
expansion engine finally drove the sailing ships from the oceans during
the last quarter of the nineteenth century.

Physical changes in lowering freight and transaction costs were not the
only forces stimulating market integration. It was normal for countries to
impose import duties on foreign goods, seeking to gain an inflow of gold
in their foreign trade accounts by selling more to each of their trading
partners than they bought from them. But in 1846 the merchants of
Manchester, England, the center of the world's cotton textile industry,
struck their famous victory for free trade by forcing the British
government to abandon tariffs on all imported goods apart from a few
luxury items. The tariffs on wheat were the first to go, opening up the
Great Plains of the United States for wheat production to supply Britain.
With free trade, no longer did trade relations with a foreign country have
to balance or be in surplus; rather, a deficit in trade with one country
could be offset by a surplus in trade with another country, liberalizing
world trade in a way never previously seen. Britain moved heavily into
deficit on trade account, but this was sustained by considerable invisible
inflows generated by her substantial overseas investments, particularly
in the railroad systems of the United States.

14
 MARKET INTEGRATION
This policy of open markets became a dominating principle extended
through much of the British Empire, including the key market of India, BRITISH EMPIRE
although Canada and the State of Victoria in Australia chose to be
notable exceptions. The United States retained import duties, and after
short periods of trade liberalization most European countries also
returned to protectionism so that their new manufacturing industries
could establish themselves safe from the competition of cheaper goods
from Britain. Britain itself ran heavy trade deficits with the United States
due largely to grain purchases, and it also had deficits with the newly
industrialized countries of continental Europe, due to purchases of
manufactured goods. Britain was able to sustain these deficits because The British Empire was composed of the
of its own sales of manufactures, especially cotton yarn and textiles, to dominions, colonies, protectorates,
India and the rest of Asia, including China. So, the open-market policies mandates, and other territories ruled or
of the British Empire played a crucial role in sustaining a complicated administered by the United Kingdom and
interrelated mesh of world payments, and newly industrializing countries its predecessor states. It began with the
took advantage of these open markets whilst maintaining their own overseas possessions and trading posts
protective walls. established by England between the late
16th and early 18th centuries. At its height
Each country could specialize in producing those goods they were best it was the largest empire in history and, for
over a century, was the foremost global
endowed by nature to produce, and could exchange them for the other
power.
products they needed. The vast market of British India was crucial, and
though Britain, the colonial power, was the leading supplier of
Among the countries today which was
manufactured goods there, Germany and other industrial nations were once a part of the Empire was Australia,
free to trade, and did so very effectively. India itself had big surpluses Canada, New Zealand, India, Sri Lanka,
with the rest of Asia, particularly China, because of its sales of opium Pakistan, South Africa, Egypt, Singapore,
and of cotton yarn and textiles from Bombay. Malaysia, Brunei, Myanmar, Bangladesh,
and until 1997 the port city of Hong Kong.
Within Asia major effects of market integration were seen. Where a
market area is fully integrated, prices of a particular commodity will
equalize across that area. Fluctuations in prices across the region will
synchronize, demonstrating that they are subject to the same
influences. Transport costs are crucial, and a commodity will only move
from one location to another if the cost of production in the place of origin
plus the cost of transport is less than the prevailing price for that
commodity in the destination. In Asia the late nineteenth century saw
market integration in one of Asia's key commodities, rice. Prices moved
in the same way in the exporting countries (Burma, French Indochina,
and Siam), in the great redistribution centers (the British free ports
Singapore and Hong Kong), and in the receiving countries (India,
Ceylon, the Straits Settlements, the Dutch East Indies, the Philippines,
China, and Japan). The movement of migrant workers to tin mines and
rubber and tea plantations in places like the Straits Settlements, the
Dutch East Indies, and Ceylon had created increased demand for rice
in those countries which was now satisfied by rice imports from those
countries capable of producing supplies.

15
 MARKET INTEGRATION
Shifts in the flow of rice from country to country and from year to year
reflected harvest variations in both producers and consumers. The
transport and information networks established in the second half of the
nineteenth century had created an intra-Asian economy in which the
income received by rice cultivators was spent on the products of the
new manufacturing industries of the region, particularly the cotton yarn
and textiles of the factories of Bombay, Shanghai, and Osaka. Rice was
also supplied in very substantial quantities to Europe, where it was used
for food, brewing, and starch. It joined a flow of wheat to Europe from
Karachi. This period saw the integration of the world wheat market and
the world rice market, creating a global market in basic food grains. The
two markets interlocked in British India, which both consumed and
exported both crops. Now the world price of wheat and rice moved in
unison, which meant that the incomes of U.S. farmers and other world
wheat producers were influenced by forces such as a monsoon in India!

But this integration of

the world wheat
markets and world rice
markets had serious
consequences. During
the 1920s there was
great expansion in the
amount of land under
wheat and rice in the
world at large.
Normally, good wheat
Global trade routes, 1400-1800
harvests were offset by
poor rice harvests, and
good rice harvests were offset by poor wheat harvests. But when
favorable climatic conditions occurred for both grains, particularly
beginning in 1928, this resulted in a glut, forcing down prices and
bankrupting farmers all over the world. As farm incomes fell, so did the
ability of farmers to purchase manufactured goods, and this affected
manufacturers, contributing to the worldwide Great Depression of the
1930s. As the depression bit, countries increased their tariff duties to
keep foreign products out of their markets in order to help their own
manufacturers and farmers. In 1932 even Britain, with its deep
commitment to free trade, was forced to turn to protectionism and
surrender the free trade ideal. Free trade and open markets were
unfortunate casualties of the Great Depression, and in fact their
breakdown contributed to the slump's prolongation. The restoration of
free trade and open markets was one of the primary aims of those
planning the operation of the world economic system after the end of
world hostilities in 1945.

Source: "Market Integration ." History of World Trade Since 1450. Retrieved March 20, 2021 from
Encyclopedia.com: https://www.encyclopedia.com/history/news-wires-white-papers-and-
books/market-integration

16
 MARKET INTEGRATION
Global Corporations

Defining global corporations and its dimensions

Corporations are forms of businesses which have a broad spectrum of

business ventures. Unlike small and medium businesses, corporations
have a larger organizational structure and ownership base (through
shares) and requires bigger financing and capitalization.
Many of the known brands we encounter
As a corporation grows and its business portfolio widens, there might be today are products of major global
a situation in which it is able to establish businesses in different countries companies. Each are major players in the
different world markets.
outside its country of origin. When it reaches this point, the corporation
can be considered as a global corporation, or commonly known as
multinational corporations, or MNC.

According to Gupta, Govindarajan, and Wang (2008), a global

corporation is defined by the following dimensions:

➢ Market presence - refers to the degree the company has globalized

its market presence and customer base.

➢ Supply base - the extent to which a company sources from different

locations and has located key parts of the supply chain in optimal
locations around the world.

➢ Capital base - the degree to which a company has globalized its

financial structure. This deals with such issues as on what exchange
the company’s shares are listed, where it attracts operating capital,
how it finances growth and acquisitions, where it pays taxes, and
how it repatriates profits.

➢ Corporate mind-set - refers to a company’s ability to deal with

diverse cultures.

Global corporations are known to be major players in the various market

sectors, depending on the products. For example, Nestlé and its various
companies is the leading company for food and drink processing. Data
from 2019 shows its worldwide market share – Americas 45.7%,
Europe, Middle East and North Africa 28.6%, Asia, Oceania and sub-
Saharan Africa 25.7% (Statista, 2021).

17
 MARKET INTEGRATION
Global corporations in the aviation industry

In the aviation industry, major companies are mostly concentrated in the

airline companies and aircraft manufacturers. To a certain extent,
companies not necessarily focused on the aviation industry alone have
been a significant part of the industry, such as those producing jet
engines.

Today, only two global companies hold market leadership in civil aircraft
production. Boeing from the United States, and Airbus from the
European Union. Other major aircraft manufacturers include Embraer
from Brazil, and Bombardier from Canada.

In the airline sector, the largest companies are categorized in various

aspects; In terms of revenue, in terms of passengers carried, fleet size,
routes and countries served.

Among the largest airlines in the world today include Delta, United, and
American (US), Emirates and Etihad (UAE), Air France (France), KLM
(Netherlands), British Airways (UK), Qantas (Australia), Turkish Airlines
(Turkey), China Southern and China Eastern (China).

KEY POINTS TO REMEMBER:

➢ Markets pertain to the process of exchange of goods and services. It can also
refer to a physical area where buying and selling takes place.

➢ Markets can also refer to as the sum total of all the buyers and sellers in the
area or region under consideration.

➢ Market integration happens when prices among different locations or related

goods follow similar patterns over a long period of time, meaning that price
movements are harmonized across certain markets, geographically and
demographically.

➢ A corporation can be considered as a global corporation, or commonly known

as multinational corporations, or MNC’s when their business portfolio expands
to other ventures and areas of operation.

➢ Companies from the aviation sector, such as aircraft manufacturers and

airlines, are one of many global companies in the world.

18
 Module activity 2:

DIRECTIONS: Accomplish the following activities below. Follow as instructed in

the procedures. Provide your answers on a separate file.

I. List down the top 20 global companies in the world by revenues. Do your chart
in a separate file following the format below:

Company Country of Origin Industry/Business Revenue (in billion $)

II. Provide your answers to the following:

1. According to the article Market Integration, give a summary on how markets

and market integration evolved throughout history.

2. How do global corporations contribute to the economies of their country of

origin?

3. Do you think it is better that there are more than one company that competes
in a certain market segment, for example food processing? Why or why not?

19
 Global Interstate
Global Interstate System and Contemporary Global Governance System and
Contemporary Global
The Global Interstate System
Governance
As globalization’s many definitions include integration in political
processes, it can be inferred that the meaning of what the global TIME ALLOTMENT: 45 minutes
interstate system is refers to the interaction of various political actors
and structures vis-à-vis globalization. In this topic, the aspects of the Global Interstate System and
global interstate system shall be explored, analyzed and reflected upon. Contemporary Governance:
TLO 11. Differentiate internationalism from
globalism;
Historically, civilizations since the classical era have certain degrees of
TLO 12. Identify the role players in the
interaction and relationships which shaped their particular social,
contemporary government and explained
cultural, political and economic evolution. Geographical factors were
its significance and effects to globalized
also a factor on how these civilizations, later as distinct political entities,
governance.
evolved and changed through the passing of eras.

With this era of globalization, these interactions and relationships have

significantly evolved beyond the usual interstate relations. Issues, for
example is not only confined to a specific country, but are now engaged
by means of collective effort and broader cooperation.

On World-Systems

World-systems refer to the aggregate structural result of interactions IMMANUEL WALLERSTEIN

between political entities, such as nation-states. World-systems do not
have a global character, but encompasses a large geographical area. An American sociologist and economic
The World-Systems Theory, formulated by Immanuel Wallerstein, is a historian, Immanuel Wallerstein was best
macro-scale approach to analyzing the world history as well as the known for his ideas on world-systems,
notably expounded on his book The
dynamics of social change in different countries.
Modern World System, in 1974. He
became a senior research scholar at Yale
According to Wallerstein, the world is divided into the following
University in 2000, a position he held until
categories: his death in 2019.

Core states – also known as core countries, these countries which has
the most advanced economies, with the highest degree of
industrialization. Politically and culturally, core states are the most
influential, with the power to influence international affairs, having a
stable and strong political system and an established national culture.
Core states wield dominating economic control globally, and much of
the global economy revolves around them.

Semi-periphery states – are countries which have a relatively strong

economy and an established political and cultural system, but are not
fully influential enough in the international scene. Economically, semi-
periphery countries are industrialized and have a significant influence in
the global economy.

20
 Global Interstate
On World-Systems (continued)
System and
Periphery states – refers to the underdeveloped countries who are Contemporary Global
largely dependent on the core countries. Periphery states usually have
weak economies, and are economically pre-industrial and agrarian in Governance
character marred with large incidences of poverty, with an unstable or
weak political system.

INTERGOVERNMENTAL
Global Governance ORGANIZATIONS – TYPES AND
PURPOSE
The Global Challenges Foundation, on its website gave the basic Common to all organizations, IGO’s have
precepts of what is global governance: different types and organizational nature.

Global governance brings together diverse actors to coordinate Worldwide or global organizations – these
organizations are open to all nations
collective action at the level of the planet. The goal of global governance, worldwide as long as they meet certain
roughly defined, is to provide global public goods, particularly peace and criteria. One example is the United Nations
security, justice and mediation systems for conflict, functioning markets and its specialized agencies.
and unified standards for trade and industry (GCF, n.d.).
Cultural, linguistic, ethnic, religious, or
historical organizations – these are
The United Nations, in its policy paper published in 2014, emphasizes organizations which are open to nation-
the importance of global governance: states with common historical, ethno-
cultural, linguistic, or religious links such as
Global governance encompasses the totality of institutions, policies, the Arab League, Organization of Islamic
Cooperation, and Commonwealth of
norms, procedures and initiatives through which States and their Nations.
citizens try to bring more predictability, stability and order to their
responses to transnational challenges (UN, 2014). Economic organizations – these are
organizations formed on the basis of
formulating macro-economic policy goals.
Global governance, to put it in simple terms, is “the way in which global
Examples of these organizations are the
affairs are managed”. But this is not as simple as one may think. Global World Trade Organization (WTO), in which
governance encompasses cooperation of states, intergovernmental goal is to lay down guidelines for the
organizations, and transnational actors. Commonly, global governance facilitation of trade between its member
is carried out by inter-governmental organizations, or IGO’s. states. Another is OPEC, the Organization
of Petroleum Exporting Countries, the
International Monetary Fund (IMF), and the
Inter-governmental organizations are organizations composed primarily Organisation for Economic Co-operation
of sovereign states (member states) or other intergovernmental and Development (OECD).
organizations. IGO’s are established by virtue of a treaty that creates the
Regional organizations – these are
group. Treaties are formed and concluded by representatives of of
organizations formed in a specific
several states, which then undergoes a ratification process. With the geographical region of the world. Examples
ratification, it gives the IGO an international legal personality. of regional organizations are the European
Union (EU), African Union (AU),
Presently, the United Nations (UN) is the largest embodiment of global Organization of American States (OAS),
Association of Southeast Asian Nations
governance. The UN and its specialized agencies handle inter-state (ASEAN), Union of South American Nations
relations and global issues. Founded in 1945 after the Second World (UNASUR), Council of Europe, and the
War, it is the largest, most familiar, most internationally represented, and North Atlantic Treaty Organization (NATO).
the most powerful inter-governmental organization in the world.

21
 Global Interstate
In the conduct of inter-state relations, there are approaches that are
usually undertaken. These are unilateralism, bilateralism and
System and
multilateralism. Contemporary Global
Unilateralism refers to solitary action by a single state. In unilateralism all Governance
efforts to resolve a particular issue is tackled alone by the state/country
concerned. An example of these is the United States’ military operations
against terrorism, or the military response of the United Kingdom when THE FALKLANDS WAR
Argentina occupied the Falkland Islands in 1982, the islands being a
source of much dispute between the two countries. The Falklands War was an undeclared war
between the United Kingdom and
Bilateralism is the conduct of relations or actions between two sovereign Argentina in 1982, when the latter
states. In this manner, the two states cooperate on matters of common occupied militarily the Falkland Islands,
interest. which was an overseas territory of the UK.
There has been so much dispute between
Multilateralism on the other hand involve a greater number of states. the two countries on the status of the
Usually, multilateral efforts result in formation of intergovernmental islands, which Argentina claimed to be a
organizations. An example is when participating countries signed the part of its territory, citing historical basis.
General Agreement on Tariffs and Trade, which would later evolve to After almost three months of armed
become the World Trade Organization (WTO). clashes, Argentinian forces surrendered to
the more technologically and militarily
superior British military.
On the view regarding how global interconnectedness should be made
possible, there are two tendencies: Internationalism and globalism
The islands are still governed as a British
dependent territory today.
Internationalism is the political, economic and cultural cooperation
between nations, while globalism is and idea that that people, goods and
information ought to be able to cross national borders unhindered. It is
dedicated to free trade and free access to markets.
GENERAL AGREEMENT ON TARIFFS AND
The role of global governance is significant in today’s contemporary era, TRADE (GATT)
as the world faces challenges and issues that cannot be solely resolved
by unilateral or bilateral efforts, such as climate change, pollution, The GATT was a multilateral agreement
poverty and hunger, energy crisis and emergence of new diseases such signed by 23 countries in 1947, with the
as Ebola and COVID-19. Thus, it is imperative that proper coordination aim of substantial reduction of tariffs and
and cooperation, through global governance which would facilitate the other trade barriers and the elimination of
course of action to be taken as a response to these challenges. preferences, on a reciprocal and mutually
advantageous basis. It remained in force
until 1995, which right after was succeeded
by the World Trade Organization effective
KEY POINTS TO REMEMBER: January 1, 1995.
➢ The Global Interstate System pertains to the conduct of relations between
sovereign states, and World-Systems is the aggregate result of interactions
between states.

➢ The World-Systems Theory formulated by Immanuel Wallerstein sees the

world as divided into Core states, semi-peripheral states and peripheral
states, which has various levels of political, economic and socio-cultural
developments.

➢ Global governance, while having various definitions, simply refers to the

manner on how relations and affairs between sovereign states are managed.

22
 AVIATION INDUSTRY AND
Aviation Industry and the Global Economy
THE GLOBAL ECONOMY
The aviation industry has been considered a significant factor in the TIME ALLOTMENT: 30 minutes
global economy. The Aviation Benefits Beyond Borders (n.d) explains
the contributions of the industry: LEARNING OUTCOMES:

Aviation Industry and the Global Economy:

Enabling trade: TLO 13. Determine the significant role of
the aviation industry in the global economy.
Aviation is central to international trade and economic development.
Forecasts suggest that the world’s economies will become even more
dependent on international trade in the future. World trade is expected
to almost double, rising at more than twice the rate of global GDP, with
China, India and other emerging markets leading the way.

Compared to other modes of transport, air freight is fast and reliable

over great distances. However, these benefits come at greater cost than
other transport modes. Consequently, air freight is mostly used to deliver
goods that are light, compact, perishable and have a high unit value.
When you look at the value of goods, over a third of all international trade
is sent by air, but when you consider the volume of trade, the amount
sent by air is tiny, at less than 1%. An estimated $6.5 trillion in cargo
value was sent by air in 2019.

Part of everyday manufacturing

Air transport is vital to many industries’ global supply chains, used
primarily for the transfer of time-sensitive goods. Rapid delivery is
essential to businesses that provide streamlined production processes,
or that rely on urgent delivery of parts for machinery and equipment.
Manufacturing facilities all over the world rely on air transport for the
delivery of high-value, lightweight and sensitive electrical components.

Supporting sustainable development

Exporters of perishable goods such as food and flowers – many of whom
are located in developing countries – can only reach export markets by
air, providing steady employment and economic growth to developing
countries that benefit from such trade. The pharmaceutical industry also
relies on air transport for delivery of time-sensitive medical supplies,
particularly vaccines.

Source: https://aviationbenefits.org/economic-growth/enabling-trade/

23
 AVIATION INDUSTRY AND
Adding value to the economy:
THE GLOBAL ECONOMY
The aviation industry connects the world in a unique way, adding
immense value to the global economy. It supports $3.5 trillion in world
economic activity (4.1% of global gross domestic product). This section
provides a global picture of economic activity supported by aviation.

$961.3 billion direct GDP

The world’s airlines carry over four billion passengers a year and nearly
61 million tonnes of freight. Providing these services creates 11.3 million
direct jobs and contributes $961.3 billion to global GDP.

The global air transport industry is larger than both the automobile
manufacturing sector and the pharmaceutical manufacturing industry by
GDP. In fact, if air transport were a country, its GDP would rank 17th in
the world, similar to that of Indonesia or the Netherlands.

$816.4 billion indirect GDP

These include jobs and services of suppliers to the air transport industry,
such as aviation fuel suppliers; construction companies, suppliers of
sub-components used in aircraft, manufacturers of goods sold in
airports, and a wide variety of business services, such as call centres,
IT and accountancy. These indirect activities contributed approximately
$816.4 billion to global GDP.

$692.8 billion induced GDP

Around $692.8 billion induced GDP is created by employees in the air
transport industry using their income to purchase goods and services
for their own consumption.

The spending of those directly or indirectly employed in the air transport

sector supports jobs in industries ranging from retail and manufacturing
to banking and hospitality.

$1 trillion in tourism GDP

Tourism is fast becoming one of the world’s largest industries and air
transport is essential to this: over half of all international tourists fly to
their destinations. Conservative analysis suggests aviation supports $1
trillion in economic activity within the tourism industry.

Source: https://aviationbenefits.org/economic-growth/adding-value-to-the-economy/

24
 AVIATION INDUSTRY AND
Employment:
THE GLOBAL ECONOMY
The aviation industry supports 87.7 million jobs around the world, either
directly within the industry or, supported through the industry's supply
chain, employees' spending and in the aviation-enabled tourism sector.

11.3 million direct jobs

Around 11.3 million people work in the aviation industry directly. These
jobs are:

Airport operators: 648,000 (work for the airport operator)

Other airport-based roles: 5.5 million (retail, car rental, customs and
immigration, freight forwarders and catering)
Airlines: 3.6 million (flight and cabin crews, executives, ground services,
check-in, training, maintenance staff)
Civil aerospace: 1.3 million (engineers and designers of civil aircraft,
engines and components)
Air navigation service providers: 237,000 (air traffic controllers,
executives)
These jobs are, on average, 4.3 times more productive than average
jobs in the economy.

18.1 million indirect jobs

Over 18.1 million jobs globally are supported by aviation indirectly,
through the air transport industry's purchase of goods and services.

These include suppliers to the air transport industry, for example fuel
suppliers, construction companies, suppliers of aircraft components,
manufacturers of goods sold in airports, and a variety of business
support roles, like call centres, IT and accountancy.

13.5 million induced jobs

Air transport industry employees (direct and indirect) support 13.5
million induced jobs globally, using their income to purchase goods and
services for themselves. Their spending power supports jobs in retail,
consumer goods, and a range of service industries such as banks and
restaurants.

44.8 million jobs in tourism

Tourism is fast becoming the world's largest industry, and air transport
plays a vital role. Conservative estimates suggest that aviation supports
44.8 million jobs within tourism.

Source: https://aviationbenefits.org/economic-growth/supporting-employment/

25
 AVIATION INDUSTRY AND
To sum up, with the abovementioned facts and figures, the role of the
aviation industry has been very significant on the dynamics of the global
THE GLOBAL ECONOMY
economy. It has evolved from its early era when it is primary role has
been on the military field. Today, it is an integral part of our society as
the world continues to progress in this globalized era, in which its roles
and contributions had been crucial. It facilitated travel across countries,
provided employment opportunities, and a conduit for world trade.

KEY POINTS TO REMEMBER:

The role of the aviation industry and its significance and relation to the global
economy has already been discussed in the prior chapters of this module.
Nevertheless, to particularize its significance, the aviation industry has provided:

• Employment opportunities.
• Boosted and give impetus to the development and growth of the tourism
sector.
• Ensured the smooth flow of trade and transportation of people.
• Became a significant contributor to global economic output

26
 Module activity 3:

DIRECTIONS: Accomplish the following activities below. Follow as instructed in

the procedures. Provide your answers on a separate file.

I. Using the example chart below, list down countries that are categorized as core states,
semi-peripheral states or periphery states. Make sure that you take note of the particularities
of the country such as economic, social and political development before placing them in a
category.
Core states Semi-peripheral states Peripheral states

II. Provide your answers/explanations to the questions below.

1. Do you think that a country that is considered as a peripheral state would be able to
progress and evolve into becoming a semi-peripheral, or even a core state? How do you think
it can happen?

2. Are intergovernmental organizations important? If so, in what ways? If not, then provide
your justifications.

3. Does internationalism differ in essence from globalism? Explain.

27
 ASSESSMENT:

DIRECTIONS: This is to assess your learning on the topics contained within this
module. Do what is instructed in every part. Submit your answers on a separate
file.

I. Essay: Explain how each nation-state member's economy is influenced

by contemporary social, political and economic global governance, in
relation to aviation regulations.

II. Create a matrix of the United Nations Organizations which include their
dates of establishment, areas of concern, nature and purpose, and
membership.

28
 REFERENCES AND RECOMMENDED READINGS:
VISUAL MEDIA:

Economic Globalization: Documentary on the History of Economic Globalization

https://youtu.be/Fb5O00tlKZ4

Aviation: The Catalyst of Globalization

https://youtu.be/nY7JoU4mo9E

ARTICLES AND PAPERS:

Martinez-Vela, C. (2001). World Systems Theory. Massachusetts Institute of Technology.

https://web.mit.edu/esd.83/www/notebook/WorldSystem.pdf

World Bank. 2017. World Development Report 2017: Governance and the Law.
Washington, DC: World Bank. doi:10.1596/978-1-4648-0950-7. License: Creative Commons Attribution CC BY 3.0
IGO

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