Structures of Globalization

2. Market Integration

Introduction

The social institution that has one of the biggest impacts on society is the economy. You might think of
the economy in terms of number—number of unemployed, gross domestic product (GDP), or whatever
the stock market is doing today. While we often talk about it in numerical terms, the economy is
composed of people. It is the social institution that organizes all production, consumption, and trade of
goods in the society. There are many ways in which products can be made, exchanged, and used. Think
about capitalism or socialism. These economic systems—and the economic revolutions that created
them—shape the way people live their lives.

Economic systems vary from one society to another. But in any given economy, production typically
splits into three sectors. The primary sector extracts raw materials from natural environments. Workers
like farmers or miners fit well in the primary sector. The secondary sector gains the raw materials and
transforms them into manufactured goods. This means, for example, that someone from the primary
sector extracts oil from the earth then someone from the secondary sector refines the petroleum to
gasoline. Whereas, the tertiary sector involves services rather than goods. It offers services by doing
things rather than making things. Thus, economic system is more complicated or at least, more
sophisticated than the way things used to be for much of human history.

International Financial Institutions

World economies have been brought closer together by globalization. It is reflected in the phrase
“When the American economy sneezes, the rest of the world catches a cold.” But it is important to
remember that it is not only the economy of the United States but also other economies in the world
that have a significant impact on the global market and finance. For instance, the financial crises
experienced by Russia and Asia affected the world economy. The strength of a more powerful economy
brings greater effect on other countries. In the same manner, crises on weaker economies have less
effect on other countries. For example, Argentina’s serious financial crisis in the late 1990s and early
2000s had 2 comparatively small impact on the global economy.

Although countries are heavily affected by the gains and crises in the world economy, the organizations
that they consist also contribute to these events. The following are the financial institutions and
economic organizations that made countries even closer together, at least, when it comes to trade.

The Bretton Woods System

The major economies in the world had suffered because of World War ,the Great Depression in the
1930s, and World War II. Because of the fear of the recurrence of lack of cooperation among nation-
states, political instability, and economic turmoil (especially after the Second World War), reduction of
barriers to trade and free flow of money among nations became the focus to restructure the world
economy and ensure global financial stability (Ritzer, 2015). These consist the background for the
establishment of the Bretton Woods system.

In general, the Bretton Woods system has five key elements. First element is the expression of currency
in terms of gold or gold value to establish a par value (Boughton, 2007). For instance, a 35 U.S. dollar
pegged by the United States per ounce of gold is the same as 175 Nicaraguan Cordobas per ounce of
gold. The exchange rate therefore would be 5 Cordobas for 1 dollar. Another element is that “the official
monetary authority in each country (a central bank or its equivalent) would agree to exchange its own
currency for those of other countries at the established exchange rates, plus or minus a one-percent
margin” (Boughton, 2007, pp. 106-107). The third element of the Bretton Woods system is the
establishment of an overseer for these exchange rates; thus, the International Monetary Fund (IMF)
was founded. Eliminating restrictions on the currencies of member states in the international trade is the
fourth key element. The final element is that the U.S. dollar became the global currency.

The General Agreement on Tariffs and Trade (GATT) and the World Trade
Organization (WTO)

According to Peet (2003), global trade and finance was greatly affected by the Bretton Woods system.
One of the systems born out of Bretton Woods was the General Agreement on Tariffs and Trade (GATT)
that was established in 1947 (Goldstein et al., 2007). GATT was a forum for the meeting of
representatives from 23 member countries. It focused on trade goods through multinational trade
agreements conducted in many “rounds” of negotiation. However, “it was out of the Uruguay Round
(1986-1993) that an agreement was reached to create the World Trade Organization (WTO)”

The WTO headquarters is located in Geneva, Switzerland with 152 member states as of 2008
(Trachtman, 2007). Unlike GATT, WTO is an independent multilateral organization that became
responsible for trace in services, non-tarriff-related barriers to trade, and other broader areas of trade
liberalization. An example cited by Ritzer (2015) was that of the “differences between nations in relation
to regulations on items as manufactured goods or food. A given nation can be taken to task for such
regulations if they are deemed to be an unfair restraint on the trade in such items” . The general idea
where the WTO is based was that of neoliberalism. This means that by reducing or eliminating barriers,
all nations will benefit.

There are, however, significant criticisms to WTO. One is that trade barriers created by developed
countries cannot be countered enough by WTO, especially in agriculture. A concrete case was that the
emerging markets in the Global South made the majority in the WTO, but they suffered under the
industrial nations which supported the agriculture with subsidies. Grain prices increased and food riots
occurred in many member states of WTO, like Mexico, Egypt, and Indonesia in 2008. Aside from issues in
agricultural sector, the decision-making processes were heavily influenced by larger trading powers, in
the so-called Green Room, while excluding smaller powers in meetings. Lastly, Ritzer (2015) also pointed
out that International Non-Government Organizations (INGOs) are not involved, leading to the staging of
“regular protests and demonstrations against the WTO”

The International Monetary Fund (IMF) and the World Bank

IMF and the World Bank were founded after the World War Il. Their establishment was mainly because
of peace advocacy after the war. These institutions aimed to help the economic stability of the world.
Both of them are basically banks, but instead of being started by individuals like regular banks, they
were started by countries. Most of the world’s countries were members of the two institutions. But, of
course, the richest countries were those who handled most of the financing and ultimately, those who
had the greatest influence. IMF and the World Bank were designed to complement each other. The
IMF’s main goal was to help countries which were in trouble at that time and who could not obtain
money by any means. Perhaps, their economy collapsed or their currency was threatened. IMF, in this
case, served as a lender or a last resort for countries which needed financial assistance.

For instance, Yemen loaned 93 million dollars from IMF on April 5, 2012 to address its struggle with
terrorism. The World Bank, in comparison, had a more long-term approach. Its main goals revolved
around the eradication of poverty and it funded specific projects that helped them reach their goals,
especially in poor countries. An example of such as their investment in education since 1962 in
developing nations like Bangladesh, Chad, and Afghanistan.

Unfortunately, the reputation of these institutions has been dwindling, mainly due to practices such as
lending the corrupt governments or even dictators and imposing ineffective austerity measures to get
their money back.

The most encompassing club of the richest countries in the world is the Organization for Economic
Cooperation and Development (OECD) with 35 member states as of 2016, with Latvia as its latest
member. It is highly influential, despite the group having little formal power. This emanates from the
member countries’ resources and economic power.

In 1960, the Organization of Petroleum Exporting Countries (OPEC) was originally comprised of Saudi
Arabia, Iraq, Kuwait, Iran, and Venezuela. They are still part of the major exporters of oil in the world
today. OPEC was formed because member countries wanted to increase the price of oil, which in the
past had a relatively low price and had failed in keeping up with inflation. Today, the United Arab
Emirates, Algeria, Libya, Qatar, Nigeria, and Indonesia are also included as members.

The European Union (EU) is made up of 28 member states. Most members in the Eurozone adopted the
euro as basic currency but some Western European nations like the Great Britain, Sweden, and Denmark
did not. Critics argue that the euro increased the prices in Eurozones and resulted in depressed
economic growth rates, like in Greece, Spain, and Portugal. The policies of the European Central Bank
are considered to be a significant contributor in these situations.

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) is a trade pact between the United States, Mexico,
and Canada created on January 1, 1994 when Mexico joined the two other nations. It was first created
in 1989 with only Canada and the United States as trading partners. NAFTA helps in developing and
expanding world trade by broadening international cooperation. It also aims to increase cooperation for
improving working conditions in North America by reducing barriers to trade as it expands the markets
of the three countries.

The creation of NAFTA has caused manufacturing jobs from developed nations (Canada or the United
States) to transfer to less developed nations (Mexico) in order to reduce the cost of their products. In
Mexico, producer prices dropped and some two million farmers were forced to leave their farms. During
this time, consumer food prices rose, causing 20 million Mexicans, about 25% of their population, to live
in “food poverty.”

The free trade, however, gave a modest impact on US GDP. It has become $127 billion richer each year
due to trade growth. One can argue that NAFTA was to blame for job losses and wage stagnation in the
United States because competition from Mexican firms had forced many U.S. firms to relocate to
Mexico. This is because developing nations have less government regulations and cheaper labor. This is
called outsourcing. As an example, the United States outsourced approximately 791,000 jobs to Mexico
in 2010.

As for Canada, 76% of Canadian exports go to the United States and about a quarter of the jobs in
Canada are dependent in some way on the trade with the United States. This means that if NAFTA
changes or is eradicated, it would be devastating for Canada’s economy.

Generally, NAFTA has its positive and negative consequences. It lowered prices by removing tariffs,
opened up new opportunities for small- and medium-sized businesses to establish a name for itself,
quadrupled trade between the three countries, and created five million U.S. jobs. Some of the negative
effects, however, include excessive pollution, loss of more than 682,000 manufacturing jobs,
exploitation of workers in Mexico, and moving Mexican farmers out of

History of Global Market Integration

Before the rise of today’s modern economy, people only produced for their family. Nowadays, economy
demands the different sectors to work together in order to produce, distribute, and exchange products
and services. What caused this shift in the way people produce for their needs? In order to understand
this, we will be going back in time, 12,000 years ago.

The Agricultural Revolution and the Industrial Revolution

The first big economic change was the Agricultural Revolution (Pomeranz,2000). When people learned
how to domesticate plants and animals, they realized that it was much more productive than hunter-
gatherer societies. This became the new agricultural economy. Farming helped societies build surpluses,
meaning, not everyone had to spend their time producing food. This, in turn, led to major developments
like permanent settlements, trade networks, and population growth.

The second major economic revolution is the Industrial Revolution of the 1800s. With the rise of
industry came new economic tools, like steam engines, manufacturing, and mass production. Factories
popped up and changed how work functioned. Instead of working at home where people worked for
their family by making things from start to finish, they began working as wage laborers and then
becoming more specialized in their skills. Overall, productivity went up, standards of living rose, and
people had access to a wider variety of goods due to mass production.

However, every economic revolution comes with economic casualties. The workers in the factories—
who were mainly poor women and children—worked in dangerous conditions for low wages. As a result,
nineteenth-century industrialists were known as robber barons—with more productivity came greater
wealth, but also greater economic inequality. In the late nineteenth century, labor unions began to
form. These organizations of workers sought to improve wages and working conditions through
collective action, strikes, and negotiations. Inspired by Marxist principles, labor unions gave way for
minimum wage laws, reasonable working hours, and regulations to protect the safety of workers.

Capitalism and Socialism

There were two competing economic models that sprung up around the time of the Industrial
Revolution, as economic capital became more and more important to the production of goods. These
were capitalism and socialism. Capitalism is a system in which all natural resources and means of
production are privately owned. It emphasizes profit maximization and competition as the main drivers
of efficiency. This means that when one owns a business, he needs to outperform his competitors if he is
going to succeed. He is incentivized to be more efficient by improving the quality of one’s product and
reducing its prices. This is what economist Adam Smith in the 1770s called the “invisible hand” of the
market. The idea is that if one leaves a capitalist economy alone, consumers will regulate things
themselves by selecting goods and services that provide the best value.

In practice, however, an economy does not work very well if it is left completely on autopilot. There are
many sectors where a hands-off approach can lead to what economists call market failures, where an
unregulated market ends up allocating goods and services inefficiently. A monopoly, for example, is a
kind of market failure. When a company has no competition for customers, it can charge higher prices
without worrying about losing customers. As allocations go, monopoly becomes inefficient at least on
the consumer end. In situations like these, a government might step in and force the company to break
up into smaller companies to increase competition. Market failures like this are the reasons most
countries are not purely capitalist societies. For example, the United States’ federal and state
governments own and operate a number of businesses, like schools, the postal service, and the military.
Governments also set minimum wages, create workplace safety laws, and provide social support
programs like unemployment benefits and food stamps.

Whereas, government plays an even larger role in socialism. In a socialist system, the means of
production are under collective ownership. It rejects capitalism’s private property and hands-off
approaches. instead, in socialism, property is owned by the government and allocated to all citizens, not
only those with the money to afford it. Socialism emphasizes collective goals, expecting everyone to
work for the common good and placing a higher value on meeting everyone’s basic needs than on
individual profit. When Karl Marx first wrote about socialism, he viewed it as a stepping stone toward
communism, a political and economic system in which all members of a society are socially equal. In
practice, this has not played out in the countries that have modeled their economies on socialism, like
Cuba, North Korea, China, and the USSR. Why? Marx hoped that as economic differences vanished in
communist society, the government would simply wither away and disappear, but that never happened.
If anything, the opposite did. Rather than freeing the workers—in Marxist terms, the proletariat—from
inequality, the massive power of the government in these states gave enormous wealth power and
privilege to political elites. The result is the retrenchment of inequalities along political—rather than
strictly economic— lines.

At the same time, capitalist countries economically outperformed their socialist counterparts
contributing to the unrest that eventually led to the downfall of the USSR. Before the fall of the Soviet
Union, the average output in capitalist countries was about $13,500 dollars per person, which was
almost three times than in the Soviet countries. But there are downsides to capitalism, too, namely,
greater income inequality. A study of European capitalist countries and socialist countries in the 1970s
found that the income ratio between the top 5% and the bottom 5% in capitalist countries was about 10
to 1; whereas, in socialist countries, it was 5 to 1. Those two models are not the end of the story
because we are living in the middle of the economic revolution that followed the Industrial Revolution.

The Information Revolution

Ours is the time of the information revolution. Technology has reduced the role of human labor and
shifted it from a manufacturing-based economy to one that is based on service work and the production
of ideas rather than goods. This has had a lot of residual effects on our economy. Computers and other
technologies are beginning to replace many jobs because of automation or outsourcing jobs offshore.
We also see the decline in union membership. Nowadays, most unions are for public sector jobs, like
teachers.

What do jobs in a post-industrial society look like? Agricultural jobs, which once were a massive part of
the Philippine labor force, have fallen drastically over the last century. In other countries such as the
United States, manufacturing jobs, which were the lifeblood of their economy for much of the twentieth
century, have declined in the last 30 years. The U.S. economy began with their many workers serving in
either the primary or secondary economic sectors. But today, much of their economy is centered on the
tertiary sector or the service industry.

The service industry includes every job such as administrative assistants, nurses, teachers, and lawyers.
This is a big and diverse group because the tertiary sector, like all the economic sectors we have been
discussing, is defined mainly by what it produces rather than what kinds of jobs it includes. Sociologists
have a way of distinguishing between types of jobs, which is based more on the social status and
compensation that come with them. These are the primary labor market and the secondary labor
market. The primary labor market includes jobs that provide many benefits to workers, like high
incomes, job security, health insurance, and retirement packages. These are white-collar professions,
like doctors, accountants, and engineers. Secondary labor market jobs provide fewer benefits and
include lower-skilled jobs and lower-level service sector jobs. They tend to pay less, have more
unpredictable schedules, and typically do not offer benefits like health insurance. They also tend to have
less job security.

What is next for capitalism and socialism? No one knows what the next economic revolution is going to
look like. Nowadays, a key part of both our economic and political landscape is corporations.
Corporations are defined as organizations that exist as legal entities and have liabilities that are
separate from its members. They are their own thing. More and more these days, corporations are
operating across national boundaries which means that the future of the Philippine economy—and most
countries’ economies—will play out on a global scale.

Global Corporations

The increase in international trade has both created and been supported by international regulatory
groups, like WTO, and transnational trade agreements, like NAFTA. There is not a single country that is
completely independent. All are dependent to some degree on international trade for their own
prosperity. Without international trade, there would be no need for international regulatory groups.
Without the international regulatory groups, international trade at the current massive scale would be
impractical. The trade regulatory groups and agreements regulate the flow of goods and services
between countries. They reduce tariffs, which are taxes on imports, and make customs procedures
easier. This makes trading across national borders much more feasible.

These international trade agreements often benefit private industries the most. Companies can produce
their goods and services across many different countries. For instance, you can have a backpack that was
designed in the United States but the materials came from China, and it was put together in Mexico
before it was shipped back to the United States to be sold.
These companies that extend beyond the borders of one country are called multinational or
transnational corporations (MNCs or TNCs). They are also referred to as global corporations. They
intentionally surpass national borders and take advantage of opportunities in different countries to
manufacture, distribute, market, and sell their products. Some global corporations are ubiquitous, like
McDonald’s or Coca-Cola, and yet, they still market themselves as American companies. Others can be
surprising like General Electric, which is based in the United States but has more than half of its business
and employees working in other countries. Another example is Ford Motor Company, the classic
American car company, headquartered in Michigan that manufactures cars worldwide.

Transnational corporations have a significant role in the global economy. Some have greater production
advantages than an entire nation. They influence the economy and politics by donating money to
specific political campaigns or lobbyists. They can even influence the global trade laws of the
international regulatory groups.

Global corporations often locate their factories in countries which can provide the cheapest labor in
order to save up for expenses in the making of a product. As a result, developing nations will provide
incentives, like tax-free trade zones or cheap labor. The companies will set up shop in their country in
hopes of bringing jobs and industry to beleaguered agricultural areas. This promotes more rapid
advances in the developing nation because of the ideas and innovations brought over from the
industrialized nations. It also makes nations around the world more interdependent, which minimizes
the potential for conflict.

In the end, however, these incentives often hurt the working population of the developing nation. The
upper classes may benefit from the business of these corporations but the people working in the
factories are exploited as their wages are cut. In addition, they are often prohibited from unionizing. It
can even result in sweatshop conditions with long working hours, substandard wages, and poor working
conditions. If the labor laws in one country become too restrictive to the TNCs, they can just move their
factory to a new country, leaving widespread unemployment in their wake. Setting up factories in these
developing: nations may also hurt the core country where the TNC is based because many potential jobs
are being sent abroad. The same thing happens when companies outsource their labor to other
countries. Outsourcing has been enabled by technological advances, allowing immediate
communication across the world and the ease of transporting people, goods, and information. When
companies find people in other countries willing to work for 2 lower wage, they will often employ them,
which is good for the company because they save money, and it is good for the people in other
countries because they now have a job. But it also means that the people in the core country are losing
jobs and having difficulty finding new ones.

There seems to be a lot of negative effects of globalization from transnational corporations. Trade does
promote the self-interested agendas of corporations and give them autonomy. The global corporations
also influence politics and allow workers to be exploited. There are, however, positive effects. These
include better allocation of resources, lower prices for products, more employment worldwide, and
higher product output.

The changes a country experiences from international trade are not only economic. Many of the cultural
changes are as important and sometimes even more obvious than the economic changes the nation can
experience. As international trade becomes easier and more widespread, more than just goods and
services are exchanged. Cultural practices and expressions are also passed between nations, spreading
from group to group. This is called diffusion. Ideas and practices spread from where they are well known
and frequently apparent to places where they are new and not often observed. In the past, exploration,
military conquests, missionary work, .and tourism provided the means for the trading of ideas. But
technology has exponentially increased the speed of diffusion. Nowadays, mass media and the Internet
allow the transfer of ideas almost instantaneously. This is most commonly seen in the transmission of
scientific knowledge and the spreading of the North American culture, which dominates the Internet.

International trade and global corporations, along with the Internet and more global processes,
contribute to globalization because people and corporations bring their own beliefs, their traditions, and
their money with them when they interact with other countries. These ideas and capital can then be
incorporated in other countries, and thus, change the cultures and economies of these foreign nations.