CHAPTER 3.
MARKET INTEGRATION
Topic Outline:
Introduction
International Financial Institutions
The Bretton Woods System
The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization
The International Monetary Fund (IMF) and the World Bank
The Organization for Economic Cooperation and Development (OECD), the Organization of
Petroleum Exporting Countries (OPEC), and The European Union (EU)
North American Free Trade Agreement
History of Global Market Integration
The Agricultural Revolution and the Industrial Revolution
Capitalism and Socialism
The Information Revolution
Global Corporations
Introduction:
3 Sectors of Production
1. Primary sector – It extracts raw materials from natural environment.
Workers, like farmers or miners fit well in the primary sector.
2. Secondary Sector – It gains the raw materials and transforms them into
manufactured goods.
3. Tertiary Sector – It involves services rather than goods.
This chapter will show the contributions of the different financial and
economic institutions that facilitated the growth of the global economy. It
shall also discuss the history of global market by looking at the different types
of economic revolutions. The growth and dynamics of multinational
corporations will also be examined.
FINACIAL AND ECONOMIC INSTITUTIONS
The Bretton Woods System.
This was established in response to the fear of the recurrence of lack of cooperation among
nation-states, political instability, and economic turmoil (especially after the Second World War). It
focused on the reduction of barriers to trade and free flow of money among nations in order to
restructure the world economy and ensure global financial stability (Ritzer, 2015).
5 Key Elements of Bretton System
1. Expression of currency in terms of gold or gold value to establish a par value.
2. The official monetary authority in each country (central bank or its equivalent) would agree to
exchange its own currency for those of other countries at the established exchanges rates, plus or
minus a one-percent margin (Boughton, 2007).
3. Establishment of an overseer for these exchange rates which lead to the founding of International
Monetary Fund (IMF).
4. Eliminating restrictions on the currencies of member state in the international trade.
5. The U.S. dollar became the global currency.
FINACIAL AND ECONOMIC
INSTITUTIONS
The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization
It is a forum foe the meeting of representatives from 23 member countries. It focused on trade of 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)
(Ritzer, 2015).
-WTO 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 trade in services, non-tariff barriers
to trade , and other broader areas of trade liberalization.
The general idea where the WTO is based was that of Neoliberalism.
Criticisms to WTO
1. Trade barriers created by developed countries cannot be countered enough by WTO, especially in agriculture.
2. The decision-making processes where heavily influenced by larger trading powers, in the so-called green
room, while excluding smaller powers in the meeting.
3. International Non-Government Organizations (INGOs) are not involved, leading to the staging of “regular
protests and demonstrations against the WTO (Ritzer, 2015).
FINACIAL AND ECONOMIC INSTITUTIONS
The International Monetary Fund (IMF) and the World Bank
IMF and World Bank were founded after the World war II. Their
establishment was mainly because of peace advocacy after the war. These
institutions aimed to help the economic stability of the world. These are
basically banks which are designed to complement each other. The IMF’s goal
was to help countries which were in trouble at that time, and who could not
obtain money by any means. IMF served as the lender or a last resort for
countries which needed financial help. Its main goals revolved around the
eradication of poverty and it funded specific projects that helped them reached
their goals, especially in poor countries.
FINACIAL AND ECONOMIC INSTITUTIONS
The Organization for Economic Cooperation and Development (OECD), the
Organization of Petroleum Exporting Countries (OPEC), and the European
Union (EU)
OECD is the most encompassing club of the richest countries in the world with
35 member states as of 2016, with Latvia as its latest member. It is highly influential
which emanates from the member countries’ resources and economic power.
OPEC was originally comprised of Saudi Arabia, Iraq, Kuwait, Iran, and
Venezuela. Today United Arab Emirates, Algeria, Libya, Qatar, Nigeria, and Indonesia are
also included as members. It was formed because member countries wanted to increase
the price of oil, which in the past was a relatively low price and had failed in keeping up
with inflation.
EU is made up of 28 member states. Most member in the Eurozone adopted the
Euro as basic currency, but some Western European nations like Great Britain, Sweden,
and Denmark did not.
FINACIAL AND ECONOMIC INSTITUTIONS
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 with only
Canada and United States as trading partners. It helps in developing and expanding world
trade by broadening international cooperation. It also aims to increase cooperation for
improving the working conditions in North America by reducing barriers to trade as it
expands the market of the tree countries.
Generally, NAFTA has its positive and negative consequences. It lowered prices
by removing tariffs, opened up new opportunities for small and medium sized business to
establish a name for itself, quadrupled trade between the tree countries, and created five
million U.S. jobs. Some negative effects, however, include excessive pollution, loss of
more than 682,000 manufacturing jobs, exploitation of workers in Mexico, and moving
Mexcan farmers out of business.
HISTORY OF GLOBAL MARKET
INTEGRATION
The Agricultural Revolution and the Industrial Revolution
The first big economic change was Agricultural Revolution (Pomeranz,
2000). Agricultural economy led to major development like permanent
settlements, trade networks, and population growth.
The second 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. Nineteenth-century
industrialists were known as robber barons – with more productivity came
greater wealth, but also greater economic inequality. Inspired by Marxist
principles, labor unions gave way for minimum wage law, reasonable working
hours, and regulations to protect the safety of workers.
HISTORY OF GLOBAL MARKET
INTEGRATION
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. 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.
Monopoly 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 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 the citizens, not only those with money to
afford it.
HISTORY OF GLOBAL MARKET
INTEGRATION
The Information Revolution
Today, much of the economy is centered on the tertiary sector or the service
industry. The service industry includes every job such as administrative assistants,
nurses, teachers, lawyers.
Primary labor market includes jobs that provide may benefits to workers, like
incomes, job security, health insurance, and retirement packages. These are while-
collar professions, lie doctors, accountants, and engineers.
Secondary labor market provides lower 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 lie health insurance.
They also tend to have less job security.
HISTORY OF GLOBAL MARKET
INTEGRATION
Global Corporations
Corporations are defined as organizations that exists as legal entities and have liabilities athat are separate from its
members. They are their own thing.
The companies that extend beyond the borders of one country are called multinational or transnational corporations
(MNLCs and 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.
Transnational corporations have significant role in the global economy. They influence the economy and politics by
donating money to specific political campaigns or lobbyists. The can even influence the global trade laws of the
international regulatory groups.
Negative effects of Globalization from Transnational Corporations:
1. Trade does not promote the self-interest agenda of corporations and give them the autonomy.
2. The global corporations also influence the politics and allow workers to be exploited.
Positive Effects:
3. Better allocation of resources, lower prices of products, more employment worldwide, and higher product output.
4. Diffusion is the process by which cultural practices are passed between nations, spreading from group to group.
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