Lesson 2: THE STRUCTURES OF GLOBALIZATION Multinational corporations reorganized production to take advantage

of these opportunities. Labor-intensive production migrated to areas

A. THE GLOBAL ECONOMY with lower labor costs, especially China, later followed by other
functions as skill levels increased. Networks raised the level of wealth
Economic globalization is one of the three main dimensions of consumption and geographical mobility. This highly dynamic
globalization commonly found in academic literature, with the two worldwide system had powerful ramifications. The World Trade
others being political globalization and cultural globalization, as well Organization Ministerial Conference of 1999 and associated 1999
as the general term of globalization. Economic globalization refers to Seattle WTO protests were a significant step on the road to economic
the widespread international movement of goods, capital, services, globalization.
technology and information. It is the increasing economic integration
and interdependence of national, regional, and local economies The People's Republic of China (2001) and the last remnants of ex-
across the world through an intensification of cross-border movement Soviet bloc countries like Ukraine (2008) and Russia (2012) were
of goods, services, technologies and capital. Economic globalization admitted much later to the WTO process after painful structural
primarily comprises the globalization of production, finance, markets, reforms.
technology, organizational regimes, institutions, corporations, and
labor. The Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent Base Erosion and Profit Shifting, which entered
While economic globalization has been expanding since the into force on 1 July 2018, is an effort to harmonize tax regimes in
emergence of trans-national trade, it has grown at an increased rate order to prevent multi-national firms from taking advantage of
due to improvements in the efficiency of long-distance transportation, loopholes like Ireland's Green Jersey BEPS tool.
advances in telecommunication, the importance of information rather
than physical capital in the modern economy, and by developments Global Actors:
in science and technology. The rate of globalization has also
increased under the framework of the General Agreement on Tariffs 1. International governmental organizations
and Trade and the World Trade Organization, in which countries
gradually cut down trade barriers and opened up their current An intergovernmental organization or international governmental
accounts and capital accounts. This recent boom has been largely
organization (IGO) refers to an entity created by treaty, involving two
supported by developed economies integrating with developing or more nations, to work in good faith, on issues of common interest.
countries through foreign direct investment, lowering costs of doing IGO's strive for peace, security and deal with economic and social
business, the reduction of trade barriers, and in many cases cross-
questions. Examples include: The United Nations, The World Bank
border migration. and on a regional level The North Atlantic Treaty Organization among
others.
History
2. International non-governmental organizations
International commodity markets, labor markets, and capital markets (NGOs)
make up the economy and define economic globalization.
International non-governmental organizations include charities,
Beginning as early as 6500 BCE, people in Syria were trading non-profit advocacy groups, business associations, and cultural
livestock, tools, and other items. In Sumer, an early civilization in
associations. International charitable activities increased after
Mesopotamia, a token system was one of the first forms of World War II and on the whole NGOs provide more economic aid
commodity money. Labor markets consist of workers, employers, to developing countries than developed country governments.
wages, income, supply and demand. Labor markets have been
around as long as commodity markets. The first labor markets
provided workers to grow crops and tend livestock for later sale in 3. Businesses
local markets. Capital markets emerged in industries that require
resources beyond those of an individual farmer. Since the 1970s, multinational businesses have increasingly relied
on outsourcing and subcontracting across vast geographical spaces,
Technology as supply chains are global and intermediate products are produced.
Firms also engage in inter-firm alliances and rely on foreign research
and development. This in contrast to past periods where firms kept
Globalization is about interconnecting people around the world
beyond the physical barrier of geographical boundaries production internalized or within a localized geography. Innovations
in communications and transportation technology, as well as greater
economic openness and less government intervention have made a
These advances in economic globalization were disrupted by World shift away from internalization more feasible.
War I. Most of the global economic powers constructed protectionist
economic policies and introduced trade barriers that slowed trade
growth to the point of stagnation. This caused a slowing of worldwide 4. Migrants
trade and even led to other countries introducing immigration caps.
Globalization did not fully resume until the 1970s, when governments International migrants transfer significant amounts of money through
began to emphasize the benefits of trade. Today, follow-on advances remittances to lower income relatives. Communities of migrants in
in technology have led to the rapid expansion of global trade. the destination country often provide new arrivals with information
and ideas about how to earn money. In some cases, this has resulted
Three suggested factors accelerated economic globalization: in disproportionately high representation of some ethnic groups in
certain industries, especially if economy success encourages more
people to move from the source country. Movement of people also
1. Advancement of science and technology spreads technology and aspects of business culture, and moves
2. Market oriented economic reforms accumulated financial assets.
3. Contributions by multinational corporations.
Impact:
The 1956 invention of containerized shipping, along with increases
in ship sizes, were a major part of the reduction in shipping costs. Economic Growth and Poverty Reduction

Policy and government Economic growth accelerated and poverty declined globally following
the acceleration of globalization.
The GATT/WTO framework, which was initiated in 1947, led
participating countries to reduce their tariff and non-tariff barriers to Per capita GDP growth in the post-1980 globalizers accelerated from
trade. Indeed, the idea of Most Favored Nation was essential to the 1.4 percent a year in the
GATT. In order to accede, governments had to shift their economies 1960s and 2.9 percent a year in the 1970s to 3.5 percent in the 1980s
from central planning to market driven, especially after the fall of the and 5.0 percent in the 1990s. This acceleration in growth is even
Soviet Union. more remarkable given that the rich countries saw steady declines in
growth from a high of 4.7 percent in the 1960s to 2.2 percent in the
On 27 October 1986, the London Stock Exchange enacted newly 1990s. Also, the non-globalizing developing countries did much
deregulated rules that enabled global interconnection of markets, worse than the globalizers, with the former's annual growth rates
with an expectation of huge increases in market activity. This event falling from highs of 3.3 percent during the 1970s to only 1.4 percent
came to be known as the Big Bang. during the 1990s. This rapid growth among the globalizers is not
simply due to the strong performances of China and India in the
By the time the World Trade Organization was established in 1994 1980s and 1990s—18 out of the 24 globalizers experienced
as the baton was passed from the GATT, it had grown to 128 increases in growth, many of them quite substantial."
countries, including Czech Republic, Slovakia and Slovenia. The
year 1995 saw the WTO pass the General Agreement on Trade in According to the International Monetary Fund, growth benefits of
Services, while the 1998 defeat of the OECD's Multilateral economic globalization are widely shared. While several globalizers
Agreement on Investment was a hiccup on the route to economic have seen an increase in inequality, most notably China, this
globalization. increase in inequality is a result of domestic liberalization, restrictions
on internal migration, and agricultural policies, rather than a result of supply chain is more involvement from the corporation and trying to
international trade. regulate the outsourcing of their product.

Poverty has been reduced as evidenced by a 5.4 percent annual Global Labor and Fair-Trade Movements
growth in income for the poorest fifth of the population of Malaysia.
Even in China, where inequality continues to be a problem, the Several movements, such as the fair-trade movement and the anti-
poorest fifth of the population saw a 3.8 percent annual growth in sweatshop movement, claim to promote a more socially just global
income. In several countries, those living below the dollar-per-day economy. The fair trade movement works towards improving trade,
poverty threshold declined. In China, the rate declined from 20 to 15 development and production for disadvantaged producers. The fair-
percent and in Bangladesh the rate dropped from 43 to 36 percent. trade movement has reached 1.6 billion US dollars in annual sales.
The movement works to raise consumer awareness of exploitation of
Globalizers are narrowing the per capita income gap between the developing countries. Fair trade works under the motto of "trade, not
rich and the globalizing nations. China, India, and Bangladesh, some aid", to improve the quality of life for farmers and merchants by
of the newly industrialized nations in the world, have greatly participating in direct sales, providing better prices and supporting
narrowed inequality due to their economic expansion. the community. Meanwhile, the antisweatshop movement is to
protest the unfair treatment caused by some companies.
Global Supply Chain
Various transnational organizations advocate for improved labor
The global supply chain consists of complex interconnected networks standards in developing countries. This including labor unions, who
that allow companies to produce handle and distribute various goods are put at a negotiating disadvantage when an employer can relocate
and services to the public worldwide. or outsource operations to a different country.

Corporations manage their supply chain to take advantage of Capital Flight

cheaper costs of production. A supply chain is a system of
organizations, people, activities, information, and resources involved Capital flight occurs when assets or money rapidly flow out of a
in moving a product or service from supplier to customer. Supply country because of that country's recent increase in unfavorable
chain activities involve the transformation of natural resources, raw financial conditions such as taxes, tariffs, labor costs, government
materials, and components into a finished product that is delivered to debt or capital controls. This is usually accompanied by a sharp drop
the end customer. Supply chains link value chains. Supply and in the exchange rate of the affected country or a forced devaluation
demand can be very fickle, depending on factors such as the for countries living under fixed exchange rates. Currency declines
weather, consumer demand, and large orders placed by improve the terms of trade, but reduce the monetary value of financial
multinational corporations. and other assets in the country. This leads to decreases in the
purchasing power of the country's assets.
Labor Conditions and Environment
A 2008 paper published by Global Financial Integrity estimated
"Race to the bottom" capital flight to be leaving developing countries at the rate of "$850
billion to $1 trillion a year." But capital flight also affects developed
Globalization is sometimes perceived as a cause of a phenomenon countries. A 2009 article in The Times reported that hundreds of
called the "race to the bottom" that implies that to minimize cost and wealthy financiers and entrepreneurs had recently fled the United
increase delivery speed, businesses tend to locate operations in Kingdom in response to recent tax increases, relocating to low tax
countries with the least stringent environmental and labor destinations such as Jersey, Guernsey, the Isle of Man and the British
regulations. Pressure to do this is increased if competitor’s lower Virgin Islands. In May 2012 the scale of Greek capital flight in the
costs by the same means. This both directly results poor working wake of the first "undecided" legislative election was estimated at €4
conditions, low wages, job insecurity, and pollution, but also billion a week.
encourages governments to under-regulate in order to attract jobs
and economic investment. However, if business demand is Capital flight can cause liquidity crises in directly affected countries
sufficiently high, the labor pool in low-wage countries becomes and can cause related difficulties in other countries involved in
exhausted (as has happened in the PRC), resulting in higher wages international commerce such as shipping and finance. Asset holders
due to competition, and more demand from the public for government may be forced into distress sales. Borrowers typically face higher
protection against exploitation and pollution. From 2003 to 2013, loan costs and collateral requirements, compared to periods of ample
wages in China and India have gone up by around 10–20% a year. liquidity, and unsecured debt is nearly impossible to obtain. Typically,
during a liquidity crisis, the interbank lending market stalls.
Health Risks
Inequality
In developing countries with loose labor regulations, there are
adverse health consequences from working long hours and While within-country income inequality has increased throughout the
individuals that burden themselves from working within vasts global globalization period, globally inequality has lessened as developing
supply chains. Women in agriculture, for example, are often asked to countries have experienced much more rapid growth. Economic
work long hours handling chemicals such as pesticides and fertilizers inequality varies between societies, historical periods, economic
without any protection. structures or economic systems, ongoing or past wars, between
genders, and between differences in individuals' abilities to create
Although both men and women experience shortcomings with health, wealth. Among the various numerical indices for measuring
the final reports stated that women, with the double burden of economic inequality, the Gini coefficient is most often-cited.
domestic and paid work experience an increased the risk of
psychological distress and suboptimal health. Strazdins concluded Economic inequality includes equity, equality of outcome and
that negative work-family spillover especially is associated with subsequent equality of opportunity. Although earlier studies
health problems among both women and men, and negative family- considered economic inequality as necessary and beneficial, some
work spillover is related to a poorer health status among women." economists see it as an important social problem. Early studies
suggesting that greater equality inhibits economic growth did not
It is common for the work lifestyle to bring forth adverse health account for lags between inequality changes and growth changes.
conditions or even death due to weak safety measure policies. After Later studies claimed that one of the most robust determinants of
the tragic collapse of the Rana Plaza factory in Bangladesh where sustained economic growth is the level of income inequality.
over 800 deaths occurred the country has since then made efforts in
boosting up their safety policies to better accommodate workers. International inequality is inequality between countries. Income
differences between rich and poor countries are very large, although
Mistreatment they are changing rapidly. Per capita incomes in China and India
doubled in the prior twenty years, a feat that required 150 years in
the US. According to the United Nations Human Development Report
In developing countries with loose labor regulations and a large
for 2013, for countries at varying levels of the UN Human
supply of low-skill, low-cost workers, there are risks for mistreatment
Development Index the GNP per capita grew between 2004 and
of some workers, especially women and children. Poor working
2013 from 24,806 to 33,391 or 35% (very high human development),
conditions and sexual harassment are just some of the mistreatment
4,269 to 5,428 or 27% (medium) and 1,184 to 1,633 or 38% (low)
faced by women in the textile supply chain. Marina Prieto-Carrón
PPP$, respectively (PPP$ = purchasing power parity measured in
shows in her research in Central America that women in sweatshops
United States dollars).
are not even supplied with toilet paper in the bathroom everyday. The
reason it costs corporations more is because people can not work to
their full potential in poor conditions, affecting the global marketplace. Certain demographic changes in the developing world after active
Furthermore, when corporations decide to change manufacturing economic liberalization and international integration resulted in rising
rates or locations in industries that employ more women, they are welfare and hence, reduced inequality. According to Martin Wolf, in
often left with no job nor assistance. This kind of sudden reduction or the developing world as a whole, life expectancy rose by four months
elimination in hours is seen in industries such as the textile industry each year after 1970 and infant mortality rate declined from 107 per
and agriculture industry, both of which employ a higher number of thousand in 1970 to 58 in 2000 due to improvements in standards of
women than men. One solution to mistreatment of women in the living and health conditions. Also, adult literacy in developing
countries rose from 53% in 1970 to 74% in 1998 and much lower media news companies such as Qatar's Al Jazeera network offer a
illiteracy rate among the young guarantees that rates will continue to different point of view, but reach and influence fewer people.
fall as time passes. Furthermore, the reduction in fertility rates in the
developing world as a whole from 4.1 births per woman in 1980 to Migration
2.8 in 2000 indicates improved education level of women on fertility,
and control of fewer children with more parental attention and "With an estimated 210 million people living outside their country of
investment. Consequentially, more prosperous and educated origin (International Labour Organization 2010), international
parents with fewer children have chosen to withdraw their children migration has touched the lives of almost everyone in both the
from the labor force to give them opportunities to be educated at sending and receiving countries of the Global South and the Global
school improving the issue of child labor. Thus, despite seemingly North". Because of advances made in technology, human beings as
unequal distribution of income within these developing countries, well as goods are able to move through different countries and
their economic growth and development have brought about regions with relative ease.
improved standards of living and welfare for the population as a
whole.
THEORIES OF GLOBAL STRATIFICATION:
Modernization Theory
Economic development spurred by international investment or trade
can increase local income inequality as workers with more education
According to modernization theory, low-income countries are
and skills can find higher-paying work. This can be mitigated with
affected by their lack of industrialization and can improve their global
government funding of education. Another way globalization
economic standing through (Armer and Katsillis 2010):
increases income inequality is by increasing the size of the market
available for any particular good or service. This allows the owners
of companies that service global markets to reap disproportionately 1. An adjustment of cultural values and attitudes to
larger profits. This may happen at the expense of local companies work
that would have otherwise been able to dominate the domestic 2. Industrialization and other forms of economic
market, which would have spread profits around to a larger number growth
of owners. On the other hand, globalized stock markets allow more
people to invest internationally, and get a share of profits from Critics point out the inherent ethnocentric bias of this theory. It
companies they otherwise could not. supposes all countries have the same resources and are capable of
following the same path. In addition, it assumes that the goal of all
Resource insecurity countries is to be as “developed” as possible. There is no room within
this theory for the possibility that industrialization and technology are
A systematic, and possibly first large-scale, cross-sectoral analysis not the best goals.
of water, energy and land insecurity in 189 countries that links
national and sector consumption to sources showed that countries There is, of course, some basis for this assumption. Data show that
and sectors are highly exposed to over-exploited, insecure, and core nations tend to have lower maternal and child mortality rates,
degraded such resources. The 2020 study finds that economic longer life spans, and less absolute poverty. It is also true that in the
globalization has decreased security of global supply chains with poorest countries, millions of people die from the lack of clean
most countries exhibiting greater exposure to resource risks via drinking water and sanitation facilities, which are benefits most of us
international trade – mainly from remote production sources – and take for granted. At the same time, the issue is more complex than
that diversifying trading partners is unlikely to help nations and the numbers might suggest. Cultural equality, history, community,
sectors to reduce these or to improve their resource self-sufficiency. and local traditions are all at risk as modernization pushes into
peripheral countries. The challenge, then, is to allow the benefits of
Competitive Advantages modernization while maintaining a cultural sensitivity to what already
exists.
Businesses in developed countries tend to be more highly
automated, have more sophisticated technology and techniques, and Dependency Theory
have better national infrastructure. For these reasons and sometimes
due to economies of scale, they can sometimes out-compete similar Dependency theory was created in part as a response to the
businesses in developing countries. This is a substantial issue in Western-centric mindset of modernization theory. It states that global
international agriculture, where Western farms tend to be large and inequality is primarily caused by core nations (or high income
highly productive due to agricultural machinery, fertilizer, and nations) exploiting semi-peripheral and peripheral nations (or middle-
pesticides; but developing-country farms tend to be smaller and rely income and low income nations), which creates a cycle of
heavily on manual labor. Conversely, cheaper manual labor in dependence (Hendricks 2010). As long as peripheral nations are
developing countries allowed workers there to outcompete workers dependent on core nations for economic stimulus and access to a
in higher-wage countries for jobs in labor-intensive industries. As the larger piece of the global economy, they will never achieve stable and
theory of competitive advantage predicts, instead of each country consistent economic growth. Further, the theory states that since
producing all the goods and services it needs domestically, a core nations, as well as the World Bank, choose which countries to
country's economy tends to specialize in certain areas where it is make loans to, and for what they will loan funds, they are creating
more productive (though in the long term the differences may be highly segmented labor markets that are built to benefit the dominant
equalized, resulting in a more balanced economy). market countries.

Cultural Effects At first glance, it seems this theory ignores the formerly low-income
nations that are now considered middle-income nations and are on
Economic globalization may affect culture. Populations may mimic their way to becoming high-income nations and major players in the
the international flow of capital and labor markets in the form of global economy, such as China. But some dependency theorists
immigration and the merger of cultures. Foreign resources and would state that it is in the best interests of core nations to ensure
economic measures may affect different native cultures and may the long-term usefulness of their peripheral and semi-peripheral
cause assimilation of a native people. As these populations are partners. Following that theory, sociologists have found that entities
exposed to the English language, computers, western music, and are more likely to outsource a significant portion of a company’s work
North American culture, changes are being noted in shrinking family if they are the dominant player in the equation; in other words,
size, immigration to larger cities, more casual dating practices, and companies want to see their partner countries healthy enough to
gender roles are transformed. provide work, but not so healthy as to establish a threat (Caniels and
Roeleveld 2009).
Yu Xintian noted two contrary trends in culture due to economic
globalization. Yu argued that culture and industry not only flow from SUMMARY:
the developed world to the rest, but trigger an effort to protect local
cultures. He notes that economic globalization began after World War Modernization theory and dependency theory are two of the most
II, whereas internationalization began over a century ago. common lenses sociologists use when looking at the issues of global
inequality. Modernization theory posits that countries go through
George Ritzer wrote about the McDonaldization of society and how evolutionary stages and that industrialization and improved
fast food businesses spread throughout the United States and the technology are the keys to forward movement. Dependency theory,
rest of the world, attracting other places to adopt fast food culture. on the other hand, sees modernization theory as Eurocentric and
Ritzer describes other businesses such as The Body Shop, a British patronizing. With this theory, global inequality is the result of core
cosmetics company, that have copied McDonald's business model nations creating a cycle of dependence by exploiting resources and
for expansion and influence. In 2006, 233 of 280 or over 80% of new labor in peripheral and semiperipheral countries.
McDonald's opened outside the US. In 2007, Japan had 2,828
McDonald's locations. B. MARKET INTEGRATION

Global media companies export information around the world. This Market integration occurs when prices among different locations or
creates a mostly one-way flow of information, and exposure to mostly related goods follow similar patterns over a long period of time.
western products and values. Companies like CNN, Reuters and the Groups of goods often move proportionally to each other and when
BBC dominate the global airwaves with western points of view. Other this relation is very clear among different markets it is said that the
markets are integrated. Thus, market integration is an indicator that
explains how much different markets are related to each other. A Within Asia major effects of market integration were seen. Where a
marketer plays the role of an integrator in the sense that he collects market area is fully integrated, prices of a particular commodity will
feedback or vital inputs from other channel members and consumers equalize across that area. Fluctuations in prices across the region
and provides product solutions to customers by coordinating multiple will synchronize, demonstrating that they are subject to the same
functions of organization. influences. Transport costs are crucial, and a commodity will only
move from one location to another if the cost of production in the
History of Global Market Integration 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
Market Integration 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
The nineteenth century saw substantial advances in international
centers (the British free ports
market integration, and the creation of a truly world economy.
Singapore and Hong Kong), and in the receiving countries
Technological advance was critical in this. The railroad locomotive
(India, Ceylon, the Straits Settlements, the Dutch East
and the marine steam engine revolutionized world transport from the
Indies, the Philippines, China, and Japan). The movement
1830s onwards. Steamships connected the world's ports to each
of migrant workers to tin mines and rubber and tea
other, and from the ports the railroads ran inland, creating a new and
plantations in places like the Straits
faster world transport network. Freight rates fell, and goods could be
Settlements, the Dutch East Indies, and Ceylon had created
carried across the world to ever more distant markets and still be
increased demand for rice in those countries which was now satisfied
cheaper in those faraway places than the same item produced
by rice imports from those countries capable of producing supplies.
locally. Linked closely to these changes was the electric telegraph,
Shifts in the flow of rice from country to country and from year to year
whose lines often ran along the new railroad networks. Telegraph
reflected harvest variations in both producers and consumers. The
systems were established in most countries, including the major
transport and information networks established in the second half of
market of British India, until 1854. Beginning with the first
the nineteenth century had created an intra-Asian economy in which
transatlantic cable, which was laid by steamship in 1866, these
the income received by rice cultivators was spent on the products of
existing domestic telegraph systems were linked together by marine
the new manufacturing industries of the region, particularly the cotton
cables. The resulting international information network was crucial in
yarn and textiles of the factories of Bombay, Shanghai, and Osaka.
communicating details of prices and price movements, reducing the
Rice was also supplied in very substantial quantities to Europe,
cost of making deals and transactions. An infrastructural change of
where it was used for food, brewing, and starch. It joined a flow of
major significance came in 1869 with the opening of the Suez Canal,
wheat to Europe from Karachi. This period saw the integration of the
which linked the Mediterranean Sea by way of Egypt to the Red Sea:
world wheat market and the world rice market, creating a global
now ships sailing from Europe to Asia could take the new shortcut
market in basic food grains. The two markets interlocked in British
rather than sail all the way around Africa. Immediately Asia was some
India, which both consumed and exported both crops. Now the world
4,000 miles closer to Europe in transport terms, and freight costs fell.
price of wheat and rice moved in unison, which meant that the
Yet the low efficiency of early steamships meant that many bulk
incomes of U.S. farmers and other world wheat producers were
cargoes such as rice still were carried to Europe from Asia by sail
influenced by forces such as a monsoon in India!
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- But this integration of the world wheat markets and world rice
expansion engine finally drove the sailing ships from the oceans markets had serious consequences. During the 1920s there was
during the last quarter of the nineteenth century. great expansion in the amount of land under wheat and rice in the
world at large. Normally, good wheat harvests were offset by poor
rice harvests, and good rice harvests were offset by poor wheat
RISE OF FREE TRADE
harvests. But when favorable climatic conditions occurred for both
grains, particularly beginning in 1928, this resulted in a glut, forcing
Physical changes in lowering freight and transaction costs were not down prices and bankrupting farmers all over the world. As farm
the only forces stimulating market integration. It was normal for incomes fell, so did the ability of farmers to purchase manufactured
countries to impose import duties on foreign goods, seeking to gain goods, and this affected manufacturers, contributing to the worldwide
an inflow of gold in their foreign trade accounts by selling more to Great Depression of the 1930s. As the depression bit, countries
each of their trading partners than they bought from them. But in increased their tariff duties to keep foreign products out of their
1846 the merchants of Manchester, England, the center of the world's markets in order to help their own manufacturers and farmers. In
cotton textile industry, struck their famous victory for free trade by 1932 even Britain, with its deep commitment to free trade, was forced
forcing the British government to abandon tariffs on all imported to turn to protectionism and surrender the free trade ideal. Free trade
goods apart from a few luxury items. The tariffs on wheat were the and open markets were unfortunate casualties of the Great
first to go, opening up the Great Plains of the United States for wheat Depression, and in fact their breakdown contributed to the slump's
production to supply Britain. With free trade, no longer did trade prolongation. The restoration of free trade and open markets was one
relations with a foreign country have to balance or be in surplus; of the primary aims of those planning the operation of the world
rather, a deficit in trade with one country could be offset by a surplus economic system after the end of world hostilities in 1945.otton yarn
in trade with another country, liberalizing world trade in a way never and textiles from Bombay.
previously seen. Britain moved heavily into deficit on trade account,
but this was sustained by considerable invisible inflows generated by
Overview of International Financial Institutions (IFIs):
her substantial overseas investments, particularly in the railroad
systems of the United States.
African Development Bank
This policy of open markets became a dominating principle extended
Asian Development Bank
through much of the
British Empire, including the key market of India, although Canada
and the State of Victoria in Australia chose to be notable exceptions. Caribbean Development Bank
The United States retained import duties, and after short periods of
trade liberalization most European countries also returned to European Bank for Reconstruction & Development
protectionism so that their new manufacturing industries could
establish themselves safe from the competition of cheaper goods Inter-American Development Bank
from Britain. Britain itself ran heavy trade deficits with the United
States due largely to grain purchases, and it also had deficits with World Bank
the newly industrialized countries of continental Europe, due to
purchases of manufactured goods. Britain was able to sustain these
Other IFIs & Institutions
deficits because of its own sales of manufactures, especially cotton
yarn and textiles, to India and the rest of Asia, including China. So
the open-market polices of the British Empire played a crucial role in In many parts of the world, international financial institutions (IFIs)
sustaining a complicated interrelated mesh of world payments, and play a major role in the social and economic development programs
newly industrializing countries took advantage of these open markets of nations with developing or transitional economies. This role
whilst maintaining their own protective walls. Each country could includes advising on development projects, funding them and
specialize in producing those goods they were best endowed by assisting in their implementation.
nature to produce, and could exchange them for the other products
they needed. The vast market of British India was crucial, and though Characterized by AAA-credit ratings and a broad membership of
Britain, the colonial power, was the leading supplier of manufactured borrowing and donor countries, each of these institutions operates
goods there, Germany and other industrial nations were free to trade, independently. All however, share the following goals and objectives:
and did so very effectively. India itself had big surpluses with the rest
of Asia, particularly China, because of its sales of opium and of cotton 1. to reduce global poverty and improve people's
yarn and textiles from Bombay. living conditions and standards; 2. to support
sustainable economic, social and institutional
INTEGRATION OF GRAIN MARKETS AT THE TURN OF THE development; and 3. to promote regional
CENTURY cooperation and integration.
IFIs achieve these objectives through loans, credits and grants to You should be aware, though, that project cycles can often last for
national governments. Such funding is usually tied to specific several years, so being involved in a project from start to finish can
projects that focus on economic and socially sustainable require a substantial long-term investment on your part. However, the
development. IFIs also provide technical and advisory assistance to smaller components within a given project cycle can provide many
their borrowers and conduct extensive research on development shorter term opportunities.
issues. In addition to these public procurement opportunities, in
which multilateral financing is delivered to a national government for In general, the project cycle consists of the following stages:
the implementation of a project or program, IFIs are increasingly
lending directly to non-sovereign guaranteed (NSG) actors. These Identification
include sub-national government entities, as well as the private
sector.
The IFI and the borrowing country identify projects that are
appropriate for the country's development strategy and suitable for
Canada is a partner and shareholder in the World Bank, which is IFI support. Pre-feasibility studies are often required at this stage.
the major global IFI, and in several regional development banks.
This membership permits Canadian firms and individuals to
Preparation
compete for procurement opportunities in bank-funded projects
and programs.
Once a proposed project has entered the project pipeline, the
borrower and IFI technical staff study and define it further. The actual
Working with IFIs:
design and preparation of the project are the borrowing country's
responsibility. During this stage, the borrower and/or the IFI
During recent years, IFIs have made considerable progress in frequently hire consultants to help with feasibility studies, detailed
harmonizing the way they procure goods and services. In many project design and the assessment of the project's environmental
cases, they are now using similar policies and procedures, although and social effects.
the interpretation of these approaches may still vary at the level of
the individual institution. In the sections that follow, we'll look at the
Appraisal
common features of IFI procurement and how it works. Skip directly
to the section on:
IFI staff conduct in-depth assessments of the technical, financial and
economic elements of the project. The appraisal phase is the IFI's
Country Strategies
responsibility and culminates in a project plan.
The Project Cycle
The Procurement Process
Project and Procurement Information Negotiation
Suppliers of Goods, Works, Equipment and Non-Consulting
Services The IFI and the borrower negotiate the funding agreement and the
Consultants and Consulting Services project implementation plans. Negotiations result in a loan or funding
Corporate and Institutional Procurement document that is presented to the appropriate IFI board(s) for
Private Sector Lending approval. The funding becomes effective after board approval and
Trust Funds after the country has signed the documents. Funds can now be
Business Approach disbursed, thus commencing the implementation stage of the project.
Country Strategies
Implementation and Supervision
All IFIs use country strategy documents, as these are fundamental to
establishing an IFI's lending priorities for a particular country. Based Implementation of the project, including procurement, is the
on the country's own vision for its long-term development and written responsibility of the borrower and is carried out with minimal IFI
by the IFI, the document lays out the IFI's support program for the assistance. However, the IFI does oversee all major procurement
nation. decisions made by the borrower. Most of the funds are spent during
this phase, which provides the bulk of the procurement opportunities
A country strategy begins by analyzing the causes of poverty within for contractors.
the population and identifying key areas where the IFI's assistance
can reduce it most effectively. This establishes a foundation for the Evaluation
IFI's future activities in the country, which can range across the entire
spectrum of economic and social needs. This final phase is an assessment of the project and of the results
achieved. It is performed after the project has been completed and
The development of the country strategy involves extensive all funds have been disbursed.
discussions with many stakeholders, including government
authorities, representatives of civil society, non-government The Role of Financial Institutions in the Creation of the Global
organizations, development agencies and the private sector. These Economy:
discussions are crucial to the success of the strategy because they
promote collaboration and coordination among the various national
Characteristics of a Multinational Corporation
partners.
The following are the common characteristics of multinational
Country Strategy Documents:
corporations:
African Development Bank (AfDB) - Country Strategy Papers
1. Very high assets and turnover
Asian Development Bank (ADB) - Country Planning Documents
To become a multinational corporation, the business must be large
and must own a huge amount of assets, both physical and financial.
Caribbean Development Bank (CDB) - Country Strategies
The company’s targets are high, and they are able to generate
substantial profits.
European Bank for Reconstruction and Development (EBRD) -
Country Strategies
2. Network of branches
Inter-American Development Bank (IDB) - Country Strategy,
available via Country pages Multinational companies maintain production and marketing
operations in different countries. In each country, the business may
oversee multiple offices that function through several branches and
World Bank (WB) - Country Partnership Framework (CPF) (also
subsidiaries.
called in some cases Country Partnership Strategy or Country
Assistance Strategy)
3. Control
The Project Cycle
In relation to the previous point, the management of offices in other
All IFI-funded projects are implemented by the borrowing countries, countries is controlled by one head office located in the home
not by the IFI providing the funds. However, all borrowers must follow country. Therefore, the source of command is found in the home
the IFI's rules and procedures throughout the entire project cycle. country.
This is intended to guarantee efficiency and transparency in the use
of IFI funds. 4. Continued growth

The project cycle, which has similar stages for all IFIs, is the Multinational corporations keep growing. Even as they operate in
framework for the design, preparation, implementation, completion other countries, they strive to grow their economic size by constantly
and evaluation of a project. Business opportunities occur throughout upgrading and by conducting mergers and acquisitions.
the cycle, so becoming familiar with it will increase your chances of
identifying an opportunity and securing a contract.
 5. Sophisticated technology that are located in other countries. Unlike the centralized model, the
regionalized model includes subsidiaries and affiliates that all report
When a company goes global, they need to make sure that their to the headquarters.
investment will grow substantially. In order to achieve substantial
growth, they need to make use of capital-intensive technology, 3. Multinational
especially in their production and marketing activities.
In the multinational model, a parent company operates in the home
6. Right skills country and puts up subsidiaries in different countries. The difference
is that the subsidiaries and affiliates are more independent in their
Multinational companies aim to employ only the best managers, operations.
those who are capable of handling large amounts of funds, using
advanced technology, managing workers, and running a huge Advantages of Being a Multinational Corporation
business entity.
There are many benefits of being a multinational corporation
7. Forceful marketing and advertising including:

One of the most effective survival strategies of multinational 1. Efficiency

corporations is spending a great deal of money on marketing and
advertising. This is how they are able to sell every product or In terms of efficiency, multinational companies are able to reach their
brand they make. target markets more easily because they manufacture in the
countries where the target markets are. Also, they can easily access
8. Good quality products raw materials and cheaper labor costs.

Because they use capital-intensive technology, they are able to 2. Development

produce top-of-the-line products.
In terms of development, multinational corporations pay better than
Reasons for Being a Multinational Corporation domestic companies, making them more attractive to the local labor
force. They are usually favored by the local government because of
There are various reasons why companies want to become the substantial amount of local taxes they pay, which helps boost the
multinational corporations. Here are some of the most common country’s economy.
motivations:
3. Employment
1. Access to lower production costs
In terms of employment, multinational corporations hire local workers
Setting up production in other countries, especially in developing who know the culture of their place and are thus able to give helpful
economies, usually translates to spending significantly less on insider feedback on what the locals want.
production costs. Though outsourcing is a way of achieving the
objective, setting up manufacturing plants in other countries may be 4. Innovation
even more cost-efficient.
As multinational corporations employ both locals and foreign
Due to their large size, MNCs can take advantage of economies of workers, they are able to come up with products that are more
scale and grow their global brand. The growth is done through creative and innovative.
strategic manufacturing/service placement, which allows the
corporation to take advantage of undervalued services across the Foreign Direct Investment
globe, more efficient and inexpensive supply chains, and advanced
technological/R&D capacity. Foreign direct investments are prevalent within multinational
corporations. The investments occur when an investor or company
2. Proximity to target international markets from one country makes an investment outside the country of
operation.
It is beneficial to set up business in countries where the target
consumer market of a company is located. Doing so helps reduce Foreign investments most often occur when a foreign business is
transport costs and gives multinational corporations easier access to established or bought outright. It can be distinguished from the
consumer feedback and information, as well as to consumer purchase of an international portfolio that only contains equities of
intelligence. the company, rather than purchasing more direct control.

International brand recognition makes the transition from different C. THE GLOBAL INTERSTATE
countries and their respective markets easier and decreases per
capita marketing costs as the same brand vision can be applied The key challenges of globalization are diffuse and outside the
worldwide. control of any one state. In its most ambitious and forward looking
form, global governance seeks to create an international social
3. Access to a larger talent pool fabric, albeit imperfect, which cumulatively, amounts to more than the
sum of its parts. Global Governance in the Twenty-first-century aims
Multinational corporations are also known to hire only the best talent to open a number of new areas for further analysis, and in particular,
from around the world, which allows management to provide the best to begin a process of cross-fertilization between different disciplines
technical knowledge and innovative thinking to their product or Globalization affects governance indirectly through peace and
service. stability as well as directly. Culturally, globalization spreads new
ideas, technologies, tools, attitudes, and social networks, and these
have direct effects on governance. Examining issues related to
4.Avoidance of tariffs
global According to the disciplining hypothesis, globalization
restrains governments by inducing increased budgetary pressure.
When a company produces or manufactures its products in another
country where they also sell their products, they are exempt from
What are the Effects of Globalization to Governments?
import quotas and tariffs.

Models of MNCs The biggest effect is a reduction of economic independence. The

increasing market size with the effects of Absolute or
Comparative Advantages in manufacturing creates the need to
The following are the different models of multinational corporations: specialize in narrow product production or service areas to be
able to compete successfully.
1. Centralized This requires “OPEN MARKET” policies. On the opposite end of the
spectrum, it could just as easily result in “PROTECTIONIST” policies
In the centralized model, companies put up an executive to restrict domestic access to markets using the tools of import
headquarters in their home country and then build various quotas and/or tariffs on imported goods. The main problem with
manufacturing plants and production facilities in other countries. Its restricting market access using such tools is RETALIATION from
most important advantage is being able to avoid tariffs and import other countries in implementing similar policies against that
quotas and take advantage of lower production costs. country… the popular press refers to this as a “Trade War.” When
this happens, the larger market has a distinct advantage as its people
2. Regional can better afford slightly higher prices for imported goods. Global
corporations don’t generally like that an excise tax is being applied to
their goods that will impact sales volumes and profits to the their
The regionalized model states that a company keeps its
shareholders.
headquarters in one country that supervises a collection of offices
If a marketing study shows sales volumes are significantly affected 4. Economic globalism/globalization: This dimension is the
in revenue losses… Global Corporations simply establish Wholly most commonly identified and understood one. Economic
Owned Subsidiaries in the countries where their brands are already globalization had improved productivity through increased capital
well-established, and continue selling them without the the excise availability, technological innovation, labour migration and trade
taxes being applied. In other cases, third countries, not involved in around the globe. However, it has also brought about increase in
such Trade Disputes… called “Terms of Trade,” are used to funnel economic inequality. Bilateral and multilateral trade agreements
goods without being subject to the import tax. Cyprus is often used a (beneficial for a few) are proliferating at the cost of global free trade
gateway to import Turkish products into the European Union without (beneficial for all).
going through procedures to declare Value Added Taxes for such
goods making them far cheaper on European markets. Spanish Other dimensions include information, cultural, educational and
Sahara is often used as a colony to mfr Made In EU products using technological globalism/globalization. Every dimension of
non-EU citizens in Africa, to get around import laws for access to EU globalism/globalization has contributed and will contribute
markets. The large Spanish retail giant that owns the Bershika, Zara, constructively and destructively to humanity. Humanity should
and Stradavarious brands has clothing made on a large floating collectively strive to minimize the destructive effects and maximize
platform in the Mediterranean Sea to get around EU Safety at Work the constructive effects.
labor laws and import restrictions. Turkey sold refined Iranian
petroleum to Syria during a UN Sec Council embargo for such
LESSON 2:
imports to ISIL (Da’esh). If there is a will and a market, there is always
a method to get around t In contrast, globalization refers to the
increase or decline in the degree of globalism. ... In short, consider D. CONTEMPORARY GLOBAL GOVERNANCE
globalism as the underlying basic network, while globalization refers
to the dynamic shrinking of distance on a large scale. Globalism is a Global governance brings together diverse actors to coordinate
phenomenon with ancient roots. collective action at the level of the planet. The goal of global
governance, roughly defined, is to provide global public goods,
Internationalism VS. Globalism particularly peace and security, justice and mediation systems for
conflict, functioning markets and unified standards for trade and
industry. One crucial global public good is catastrophic risk
Internationalism is political, economic and cultural cooperation
management – putting appropriate mechanisms in place to
between nations while, Globalism is an ideology based on the
maximally reduce the likelihood and impact of any event that could
belief that people, goods and information ought to be able to
cause the death of 1 billion people across the planet, or damage of
cross national borders unfettered.
equivalent magnitude. See here for a list of global catastrophic risks.
Globalism Versus Globalization
The leading institution in charge of global governance today is the
United Nations. It was founded in 1945, in the wake of the Second
In contrast, globalization refers to the increase or decline in the World War, as a way to prevent future conflicts on that scale. The
degree of globalism. ... In short, consider globalism as the United Nations does not directly bring together the people of the
underlying basic network, while globalization refers to the dynamic world, but sovereign nation states, and currently counts 193
shrinking of distance on a large scale. members who make recommendations through the UN General
Assembly. The UN’s main mandate is to preserve global security,
Globalism is a political ideology that puts interests of the world above which it does particularly through the Security Council. In addition the
those of individual nations. This brings commitments to freer trade in UN can settle international legal issues through the International
goods, services and factors of production- capital and labor. Court of Justice, and implements its key decisions through the
Globalism can be further explained in terms of economic, military, Secretariat, led by the Secretary General.
environmental and socio-cultural globalism, towards an
interconnected and interdependent world. The United Nations has added a range of areas to its core mandate
since 1945. It works through a range of agencies and associated
Globalization, on the other hand, is the degree of globalism. It is a institutions particularly to ensure greater shared prosperity, as a
process of intensified crossborder exchange of goods, services, desirable goal in itself, and as an indirect way to increase global
capital, technology, ideas, information, legal systems, and people. In stability. As a key initiative in that regard, in 2015, the UN articulated
economic terms, it is achieved through liberalization and opening up the Sustainable Development Goals, creating common goals for the
of national economies for developing a global market. collective future of the planet.

Globalism can be achieved only when the process of globalization Beyond the UN, other institutions with a global mandate play an
ensures principle of free trade and fair competition through the important role in global governance. Of primary importance are the
democratic multilateral institutions. We need to put concerted efforts so-called Bretton Woods institutions: the World Bank and the IMF,
towards ideals of globalism which will ensure a truly globalized whose function is to regulate the global economy and credit markets.
society. Those institutions are not without their critics for this very reason,
being often blamed for maintaining economic inequality.
The terms globalism and globalization characterize the gradually
evolving interaction and integration of economies and societies Global governance is more generally effected through a range of
around the world. organizations acting as intermediary bodies. Those include bodies in
charge of regional coordination, such as the EU or ASEAN, which
Globalism can be defined as the network of interconnectedness coordinate the policies of their members in a certain geographical
spanning multi-continental distances drawing them close together zone. Those also include strategic or economic initiatives under the
economically, socially, informationally and culturally. Globalization leadership of one country – NATO for the US or China’s Belt and
can be defined as the process of increasing the interconnectedness Road Initiative for instance – or more generally coordinating defense
amidst multiple continents. It is a process that deepens globalism (or) or economic integration, such as APEC or ANZUS. Finally, global
enhances the degree of globalism. governance relies on looser norm-setting forums, such as the G20,
the G7, the World Economic Forum: those do not set up treaties, but
There exists various dimensions of globalism and globalization, each offer spaces for gathering, discussing ideas, aligning policy and
has had and will have profound impacts (good and bad) on humanity. setting norms. This last category could be extended to multi-
stakeholder institutions that aim to align global standards, for
instance the Internet Engineering Taskforce (IETF) and the World
1. Environmental globalism/globalization: Can be regarded as
Wide Web Consortium (W3C).
the earliest dimension. Environment and climate variations have
dictated the location and numbers of human population for millenias.
Warming of global temperatures led to expansion of regions suitable In summary, global governance is essential but fragmented, complex
for human settlement. Ozone layer depletion and global warming are and little understood. In this context, the key questions raised by the
some contemporary adverse effects of environmental globalism. Global Challenges Foundation are, how to reform institutions, how to
develop alternative institutions, and how to use the new possibilities
of technology to improve governance.
2. Biological globalism/globalization: Spread of crops such as
maize & potato enabled humans to lead settled lives. On the other
hand spread of diseases such as small pox, plagues and HIV have
decimated human populations.

3. Strategic/Military globalism/globalization: Empires of

Alexander, Romans, Mongols, Huns, Mauryans & Mugals had
conquered vast swathes of land across continents introducing
military globalization. Modern day events such as World Wars and
Cold Wars involving opposing super powers have introduced the
dimension of strategic globalization.