CHED GE Learning Outcomes - Compliant

Module 3.
The Globalization of Economy

At the end of the discussions in this module, the students are expected to:
1. Define global economy;
2. Identify the actors that facilitate economic globalization;
3. Discuss the modern world system; and
4. Articulate a stance on global economic integration.
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Introduction

Much of the information in this module were taken from Immanuel Wallerstein who
attempted to explain why modernization had such wide-ranging and different effects on the
world. He explains how political and economic conditions after the breakdown of feudalism
transformed northwestern Europe into the predominant commercial and political power. The
geographic expansion of the capitalist world economy altered political systems and labor
conditions wherever it was able to penetrate. Although the functioning of the world
economy appears to create increasingly larger disparities between the various types of
economies, the relationship between the core and its periphery and semi-periphery remains
relative, not constant. Technological advantages, for example, could result in an expansion
of the world economy overall, and precipitate changes in some peripheral or semi-peripheral
areas. However, Wallerstein asserted that an analysis of the history of the capitalist world
system shows that it has brought about a skewed development in which economic and social
disparities between sections of the world economy have increased rather than provided
prosperity for all.

The Global Economy and the Development of a Modern World System

Shangquan (2000) stated: economic globalization refers to the increasing

interdependence of world economies as a result of the growing scale of cross-border trade of
commodities and services, flow of international capital and wide and rapid spread of
technologies. It reflects the continuing expansion and mutual integration of market frontiers,

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and is an irreversible trend for the economic development in the whole world at the turn of
the millennium.
Human societies across the globe have established progressively closer contacts over
many centuries, but recently the pace has dramatically increased. The discovery of air travel
such as jets, airplanes, telephone services, email, computers, huge oceangoing vessels,
instant capital flows, have made the world more interdependent than ever. Multinational
Corporations manufacture products in many countries and sell to consumers around the
world. Money, technology and raw materials move ever more swiftly across national
borders. Along with products and finances, ideas and cultures circulate more freely. As a
result, laws, economies, and social movements are forming at the international level.
Many politicians, academics, and journalists treat these trends as both inevitable and
(on the whole) welcome. But for billions of the world's people, business-driven globalization
means uprooting old ways of life and threatening livelihoods and cultures. The global social
justice movement, itself a product of globalization, proposes an alternative path, more
responsive to public needs. Intense political disputes will continue over globalization's
meaning and its future direction (Global Policy Forum, 2016).
Advances in communication and transportation technology, combined with free-
market ideology, have given goods, services, and capital unprecedented mobility. The
phenomenon of globalization expands and accelerates the movement and exchange of ideas
and commodities over vast distances. It is common to discuss the phenomenon from an
abstract, global perspective, but in reality, globalization's most important impacts are often
highly localized and felt.
Thus, the following are actors that facilitated the globalization of the economy:
1. Discoveries and inventions (technology, equipment, travel, telecommunication,
machinery, etc...);
2. The creation of multi national corporations;
3. Circulation of finances, ideas, cultures;
4. Freer market ideology; and
5. More liberal economic policies, laws, economies and social movements.

In his book, The Modern World System: Capitalist Agriculture and the Origins of the
European World Economy in the Sixteenth Century, Immanuel Wallerstein develops a
theoretical framework to understand the historical changes involved in the rise of the
modern world. The modern world system, essentially capitalist in nature, followed the crisis
of the feudal system and helps explain the rise of Western Europe to world supremacy

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between 1450 and 1670. According to Wallerstein, his theory makes possible a
comprehensive understanding of the external and internal manifestations of the
modernization process during this period and makes possible analytically sound
comparisons between different parts of the world.

Medieval Prelude
Before the sixteenth century, when Western Europe embarked on a path of capitalist
development, "feudalism" dominated West European society. Between the years 1150-1300,
both population as well as commerce expanded within the confines of the feudal system.
However, from years 1300-1450, this expansion ceased, creating a severe economic crisis.
According to Wallerstein, the feudal crisis was probably precipitated by the interaction of
the following factors:
1. Agricultural production fell or remained stagnant. This meant that the burden of
peasant producers increased as the ruling class expanded.
2. The economic cycle of the feudal economy had reached its optimum level;
afterwards the economy began to shrink.
3. A shift of climatological conditions decreased agricultural productivity and
contributed to an increase in epidemics within the population.

The New European Division of Labor

Wallerstein argues that Europe moved towards the establishment of a capitalist world
economy in order to ensure continued economic growth. However, this entailed the
expansion of the geographical size of the world in question, the development of different
modes of labor control and the creation of relatively strong state machineries in the states of
Western Europe.
The new capitalist world system was based on an international division of labor that
determined relationships between different regions as well as the types of labor conditions
within each region. In this model, the type of political system was also directly related to
each region's placement within the world economy. As a basis for comparison, Wallerstein
proposes four different categories, core, semi-periphery, periphery, and external, into which
all regions of the world can be placed. The categories describe each region's relative position
within the world economy as well as certain internal political and economic characteristics.

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A. The Core
The core regions benefited the most from the capitalist world economy. For the
period under discussion, much of northwestern Europe (England, France, Holland)
developed as the first core region. Politically, the states within this part of Europe developed
strong central governments, extensive bureaucracies, and large mercenary armies. This
permitted the local bourgeoisie to obtain control over international commerce and extract
capital surpluses from this trade for their own benefit.
As the rural population expanded, the small but increasing number of landless wage
earners provided labor for farms and manufacturing activities. The switch from feudal
obligations to money rents in the aftermath of the feudal crisis encouraged the rise of
independent or yeoman farmers but squeezed out many other peasants off the land. These
impoverished peasants often moved to the cities, providing cheap labor essential for the
growth in urban manufacturing. Agricultural productivity increased with the growing
predominance of the commercially-oriented independent farmer, the rise of pastoralism, and
improved farm technology.

B. The Periphery
On the other end of the scale lay the peripheral zones. These areas lacked strong
central governments or were controlled by other states, exported raw materials to the core,
and relied on coercive labor practices. The core expropriated much of the capital surplus
generated by the periphery through unequal trade relations.
Two areas, Eastern Europe (especially Poland) and Latin America, exhibited
characteristics of peripheral regions. In Poland, kings lost power to the nobility as the region
became a prime exporter of wheat to the rest of Europe. To gain sufficient cheap and easily
controlled labor, landlords forced rural workers into a "second serfdom" on their commercial
estates.
In Latin America, the Spanish and Portuguese conquests destroyed indigenous
authority structures and replaced them with weak bureaucracies under the control of these
European states. Powerful local landlords of Hispanic origin became aristocratic capitalist
farmers. Enslavement of the native populations, the importation of African slaves, and the
coercive labor practices such as the encomienda and forced mine labor (as in the Philippines
during the Spanish Times) made possible the export of cheap raw materials to Europe.
Labor systems in both peripheral areas differed from earlier forms in medieval
Europe in that they were established to produce goods for a capitalist world economy and
not merely for internal consumption. Furthermore, the aristocracy both in Eastern Europe

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and Latin America grew wealthy from their relationship with the world economy and could
draw on the strength of a central core region to maintain control.

C. The Semi-Periphery
Between the two extremes lie the semi-peripheries. These areas represented either
core regions in decline or peripheries attempting to improve their relative position in the
world economic system. They often also served as buffers between the core and the
peripheries. As such, semi-peripheries exhibited tensions between the central government
and a strong local landed class.
Good examples of declining cores that became semi-peripheries during the period
under study are Portugal and Spain. Other semi-peripheries at this time were Italy, southern
Germany, and southern France. Economically, these regions retained limited but declining
access to international banking and the production of high-cost high-quality manufactured
goods.
Unlike the core, however, they failed to predominate in international trade and thus
did not benefit to the same extent as the core. With a weak capitalist rural economy,
landlords in semi-peripheries resorted to sharecropping. This lessened the risk of crop failure
for landowners, and made it possible at the same time to enjoy profits from the land as well
as the prestige that went with landownership.
According to Wallerstein, the semi-peripheries were exploited by the core but, as in
the case of the American empires of Spain and Portugal, often were exploiters of peripheries
themselves. Spain, for example, imported silver and gold from its American colonies,
obtained largely through coercive labor practices, but most of this specie went to paying for
manufactured goods from core countries such as England and France rather than
encouraging the formation of a domestic manufacturing sector.

D. External Areas
These areas maintained their own economic systems and, for the most part, managed
to remain outside the modern world economy. Russia fits this case well. Unlike Poland,
Russia's wheat served primarily to supply its internal market. It traded with Asia as well as
Europe; internal commerce remained more important than trade with outside regions. Also,
the considerable power of the Russian state helped regulate the economy and limited foreign
commercial influence.

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Stages of Growth
The development of the modern world economy lasted centuries, during which time
different regions changed their relative position within this system. Wallerstein divides the
history of the capitalist world system into four stages, which for this purposes can be
simplified and divided into two basic phases:

Stages 1 and 2:
This period follows the rise of the modern world system between years 1450-1670.
When the Hapsburg Empire failed to convert the emerging world economy to a world
empire, all the existing western European states attempted to strengthen their respective
positions within the new world system. In order to accomplish this move, most of the states
consolidated their internal political economic and social resources by:
a. Bureaucratization. This process aided the limited but growing power of the king.
By increasing the state power to collect taxes, the kings eventually increased state
power to borrow money and thereby further expand the state bureaucracy. At the end
of this stage, the monarch had become the supreme power and instituted what has
been called "absolute monarchy."
b. Homogenization of the local population. To underline state involvement in the new
capitalist system and encourage the rise of indigenous capitalist groups, many core
states expelled minorities. These independent capitalist groups, without deep rooted
local ties, were perceived as threats to the development of strong core states. The
Jews in England, Spain, and France were all expelled with the rise of absolute
monarchy. Similarly, Protestants, who were often the merchants in Catholic
countries, found they were targets of the Catholic Church. The Catholic Church, a
trans-national institution, found the development of capitalism and the strengthening
of the state threatening.
c. Expansion of the militia to support the centralized monarchy and to protect the new
state from invasions.
d. The concept of absolutism introduced at this time related to the relative
independence of the monarch from previously established laws. This distinction
freed the king from prior feudal laws.
e. Diversification of economic activities to maximize profits and strengthen the
position of the local bourgeoisie.

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By 1640, northwestern European states secured their position as core states in the
emerging economy. Spain and northern Italy declined to semi-peripheral status, while
northeastern Europe and Iberian America became peripheral zones. England gained ground
steadily toward core status.
During this period, workers in Europe experienced a dramatic fall in wages. This
wage fall characterized most European centers of capitalism with the exception of cities in
north and central Italy and Flanders. The reason for this exception was that these cities were
relatively older centers of trade, and the workers formed strong politico-economic groups.
The resistance of workers broke down the ability of employers to accumulate the large
surplus necessary for the advancement of capitalism. Meanwhile, employers in other parts of
Europe profited from the wage lag by accumulating large surpluses for investment.
Long - distance trade with the Americas and the East provided enormous profits, in
excess of 200% - 300%, for a small merchant elite. Smaller merchants could not hope to
enter this profiteering without substantial capital and some state help. Eventually, the profits
of the trans-Atlantic trade filtered down and strengthened the merchants' hold over European
agriculture and industries. Merchants with sufficient power accumulated profits through the
purchase of goods prior to their production. By controlling the costs of finished products,
merchants could extend their profit margin and control the internal markets. This powerful
merchant class provided the capital necessary for the industrialization of European core
states.

Stages 3 and 4 (18th century and beyond):

Industrial rather than agricultural capitalism represented this era. With the shifting
emphasis on industrial production, the following reactions characterized this period:
a. European states participated in active exploration for the exploitation of new
markets.
b. Competitive world systems such as the Indian Ocean system were absorbed into the
expanding European world system. With the independence of the Latin American
countries, these areas as well as previously isolated zones in the interior of the
American continent entered as peripheral zones in the world economy. Asia and
Africa entered the system in the nineteenth century as peripheral zones.
c. The inclusion of Africa and the Asian continents as peripheral zones increased the
available surplus, allowing other areas such as the U.S. and Germany to enhance
their core status.

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d. During this phase, the core regions shifted from a combination of agricultural and
industrial interests to purely industrial concerns. Between 1700, England was
Europe's leading industrial producer as well as the leader in agricultural production.
By 1900, only 10% of England's population was engaged in agriculture.
e. By the 1900s, with the shift toward manufacturing, core areas encouraged the rise of
industries in peripheral and semi-peripheral zones so that they could sell machines to
these regions.

The capitalist global economy, as envisioned by Wallerstein, is a dynamic system

which changes over time. However, certain basic features remain in place. Perhaps most
important is that when one examines the dynamics of this system, the core regions of
northwestern Europe clearly benefited the most from this arrangement.
Through extremely high profits gained from international trade and from an
exchange of manufactured goods for raw materials from the periphery (and, to a lesser
extent, from the semi-peripheries), the core enriched itself at the expense of the peripheral
economies. This, of course, did not mean either that everybody in the periphery became
poorer or that all citizens of the core regions became wealthier as a result.
In the periphery, landlords for example often gained great wealth at the expense of
their underpaid coerced laborers, since landowners were able to expropriate most of the
surplus of their workers for themselves. In turn in the core regions, many of the rural
inhabitants, increasingly landless and forced to work as wage laborers, at least initially saw a
relative decline in their standard of living and in the security of their income. Overall,
certainly, Wallerstein sees the development of the capitalist world economy as detrimental
to a large proportion of the world's population.
Through this theory, Wallerstein attempts to explain why modernization had such
wide-ranging and different effects on the world. He shows how political and economic
conditions after the breakdown of feudalism transformed northwestern Europe into the
predominant commercial and political power. The geographic expansion of the capitalist
world economy altered political systems and labor conditions wherever it was able to
penetrate.
Although the functioning of the world economy appears to create increasingly larger
disparities between the various types of economies, the relationship between the core and its
periphery and semi-periphery remains relative, not constant. Technological advantages, for
example, could result in an expansion of the world economy overall, and precipitate changes
in some peripheral or semi-peripheral areas. However, Wallerstein asserts that an analysis of

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the history of the capitalist world system shows that it has brought about a skewed
development in which economic and social disparities between sections of the world
economy have increased rather than provided prosperity for all.

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