Chapter 2 The Structure of Globalization Overview

The world is becoming flat. We have seen a spectacular increase in

international trade and foreign direct investment in recent years. Many
countries engage in the global production sharing. Varian (2007) discusses an
interesting example of global production sharing for Apple’s iPod. iPod is
designed in the U.S. and assembled in China. However, most of its value
comes from parts made in other countries. He cites an interesting study Linden,
Kraemer, and Dedrick (2009) to illustrate the complexity of the global economy.
The retail value of the 30-gigabyte video iPod that the authors examined was
$299. The most expensive component in it was the hard drive, which was
manufactured by Toshiba and costs about $73.

The next mostcostly components were the display module (about $20),
the video/multimedia processor chip ($8) and the controller chip ($5). They
estimated that the final assembly, done in China, cost 1 2 only about $4 a unit.
The labor division at the global level gives developing countries an opportunity
to further explore their comparative advantage of labor abundance.

The processing trade is pervasive in China now and contribute to a

significant part of the trade in China. Globalization changes the production
pattern in China and helps Chinese economy develop. China imports a variety
of intermediate goods from abroad and assemble them into the final product in
China later ships final manufacturing goods to the rest of the world.
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 General Objectives

At the end of the chapter the students can:

1. gain a deeper understanding of the structure of globalization;
2. discuss the significant structures amidst globalization; and
3. appreciate the good effects of globalization to the economy.

Lesson 1 The Global Economy

Pre-discussion
It is said that global economy is the world economy or the
worldwide economy. It is also the system of trade and industry across the world
that has emerged due to globalization. In other words it is the way in which
countries' economies have been developing to operate collectively as one
system. Economic globalization refers to the expanding interdependence of
world economies. The term global economy also refers to the interconnected
worldwide economic activities that take place between multiple countries.
These economic activities can have either a positive or negative impact on the
countries involved. The International Monetary Fund (IMF) also defined
economic globalization as a historical process, the result of human innovation
and technological progress (IMF, 2008).

What to expect?

At the end of the lesson, the students can:

1. define economic globalization; and
2. identify the actors that facilitate economic globalization.
 Lesson Outline
It can be traced from history the time when there was an
economic movement in Asia, Africa, and Europe called the silk road, a trade
route which connects the East, particularly China, and the West. This route
brings us to the history of how Philippines was discovered by the Portuguese
and Spanish envoys in search of spices and eventually led to colonization. In
this present day time, foreign expatriates come to the country to manage their
company’s foreign subsidiaries. Likewise, the Philippines send thousands of
skilled workers to the Middle East as construction workers, seafarers, nurses,
etc..
Shangquan (2000) attributes this to the growing scale of cross-border
trade commodities and services, flow of international capital, and wide and
rapid spread of technology. In the Philippines, cross-border trading can be best
illustrated by the country’s trading partnerships with China, the United States
and Australia. Moreover, the flow of international capital can be observed in
foreign direct investments (FDI), a type of investment in which a company
establishes a business in another country for production of goods and services
and still takes part in the management of that business. A good example of this
is the Toyota Motors Philippines Corporation which is a subsidiary of Toyota
Motor Corporation based in Toyota Japan.
How does global economy work? A global economy is one in which goods and
services are traded across national borders. Because the trade is among
sovereign nations, those nations may enact trade restrictions that alter free
market outcomes. The New World Economy is characterized by:
1. More options for production. No matter what your production processes, the
chances are that the same capabilities exist elsewhere;
2. The chance to create new markets;
3. Small firms can think big;
4. A more level playing field;
5. Networks are important; and
6. Culture is no constraint.

Economic globalization is one of the three main dimensions of

globalization commonly found in countries, academic literature, with the two
others being political globalization and cultural globalization, as well as the
general term of globalization. It refers to the widespread international
movement of goods, capital, services, technology and information. It is the
increasing economic integration and interdependence of national, regional, and
local economies across the world through an intensification of cross-border
movement of goods, services, technologies and capital. Economic globalization
primarily comprises the globalization of production, finance, markets,
technology, organizational regimes, institutions, corporations, and labor.

While economic globalization has been expanding since the emergence

of trans-national trade, it has grown at an increased rate due to improvements
in the efficiency of long distance transportation, advances in
telecommunication, exdthe importance of information rather than physical
capital in the modern economy, and by developments in science and
technology. The rate of globalization has also increased under the framework
of the General Agreement on Tariffs and Trade and the World Trade
Organization, in which countries gradually cut down trade barriers and opened
up their current accounts and capital accounts. This recent boom has been
largely supported by developed economies integrating with developing
countries through foreign direct investment, lowering costs of doing business,
the reduction of trade barriers, and in many cases cross-border migration.
While globalization has radically increased incomes and economic growth in
developing countries and lowered consumer prices in developed countries, it
also changes the power balance between developing and developed countries
and affects the culture of each affected country. And the shifting location of
goods production has caused many jobs to cross borders, causing some
workers to change careers.

With the efficiency produced by containerization, transportation costs

have decreased, making it more economical to transport goods internationally
and in so doing helping to propel the globalization of markets and production.
Containerization is a system of intermodal freight transport using intermodal
containers (also called shipping containers and ISO containers). The
containers have standardized dimensions and can be made of weathering steel
to minimize maintenance needs. This transportation process, called inter
modalism, allowed products to be shipped around the world quickly, cheaply,
and efficiently by using cargo containers that more easily fit on trucks, trains,
and ships. Containers could be efficiently stacked, allowing more and more
goods transported across the seas.
There are numerous benefits of a global economy, which include the
Free trade, an excellent method for countries to exchange goods and services.
It also allows countries to specialize in the production of those goods in which
they have a comparative advantage. International forces are reshaping the
world of business, but also creating new opportunities and a more level playing
field for small firms. Economy is considered very important because it is the
thing that allows us to survive and thrive. A system where no money is involved
and trade is done as direct exchange of goods is an economy too. Having
enough is extremely important for stability, low crime levels and cultural,
scientific and technological progress. So, to improve the economy, some
aspects must be considered like lower interest rates (reduce the cost of
borrowing) and increase consumer spending and investment; increased real
wages – if nominal wages grow above inflation then consumers have more
disposable to spend; and higher global growth – leading to increased export
spending. Governments must also continue to devise ways of cushioning the
most damaging effects of economic globalization, while ensuring that its
benefits accrue for everyone.
 Over the past several decades scholars have intensively debated what
factors drive globalization. Answers have ranged from the emergence of the
information society (Castells,2000A) and the global economy (Held, McGrew,
Goldblatt, & Perraton,1999) to value-conflicts embedded in different
civilizations (Huntington,1996) to mention but a few of the best known theories.
Before turning to some of the most prevalent theories representing
global actors, we will however first briefly unpack the very notion of global
actors. It is a composite notion that refers to a specific agency acting at the
global level who contributes to processes of globalization or global politics. With
regard to global actors, this means that their agency has socio-political impact
in terms of exercising public authority beyond the state. Second, an ever-
expanding body of research has demonstrated that approaching the global
realm as an international space defined as mainly interstate relations is at odds
with contemporary socio-political developments.
Specific actors that facilitate economic globalization are highlighted as
follows:
• The International Economic and Financial Organizations;
• The International Governmental Organizations (IGOs);
• The Media;
• The Multilateral Development Banks;
• The Nation-States;
• The Non-Governmental Organizations (NGOs);
• The Trans-National Corporations (TNCs); and
• The United Nations (UN) System.

These are the agents that bring about the interdependencies of global
economies. Some experts believe that these actors are the global corporations
and that it is still the nation-states but of different levels. Brodie (1006) calls the
government as the “midwives of globalization” which means that the role of
nation-states is being redefined by globalization and are relevant despite
assuming a global perspective. It acts as
mediators between the effects of globalization
and the national economy.