GE3 – THE CONTEMPORARY WORLD

UNIT 1
Lesson 2:
The Globalization of the
World Economics
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 ECONOMIC GLOBALIZATION
– a historical process representing the result of human
innovation and technological progress.
– It refers to the increasing integration of economies
around the world through the movement of goods,
services, and capital across borders.

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International Trading Systems:

International Trading Place/Country Time/Year of

System Originated Emergence
1. Silk-Road China to Europe and 130 BCE
Middle East
2. Galleon Trade Manila, Philippines 1571
and Acapulco, Mexico
3. Gold Standard UK, US and other 1867
European Nations
4. Fiat Currency US 1970-present

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Silk Road – this is the
first and oldest known
international trade route
that spanned from
China to Middle East
and Europe. (130 BCE)

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Dennis O. Flynn and Arturo Giraldez
“the age of Globalization began when all populated
continents began to exchange products continuously - both
with each other directly and indirectly via other continents –
and in values sufficient to generate crucial impacts on all
trading partners.”

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International Trading Systems:

International Trading Place/Country Time/Year of

System Originated Emergence
1. Silk-Road China to Europe and 130 BCE
Middle East
2. Galleon Trade Manila, Philippines 1571
and Acapulco, Mexico
3. Gold Standard UK, US and other 1867
European Nations
4. Fiat Currency US 1970-present

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Galleon Trade was part of Mercantilism
Mercantilism - it is an economic policy that is designed
to maximize the exports and minimize the imports for
an economy 8
International Trading Systems:

International Trading Place/Country Time/Year of

System Originated Emergence
1. Silk-Road China to Europe and 130 BCE
Middle East
2. Galleon Trade Manila, Philippines 1571
and Acapulco, Mexico
3. Gold Standard UK, US and other 1867
European Nations
4. Fiat Currency US 1970-present

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The main goal of Gold Standard was “to create a
common system that would allow for more efficient
trade and prevent the isolation of mercantilist era.”

The common basis for currency prices and a fixed

exchange rate system was all based on the value of gold.

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International Trading Systems:

International Trading Place/Country Time/Year of

System Originated Emergence
1. Silk-Road China to Europe and 130 BCE
Middle East
2. Galleon Trade Manila, Philippines 1571
and Acapulco, Mexico
3. Gold Standard UK, US and other 1867
European Nations
4. Fiat Currency US 1970-present

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Fiat Money - is a type of currency that is not
backed by any commodity such as gold or
silver. It is typically declared by a decree
from the government to be legal tender.

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What facilitates Economic Globalization?

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The Bretton Woods System
- was inaugurated in 1944
during the United Nations Monetary and Financial
Conference to prevent the catastrophes of the early
decades of the century from reoccurring and affecting
international ties.
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 2 Financial Institutions created during the Bretton Woods System:
▰ International Bank for Reconstruction and Development (IBRD) or
the World Bank
– responsible for funding the postwar reconstruction projects.
▰ IMF (International Monetary Fund)
- is an agency of United Nations.
- This is an international financial institution based in
Washington DC. The global lender of last resort to prevent
individual countries from spiraling into credit crisis.
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IMF (International Monetary Fund)
- started on December 27, 1945. This works for its
purpose which is to achieve stability and monetary
cooperation which essential to increase productivity, job
creation and economic well-being by supporting economic
policies that promote financial stability and monetary
cooperation.
- it is composed of 190 member countries.

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IMF Mission:
“Working to foster global monetary cooperation,
secure financial stability, facilitate international trade,
promote high employment and economic growth, and reduce
poverty around the world.”

The whole idea of IMF was formed by Harry Dexter White and
John Maynard Keynes.
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John Maynard Keynes
- was the founder of the Keynesian Economics Theory
- regarded as the “Father of Macroeconomics” when he
solved the “Great Depression” or the longest economic
recession ran between 1929 and 1941 before America
entered the World War II.

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What is your stance in global economic
integration?

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Advantages of Economic Globalization:
ü People, companies, and economies are more
integrated and interconnected than ever before.
ü Employment opportunities
ü Greater Consensus
ü Political Cooperation Disadvantages of Economic Globalization:
§ Creation of Trading Blocs
§ Trade Diversion
§ National Sovereignty
§ Non Members Countries are Sidelined
§ Bullying Risk 20
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Neoliberalism and its Discontents:

What is Neoliberalism?

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 NEOLIBERALISM
– is a policy model that encompasses both politics
and economics and favors private enterprise and
seeks to transfer the control of economic factors
from the government to the private sector.

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Free Trade Economy
- it is an agreement between two or more nations to do
business or to import or export goods or products with
less barriers.

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Who are the proponents
of Neoliberalism?

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 Proponents of Neoliberalism:
Ronald Reagan Margaret Thatcher Milton Friedman

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th President of the United Pr i m e Minister of the United K i ng d o m f r o m 19 7 9 to 19 9 0 and American economist and statistician who received the 197
States Leader of the Conservative Party from 1975 to 1990. She was Nobel Memorial Prize in Economic Sciences for his
the first female British prime minister and the longest- research on consumption analysis, monetary history and
serving British prime minister of the 20th century. theory and the complexity of stabilization policy.

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Neoliberalism started with the establishment of
the Mont Pelerin Society in 1947, whose founding
members included:
• Friedrich Hayek
• Milton Friedman
• Karl Popper
• George Stigler
• Ludwig von Mises
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What are the ideas behind Neoliberalism?
How does it work?
What does it promote?

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Neoliberalism is related to laissez-faire economics.

Laissez-faire
- it is a theory that says the government should
not intervene in the economy except to protect
individuals' inalienable rights.
- it promotes limited government interference and
privatization.
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 Ideas of Neoliberalism:
▰ Free markets and free trade are a foundation for human
flourishing because it creates the most favorable
conditions for individual liberties and job growth.

▰ It creates technological innovations and transnational

collaborations that promote peace and global
prosperity.

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 Ideas of Neoliberalism:
▰ It inhibits competition that results to individual
responsibilities and persistence.

▰ They believe that the government interference with free

market system promotes waste, inefficiency, and stagnation.

▰ They believe in sinking the size of the government and

restricting its function to the protection of private property
through policies and law enforcements, and the maintenance
of strong military.
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 Neoliberalism supports and promotes:
ü Free enterprise, competition, deregulation, and the importance of
individual responsibility
ü Opposition to the expansion of government power, state welfare,
inflation
ü Minimizing government control of industry and boosting private
sector ownership of business and property
ü Free market capitalism and the efficient allocation of resources
ü Globalization rather than heavily regulated markets and
protectionism 33
 Neoliberalism supports and promotes:

ü A reduction in government spending and lower taxes

ü Less government control over economic activity to enhance the
efficient functioning of the economy
ü An increase in the impact by the private sector on the economy
ü A reduction in union power and greater flexibility in employment
ü Government intervention when it's needed to help implement,
sustain, and protect free market activities

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What are the Discontents
of Neoliberalism?

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 Critics’ discontents of Neoliberalism:
v Neoliberal policies exacerbate rather than mitigate economic and social
inequalities.

v They believe in the negative effects of the unregulated capitalism and

reduction or removal of safety nets provided by the governments to
support those who are economically and socially vulnerable.

v They believe Neoliberalism fails to account structural forms of violence

such as systemic poverty, racism, and other forms of discrimination.
v Monopolies
v Promotes globalization (depriving sovereign nations of the right to self-
determination)
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Are you in favor of Neoliberalism?
Why or why not?

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Global Financial Crisis:

What is Global Financial

Crisis (GFC)?

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 GLOBAL FINANCIAL CRISIS (GFC)

– refers to the period of extreme stress in global financial

markets and banking systems between mid-2007 and
early 2009.

– The US housing market was a catalyst for a financial

crisis that spread from the United States to the rest of the
world through linkages in the global financial system.
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 Global Financial Crisis:

What are the main causes

of Global Financial Crisis
(GFC)?

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 Some of the key aspects that caused the GFC:

§ Excessive risk-taking in a favorable macroeconomic

environment
§ Increased borrowing by banks and investors
§ Regulation and policy errors

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