CONTEMPORARY WORLD

[Learning Module]

Raymundo S. Canizares
Associate Professor I

College oF Education

2022

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Module 2 - Learning Plan
Structures of Globalization

Globalization is a universal concept of treating the whole world as one entity or one
market. The widespread influence of globalization the world today needed more scrutiny
and understanding not only by the economic experts but also by the students especially in
the current digital era. Studying globalization and its structures will help in understanding
the differences and similarities among various nations of the world affected by it.
Furthermore, understanding the process of globalization and its structures will also improve
the human interaction and lessen the barriers among people from different culture around
the world.

Objectives:

At the end of this lesson you are expected to:

1. Define economic globalization.
2. Reflect on the various theories and perspectives explaining the
practice of international trade.
3. Collect information about a foreign product being sold in the
Philippines.
4. Discuss the role of International Financial Institutions.

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5. Relate the importance of International Financial Institutions to the
creation of a global economy.
6. Explain the effects of globalization on governments;
7. Identify the institutions that govern international relations;
8. Identify the roles and functions of the United Nations (UN);
9. Describe the challenges of global governance in the 21st century; and
10. Explain the relevance of the nation-state in the midst of globalization;

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Lesson 1 – Module 2

The global economy alludes to different financial exercises among various nations
with either negative or beneficial outcomes. The idea of a world economy is identified with
regular day to day existence dependent on the interconnected idea of the different
countries around the world. Exchange interrelations are noteworthy pointers of the
worldwide economy. Thus, the growth of globalization of the world's economies to a great
extent is dependent on the advancement of science and technology. Notwithstanding the
drawbacks, globalization is still changing the world. Socially, it has encouraged the trading of
thoughts and societies, adding to a world view wherein individuals are progressively open
and lenient of each other
The International Monetary Fund (IMF) regards “economic globalization’ as a
historical process representing the result of human innovation and technological progress. It
is characterized by the increasing integration of economies around the world through the
movement of goods, services, and capital across borders. These changes are the products of
people, organizations, institutions, and technologies. As with all other processes of
globalization, there is a qualitative and subjective element to this definition.
According to the United Nations (as cited by Shangquan, 2000), 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, and is an irreversible trend for the economic
development in the whole world at the turn of the millennium.

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International Trade
The conclusion of World War ll signaled the beginning of trade facilitation around
the globe. Economies set rules and guidelines for international trade which led to the
formation of General Agreement on Tariffs and Trade (GATT). These trade rules were
developed through series of rounds or meetings of member ‘economies.

International Trade (IT) is the process and system when goods, commodities,
services cross national economy, and boundaries in exchange for money or goods of
another country (Balaam and Veseth, 2008). Global trade has grown dramatically since the
post-cold war era as a result of increasing demand of goods and services of countries. This
global norm is a reflection of growing practice of internationalizing and globalizing local
products and services.

International Trade Theories

Trade is the concept of exchanging goods and services between two people or
entities. People or entities trade because they believe that they benefit from the exchange.
They may need or want the goods or services. The benefits of trade allow a country to
specialize in the manufacture and export of products that can be produced most efficiently
in that country.
International trade is then the concept of this exchange between people or entities
in two different countries. Countries trade for the simple reason that the prices of goods
and services vary across countries, and goods and services are imported when they are less
expensive than the domestic ones.
While at the surface, this many sound very simple, there is a great deal of theory,
policy, and business strategy that constitutes international trade in terms of the exchange of
goods and services on a global basis. International Trade Theories explain and facilitate
international trade to happen. A wrong mindset or an ill-advised view on international trade
can severely affect a country's long-term financial stability. The aim of Trade Theory is to
explain the existing patterns of trade, the impact on the domestic economy, and the type of
public policies that should be introduced to increase a country's well-being.

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Trade theory helps managers and government policymakers focus on three critical
questions:
1. What products should be imported and exported?
2. How much should be traded?
2. With whom should they trade?

International Trade Explained | World101. [Link]

v=HfN8BnRJryQ

There are two types of trade theories explaining international trade.

1. Descriptive Theory.

It deals with the natural order and movement of trade. It describes the pattern of
trade under the idea of laissez faire, a French term which means "leave alone". It
refers to the notion that individuals are the best economic agents to solve the
problems through invisible hand rather than the government ‘policies. Descriptive
theory addresses the questions of which product to trade, how much product to
offer and produce, and which country to trade in the absence of government
restrictions.

The following are the benefits can be derived from laissez faire:
a) Remove ineffective bureaucracy.
b) Stimulate corporate innovation and creativity.
c) Encourage business autonomy.
d) Free from regulations, trade restrictions, corporate taxes, tariffs, and
subsidies.
e) Reduces market competition.

On the other hand, the following are its criticisms:

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a) Causes income and wealth inequality.
b) Creates monopolies due to fewer government rules.
c) Represents interests of the affluent section of society.
d) Prevents new players from entering the market.
e) Results in lower wages, higher product prices, and limited supply.

2. Prescriptive Theory.

This prescribes whether government, an important economic institution, should

interfere and restrict with the movement of goods and services. This theory views
government to have participation in deciding which countries to alter the amount,
composition and direction of goods. The pressing question describing descriptive
theory is “Should the government control trade?” Most economists believe it is a
question of balance, with the government intervening in areas where the market
fails to provide a desirable outcome like:
 Provide public goods (e.g. national defense) from general taxation
 Provide basic health care and education standards.
 Environmental regulation and protection.
 Limit the power of monopolies.
 Regulation on worker rights.
On the other hand, free-market economists/libertarians, argue that government
intervention should be limited to all but the most basic services, such as the
protection of private property and the maintenance of law and order. On another
extreme, the Marxist economists argue that the government should intervene in all
areas of the economy to ensure the most efficient and equitable distribution of
resources.
The primary tools used by the government in its intervention in the economy are
through government privatization/nationalization, legislation/regulations, and
fiscal policy (in the form of taxes and subsidies). Tax (from the Latin taxo; “rate”) is a
financial charge or other levy imposed upon a taxpayer (an individual or legal entity)
by a state or the functional equivalent of a state to fund various public expenditures.
Subsidy is a form of financial aid or support extended to an economic sector (or
institution, business, or individual) generally with the aim of promoting economic
and social policy.

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Reason for governmental intervention on trade:
a) Equality. In a free market, there is likely to be significant inequality and
poverty. This is not due to a meritocracy, but it could be due to unfair
advantages of circumstances (inherited wealth, superior education).
Governments can intervene to provide a basic security net – unemployment
benefit, minimum income for those who are sick and disabled. This increases
net economic welfare and enables individuals to escape the worst poverty.
This government intervention can also prevent social unrest from extremes
of inequality.
b) Public goods. Public goods tend not to be provided in a free market because
there is no financial incentive for firms to provide goods that people can
enjoy for free. Governments can provide national defense, law and order and
pay for it out of general taxation. Looking after the environment is also a
public good, there are an increasing number of areas, where a government is
needed to deal with issues such as forest fires, rising sea levels and pressure
on water supplies.
c) Education. Merit goods are under-consumed in free-market because people
underestimate the personal benefits and/or ignore the external benefits. This
leads to an under-provision of health care and education. Government
intervention to provide free education can lead to a significant improvement
in the quality of life for people who are educated. There are also many
positive externalities to the rest of society. A well-educated society can
improve labor productivity and economic growth.
d) Shift consumer behavior. The consumption of demerit goods like alcohol,
tobacco and opiates can cause personal costs and significant social costs (e.g.
crime). If the government identifies damaging goods, they can slowly change
consumer behavior – such as using higher tax, advertising campaigns and
behavioral economics, e.g. making cigarettes difficult to buy with unappealing
packets. Long-term government campaigns to reduce smoking in the UK and
US have been effective in reducing smoking rates – something that has
helped to increase life-expectancy.
e) Environment. The environment is an area with a significant need of
government intervention. The free market ignores external costs of business
on the environment. It also fails to consider long-term considerations. For

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example, market forces may lead to the burning of fossil fuels, which cause
increasing environmental problems around the world – which will get worse
in the future. Given the potential costs to future generations, there needs to
be government action to shift behaviour to renewable energy which doesn’t
cause these environmental costs. Also, the environment involves many issues
where private ownership does not apply. If pollution causes a worsening air
quality, then this affects everyone on the planet, but market mechanisms do
not provide an opportunity to deal with the issue. (If someone pollutes your
back-garden, you can sue them. But, if air quality deteriorates, who takes
action?
f) Monopoly power. In a free market, firms can gain monopoly power to charge
high prices to consumers and monopsony power to pay lower wages to
workers. This increases inequality and deadweight welfare loss. Government
intervention to limit mergers and monopoly power can lead to increased
economic welfare.
g) Strategic planning on infrastructure. Another limitation of the free market is
to underinvest in quasi-public goods like roads and railways. This can lead to
transport bottlenecks. Governments can plan for future transport trends and
invest in the roads and railways which are needed for the future.
Disadvantages of government intervention
a) Government failure. Government failure is a term to describe how
government intervention can cause its own problems. For example, the
government may take decisions for short-term political consideration which
lead to an inefficient outcome. For example, government tariffs to protect
domestic industry spark off a trade war, where the economy contracts.
b) Lack of incentives. In the free market, individuals have a profit incentive to
innovate and cut costs, but in the public sector, this incentive is not there.
Therefore, it can lead to inefficient production. For example, state-owned
industries have frequently been inefficient, overstaffed and produce goods
not demanded by consumers.
c) Political pressure groups. Milton Friedman once quipped ‘There is nothing as
permanent as a temporary government bailout.’ He was referring to farming
subsidies. Introduced in the 1930s during the Great Depression to alleviate a
farming recession. After the Second World War, no government dared to
remove subsidies because farmers were a powerful pressure group who
wanted to keep the subsidies.
d) Less choice. Often government intervention in the economy (e.g.
nationalization of industries) has been associated with less choice.
Government produced services have a monopoly. Command economies,
often had very little choice as government decided what to produce. Choice is
an important element of economic freedom and being able to maximize
individual welfare. (Not all government intervention leads to less choice.

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e) Impact of personal freedom. An increasing aspect of government intervention
is through efforts to shift consumer behavior – e.g. reduce congestion,
improve health through reducing smoking rates and a healthier lifestyle. This
includes taxes, behavioral influences and regulations. Sometimes people can
feel this is overbearing on their individual choice.

Historical Overview of International Trade Theories

In order to explain the happenings in international trade, economists have
established theories. There are six 6 economic theories under International Trade Law which
are classified in four: (I) Mercantilist Theory of trade (II) Classical Theory of trade (III)
Modern Theory of trade (IV) New Theories of trade. Both of these categories, classical and
modern, consist of several international theories.
1. Mercantilism. An economic theory emerged from about 1500-1800. This period
was the emerging eras of nations-states and the formation of more central governments.
This system flourished due to the following reasons:
▪ Higher export than import.
▪ Export less high valued product and import less high valued product
▪ The benefits of colonial powers.

Mercantilist analysis, which reached the peak of its influence upon European
thoughts in the 16th and 17th centuries, focused directly upon the welfare of the nation. It
insisted that the acquisition of wealth, particularly wealth in the form of gold, was of
paramount importance for national policy. Mercantilists took the virtues of gold almost as
an article of faith; consequently, they never sought to explain adequately why the pursuit of
gold deserved such a high priority in their economic plans.
Mercantilism was based on the conviction that national interests are inevitably in
conflict—that one nation can increase its trade only at the expense of other nations. Thus,
governments were led to impose price and wage controls, foster national industries,
promote exports of finished goods and imports of raw materials, while at the same time
limiting the exports of raw materials and the imports of finished goods. The state

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endeavored to provide its citizens with a monopoly of the resources and trade outlets of its
colonies.
Mercantilists’ ideas often were intellectually shallow, and indeed their trade policy
may have been little more than a rationalization of the interests of a rising merchant class
that wanted wider markets—hence the emphasis on expanding exports—coupled with
protection against competition in the form of imported goods.

1. Mercantilism explained.
[Link]
2. Mercantilism: The Economics of Absolutism.
[Link]
3. Mercantilism | An in-depth history of European imperial economics.
[Link]

2. Classical Theory. David Ricardo and Adam Smith were known critics of late-
eighteenth century on the abuses of mercantilism in England. Their liberal ideas and
contribution in understanding global trade are still relevant until today.
a. Absolute Cost Advantage
This theory was developed by Adam Smith and publishes The Wealth of the Nations
in 1976. He was the father of Modern Economics. This theory came out as a strong reaction
against the protectionist mercantilist views on international trade. Adam's theory specified
that a country's prosperity should not be premeditated by how much gold and other
precious metals it has, but rather by the living standards of its citizens.

Adam Smith supported the necessity of free trade as the only assurance for
expansion of trade. He said that a country should only produce those products in which they
have an absolute advantage. According to Smith, free trade promoted international division
of labor. By specialization and division of labor producers with different absolute advantages

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can always gain over producing in remoteness. He emphasized on producing what a country
specializes in so that it can produce more at a lower cost than other countries. This theory
says that a country should export a product in which it has a cost advantage.
b. Comparative Cost Advantage Theory
The comparative cost theory was first given by David Ricardo. It was later polished by
J. S. Mill, Marshall, Taussig and others. Ricardo said absolute advantage is not necessary. He
also said a country will produce where there is comparative advantage. The theory suggests
that each country should concentrate in the production of those products in which it has the
utmost advantage or the least disadvantage. Hence, a state will export those supplies in
which it has the most benefit and import those supplies in which it has the least drawback.

Comparative advantage arises when a country is not able to yield a commodity more
competently than another country; however, it has the resources to manufacture that
commodity more proficiently than it does other commodities.
For Ricardo, his influential work Law of Comparative Advantage explains that free
trade efficiency is attainable if two countries can produce more goods and trade products
separately. The advantage of this theory in international trade is deriving from the principle
of specialization and division of labor (Nau, 2009). Countries have different resources and
talents; they are better in performing in that economic activity than other economic
activities.
On the other hand, Heckscher-Ohlin theory further enhanced the theory of
comparative advantage in international trade. They focused their attention on how a
country could gain comparative advantage by producing products that utilized factors that
were in abundance in the country. Their theory is based on a country’s production factors—
land, labor, and capital, which provide the funds for investment in plants and equipment.
They determined that the cost of any factor or resource was a function of supply and
demand. Factors that were in great supply relative to demand would be cheaper; factors in
great demand relative to supply would be more expensive.
Their theory, also called the factor proportions theory, stated that countries would
produce and export goods that required resources or factors that were in great supply and,
therefore, cheaper production factors. In contrast, countries would import goods that
required resources that were in short supply, but higher demand.
For example, China and India are home to cheap, large pools of labor. Hence these
countries have become the optimal locations for labor-intensive industries like textiles and

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garments. The theory was developed by the Swedish economist Bertil Ohlin (1899–1979) on
the basis of work by his teacher the Swedish economist Eli Filip Heckscher (1879–1952). For
his work on the theory, Ohlin was awarded the Nobel Prize for Economics (the Sveriges
Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) in 1977.

Absolute Advantage vs. Comparative Advantage.

[Link]

3. Modern Theories on Trade

As the classical theory seeks to explain the phenomenon of international terms of
labor theory of value, the modern theory seeks to explain the phenomenon of international
terms of general theory of value. Modern or firm-based theories emerged after World War
II and were developed in large part by business school professors, not economists. The firm-
based theories evolved with the growth of the multinational company (MNC).The following
are its examples:
a. Country Similarity Theory
Swedish economist Steffan Linder developed the country similarity theory in 1961, as
he tried to explain the concept of intra-industry trade. Linder’s theory proposed that
consumers in countries that are in the same or similar stage of development would have
similar preferences. In this firm-based theory, Linder suggested that companies first produce
for domestic consumption. When they explore exporting, the companies often find that
markets that look similar to their domestic one, in terms of customer preferences, offer the
most potential for success. Linder’s country similarity theory then states that most trade in
manufactured goods will be between countries with similar per capita incomes, and intra-
industry trade will be common. This theory is often most useful in understanding trade in
goods where brand names and product reputations are important factors in the buyers’
decision-making and purchasing processes.
b. Product Life Cycle Theory
Raymond Vernon, a Harvard Business School professor, developed the product life
cycle theory in the 1960s. The theory, originating in the field of marketing, stated that a
product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3)
standardized product. The theory assumed that production of the new product will occur
completely in the home country of its innovation. In the 1960s this was a useful theory to
explain the manufacturing success of the United States. US manufacturing was the globally
dominant producer in many industries after World War II.

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It has also been used to describe how the personal computer (PC) went through its
product cycle. The PC was a new product in the 1970s and developed into a mature product
during the 1980s and 1990s. Today, the PC is in the standardized product stage, and the
majority of manufacturing and production process is done in low-cost countries in Asia and
Mexico.

The product life cycle theory has been less able to explain current trade patterns
where innovation and manufacturing occur around the world. For example, global
companies even conduct research and development in developing markets where highly
skilled labor and facilities are usually cheaper. Even though research and development is
typically associated with the first or new product stage and therefore completed in the
home country, these developing or emerging-market countries, such as India and China,
offer both highly skilled labor and new research facilities at a substantial cost advantage for
global firms.

c. Global Strategic Rivalry Theory

Global strategic rivalry theory emerged in the 1980s and was based on the work of
economists Paul Krugman and Kelvin Lancaster. Their theory focused on MNCs and their
efforts to gain a competitive advantage against other global firms in their industry. Firms will
encounter global competition in their industries and in order to prosper, they must develop
competitive advantages. The critical ways that firms can obtain a sustainable competitive
advantage are called the barriers to entry for that industry. The barriers to entry refer to the
obstacles a new firm may face when trying to enter into an industry or new market. The
barriers to entry that corporations may seek to optimize include:

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 research and development,
 the ownership of intellectual property rights,
 economies of scale,
 unique business processes or methods as well as extensive experience in the
industry, and
 control of resources or favorable access to raw materials.

d. Porter’s National Competitive Advantage Theory

In the continuing evolution of international trade theories, Michael Porter of Harvard

Business School developed a new model to explain national competitive advantage in 1990.
Porter’s theory stated that a nation’s competitiveness in an industry depends on the
capacity of the industry to innovate and upgrade. His theory focused on explaining why
some nations are more competitive in certain industries. To explain his theory, Porter
identified four determinants that he linked together. The four determinants are (1) local
market resources and capabilities, (2) local market demand conditions, (3) local suppliers
and complementary industries, and (4) local firm characteristics.
The earliest wave of mercantilism was described as classical imperialism. The drive of
European countries to explore and colonize underdeveloped countries originated from the
aggressive mercantilist behavior of European economies. This idea was extended to the
practice of modern capitalist-imperialist approach by countries and economies that have the
immense resource through the use of hard power over developing and less developed
countries.
The Modern World System (MWS) theory deveIoped by Immanuel Wallerstein,
explains the contact of economies between core, semi peripheral, and peripheral countries
in the world. The core states have the absolute advantage over the other through unequal
exchange and extraction of raw materials from periphery and semi-periphery. Thus, the
economic globalization and market integration of the 21st century are extensions of the
same economic motives of imperial powers of the nineteenth and twentieth centuries
(Balaam and Veseth, 2008)

Assignment
Follow the product!

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Globalization allows for a worldwide exchange of most of the commodities that we
consume. This activity will allow you to investigate the origin and spread of the products and
services sold in our country. You will also be able to know the countries involved in the
production, distribution, and consumption of the products being sold and consumed in the
country. The following are the steps to accomplish this activity:
1. Choose a specific foreign product/brand that is being sold in the Philippines.
2. List down the main ingredients or raw materials in manufacturing the chosen
product. Identify the corresponding country from which each ingredient or raw material
came from.
3. Identify the countries involved in the manufacturing of the chosen product.
Indicate the corresponding service the country does for the product (e.g., Costa Rica
planting of coffee beans).
4. Aside from the Philippines, list other countries where the product is being sold.
Cite the kinds of technology that made the creation of the product possible. Consider
communications and transportation.
5. Write one to three statements about the creation of the product and answer the
following questions:
• How do economic trading institutions influence global economic activity?
• How does it affect the Philippine economy?
• Does the position of rich countries as giants in the economic chain threaten the
status of less developed countries in the global market?

1. Globalization: Past, Present, Future by Jeffrey R. Frieden.

[Link]
2. The Politics of Globalisation: The World Economy and Domestic Politics.
[Link]

REFERENCES
Balaam, D and Vesseth, M. (2008), Introduction to International Political Economy,
4th ed. Pearson Prentice Hall, Pearson Education, Inc.

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De Ocampo, F., Ramos, B., Llomora, R.,Macaraeg, A., David, M.A. (2018),
Introduction to ContemporaryWorld. St. Andrew Publishing House.
Claudio, L., Abinales, P. (2018), The Contemporary World. C & E Publishing, Inc.,
Shangquan, G. (2000). Economic Globalization:Trends, risks and risk prevention. CPD
background paper no.1. United Nations Development Policy and Analysis Division.
Nau, H. (2009). Perspectives on International Relations: Power, Institutions, and
Ideas. 2nd edition. Washington DC: CQ Press Sage Publishing. 2009
.

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Lesson 2 – Module 2

MARKET INTEGRATION

Much of globalization is anchored on the role global economy plays in the different
nations. We often think of economy as something that covers a wide variety of financial
aspects like employment, Gross Domestic Product (GDP) or the stability of stock markets.
However, we must understand that the economy is composed of people. It is the social
institution that organizes all productions, consumptions and trade of goods in the society.
World economies have been brought closer together by globalization. These days, many
occurrences of foreign affairs are conducted to cement trading relations between and
among nations. Thus, this chapter will show the contributions of the different financial and
economic institutions in the growth of the global economy.

INTERNATIONAL FINANCIAL INSTITUTIONS

An international financial institution (IFI) is a financial institution that has been

established (or chartered) by more than one country, and hence are subjects of
international law. Its owners or shareholders are generally national governments, although
other international institutions and other organizations occasionally figure as shareholders.

In many parts of the world, international financial institutions (IFIs) play a major role
in the social and economic development programs of nations with developing or transitional
economies. This role includes advising on development projects, funding them and assisting
in their implementation.

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Characterized by AAA-credit ratings and a broad membership of borrowing and
donor countries, each of these institutions operates independently. All however, share the
following goals and objectives:
 to reduce global poverty and improve people's living conditions and standards;
 to support sustainable economic, social and institutional development; and
 to promote regional cooperation and integration.

IFIs achieve these objectives through loans, credits and grants to national
governments. Such funding is usually tied to specific projects that focus on economic and
socially sustainable development. IFIs also provide technical and advisory assistance to their
borrowers and conduct extensive research on development issues. In addition to these
public procurement opportunities, in which multilateral financing is delivered to a national
government for the implementation of a project or program, IFIs are increasingly lending
directly to non-sovereign guaranteed (NSG) actors. These include sub-national government
entities, as well as the private sector.

The Bretton Woods System

The major economies in the world had suffered because of World War I, the Great
Depression in the 1930, and World War II. Because of the fear of the recurrence of lack of
cooperati0n among nation-states, political instability, and economic turmoil (especially after
the Second World War), reduction of barriers to trade and free flow of money among
nations became the focus to restructure the world economy and ensure global financial
stability (Ritzer, 2015). These served as the background for the establishment of the Bretton
Woods system.

The Bretton Woods system of monetary management established the rules

for commercial and financial relations among the world’s major industrial states in the mid-
20th century. The Bretton Woods system was the first example of a fully negotiated
monetary order intended to govern monetary relations among independent nation-states.
In general, the Bretton Woods system has five key elements. First element is the
expression of currency in terms of gold or gold value to establish a par value (Boughton,
2007). Another element is that “the official monetary authority in each country (a central
bank or its equivalent) would agree to exchange its own currency for those of other
countries at the established exchange rates, plus or minus a one-percent margin"
(Boughton, 2007, pp. 106-107). The third element of the Bretton Woods system is the
establishment of an overseer for these exchange rates; thus, the International Monetary
Fund (IMF) was founded.

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The chief features of the Bretton Woods system were an obligation for each country
to adopt a monetary policy that maintained the exchange rate by tying its currency to gold
and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a
need to address the Jack of cooperation among other countries and to prevent competitive
devaluation of the currencies as well.

The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization
(WTO)

According to Feet (2003), global trade and finance was greatly affected by the
Bretton Woods system. One of the systems born out of Bretton Woods was the General
Agreement on Tariffs and Trade (GATT) that was established in 1947 [Goldstein et al., 2007).
GATT was a forum for the meeting of representatives from 23 member countries. It focused
on trade goods through multinational trade agreements conducted in many rounds of
negotiation. However, “it was out of the Uruguay Round (1986-1993) that an agreement
was reached to create the World Trade Organization (WTO)” (Ritzer, 2015).

The WTO headquarters is located in Geneva, Switzerland with 152 member states as
of 2008 (Trachtman, 2007). Unlike GATT, WTO is an independent multilateral organization
that became responsible for trade in services, non-tarriff-related barriers to trade, and other
broader areas of trade liberalization, an example cited by Ritzer (2015) was that of the
“differences between nations in relation to regulations on items as manufactured goods or
food. A given nation can be taken to task for such regulations if they are deemed to be an
unfair restraint on the trade in such items”.
GATT is an agreement between States aiming to eliminate and reduce tariffs and
other trade barriers while doing trade in goods. The GATT is only concerned with trade in
goods; it deals with trade in services and intellectual property rights (IPR) through the
General Agreement on Trade in Services and the TRIPS Agreement. The main of objectives
of GAAT are:
 To reduce tariffs and other barriers in international trade and to achieve the
liberalization in international trade,
 To reduce the discrimination in tariff and trade among member countries,
 To protect the benefits of the developing countries to a certain extent for
international trade
 To settle the disputes between two or more parties in international trade,
 To increase the standards of living and the progressive development for all
contracting parties.
The International Monetary Fund (IMF) and the World Bank

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IMF and the World Bank were founded after the World War II. Their establishment
was mainly because of peace advocacy after the war. These institutions aimed to help the
economic stability of the world. Both of them are basically banks, but instead of being
started by individuals like regular banks, they were started by countries.

Most of the world’s countries were members of the two institutions. But, of course,
the richest countries were those who handled most of the financing and ultimately, those
who had the greatest influence. IMF and the World Bank were designed to complement
each other. The IMF’s main goal was to help countries which were in trouble at that time
and who could not obtain money by any means. Perhaps, their economy collapsed or their
currency was threatened. IMF, in this case, served as a lender or a last resort.
The International Monetary Fund (IMF) is an institution of the United Nations that
sets standards for the global economy with the aim of strengthening its member countries
economically. The organization currently lists 189 member countries that are represented
on the IMF Executive Board.

How IMF Works?

The IMF gets its money through three lines of defense. The first is a quota that is
assigned to each country based on its relative position in the world economy. This quota is a
set amount of money that each member state agrees to contribute to the fund. Currently,
the fund’s three biggest contributors are the United States, Japan, and China. The second is
multilateral borrowing, which means that the fund can draw from other institutions if it
needs more resources. There are currently forty institutions and member state participants
in this program, including Belgium, Canada, and Deutsche Bank. They stand ready to lend
the IMF more money if a problem occurs in the international monetary system. The third
line of defense is bilateral borrowing agreements, which are deals to borrow money agreed
upon between two parties.
The IMF uses this money to deal with financial crises around the world in three main
ways, to wit:
1. First, the IMF conducts surveillance of the financial and economic policies of
struggling countries and offers advice.
2. Second, it offers technical assistance by providing support and training to lower and
middle-income countries to help manage their economies.
3. Third, and most importantly, it loans money to member countries who are
struggling to meet international obligations, but this loan comes with a controversial
caveat. Under the principle of conditionality, countries who take IMF loans also have
to implement specific IMF policies that intervene in and restructure their economy.

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Problems with the IMF

The IMF has intervened in several financial crises all over the world, from Latin
America to Africa. However, prominent economists have argued that the fund is primarily
responsible for flawed development policies implemented in resource-poor countries.
Nobel-prize winning economist Joseph Stiglitz argued that many economic reforms the IMF
champions are devastating for local populations and have been counterproductive in
improving the economic situation of target countries. These include austerity (cutting
government spending to balance the national budget), high-interest rates, and trade
liberalization (removing barriers to the free exchange of goods). Indeed, results for IMF
programs have been mixed. For example, while the IMF helped Asian countries recover
quickly from the financial crisis in 1997-98, Greece and Spain were plagued with years of
deep recessions and high unemployment after accepting IMF loans, and their economies still
haven’t fully recovered. Issues of national sovereignty— the ability of a country to govern
itself— also come into play when dealing with conditionality, since the fund’s decision-
making process for economic reforms often doesn’t involve the local community.
The IMF’s programs have significant impacts on the global economy and our ability
to build a just, equitable future for all. It's our duty to stay informed about the IMF’s
activities and the effects — both positive and negative— it is having on the world.

The Organization for Economic Cooperation and Development (OECD), the Organization of
Petroleum Exporting Countries (OPEC), and the European Union (EU)

The most encompassing club of the richest countries in the world is the Organization
for Economic Cooperation and Development (OECD) with 35 member states as of 2016, with
Latvia as its latest member. It is highly influential, despite the group having little formal
power. This emanates from the member countries’ resources and economic power.

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The mission of the Organization for Economic Co-operation and Development (OECD) is to
promote policies that will improve the economic and social well-being of people around the
world. The OECD provides a forum in which governments can work together to share
experiences and seek solutions to common problems.
The three main objectives as laid down in the OECD Convention were:
1. to achieve the highest sustainable economic growth and employment and a
rising standard of living in Member Countries, while maintaining financial stability,
and thus to contribute to the development of the world economy;
2. to contribute to sound economic expansion in Member as well as non-Member
Countries in the process of economic development; and
3. to contribute to the expansion of world trade on a multilateral, non-
discriminatory basis in accordance with international objectives.

On the other hand, in 1960 the Organization of Petroleum Exporting Countries

(OPEC) was originally comprised of Saudi Arabia, lraq, Kuwait, Iran, and Venezuela. They are
still part of the major exporters of oil in the world today. OPEC was formed because
member countries wanted to increase the price of oil, which in the past had a relatively low
price and had failed in keeping up with inflation. Today, the United Arab Emirates, Algeria,
Libya, Qatar, Nigeria, and Indonesia are also included as members.

OPEC's main goal is to maintain oil prices at a profitable level for its members while
keeping the market as free as possible from restrictions. The organization ensures its
members receive a steady stream of income from an uninterrupted supply of oil.
Historically, crude oil prices have seen increases in times when OPEC production
targets are reduced. OPEC member countries produce about 40 percent of the world's crude
oil. Equally important to global prices, OPEC's oil exports represent about 60 percent of the
total petroleum traded internationally.

The European Union (EU) is made up of 28 member states. Most members in the
Eurozone adopted the euro as basic currency but some Western European nations like the
Great Britain, Sweden, and Denmark did not. Critics argue that the euro increased the prices
in Eurozones and resulted in depressed economic growth rates, like in Greece, Spain, and
Portugal. The policies of the European Central Bank are considered to be a significant
contributor in these situations.

North American Free Trade Agreement (NAFTA)

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The North American Free Trade Agreement (NAFTA) is a trade pact between the
United States, Mexico, and Canada created on January 1, 1994 when Mexico joined the two
other nations. It was first created in 1989 with only Canada and the United States as trading
partners. NAFTA helps in developing and expanding world trade by broadening international
cooperation. It also aims to increase Cooperation for improving working conditions in North
America by reducing barriers to trade as it expands the markets of the three countries.

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ACTIVITY

Go for a virtual Tour!

Go to the web and accomplish these tasks:

a. Choose an international economic organization (Asian Development Bank,
European Investment Bank, etc.) or an international company (Honda, McDonalds, Kimberly
Clark, etc.);
b. Research the origin and history of the institution you have chosen;
c. Identify the major country-leaders of this institution, and
d. Then write an essay on how International Financial Institutions influence global
economic activity. Mention the Philippines’ role in the interconnected global economic
activities.

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REFERENCES

Aldama, P. (2018). The Contemporary World. Rex Book Store, Inc.

Boughton, J. (2007) Bretton Woods System. In Scholte, J.A & Robertson, R. (eds.)
Encyclopedia of Globalization. New York: MTM Publishing

Claudio, L., Abinales, P. (2018), The Contemporary World. C & E Publishing, Inc.

Goldstein, J.L., Rivers, D. & Tomz, M. (2007). Institutions in international relations:

Understanding the effects of the GATT and the WTO. International Organization.

Ritzer, G. (2015). Globalization: The essentials. MA: Wiley Blackwell.

Trachtman, J.P (2007). Encyclopedia of globalization. New York: MTM Publishing

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Lesson 3 – Module 2

THE GLOBAL INTERSTATE SYSTEM

The world is composed of many states having different forms of government. It has
been one of the major subjects of scholars of political disciplines because it is viewed as the
institution that sets policies for the country. The study of international relations is becoming
more imperative since it is an attempt to explain behavior that occurs across the boundaries
of states, the broader relationships of which such behavior is a part, and the institutions
(private, state, nongovernmental, and intergovernmental) that oversee those interactions.

This lesson will begin with a short narration of some events that occurred 400 years
ago and the challenges that most governments face amid globalization. It will also tackle the
different institutions that govern international relations in order to facilitate connections
among nationstates.

POS 273 Lecture 2: The Emergence of the Modern International System.

[Link]

CHAPTER 3: GLOBAL INTERSTATE SYSTEM || The Contemporary World - Marvin Cabañero.

[Link]

The International System. [Link]

The Interstate System

The origins of the present-day concept of Sovereignty can be traced back to the
Treaty of Westphalia, which was a set of agreements signed in 1648 to end the thirty years’
war between the major continental powers of Europe. The Westphalian system provided
stability for the nations of Europe, until it faced its major challenge by Napoleon Bonaparte.
The latter believed in spreading the principles of the French Revolution - liberty, equality
and fraternity to the rest of Europe. Despite the challenge of Napoleon to the Westphalian
system and the eventual collapse of the Concert of Europe after World War I, present-day
international system has traces of this history.

Effects of Globalization to Governments

One of the key aspects of state sovereignty is the government. It is a group of people
who have the ultimate authority to act on behalf of a state. Each state has its own right to
self-determination and that other country should not intervene in the affairs of that state
unless there are extraordinary reasons to do so. Globalization has, in a way reshaped the
role and functions of nation-states as governing bodies in their particular territories.
 First, globalization is seen to impose a forced choice upon nation-states. Either they
conform to the neo-liberal ideas and free-market principles of deregulation,
privatization, and free trade or run the risk of being left behind in terms of

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development. Of course, nation-states, in this contemporary age, are forced to
submit themselves to the demands of globally accepted free-market principles.
 Second is the establishment of economic and political integrations. One good
example is the European Union (EU) and the North America Free Trade Agreement
(NAFTA). EU has a single currency and monetary system, parliament with legislative
powers, with common citizens’ rights to live, work, vote and run for office. The
statehood of the members is not dissolved, what has changed is only how the
nation-states function, in terms of economy and politics, as part of a whole.
 The third effect of globalization is the establishment of international laws and
principles. This is observable in the establishment of the UN that operates as a forum
for nation-states to air their differences and try to resolve them.
 The fourth effect is the rise of transnational activism (TNA). Such happens when
activist groups of nation-states connect with their counterparts in other states. For
example, an advocacy-based organization in the Philippines may connect itself with
and get support from other human rights groups in Europe to pressure the Philippine
government to realign its stance and actions in upholding human rights.

Institutions that Govern International Relations

There are several international organizations that governments of countries around the
world and individuals participate in. In order to facilitate connections among nation-states,
intergovernmental organizations (IGOs) were established. Their aim is to foster strong
economic, political, cultural, educational, and technical intergovernmental relationships.
There are also nongovernmental organizations promoting social and economic growth. Let
us look at them one by one.

 Peace Treaties and Military Alliances: The UN and NATO

Global politics entails relationship of countries and different governments and non-
governmental organizations, The United Nations (UN) is one of the leading political
organizations in the world where nation-states meet and deliberate. However, it
remains as an independent actor in global politics. Generally, it functions in four
areas: military issues, economic issues, environmental issues, and human protection.
It is made up of close to 200 countries from around the world, 193 member states to
be exact. (United Nations, 2011)

 Global Economic Associations: The WTO and NAFTA

The next group is an economic association-WTO which was created with the goal of
increasing free trade. Countries, therefore, can buy and sell goods from one another
without placing takes on imports or tariffs. In addition, tariffs are used to protect
businesses and companies inside their country. Another famous economic
organization is NAFTA. This is an economic treaty between the United States,
Canada, and Mexico in which the three countries trade freely without taxing each
other. NAFTA is not without critics either. Some American autoworkers protested
against NAFTA as several car companies moved their factories to Mexico in search

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for cheaper labor. NAFTA, like WTO, represents the challenge in America of keeping
manufacturing factories.

 Association of Southeast Asian Nations (ASEAN)

Established in 1967, now has 10 member states. Its aims are to accelerate economic
growth, social progress and cultural development in the region; promote regional
progression; advance peace and sustainability; promote active and beneficial
cooperation and mutual assistance on matters of common interest in the economic,
technical, cultural, administrative and scientific fields.

 European Union (EU)

An IGO with 28- state members was established in 1993. Its goals are to promote
peace, its values, and well-being of its citizens; offer freedom, security and justice
without internal borders; uphold sustainable development; combat social exclusion
and discrimination; promote scientific and technological progress; enhance
economic; social and territorial cohesion among member countries; respect cultural
and linguistic diversity; and establish an economic and monetary union.

 Non-Governmental Organizations (NGOs)

Another example of an international organization that was developed out of war is

the Red Cross (Red Crescent in Muslim countries). NGOs are not tied to any country.
This allows them to operate freely throughout the world. They provide emergency
relief such as food, water, and medical supplies for those whose homes or towns
have been destroyed by disaster or war. They also monitor the treatment of prisoner
of wars and go to conflicts to make sure that no war crimes are taking place. In fact,
the Red Cross began as an organization to help those who were wounded during
wars.

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ACTIVITY

Write a position paper on the Philippines’ territorial and economic relations with China.
After conducting extensive research on the topic, the position paper should be easy to write.
Remember: A good position paper must include:
 A brief introduction to the country and its history concerning the topic and
committees;
 How the topic affects the country;
 The country's policies with respect to the issue and the country's justification for
these policies;
 Quotes from the country's leaders about the issue;
 Statistics to back up the country's position on the issue;
 Actions taken by the government with regard to the issue;
 Conventions and resolutions that the country has signed or ratified;
 UN actions that the country supported or opposed; and
 What the country believes should be done to address the issue.

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REFERENCES

Aldama, P. (2018). The Contemporary World. Rex Book Store, Inc.

Brazalote, T., Leonardo, R. (2018) The Contemporary World. C & E Publishing, Inc., ©2019

Claudio, L., Abinales, P. (2018), The Contemporary World. C & E Publishing, Inc.

Goldstein, J.L., Rivers United Nations. (2011). Basic facts about the United Nations. New
York, USA: United Nations Department of Public Information. Retrieved from
[Link]
[Link] on May 13, 2020

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Lesson 4 – Module 2

CONTEMPORARY GLOBAL GOVERNANCE

The world has no global government and global authority. There are however,
political and economic bodies operating worldwide that not all people are aware of. Thus
what the world has is the idea of global governance. This term refers to domestic
institutions and governments on how large-scale problems and public-policy issues are
being resolved on a global level. It involves a range of actors including states, national and
regional bodies that have the eagerness and commitment to deal with a particular
challenge. This lesson will focus primarily on the United Nations (UN) as the most prominent
intergovernmental organization today as well as the challenges of the twenty-first century
governance.

Today, global governance makes world affairs systematic, secured and formulaic.
Weiss & Thakur (2014) describe global governance as the totality of norms, laws, policies,
and bodies that define, comprise, and facilitate transnational relations between citizens,
states, cultures, intergovernmental and non-governmental organizations. Rules and norms
put everything in order.
Though global governance is rule-based, it has no central authority. However, there are
systems
for international relationships that bind the states, people and society together. Since the
United
Nations (UN) has the most number of members among the established global systems, this
section discusses its organs, roles and functions.
The six organs of the United Nations (UN)
• General Assembly is the central deliberative and the only organ where all member-states
have equal representation in discussion and consideration, and policymaking
• Security Council is the organ which has the commitment to preserve peace and security.
• Economic and Social Council is the main organ for cooperation, policy reviews, policy
dialogue, and advice on social, economic and environmental issues.
• Trusteeship Council is the organ tasked to administer international oversight for 11 trust
territories and to make sure that adequate procedures are taken for independence and
self-government.
• International Court of Justice is UN’s prime judicial organ.
• Secretariat is the organ tasked to execute the daily activities as assigned by the other
organs.
Aside from maintaining international peace and security and protecting
human rights, UN also carries the functions of delivering humanitarian aid,
promoting sustainable development, and upholding international law. The
organization utilizes good offices, diplomacy, and mediation. It does
peacekeeping processes in countries with domestic conflicts and peacebuilding tasks in
countries freed from conflict, lessening the risk of reversing
into conflict and setting the ground work for sustainable peace and development.
In order to protect human rights, UN scrutinizes situations and issues reported to them and
oversee the exercise of international human rights agreements. In delivering humanitarian
aid,

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UN is responsible for coordinating responses to emergencies and supports rapid
humanitarian
response for people affected by natural disasters and armed conflict.
The Millennium Development Goals was set to promote sustainable development. In 2015,
this was changed into the Sustainable Development Goals (SDGs). These goals are the
blueprint to achieve a better and more sustainable future for all. This collection of 17 global
goals
covers social and economic issues including poverty, hunger, health, education, global
warming,
gender equality, water sanitation, energy urbanization, environment and social justice.
Weiss and Thakur (2014), in their article titles, The United Nations Meets the Twenty-first
Century: Confronting the Challenges of Global Governance, identify challenges confronting
UN
based on knowledge, norms, policy, institutions and compliance:
1. In terms of knowledge, UN is underappreciated regarding how its convening capacity and
mobilizing power are utilized to help funnel and consolidate knowledge from outside and
ensure
its discussion and dissemination among governments.
2. The contrasting moral structures of social behavior in different member-states complicate
the
formulation of a normative standard that can be applicable to all.
3. In formulating propositions, problems occur when only the member-states are heard. UN
belittles the helping hand of non-governmental organizations (NGOs) and the global public
opinion. Sometimes, recommendations are not executed.
4. Institutions can also be places where ideas are cornered and left behind. The modality
and
processes for enforcing compliance with international norms and laws are not present. In
fact,
some UN staff members violate, cheat, and challenge them.
Despite the establishment of global norms and international laws that nation-states should
follow, the nation-states are still relevant for there will be no intergovernmental
organization
without them. Also, international and multinational agreements are designed by the states
and
propelled by the initiatives that they undertake. To conclude, contemporary global
governance
defines political scope of globalization. Cooperation among nation-states is the only way to
reform
and advance the roles and functions of interstate relationships despite real challenges being
faced
by United Nations.
POST READING ACTIVITY
Create a creative and colorful poster that depicts the participation of the Philippines in the
global
community. Then write at least five sentences to explain your poster. You may use a long-
sized
bond paper, a recycled paper or calendar for this activity.

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REFERENCES
Brazalote, T., Leonardo, R. (2018) The Contemporary World Outcome Based Module. C & E
Publishing, Inc., 2019
Weiss, T., Thakur, R. (2014) The United Nations Meets the Twenty-First Century: Confronting
the
Challenges of Global Governance. The SAGE Handbook of Globalization
UN Logo: [Link]

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