Globalization Of The Market Economy Essay

Much has been said how globalization has internationalize the market economy and how this system was able to integrate and create international partnerships between and among nations. Globalization is not just a phenomenon – it is a system, a new world system that has replaced the Cold War. Globalization has transcended economic and political borders without so much undermining the national sovereignty of any nation. This essay will document how the key players and catalysts accomplished the integration of a very complex world market economy, allowing the creation of the so-called global village. Specifically, this essay will look into the following: ? the creation of international bodies collectively known as The Bretton Woods institutions; ? the largest regional trade organizations: how they come into being, its membership, and how they are being seen sometimes as stumbling blocs, instead of building blocs; ? multi- or transnational corporations; and ? technological revolution (information and communication technology, or ICT, and the Internet). The list above will help us see globalization, an intangible system, as an observable, concrete, and measurable concept. This essay will also attempt to explain the future of globalization so as to prepare other areas that it has not penetrated yet, and at the same time, to allow those who are experiencing it already to take advantage of the strengths and opportunities in the system and be prepared with the threats that come with it. Understanding globalization There are two very interesting books on globalization that can serve as a starting point of this essay – MacGillivray’s A brief history of globalization: The Untold story of our incredible shrinking planet and Friedman’s The Lexus and the olive tree: Understanding globalization. MacGillivray argues that the term â€Å"globalization† has rapidly become one of the most overused words in the field of international relations. Unfortunately, its being overused does not guarantee understanding of the concept. In fact, this is one of the least understood or at least broadly construed concepts in the same field. It clearly covers connections between and among political, economic, cultural, and even environmental issues or concerns. And with the recent advance in information technology, we also know that globalization also concerns itself about technology and even war. MacGillivray described globalization as the interaction and integration between and among people, corporations, and governments across national boundaries. Such web of interaction and integration is motivated by international trade and investment with the help of technology, particularly, information technology (MacGillivray 2006). The importance of technology in the era of globalization was further elaborated and described by Friedman in his book The Lexus and the olive tree: Understanding globalization through this passage: â€Å"In the Cold War, the most frequently asked question was ‘How big is your missile? ’ In globalization, the most frequently asked question is ‘How fast is your modem? ’† As compared to other writers who believe that globalization is a phase of human evolution, or maybe a trend, Friedman believes that it is more of an international system which existence was significantly felt after the Cold War period. He argued that the movement of globalization in this contemporary period is just an extension of the previous period which has marked the end of the First World War (Friedman 1999). Whereas the Cold War has changed the whole world into a bipolar one, globalization has changed this into a global village with shared or integrated resources in terms of capital, technology, political and market sentiments, and information across and, even more interesting, through national borders. Establishing new grounds: The collapse of economic and market frontiers Globalization’s effects are very much visible in some aspects of international relations. In this essay, the effect on economic sovereignty would be the focus. It should be noted though that as far as these effects are concerned, globalization does not destabilize the sovereignty and legitimacy of a nation in any one way or another. With globalization, we could say that the economic borders of any sovereign nation has somewhat been transcended, i. e. , protectionist policies are either challenged if not eliminated completely. The Bretton Woods system: The first attempt to international openness One of the best ways of seeing globalization’s effect to international relations is by looking at international financial institutions having direct or indirect effect to sovereign nations. While they do not exactly dictate what the economic policies of countries should be, these bodies without a doubt influence the making of such policies. In the early 1930s, currency exchange rates, even those of the major economies, are unstable. A number of countries are protectionists and had very restrictive trade policies. A decade after that, Great Britain and the United States, the only two super powers then, proposed the establishment of international financial or monetary institutions that would aim to stabilize exchange rates and, more importantly, improve international trade. In 1944, 44 nations through their representatives convened at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The participants of the conference met to plan the recovery and eventual development of post-war Europe and to discuss the monetary and prevailing economic issues of that period – protectionist trade policies and unstable exchange rates of a number of countries (Bretton Woods Project 2007; Canadian Economy Online 2007). This has given birth to the Bretton Woods Agreement. The agreement aims to create a post-war international monetary system of convertible currencies, fixed and stable exchange rates, and free trade across geographical regions. The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (which was later on referred to as the World Bank) were established to facilitate the objectives of the agreement. The resulting bodies from this Bretton Woods convention have definitely affected the economic sovereignty of countries. Taking the case of International Monetary Fund, its main areas of concern are surveillance (advice and appraisal on the policies of its member economies), financial or monetary assistance for members experiencing short- to medium-term economic problems and difficulties, and technical assistance as well as training in monetary and fiscal policies (Ibid). The Bretton Woods agreement prevented currency and exchange rates competition and promoted monetary cooperation among its member economies. Under this system, member nations and economies agreed to have a system of currency exchange rates that could be adjusted or computed within defined parities with the US dollar. This currency exchange rate could also be adjusted to correct a basic disequilibrium in balance of payments as approved by IMF. Advocates of the Bretton Woods system argued that establishment of a stable exchange rate would discourage the â€Å"beggar thy neighbour† policies, which would eventually benefit several, if not all, member economies by the promotion and expansion of international market and trade. The competitiveness of currency exchange rates decreased overtime due to infrequent changes in parities. Some expressed concerns that a fixed currency exchange rate system may prohibit countries enough liberty for them to actually pursue and implement their own monetary and fiscal policies. IMF uses both its surveillance as well as technical assistance work or functions in developing codes and standards of good practice in its areas of responsibility (Articles of Agreement of the International Monetary Fund 2007). The World Bank, which is officially named International Bank for Reconstruction and Development, is actually a development institution. Its mandate is to build a climate of healthy investment, sufficient jobs, and sustainable growth. It also invests in poor people and empowers them to participate in development projects. Its efforts on poverty reduction can be observed in national as well as global levels (Schiff and Winters 2003, 15–16). The World Bank gives emphasis on extending aids to poor and developing nations. But more than just these financial aids or loans, the bank gives advice on policymaking and training to countries needing them. Now, in return for IMF’s and World Bank’s financial support or any other kind of advice, recipients of these financial aids should implement necessary structural adjustment policies that will encourage healthy public spending, especially on social services delivery systems. These policies usually decrease government’s participation in the economy (or market, to be specific). Currently, the World Bank is the largest international lending institution dealing with least developed to developing countries (Ibid, 25–26). The World Trade Organization is probably the most â€Å"intrusive† of the three bodies established by the Bretton Woods convention. The convention created a provision for an International Trade Organization. However, such plan lay dormant until the actual establishment of the World Trade Organization in early 1990s. This original plan did not materialize in the form it was originally conceptualized because of the refusal of the US Congress to endorse it. (The refusal of the US Congress is primarily anchored on the idea that had the International Trade Organization been approved then, this body would have the power of a supranational body that can implement sanctions, penalties, or disciplines to any member economies that the ITO deem violating the principles and agreements reached at the Bretton Woods. ) In lieu of this, an international organization, so to speak, in the form of General Agreement on Tariffs and Trade or GATT was created. As an international body, it has the primary responsibility of reducing trade barriers through multilateral and multinational negotiations. ITO, however, does not have the power to effect any policies, i. e. , its agreements are non-binding (Timeline: World Trade Organization – A chronology of key events 2007). The World Trade Organization came into existence on 1995. It replaced GATT as an international body overseeing the multilateral trading system. One hundred and twenty-eight (128) countries had signed GATT by 1994. And as of the year 2007, there are 151 full-fledged members and 30 economies/countries having observer status. Every member country of the WTO has the right to challenge or simply question other countries’ local, state, or federal laws granted that such laws may impede efficient and effective international trade. In such cases, if the WTO judges the law to contain violations of WTO ideals, it [WTO] may order the government to overturn or modify the law or else, the country can experience or suffer from trade sanctions. This is exactly why the US Congress did not approve the ratification of the treaty for the creation or establishment of the WTO (Ibid). These three international bodies have clearly penetrated the economic barriers, even political to some extent, of any of its member economies. For this purpose, however, it is clear that these effects are for the benefit of the member economy. While it is clear that these Bretton Woods bodies do not directly dictate economic policies, it has the power to influence its members to act towards its direction. Again, this is not to emphasize that economic sovereignty is being taken away from the country itself, but clearly, the economic barriers have been breached. Regional trade associations or blocs Regional trade associations are â€Å"offshoots†, so to speak, of the globalization phenomenon where inter-nation or inter-state agreement is established. These associations are actually the ones that manage, promote, and direct all the trade activities of the concerned group of countries or regions of the world (UC Atlas of Global Inequality, 2007). This is a case where instead of an institution penetrating the borders of a country, the sovereign country itself initiates the â€Å"surrender† of their economic, or more particularly, trading, policies. Regional trade associations, in general terms, are groupings of economies or nations at a governmental level that aims to promote, manage, and encourage trade within and among their own region and defend its member countries or member economies against a larger global competition. Protection against this larger global competition is done by most countries by establishing tariffs on commodities produced by its members economies, import quotas, onerous bureaucratic import processes, government subsidies, and technical and other non-tariff barriers. Trade is not an isolated activity and other areas of relations between countries or economies involved are also affected: political, security, and other issues affecting the region (Ibid). A good example of a regional trade bloc affecting other aspects of inter-national relations is the case of the European Union or EU. This group is the world’s largest trade association, and by far, the most effective in terms of certain aspects. EU has harbored not just economic but also political ambitions extending way beyond the free trading arrangements entered into by the participating economies (Gibb and Michalak, 1994, 75). The ideological foundations of EU were actually focused on ensuring development and maintaining international or even inter-regional stability, specifically, encapsulating communist or socialist expansion in the post-WWII Europe. EU’s plan actually involves possible joint policies on military security and citizenship. Some researchers believe that trade associations complement globalized trade. There are those, on the other hand, who believe that regionalism is a threat to free trade due to its protectionist nature having conservative policies being implemented by these blocs that shield the member- countries from outside competition of global trade. Such debates contain sharp disagreements. In the same work by Gibb and Michalak (1994, 1), they noted, â€Å"the multilateral trading system is in decline and regionalism is on the ascendancy. † They emphasized that regional trade blocs are an alternative form of trade that â€Å"attempts to counter more aggressive policies of trade, especially as espoused by the WTO. †