GE SocSci 4: The Contemporary World LESSON 2 The Globalization of World Economics

Economic Globalization

- 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. (International Monetary Fund)

The Silk Road

A network of pathways in the ancient world that spanned from China to what is now the Middle East and to Europe. It was called as such because one of the most profitable products traded through this network was silk, which was highly prized, especially in the area that is now the Middle East as well as in the West (today ’ s Europe).

The Galleon Trade

• Its establishment marked the beginning of the Age of Globalization, when “ all important 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. ” (Flynn & Giraldez)

• Established in 1571, it was a trading route that connected Manila in the Philippines and Acapulco in Mexico. This was the first time that the Americas were directly connected to Asian trading routes.

Age of Mercantilism

• The Galleon Trade was part of the __________. From the 16th century to the 18th century, countries, primarily in Europe, competed with one another to sell more goods as a means to boost their country ' s income.

• To defend their products from competitors who sold goods more cheaply, these regimes imposed high tariffs, forbade colonies to trade with other nations, restricted trade routes, and subsidized its exports._________ was thus also a system of global trade with multiple restrictions.

The Gold Standard

A more open trade system emerged in 1867 when, following the lead of the United Kingdom, the United States and other European nations adopted the )_________ at an international monetary conference in Paris.

 Broadly, its goal was to create a common system that would allow for more efficient trade and prevent the isolationism of the mercantilist era. The countries thus established a common basis for currency prices and a fixed exchange rate system—all based on the value of gold.

The Bretton Woods System

 After World War II, the United Nations called for a Monetary and Financial Conference in 1944. The world leaders created a global economic system that would ensure long lasting global peace. They set up a network of global financial institutions to promote economic interdependence and prosperity, globally known as the _________________. It aimed to create a stable global economic order by fixing exchange rates, primarily between the US dollar and other currencies.

Keynesianism

The Bretton Wood System was influenced by the ideas of a British economist John Maynard Keynes who believed that economic crises occur when a country does not have enough money to stimulate the economy, or the country has enough money but it was not being spent or circulated in the economy.

 According to Keynes, the government using its intervening power has to perform its active role to bring the economy to expansion by using its expansionary fiscal policy thereby releasing a substantial amount of money from its autonomous investment to finance government projects to solve the economic crisis.

International Monetary Fund

It was created to oversee the Bretton Woods System, monitor exchange rates, and provide financial assistance to countries facing balance-of-payments difficulties.

World Bank

Formerly known as the International Bank for Reconstruction and Development (IBRD), it was established to provide financial assistance for post-World War II reconstruction and development.

Neo-Liberalism

- The world economy experienced the worst world economic depression in 1973-1974. Due to the stagflation, the Keynesian economics which influenced the Bretton Wood System was challenged by Neo-Classical economists such as Friedrich Hayek and Milton Friedman.

 Government intervention in the economy distorted the proper functioning of the market. The market has its way of correcting itself. Such a new form of economic thinking is called neo-liberalism.

Beginning in the 1980s until 2000s, ______________ became the codified strategy of the United States Treasury Department, IMF, WB, WTO, GATT, and the policies that they forwarded came to be called the Washington Consensus.

The Washington Consensus

1. Privatization of government-controlled utilities and corporations,

 2. Favorable to free market system or free enterprise or Laisse Faire or let alone policy,

3. Minimal government spending to reduce government debt,

4. Reduction of tariffs and open economies for developing countries.