Notes in “Contemporary World” - Chapt, 3: Market Integration

Social Institutions:
 Family
 Government
 Religion
 Economic Institutions

The Economy is composed of people. It organizes all production, consumption, and trade of
goods in the society.

The Economic System:

 Primary sector = extracts raw materials from natural environment, e.g. farmers, miners,
etc.
 Secondary sector = transforms raw materials and transforms them into manufactured
goods, e.g., from petroleum to gasoline.
 Tertiary sector = refers to services (doing things rather than making things)

The Different Financial and Economic Institutions

The Financial Institutions and Economic Institutions:

I. The Bretton Woods System: This was established to ensure global financial stability
The 5 Key elements of the Bretton Woods System:
1. Expression of currency in terms of gold. – e.g. Php 54 per US dollar
2. Establishment of Central Bank . It takes charge of changing other currency into peso at an
established rate.
3. Establishment of IMP – It oversees exchange rates.
4. Elimination of restrictions on currencies of member states in the international trade.
5. U.S. dollar as the global currency

II. The General Agreement on Tariff and Trade (GATT) and World Trade Organization (WTO)

 Global Trade and finance was greatly affected by the Bretton Woods system

Two systems was born out of Bretton Woods, namely: GATT and WTO
a) GATT: (General Agreement on Tariff and Trade -1947). It is a forum for the
meetings of representatives from 23 member countries. It focused on trade goods thru
multinational trade agreements conducted in many “rounds” of negotiations. It was
out or Uruguay Round (1986-1993) that an agreement was reached to created the
World Trade Organization. (WTO).

b) WTO: Headquarters in located in Geneva, Switzerland with 152 member states

(2008). It is responsible for broader areas of trade liberalization tasked for reducing or
eliminating barriers which would benefit all nations.
 c) Criticism: Trade barriers created by developed countries cannot be countered enough
by WTO, especially in agriculture, like in Mexico, Egypt and Indonesia in 2008.

d) Another criticism: The decision-making process were heavily influenced by larger

trading powers, excluding smaller powers in the so-called “The Green Room
Meetings”.
e) The International Non-Government Organization (INGO) are exclude from the
organization, leading to regular protest and demonstration against the WTO.

The IMF and the World Bank

 Founded after World War II for peace advocacy
 Aimed to help the economic stability of the world
 Though functions like regular banks, they are initiated and run by countries.
 Most of the world’s countries are members of both.
 The riches countries handle the financing and they have the greatest influences.
 The IMF and WB are designed to complement each other.

 IMF goal = to help countries about to collapse or whose currency is threatened. It

acts as a lender of last resort of countries needing badly financial assistance. E.g.
Yemen loaned 93 million dollars on April 5, 2012 to fight terrorism.
 WB = has a long- term approach whose goal is the eradication of poverty,
especially in poor countries, e.g. Bangladesh and Afghanistan.
 Note: the reputation of both institutions have been dwindling due to practices like
lending money to corrupt government or even to dictators and imposing
ineffective austerity measures to get their money back.

The Organization for Economic Cooperation and Development (OECD), The Organization of
Petroleum-Exporting Countries (OPEC) and the European Union (EU)
 OECD - the organization of the richest countries in the world with 35 member states
(2016) – highly influential, although having little formal power.
 OPEC - Members: Saudi Arabia, Iraq, Kuwait, Iran and Venezuela. Latest addition: the
United Arab Emirates, Algeria, Libya Qatar, Nigeria and Indonesia (latest addition).
 EU - made up of 28 member states.

The North American Free Trade Agreement (NAFTA) – Originally between US and Canada
(1989) an Mexico (1994).
 helps in developing and expanding world trade by broadening international cooperation.
 For improving working condition in North America by reducing barriers to trade as it
expands the market of the 3 countries.
 The free trade initiated what is now called “outsourcing”. US firms relocated their firms
to Mexico for cheap labor and less government regulations. This has cause in the US job
losses and wage stagnation.
 As for Canada, 76 % of Canada’s export go to the US.
 25% of jobs in Canada are dependednt in some way on the trade with the USA.
 If NAFTA is eradicated, Canadian economy would be devastated.
 Positive Effects of NAFTA:
 it lowered prices due o removal of tariffs.
 It opened up new opportunities for small and medium-sized business making a
name for itself.
 Quadrupled trade between the 3 countries
 Created 5 million US jobs.
Negative Effects of NAFTA:
 Excessive pollution
 Loss of 620,000manufactoring jobs
 Exploitation of workers in Mexico
 Mexican farmers are out of business

History of Global Market Integration

How did we come to this point in our World Economic Development when people are
challenged to produce, distribute, and exchange products and services? Somewhere in time,
Filipinos were just contented with having a small nipa hut having a siesta in the afternoon and
with either farming or fishing to sustain their life?

I.The Agricultural Revolution:

Stage 1: Hunting stage: People hunt for living
Stage 2: Agricultural stage: People settled down and learned how to plant and
domistacate animals.
Stage 3: Trading stage: People had surplus of their produce for trading. This contributed to
permanent settlements, trading network and population growth.
II. The Industrial Revolution (1800)
 Factories were erected, mass production of goods, steam engines for transportation, more
specialized skills were in demand to meet new challenges, production of goods went up,
standard of living also went up.
 Economic casualties:
 Women and children worked in factories under dangerous condition and for low
wages
 With more productivity came greater wealth, but also greater economic
inequality.
 Labor unions were formed establishing minimum laws, reasonable working hours
and regulations to protect the safety of workers.

III. Capitalism and Socialism

Capitalism – a system in which all natural resources and means of production are privately
owned. Profit is its goal and competition, in theory is supposed to drive the capitalist for
efficiency. In practice, this idea does not work well. Example: Monopoly = when a company has
no competition, it can charge higher prices.

Socialism – means of production are under collective ownership. All property is owned by the
government and allocates to all citizens what they need. Socialism emphasizes collective goals,
expecting everybody to work for the common good and placing priority on meeting everyone’s
needs rather than individual profit.
Result: Socialist countries like Cuba, North Korea, China and the USSR never achieved the
idealism of Karl Marx. Rather then freeing the working people from inequality, the massive
power of the government in these communist countries gave enormous wealth and power and
privileges to political elites.