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Study Guide in GE 5- The Contemporary World Module No. 3

STUDY GUIDE FOR MODULE NO. 3

MARKET INTEGRATION

MODULE OVERVIEW

Welcome to Module No. 3! This module will show the contribution of the different financial
and economic institutions that facilitated the growth of the global economy. The history of the
market will also discuss by looking at the different economic revolutions. Lastly, this study
guide will also examine the growth and dynamics of multination corporations that are
emerging in today’s world economy.

MODULE LEARNING OBJECTIVES

At the end of the lesson, the students will be able to:

• explain the role of international financial institutions in the creation of a global
economy.
• narrate a short history of global market integration in the twentieth century.
• identify the attributes of global corporations.

LEARNING CONTENTS

What is Market Integration?

Market integration is the fusing of many markets into one. Global market integration
means that price differences between countries are eliminated as all markets become one.
One way to the progress of globalization is to look at trends how prices converge or
become similar across countries. The time when the costs of trading across the country fall
and that is the time the other firm will take advantage of price differences, other countries
may enter the market of the other country. Trading cost fall when new product invented or
developed becomes cheaper and also, some costs are man-made like when they impose a
barriers for trade

In one market a commodity has a single price such as the price of rice would be the
same in east Pangasinan and west Pangasinan if these areas were part of the same
market. If the price of rice in west Pangasinan was higher, sellers of rice would move from
the east to the west and prices would equalize. The price of rice in one place to other might
be different, though, and high transport costs and other kinds of expenses might mean that
it would be uneconomical for other sellers to move their stocks to other place if prices were
higher there. And for other markets, the price changes for a long period of time.

Some economists argue that this process is underway and inevitable, end that global
markets drive the harmonization of institutions across countries. Consider a multinational
firm choosing a country in which to locate its factory. In order to attract the firm’s
investment, a government might cut business tax rates and loosen regulatory requirements.
Other competing countries follow suit. The resulting lower tax revenues make countries less
able to finance welfare states and educational programs. All policy decisions become
oriented toward maximizing integration with global markets. No goods or services would be

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provided that are incompatible with this.

Adapted from: Mendoza, Et.al, 2019. Worktext In the Contemporary World

History of Market Integration

Before the rise of today's modern economy, people only produced for their family.
Nowadays, economy demands the different sectors to work together in order to produce,
distribute, and exchange products and services. What caused this shift in the way people
produce for their needs? In order to understand this, we will be going back in time, 12,000
years ago.

The Agricultural Revolution and the Industrial Revolution

The first big economic change was the Agricultural Revolution (Pomeranz, 2000). When
people learned how to domesticate plants and animals, they realized that it was much more
productive than hunter-gatherer societies. This became the new agricultural economy.
Farming helped societies build surpluses, meaning, not everyone had to spend their time
producing food. This, in turn, led to major developments like permanent settlements, trade
networks, and population growth.

The second major economic revolution is the Industrial Revolution of the 1800s. With
the rise of industry came new economic tools, like steam engines, manufacturing, and mass
production. Factories popped up and changed how work functioned. Instead of working at
home where people worked for their family by making things from start to finish, they began
working as wage laborers and then becoming more specialized in their skills. Overall,
productivity went up, standards of living rose, and people had access to a wider variety of
goods due to mass production.

However, every economic revolution comes with economic casualties. The workers in
the factories—who were mainly poor women and children—worked in dangerous conditions
for low wages. As a result, nineteenth-century industrialists were known as robber barons—
with more productivity came greater wealth, but also greater economic inequality. In the late
nineteenth century, labor unions began to form. These organizations of workers sought to
improve wages and working conditions through collective action, strikes, and negotiations.
Inspired by Marxist principles, labor unions gave way for minimum wage laws, reasonable
working hours, and regulations to protect the safety of workers.

Capitalism and Socialism

There were two competing economic models that sprung up around the time of the
Industrial Revolution, as economic capital became more and more important to the
production of goods. These were capitalism and socialism. Capitalism is a system in which
all natural resources and means of production are privately owned. It emphasizes profit
maximization and competition as the main drivers of efficiency. This means that when one
owns a business, he needs to outperform his competitors if he is going to succeed. He is
incentivized to be more efficient by improving the quality of one's product and reducing its
prices. This is what economist Adam Smith in the 1770s called the "invisible hand" of the

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market. The idea is that if one leaves a capitalist economy alone, consumers will regulate
things themselves by selecting goods and services that provide the best value.

In practice, however, an economy does not work very well if it is left completely on
autopilot. There are many sectors where a hands-off approach can lead to what economists
call market failures, where an unregulated market ends up allocating goods and services
inefficiently. A monopoly, for example, is a kind of market failure. When a company has no
competition for customers, it can charge higher prices without worrying about losing
customers. As allocations go, monopoly becomes inefficient at least on the consumer end.
In situations like these, a government might step in and force the company to break up into
smaller companies to increase competition. Market failures like this are the reasons most
countries are not purely capitalist societies. For example, the United States’ federal and
state governments own and operate a number of businesses, like schools, the postal
service, and the military. Governments also set minimum wages, create workplace safety
laws, and provide social support programs like unemployment benefits and food stamps.

The Information Revolution

Ours is the time of the information revolution. Technology has reduced the role of
human labor and shifted it from a manufacturing-based economy to one that is based on
service work and the production of ideas rather than goods. This has had a lot of residual
effects on our economy. Computers and other technologies are beginning to replace many
jobs because of automation or outsourcing jobs offshore. We also see the decline in union
membership. Nowadays, most unions are for public sector jobs, like teachers.

What do jobs in a post-industrial society look like? Agricultural jobs, which once were
a massive part of the Philippine labor force, have fallen drastically over the last century. In
other countries such as the United States, manufacturing jobs, which were the lifeblood of
their economy for much of the twentieth century, have declined in the last 30 years. The
U.S. economy began with their many workers serving in either the primary or secondary
economic sectors. But today, much of their economy is centered on the tertiary sector or
the service industry.

The service industry includes every job such as administrative assistants, nurses,
teachers, and lawyers. This is a big and diverse group because the tertiary sector, like all
the economic sectors we have been discussing, is defined mainly by what it produces
rather than what kinds of jobs it includes. Sociologists have a way of distinguishing between
types of jobs, which is based more on the social status and compensation that come with
them. These are the primary labor market and the secondary labor market. The primary
labor market includes jobs that provide many benefits to workers, like high incomes, job
security, health insurance, and retirement packages. These are white-collar professions,
like doctors, accountants, and engineers. Secondary labor market jobs provide fewer
benefits and include lower-skilled jobs and lower-level service sector jobs. They tend to pay
less, have more unpredictable schedules, and typically do not offer benefits like health
insurance. They also tend to have less job security.

Adapted from: Mendoza, Et.al, 2019. Worktext In the Contemporary World

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International Financial Institutions

A. The Bretton Woods System

✓ The Bretton Woods Agreement and System created a collective international
currency exchange regime that lasted from the mid-1940s to the early 1970s.
✓ The Bretton Woods System required a currency peg to the U.S. dollar which was in
turn pegged to the price of gold.
✓ The Bretton Woods System collapsed in the 1970s but created a lasting influence on
international currency exchange and trade through its development of the IMF and
World Bank. (Chen, 2021)

B. General Agreement on Tariffs and Trade (GATT) and the World Trade Organization
(WTO)
✓ The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in
October 1947, after World War II, and became law on Jan. 1, 1948.
✓ The purpose of the General Agreement on Tariffs and Trade (GATT) was to make
international trade easier.
✓ The General Agreement on Tariffs and Trade (GATT) held eight rounds in total from
April 1947 to December 1993, each with significant achievements and outcomes.7
✓ In 1995, the General Agreement on Tariffs and Trade (GATT) was absorbed into the
World Trade Organization (WTO), which extended it. (Majaski,2021)

C. International Monetary Fund and the World Bank

✓ The IMF's mission is to promote global economic growth and financial stability,
encourage international trade, and reduce poverty around the world.
✓ The IMF was originally created in 1945 as part of the Bretton Woods agreement,
which attempted to encourage international financial cooperation by introducing a
system of convertible currencies at fixed exchange rates. (Kenton,2021)
✓ The World Bank is an international organization that provides financing, advice, and
research to developing nations to help advance their economies.
✓ The World Bank and International Monetary Fund (IMF)—founded simultaneously
under the Bretton Woods Agreement—both seek to serve international governments.
✓ The World Bank Group offers a multitude of proprietary financial assistance,
products, and solutions for international governments, as well as a range of
research-based thought leadership for the global economy at large. (Kenton,2021)

D. The Organization for Economic Cooperation and Development (OECD), the

Organization of Petroleum Exporting Countries (OPEC), and the European Union
(EU)
✓ The Organisation for Economic Co-operation and Development (OECD) is a group of
37 member countries that discuss and develop economic and social policy.
✓ The stated goal of the Organisation for Economic Co-operation and Development
(OECD) is to shape policies that foster prosperity, equality, opportunity and well-
being for all. (Kenton, 2020)
✓ The Organization of the Petroleum Exporting Countries is a cartel consisting of 13 of
the world’s major oil-exporting nations.
✓ OPEC aims to regulate the supply of oil in order to set the price on the world market.
(Hayes, 2021)

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✓ The European Union (EU) consists of a group of countries that acts as one economic
unit in the world economy.
✓ Its official currency is the euro; 19 of its 27 members have adopted the currency.
(Hayes, 2021)

E. North American Trade Agreement (NAFTA)

✓ The North American Free Trade Agreement (NAFTA) was implemented in 1994 to
encourage trade between the U.S., Mexico, and Canada.
✓ NAFTA reduced or eliminated tariffs on imports and exports between the three
participating countries, creating a huge free-trade zone.
✓ Two side agreements to NAFTA aimed to establish high common standards in
workplace safety, labor rights, and environmental protection, to prevent businesses
from relocating to other countries to exploit lower wages or looser regulations.
(Kenton, 2021)

LEARNING ACTIVITIES

Activity 1

The history of global market brought positive and negative effects through time. At this
point, markets will be assessed through your own perspective provided that you already had
a good grasp of the different concepts in economic and financial globalization. This activity
will help you understand the benefits and harms of global economic processes, structures,
and technologies.

Listed below are the scenarios that have to do with the economy. In pair, discuss the major
impacts of these scenarios whether they are positive or negative (for you, for the country, or
for the Filipinos). The *'Case-by-Case" column can be used to justify your answers.

Scenario Positive Negative Case-by-Case

• Scenario A: Agriculture is the main source of employment in your home province. The
government has recently decided to develop the farmlands into real estate and
exclusive subdivisions in order to attract foreign investors to the country.

• Scenario B: You decided to purchase a new shirt through an online shop based in

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London.

• Scenario C: The Philippine government 'is being pressured by the current economic
crisis to import rice from Taiwan and other nearby countries in the region.

• Scenario D: A multinational corporation decided to close. Unfortunately, your father

is one of its many employees whose work has been terminated. However, he could
still be employed if he were to accept the offer to move or relocate to another country.

• Scenario E: The global financial crisis has affected the investment funds of your
mother that she can use for her retirement.

Activity 2

How did you decide for each scenario? What are the pros and cons that you list down
before you came up with the final judgment? Share with the class your responses to each
scenario.

SUMMARY

Market integration occurs when prices among different locations or related goods follow
similar patterns over a long period of time. Groups of goods often move proportionally to
each other and when this relation is very clear among different markets it is said that the
markets are integrated.

The history of market integration started during the industrial revolution, the period when
people learned how to domesticate plants and animals.

Capitalism and social are the two competing economic systems during the industrial
revolution. Capitalism is an economic system where the means of production are owned by
private individuals. On the other hand, Socialism is an economic system where the means
of production are owned by the state or public.

The global economy in the post-industrial is centered on the tertiary sector of the service
industry.

REFERENCES

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

Mendoza, Et.al, 2019. WORKTEXT IN THE CONTEMPORARY WORLD. Nieme Publishing

House. Co.Ltd.

Global Economy Retrieved from

http://www.un.org/en/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf)
,April 2019

Restoy, F. (2019). Market integration: the role of regulation.

https://www.bis.org/speeches/sp190415.htm

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https://www.coursehero.com/file/55299107/Lesson-3-Introduction-to-Market-Integration-
Module-3docx/

https://www.investopedia.com/terms/b/brettonwoodsagreement.asp

https://www.investopedia.com/terms/g/gatt.asp
https://www.investopedia.com/terms/o/opec.asp

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