Globalisation

Globalisation

The United Nations Economic and Social Commission for Western Asia defines globalization as:

"a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour... although considerable barriers remain to the flow of labour... Globalization is not a new phenomenon. It began towards the end of the nineteenth century, but it slowed down during the period from the start of the first World War until the third quarter of the twentieth century. This slowdown can be attributed to the inward-looking policies pursued by a number of countries in order to protect their respective industries... however, the pace of globalization picked up rapidly during the fourth quarter of the twentieth century...'^[6]

^{Globalisation should allow the free movement around the world of:}

^{Goods and Services.}

^Capital

^Technology

^Labour

^{The process of} globalisation has been accelerated over the last 30 years as a result of:

World Trade Organisation that seeks to reduce trade barriers and adjudicates between countries when there is a conflict.

Trend worldwide to develop free trade areas and customs unions eg EU, NAFTA, SEATO.

Improvements in technology such as containerisation, computers etc

Computers making it relatively easy to send capital around the world.

Improvements in transport links.

Benefits of globalisation. Generally individuals would point to the fact that world poverty is declining: India s poverty has halved in two decades since it opened its economy to competition China s rural poor have declined from 250m in 1978 to 10m today. At the same time life expectancy has increased and adult literacy rates have improved.

1. Fuller development of comparative advantage. This should allow countries to increase their consumption possibilities(pushing Production Possibility curve to the right). This will result in higher incomes for both rich and poor countries.

2. Greater specialisation will result in more Economies of scale. This will reduce costs and prices and should increase profits, enabling more Investment.

3. The UK economy has benefited hugely from the import of cheap goods from China increasing consumer surplus and driving down prices.

4. UK has benefited from inward Foreign Investment as firms wish to become part of fortress europe .

5. Greater consumer choice of goods and services.

6. Dynamic efficiency gains coming from greater competition and the need to innovate.

7. All told, the above should result in considerable supply side gains to an economy ie result in nice growth lower prices, higher growth, more employment and competitiveness gains that should feed through to improvements in the current account( though this will depend on relative improvements)

Problems of Globalisation

1.Trade liberalisation rewards competitive industries and penalises uncompetitive ones, and it requires participating countries to undertake economic restructuring and reform. While this will bring benefits in the long term, there are dislocation costs to grapple with in the immediate term, and the social costs for those affected are high.

2 Some countries have been unable to take advantage of globalisation and their standards of living are dropping further behind the richest countries. The gap in incomes between the 20% of the richest and the poorest countries has grown from 30 to 1 in 1960 to 82 to 1 in 1995.

3. The increasing interdependence of countries in a globalised world makes them more vulnerable to economic problems like the Asian financial crisis of the late 1990`s or the collapse of Lehmann brothers in 2008.

4. The environment has been harmed as agricultural, forest, mining and fishing industries exploit inadequate environmental codes and corrupt behaviour in developing countries. Agricultural seed companies are destroying the biodiversity of the planet, and depriving subsistence farmers of their livelihood.

5. Developed countries have undue influence in the institutions of globalisation, like the WTO, and this can work against the interests of the developing world. The level of agricultural protection by rich countries has also been estimated to be around five times what they provide in aid to poor countries

6 Trade liberalisation and technological improvements change the economy of a country, destroying traditional agricultural communities and allowing cheap imports of manufactured goods. This can lead to unemployment if not carefully managed, as work in the traditional sectors of the economy becomes scarce and people may not have the appropriate skills for the jobs which may be created.

7 Globalised competition can force a `race to the bottom` in wage rates and labour standards. It can also foster a `brain drain` of skilled workers, where highly educated and qualified professionals, such as doctors, engineers and IT specialists, migrate to developed countries to benefit from the higher wages and greater career and lifestyle prospects. This creates severe skilled labour shortages in developing countries.

8 Indigenous and national culture and languages can be eroded by the modern globalised culture.

For its supporters, globalisation describes a dream of opportunity and prosperity. For its opponents, it denotes a nightmare of greed and inequality.

(01) Explain the term globalisation and the factors which may have contributed to the process. (15 marks)

(02) Evaluate the view that, although globalisation has brought benefits to the UK economy, it has not been without significant costs. (25 marks)