Globalisation

What is globalisation? There is no precise definition of the term ‘globalisation’ and it used to refer to a variety of ways in which countries are becoming more and more closely integrated, not just in the economic sense, but also culturally and politically Peter Jay, who was at the time the economics correspondent for the BBC, said in 1996 “Globalisation is the ability to produce any good or service in the world, using car materials, components, capital and technology from anywhere, sell the resulting output anywhere and place the profits anywhere Globalisation is not a new phenomenon because there have been many periods in history when there was considerable integration between countries e.g during the height of the Roman empire

Characteristics of Globalisation The growing importance of TNCs and FDI Increased movements of financial capital between countries An increase in trade as a proportion of world GDP Increased international specialisation and division of labour It is increasingly common for parts and components of products to be made in different countries and for assembly to occur in another country

What factors contribute to globalisation?

1-Fall in transport and communication costs In real terms the price of transporting goods has decreased significantly This enables goods to be imported and exported significantly more cheaply There has been a decline in the cost of communications In particular the cost of using the internet has fallen greatly over the last 20 years and its availability has increased

2-The lowering of trade barriers Since WW2 this has been a major factor in the growth of world trade The WTO, formerly the GATT, has been responsible for negotiating reductions in tariffs and other barriers to trade in rounds of talks, the most recent of which is the Doha Round

3-Transnational companies They have taken advantage of the reduction in trade barriers and the development of the internet to organise trade on a global scale TNCs can benefit from large economies of scale as due to low transport and communication costs, it is possible to coordinate operations and transport goods at a very low cost

4-The collapse of communism 5-The opening up of China to world trade 6-Countries which were previously not open to FDI became much more integrated

Consumers can get a wider choice of goods at a lower price Enables the application of the law of comparative advantage Goods can be produced at a lower opportunity cost Living standards will increase World output will increase For producers, there are likely to be benefits in terms of lower costs as a result of offshoring and also economies of scale

What are the problems with globalisation?

1-Labour Exploitation Globalisation has been criticised on the basis that it has promoted exploitation of workers, children, farmers and the environment It is well known that health and safety laws are usually more relaxed in developing countries China is often noted for having little human rights, and stories of people working 16-hour days and collapsing are often circulated by the media It is also important to remember that many of the people who work in sweatshops, despite the conditions, are actually in a better position than they were before. For example, in Manila, people used to often be seen routing through rubbish tips for anything to sell, whereas they now have a permanent, paid (albeit low) job. To emphasise the above point, the savings ratio in China is 50%, where as in European countries it is around 20%, and before the credit crisis, -1% in America

2-External Costs The external costs associated with trade are becoming more apparent, especially concerning global warming Consumers are becoming more and more aware of ‘food miles’, suggesting that increased trade is not sustainable in terms of the environment As transport increases, along with increased leisure travel, emissions have soared. Also, the entry of China as a global player have seen her becoming more and more ‘westernised’, which includes a more oil-based consumption, thus increasing emissions

3-Increased Global Inequality Globalisation has also been associated with increased inequality For example, rich countries have much greater access to the internet then poor countries Given that much wealth creation is dependent on the ready availability of information, the poorest developing countries are at a severe disadvantage From , the number of people living in poverty decreased by 4.9% of the world population, but actually increased in absolute terms by 270 million

4-Global Instability Some argue that the liberalisation of financial markets has been associated with increased global instability Examples of this are the financial crises in Asia at the end of the 1990s and more recently, the global credit crunch

5-Global Imbalances It is also argued that the global imbalances currently experienced, such as the deficit on the current account of BOP of USA and surplus in China, are unsustainable Countries with budget deficits are the US (6.2%), the UK (3.3%) and South Africa (6.5%) where as countries with surpluses are China (9.4%), Israel (5.7%) and Saudi Arabia (28.4%)-2009 figures based on percentages of GDP

Deglobalisation This tends to refer to protectionist policies in order to protect domestic employment, which are becoming in vogue thanks to the recent global credit crisis

Subsidies given to the US car industry Increased import tariffs on Russian car imports in 2009 Raised duties on Vietnamese shoes coming into the EU

Some interesting facts… Brazil, Russia, India and China (BRIC) could have a larger GDP than the G6 (U.S., U.K., Italy, France, Germany and Japan) by 2040 The 3 richest people in the world own assets that exceed the combined gross national product of all least developed countries and their 600 million people Basic education for all would cost $6 BILLION a year; $8 BILLION is spent annually for cosmetics in the United States alone There are 16 cars per 1,000 people in developing countries and 405 cars per 1,000 people in industrialized countries On average, developing countries have one doctor for every 6,000 people whereas industrialized countries have one for every 350 people

Is globalisation making the worlds poorest poorer? Will globalisation carry on indefinitely? Is globalisation beneficial with regards to global welfare