Globalisation Flashcards
Globalisation
Can be defined as the ever-increasing integration of the world’s local, regional and national economies into a single international market.
Characteristics of Globalisation
Economic integration can be broken into four main areas:
- Free trade across national boundaries of goods and services eg it is easy for a firm in London to sell to firms in Poland or Vietnam.
- Free movement of labour between countries eg EU
- Free movement of Capital between countries eg so a UK company might invest in China, or a US firm buys a UK firm.
- Free interchange of technology and intellectual capital across national boundaries, eg a South African company can license its technology from the US on exactly the same terms as the US company, or a US firm can protect its patients in China like it can in the US.
The Causes of Globalisation
Trade in Goods
For rich developed countries, most goods are being manufactured in developing countries such as China and India. This trade is occurring because developing countries are acquiring the capital equipment and know-how to produce manufactured goods; there are efficient modes of transport to get goods to the markets; and developing countries have a cost advantage in the form of very cheap labour.
Trade in Services
Eg tourism is taking large number of visitors abroad, call centres located in developing countries (eg India) etc
Trade liberalisation
Trade liberalisation is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and non-tariff obstacles, such as licensing rules, quotas and other requirements.
Multinational companies
In some industries (eg car manufacturing or oil industry) only multinational companies can operate due to having economies of scale and technological knowledge to make products both cheap and technologically advanced, in other industries, eg food, multinational companies have used highly successful marketing techniques such as branding. Firms like McDonald’s are available in all 5 continents. Some multi-national firms have acquired market and political power. Many have monopoly power in many markets. They may engage in illegal anti-competitive practices. They are also able to influence a governments decision, partly because they have the skills and money to lobby governments, or promising large investments or threats of disinvestment in their countries, and using bribery to influence government decisions.
International Financial Flows
International financial flows are becoming far greater. Countries such as China and Malaysia have financed part of their fast economic growth from inward flows of international capital.
Foreign Ownership of Firms
Foreign ownership of firms is increasing. Many large multinational companies, for example, have invested in factories and companies in China. French firms have bought US firms. A company which started in India is now one of the world’s largest steel producers after buying a number of steel companies in the developed world. Some oil rich states like Dubai (UAE), Qatar or Norway have state investment funds which buy stakes in foreign companies or purchase then outright.
Communications and IT
Developments in communications and information technologies have shrunk the time needed for economic agents to communicate with each other. In industries such as software production, programmers are effectively just as near to a client’s office located in say, London if they themselves are located in India or Kent.
Impact on Consumers
Consumer Choice - Increased choice
Prices - Some goods and services are experiencing a decrease in prices due to being produced in locations which are cheaper, for example, moving the production of a TV from Wales to China will decrease labour costs because Chinese workers are prepared to work for lower wages. Equally, the globalisation of technology means the Chinese factory can employ the most advanced machines and methods of production to ensure lower costs. However, prices for certain goods and services are also rising due to Globalisation, this is because globalisation is increasing average world incomes. Higher income means higher demand for individual products. Where supply is not perfectly elastic in the long run, this puts upward pressure on prices.
Incomes - Overall, globalisation has raised incomes round the world. However, not every consumer has gained. A worker in South Wales who has lost his job because production has moved to China is likely worse off. Equally, some argue globalisation is a cause of stagnant incomes of below average earnings workers in countries like the USA.
Impact on Workers
Employment and Unemployment - A transfer of manufacturing from western Europe and the USA to countries such as China and Poland has led to large scale losses of jobs in these sectors of the developed world whilst there has been an increase in employment in the developing world. This is an example of structural unemployment (in the western world)
Migration - They can fill skill gaps in the economy, and so raise the productivity of existing workers. By creating businesses, some immigrants also create jobs. On the other hand, they are competing in the job market with workers from the host country. Native workers can then perceive immigrant as taking their jobs or lowering wage rates because of competition in the labour market. Immigration can also place strains on housing, education and health care.
Wages - for unskilled and low-skilled workers, wages have been reduced (in developed countries) due to operations moving to developing countries ie China, India. However, in developing countries, low skilled jobs wages are on the rise due to high demand. For highly skilled workers, wages have increased due to their skills being in high demand, especially in developing countries.
Multinationals - Multinational companies create jobs wherever they set up operations.
Impact on Producers
Specialisation and Economic Dependency
Globalisation comes about through increased specialisation and trade. Economic agents, including firms, are increasingly dependent upon each other. A fault at a manufacturing plant in Thailand can impact on a firm in the UK buying its products, for example.
Costs and Markets
Globalisation allows firms to source products from a wider variety of countries and firms. The wider the supplier network, the lower is likely to be the price at which a firm can buy. Key to lower costs is being able to use lower-paid workers, often in the developing world. Equally, globalisation opens markets. Firms in the UK, for example, can sell to countries which previously were closed to trade or had insufficient incomes to buy their goods.
Footloose Capitalism
Firms which operate in several countries (ie multinationals) have the power to move production from country to country, creating and destroying jobs and prosperity in their wake. They do this to maximise their profits.
Tax Avoidance
Impact on Government
If a firm moves production from UK to China, many people become unemployed, UK loses out on tax revenue, fewer exports etc. So the government will have to increase government spending on social welfare, negatively impacting the UK government, but positively impacting the Chinese government. Governments will therefore have to implement policies in order to attract the benefits of globalisation.
Impact on Environment
Impact on the environment has been more negative due to the rise in production eg more wood logging, more oil or gold mining. Some countries eg UK and Sweden have made considerable progress in many areas by using some of the proceeds of economic growth to reverse environmental degradation.
Pros and Cons of Globalisation
Pros
Consumers have lower prices and greater choice. Reduction in poverty through trade, businesses have more markets and therefore can gain increased profit and benefit from economies of scale.
Cons
Exploitation of workers, external costs related to trade, footloose industries, global instability, increased inequality - the ‘race to the bottom’
