globalisation paper 2 Flashcards
3.1a. Globalisation involves widening and deepening global connections, interdependence and flows (commodities, capital, information, migrants and tourists)
Globalisation is the process of increasing interconnectivity between countries through the flow of people, money, information
Globalisation has increased connectedness of the world’s economic, social, cultural and political systems.
- economic globalisation: the growth of TNCs, which have a global brand image and presence; the spreading of investment around the world; rapid growth in world trade
- cultural: unifying and diversifying; people using increasingly similar: food, clothes, music, values - many of which are ‘western’ in origin (from North America and Europe)
- political: spreading ideologies, global organisations (e.g. the UN), the dominance of western democracies in political and economic decision making; spreads the view that democratic, consumerist societies are the most ‘successful’
- environmental: agreements (Paris), pollution affecting other countries, species being spread to other countries; global warming is a global threat requires a global solution
- demographic: increasing migration and tourism makes populations more fluid and mixed
Globalisation increases interdependence = the success of one place depends on the success of other places.
Economic problems in one country can quickly spread to its trading partner and quickly affect people in distant places e.g. in April 2011, staff at a Honda factory in Swindon had to work only two days a week due to a shortage of parts after Japanese tsunami. The German DAX (stock market) lost 1.2% within minutes after the tsunami.
Flows -Increase in flows of:
goods and services (including commodities)
products and commodities
flows of money between people, banks, businesses and governments
people (including migrants and tourists)
information e.g. data transferred between businesses and people, often using the internet
Globalisation had led to:
▪ The lengthening of connections - people can now travel further afield and goods are brought in further away. (containerisation)
▪ The deepening of connections where connections are penetrating more in depth into most aspects of life.
▪ Faster speed of connections - people can now talk in real time from different parts of the world and you can travel much faster than previously between different countries etc.
shrinking world
3.1b. Developments in transport and trade in the 19th century
(railways, telegraph, steam-ships) accelerated in the 20th
century (jet aircraft, containerisation), contributing to a
‘shrinking world’
The 19th Century saw the development of the railway, telegraph and steam ship.
The 20th Century saw the development of the jet aircraft and containerisation = increase globalisation by reducing transport costs per unit output - so products are affordable for customers in a distant market, setting up a new flow of goods/information
The Shrinking World: physical distance between places remains unchanged, but new technologies reduce the time taken to transport goods/people/communicate information.
Time-space compression is an effect of increased connectivity with more distant place, and an effect of the shrinking world.
There is also more widespread knowledge about distant places, so they feel less exotic. The friction of distance has been reduced.
3.1c. The 21st century has been dominated by rapid
development in ICT and global communication (mobile
phones, internet, social networking, electronic banking,
fibre optics), lowering communication costs and
contributing to time-space compression
ICT (Information Communication Technology) developments have reduced communication costs and increased global communication flows, since the late 20th century.
rapid developments since 1990. activities are now done without personal interaction - banking (electronic apps), booking hotels (online) and shopping.
Mobile Phones – common, with smart phones, smart tablets and smart watches in the 2000s extended they information flows to locations beyond landline networks. used even in countries with a lack of communications infrastructure. By 2015, 70% of people in Africa owned a mobile phone.
Internet access common from the mid 1990s, followed by fast broadband. 50% of the world’s population uses internet. Broadband internet in the 1980s - 90s meant that large amounts of data could be moved quickly through cyberspace.
Social Networks e.g Skype since 2003 allow families to communicate face to face, directly and instantly and without charge. The development of social media (Facebook 2006, Instagram 2010, WhatsApp 2010) enabled cheaper communication between people than telephone = led to space-time compression, where the cost (time or money) of communicating over distance has fallen rapidly, so people can communicate regardless of distance.
Economic Banking = rise of mobile phones so can be used for economic banking, revolutionising life for individuals and businesses.
Kenya: equivalent of one third of the country’s GDP is sent through the M-Pesa system annually. This is a mobile phone service that allows credit to be directly transferred between phone users.
People in towns and cities use mobiles to make payments for utility bills and school fees.
In rural areas, farmers use mobiles to check market prices before selling produce.
Women in rural areas can secure micro-loans
Electronic banking extends capital flows.
In-store barcode recording automatically orders a replacement from a distant supplier, reducing warehouse and wasted transport costs.
allows migrants to transmit remittances back home.
huge benefit to businesses, since they can:
Keep in touch with all parts of their production, supply and sales network, locally and globally.
Transfer money and investments instantly.
Instantly analyse data on sales, employees and orders from anywhere within their business.
Fibre-optic cables = Land-based and sea fibre optic cables in the 2000s increased speed and volume of data transmission through cyberspace, and allow instant, global communications.
More than 1 million kilometres of undersea cables carry the world’s data. Delivery vehicles can continuously locate and transmit their position whilst satellite navigation (SATNAV) systems reduce costs from vehicles getting lost.
Satellite-based television = popular channels are available worldwide, in many languages.
3.2a. International political and economic organisations
(P: role of World Trade Organization (WTO), International
Monetary Fund (IMF), World Bank) have contributed to
globalisation through the promotion of free trade policies
and foreign direct investment (FDI)
World Trade
world trade increased fairly slowly from the 1970s to the mid 1990s. huge growth in export trade after 2002
A sharp dip in 2008-2009 due to the global recession / global financial crisis. returned to ‘normal’ levels in 2011, but growth has been slow ever since. In 2014, there is about US $19 trillion world trade in goods, compared with less than $1 trillion in the early 1970s.
organisations have helped to promote free trade and end ‘protectionism’. In the past, many countries protected their own industries and businesses by:
Demanding payment of taxes and tariffs on imported goods, so making them more expensive than home-produced goods.
Using quotas to limit the volume of imports, protecting home producers from foreign competition.
Banning foreign firms from operating in services like banking, retail and insurance.
Restricting, or banning, foreign companies from investing in their country.
Protectionism reduces total trade volume, whereas free trade (no taxes, tariffs, or quotas) increases it.
World Bank - role of lending money giving grants to the developing world to fund economic development and reduce poverty.
In 2014 it gave a US $470 million loan to the Philippines for a poverty reduction programme and a $70 million grant to the Democratic Republic of Congo for the Inga 3 mega-dam HEP project
it requires recipients to adopt trade liberalisation policies and to open up to FDI by removing legal restrictions and capital controls. It also requires them to adopt structural adjustment programmes to reduce government budget deficits.
Developing countries may prefer to borrow from China, or the Chinese-led Asian Infrastructure Investment Bank, which doesn’t impose such conditions.
in 2010 China loaned $110 billion - more than the World Bank
Deals with flows of capital
Often involves government spending cuts, privatisation of state owned firms and opening up to foreign competition.
Has helped developing countries develop deeper ties to the global economy but has been criticised for having policies that put economic development before social development.
In theory it had the least to do with free trade, but in practise it requires people to open up to it.
International Monetary Fund (IMF) - aims to maintain a stable international financial system, and this promotes free trade and globalisation.
The IMF provides loans to countries facing short-term balance of payment difficulties.
Recipients must adopt structural adjustment and trade liberalisation programmes, including measures opening up the economy to FDI and free trade.
The IMF has been criticised for promoting a ‘western’ model of economic development that works in the interests of developed countries and their TNCs.
Since 1945 the IMF has worked to promote global economic and financial stability, and encourage more open economies.
World Trade Organisation (WTO) - international organisation that works to reduce trade barriers & create free trade.
WTO’s ‘most favoured nation’ requires a country to treat all WTO members to the same low barriers as the most favoured.
Mainly benefits developed and emerging countries.
Deals with the flow of goods and services (commodities), not specifically about FDI
Foreign Direct Investment (FDI) - financial capital flow from one country to another for the purpose of constructing physical capital, i.e. building a factory in another country.
3.2b. National governments are key players in terms of
promoting free trade blocs (P: role of European Union
(EU), The Association of Southeast Asian Nations (ASEAN)) and through polices (free-market liberalisation, privatisation, encouraging business start-ups). (P: role of governments in economic liberalisation)
National Governments Accelerate Globalisation
1) By Joining/Promoting Free Trade Blocs
A free trade bloc = agreement between countries to remove barriers to trade, e.g. import/export taxes, tariffs and quotas.
Trade blocs lead to globalisation through:
Specialisation - Countries specialise in goods being produced which have a comparative advantage (e.g. can produce at the lowest cost) and trade these products for other members’ specialisms.
Firms producing a country’s specialisation become TNCs as they sell outputs through the bloc.
The European Union: single market trade bloc composed of 28 members and a population of 512 million.
It guarantees free movement of goods, capital and people.
Political globalisation with the European Parliament and some foreign policy determined at EU level
The original political aim was to integrate economies, so that interdependence prevents war.
ASEAN (The Association of South East Asian Nations)
A free trade area with 10 members with a population of 625 million. a uniform low tariff is applied between members for specified goods. It’s working towards the elimination of tariffs sector by sector. Agreed to create a single market by 2015, however this was not achieved.
Political globalisation: ASEAN aims to co-ordinate response to regional political issues. It’s more political than economic.
ASEAN pledged to remain nuclear weapons free in 1995.
‘ASEAN way incorporates a culture specific approach to conflict resolution. Seeks consensus and avoids public criticism of member nations e.g ASEAN members won’t comment on Burma’s internal policies
2) Free market liberalisation - promoting free markets and reduces government intervention in the economy
Competition between firms leads to innovation and lowest cost production, outcome is higher output, lower prices and greater choice - higher SOL
first promoted in the 1980’s by Margaret Thatcher.
It means ending the monopoly provision of some services like telephones, broadband, gas and electricity, so you can choose your supplier based on quality and price.
It has created competition in markets. involves removing price controls and encouraging competition - including foreign competition, which increases efficiency further and promotes globalisation. Foreign competition can be encouraged by removing legal restrictions on foreign ownership and removing capital controls, allowing inflows of FDI (and outflows)
3) Privatisation - since 1980s many governments have sold of industries they owned. in UK the steel, car, electricity, gas and water industries were state-owned but are now privately owned
However, many governments still own big slices of industry e.g France = increase efficiency as the profit motive minimises loss (government reluctant to sack workers, leading to higher labour costs)
Permitting foreign ownership allows an injection of foreign capital through FDI, introduces new technologies and promotes globalisation.
4) Encouraging Business Start-Ups = Grants and loans are made to new businesses in areas that are seen to be globally important growth areas such as ICT development, pharmaceuticals or renewable energy. could also be low business taxes, well-enforced contract laws, minimum regulation and efficiency bankruptcy procedures, which encourage new firm creation.
creates innovation and competition in new production techniques & lowers prices
Where legal restrictions on foreign ownership and capital controls are also removed, foreign new businesses will be attracted to start up, promoting globalisation.
e.g. The UK Government’s support for ICT start-ups in Tech City (Silicon Roundabout) in the Old Street area of London.
3.2c. Special economic zones, government subsidies and
attitudes to FDI (China’s 1978 Open Door Policy) have
contributed to the spread of globalisation into new global
regions (P: role of governments in attracting foreign
direct investment (FDI))
Attitudes to FDI - have changed in developing and emerging countries.
During the period of decolonisation in the 1950s, 1960s and 1970s, newly independent countries rejected international trade
They preferred self-sufficiency through import substitution.
However, four countries (Singapore, Taiwan, South Korea, Hong Kong) chose export led growth. they experienced faster economic growth and became known as ‘Asian Tiger economies’.
By the 1980s, most countries had changed their attitudes towards FDI and globalisation. they no longer viewed FDI as exploitative (paying low prices for resources, low wages to workers, demanding low taxes and polluting the environment.)
Instead they viewed FDI as positive - creating new jobs, better paying than the existing alternative (e.g. subsistence farming) with reliable wages and better working conditions, which introduced new technology and were reliable tax contributors.
As a result, FDI by developed country TNCs expanded to new areas, initially to the Asian Tigers, then to other Asian and South American countries, and since 2000 also African countries.
Subsidies = payments by the government to a company to promote a particular activity to attract FDI, e.g. a subsidy to cover relocation costs, payment per worker employed &c.
WTO usually prohibits subsidies to domestic firms as this acts as a trade barrier - the government payment allows a firm to accept a lower market price, undercutting the price of imports.
WTO may accept a subsidy for FDI, e.g. in SEZs, as this promotes trade.
Special Economic Zones (SEZs) - investors receive special tax, tariff and regulatory incentives. About 50 million people in more than 100 countries work in such locations.
SEZs are used by some countries to attract FDI, spreading globalisation to new regions. successful SEZs need good infrastructure, close proximity to trade routes or emerging markets, minimum bureaucracy and rule of law (contract security, minimal corruption, freedom from crime and violence.)
Example: In the 1960s President Suharto of Indonesia created the Jakarta Export Zone with attractive legal and economic conditions designed in consultation with US and European TNCs.
The World Bank funded infrastructure improvements for ports, power supplies and roads. Gap and Levis FDI followed.
China’s 1978 Open Door Policy
communist China was ‘switched off’ from the global economy. Most people lived in poverty in rural areas.
In 1978 ‘Open Door Policy’ happened introducing economic liberalisation and opening up to FDI while maintaining a strict one party political system. SEZs were created on the coast (Pearl River Delta Zone, the Shanghai Economic Zone) attracting rapid inflow of FDI. In 1980 it created the Shenzhen Special Economic Zone.
Exports soared from $2 billion in 1980 to $200 billion in 2000.
China joined the WTO in 2001, guaranteeing other countries would lower tariffs on exports from China.
By 2006, China was receiving $60 billion in FDI per year.
China experienced rapid economic growth. 400 million people were lifted from poverty.
The Chinese government’s sovereign wealth fund and Chinese TNCs are now a major source of FDI in other countries.
Information flows are controlled. Google and Facebook access is limited.
Cultural erosion is limited - only 34 foreign films per year in Chinese cinemas.
These have contributed to ‘made in China’, with FDI pouring in over the last 30 years. Western consumers benefit from low-cost goods, but there are question marks about pay and working conditions in SEZs. Apple was subject to negative publicity in 2010 when working conditions in its supplier factories (owned by Foxconn) making iPhones and iPads, came under scrutiny.
