3.4A: Benefits and Costs of Global Shift

• The History of Global Shift

  • The shift began in the 1950s with cheap mass-produced goods, e.g. toys and textiles, relocating to Japan.
  • Asian Tiger Economies (South Korea, Taiwan, Hong Kong, Singapore) quickly followed in the 1960s and 70s.
  • In the 1980s and 90s most other Asian countries opened up to globalisation, as well as South America and the communist bloc.
  • However, there is a time lag of 10-15 years between the removal of trade barriers and large FDI flows.
• Benefits of Global Shift - Waged Work​

  • Factory work provides a reliable, regular wage, since subsistence farming income is vulnerable to weather and disease.
  • Low wages of $2-3 per day are still double or triple rural income.
  • The long 12 hour working day, six days a week may be 'sweatshop' conditions, but subsistence farming required even more.
  • Over time, as education levels rise and the supply of rural labour decreases, wages rise and there is a shift to more capital intensive production of higher-technology products, e.g. cars and computers. Wage rates of $10 per day.
• Benefits of Global Shift​ - Poverty Reduction


  The world bank defines extreme poverty as an income less than $1.25 per day (2005)

  • Since 1990, 1 billion people have been lifted out of extreme poverty, primarily due to global shift
  • Incomes rise either due to waged work in factories, or a rise in incomes for commodity producers supplying Asian factories.
  • Some 600 million Chinese were lifted out of poverty between 1992 and 2015.
• Benefits of Global Shift​ - Education and Training

  TNCs invest in training and skills development to improve workforce productivity, and some skills are transferable.

  • Economic growth generated by global shift in manufacturing used to finance investment in education and training
  • Households use higher income to pay for more of children's schooling.Increase income tax and corporation tax used by government to fund state education.
  • The top 5 countries in the OECD's 2015 PISA tests for maths and reading: 1) China (Shanghai), 2) Singapore 3) South Korea 4) Japan 5) Taiwan
• Benefits of Global Shift​ - Investment in infrastructure

  • Attracting manufacturing FDI requires initial investment in basic infrastructure, e.g. ports, power, water supply, sewers.
  • Initially investment in a few coastal locations (SEZs) but this later expands to link up SEZs to cities inland.
  • China built 11,000 km of new motorways in 2015 alone.
• Disadvantages of Global Shift - Loss of productive land

  • Construction of factories, infrastructure and housing for workers occupies land previously used to generate agricultural output.
  • Land lost often flat coastal or flood plain land with highest fertility and productive potential.
  • Air and water pollution from industrial activity can render more agricultural land unusable.
• Disadvantages of Global Shift - Unplanned Settlements

  • New manufacturing job opportunities prompts rural-urban migration
  • Rapid urban population growth outpaces formal housing construction leading to unplanned settlements.
  • Slums or shanty settlements form on the city edge or on spare land within the city.
  • Households add an extra storey to their homes to rent out or add dwellings to garden.
• Disadvantages of Global Shift - Environmental or resource pressure

  • Industrial activity can produce serious air and water pollution.
  • Pressure on natural resources, especially water supply, as new factories and offices demand resources.
  • Construction of supporting built environment (infrastructure, housing) also needs large resource input.
  • Created new domestic and global flows of commodities, driving up commodity prices and leading to mineral depletion.
  • Commodity extraction creates environmental pressure elsewhere, e.g. deforestation
• Manufacturing in China (1)

  • China embraced globalization in 1978 with Deng Xiaoping's Open Door Policy and joined the WTO in 2001.
  • Special Economic Zones, including Shenzhen in the Pearl River Delta and Shanghai, were established to attract foreign investment.
  • Initially, low wages attracted foreign direct investment (FDI) in sectors like toys and textiles, later expanding to higher-tech industries.
  • Waged work helped raise 680 million Chinese people out of extreme poverty since 1980.
• Manufacturing in China (2)

  • The extreme poverty rate in China decreased from 84% in 1980 to 10% in 2016, though 20% still earned less than $2 per day.
  • Wage rates have been rising, with workers in factories, like Honda, earning around $10 per day.
  • Low-wage manufacturing has shifted to countries like Vietnam and Bangladesh.
  • Workers often face long hours and repetitive tasks, as seen in the case of Foxconn, which produced iPhones and faced labor issues.
  • Health and safety standards were initially low, resulting in injuries in factories, such as Yongkang metal factories.
• Manufacturing in China (3)

  • Education is free and compulsory for 5-15 year-olds, leading to an increase in the literacy rate from 20% in the 1950s to 84% in 2015.
  • The number of university graduates in China increased significantly, with 7 million in 2014, 15 times higher than in 2000.
  • Car ownership rose from 1% of households in 2000 to 20% in 2015.
• Manufacturing in China (4)

  • China invested in infrastructure projects like the Three Gorges HEP dam and high-speed rail (HSR) linking Shenzhen, Shanghai, and Beijing.
  • Technology transfer led to local companies adopting techniques from transnational corporations (TNCs), and new Chinese TNCs emerged, such as Huawei in the smartphone industry.

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• Services in India (1)

  • India adopted globalization in 1991 with economic liberalization led by Prime Minister Manmohan Singh.
  • Initially, globalization in India focused on outsourcing rather than manufacturing.
  • India's advantage includes its English-speaking workforce, a legacy of British colonialism.
  • Early investment in Indian Institutes of Technology created a skilled IT workforce.
  • Significant FDI from large TNCs in the 2000s, including call centers and back-office functions.
• Services in India (2)

  • India's expertise in computer software design attracted outsourcing from TNCs like Texas Instruments.
  • Tech hubs like Bangalore had high broadband access.
  • Technology workers in India earned around $10 per day.
  • Globalization contributed to increased inequality, with India having more billionaires per capita than the UK.
  • India still had a significant population living in extreme poverty.
• Services in India (3)

  • Indian technology TNCs like Infosys saw substantial revenue growth.
  • In 2015, Prime Minister Narendra Modi launched the 'Make in India' initiative to promote manufacturing FDI.
  • India faced challenges in the ease of doing business, ranking 142nd in the World Bank's assessment due to issues like inadequate bankruptcy laws and contract dispute resolution timelines. There were also legal restrictions on foreign ownership in some sectors.