4.1.1 Globalisation

• Globalisation


  The ever increasing integration of the world's local, regional and national economies into a single, international market
• Globalisation


  • Involves the free trade of goods and services
  • Involves the free movement of capital and labour
  • Involves the free interchange of technology and intellectual capital
• With the spread of globalisation came more trade between nations and more transfers of capital including FDI (foreign direct investment)
• Brands developed globally and labour has been divided between several countries
• There is more migration and more countries participate in global trade, such as China and India, as well as higher levels of investment
• Countries have become more interdependent, so the performance of their own country depends on the performance of other countries
• This could be seen in 2008 and 2009, when the effects of the global credit crunch spread across the globe
• Factors contributing to globalisation in the last 50 years

  • Trade in goods
  • Trade in services
  • Trade liberalisation
  • Multinational Corporations (MNCs)
  • International financial flows
  • Communications and IT
  • Containerisation
• Trade in goods


  • Developing countries have acquired the capital and knowledge to manufacture goods
  • Efficient forms of transport make it easier and cheaper to transfer goods across international borders
  • Some developing countries have the cost advantage of cheaper labour, so MNCs move their production abroad
• Trade in services


  • Trade of tourism, call centre services, and software production (particularly from India) has increased from developing countries to developed countries
• Trade liberalisation


  • The growing strength and influence of organisations such as the World Trade Organisation (WTO), which advocates free trade, has contributed to the decline in trade barriers
• Multinational Corporations (MNCs)


  • Organisations which own or control the production of goods and services in multiple countries
  • Have used marketing to become global
  • Have been able to take advantage of economies of scale, such as risk-bearing economies of scale
  • The spread of technological knowledge and economies of scale has resulted in lower costs of production
• International financial flows


  • The flow of capital and FDI across international borders has increased
  • China and Malaysia have financed their growth with capital flows
  • The foreign ownership of firms has increased
  • There has been more investment in factories abroad
  • The removal of capital controls has facilitated this increase
• Communications and IT


  • The spread of IT has resulted in it becoming easier and cheaper to communicate, which has led to the world being more interconnected
  • There are better transport links and the transfer of information has been made easier
• Containerisation


  • Has resulted in it becoming cheaper to ship goods across the world
  • Causes prices to fall, which helps make the market more competitive
  • Goods are distributed in standard sized containers, so it is easier to load and cheaper to distribute using rail and sea transport
  • Helps to meet world demand
  • Cargo can be moved twenty times as fast as before, economies of scale can be exploited and less labour is required
  • Mainly MNCs have been able to exploit this, and it could result in some structural unemployment
• Trade imbalances between countries

  For example, the US runs a large current account deficit with China, who has a large current account surplus
• There could be imbalances and inequalities in consumers' and countries' accesses to health, education and markets
• Within individual countries, there could be income and wealth inequalities if the benefits and costs of globalisation are not evenly spread
• This is evident in China, where the population in the rural and urban areas have vastly different levels of income and living standards
• Culture could spread across the globe. Some might say this has weakened culture and that there has been a loss of cultural diversity due to global brands. However, others will argue that the spread of culture has been positive and helped to improve their quality of life
• Some governments might lose their sovereignty due to the increase in international treaties
• Individual states would find it hard to resist the force of them, and if countries become members of organisations, they will have to abide by their rules
• Firms operate in a more competitive environment, which encourages them to lower their average costs and become more efficient
• Producers can also make their average costs lower by switching production to places with cheaper labour
• The spread of technology has resulted in firms being able to employ the most advanced machines and production methods
• Globalisation leads to a general increase in world GDP, which increases consumer living standards and helps lift people out of absolute poverty
• However, it is hard to calculate the proportion of growth which was due to globalisation
• This rise in average consumer incomes could offset some of the lower costs of production for firms
• This is especially due to increased demand from China, which has contributed to the increase in price of commodities, and therefore pushed up the price of raw materials
• Some consumers gain more from globalisation than others. Globally, there are fewer people in extreme poverty, but this has not been the case in Sub-Saharan Africa
• There could be increased inequality. Oxfam research in 2015 suggested that 1% of the world own more than the rest of the world
• Consumers could take advantage of a wider range of goods and services because of the increased availability of goods and services
• However, some services might become homogenised, such as hotels
• Workers can take advantage of job opportunities across the globe, rather than just in their home country
• However, there could be structural unemployment
• For example, in the UK after the collapse of the ship building and mining industries, there was a lot of structural unemployment
• This is because it was more efficient for manufacturing to occur abroad, so production shifted to lower labour cost nations
• However, it could be argued that countries would have had the change from agriculture to manufacturing to services anyway, and globalisation simply sped it up
• When production shifts to lower labour cost countries, the creation of jobs could be seen as either beneficial or harmful
• On one hand, MNCs could be exploiting their labour and providing poor working conditions in, for example, sweatshops