Macroeconomics †Globalisation Essay

â€Å"For its supporters, globalisation describes a dream of opportunity and prosperity. For its opponents, it denotes a nightmare of greed and inequality† Explain the term globalisation and the factors that may have contributed to the process. Globalisation can be defined as the integration of the world’s economies into a single international market, as local and national markets become incorporated into the global capitalist system of production with increasing interdependence. It promotes the free movement of labour, capital, goods, services, technology and management in response to markets around the world. The growth of markets in this manner is not a new, but a process that has seen the markets grow from a local scale to a national one during the Industrial Revolution and to an international scale by the end of the 20th century. The growth of international trade has been significant in furthering globalisation. During the Industrial Revolution, Britain had a significant comparative advantage as its advanced manufacturing technology allowed hugely improved transport through steamships and railway networks across its Empire. This opened up huge potential markets around the globe for British exports, at the same time making a huge range of goods from these new trading partners accessible to British consumers. Although comparative advantages have changed, this is a trend that has continued into the 21st century, with the rise of low cost air travel and other forms of transport becoming quicker, cheaper and further reaching. There is certainly incentive for this – international trade driving globalisation has seen a rise in the trade of manufactured goods to $12 trillion in 2005, a hundred times greater than it was in 1955. Over a similar period, the industrialisation of LEDCs has also been significant. As systems of production in economies such as the Asian Tigers, including Taiwan, South Korea and Hong Kong, and increasingly the Tiger Cubs of Malaysia, Thailand and Indonesia along with other NICs have advanced; their economies have become increasingly suited to manufacturing industries. Cheap labour costs in these countries encourage this development, which has been partly responsible for a new international division of labour. As production and trade of quaternary services such as research and development has increased in the three main areas of influence of North America, the EU and Japan, MNCs have increasingly looked to NICs to provide secondary industry, incentivised by low production costs and an increasingly welcoming attitude from national governments. Whilst restrictions still exist, this is particularly true in India, where rules that previously did not allow FDI are loosening and large firms such as Wal-Mart are seeing opportunities to access new markets, particularly in the IT sector. It is perhaps a result of this and other economic liberalising policies that India is seeing growth rates of 9%. Whilst the rise of globalisation has certainly seen a widening in participation in international trade – not even the oil producing nations are, for example, energy independent, some economies are far more integrated in the global capitalist system of production than others. As many MEDCs specialise in the production of services, very little of their economies are left purely domestic. In contrast, however, the remaining non-industrialised LEDCs, such as those in Sub-Saharan Africa, have significantly less impact on the global economy. Trading in ‘cash crops’ and similar primary goods, much economic activity in these nations is still domestic, with many farmers, notably, practicing subsistence farming to the point they have little to no involvement in the cash economy. Evaluate the view that, although globalisation has brought benefits to the UK economy, it has not been without significant costs. The process of globalisation has not continued without criticism. Clearly, there have been considerable benefits to the UK economy over several hundred years as a result of globalisation, but are there costs associated with the rise of the global economy and, indeed, are those costs now outweighing the benefits of an interdependent world? Globalisation has increased the competitiveness of UK markets. Competing in highly contestable markets, British firms face competition from abroad. A few large firms, between whom collusion very well may have occurred, as explained by game theory, had typically dominated domestic markets. As more firms entered the market, they erode larger firms market share with which they may have exercised monopoly power. Domestic firms are thus forced to become more productively efficient, producing at lower cost to compete with, for example, goods manufactured using cheap labour in South East Asia. Competition would also promote innovation so that in an economy with high labour costs, British industry could gain a comparative advantage over foreign firms. The effect of globalisation has thus been an influx of new goods and services combined with lower prices on existing goods, now of a better quality. Globalisation has therefore lead to a net gain in welfare for UK consumers. However, the realities of the situation are very different. Realistically, UK firms cannot compete in the manufacturing industry where economies with cheap labour have been deemed to provide ‘unfair competition’. The UK is a high labour cost country and thus at a comparative disadvantage which is effectively impossible to overcome, as demonstrated with the loss of the motor industry in the UK during the 1970s. ‘Footloose capitalism’ has no preferred location, and as such will shift production to wherever costs are lowest. Globalisation has spurred the process of de-industrialisation, whereby employment in the manufacturing sector has fallen from 7.1 million in 1971 to 3.1 million in 2005, where the size of the UK labour force has in fact grown with rising participation rates. Many of these workers are either unskilled or have been trained to a specific task, making it difficult for them to find alternative employment, compounding the problem. The effects have not just been felt in manufacturing, but increasingly in the service section as IT booms in India and many firms opt for business process outsourcing. Surveys by Deloitte have shown that much of the UK population are deeply concerned about the outsourcing of white-collar jobs. Globalisation has lead to job losses in the UK, causing social distress and negatively affecting unemployment rates, an important economic performance indicator. The picture is not as bleak as it may seem, however. Unemployment rates in the UK remain low, and that generated can be viewed as frictional unemployment as other vacancies do exist. Government training schemes, such as free IT lessons under the auspices of Learn Direct also go a long way to combating structural unemployment as manufacturing workers can retrain for jobs in the quaternary sector. Whilst the UK has lost the majority of its manufacturing industries, a new international division of labour has emerged as the theory of comparative advantage shows that global production is increased if economies specialise in what they are relatively best at producing. The UK’s specialisation in the service industry has lead to job creation and significantly increases in national output. Measured through real GDP growth, this rise in national output as a result of specialisation shows that globalisation has been in part responsible for economic growth. Augmented by the multiplier effect, this brings benefits to the whole economy. However, the direct economic benefits derived from globalisation have in fact widened spatial inequalities rather than benefited all, as impacts have differed between the regions. Under the international division of labour, there has been a greater emphasis on knowledge-based industry with the rise of the service sector, with 73.1% of national output in 2004 being in the service sector, compared to manufacturing’s 15%. Where benefits from these dramatic figured? Quaternary and knowledge-based services are concentrated around the M4 corridor – the sunrise strip, and silicon fen, with R+D focused on science parks located around southern universities such as Oxford and Cambridge. These effects of de-industrialisation have created a north/south divide, as the north is traditionally home to the manufacturing industry. Northeast England never fully recovered from loss of traditional heavy manufacturing industries such ad shipbuilding. The consequential migration of workers to the south of England has placed pressure on resources and housing, whilst some northern areas such as Liverpool have seen a fall in population. This is allocatively inefficient – resources are wasted whilst the necessary investment needed to deal with the new distribution of population has spurred further investment in the south, widening the north/south divide. In conclusion, the costs to the UK economy from the march of globalisation are highly significant, although their impact can be disputed when the importance of globalisation to UK economic development is considered. However, globalisation is not a process that can be reversed, halted or even slowed. The world is interdependent and will continue to be so, and the UK must be a part of it. International trade, the driving force of globalisation, is enormously important to the UK has been responsible for its position as a major economic power since the days of the British Empire. We have neither the resources nor the inclination to pursue a policy of economic isolationism, as the potential benefits from globalisation are huge. The best option, therefore, would be a cautious approach, devising strategies to tackle problems as they arise with a fundamental focus on sustainability.