Globalisation

Article discussing definition, causes and impacts of globalisation.

Globalisation or Globalization has numerous different definitions, the one I’m using is more economically based:

“the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, services, technology and capital to create a single market.”

The key word to pick out here is “interdependence“. Interdependence in this case refers to countries being reliant on one another due to the interconnectedness between them. This reliance is beneficial in the sense that there is greater economies of scale, thus reducing costs for the consumer and maximising profits for the producer. However this reliance was a contributing factor to the global recession in 2009 and it also augmented the effects of disaster. For instance if an American Bank loaned money to a struggling British bank that would never be able to pay off the loan,  the American bank realises and then loses so much money that it turns into a struggling bank or even worse it collapses (Lehmann Brothers), this has a knock on effect on people with savings in this bank, other banks loaning to this bank will also struggle and collapse effecting the customers with savings in that bank, and so on. All in all the system collapses.

Another main concept for globalisation can be found in the words, “single market“. Making the world more united under one platform is beneficial as it reduces the threat of wars (partly due to the interdependence) and allows the ease of movement of capital and labour, which in turn increases innovation and development. Yet western culture and ideas could be seen as the overpowering culture trying to dominate the world (capitalism over everything). Capitalism has its flaws in that the inequality between different classes is so much greater, which could possibly reduce living standards of the poorer class. This overpowering western culture also diminishes other cultures, this can be seen in western trans-national corporation’s such as McDonald’s (classic example), which with its franchise stores it earns $32 billion in revenue making it the 68th biggest economy (larger than Ecuador).

Globalisation is caused by numerous factors including:

• Fall in transport costs due to new technologies, causing an increase in imports and exports and therefore an increase in globalisation. For example the new technology of containerisation.

• Decline in cost of communications and increase in availability such as the internet.

• Lowering of trade barriers, WTO has been brought in to negotiate reduction in tariffs such as the most recent Doha round which is to further lower trade barriers and revise old trade rules.

• Collapse of communism has increased the number of countries who are trading i.e emerging markets.

• Opening up of China. China has had high export-led growth due to cheap labour intensive work.

• Increase in Trans-National Corporations (TNC’s), who have reduced trade barriers by using/exploiting the cheap labour available in middle income countries.

Impacts of globalisation economically and socially:

Positive economic:

— Goods and services are cheaper and higher quality due to an increase in competition benefiting consumers.

— Increase in employment especially in to developing economies due to the ease of access to emerging markets.

— Increase in Foreign Direct Investment (FDI) which creates a multiplier on the local economy, produces revenue which can be taxed benefiting the government and also reduces the price of goods and services due to economies of scale. It also helps increase infrastructure within that economy due to the investment and capital it brings in.

— Spread of new technologies has allowed developing economies to benefit as it increases revenue and reduces costs and therefore increase the quality of life furthermore the standard of living. An example is the Green Revolution in the 1980’s which saved millions of lives due to a reduction in famine.

— Increase in growth due to new technologies being implemented in emerging markets. This has moreover brought on a reduction in absolute poverty and people across have seen an increase in the standard of living.

— Increase in income creates a positive wealth effect which in turn increases consumption expanding aggregate demand and then real output.

Negative economic:

— High volumes of FDI can damage local businesses as they cannot compete and if they have a motive aiming for high employment and little profit maximization then unemployment rate within the country increases.

— Interconnectedness means strong markets can be driven down by other markets meaning unemployment (in the form of cutting jobs) and also lower levels of profits to be taxed by corporation tax.

— Ease of movement of production, means firms can relocate to other countries with low-wage workers. This damages the origin country as they lose tax revenue on the business, causes structural unemployment (manufacturing + mineral extraction companies in the UK left in 1980’s due to cheap labour in developing countries) and also creates a sunset (declining) industry.

— All this job loss and reduction in national real income causes a negative multiplier effect which reduces spending and therefore reducing growth.

Positive Social:

— Spread of culture has meant that cultural flaws are being tackled. An example is the animal cruelty in bull fighting in Spain has reduced possibly due to globalisation.

— Spread of education, this increases the volume of new technologies increasing innovation and also has a positive effect on the standard of living due to being a skilled worker.

— Reduction in crime, criminals can no longer seek asylum in foreign countries due to international courts of justice and also a reduction in terrorism as countries work together to tackle these extremists. Such as the CIA working with MI5.

Negative Social:

— Overpowering western culture (read 5th paragraph)

— Exploitation of cheap labour by TNC’s reduces standard of living in these countries

— Relocation of family members to urban areas in hope of a better life, causes families to split and often there is a lower standard of living in cities in developing economies due to overcrowding, high levels of pollution and exploitation.

— This need to work in Low Income Countries (LIC’s) can cause children to drop out of education (reducing human capital) and go into child labour.

Conclusion:

Globalisation has increased trade which in turn has boosted income and standards of living of a large population of the world, for this reason it can be viewed as a highly beneficial movement. On the other hand it has nasty side effects which may reduce income and standards of living in specific communities, so it may be time for change, an idea such as localisation is becoming highly popular and may be the next step.