Globalisation is an increasing phenomenon that affects both developing and develop nations. That chapter will explore what globalisation is and its impact. The role of multi national corporations will also be discussed.
The United Nations states that globalisation “is a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour… although considerable barriers remain to the flow of labour… Globalisation is not a new phenomenon. It began in the late nineteenth century, but its spread slowed during the period from the start of the First World War until the third quarter of the twentieth century. This slowdown can be attributed to the inward looking policies pursued by a number of countries in order to protect their respective industries… however, the pace of globalisation picked up rapidly during the fourth quarter of the twentieth century”
What does globalisation mean for you?
History of Globalisation
Globalisation can be traced back to the Roman empire, the Islamic Golden Age and the great empires of Britain, Portugal and Spain.
The 19th century is often described as being “The First Era of Globalisation” as it was a time rapid growth in international trade and investment between European their colonies. It led to John Maynard Keynes writing “the inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep”.
Causes of Globalisation
Globalisation has increased rapidly over the past 50 years; the main contributing factors are often highlighted as:
- The rapid expansion in international trade.
- Improved trade liberalisation where there are now fewer restrictions on international trade.
- Substantial international capital flows
- Growing direct investment by multi national corporations in various countries
- The international nature of production by multi national corporations, for example, producing components in various countries and then assembling the finished product in a different country before finally selling the product worldwide.
- Increased international mobility of labour and the associated migration of people between countries.
- The integration of national economies.
- The growing interdependence of national economies.
- Changes in technology that have lead to the development of low cost forms of transport and communication. Many cite the introduction of standardised containers as significantly reducing global transportation costs.
There are four main economic flows that characterise the growth in globalisation:
- Goods and services – what proportion of national income or per capita of population are exports plus imports?
- People – calculating the net migration rates.
- Capital – what are the inward and outward direct investment flows as a proportion of national income or per head of population?
- Technology – proportion of populations who own a particular technology, for example, telephone, car and internet.
The Swiss think tank KOF calculate an index that measures the three main dimensions of globalisation, economic, social, and political, plus information on actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity. According to the index, the world’s most globalized country is Belgium, followed by Austria, Sweden, the UK and the Netherlands. The least globalized countries are Haiti, Myanmar the Central African Republic and Burundi.
The management consultancy firm A T Kearney and Foreign Policy Magazine jointly publish another Globalisation Index. According to their 2006 index, Singapore, Ireland, Switzerland, the USA, the Netherlands, Canada and Denmark are the most globalized countries, while Indonesia, India and Iran are the least globalized.
Are there any results in either of these globalisation indexes that surprise you?
Consequences for Developing Countries
The debate between those who believe globalisation has had a positive impact and those who feel it has had a negative impact is a passionate one.
A Positive Impact
Supporters of globalisation claim that it increases economic prosperity as well as opportunity and enhances civil liberties.
The chart below shows the percentage of people who live on $2 a day or less (the data for China relates to those living on $1 a day).
Given that China is a far more globalised nation than the Sub-Saharan African region, what does this suggest about the link between globalisation and poverty? Do you agree with this?
There are a number of other factors that people suggest are a direct result of globalisation:
- Life expectancy has almost doubled in developing nations since World War II. The gap between developed and developing nations is now closing. In Sub-Saharan Africa, the least developed and globalised region on the planet, life expectancy increased from 30 years in the 1930s to about a peak of about 50 years before the AIDS pandemic forced it down to the current level of 47. Infant mortality has been reduced in every developing region of the world.
- The proportion of the world’s population living in countries where per-capita food supplies are less than 2,200 calories per day decreased from 56% in the mid 1960s to below 10% by the 1990s.
- The percentage of children working has fallen from 24% in 1960 to 10% in 2000.
- Feminism has made advances in many countries as women are provided with jobs and economic safety.
- Global literacy increased from 52% to 81% between 1950 and 1999, of the world. Female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000.
- There is increasing ownership of cars, radios, and telephones.
- Increasing proportions countries’ population have access to clean water.
- Democracy has increased dramatically from there being almost no nations where everybody is entitled to the vote to 62.5% of all nations having it in 2000.
Do you believe this is evidence of a positive impact? Explain your answer.
A Negative Impact
There are many who believe globalisation has had a negative impact upon the lives of those in developing nations; they put forward a number of different arguments:
- Poorer nations can be at a disadvantage when negotiating trade agreements. Many developing nations’ main exports are agricultural products. The EU provides its farmers with huge subsidies under the Common Agricultural Policy; this has the impact of reducing the equilibrium price on the global market.
Why is this unfair on the developing nations?
- It can lead to the exploitation of low income foreign workers. There is often a lack of legislation that protects the rights of workers; this can lead to workers enduring extremely long hours and unsafe working conditions. Some have observed that there has been an auction by developing nations to lower the protection given to workers in an attempt to attract investment by multi national companies.
Are workers being exploited if they choose to work somewhere that pays very low wages and has poor working conditions? Consider the alternatives to that job.
- There has been a similar race to the bottom to accept lower environmental standards. Increased trade and foreign direct investment will stimulate higher growth in developing countries, which will lead to more industrial pollution and environmental degradation.
- Trade unions will be weakened in both developing and developed countries.
Consequences for Developed Countries
Consumers will have access to a greater range of goods and services for cheaper prices. Lower prices will lead to an increase in real incomes. As jobs are outsourced to developing countries many workers may lose their positions and there is the possibility of structural unemployment.
Why might structural unemployment occur in a developed country?
The Rise of the Multi National Corporation
A multi national corporation is one that manages production or delivers goods or services in more than one country. It is generally agreed that the first modern multi national corporation was the British East India Company, which was established in 1600. The rise of the internet has made it far easier for very small companies to become multi nationals, for example, by hiring design staff in South East Asia or offering shipping across a continent.
Their impact a multi national corporation will have on a developing country will depend upon a number of different factors:
- The firm’s attitude towards the environment, worker safety, human rights and child labour.
- The strength of the country’s government in applying laws and regulations.
- The incentives provided to multi national corporations for locating in particular country. Incentives can include discounted or suspended tax rates, free land, exemptions from labour laws and extended infrastructure.
- The willingness of the multi national corporation to stay in a country if even cheaper alternatives arise. The sustainability of the investment will be important to a developing nation.
- The quality of education and training within the country.
Wal«Mart is the largest company in the world when measured by revenue, in 2008 its revenue was almost $400 billion. The growth in Wal«Mart’s revenue is shown on the diagram below.
Wal«Mart currently employs 2 million people making it the world’s fourth largest employer, behind the Chinese Army, Indian Railway and the National Health Service in the UK.
In 2004 Wal«Mart opened 244 new supercentres, that’s 4 a week. This meant that 90% of Americans lived within 15 miles of a Wal«Mart. In 2005 they continued to open a further 5 supercentres a week.
Wal«Mart purchased $18 billion of goods from China in 2004. Wal«Mart was responsible for about 1/10th of the U.S. trade deficit with China in 2005. If Wal«Mart were an individual economy, it would rank as China’s 8th biggest trading partner, ahead of Russia, Australia and Canada.
Proctor and Gamble has sales of $68 billion. It owns 21 brands that each have sales of over $1 billion, for example, Gillette, Duracell, Pringles, Ariel, Plenty and Wella. 16% of all of Proctor and Gamble’s sales are to Wal-Mart. Proctor and Gamble sell as much to Wal-Mart as they do to their next nine customers.
Who do you think has the power in the relationship between Proctor and Gamble and Wal«Mart?