Globalisation: Friend or Foe?

Hello readers, in this post I will be discussing a well known economic phenomenon, namely Globalisation. I will firstly give a brief definition before moving on to looking at the net effect on employment as well as the impact on the UK economy.

Globalisation can be defined as the increasing interconnectedness and interdependence of countries economical, politically and socially, primarily achieved by the reduction in physical barriers (time-space compression) due to the technological revolutions such as containerisation. This has resulted in increased trade, lower production costs, an increase in cultural awareness and greater connectivity amongst nations. That said the financial crisis of 2008/09 stood testimony to the detrimental effect of having such an interconnected world; how a domestic issue in one country can rapidly ripple across the globe and threaten the entire financial system (see my post on causes of the financial crisis for more information on this). Having said that, with President Trump’s move  towards protectionist policies and countries such as the UK looking to move away from the EU some would argue that we are headed towards a new phase of “de-globalisation”.


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The net effect of globalisation on employment:

Globalisation may first have an impact on the number of jobs available in the economy. Closing an enterprise in country A to move it to country B may result in job losses in a particular economic activity of country A. It may also result in job gains for country A as a whole because of higher productivity in the remaining enterprises, higher wages, and higher consumption demand. Globalisation may also affect the structure of jobs, i.e. their distribution across economic activities. Jobs linked to certain economic activities may tend to disappear whereas jobs linked to other, maybe new activities, are created due to changing competitive advantages and patterns of specialisation. The composition of jobs, i.e. the mix of skilled and unskilled jobs in the economy, is also likely to be affected by globalisation. So far, in developed countries, low-skilled workers have been most affected by stagnating revenues and / or increasing unemployment due to competition from developing countries’ workers and also as a result of technological progress.

Globalisation and employment are multidimensional and dynamic and are inextricably linked. The impacts are constantly evolving and for that reason there is not enough research to conclude definitely that globalisation is either good or bad overall. Some believe that globalisation since the 1980s has left economies worse off whilst others suggest that arguing against globalization is like arguing against the laws of gravity i.e. it can’t be stopped and eventually if left to market forces alone (invisible hand theory), the distribution of wealth between rich and poor countries will eventually even out. Globalization has impacted nearly every aspect of modern life.

While there are a few drawbacks to globalization, most economists agree that it carries a net benefit to the world economy, by making markets more efficient, increasing competition, limiting military conflicts, and spreading wealth more equally around the world. There have always been periods of protectionism and nationalism in the past, but globalization continues to be the most widely accepted solution to ensuring consistent economic growth around the world. Although in general, members of the public tend to assume that the costs associated with globalization outweigh the benefits, especially in the short-term, particularly in America, which was why Trump’s and his protectionism ideology was popular amongst lower-middle class Americans. Globalization has impacted nearly every aspect of modern life and continues to be a growing force in the global economy. It focuses heavily on trade and a study by the OECD estimated that a 10-percentage point increase in trade openness translates over time into an increase of around 4% in per capita income in the OECD area. It is not completely clear whether more or less jobs have and will be created with globalisation. What is clear though is that globalisation is compatible with high employment rates, provided the right domestic policies are in place. That said the labour market adjustment is not always smooth because many workers displaced from declining sectors are poorly positioned to move into newly created jobs, which may be located in different regions or require different qualifications.

In the future, if the trend of globalisation continues, and with automation and AI on therise we may see a significant decline in low-skill jobs such as cleaners, shopping assistants and bartenders. That being said as we have seen in the past, this new technology could lead to the next macro economic epoch and result in the emergence of jobs, which do not even exit yet, almost like another industrial revolution.



Effects of globalisation on the UK economy:

The UK has benefitted from a more globalised world ever since first exports and imports. During the industrial revolution, global ties were important for enabling the UK to import raw materials and exports goods. Recent decades are a continuation of this process of globalisation and we often forget the obvious benefits of a greater choice of imports, lower prices and economies of scale in production. Although textile industries, coal manufacturing and industries have closed down (deindustrialisation) in Northern cities, creating mass unemployment in the 1980s, this has led to the emergence of London being a key financial hub. The UK exports its financial products across the globe and this is one of its largest revenue streams. Although this has caused a ‘North/South Divide”, it is suggested that other cities will follow suite particularly when HS2 is completed.

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