Development in the world economy:

Globalisation and Development(BUSS4 – Relationship with the Economic

Environment)

Globalisation Globalisation is often spoken about as if

it is a new force when it is not In 1900 a quarter of the world’s

population lived under a British flag In the 1920s American companies such

as Ford and Coca-cola started their moves to multinational status

By the 1960s Mickey Mouse, US films and British pop music were global forces

It was in the 1980s that globalisation was word that began to be used

McDonalds, Levi Jeans and Coca-Cola made people start to question whether the world was just another suburb of America

The 1990s growth of Starbucks and Microsoft brought the question further into focus

This diagram shows us the huge growth in world trade but does not back up the view that globalisation started in the 1990s

Globalisation – the pressures leading to the world becoming one market, with competition between giant firms on a world stage and the risk that national producers (and cultures) may be squeezed out

Globalisation There are many issues that

come along with globalisationCultural questions such as will

languages such as French survive the onslaught of (American) English?

There are ethical questions that arise from situations such as rich western companies getting their supplies from Cambodian labour paid 30p and hour

Then there are economic questions such as ‘are global giants wiping out national producers and restricting consumer choice?’

Government efforts to increase world trade Trade between countries had been growing for

centuries until the 1929 Wall Street crash led to increasing protectionism worldwide

The political changes in Germany and Japan which led to the 2nd WW were partly to do with the two countries’ concern at being excluded from export markets

Governments since 1945 have tried hard to make it easier for countries to do business with each other

The World Trade Organisation (WTO) was established in 1995 and in 2001 China joined

This has significantly reduced the taxes on imported goods

The WTO tries to ensure that there is free trade between countries

All WTO member countries should provide legal protection for the intellectual property of companies and individuals

Protectionism: Government actions to protect home producers from competition overseas (e.g. by setting import taxes or imposing import quotas

Free Trade: imports and exports being allowed into different countries without taxation, limits or obstructions – this ensures that companies are competing fairly

Intellectual Property: patents, copyrights, trademarks etc

Government efforts to increase world trade

Many people argue that WTO rules favour rich countries against poorer ones

There is a strong case to say that free trade is idea for countries and companies that are at a similar stage of development

Less developed countries would surely benefit from protection of their infant industries until they have the scale of production that enables them to compete with the multinationals

In the early days of the motor industry in Japan and China firms were protected by huge tariff barriers (import taxes of around 40%)

In both countries there is no longer any need for import tariffs as the industries are efficient and competitive

The WTO comes under particular criticism because its policy making is dominated by America and Europe

The case for Globalisation Joseph Stiglitz in this book

Globalisation and its Discontents (2002) became the world’s most famous critic of globalisation

Yet he identifies many important benefits from increasingly open world trade

For him the biggest step forward is the increase in people in developing countries whose lives have improved

One example is Jamaica In 1992 they opened their milk market to

foreign competition It hurt the profits of local farmers But helped the nutrition of Jamaican

children Infant deaths have reduced significantly

Some of the main advantages of globalisation

Increased competition forces local producers to be efficient cutting prices and increasing standards of living (people’s income goes further)

Providing the opportunity for the best ideas to be spread across the globe (e.g. AIDs medicines, water irrigation and mobile phones)

If multinational companies set up within a country this will provide opportunities for employment and training and allow local entrepreneurs to learn from the experience of more established businesses.

Some of the main advantages of globalisation

When a country can export and import it allows its citizens to consume different goods and services which boost standards of living and reduce subsistence farming

Countries can break away from poverty Average living standards rose

800% between 1990 and 2008 The table shows what a

difference can be made to infant mortality

In some countries this is not the case; Nigeria’s standards of living have not risen since 1990 and the death rate for under ones is still shocking

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The economic case against Globalisation

Critics say that globalisation has made it harder for local firms to create local opportunitiesIn 2002 virtually no overseas

car producer had a factory in India

By 2008 Hyundai, Suzuki and BMW were present with Toyota and Honda announcing new factories by 2010

Although the local Tata Motors has announced the production of the world’s cheapest new car (at £1250 each) it may be that the market is captured by the big European and Far Eastern car producers

The economic case against Globalisation

There is also concern that new production in a country does not necessarily mean new wealth Some multinational firms establish

the factory locally but use it for exploitation

Gap, Primark and Asda in India have very low wage rates compared to western standards and working conditions are poor

Little of the value created by the sale of a jumper sold in a London Gap outlet will go back to India

If the design, branding and packaging are done in the west all that is left is the labour intensive low paid factory work

The social and cultural case against Globalisation

In 1999 a French sheep farmer Jose Bove made the headlines by dismantling a McDonald's outlet that was under construction (see video)

He was protesting about the Americanisation of France

Even the French cosmetics powerhouse L'Oreal shows English language commercials in France

The increasing number of US outlets in French high streets was the farmer’s main concern

Around the world many agreed that their high streets were starting to look like those in America

Globalisation started to be criticised for making our lives less interesting by reducing the differences between countries and cities

Hundreds of farmers led by Jose Bove surround the McDonald's restaurant in Millau, southern France, Sunday, Aug. 12, 2001. Bove and his supporters returned to the same McDonald's restaurant he helped dismantle two years ago, this time holding a more restrained rally to protest unchecked globalization and demand support for farmers.

The case against Globalisation

The main disadvantages of globalisation are

That everywhere starts to look like everywhere else

That globalisation is built on exploitation – the strong exploiting the weak

That it may make it hard for local producers to build and grow in a way that is suited to local needs

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Globalisation and the British Economy

Britain’s world share of exports declined dramatically between 1948 and 1973

Since then there has been a further steady reduction

This is mostly due to deindustrialisation (decline in manufacturing output) Industries such as

textiles, shipbuilding and car production wilted under foreign competition

Britain has kept its strong position in sales of services

Globalisation and the British Economy

In 2006 Britain was second to the US in its share of internationally traded services

In 2006 Britain’s share of world trade in goods was only 3.8% but its share of ‘invisible’ goods was nearly 10%

The increase in world trade has brought significant increases in living standards

Items like clothes, cars, furniture and household electronics are down sharply in price

Cheap imports keep UK inflation low

Low prices make our money go further making us all better off

Development – moving people beyond a life in which feeding the family is a constant struggle and source of uncertainty. ‘Underdevelopment’ is sometimes measured as having to survive on less than $1 a day.

Development In 1981 40% of the

world’s population lived on less than $1 a day

By 2001 the figure had nearly halved to 21% (taking inflation into account)

By 2015 the World Bank estimates that the figure will have fallen to 15%

15% of a 6.6 billion world population still means that 1000 million people will be living on extremely low incomes

Development There are hopeful signs as seen in this table Even though the % of population below $1 is not good we can see that

there is growth in GDP per head For countries such as China, India and mexico the key factors have

been Greater willingness to accept inward investment Greater local enterprise More stable governments Easier access for exports partly thanks to the WTO

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