The objective of this paper is to provide a discussion on globalisation. The paper looks at the impact of globalisation on the United Kingdom as well as a critical discussion as to whether globalisation and the resulting competition, which may be a result of multinational activity, harms people or not. The paper begins by looking at the impact of globalisation on the UK in the next section and then provides a critical discussion of whether globalisation is harmful or not in section 3.
- Impact of Globalisation on the UK.
The objective of this section is to provide a discussion of the impact of globalisation on the United Kingdom. Before moving on with the discussion, the paper will begin by providing a brief discussion on globalisation and then narrow the discussion down to its impact on the United Kingdom.
Dunning (2000: 14) defines globalisation as “a process leading to the structural transformation of firms and nations”. Albrow (1990: 9 cited by Pieterse, 1994) views globalisation as “all those processes by which the peoples of the world are integrated into a single world society, global society”. Globalisation can be regarded from a number of different perspectives: from the economic standpoint, globalisation is the internationalisation and spread of capitalist market relations; from the international relations perspective globalisation is seen as the increasing density in inter-state relations, as well as the development of global politics; from a sociological perspective, globalisation refers to the increasing worldwide social densities, as well as the emergence of a world society; and from a cultural perspective, globalisation focuses on global communications and the standardisation of worldwide cultures. (Pieterse, 1994: 161).
Pieterse (1994) suggests that the above perspectives are relevant if globalisation is treated as multidisciplinary process. This means that globalisation can be understood by conducting an “open-ended” analysis of several disciplinary perspectives. (Pieterse, 1994: 162). As a matter fact, globalisation is not limited only to the social sciences as the above may suggest; globalisation extends beyond the social sciences toward ecological, technological and agricultural approaches as well. (Pieterse, 1994: 162). By creating new and deeper cross-border relationships, globalisation represents an end to the process of internalisation. (Dunning, 2000). Globalisation can take place through two levels: (i) through multinational corporations (MNCs) who promote the integration of production networks across the globe; and (ii) through the global level which has been promoted by the invention of electronic commerce leading to the reduction in the distances between financial and foreign exchange markets. (Dunning, 2000).
From an economic perspective, the UK has benefited significantly from globalisation. Globalisation has led to an influx of foreign companies which has increased inward foreign direct investment (FDI). Moreover, multinational companies usually employ high tech, large scale and capital intensive projects. Local companies can benefit from spill-over effects of this technology. Moreover, foreign companies tend to pay higher wages than local companies and labour productivity tends to be higher in multinational corporations. (Conyon et al., 1999).
A study conducted by Conyon et al. (1999) in the U.K revealed a number of positive results on the impact of globalisation. Table 1 below shows the employment, wage rate, and labour productivity of domestic and foreign owned firms in the U.K in the years 1989 and 1994. It can be observed that the foreign firms outperformed the domestic firms in all three variables. These firms employed more people, paid higher wages and had higher labour productivities.
Average employment, wage rate and labour productivity
aTerms in bracket are the standard deviations.
Source: Conyon et al. (1999: 12).
Conyon et al. (1999) conducted a comparative study of foreign acquisitions and domestic acquisitions on employment, wage rate, and labour productivity. Using a fixed effect panel estimation, these results suggest that foreign acquired firms paid a premium of 3.44% to workers whereas domestically acquired firms witnessed a decline in wages by 2.11%. However, Conyons et al. (1999) observe that including productivity in the vector of control variables leads to a disappearance in the wage premium in foreign acquired firms. This means that foreign acquired firms lead to higher growth in productivity and thus the higher wage rate paid by foreign acquired firms is simply a compensation for the extra productivity growth. Conducting a “differences-in-differences” analysis of productivity and employment series, Conyon et al. (1999) observe that there is a 14% improvement in labour productivity as a result of foreign acquisitions. Foreign acquired firms also show a decline in the demand for labour over the six year period following the acquisition. This is attributed to the fact that foreign acquired firms lead to an increase in the technical efficiency of labour. (Conyon et al., 1999). The results for domestically acquired firms are somewhat different. There is no evidence of a relationship between the wage rate and labour productivity. That is, the drop in the wage rate is not as a result of a drop in labour productivity. (Conyon et al., 1999) drawing from Shleifer and Summers (1998) suggests that the decline in the wage rate may be attributed to a transfer of wealth from employees to shareholders.
Another study by Barrell et al. (2006) suggests that the changing world environment has altered the prospects for UK trade. Evaluating export and import developments in the U.K Barrell et al. (2006) observe that the nature of goods has been changing. In addition, goods have been lightened and production made more dispersed by computer-based technologies. This has increased the distance that goods can cover from origin to destination countries thereby leading to a change in the dynamics of imports and exports in the UK. (Barrell et al., 2006). The continuous process of European integration has affected U.K trade for at least three decades. The integration process has led to the removal of trade barriers and an increase in competition and has also witnessed a reduction in duties within the European Union. The result has been an increase in UK imports and exports. The European Single Market has also led to an improvement in trade and competition within the EU and in the UK in particular.
Barrell et al.(2006) argue that these changing patterns of trade may affect the nature of the U.K economy and increased competition may reduce the growth of real wages in the UK, given the flexibility of its labour market.
Globalisation has also impacted the health sector in the U.K. It has enabled the U.K to be able to attract individuals with general first level nursing or midwifery qualifications from other countries of the European Union (EU). (Buchan and O’May, 1999). The need to recruit nurses from abroad was triggered by a shortage of nurses within the U.K labour market. (Buchan and O’May, 1999). For example, Buchan and O’May (1999) notes that the number of nurses employed by the NHS in the late 1980s had remained largely static following 40 years of prior growth. Globalisation therefore made it possible for the U.K to recruit nurses from abroad to make up for the shortfall in nurses in the U.K. This can be regarded as a positive impact on the U.K given the increase importance of nurses in society today, although there are issues about level and trustworthiness of foreign qualifications and standards of care too, especially as a local permanent connection of staff to a local workplace may be lost – leading to dirtier hospitals, for example.
The impact of globalisation has had a negative effect on the food system in the UK raising tensions given the prevailing number of cultures in some parts of the U.K. (i.e. large cities) Globalisation is being opposed as regards the food system. There are questions concerning the products of the food system as well as the nature of production and distribution. (Lang, 1999).
- Globalisation and Resulting Increase in Competition.
Globalisation is said to have led to an increase in competition resulting from the activities of multinational corporations as they seek to maximise economic rents. The process of globalisation has increased competition in the global market place among businesses. (OECD, 1998). Global strategies and links between countries are continually being developed by multinational companies as they seek maximise their global presence and make superior returns. The management of multinational corporations has also been affected by technological innovations thus making the physical location of management and other service activities much less important to the multinational corporation. (OECD, 1998). Moreover, international financial markets continue to witness growth and development, thus facilitating “global welfare-enhancing cross-border capital flows”. Efficient resource allocation and utilisation has been achieved from this process. (OECD, 1998). Moreover, living standards and welfare have been improved around the world as a result of multinational activity. (OECD, 1998).
Despite these positive aspects of globalisation, there are also a number of negative aspects. For example, globalisation has created tax heavens for companies and individuals operating across borders. New ways have been created for individuals and companies to minimise and avoid taxes. (OECD, 1998).
l A common perception is that globalization implies that governments lose their ability to choose tax policies independently of other jurisdictions.
– Tax competition may increase (vanishing taxpayer).
– Tax harmonization may increase. (Neumann et al., 2008).
l Standard argument is that if factors of production can move easily from one location to another, then the ability of a government to tax these factors is greatly diminished.
(Bovenberg 1994), (Gordon and Bovenberg1996; Frenkel, Razin, and Yuen 1996, cited by Neumann et al., 2008).
– Argued in particular for capital. Some empirical evidence suggests factors do respond to these types of tax considerations. (Mintz, 1992; Grubert (1998), Hines (1999). (cited by Neumann et al., 2008).
Globalisation therefore creates tax havens that help to reduce the amount of taxes collected from individuals and companies. Moreover, it creates a situation where some governments may benefit at the expense of others. This makes it difficult for government to meet social costs, such as unemployment benefits, wastes management, road maintenance, education etc. under such circumstances, and the state is forced to operate a deficit budget if it has to meet these costs.
The quotation indicates that competition is harmful. However, Fels (2001) suggests that trade policy liberalisation is often frustrated by failures to enforce competition policy. For example, when a country liberalises its trade thus allowing the potential flow of import owing to a reduction or elimination of trade barriers, consumers may not gain the full benefits of this liberalisation as a result of the restrictive practices operating in the liberalisation market. (Fels, 2001). For example, domestic market retailers may enter agreements with manufacturers not to accept imports. Barriers to entry are therefore created in the retail sector thus limiting the possibility of competition which in turn results to inefficient resource allocation. Microeconomic theory suggests that perfect competition provides an efficient way of allocating a society’s resources. thus creating barriers to entry into an industry leads to a monopoly which is an inefficient way of allocating a society’s resources.
Fels (2001) also suggests the existence of a reverse relationship. Under this relationship, trade policy is considered highly competitive. Import protection whether through tariffs, quotas, anti dumping laws and so on can reduce competition and damage consumer interests. (Fels, 2001). Trade policy by restricting imports is not helping the situation. These restrictions can force people to indulge in illegal activities such as smuggling of the restricted goods. The costs to society in this case become higher than anticipated. Reducing completion further weakens economic growth and development as local firms become confident that they have a high market share and thus do not need to improve on their products and services. On the contrary, the presence of import competition can motivate companies to produce goods that are of a high quality than the imported goods.
Fels (2001) also notes that regulation leads to poor competition. In this light, poor regulation is an obstacle to imports, working of trade liberalisation and completion. Based on the above, one would be wrong to say that competition arising from globalisation is counter productive, or that it leads to harmful effects on individuals.
Globalisation has also been challenged on the grounds that trade liberalisation leads to an increase in the gap between the rich and poor countries, as well as between the rich and poor in liberalised countries. (Imade, 2003). This school of thought postulates that trade liberalisation is defined as “the opening up of borders and so goods and services can freely move across borders without restrictions from tariffs and non-tariffs barriers”. (Imade, 2003). It also includes “laissex-fair” – an economic doctrine that opposes the interference of government in commerce. (Imade, 2003).
The laissez-fair doctrine assumes that markets are efficient, that the state is not necessary in commerce, that the rich and the poor have no conflicting interests that markets perform at the highest level only. (Imade, 2003). In addition privatisation and deregulation as well as open capital markets are considered to be important avenues for economic growth and development. (Imade, 2003). This means that the only role of the government is to ensure that the budget is balanced and that inflation is contained. Apart from balancing budgets and containing inflation, the government has noting else to do with the economy. (Imade, 2003). The laissez-fair doctrine is the driving force of globalisation. However, this school of thought has been contested for a number of reasons. According to critics, it is more of an “illusion” than a “reality”. (Imade, 2003). It is rather unfortunate that not all markets can be perfect. For example, consider the weak economies of Thailand, Indonesia, Russia and Brazil that have witnessed unprecedented inflows of capital in the past. (Imade, 2003). Multinational activity in these countries is said to have increased the volatility of capital flows resulting in a shift in capital flows. (Imade, 2003). Moreover, multinational activity is said to have resulted in less secured jobs. Multinational activity has also resulted to child labour, environmental devastations, redistribution of wealth from the poor to the rich rather than from the rich to the poor, and to intense social and political conflict. (Imade, 2003).
Multinational companies are overly concerned about making profit rather than about the environments in which they operate. This makes globalisation profitable only for the multinational companies at the expense of the local communities in which they operate. (Imade, 2003).
A good example is the case of developing countries that get poorer and poorer. Where are their globalisation benefits? Consider the World Trade Organisation (WTO) which is said to be promoting free trade across countries. Africa’s place in the world trade organisation is not well defined and the continent is placed at a disadvantaged position as far as world trade is concerned. Prices for Africa’s goods and services are determined in Europe and the U.S while prices of capital goods manufactured in Europe and the U.S are determined by the forces of demand and supply. Why should globalisation be biased in this domain?
Consider the case of East Asia in the 1997/98 which suffered one of the most significant financial crises in history. This crisis can be attributed to the effects of globalisation. Due to liberalisation, the East Asian Economies opened their economies to the rest of the world, liberalised their financial systems with the objective of benefiting from globalisation. The opening up of these economies resulted in an inflow of large capital amounts from abroad. (Radelet and Sachs, 1999). However, when it became evident that the economies were no longer productive, multinational companies, individual investors, as well as institutional investors began withdrawing their funds from these economies, a situation that resulted in one of the most precarious crisis of the world (Radelet and Sachs, 1999) comparable in magnitude only to the recent global financial crisis.
Even the most recent global financial crisis can be attributed to globalisation. The crisis began as a result of widespread defaults on sub-prime mortgages issued in the United States but given the globalised nature of the world, the entire globe is suffering a pinch of the effects of defaults on U.S sub-prime mortgages.
Therefore although globalisation leads to positive results, it is to some extent a deterrent to growth especially in poor countries. Multinational companies are arguably out for making profit and noting else. How they make this profit does not really matter – to them at least.
It is therefore right for one to say that:
“globalisation and the resulting increase in competition harms people, as international companies play one government against another to get the best deal possible. Meanwhile, government continually ask for greater concessions from their citizens, demanding that they work harder and longer for less pay.”
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