Globalisa(on  and  the  UK  Economy  

What  is  Globalisa(on?  

What  is  Globaliza(on?  

Page  34  

Globalisa.on  is  a  process  in  which  na.onal  economies  have  become  increasingly  integrated  and  inter-­‐dependent  

Is  Globalisa(on  Inevitable?  

Global  trade  has  grown  much  less  quickly  in  the  years  since  the  start  of  the  world  financial  crisis  in  2007-­‐08  

Some  key  features  of  globalisa(on  

Trade  to  GDP  ra.os  are  rising  for  most  

countries  

Expansion  of  Financial  Capital  Flows  between  

countries  

Foreign  Direct  Investment  and  Cross  

Border  M&A  

Rise  of  truly  global  brands  –  inc  from  emerging  countries  

Deeper  specializa.on  of  labour  –  

components  from  many  na.ons  

Global  supply  chains  &  new  trade  and  

investment  routes  

Changing  global  trade  networks  -­‐  1995  

Changing  global  trade  networks  -­‐  2013  

China’s  new  economic  corridor  plan  

Mergers  and  Acquisi(ons  Across  Borders  

Nissan,  Sunderland   Cummins  Power  Genera.on,  Ramsgate  

AkzoNobel,  Ashington   Siemens,  Hull  

Foreign  direct  investment  into  the  UK  

1.  Encourages  producers  and  consumers  to  reap  benefits  from  deeper  division  of  labour  and  economies  of  scale  

2.  Compe..ve  markets  reduce  monopoly  profits  and  incen.vize  businesses  to  seek  cost-­‐reducing  innova(ons    

3.  Enhanced  growth  has  led  to  higher  per  capita  incomes  –  and  helped  many  of  poorest  countries  to  achieve  higher  growth  and  reduce  extreme  poverty    

4.  Advantages  from  the  freer  movement  of  labour  5.   Increased  awareness  among  consumers  of  challenges  

from  climate  change  and  wealth/income  inequality  

Benefits  of  Globalisa(on  

Many  of  the  effects  of  globalisa.on  are  disrup.ve  to  established  industries  and  organisa.ons  

Poverty  Reduc(on  –  A  Major  Benefit  of  Globalisa(on  in  the  Long  Run  The  percentage  of  people  living  in  extreme  poverty  has  fallen  across  all  regions  but  progress  in  Sub-­‐Saharan  Africa  has  (un.l  recently)  been  slower  

MENA:  Middle  East  and  North  Africa  

1.   Growing  inequality  leading  to  poli.cal  &  social  tensions  2.   Threats  to  the  global  commons  e.g.  irreversible  damage  to  

ecosystems,  land  degrada.on,  deforesta.on,  water  scarcity  3.   Macroeconomic  fragility  –  external  economic  and  financial  

shocks  in  region  can  rapidly  spread  to  other  centres  ….  Systemic  risk  –  Financial  cycles  in  world  economy  are  more  vola.le  than  real  

economic  cycles  –  but  strong  inter-­‐connec.ons  

4.   Trade  imbalances  leading  to  calls  for  protec.onism  and  a  move  towards  countries  using  managed  exchange  rates  

5.   Higher  structural  unemployment  in  countries  where  produc.on  has  shi^ed  to  lower  labour  cost  na.ons  

6.   Less  cultural  diversity  as  global  brands  dominate  

Disadvantages  of  Globalisa(on  

Imbalances  between  countries   Imbalances  within  countries  

Trade  imbalances  i.e.  current  account  surpluses  and  deficits  

Rising  income  and  wealth  inequali.es  

Unbalanced  flows  of  foreign  direct  investment  between  countries  

Large  structural  differences  in  unemployment  rates  

Imbalances  in  access  to  global  markets,  ideas,  health  &  educa.on  

Imbalances  between  rural  and  urban  areas  /  different  regions  

Globalisa(on  and  Economic  Imbalances  

Imbalances  between  countries   Imbalances  within  countries  

Trade  imbalances  i.e.  current  account  surpluses  and  deficits  

Rising  income  and  wealth  inequali.es  within  countries  

Unbalanced  flows  of  foreign  direct  investment  between  countries  

Large  differences  in  structural  unemployment  rates  

Imbalances  in  access  to  global  markets,  ideas,  health  &  educa.on  

Imbalances  between  rural  and  urban  areas  /  different  regions  

Key  Argument:  Globalisa(on  and  Imbalances  Globalisa(on  and  Economic  Imbalances  

Financial  and  Real  Economic  Cycles  Financial  &  Economic  Instability  

Background  on  United  Kingdom:  (Pop  64.1m)  (Data)  

Recent  Macroeconomic  Data    

Latest  annualised  GDP  Growth  (%)   2.6%  

GDP  per  capita  (US  $,  PPP  standard)   $35,013  

Infla.on  rate  (%)   0.5%  

Unemployment  rate  (%  of  labour  force)   5.8%  

Fiscal  balance  (%  of  GDP)   -­‐5.8%  

Government  debt  (%  of  GDP)   91%  

Yield  on  10-­‐Yr  Govt  Bonds  (%)   1.5%  

Investment  (%  of  GDP)  in  2012   15%  

Background  Informa(on  

Currency  unit   £  

Exchange  rate  system   float  

Current  policy  interest  rate   0.5%  

Trade  surplus  or  deficit?   Def  

Current  account  balance  (%  of  GDP)   -­‐4.4%  

Main  corporate  tax  rate  (per  cent)   21%  

Global  compe..veness  ranking  for  2014     9th    

Economic  Freedom  Index  Ranking   14th    

Corrup.on  Percep.on  Ranking   14th    

Other  Indicators  

Latest  HDI  ranking     14  

%  of  popula.on  living  below  their  na.onal  poverty  line  

n/a  

Life  Expectancy  (years)   81.5  

Rank  for  capacity  to  airact  skilled  talent   5th    

Rank  for  Innova.on  and  sophis.ca.on   8th    

Gini  coefficient  (Latest  published  es.mate)   36.5  

Financial  and  Real  Economic  Cycles  Does  Britain  benefit  from  Globalisa(on?  

•  Benefits  from  trade  crea(on  –  Compara.ve  advantage  and  economic  efficiency  –  Impor.ng  cheaper  products  /  technology  –  Exports  as  a  source  of  growth  /  economies  of  scale  

•  Increased  contestability  of  domes(c  markets  •  Freer  flow  of  labour  –  the  global  baile  for  talent  –  Skilled  immigra.on  /  inflows  of  human  capital  –  Unemployment  has  been  falling  –  now  below  6%  

•  Investment  opportuni(es  for  Bri.sh  businesses  –  Inward  FDI  into  the  UK  (a  source  of  jobs  and  capital)  –  Overseas  investment  by  UK  businesses  (adds  to  GNI)  

Financial  and  Real  Economic  Cycles  Costs  of  Globalisa(on  for  Britain  

•  Higher  structural  unemployment  and  more  low  paid  jobs  –  E.g.  loss  of  manufacturing  output  and  jobs  to  lower  labour  cost  centres  –  Hollowing-­‐Out:  Rise  of  lower-­‐skilled  jobs  offering  below  average  pay  

•  Increased  exposure  to  external  economic  shocks  –  Increased  inter-­‐dependence  and  fragile  global  supply-­‐chains  

•  Risks  of  widening  income  and  wealth  inequality  –  Higher-­‐skilled  jobs  get  a  dispropor.onate  reward  –  Downward  dri^  of  real  incomes  in  millions  of  low  paid  jobs  

•  Environmental  concerns  from  rapid  global  growth  –  Deforesta.on,  water  scarcity,  carbon  emissions  –  Global  public  bads  e.g.  risks  of  pandemics  

•  Increased  economic  and  social  imbalances  –  Regional  imbalances  in  wealth  and  employment  

The  long-­‐term  padern  of  jobs  growth  in  the  UK,  as  in  most  other  European  countries,  has  resembled  an  hourglass:  the  share  of  mid-­‐skilled  jobs  such  as  secretaries  and  machine  operators  has  been  squeezed  by  technology  and  globalisa(on,  while  the  share  of  low-­‐skilled  jobs  —  for  example,  shop  assistants  —  and  high-­‐skilled  jobs,  such  as  managers,  has  expanded.  (Source:  FT,  Jan  2015)  

Get  help  from  fellow  students,  teachers  and  tutor2u  on  Twider:  

@tutor2u_econ  

Globalisa(on  and  the  UK  Economy