Table of Contents
Globalisation can be described as the process of the increasing integration of markets in the world economy. There are critics for and against the concept of globalisation across the world. Economic globalization can be defined as the growing interdependence of the economies of the world, which result in enhanced scale of cross-border trade of commodities and services as well as flow of international capital. Economic globalisation has a direct impact on people’s lifestyle, the manner that people work, and the aspirations of the people across the globe. Globalisation from and economic and financial perspective has become a controversial phenomenon, which makes it receive support from both sides of the divide. Those who support globalisation indicate that it has a large array of new products, consumers have greater choices and cheap products due to international competition, and everyday life is more simplified because of integrated technology. Conversely, those who oppose globalisation view it as a process that is unequal and biased, a process that destroys jobs, enhances economic imbalance, enhance excessive consumerism, and degrades and pollutes the environment due to unbridles trade. Therefore, this paper is aimed at critically exploring the pros and cons of globalisation from an economic perspective in UK (Carney, 2013).
Discuss the pros and cons of globalisation
Some of the risk of globalisation have been prominent in the early 1990s, especially the aspect of inequality in various countries and social groups. Critics that are against globalisation indicate that globalisation is a phenomenon that only supports that strong and despises the weak. For instance, globalisation has been asserted to benefit first world economies like America and UK as compared to emerging economies and developing economies (Redwood and Wolfson, 2007). Additionally, globalisation has been blamed for environmental impacts due to the fact that it promotes unbridled consumerism (Huwart and Verdier, 2013). The economic development seems to disadvantage developed countries but benefit developing nations, a phenomenon that can be epitomized by countries such as China, Brazil, and India which is mostly because of integration of international markets. However, despite the fact that globalisation benefit some world economies, integrations of international markets can harm economies of the world. For instance, the financial and economic crisis of 2007-2008 weakened major economies of the world especial since banks and financial markets are interconnected (Perraton, 2015). Therefore, this is one of the major risk of economic globalisation.
Another benefit of globalisation is on employment, this is due to the fact that human resources can be moved across borders. It is very easy for professional to work in different parts of the world. However, from an economic globalisation perspective the aspect of whether employment is enhanced becomes questionable. International competition has grown in majority of the sectors of various economies, which has necessitated companies to reduce costs. This is an aspect that again benefit the developing nations and harm the developed nation (Huwart and Verdier, 2013). Hence, employment is enhanced in developing countries but deprived in developed nation. Competition has made companies to offshore labour in developing countries, which implies that the jobs of persons that are working in developed nations are put at risk since they are transferred to other part of the globe. The phenomenon of job loss in developing and undeveloped countries seems to worsen after the 2007/2008 financial crisis.
The critics of globalisation have also indicated that globalisation has also led to adverse negative environmental impacts. Recently, there has been a great concern on the aspect of global warming that has been attributed to increase in human activities that emit Carbon dioxide gases. The increase in emission of this gases is as a result of increase in industries due to increase in economic development (Quah, 2009). Apart from global warming there are other aspect of environmental impact such as industry mass consumption and the increase in energy needs for a growing population. Nonetheless, despite the fact it causes environmental degradation, economic globalisation has also been asserted to be a remedy on environmental impact (Huwart and Verdier, 2013). For instance, international trade can help transfer majority of cultured environmental solutions far and wide especially to global warming. Globalisation can make environmental conservation compatible with development, and this is because international economic competition has a propensity of solving environmental problems. Companies across the globe will aim to fund projects that are positioned towards solving economic impact as a part of their corporate social responsibility.
Financial sector has been integrated across the world due to economic globalisation. But the risk that it poses is huge as epitomized by 2007/2008 financial crisis. This financial crisis originated in the United States but this financial crisis affected many countries simultaneously and led to a global economic crisis unseen since the Great Depression. The impact of this phenomenon has been huge and has made critics question the authenticity of integrating banks and financial markets across the globe (Huwart and Verdier, 2013). Various global economies were affected, and the impact took some time to be recovered. However, the integration of financial markets across the globe has some positive effects. This is because financial globalisation has ensured that there foreign investment, and corporate loans have enhanced economic activities in various countries across the globe. Global liquidity has been enhanced, which has resulted in cross-border capital flows that result lower cost of capital as well as productivity gains (Ottaviano, Peri, and Wright 2016).
Sectors of the UK economy that benefit from globalisation and sectors on the losing side
Globalization has not had the same impact across UK’s economy as some sectors continue to lose as others improve. Financial and trade sectors have recorded major improvement due to globalization while the environmental sector has been on the losing side.
The financial sector has recorded a great improvement from effects of globalization as over 280 foreign banks have offices in London. Moreover, nearly twice as much international banking transactions take place in the UK as everywhere else. London holds most of the global banks and the global markets with over half of the global turnover in over-the-counter (OTC) derivatives being effected in the UK. The country is a major hub for gold trading with a great share of global foreign exchange turnover. Moreover, the insurance companies hold nearly 10% of the world markets. The shadow banking sector also contribute to the financial endowment of the country with a trading of assets of $9 trillion. The UK’s position as the world’s greatest trading nation impacted its emergent as a center for global finance, a position that the country has remained for over 125 years. The UK financial sector has experienced a dramatic increase in relation to the country’s GDP; from 40% of DGP during FT’s infancy stages to 400% by 2012 (Carney, 2013). This increase in projected to increase to nine times. GDP by 2050, a potential growth that is majorly attributed to globalization characterized by the rapid growth and development of foreign banking in London
International trade in physical goods and legal services have increased dramatically in the recent decades. Evidence shows that there is a link between immigrants and the increase in trade between the UK and the country of origin of the immigrants. This has been linked to the fact that the immigrants play a major role in facilitating trade by giving out customer-specific information required to effectively customize goods and services for purposes of trade with specific countries. The quarterly Labour Force Survey and International Trade in Services survey provides data that shows the role of the immigrants in facilitating trade between the UK and their trading partners (Ottaviano, Peri and Wright, 2016). The surveys reveal that the licensing agreements and business services and royalties in both exports and imports would require significant institution – specific and country – specific knowledge. Immigrants promote trade, not only by promoting exports to their country of origin, but also by reducing imports of intermediate services or where they locally produce what was formerly imported from their home countries. Selling business services and legal services will require a primary knowledge of the business and legal culture of the country (Ottaviano, Peri and Wright, 2016). As such globalization, manifested in the ease of movement of people from many parts of the world allows for easy diffusion of information, which in this case, helps UK improve trade in business services with its trading partners.
Other than the benefits in improvement of the financial sector and trade, UK has also experienced some costs associated with globalization. The environmental sector has suffered from the economic activities linked to global trade and services including burning of fossil fuels. Climate change connected to globalization has also been linked to the spread of financial crises (Quah, 2009). While developed countries like the UK are deemed responsible for a great amount of greenhouses gases accumulation, the current emissions are majorly associated with currently developing countries that are growing at a rapid rate such as China. These countries emit huge amounts of greenhouse gases due to the huge production of goods required for exportation in the UK and other developing countries. UK’s trading with developing countries emitting huge greenhouses gases means that there is a constant transfer of greenhouse effects across the globe. As such, globalization and climate change will continue to be connected in a complex relationship going forward.
The overall effect of globalisation on the UK economy
Globalisation has altered UK Labour policy including in terms of longer term framework of economic policy and macroeconomic management. While globalisation has led to major economic benefits to the country, it has also undermined the ability of the UK economy to realize potential gains from international trade and globalisation (Redwood and Wolfson, 2007). For instance, the rise of global emerging economies such as China, India and other emerging economies have led to increased adoption of more sophisticated, technological methods of production, leaving UK less equipped to compete in the global markets.
Globalisation has led to changes in the trade share of UK is the global market. Since the post – war period, UK economy has had relatively high trade shares which has continued to grow. However, the general proportion of the level of imports to the level of output exported as changed significantly since the last decade (Perraton, 2015). Evidence shows UK is a price taker in the global market due to the role of the exchange rate movements in determining market share as well as the fact that UK exports are increasingly experiencing low elasticities of demand. The UK trade shares have also been affected by recent developments in the global trade market such as the entry of China into the global market as an emerging market also contributed to lowering of UK export shares (Barrell et al., 2006). This is because China’s products are high in relative technology intensity compared to UK products.
Globalisation has also led to changes in the labour patterns due to the effects of immigration and shifting in sectors of the economy. For instance, the shifting economies have led to the loss of UK competitive advantage as the emerging economies take advantage of low labour costs. This has an impact of causing short term structural unemployment (Spange, 2007). Moreover, the increase in the number of immigrants is also linked to increase in the number of temporarily unemployed people. While the immigrants helps the manufacturing industries fill in vacancies with cheap labour, it also causes a strain on UK public services and housing.
The UK has benefited from some aspects of globalisation as well as lost on some aspects especially from an economic and financial perspective (Carney, 2013). Therefore, globalisation can neither be said to be a risky or beneficial from an economic perspective. What really matters in regard to the pros and cons of globalisation is the manner that globalisation can be supports to mitigate its risks and seize its opportunities (Huwart and Verdier, 2013). There is a great need for the concerned stakeholders and the government to pay renewed attention in regulating, preventing and managing economic upheavals that may be caused as a result of globalisation. For instance, the financial sector need a stringent regulation model to avoid another global financial crisis. Globalisation should not be aimed to harm economies of some countries, while at the same time benefit other countries. There should be a balance as far as economic globalisation is concerned, and countries should leverage their resources to benefit from globalisation.
- Ottaviano, G., Peri, G., and Wright, G. (2016). Immigration, Trade and productivity in services. CEP Discussion Paper, 1353.
- Carney, M., (2013), The UK at the heart of a renewed globalization, Speech at an event to celebrate the 125th anniversary of the Financial Times, London 24 October 2013.
- Quah, D., (2009), The world crisis: the implications of globalised finance. IDEAS reports – special reports, Kitchen, Nicholas (ed.) SR001. LSE IDEAS, London School of Economics and Political Science, London, UK.
- Perraton, J. (2015). Globalisation and the UK Economy since the 1990s. In The British Growth Crisis (pp. 242-260). Palgrave Macmillan UK.
- Spange, M., (2007), The macroeconomic impact of globalisation: theory and evidence, Quarterly Bulletin, Q1
- Barrell, R., Choy, A. and Kirby, S., (2006). Globalisation and UK trade, National Institute Economic Review, No. 195, 63-67.
- Redwood, J. and Wolfson, S., (2007). Freeing Britain to Compete: Equipping the UK for Globalisation. Economic Competitiveness Policy Group Report.
- Huwart, J.Y. and L. Verdier (2013), Economic Globalisation: Origins and Consequences, OECD Insights, OECD Publishing. http://dx.doi.org/10.1787/9789264111899-en