Globalisation shakes the world
Pastor Dale Morgan
Globalisation shakes the world*
By Steve Schifferes
Economics reporter, BBC News, Bangalore
Globalisation is a word that is on everyone's lips these days, from
politicians to businessmen. BBC News is launching a major examination of
the subject.
Few places in the world have seen the dramatic effects of globalisation
more than Bangalore, the Silicon Valley of India, which is experiencing
an unprecedented IT boom that is transforming the prospects of the
Indian economy.
Globalisation is blamed for many of the ills of the modern world, but it
is also praised for bringing unprecedented prosperity.
But what is globalisation, and what are the forces that are shaping it?
Globalisation - good or bad?
The accelerating pace of globalisation is having a profound effect on
life in rich and poor countries alike, transforming regions such as
Detroit or Bangalore from boom to bust - or vice versa - in a generation.
EXPLAINING GLOBALISATION
China car market
How China and India are shaking up the world economy
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Many economists believe globalisation may be the explanation for key
trends in the world economy such as:
* Lower wages for workers, and higher profits, in Western economies
* The flood of migrants to cities in poor countries
* Low inflation and low interest rates despite strong growth
And globalisation has played a key role in the unprecedented increase in
prosperity in the last 50 years, which is now spreading from the United
States and Europe to include many formerly poor countries in Asia,
including China and India.
Defining globalisation
In economic terms, globalisation refers to the growing economic
integration of the world, as trade, investment and money increasingly
cross international borders (which may or may not have political or
cultural implications).
global economic growth - rich v. poor
Globalisation is not new, but is a product of the industrial revolution.
Britain growing rich in the 19th century as the first global economic
superpower, based on its superior manufacturing technology and improved
global communications such as steamships and railroads.
But the pace, scope and scale of globalisation have accelerated
dramatically since World War II, and especially in the last 25 years.
The rapid spread of information technology (IT) and the internet is
changing the way companies organise production, and increasingly
allowing services as well as manufacturing to be globalised.
Who leads in global IT outsourcing
Globalisation is also being driven by the decision by India and China to
open their economies to the world, thus doubling the global labour force
overnight.
The role of trade
Trade has been the engine of globalisation, with world trade in
manufactured goods increasing more than 100 times (from $95bn to $12
trillion) in the last 50 years since 1955, much faster than the overall
growth of the world economy.
Since 1960, increased trade has been made easier by international
agreements to lower tariff and non-tariff barriers on the export of
manufactured goods, especially to rich countries.
iPhone
Apple's new iPhone will be outsourced to Asian manufacturers
Those countries which have managed to increase their role in the world
trading system by targeting exports to rich countries - such as Japan,
Korea and now China - have seen dramatic increases in their standard of
living.
In the post-war years more and more of global production has been
carried out by big multinational companies who operate across borders.
Multinationals have becoming increasingly global, locating manufacturing
plants overseas in order to capitalise on cheaper labour costs or to be
closer to their markets.
And globalisation is even harder to track now that one-third of all
trade is within companies, for example Toyota shipping car parts from
Japan to the US for final assembly.
More recently, some multinationals like Apple and Dell have become
"virtual firms" outsourcing nearly all their production to other
companies, mainly in Asia.
Service sector globalisation
It is not only Western manufacturing industry that is under threat from
globalisation.
The services sector, which includes everything from hairdressers to
education to accounting and software development, is also increasingly
affected by globalisation.
Call Centre, India
India dominates the global IT services sector
Many service sector jobs are now under threat from outsourcing and
offshoring, as global companies try to save money by shifting many
functions that were once done internally.
What China has become to manufacturing, India has become to the new
world of business process outsourcing (BPO) - which includes everything
from payroll to billing to IT support.
size of India's IT industry by GDP
India is the world's leading exporter of IT services, with its volume of
offshore business doubling every three years. Every major international
company in the IT industry now has a huge presence in India, and plans
to expand its investments.
Every major international company in the IT industry now has a huge
presence in India, and plans to expand its investments.
The Bangalore Tigers
Several dynamic new Indian companies are now challenging the
multinationals for global leadership in this area, including TCS,
Infosys and WIPRO.
Infosys office
1.4 million people applied to work at Infosys in Bangalore last year
The IT services boom has helped to transform the Indian economy, which
is now growing at more than 9% per year, the same rate as China.
The new-found affluence of the young workers in the IT sector has in
turn changed attitudes to wealth and consumption in India - with
educated young people for the first time being able to afford such
luxuries as motor cars and home ownership.
Western anxiety
The dizzying pace of change in the new world of globalization is
unprecedented, and can be frightening.
US Senator Sherrod Brown being sworn in
In Ohio, the Democrats won an upset victory on globalisation fears
A recent poll by Deloitte in November 2006 showed a sharp increase in
worries about outsourcing of white collar jobs in the UK.
Just 13% said it was a good thing , compared to 29% in January, while
82% of the public believe enough jobs have been sent abroad already, and
32% wanted to force companies to bring jobs back to Britain.
Meanwhile in the US, the Democratic victory in the November
Congressional elections had a lot to do with worries about the effect of
globalisation on wages and jobs.
The pace of change in the new world of globalisation can be dizzying, or
even frightening.
The speed and scale of economic change has made it increasingly
difficult for governments to keep their economic destiny in their own hands.
And what is most disturbing for many people is that no-one seems to be
in charge, or be able to agree fair rules for the new global economic order.
Crisis of legitimacy
The international institutions meant to deal with the globalising world
are all in trouble.
global economic imbalances
For example, the World Trade Organization (WTO) is now under fire for
failing to take into account labour standards or the environmental
impact of trade.
And their efforts to break down global trade barriers are faltering.
Meanwhile the International Monetary Fund (IMF) and the World Bank, set
up in 1944 as part of the UN system to run the international monetary
system and to co-ordinate aid flows to poor countries, have come under
criticism for not giving a bigger role to emerging market countries like
India and China.
And the IMF has found it increasingly difficult to influence the world's
capital markets, whose huge financial flows dwarf its resources - or to
correct the huge global imbalances that arise from trade.
Who should run the world?
There is even less international regulation of other aspects of
globalisation.
Bangalore anti-globalisation riots 2005
Even in Bangalore there have been anti-globalisation riots
Attempts by the OECD to set rules governing foreign investment by
multinational companies collapsed in the 1980s, while the rules for
international banking, stock markets and accounting are increasing being
negotiated by international quangos behind closed doors.
And while the rights of workers to organise unions is enshrined in
resolutions passed at the International Labour Organization (ILO), it
lacks any enforcement powers.
The key question is whether the growing globalisation of the world
economy will lead to a parallel increase in global regulation - and
whether that would be good or bad for world economic growth and equality.