Critical Analysis of the Impact of Global is at Ion Upon Capital Labour & Econimic Governance
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Transcript of Critical Analysis of the Impact of Global is at Ion Upon Capital Labour & Econimic Governance
8/6/2019 Critical Analysis of the Impact of Global is at Ion Upon Capital Labour & Econimic Governance
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Critically analyse the impact of ‘globalisation’ upon capital, labour andeconomic governance.
Globalisation is a predominately post WWII phenomenon which has been
described as ‘a continuous process of increasing cross-border economic
flows, both financial and real, leading to greater economic interdependence
among formerly distinct national economies’ Reinicke (1998, p.7) and the
integration of world economies through reduction of barriers to the movement
of trade, capital, technology and people’ Daniels, Radebaugh and Sullivan
(2009, p.48). It has also been termed as ‘the merging of historically distant
and separate national markets into one huge global marketplace and the
sourcing of goods and services from locations around the globe, taking
advantages of national differences in cost and quality of factors of production’
Hill (2009, p.8). In this sense, globalisation can be seen to have had a
sustained and major impact on the three areas of capital, labour and
economic governance.
Firstly, in terms of capital, globalisation has increasingly opened domestic
financial markets to foreign financial institutions and allowed capital to flow
more easily between countries. In practice, capital can be regarded as the
most internationally mobile factor of production with the main reason for
companies and individuals transferring it, being for financial gain. Between
1974 and 1984 France, Germany, Japan, the UK and the US eliminated
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virtually all of their foreign exchange controls and an almost fully free pattern
of financial relations emerged amongst the advanced industrial states
Reinicke (1998, p.15). Furthermore, the movement of capital has tended to
flow from countries where there is a budget surplus to those where it is
scarcer, for example US to Mexico, which in turn has stimulated higher levels
of bilateral and multi-lateral trade.
In addition, a key driving force of globalisation has been the increasing
development of technological innovation and the speed at which information
can be communicated 24/7 with the internet. In practice this has facilitated the
growth of multi-national companies (MNE’s) and demise of national
companies through the process of accelerated mergers and acquisitions due
to quicker access to commercial information and capital. MNE’s have been
able to use their global presence to move funds from country to country, at
very low cost, seeking more favourable foreign economic conditions in order
to expand sales, acquire resources, diversify their sources of sales and
supplies and minimise competition and costs. In doing so, they adopt differing
modes for conducting international business which include the importing and
exporting of goods and services, foreign direct investment and strategic
alliances with other countries.
The Swedish retailer IKEA has grown into a global brand, operating 230
stores in 33 countries and generating sales of €14.8 billion ($17.7 billion) Hill
(2008, p.408). During the last decade, world trade in merchandise and
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services has increased by an average of 6.5% per annum Kotler et al . (2008,
p.35).
A major facilitator of foreign direct investment (FDI) is the World Bank,
founded in 1944, comprising of 183 countries, which became an arbitrator of
the free market, playing a major role in aiding foreign investment by providing
investment capital and development assistance to developing countries. This
proved vital to MNE’s because it allowed poorer nations to develop their
infrastructure, promoted economic growth and stability, thus improving quality
and quantity of demand. As a result, this global impact on capital can be seen
to have been a benefit to these countries that otherwise would not have being
able to do so. However, on the other hand it has indirectly made them
economically accountable to MNE’s and institutions such as the World Bank
in negotiations on the repayment of loans.
Secondly, in terms of the impact on labour, globalisation has shifted ‘human
capital’ resources across the world, but in doing so has led to inequalities both
within and between countries as MNE’s do not engage in international
business if they can not make sufficient profit. With increased competition,
businesses have had to look at new more efficient ways in which to improve
their products and productivity and a consequence of this relentless search for
growth, profit and accumulation of capital by MNE’s has been the exploitation
of labour and real wages for workers. Figures show that the rate of
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exploitation in the US increased from 156% at the end of WWll, to 302% in the
1980’s and to 456% by the year 2000 Berberoglu (2004, p.4).
The lack of employment protection for workers in developing countries has
also resulted in the exploitation of people in those countries in the form of
cheap labour as MNE’s are able to offer these workers low wages to work
long hours in undesirable conditions, ‘exploiting’ them into accepting low real
wage rates in order to support their families. Globalisation has brought about
job losses in industries under threat from foreign competitors and destroyed
jobs in advanced economies as firms’ outsourced labour abroad in search of
lower wage rates. A case study of ‘Dyson’ showed that the decision to move
production from the UK to Malaysia with the loss of 800 UK jobs was made in
order to save the company from bankruptcy. By moving production overseas,
the company made savings in production costs of around 30%, saving 1,150
jobs that remained in the UK and supported reinvestment into research and
development.
A further good recent example is the way in which multi-national car
manufacturers such as Opel and Ford in response to the recent global
economic downturn have made major decisions about the future location of
production and jobs to the detriment of host countries. This demonstrates that
capital is the primary beneficiary of globalisation but that national sovereignty
and accountability has gradually transferred to MNE shareholders. Therefore,
globalisation can clearly be seen to have had a detrimental impact on labour
and the real wages and employment rights of workers in both developing and
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‘non-parent’ MNE countries, but been a benefit for MNE’s in realising
increased profits for them.
Thirdly, economic governance can be defined as ‘a set of norms and institutions
along which rules are generated to manage the global economy’ Jacobs (2002,
p.1). The institutional and inter-governmental agents for global cooperation in
addition to MNE’s themselves are: World Bank, International Monetary Fund (IMF),
World Trade Organisation (WTO), European Central Bank (ECB), G8 and G20.
As there are differences between the world’s major economies in terms of their
size and their economic system, these institutions are faced with crucial challenges
in assisting member states and governments allocate resources and tackle key
economic issues which affect international business. They must consider the
following features of an economy in order to influence, shape and regulate global
economies : 1) Inflation and its impact on interest rates, exchange rates, the cost
of living, economic confidence and stability of current political system 2) high
unemployment levels which suppress economic growth and create hazardous
business conditions 3) poverty and distribution of income, there is an ever growing
gap between rich and poor nations 4) balance of payments in order to consider
any factors that could result in instability of currency or changes to a government
policy 5) trade surpluses and deficits where countries can under save and over
consume (US).
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A good specific example is the creation in the EU as an institution, the creation of
the single currency and ECB and implementation of the Schengen Agreement
(1985) on relaxing border controls. These have been a collective response to
develop free trade, control inflation and balance of payments, stimulate economic
growth and remove barriers to trade and labour movement between member
countries. Therefore, in the EU context it can be argued that globalisation in
practice has had a differential impact on macro-economic governance within the
EU depending on whether member states have opted in or out of the single
currency.
Previously, agreements on economic governance and trade such as the
General Agreement on Tariffs and Trade (GATT 1947) and WTO (1991)
facilitated access to investment loans as well as negotiated reductions in
trade barriers in an attempt to improve relative prosperity between the
developed and under developed world. The success of GATT was that it
facilitated economic interdependence amongst regions, narrowed the distance
between sovereign nations and subsequently reduced the risk of future war.
With fewer restrictions in place, goods, services and capital were free to flow
amongst the once largely separate national economies which gradually
became globally integrated. However, the WTO can be seen as an obstacle to
free trade due to the protectionism of the major economies such as the US.
In conclusion, it is evident that globalisation has undoubtedly had a major
impact on capital, labour and economic governance and transformed the way
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in which business and trade is undertaken across the world. It has brought
clear benefits for capital with the improved availability of it for investment and
removal of barriers which has led to more free trade and the growth of MNE’s,
but at a cost to both labour and economic governance. Firstly, because of
increased transfer of employment (human capital) from developed to ‘third
world’ countries in order to exploit lower wage rates and more flexible
employment practices which would not be legal or sometimes even safe in
most developed countries and secondly, because national economic
sovereignty is increasingly being ceded to MNE’s and institutional bodies such
as the World Bank, IMF and EU.
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REFERENCES
Berberoglu, B. (2004) ‘The Impact of Globalisation onEastern Europe and the former Soviet Union’
Hilton San Francisco &Renaissance Parc 55 Hotel,San Francisco, CA, Aug.
Daniels, J. Radebaugh, L.& Sullivan, D. (2009).
International BusinessEnvironments and Operations
Pearson Prentice Hall, NewJersey.
Hill, C.W.L (2009). Global Business Today McGraw-Hill/Irwin, NY.
Jacobs, D. (2002). ‘Democratising Global EconomicGovernance’ Alternatives toNeoliberalism Conference
New Rules for Global FinanceCoalition, Washington, May.
Kotler, P. Armstrong, G.Wong, V. & Saunders, J.(2008)
Principles of Marketing Pearson Prentice Hall , NewJersey.
Reinicke, W.H (1998). Global Public Policy –Governing without Government?
Brookings Institution Press,Washington.
‘Dyson relocates production toSouth East Asia’ Case study
Lecture hand out by Mr RobinMiller, Oct 2009
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