Impact of Globalisation on the UK - Essay Example

Impact of globalisation on UK Introduction If we trace the history of fast changing economic landscape for the last one or two years, we find that the finance and banking sector experienced a big jolt in UK. The subprime lending crisis made its way from US and thanks to globalisation spread in good measure all around the world. UK, being in close ties with the US also experienced the jolts with the financial sector coming under severe pressure. This set in motion a chain reaction, resulting in adverse impacts on the stock market, which in turn impacted the confidence of an average investor. The ups and down in equity markets is not a new phenomenon, but the UK equity markets have not recovered from the shake ups. This is a direct consequence of the networking of economies and globalisation. Globalisation has made its mark in almost all parts of the world over the last two decades in particular. Globalisation as such, has been in existence for quite a while. In the early ages it was essentially limited to business and trade. But with the beginning of the new form of market driven governments, globalisation has filtered down to almost all walks of life like, media, culture, and of course the trade and business practices remain the key segments impacted by the phenomenon. During the early ages, trading companies, particularly from UK and Europe would arrive in a foreign land, make strategic arrangements with the respective governments and influence the ruling class in order to strengthen their business goals. In a number of cases, gradually these companies also succeeded in capturing power in those countries, thus giving rise to the practice of imperialism. Well, the modern avatar of globalisation appears far more sophisticated and customer oriented, as it gives rise to intense competition in the market. While on the one hand globalisation is transforming the face of economic policies, on the other apprehensions are also being expressed about the ill effects. International Monetary Fund (IMF) described globalisation as "The process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies" (IMF, 2002). UK has been at the forefront of implementing developmental change and played a key role in shaping the world opinion on the issue. Globalisation: More than Transnational Cooperation Trans-nationalism essentially meant a focus on broader areas of cooperation in cultural exchanges, economic exchanges; connecting people, governments, organizations or institutions across the borders of nation-states thus facilitating the flow of people, ideas and goods between different countries and regions. On the other hand globalisation, though implies similar connotations, has become more associated with economic activities and a market oriented attitude of big corporate houses. While trans-nationalization worked with exchanges across boundaries connecting the countries and regions, globalization seems to know no boundaries. Moreover with the advancement of communication technologies spread of globalisation has become more prominent and now it has replaced the word trans-nationalisation. Networking o economies and real time online businesses are just some examples of the borderless regime. While trans-nationalisation effectively meant cooperation and coordination between two or more countries, globalisation works with involvement of many countries in similar practices or trade. Formation of regional cooperation councils like G-8, G-20, EU, Gulf Cooperation Council etc. are an indication towards having similar policies on a range of issues, which in turn results in mutual beneficial proposition for the member countries. The networking essentially meant that the economic factors will experience similar triggers arising out of common policies will be shared proportionately by the members. Under the globalisation regime, economic activities have dominated as the major players in deciding the policies. It is only because of such networking that the impact of recessionary trends coming out of the American economy soon found its way into other closely connected economies as well. It all started off with the mortgage crisis in USA in the year 2007, and in the beginning of 2008 itself, the economic analysts started predicting about harder times for UK economy. It was predicted that in the coming two years, UK economy would be experiencing its weakest patch during the last 15 years (BBC, 2008). Well, if trace the journey of the recessionary, these concerns seem to have come true. The first official confirmation about UK's economy being in recession came in the form of statistics issued by the Office for National Statistics, indicating a fall of GDP in the first quarter of 2008 by 1.5 percent (Telegraph, 2009). This is was the first surest sign of the negative impact of globalisation on UK economy. UK: Steady Growth over the Years Over the years UK has firmed up its position of a industrialised global power. Being a significant member of the G-8 nations, UK has been playing a key role in global efforts towards sustainable development. Besides having a strong influence in the commonwealth UK has closer ties and strategic arrangement with many other nations around the world. Over the years, the liberalisation efforts have brought UK's economy in closer contact with many other liberalised economies. Monitoring the economic policies for over a decade, The Wall Street Journal and The Heritage Foundation, Washington's preeminent think tank, have come out with a comprehensive list of nations having freest economies from around the world. It is worthwhile here to mention that UK figures amongst the top 10 nations with a economic freedom score of 79. The score of UK has been termed as exceptionally well in parameters like investment freedom, financial freedom, property rights, business freedom, freedom from corruption, labour freedom, and trade freedom (Miller and Homes, 2009). The end of World War-II is considered an important milestone towards the reconstruction and integration of the European community. Trade in global forms did exist prior to that also, but formal efforts to have a greater cooperation in order to realise the fullest potential of each other's potential, create mutual harmony and reduce the chances of conflicting situations a vision of common European policies was visualised. It was on 25th March 1957 that a formal vision of Common European Market was set in motion by the Treaty of Rome, with the aim of increasing economic prosperity and contributing towards a closer union among the governments and peoples of Europe (Hansen, 2002). Thus the European Economic Community (EEC) came into being and started working towards the common interest of the European region. In the beginning the key driving force behind the formation of EEC was to create a common market and begin the era of borderless movement of people, goods and services1. This resulted in the benefits of four freedoms namely, capital, labour, products and services to the European community. In subsequent years, the movement gathered momentum, and as the policies of liberalization and globalization started having bigger impacts on the world polity, the EEC saw more relevance for itself. Taking a historical perspective UK had a population of 38 million with GDP of just under 125 billion at constant 1995 market prices. By the end of the century, the population stood at 59 million with an increase of more than 50 per cent while the GDP stood at 800 billion, registering a fivefold increase (Lindsay, 2003). The benefits of globalisation seem to have percolated down to all sections of the society in good measure. The office of national statistics indicated that the unemployment rate in UK in 1900 stood around 5 percent. During the difficult times of 1930s the unemployment rates peaked to around 22 percent, but subsequently as a result of successful implementation of globalisation policies, once again the unemployment rates were below 5 below by the end of 20th century. As of now, the recessionary trends are certainly having an impact on the unemployment rate as well. The latest figures from the office of national statistics2 indicate that the unemployment rate increased by 0.1 percent points to 7.8 per cent for July to September 2009. It is worthwhile here to mention that the unemployment rate started increasing particularly around the last quarter of 2007 when the recessionary trends started showing its impact on economies around the world. It is therefore quite apparent that while the economies benefitted immensely during the booming days of globalisation, it felt the pinch when the negative trends from other countries started impacting the economic indicators of UK as well. Over the years, UK has been able to develop into major global force, primarily due to its rapid economic development, which has helped the country in advancing particularly after the second world-war. Strong democratic setup and stability of government coupled with continuity in economic policies are considered as the strong points of the country. The ongoing policies of the government towards fostering stronger ties with emerging economies like India Brazil and China have also helped the nation's economic prospects. Today, UK is considered as the second largest economy in EU. Social and economic indicators like social welfare, standards of living, unemployment, interest rates, inflation and inward and outward foreign investment are considered as the strongest points of UK's policies (Datamonitor, 2009). Even in these turbulent times, the UK's economy has seventh highest level of GDP per capita in the EU in terms of purchasing power parity (PPP), after Luxembourg, Ireland, the Netherlands, Denmark, Austria and Finland, and the third highest in the G8, after the US and Canada (Datamonitor, 2009). As pre the recent 'Doing Business 2010' published by the World Bank, United Kingdom has been able to improve its standing by one place. While in the 2009 ranking UK stood at sixth place, in the recently released 2010 report, UK has been placed as the fifth best country in the world for doing business3. This is certainly no mean achievement. While on the one hand it vindicates the policies adopted by the government of UK in carrying forward the liberalisation policies, on the other it is an indication towards the longevity of globalisation policies despite the ongoing recession. Ongoing Recession and the way Forward The world is in the midst of a recession, some call it the worst ever during the last 100 years and even more damaging than the recession of 1930s (BBC, 2009). Bracken (2004) underlines that it was since early 1990s when the term 'Globalization' became a catch phrase as it started entering into all walks of life even in developing economies. We've come a long way since then and today we find that the global economy is once again at crossroads, reason the recessionary trends set in all around the globe. The European community is also feeling the pinch as a number of banks in the region are showing signs of failure. This effect is gradually translating into difficulties for the industries. Real estate and manufacturing are the hardest hit. Projections from the IMF indicate that UK's economy might experience more difficulties in coming months. With forecasts of UK's GDP shrinking to 2.8 percent in coming days, the IMF report indicates that around 50 million jobs are bound to disappear around the world, if the recession continues. The report also indicates that4, "Britain's economy will be the hardest hit in the developed world in what is expected to be the 'deepest recession' since the Second World War". There were many instances in UK in the last decade when different types of jobs were outsourced to cheaper destinations in the Asian subcontinent or towards Africa. This also resulted in many job losses for the country. The trend of outsourcing is also an inevitable component of globalisation, which allows companies to look for cost effective measures in order to compete with others around. In view of the competition, profit margins have become quite thin, which forces the management towards taking cost-cutting initiatives, that includes outsourcing, retrenchments, relocation of employees, pressure on employee benefits etc. UK too is affected by the phenomenon of outsourcing and availability of skilled workforce at cheaper rates from places like India, China, Philippines, Malaysia etc. While the employability within the country was already under pressure from these developments, the recessionary trends have also resulted in job losses. Recent announcement by steelmaker Corus about curtailment of its Teesside Cast Products factory will result in 1700 job losses. , putting 1,700 people out of work (BBC, 2009a). The automobile industry too is severely under pressure to work its way towards meeting the revenue targets. Though the Respective governments have also come out with stimulus packages in support of the industry, yet nobody is quite sure about what shape recession is going to take in the near future. References: 1. BBC (2008). UK economy 'at risk of recession'. Available online at http://news.bbc.co.uk/2/hi/business/7212545.stm (Dec 14, 2009) 2. BBC (2009). Recession 'worst for 100 years'. Available online at http://news.bbc.co.uk/2/hi/uk_news/politics/7880189.stm (Dec 14, 2009) 3. BBC (2009a). '1,700 jobs to go as Corus mothballs plant'. Available online at http://news.bbc.co.uk/2/hi/8394871.stm (Dec 15, 2009) 4. Bracken, Paul (2004), 'The Multinational Corporation Today'. Yale SOM Working Paper No. OB-06, PM-05, OL-19, Yale School of Management, available online at http://papers.ssrn.com/sol3/papers.cfmabstract_id=514422#PaperDownload (Dec 14, 2009) 5. Datamonitor (2009). 'Country Analysis Report-United Kingdom'. Datamonitor Europe, London. 6. Europa (2007). Treaty establishing the European Economic Community, EEC Treaty - original text (non-consolidated version). Available online at http://europa.eu/scadplus/treaties/eec_en.htm (Dec 14, 2009) 7. Hansen, Peo (2002). European Integration, European Identity and the Colonial Connection. European Journal of Social Theory 2002; 5; 483 8. IMF (2002). 'Globalization: A Framework for IMF Involvement'. Available online at https://www.imf.org/external/np/exr/ib/2002/031502.htm (Dec 14, 2009) 9. Kollewe, Julia (2009). 'IMF: UK economy will be hardest hit in worst recession since second world war'. Available online at http://www.guardian.co.uk/business/2009/jan/28/ilo-global-unemployment-to-soar (Dec 15, 2009) 10. Lindsay, Craig (2003). 'A century of labour market change: 1900 to 2000'. Labour Market trends, March 2003. Labour Market Division, Office for National Statistics. Available online at http://www.statistics.gov.uk/articles/labour_market_trends/century_labour_market_change_mar2003.pdf (Dec 14, 2009) 11. Miller, Ambassador Terry and Homes Kim R. (2009). '2009 Index of Economic Freedom'. Available online at http://www.heritage.org/Index/ (Dec 14, 2009) 12. Telegraph (2009). UK recession: it's official but will it be the worst Available online at http://www.telegraph.co.uk/finance/financetopics/recession/4321675/UK-recession-its-official-but-will-it-be-the-worst.html (Dec 14, 2009) 13. World Bank (2009). 'Highlights from Doing Business 2010'. Available online at http://www.doingbusiness.org/Documents/DB10_Overview.pdf (Dec 14, 2009) Read More