Impacts of Economic Globalisation on the UK - Coursework Example

Impacts of Economic Globalisation on the UK Introduction Although globalisation and economic globalisation are interrelated concepts, they reflect two different ideas. Economic globalisation promotes the idea of international economic integration which may enhance a single global market whereas the concept of globalisation supports the liberalisation factors like cross border trade policies, tariffs, and taxes that suppress global trade. To define, “economic globalisation refers to the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology, and capital.” (Whittington & Delaney, 2010). Economic globalisation is a broader idea that encompasses concepts such as globalisation of production, market competition, multinational corporations, and industries. The concept of economic globalisation was suggested along with the policy of trans-national trade and hence it has been occurring for the last 20-30 years. By the end of the 20th century, economic globalisation was greatly promoted and this situation led to the integration of developed economies and developing economies through increased foreign direct investment, elimination of trade barriers, and high immigration flow. Although evidences suggest that economic globalisation has a range of positive financial effects, it is also argued that such effects benefit only developed countries and cause power imbalance in the global economy. This paper will analyse “in what ways economic globalisation has affected the state”? Trends in economic globalisation International capital markets, labour markets, and commodity markets constitute the concept of economic globalisation. While analysing the history of economies, it seems that majority of the economies was influenced by foreign markets by the early 1900s in terms of either money and labour or business policies. Advancement of ship building technology and railroad inventions greatly contributed to the economic interdependence of global economies. Although World War I & II noticeably disrupted these advancements in economic globalisation, this concept again achieved widespread attention in 1970s and since then it has been gradually developing. Nowadays, dramatic advancements in information technology ensure the effective flow of information. Subsequently, economies tend to constitute a single global market so as to take advantages of integrated trade and other economic operations. Effects of economic globalisation on the UK economy While analysing the UK economy in the context of economic globalisation, it is obvious that this process has significantly affected the country. The country has become one of the most open economies in Europe. With the emergence of economic globalisation, the UK economy eliminated its foreign exchange controls and eventually deregulated its financial markets. This situation naturally led the country to increased global interdependence. Since the country had been already dominating the global market since the close of the World War II, the emergence of economic globalisation made the country a favoured destination for foreign direct investment. Improved supply chain performance of the economy and its well structured and favourable tax system notably assisted the country to achieve a better status on industrial relations. The better industrial relations aided the economy to raise the level of import in several sectors such as textile and electronic industry where the country had not possessed competitive advantages. In addition, this concept also contributed to further development of the country’s industries with major growth potentials. Structural changes in the UK industries were some of the notable impacts of economic globalisation. The economy faced long term output loss in textiles and other manufacturing sectors due to their over dependence on imports. Hay and Rosamond (n.d) indicate that the concept of economic globalisation gives greater emphasis on human capital considering it as a major factor that determines the long term economic sustainability of an economy. This condition adds value to the employment sector and thereby to the overall economic growth of the country. Economic globalisation plays a pivotal role in setting corporate tax regime and designing labour market policies. Many of the economists are of the belief that this concept has adversely affected the British government’s ability to levy business taxes, because organisations have all favourable situations to relocate their businesses to countries which are offering less business tax rates. In addition, it seems that economic globalisation has put pressures on many British industries which in turn impeded their growth to some extent. However, cheaper prices and other favourable economic conditions have greatly assisted the country to bring inflationary pressures under control in the recent years. The UK economy has been continually undergoing structural changes since the advent of economic globalisation and these structural shifts can be clearly seen in output and employment shares. While analysing different industrial sectors of the UK economy, it is evident that the share of output and employment is growing in proportion to growing prominence of the service sector. The UK economy could achieve impressive growth in its service sector exports over the past two decades. A critical evaluation reflects that the country’s growth in its overall export volume in recent years has been significantly boosted by financial services and other business sector services. As per the statistical reports published by the International Monetary Fund, the UK’s service exports in 2004 constituted 8.7% of the total exports whereas Germany’s share was 6.6% and France achieved a market share of 5.1%. Likewise, the UK is the world’s leading exporter in financial services (24.4% of the total world exports) and computer services (13.7% of the total world exports) (Department for Business Enterprise & Regulatory Reform 2008). The country could achieve an exciting growth rate of 303% in communication services during the period 1996-2006 whereas it was 280% in construction services during the same period. The economy’s growth in royalties and license fees, government services, and transportation services during the period 1996-2006 was 74%, 62%, and 53% respectively (ibid). Although the UK economy achieved a significant growth rate in its service sector exports over the last decade, it could not maintain the competitiveness in some of the goods sector exports (ibid). To illustrate, the nation’s growth in food, beverages, and tobacco exports was declined by 2% during the time period 1996-2006 while the economy realised a high growth downturn (33%) in the exports of some unspecified goods. However, the country’s total services exports during the period 1996-2006 was increased by 115% while its total goods exports showed a 47% growth in the same period (ibid). Recent reports indicate that the UK has attained competitive advantages in sectors offering high technology and innovative products such as pharmaceuticals, aircraft components, and instruments. The UK economy’s dramatic growth in its services and goods sector exports can be attributed to the emergence of economic globalisation and this growth in cross border movement of goods and services assisted the nation to form business relations worldwide. The UK exports sector dominates the European market. Evidently, Europe accounted for the 63% of the UK goods exports in 2006. Data show that “of the approximately 70,000 UK firms who exported goods in 2007, 65,100 exported outside the EU and 16,700 within the EU” (Department for Business Enterprise & Regulatory Reform 2008). It is identified that the increasing exports of goods and services have greatly contributed to the overall growth of the UK economy. Exporters and multinational corporations in the UK are vehemently trying to keep their productivity above average; and this situation is raising the average UK productivity levels. It has been evidently identified that exporting activities stimulate market competition, which in turn fosters innovation and thereby productivity. Surveys and other market studies also reflect that exporting firms perform better in research and development activities than other marketers. According to reports, “other positive effects on UK productivity from exporting arise from increased access to new ideas and technologies and exposure to superior organisational skills which may be direct through exposure to overseas markets or inward investors or indirect via knowledge spillovers” (Department for Business Enterprise & Regulatory Reform, 2008). Although the UK economy has been greatly benefited by its increased exporting activities, the country’s marketers face numerous operational barriers. In order to overcome such troubles and thereby to foster exporting, the UK government has framed a set of international business policies. This governmental assistance also encourages the country’s small scale enterprises and hence they tend to develop a particular domestic market for them. This condition would naturally contribute to the GDP growth of the economy. Furthermore, these small scale enterprises notably contribute to the flexibility and it aids the UK economy to effectively and quickly respond to economic shocks and market fluctuations. Majority of the UK’s present SMEs have the potential to become global players in the near future. Hence, development of SMEs can be pointed out as one of the major benefits of economic globalisation. Shifts from manufacturing sectors to service industries were other significant effects of economic globalisation. As discussed earlier, this concept increased the scope of service sector operations and hence persuaded manufacturers to change their area of business. Although this change amplified service sector operations of the country, it resulted in a large number of manufacturing job losses also. As McCarthy and Anagnostou (2004) point out, economic globalisation and resulted global interdependence assisted the UK economy to outsource technology, ideas, and other services. The outsourcing processes are helpful for the country to take advantages of cheap and better overseas facilities and thereby to trim down total cost of production of service delivery. It is expected that the growth in UK’s IT and business processes outsourcing would continue over the next few decades as majority of the UK organisations have already realised the far reaching benefits of outsourcing. In addition, the emergence of economic globalisation and its associated global business conditions have greatly stimulated off-shoring activities of the UK. To illustrate, As Heath (2008) reports, the number of UK organisations offshoring their operations increased from 47% to 57% in 2008 and majority of them choose to move to India as the country is becoming the world’s leading competitor for cost and service quality. In addition, a large number of UK firms are currently planning to offshore their businesses to different parts of the globe. It is identified that average price of manufactured goods in UK has considerably declined over the last decade simply due to the improvements in manufacturing productivity fuelled by technological developments and increased investments. In addition, increased involvement of underdeveloped and developing economies in manufacturing operations also contributed to the price fall of manufactured goods in the UK. Despite the effects of global financial crisis 2009, the UK remains to be one of the potential countries for investment. The world’s fastest developing economies like India and China have huge amounts of investments in UK. In short, economic globalisation and resulted cross border movement of capital greatly benefited the UK economy to get easy access to large number of potential financial sources. However, the recent global economic downturn has severely hit the UK economy as this issue deterred many of the foreign business firm from doing business in the UK. Although the economy has not been completely recovered from this economic shock, it still attracts investors and thereby improves its investment base. Rise in real incomes was the key feature of the UK economy throughout the end of the 20th century. This situation significantly contributed to a constant increase in domestic demand for certain goods and services. The domestic demand for health, housing, and energy increased during this period while demand for education and entertainment significantly declined. Economists argue that the global economic integration has noticeably affected the domestic demand of the UK economy and there existed a growing domestic demand for environmental goods and services mainly due to increasing real incomes and environment awareness. It can be undoubtedly stated that majority of the technology driven changes in real incomes, relative prices, and domestic demand have occurred in response to the changing global economy. The concept of economic globalisation greatly promoted the development of telecommunications media which in turn enhanced the spread of global mass culture. These rampant developments in telecommunication sector reshaped the UK economy and hence it could attract global investors and entrepreneurs. While analysing the UK economy in the context of economic globalisation, it is obvious that the country exploits the resources and opportunities of poorly developed countries. This finding strengthens the argument that the concept of economic globalisation makes rich countries richer and poor countries poorer. Another fruitful benefit which the UK economy realised from economic globalisation is that it could effectively maintain a moderate inflation during the last few decades (Trading economics, 2012). Furthermore, the country got free access to countries worldwide which also assisted the country to extend its products and services to different parts of the globe. Before the emergence of economic globalisation, activities like travelling from one’s home country to a foreign destination, and inter-communication between countries were expensive. However, the process of global economic integration liberalised immigration policies which allowed immigrants to maintain effective ties with their home countries. Hence, supporters of economic globalisation argue that this concept and thereby increased rate of immigration flow would offer potential opportunities such as satisfactory employment rates and increased availability of experts across the globe. Evidently, the emergence of economic globalisation has enhanced immigration flows, which also remarkably aided the UK economy to attract more and more foreign skilled workers. Conclusion In total, economic globalisation has greatly benefited the UK economy. The country could dramatically improve its export and import volumes during the past decades on the strength of this concept. In addition, economic globalisation assisted the country to get worldwide market access and to take advantages of outsourcing and offshoring facilities. Furthermore, the UK economy could bring inflationary pressures and unemployment rates under control. Finally, since economic globalisation enhanced the immigration flow, the country could widely employ the service of foreign skilled workers. References BEER: Department for Business Enterprise & Regulatory Reform 2008, ‘Globalization and the changing UK economy’, pp.1-53, Viewed 24 January 2012, Hay, C & Rosamond, B n.d, ‘Globalisation, European integration and the discursive construction of economic imperatives’, pp.1-27, Viewed 24 January 2012, Heath, N 14 January 2008, ‘India top destination for UK outsourcing’, ZD Net, Viewed 24 January 2012, McCarthy, I & Anagnostou, A 2004, ‘The impact of outsourcing on the transaction costs and boundaries of manufacturing’, International Journal of Production Economics, vol.88, pp.61-71. Trading economics 2012, ‘United Kingdom inflation rate’, Viewed 24 January 2012, Whittington, OR & Delaney, PR 2010, Wiley CPA Exam Review 2011: Business Environment and Concepts, John Wiley and Sons, USA. Read More