Globalisation

The meaning of globalisation

‘The ability to produce any goods (or service) anywhere in the world, using raw materials, components, capital and technology from anywhere, sell the resulting output anywhere, and place the profits anywhere.’

Globalization implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdependent world with free transfer of capital, goods, and services across national frontiers.

Globalization is not new, though. For thousands of years, people—and, later, corporations—have been buying from and selling to each other in lands at great distances, such as through the famed Silk Road across Central Asia that connected China and Europe during the Middle Ages. Likewise, for centuries, people and corporations have invested in enterprises in other countries. In fact, many of the features of the current wave of globalization are similar to those prevailing before the outbreak of the First World War in 1914.

Characteristics of globalisation

Globalisation refers to the increasing interdependence of economic actors (producers, consumers, governments, entrepreneurs). Key phrases include global branding and global sourcing, although it is not just about the activity of multinational companies (MNCs). Globalisation is characterised by increasing foreign ownership of companies, increases in trade in both goods and services, de-industrialisation in developed countries, and increasing global media presence.

Causes:

• improvements in transport infrastructure and operations
• improvements in communications technology and IT (especially the Internet, allowing a global media presence)
• reduced protectionism (although this is debatable, with the increase in trading blocs’ power)
• development of international financial markets
• increasing number and influence of multinational companies
• end of the Cold War.

Consequences:

• increased dependency of economies on the output of other economies
• greater consumer choice
• lower prices, through specialisation according to comparative advantage
• increasing environmental destruction and other negative externalities
• ‘Footloose’ companies (which can cause unemployment as they move from Place to place)
• possible loss of culture/national identities.

Other issues:

• some people argue that globalisation is not a new phenomenon and that we have been in a continual process of globalisation since the time of the first humans — this is supported by the fact that the rate of increase in exports has not really changed recently.
• de-industrialisation in developed countries, combined with a global search for new sources of energy (especially oil/gas reserves) and the growth of economies such as China and India has left many ‘Western’ countries concerned about their future and their future power in the global economy.
• trading blocs are seen as both a contributor to globalisation, with their emphasis on creating trade within their boundaries, and also an inhibitor to globalisation, since they divert trade away from economies not within their boundaries.

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