l: Globolisolion

specimen 'A' Level Questions

1. Discuss ihe chorocteristics ond processes of globolisoiion.
2. Discuss whot is meont by the'globqlisqfion of economic octivity'
3. Discuss the impqct of globqlisqtion on the world economy.

/vlust krow concepts:

6lobolisqtion
'Shrinking world'
Technologicol chonge
Communicotions technology
Informotion technolo

Def inition of Globolisotion/Whst is 6lobqlisotion?

6lobolisotion is ihe process enqblang economic qcfivities fo operoie iniernolionolly,
leoding to the ropid increose in ihe shore of economic octivily foking ploce ocross
hotionol boundories.

It referc to ihe mojor increoses in worldwide trode qnd exchonges in on

increqsingly open, integtated ond borderless internotionol economy. There hos been
remqrkoble growth in such trode ond exchonges, not only in trodiiionol internoiionol
trode in goods ond services, bul olso in exchonges of currencies, in copilol
movements, in technology tronsfer, in people moving lhrough internotionol trovel
ond migrotion ond in internolionol flows of informqtion ond ideos.

Definition of 'globolisotion of economic octivity'

It meons the greoter glo6ol connectedness of economic qctivities, thnough
'tronsnotionol lrode, copifol flows ond migrotion. It is olso lhe worldwide process of
homogenizing prices, producfs, woges, toles of interesl ond profits. It is o drive
loword o globolised economic system domanoled by tronsnoiionol corporole lrode
ond finonciol institutions fhol ore not occountoble to dernocrotic processes or
notionol governmenls
Chqrqcferistics of 6lobolisotion

Before the Firsl World Wor lorge cross-border flows of goods, copitol ond people
took ploce. Thqi period of integrotion, like the present one, wos driven by
reductions in trode barriers ond by shorp folls in fronsport costs, thonks to ihe
development of roilwoys ond steomships.

fn controst, todoy's globolisotion is being driven by plunging communicotion cosfs,

creoling new woys fo orgqnise firrns ot q globol level.

6lobolisotion hos f ive chorocteristics;

1. Copitol hos become more globclly mobile, so thot inveslments ere mote
foolloose.
2. The mqrkef hos become more dereguloted, breoking down governmentql ond
politicol confrol.
3. Powerful tronsnotionol firms ore lhe principol ogents of chonge.
4. The noiion-stole or nolionol polificol forces hove been weokened, giving woy to
tronsno-tionol corporotions.
5. Duol trends hove been set in mofionj one trend -ioword more homogeneous globol
condilions os o resuh of widespreod compelition, ond the other lowqrd
enhanced differences os locqlities strive to mointoin their idenlities.

Processes of Globolisotion (the foctors thqi hove contributed to

olobolisotion)

6lobolisotion is the resulf of o numbet of intereloted processes including:

1. The growfh ond relotive importonce of foreign direct invesiment ond

trqnsnqtionol corporolions;
2. The internoiionolisotion of finonciol mqrketsj
3. The coniinuing development of conmunicotion ond tronsporl fechnologyj
4. Deregulotion ond liberolisqtion
5. chonging slructure of firms

1. The growth of fg?eign direct investnent ond the rise of tronsnotionol

corpordtions (TNcs)

The lorgesi source of externol funds to developing counfraes is not developmeni

ossistonce - whether biloterol, muliiloterol, loons, gronts, officiol or other. It is
Ioreign ditecl investment (FDI). FDI represents on enormous supply of finonciol
resources, technology ond jobs ond is ol greot potenfiql benefit to emetging
economies. FDf comes from the privqte sector, from lorge componies willing to
invest qnywhere. These componies, colled "trqns-notionol componies" (TNC5), ore
importont bui occideniol porticiponts in the developnent process.

In 2OO2,lhe most recent yeor for which full doio ore ovoiloble, FDf mqde
lhroughout the world toiolled sorne U5$651billion. While most FDf goes to
developed countries; for developing countries it is by for the lorgest source of
exlernol finonce.

A trqnsnotionol corporotion (TNc) is simply o lorge business orgonisqfion which

operotes qnd hos ownership of ossets in more thon one country. A TNC could
lherelore operote in just two countries. Sometimes the term tronsnotionol
corporotion is used interchongeobly with multinqtionol corporqiion (MNC) but the
lotter reolly inplies thot ihe orgonisotion is operoting in nore thon two couniries.

TNCS ore responsible for o lorge petcentage of tofol world employment, producfion
ond trode ond sre lherefore the mojor coniribuior to Foreign Direct Investmeni
(FDI) - plonts, equipment ond property, which is owned by businesses outside iheir
home country.

Eecouse o{ TNC octivity, produci design, engineeting, production, morkeling ond

soles (os well os ossocioted fincncing ond olher business services) hove become
more globolly dispersed, yet increosingly coordinoled ond integrcted.

2. The iniernotionolisotion of finqnciql morkets (finonciol deregulotion)

fn lhe pasl...
In ihe 1960s, bonks ond lhe finonciql seclots wete highly reguloied by notionol
governmenis to ovoid finqnciol crises. Notionol finonciol mqrkets were highly
regulofed by meons of price controls ond product restrictions ond were highly
segmenled by octivily e.g. bonks engoged in certoin finonciol services, securities
houses in others. Neiiher wos ollowed fo perforrn the funciions of the other.
Foreign firns were prohibited from entering ncfionol morkets.Governmenls hqve
been especiolly wory of o foo-reody expqnsion of ihe branches of foreign 6onks ond
insuronce componies.

The requlolory wolls hove been crumbling - even collopsing oltogether in sone coses.
The ropid growth of the Eurodollqr morket outside nolionol regulqtory conirol wos
 cerJoinly one of the mqlor stimuli iowords on in-ternotionol finonciol Systen.Growth
of this mqrkef pui pressure on internotionolisoJion of finonce, leading lo gteotet
deregulotion ond even more pervosive internotionolisotion. Iiwos rcinforced 6y lhe
qdvoncements in telecommunicotions ond infornotion technologies, discussed
eqrlier, which mode possible the internotionolisotion of finonciol ironsoclions.

Deregulotion hos been oimed qt primqrily three oreos:-

o)The opening of new geogrophicol morkets
b)The provision of new finonciol products
c)Chonges in the woy in which prices of finonciol services qre se.t.

Exa nple s of de regulafion'

Msjor deregulotion hos occurred in oll the mojor economiesl

(i) A series of chonges in the U5 hqs both eosed the entry of foreign bonks inlo
ihe domesiic morket ond ollowed fqcilitoted the exponsion of US bonks
overseos

(ii) In the UK the 'Big Bong' of OcJober 1986 removed the borriers which
previously existed between bonks ond securities houses ond ollowed the entry
of foraign firms into the slock Exchonge.

(iiD In Fronce the 'Little Bang' of 1987 groduolly opened up the French Slock
Exchonge to ouisiders ond to foreign ond donestic bonks.

3. Advoncemenis in lechnology

The processes of
economic alobolisolion hqve one fundqmeniol reguirement: the
developnent of tronsportotion ond communicolions technologies ihot overcome the
frictions of spoce qnd iime. Technologicol odvonces hqve significontly lowered the
costs of ironsportqtion qnd communicotion ond dromolicolly lowered the costs of
doto processing ond informoJion storoge ond ?elrieval. fhe lolter stems from
developments over ihe lost lew decodes in elecfronics, especiolly ihe microchip ond
conputer revolutions. Electronic moil, the Iniernei, cnd the World Wide Web arc
some of the monifeslotions of this new technology.

i. Commqnicotions lechnology
Communicoiions qre the meons whereby informotion is trqnsmitted from ploce lo
ploce in fhe form of ideos, insfructions, imdges efc. fiwos not long before the
telegroph industry went infernotionol, leoding to on unprecedented level of virtuolly
instonfoneous contnunicotion ocro55 greqt dastonces.
Two innovotions hove been especiolly significont in the development of the globol
economyi solellite conmunicotions ond opiicol fibres technoloqies.

Satellile lechnology nevolutionolised globol comrnunicotions from the mid-1960s

when the Eorly Bird or Intelsot I sotellite wqs lqunched. It mode possible of the
neor-instontoneous teception of informolion qlmost qs soon os the informotion is
produced. fi ollows simuhoneous telephone conversotions ond felevisuol tronsfers,
fociliioting the coordinolion of cqpitol occunulotion in diverse locotions qround ihe
world

Optical fibre fechnology, first developed in the 1970s in the UsA, hos o huge
corrying copocity ond is oble io ironsmil informotion ot very high speeds with high
signol strength. The geogrophicol spreod of opticol fibres hos increosed to include
Europe, Jopon, Middle Eqsi, fndio ond Soulheost Asio. The copocity of oceonic
cobles hqs gteatly incteosed such thol informotion con be ironsmitted ot o rote of
60006bps befween U5-Europe. Since 7993, coble sysiems hove overloken sqfellite
systems in lhe ironsmission of voice froffic qcross the Ailoniic.

l
l
l

The improved lechnoloqy hos olso meont thot lhe trqnsfer of informoiion becomes
more cost-effacient.

The Infemet (its role in globalisafion)

The pioneeting thinker obout the medic, Morsholl Mcluhqn, coined the term 'ihe
globol villoge' in the 1960s lo express his belief thot eleclrcnic communicoiion
would unite ihe world- The odvent of the Internet The odvent of ihe intetnel over
the post 10 yeors hos porolleled lhe emergence of globolisotion os o concepf.
Alihough the Internet is tronsmilted olong troditionol fibre ond sotellite
technology, innovotions in cyberspoce such qs Skype ond web-com hove mode
cornmunicotions ocro55 for removed territories even mote economicql. Within fhe
spoce of just o few yeors, these developnents in the communicotions medio hove
been joined 6y on even more revolutionory technalogy thol provides the potential
fot inferaclive communicotions on o globol basis. The groph below (ftntng the
spread of technologies) shows, odvcncement in communicotions technologies
occurred ot such on unprecedenled tole thot it only took 4 yeors from ihe
Internet's first estoblishment to reoch 50 million users.

Timing the Spread of Technologies

,E 'O
6

Gr.lph by Benjamin Holt, Jul) 1999

Soufte: E0nomirt

-lo gorn occess

Mony wilhjn developing coLrntries see the infernet os on opporlunity
io knowledge ond services from oround the world in o woy ihoi would hove been
unimqgindble previously. Internel k,osks, mostly focilitoting emoil with overseos
relotives, for exomple, ore springing up in nony ports of Africo.

The inlernet moy olso focilitote opporlunities for economic development in

indusiries such os tourism.

The internet ond technologies such os tnobile telephony ollow develoPing counlries
to leqpfrog steps in their development of infroslruclure. A poor lond line telephone
 systern in the Philippines, for exomple, is being rqpidly bypossed by mobile phones
wilh internet occess.

6lobolazqtion hos drosticolly improved occess of technologicol lolecomers io

odvonced technologies ond, lo fhe exient thot technologicol upgroding is imPortoni
for developmenl, ii provides o unique opporiunity for low-income countries to roise
per copifo income. Reseorch shows thoi imProved qccess to technology imports is
improvinq the demond for skilled lobor in mony low-income countries.

ii. Tronsportotionlechnology
Tronsporiolion systems refer to the meqns whereby tongible entiiies e.9. humon
beings, goods ate ttonsferted from ploce io ploce. Molor breckihroughs in
'tronsporf otion sysf ems include:-
. Steam engine
. Use of iron ond steel for tronsportotion vessels
. Link of overlond ond oceonic tronsportotion (e.9. fhe cutting of the conols
ol 5uez ond Ponomo)
r Roilwoy ond sfeomship
. commerciol let oircrofi
. Contoinerisoiion (on innovotion thot simplified tronsshipnent of fteighl
from one mode of tronsportotion io onother, increosed ihe security of
shipmenls, and greotly reduced ihe cost ond tine involved in moving
freighl over long dislonces)

These innovotions lronslofe into cosi sovings. The nel effect is thot the world
seems to become o smoller ploce becouse ihe seporotion beiween Ploces, meqsure in
time, becomes smollet.Ihe effect is known os fime-spoce compression.

4. Spreod of Liberolisoiion

The introduction of liberolisotion policies qcross the developing world ushered in

lhe forces of qlobolisction. Liberolisotion tefets to o decreose in (usuolly) the
intervention of the state/govetnmenf in poriiculor oreqs of sociol or economic
policy.

i. Economicliberolisotion
Economic liberqlisotion is o term used to tefer fo o comprehensive progrom of
economic policies desiqned to dereguloie notionol economies. Economic liberolisqfion
morks o move owoy from high levels of government involvemenl ond regulotion of
the econorny, consideroble stqte ownership of infrosiructure ond troding oclivilies,
ond high toriff profection of internolly monufoctured goods through impori
 substiiuiion iowords low levels of governmeni involvement in, ond regulotion of the
economy.

Strqtegies to liberolise economies hove included: reducing the fiscql deficit,

broodening of the tox bose, deflotion policies, lobour morket dereguloiion,
increasing efliciency in the econorny ond corporotisoiion, then selling off of
governmen-t ossets. Economic liberqlisotion is o meons to bring oboui globol morkels
os it breoks down institutionol borriers to free trode.

. Trqde Liberolisotion
The moin instiiuiions, which hove been leoding ihe process towqrds trode
liberolisotion, ore the Inlernotionol Monetory Fund (Ir[F) ond lhe World Bonk os
well os the World Trode Orgonizotion (WTO). The fMF ond World Bonk ore seen
moinly os lending instilulions. The WTO is however the rnoin orgonizotion
o\etseeing the process of trode liberolizotion, erodicoting trode borriers ond slop
compef i iive irode policies.

The rotionole behind trode liberqlizqtion suggests thoi the eliminqfion of borriers
'fo frode, the dismonfling of ptoteclive regimes ond the removol of government
control over lhe morkef will fuel competition. This competition, it is orgued, will in
turn generqte efficiency ond productivity os firns try to ensure their survivql in
the morket place. Thetefore componies or sectors thot foil in this competiiive
environmenf ore soid to do so becquse they ore bosicolly inefficient ond weok.

5. Chonging structure of firms

A fifth reoson forglobolisoiion hos been chonges in insfitutions, where

orgonisolions hove o wider reoch, due in porf, to iechnologicol chonges ond to the
more wide-ronging horizons of their monqgers, who hove been empowered by
odvqnces in comnunicotions. Thus, corporqiions thot hod been mqinly focused on o
locol morket hqve extended lheir rcnge in ierms of morkets ond production
focilities to o nqtionol, multinolionol ond internqtionol or even globol reoch. These
chonges in industriql sfructure hove led to increoses in the power, profits ond
productivity of those firms thot con choose omong mony notions for their sources
of moteriols, producfion focilities ond morkets, quickly qdjusting io chonging morket
condifions. Viriuolly every mojor notionol or internotionol entetptise hos such o
structure or relies on subsidiories or strqiegic ollionces lo obtoin o comporoble
degree of influence and flexibility.
ImDqcf of Globolisotion on the World Economv

1. Growth of foreign direct investmenl

One mojor impoct is lhe growih ol loreign direct investmeni (FDI) ot o Prodigious
rqte, one ihot is much greqter thon ihe growth in world irode. Such investmeni
ploys o key role in fechnology tronsfer, in industriol resfructuring, ond in ihe
formoiion of globol enterprises, oll of which hove mojor impocls oi the notionol
level

2. Increosing competition between countries

Globqlizotion hos led to growing competilion on o globol bosis. While sorne
individuols ond orgonisotions feor competilion, there qre mony beneficiol effects ol
competiiion lhol cqn increose production or efficiency. Competifion ond the
widening of morkets cqn leod to speciolizqtion ond the division of lqbour, qs
discussed by Adom Smith ond oiher eorly economists writing on the 5enefits of o
rnorkei sysiem. Speciolizqtion ond the division of lobour, with their irnplicotions for
increoses in production, now exist not just in o nqtion but on o worldwide bosis.

3. 'Shrinkoge of dislonce'
Conodion qcodemic Morsholl McLuhqn used ihe term'globol villoge' to describe the
breokdown of spotiol borriers qround the world. McLuhon orgued lhof the
similorities between plqces were greoler lhon lhe dilferences between them, ond
thof much of the world hod been cought up in the sone economic, sociol ond culfurol
processes. He suggested thot economic octivities operoted ot o globol scole ond
thot ofher scoles wete less importont.
'ecoming
Technologicol chonges in tronsport, communicolion ond closer integrotion of
producls qnd finonciol morkets ocross the world hove occeletoled this process of
globol shrinkoge. Alihough lhe world hos indeed shrunk in relotive letms, we need
lo be owore ihot such shrinkoge hos been ond continues to be highly uneven.

4. spotiol division of lhe globol economy

At o crude level of onqlysis, ii is possible 1o diff ercntiote between two groups:
(i) The highly skilled, highly poid decision-moking, teseorch ond monogeriol
occupotions. Ai o globol scole, these occupotions ore locqfed in MEDcs. At o
nqfionol level, ihese ore concentroted in the econornic core tegions of lhe
country.
(ii) The unskilled poorly poid ossembly occupotions. Assenbly produclion is
locoied in LEDCs thot offer low lqbour cosis. At o notionol level lhese
occupotions ore locoted in lhe cheop peripherol Ports.

5. Increosed mobility qnd flexibiliiy

The drive for ony compony or orgonisotion io compete on o more "globol"
internoiionol morket, hos led io increosed mobility of monPower, of professionol
compe.fences ond resources (like mobilify of finonciol resources). Geogrophicol
mobiliiy is the mosi obvious focet. However, it is importont olso noi to forgel other
dimensions of mobility: professionol or iob mobilify, trons-disciplinory mobility,
iechnologicol mobiliiy etc. rn o.iher words, mobility con be linked with rneniol
flexibilaty ond ihus, with innovqtion.

6. Spotiol interdependence
Events ond process in one coun-try impoct on thot els ewhere in the world, hence,
ollowing for shoring of ideos, iechnology ond innovotions.

7. Accentuotion of regionol disporilies

Dcs ond NICS hsve \enefiled from globol irode ond hove becone more powerful
ond weolthy. yet, inveslment is selective. This meons ihoi LDC5 ond mony Africon
LEDC' teceive very liftle benefits from globol investmeni becouse they hove less to
offer poteniiol investors.

Globolisoiion olso reinforces uneven development within couniries - investment is

ofien concentroted in urbcn oreos (core regions). This leods to inqeose in rurql io
urbon migrotion with oll the problerns of ropid urbon growth, ond ot the some tirne
reinforces the lock of invesimenl ;n rurol oreos (PeriPhery regions).