Introduction to Globalisation


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  • This afternoon I will be talking about developments in the world economy, about globalisation and how the seismic changes in the balance of power in the global economy are affecting the UK now and will do so in the future. We will consider what globalisation means and also some of the main factors driving this process. Globalisation is not new, but the current wave of integration between countries is changing the landscape of the world economy. Enormous shifts are happening now, they are with us today , not something we might have to think about in five, ten or fifteen years time. As students of business and economics, there has never been a better time to study the subject; you are in the middle of an economic revolution and the world economy is going to look radically different in the near future, the British economy has to be up for the challenge!
  • I like this quote from Donald Rumsfeld! There are so many things that we simply do not know enough about, but which conceivably will change the patterns of our lives as workers, consumers and families for ever. What are the next killer applications of internet technology? Where will our energy come from in the next fifty years? How will population (demographic) change alter the balance of power in the world economy. Globalisation is creating many uncertainties It is important to be clear about what we do know I will start my talk with an outline of the globalisation of today before projecting forward into the future.
  • Here is the outline of my talk. Firstly we will consider what we mean by globalisation, there are many different perspectives and a huge gulf between those who believe that globalisation is a force for good in the world economic and political system, and those who are much more cynical about the supposed benefits. I am excited by globalisation, not least the opportunities for connection and collaboration around the world. There are large risks in the current wave of globalisation, and we must be active in making sure that the benefits reach as many people as possible. But the process is more or less unstoppable and we cannot hide from it. Countries, industries and businesses must be competitive.
  • So what do we mean by globalisation? How would you explain the term? It can mean different things to different people? Ideas please!
  • A coffee multinational! How many people have a positive view on Starbucks? And how many are sick of the sight of a Starbucks on their high street? Why?
  • Globalisation divides opinion around the world What are the main arguments of the anti globalisation protestors shown here?
  • Which country is shown here? Was Napoleon right? “ Let China sleep for when she awakes, she will shake the world” Everybody is talking about China at the moment – but who might be the other countries that emerge as major economic forces in the next ten, twenty and thirty years? Suggestions please!
  • I like these three definitions of globalisation, there is some overlap but they get across what I feel is the essential meaning of the term. In a nutshell, globalisation is the coming together of the global economy and a rise in the inter-connections between nations. What happens in India, Indonesia and Ireland affects us in the UK. The mortgage interest rate that your parents pay is affected by what is happening in the Chinese economy.
  • Look at the super-charged growth of world trade in the last fifteen years, trade has risen much faster than production which means that trade as a share of our national income has also risen, we are becoming ever more integrated into the world economy. To take one statistic in isolation – In 1960 global trade in goods and services measured as a share of global GDP was 24% Last year the percentage had risen to 50% And for developing countries, that percentage has climbed from 20% in 1970 to over 60% of GDP in 2004 Of course some regions have not done as well – notably Africa. There is much to do to bring more African nations fully into the global trading system on a fair and sustainable basis.
  • Thomas Friedman applies his journalistic touch to the idea of globalisation!
  • Now we move onto some of the forces or the factors that are driving the process of globalisation
  • What is driving globalisation? I would suggest three key factors Firstly technological change; secondly, the liberalisation of markets for goods, services and capital and the end of communism which has brought about a shift towards market forces as a means of allocating scarce resources. Thirdly the impact of containerisation and other processes as a means of transporting goods around the global economy. Perhaps we can add a fourth driver of globalisation, the increasing flows of labour within and between countries. Labour migration is a hugely important topic and one we may return to in questions at the end.
  • The world is getting smaller, it is becoming cheaper to communicate, to connect and to compete with each other. Cheap international phone calls, the speed and convenience of the internet; take-off for low cost airlines This cost index chart shows how the costs of communicating has collapsed
  • Let us consider briefly how globalisation is changing the league table of the world’s largest economies. The data in these tables is taken from an analysis of emerging countries by economists at Goldman Sachs. Their analysis has become widely quoted. Here is the ranking of national output by GDP in 2003, just three years ago. Let us fast forward to 2025, when Wayne Rooney is Manager of England and Watford have just celebrated back to back wins in the European Champions Super League. Where will the UK be in this list? Where might China be?
  • So the UK drops a couple of places China overtakes four countries and takes second spot. Now go forward another twenty five years Watford FC have suffered a fall from grace and they are now languishing in the lower reaches of Nationwide South, they have been without a manager for over a decade. Wayne Rooney has just completed for fourteenth volume of his autobiography Who will fill the top four places in 2050?
  • A health warning – these are projections And projections this far out are subject to huge uncertainty. The dreams of a country are often far removed from the reality. But the Goldman Sachs figures are produced on the back of some pretty impressive analysis and we will touch on some of their ideas in the next few minutes For the moment, it might be worth considering for a few seconds, how the landscape of the world economy will change.
  • The BRIC countries are Brazil, Russia, India and China The team at Goldman Sachs believes that they will quickly becoming dominant forces in the global economy because they have, in most par, the conditions required for sustained growth and development. And also because they have “critical mass”, they are large enough to make a huge difference to the world economy. There are plenty of smaller countries enjoying fast growth at the moment, but many of them are really too small to be of significance to the overall path for the global economy.
  • A bit of background on the BRICs over the last few years. Growth: BRIC countries have contributed nearly a third of global economic growth since the turn of the decade, they have been a key “motor” for higher output Trade: BRICs have doubled their share of global trade since 2001, global trade has increased, but market share is a zero sum game, other countries have seen their share decline Gold and foreign currency: BRIC countries are running large trade surpluses and therefore building up reserves of gold and foreign currency Investment: There have been huge flows of foreign investment into these countries
  • Everybody is talking about China but maybe we are ignoring the huge growth potential of India and other parts of the sub-continent? Let us make a quick comparison of some economic figures for the two countries. India: Population sweet spot is later, China’s working age population forecast to fall, partly the result of their one child policy Chinese economy, a huge amount of capital investment as a share of national income, what about its quality? Too much borrowing?
  • Chinese economic growth has been racing ahead The rule of 72 is interesting here – divide 72 by the growth rate for the number of years it takes for a country’s national output to double Let us do some simple calculations for the USA, the UK and for China!
  • As incomes rise, so does the demand for basic consumer durables
  • Rapid export led growth – dominated by manufactured products – has been at the heart of China’s rapid advance
  • A little bit of background on creating the right environment for economic growth and development in a country I will keep this non-technical We are looking here at the platform that is needed for a country to achieve a sustained rise in national output over time and to remain competitive in the global economy
  • Economic stability: Maintaining low inflation, government not borrowing too much, openness to investment, investment in infrastructure Political conditions: political stability; the rule of law; corruption – good governance Human capital: investment in education; skills; improvements in life expectancy and also the years of healthy life expectancy – affects productivity Technological capabilities: this includes the take up o the internet; the size of the telecommunications sector and the penetration of PCs
  • The most developed countries are best at maintaining the conditions for growth – more likely to achieve stable growth and meet their potential as economies BRICs are all in the top half of the rankings covered by the calculations of the Goldman Sachs team Consider countries right at the bottom Government failure on an enormous and devastating scale in countries such as Zimbabwe
  • We now consider briefly the impact that globalisation is having on the UK economy, as with all debates there are positives and negatives, opportunities and threats
  • Some what does globalisation mean for the UK?
  • A good example of out sourcing is by Marks and Spencer. In the last year alone there has been a ten per cent rise in the out-sourcing of clothing from the far east in 2005 The business motives for outsourcing are pretty clear and in many cases compelling. My own web business (Tutor2u) is an example of this.
  • Introduction to Globalisation

    1. 1. Globalisation and the British Economy Mr. Bentley, Head of Humanities, DBS
    2. 2. What do we really know? As we know, there are known knowns; there are the things we know we know. We also know there are known unknowns; that is to say, we know there are some things we know we do not know. But there are also unknown unknowns - the ones we don’t know we don’t know. Donald Rumsfeld, US Defence Secretary, 2003
    3. 3. Globalisation & Britain <ul><li>Perspectives on globalisation </li></ul><ul><li>The drivers of globalisation </li></ul><ul><li>The rise of the BRICs </li></ul><ul><li>Growth environment scores </li></ul><ul><li>How is Britain affected? </li></ul><ul><li>Winners and losers from globalisation </li></ul><ul><li>Remaining competitive in a globalized world </li></ul>
    4. 4. What is globalisation?
    5. 5. What is globalisation?
    6. 6. Anti-globalisation protests
    7. 8. What is Globalization? <ul><li>Globalisation is the integration of economies through markets across frontiers (Martin Wolf) </li></ul><ul><li>Globalisation is the “death of distance” – (Frances Cairncross) </li></ul><ul><li>“ The international integration of markets for goods, labour and capital” (Niall Ferguson, Historian) </li></ul>
    8. 9. The expansion of world trade
    9. 10. “ The World is Flat” “ The ability to click, connect and collaborate” (Thomas Friedman)
    10. 11. Forces driving globalisation
    11. 12. Drivers of globalisation
    12. 13. Technology and the death of distance
    13. 14. Global shift Brazil India Italy China France UK Germany Japan USA Largest economies in 2003
    14. 15. Brazil India Italy China France UK Germany Japan USA Largest economies in 2003 France Russia South Korea UK India Germany Japan China USA Largest economies in 2025
    15. 16. Brazil India Italy China France UK Germany Japan USA Largest economies in 2003 Russia France Germany Russia UK South Korea Mexico UK Brazil India Japan Germany India Japan USA China China USA Largest economies in 2050 Largest economies in 2025
    16. 17. The BRICs New central players in the world economy
    17. 18. Who are the BRICs? <ul><li>Brazil </li></ul><ul><li>Russia </li></ul><ul><li>India </li></ul><ul><li>China </li></ul>
    18. 19. The rise of the BRICs – stat attack <ul><li>2000-05: BRICs contributed 28% of global economic growth </li></ul><ul><li>2005: BRICs had 15% share of global trade, double the level of 2001 </li></ul><ul><li>2005: BRICs held 30% of global reserves of gold and foreign currency </li></ul><ul><li>2005: BRICs received 15% of global foreign direct investment and took 3% of FDI outflows </li></ul><ul><li>Since 2003, their stocks markets have increased by approximately 150% </li></ul>
    19. 20. Comparing China and India Sources: World Bank Development Report, 2005 86.0 65.4 Literacy rate (% of population) 9.7 32.3 Service exports (% of total) 86.0 49.7 Manufacturing exports (% of total) 53.6 3.6 Foreign direct investment ($bn) 43.9 23.3 Gross investment (% of GDP) 1.4 1.6 2050 population (billions) 1.3 1.0 2003 population (billions) China India Data is for 2003 unless stated
    20. 21. China’s rapid march forward
    21. 22. Cameras and Colour TVs
    22. 23. China’s export performance
    23. 24. Growth environment scores Getting the conditions right
    24. 25. Conditions for achieving growth GES Economic stability Political conditions Technological capabilities Human capital
    25. 26. GES scores across countries <ul><li>High scores / ranking </li></ul><ul><li>Sweden (3) </li></ul><ul><li>USA (10) </li></ul><ul><li>Germany (16) </li></ul><ul><li>UK (21) </li></ul><ul><li>China (53) </li></ul><ul><li>Thailand (57) </li></ul><ul><li>Russia (81) </li></ul><ul><li>Brazil (95) </li></ul><ul><li>India (97) </li></ul><ul><li>Low scores / ranking </li></ul><ul><li>Zimbabwe (170) </li></ul><ul><li>Burundi (169) </li></ul><ul><li>Liberia (168) </li></ul><ul><li>Afghanistan (167) </li></ul><ul><li>Nigeria (147) </li></ul><ul><li>Pakistan (126) </li></ul><ul><li>Indonesia (114) </li></ul><ul><li>Turkey (112) </li></ul>
    26. 27. How does globalisation affect the UK economy?
    27. 28. Globalisation and the UK <ul><li>The UK is a highly open economy </li></ul><ul><li>Strong trade links with other countries </li></ul><ul><li>Open financial (capital) markets </li></ul><ul><ul><li>Bonds </li></ul></ul><ul><ul><li>Equities </li></ul></ul><ul><ul><li>Property </li></ul></ul><ul><li>We have a fairly open labour market – tolerant of inflows of workers from overseas </li></ul><ul><li>Globalisation creates opportunities and threats </li></ul><ul><li>The key is to be internationally competitive </li></ul>
    28. 29. Opportunities for the UK <ul><li>Cheaper imports from emerging market countries </li></ul><ul><ul><li>Keeps down inflation and interest rates </li></ul></ul><ul><ul><li>Boosts consumer welfare </li></ul></ul><ul><li>Potential for increasing export sales </li></ul><ul><ul><li>Which markets are we best at? </li></ul></ul><ul><li>Opportunities for overseas investment </li></ul><ul><ul><li>Mergers and takeovers </li></ul></ul><ul><ul><li>Direct investment (e.g. new factories overseas; out-sourcing) </li></ul></ul><ul><li>Opportunities arising from migration of labour </li></ul><ul><li>Opportunities of rapid technological change </li></ul>
    29. 30. Out-sourcing: Marks & Spencer Sourcing of clothes by region (%) 04/05 05/06 Indian sub-cont Far East UK & Europe
    30. 31. A world of low inflation
    31. 32. Threats for the UK economy <ul><li>Threats to our manufacturing industries </li></ul><ul><ul><li>Low cost competition </li></ul></ul><ul><ul><li>Lost jobs from out-sourcing </li></ul></ul><ul><li>Threats to jobs in service sector industries </li></ul><ul><li>Structural unemployment </li></ul><ul><li>May cause a widening of the rich-poor divide </li></ul><ul><li>Social and economic tensions from migration </li></ul><ul><li>Threats to the global environment – affects us all </li></ul><ul><li>Inflationary risks from higher energy prices </li></ul>
    32. 33. Global oil prices
    33. 34. World Oil Demand - Projections Source: Goldman Sachs, “The World and the BRICs dream” March 2006 18 BRICs 3 Brazil 3 India 3 Russia 9 China 6 Japan 25 USA 2005 Per cent of total
    34. 35. World Oil Demand - Projections Source: Goldman Sachs, “The World and the BRICs dream” March 2006 31 18 BRICs 4 3 Brazil 7 3 India 4 3 Russia 16 9 China 4 6 Japan 19 25 USA 2025 2005 Per cent of total
    35. 36. Cars owned per 1000 people Source: Goldman Sachs, “The World and the BRICs dream” March 2006 189 140 Russia 150 137 Brazil 8 5 India 15 7 China 503 480 USA 2005 2000
    36. 37. Cars owned per 1000 people Source: Goldman Sachs, “The World and the BRICs dream” March 2006 492 189 140 Russia 351 150 137 Brazil 48 8 5 India 137 15 7 China 532 503 480 USA 2025 2005 2000
    37. 38. Gainers and losers in the UK from globalisation Some summary thoughts
    38. 39. Some winners Consumers of low cost imports People with strong cross cultural skills Individuals Businesses with leading global brands Business services Niche high value manufacturers Suppliers of energy and utilities Businesses Potential Winners
    39. 40. Some winners and losers Low skilled workers in tradable sectors Low and medium skilled workers in sectors open to migrant labour Consumers of low cost imports People with strong cross cultural skills Individuals Mass market manufacturers Multinationals without the right local partners and strategies in a global economy Businesses with leading global brands Business services Niche high value manufacturers Suppliers of energy and utilities Businesses Potential Losers Potential Winners
    40. 41. How competitive is the UK? Competing in a global economy
    41. 42. Productivity and jobs
    42. 43. The productivity gap
    43. 44. Volatility of economic growth
    44. 45. Volatility of interest rates
    45. 46. Not enough investment?
    46. 47. Too little research?