Critically analyse the impact of ‘globalisation’ upon capital, labour and

economic governance.

Globalisation is a predominately post WWII phenomenon which has been

described as ‘a continuous process of increasing cross-border economic

flows, both financial and real, leading to greater economic interdependence

among formerly distinct national economies’ Reinicke (1998, p.7) and the

integration of world economies through reduction of barriers to the movement

of trade, capital, technology and people’ Daniels, Radebaugh and Sullivan

(2009, p.48). It has also been termed as ‘the merging of historically distant

and separate national markets into one huge global marketplace and the

sourcing of goods and services from locations around the globe, taking

advantages of national differences in cost and quality of factors of production’

Hill (2009, p.8). In this sense, globalisation can be seen to have had a

sustained and major impact on the three areas of capital, labour and

economic governance.

Firstly, in terms of capital, globalisation has increasingly opened domestic

financial markets to foreign financial institutions and allowed capital to flow

more easily between countries. In practice, capital can be regarded as the

most internationally mobile factor of production with the main reason for

companies and individuals transferring it, being for financial gain. Between

1974 and 1984 France, Germany, Japan, the UK and the US eliminated

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virtually all of their foreign exchange controls and an almost fully free pattern

of financial relations emerged amongst the advanced industrial states

Reinicke (1998, p.15). Furthermore, the movement of capital has tended to

flow from countries where there is a budget surplus to those where it is

scarcer, for example US to Mexico, which in turn has stimulated higher levels

of bilateral and multi-lateral trade.

In addition, a key driving force of globalisation has been the increasing

development of technological innovation and the speed at which information

can be communicated 24/7 with the internet. In practice this has facilitated the

growth of multi-national companies (MNE’s) and demise of national

companies through the process of accelerated mergers and acquisitions due

to quicker access to commercial information and capital. MNE’s have been

able to use their global presence to move funds from country to country, at

very low cost, seeking more favourable foreign economic conditions in order

to expand sales, acquire resources, diversify their sources of sales and

supplies and minimise competition and costs. In doing so, they adopt differing

modes for conducting international business which include the importing and

exporting of goods and services, foreign direct investment and strategic

alliances with other countries.

The Swedish retailer IKEA has grown into a global brand, operating 230

stores in 33 countries and generating sales of €14.8 billion ($17.7 billion) Hill

(2008, p.408). During the last decade, world trade in merchandise and

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services has increased by an average of 6.5% per annum Kotler et al. (2008,

p.35).

A major facilitator of foreign direct investment (FDI) is the World Bank,

founded in 1944, comprising of 183 countries, which became an arbitrator of

the free market, playing a major role in aiding foreign investment by providing

investment capital and development assistance to developing countries. This

proved vital to MNE’s because it allowed poorer nations to develop their

infrastructure, promoted economic growth and stability, thus improving quality

and quantity of demand. As a result, this global impact on capital can be seen

to have been a benefit to these countries that otherwise would not have being

able to do so. However, on the other hand it has indirectly made them

economically accountable to MNE’s and institutions such as the World Bank

in negotiations on the repayment of loans.

Secondly, in terms of the impact on labour, globalisation has shifted ‘human

capital’ resources across the world, but in doing so has led to inequalities both

within and between countries as MNE’s do not engage in international

business if they can not make sufficient profit. With increased competition,

businesses have had to look at new more efficient ways in which to improve

their products and productivity and a consequence of this relentless search for

growth, profit and accumulation of capital by MNE’s has been the exploitation

of labour and real wages for workers. Figures show that the rate of

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exploitation in the US increased from 156% at the end of WWll, to 302% in the

1980’s and to 456% by the year 2000 Berberoglu (2004, p.4).

The lack of employment protection for workers in developing countries has

also resulted in the exploitation of people in those countries in the form of

cheap labour as MNE’s are able to offer these workers low wages to work

long hours in undesirable conditions, ‘exploiting’ them into accepting low real

wage rates in order to support their families. Globalisation has brought about

job losses in industries under threat from foreign competitors and destroyed

jobs in advanced economies as firms’ outsourced labour abroad in search of

lower wage rates. A case study of ‘Dyson’ showed that the decision to move

production from the UK to Malaysia with the loss of 800 UK jobs was made in

order to save the company from bankruptcy. By moving production overseas,

the company made savings in production costs of around 30%, saving 1,150

jobs that remained in the UK and supported reinvestment into research and

development.

A further good recent example is the way in which multi-national car

manufacturers such as Opel and Ford in response to the recent global

economic downturn have made major decisions about the future location of

production and jobs to the detriment of host countries. This demonstrates that

capital is the primary beneficiary of globalisation but that national sovereignty

and accountability has gradually transferred to MNE shareholders. Therefore,

globalisation can clearly be seen to have had a detrimental impact on labour

and the real wages and employment rights of workers in both developing and

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‘non-parent’ MNE countries, but been a benefit for MNE’s in realising

increased profits for them.

Thirdly, economic governance can be defined as ‘a set of norms and institutions

along which rules are generated to manage the global economy’ Jacobs (2002,

p.1). The institutional and inter-governmental agents for global cooperation in

addition to MNE’s themselves are: World Bank, International Monetary Fund (IMF),

World Trade Organisation (WTO), European Central Bank (ECB), G8 and G20.

As there are differences between the world’s major economies in terms of their

size and their economic system, these institutions are faced with crucial challenges

in assisting member states and governments allocate resources and tackle key

economic issues which affect international business. They must consider the

following features of an economy in order to influence, shape and regulate global

economies : 1) Inflation and its impact on interest rates, exchange rates, the cost

of living, economic confidence and stability of current political system 2) high

unemployment levels which suppress economic growth and create hazardous

business conditions 3) poverty and distribution of income, there is an ever growing

gap between rich and poor nations 4) balance of payments in order to consider

any factors that could result in instability of currency or changes to a government

policy 5) trade surpluses and deficits where countries can under save and over

consume (US).

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A good specific example is the creation in the EU as an institution, the creation of

the single currency and ECB and implementation of the Schengen Agreement

(1985) on relaxing border controls. These have been a collective response to

develop free trade, control inflation and balance of payments, stimulate economic

growth and remove barriers to trade and labour movement between member

countries. Therefore, in the EU context it can be argued that globalisation in

practice has had a differential impact on macro-economic governance within the

EU depending on whether member states have opted in or out of the single

currency.

Previously, agreements on economic governance and trade such as the

General Agreement on Tariffs and Trade (GATT 1947) and WTO (1991)

facilitated access to investment loans as well as negotiated reductions in

trade barriers in an attempt to improve relative prosperity between the

developed and under developed world. The success of GATT was that it

facilitated economic interdependence amongst regions, narrowed the distance

between sovereign nations and subsequently reduced the risk of future war.

With fewer restrictions in place, goods, services and capital were free to flow

amongst the once largely separate national economies which gradually

became globally integrated. However, the WTO can be seen as an obstacle to

free trade due to the protectionism of the major economies such as the US.

In conclusion, it is evident that globalisation has undoubtedly had a major

impact on capital, labour and economic governance and transformed the way

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in which business and trade is undertaken across the world. It has brought

clear benefits for capital with the improved availability of it for investment and

removal of barriers which has led to more free trade and the growth of MNE’s,

but at a cost to both labour and economic governance. Firstly, because of

increased transfer of employment (human capital) from developed to ‘third

world’ countries in order to exploit lower wage rates and more flexible

employment practices which would not be legal or sometimes even safe in

most developed countries and secondly, because national economic

sovereignty is increasingly being ceded to MNE’s and institutional bodies such

as the World Bank, IMF and EU.

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 REFERENCES

Berberoglu, B. (2004) ‘The Impact of Globalisation on Hilton San Francisco &

Eastern Europe and the former Renaissance Parc 55 Hotel,
Soviet Union’ San Francisco, CA, Aug.
Daniels, J. Radebaugh, L. International Business Pearson Prentice Hall, New
& Sullivan, D. (2009). Environments and Operations Jersey.

Hill, C.W.L (2009). Global Business Today McGraw-Hill/Irwin, NY.

Jacobs, D. (2002). ‘Democratising Global Economic New Rules for Global Finance
Governance’ Alternatives to Coalition, Washington, May.
Neoliberalism Conference

Kotler, P. Armstrong, G. Principles of Marketing Pearson Prentice Hall , New

Wong, V. & Saunders, J. Jersey.
(2008)
Reinicke, W.H (1998). Global Public Policy – Brookings Institution Press,
Governing without Government? Washington.

‘Dyson relocates production to Lecture hand out by Mr Robin

South East Asia’ Case study Miller, Oct 2009

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