Economic Impact of Globalisation

Characteristics of Economic Globalisation include:

• Increase in free trade

• Increase in global labour flows

• Increase in capital flows

• Increased growth of Trans-National Companies (TNCs)

• High integration of the global trade cycle

• Advancement of communications and transport sectors

• Reduction of barriers between countries, “dissolution of borders”

Economic Impact of Globalisation Trends

The UK has one of the world's largest economies, making it highly interconnected with the rest of the world. As the economy grows further, the UK is trying to become more economically, environmentally and socially sustainable. Let’s dive deeper into the recent globalisation trends of the UK economy.

Post-1980s Era

Since the 1980s, many of the UK's manufacturing industries have migrated to low-income countries because they can take advantage of cheaper labour and fewer costs, thus making businesses more profitable. This process of investing money in another country is called “foreign direct investment (FDI)”, and FDI is only possible when multi-lateral companies can invest anywhere in the world without any restrictions or barriers. This phenomenon is called “free trade”.

Fig. 2: D. Napier & Son Ltd. 'Aero Engine in the Making', England, circa 1918

Post-Industrial Era

As a result of many UK industries moving abroad, the UK economy was able to transform from a predominantly “manufacturing” economy into a “service-based” or “tertiary” economy, which is an economy that is mainly focused on the provision of services rather than the production and manufacture of goods. These services can include building infrastructures such as roads and buildings, providing healthcare (doctors, nurses and mental health therapists.), providing catering services (such as restaurants, take-outs and cafes) and transportation services (such as bus drivers, taxi drivers and train operators).

Fig. 3: Delivery service in action on a foggy December morning.

Moreover, the UK economy was also able to dominate itself in the “quaternary” or “knowledge” sector which consists of industries that are based on human knowledge and involve activities within the realm of technology, advanced research and development, financial planning, and information and data analytics. The boom of this industry can be accredited to the rise in literacy levels in the UK, giving rise to a highly-educated workforce that can work and contribute to global industries.

Economic Impact of Globalisation Costs & Benefits

Let's compare the benefits and costs of the impact of globalisation on the economy!

Economic Impact of Globalisation Risks

Looking into the current and future globalisation trends, here are some potential risks that come with such trends.

Economic Inequality

Globalisation can accelerate income disparities and inequality between highly educated and highly skilled workers and the country's less educated and unskilled workers. ⁴ This means that unskilled workers have to face lower wages and their livelihoods are constantly threatened by globalisation. Unskilled workers also have less negotiating power in terms of wages, because their job can simply be done abroad by a worker accepting half the wages. Due to technological advancements, more and more jobs become automated every day, and workers with those specific niche skills are no longer wanted.

Environmental Damage

Traditional industries set up in the UK and those set up by TNCs can often accelerate environmental damage by increasing deforestation and air and water pollution around the country. The UK government is now trying to make modern industrial development as environmentally and economically sustainable as possible.

Fig. 4: Environmental pollution caused by industries

Economic Impact of Globalisation Example

To better understand the reality of the economic inequality exacerbated by globalisation, we can take a look at the case of the North/South Divide in the UK.

The North/South Divide

Studies have shown that there has long been an income divide between the northern and southern cities of the UK. This happened because while the UK was globalising, most of the new businesses were set up in the South. This created a wealth disparity because the south experienced lower wages, higher unemployment and lower standards of living compared to the north

According to the Centre for Cities, in 2015, for every 12 jobs created in the south since 2004, only one job was created elsewhere in the UK. For example, while cities like London and Milton Keynes had seen a surge in jobs available on the market, cities like Blackpool and Hull in the north have actually seen a decline.

Fig. 5: Map showing the north-south divide in the UK