The increase in global sourcing can have a considerable effect on more developed countries especially those in Western Europe and the USA. Take the UK, over the last 30 years the employment in the service sector has risen by around 7 million. Service related industries (especially legal and financial) have become our strongest export worldwide. However manufacturing has seen a huge downturn and has almost halved in the same 30 year period. When we look at the reasons for the rapid change in structure for the UK economy it appears that we have lost so many jobs in the manufacturing based industries because we have lost our comparative advantage in this field. Since the development of IT which has meant increased communication and the ability to separate production and management, corporations can exploit the huge workforce in places such as Asia and Eastern Europe. Not only is there a bigger workforce (for labour intensive jobs) but because of the lack of Human Rights, protected working conditions and a minimum wage the cost of labour is made even cheaper.
Although at first glance it appears that this global sourcing is not beneficial for well developed countries as we have lost jobs in manufacturing industries, this is only a problem in the short term. In the UK we saw a huge degree of unemployment in the 1970’s as manufacturing went abroad. However due to high education standards in this country we were able to specialise in service based industries that require these skills. Therefore we have developed a comparative advantage in this field and our employment has gradually but constantly shifted this way to not only secure a low rate of employment but also to increase our GDP per capita as our workforce are generally working in well paid industries. It is important to note that despite our GDP being high this situation has lead to a North-South divide where the North has still not fully recovered from the loss of manufacturing. The south are earning huge amounts and the standard of living is higher than the less well paid North, furthermore as capital is mobile there is a great amount of regional unemployment.
Comparative advantage will mean that individual economies will develop economies of scale in certain industries; they can therefore keep prices low to the world market and produce more for the world market. As different industries in different countries will be in competition to have corporations invest there, this will cause and increase in efficiency. The extent to which this is beneficial is unclear. Although this increased manufacturing means that developing countries are getting an ever increasing amount of trade and FDI the extent to which this is occurring due to exploitation is debatable. For example we buy a huge amount of Coa-Coa from South America sources, recent studies have shown that although a great amount of money goes to the counties little is seen by the farmers who grow it. They receive what is considered by any standards a sub-standard wage and have to work prolonged hours in awful conditions. Although low prices are in the benefit of the consumer, the producers must be remembered as they often do not receive the same social security benefits that we are used to in the West. Furthermore environmental factors are not as much an issue abroad and cheap production can often be at the extent of other negative externalities. Increasingly now interference from the WTO organisation and other pressure groups have meant an increase in working standards throughout the world as well as better environmental controls, and an ever increasing number of consumers are buying fair-trade goods which are monitored to ensure there is no exploitation. Furthermore we have seen increasingly a number of industries such as call centres more abroad to India, these are in no way the cramped conditions that one would expect but comfortable office where the staff are well paid and even receive benefits such as health insurance. Although exploitation can be a problem if trade is unregulated, the extent to which it occurs is decreasing over time. It is important to note that the WTO is dominated by the US, EU, Japan and Canada and these economies have a great amount of power in making the WTO take actions that may not be of benefit to the world in general but will be selfishly motivated.
The increase in competition means that firms in developing countries have to research and develop more advanced methods of production to reduce costs. Research and development in its self an industry that requires a workforce, and as I have mentioned this type of service based industry is often greatly suited to Western countries. Therefore an increase in output for developing countries in manufacturing will lead to a greater output in more developed countries in research and development.
There is a huge advantage in having a globalised economy, in the way where countries like China enter the worldwide market and the WTO (as they did in 2001) and provide the world with a huge amount of consumers. When China joined 1.3 billion more consumers were introduced to the world. However when big well developed countries allow their consumers to buy abroad this can lead to problems with the balance of payments as we have seen recently with a noticeable deficit in the UK economy. Opening up world markets in some areas is not always in the interest of all countries. For instance the EU sees globalisation as a huge threat to its agriculture sector, as if there weren’t huge subsidies and the presence of CAP provided for European farmers, then we would start buying goods such as lamb from countries such as New Zealand. Although this is beneficial for New Zealand and the consumer because agricultural skills are not very transferable, if globalisation and free trade was allowed to occur completely there would be huge unemployment in the European agricultural sector.
Globalisation and the ability mobility of capital have caused considerable problems in many countries. For example when it appeared to Dyson that his UK based corporation was not a efficient as it could be, he quickly relocated outside the UK leaving us with a great amount of regional unemployment in that area. Furthermore footloose capital in developing countries can mean that after a firm uses countries resources and exploits its labour, it then moves on to another country which seems better suited and leaves behind a huge number of unemployed who may have relocated in order to do the job in the first place.
Globalisation is undoubtedly of benefit to the consumer. Comparative advantage, competition and economies of scale will push prices down to the world market. However the extent to which it is good for the producer and countries as a whole is debatable. Although developing countries may experience increased FDI and output in general, this does not necessarily reflect upon what the producer and workers are receiving and often if not protected people can be exploited. Furthermore a country may experience a huge amount of unemployment if an inefficient industry is opened up to the world market and moves abroad. Globalisation will lead to increased efficiency and if properly regulated will develop third world countries. In general if it happens in a sensible and responsible way and corporations act to not exploit workers, then globalisation is of economic benefit to the world.
