Select Committee on Treasury Fourteenth Report


The concept of globalisation

4. Globalisation is a highly-contested concept.[8] It is a term used in the political, academic and media spheres to refer to very different global trends and occurrences. With respect to the United Kingdom, globalisation is associated with developments as varied as the consolidation of London's position as a global financial centre, the scaling-down of the manufacturing industry, the outsourcing of services to India and immigration from central and eastern Europe.[9] Globalisation attracts a wide range of concerns and opposition, often on cultural as well as economic grounds.[10] Globalisation as a concept has been closely associated with concerns about "Americanisation" and the perceived role of multinational businesses. The evidence we received placed more emphasis on movements of people, goods and capital than on the role of multi-national businesses, and highlighted the roles of emerging economies rather than that of the United States of America.[11]

5. Professor Sen rightly drew our attention to the interdependence between globalisation as an economic concept and a range of wider issues, including social and political issues, the question of global fairness and the environmental challenge.[12] We accept the importance of this interdependence, and we explore some elements of that interdependence in this Report. Nevertheless, for the purposes of the analysis in this Report, we have adopted a relatively narrow and essentially economic definition of globalisation as referring to the global integration of national markets—involving an increase in the growth of trade in goods and services, and increases in the mobility of capital and labour flows across national frontiers.

The drivers of globalisation

6. Globalisation is not a new phenomenon. In evidence to us, Mr Stephen King of HSBC Bank plc described globalisation as "a feature of the economic landscape for centuries … [which] occurs in waves with rapid advances interrupted by sometimes painful reverses".[13] One such painful reversal of globalisation occurred after the First World War, when protectionist measures contributed to the dramatic decline in the ratio of world trade to output, from 21% in 1913 to 9% in 1938.[14] The current era of globalisation can be said to have commenced after the Second World War, when increased levels of co-operation between nations led to an expansion of trade and, subsequently, of capital mobility. Mr Martin Wolf of The Financial Times described this current era as the second era of globalisation to take place in the last century or so, with the first era having occurred between the mid to late nineteenth century and 1914.[15] The current era of globalisation has been characterised by rapid increases in capital mobility, a sustained expansion of trade and, in some parts of the world, an increase in labour mobility as outlined below:

  • Capital mobility: Flows of capital have a crucial role to play in driving globalisation, and Foreign Direct Investment (FDI) flows have increased markedly in recent years, growing by an average of 13% per annum in the period between 1990 and 1997 and accelerating to grow at an average of 50% per annum from 1998 to 2000, largely as a result of substantial cross-border mergers and acquisitions activity.[16]
  • Trade: The reduction in trade barriers since the General Agreement on Tariffs and Trade (GATT) in 1947 led to dramatic increases in global trade.[17] Imports and exports have risen from 45% of the United Kingdom's Gross Domestic Product in 1950 to 57% in 2005.[18]
  • Labour mobility: A crucial role in promoting globalisation can be played by labour mobility across the world. Mass migration was a key characteristic of the previous era of globalisation in the late nineteenth and early twentieth centuries. During the 1890s, the inflows of people into the USA were equal to 9% of the initial population: the equivalent today would be a movement of 25 million people.[19] In the current era of globalisation the largest movements of people tend to have been movements of refugees between developing countries. The exceptions to this are the movement of Mexicans (largely illegal) into the United States and the movement of labour within the European Union.[20]

The balance between these characteristics has varied in different eras of globalisation. For example, it was suggested to us that the increase in mobility of capital is more prevalent than the increase in the mobility of labour in the current era of globalisation.[21]

7. Two main drivers of globalisation were identified during our inquiry:

  • Policy change: political developments, such as the formation of the European Union and the political realignments following the collapse of the Soviet Union, have opened up borders to movements of people and goods.[22]
  • Technological innovation: developments in technology can drive globalisation, for example by reducing the costs of transport and communication and making it far easier for individuals and organisations to conduct transactions across vast physical distances.[23] The role of technology has been very much to the fore in recent years, facilitating the development of what has been termed "a 'weightless', information-knowledge-based, service-centred sector of the economy".[24]

8   Ev 165 Back

9   Ev 97, 131, 140, 149, 156 Back

10   J Stiglitz, Making Globalisation Work, 2006, p 7 Back

11   Qq 3, 10, 322-323 Back

12   Q 318 Back

13   Ev 131 Back

14   HM Treasury, Long-term global economic challenges and opportunities for the UK, December 2004, (hereafter Long-term global economic challenges), para 2.5, p 9 Back

15   Q 54 Back

16   Long-term global economic challenges, para 2.13, p 12 Back

17   Ibid., para 2.8, p 11 Back

18   Office for National Statistics, data series YBHA, IKBH, IKBI Back

19   M Wolf, Why globalisation works, 2004, p 116 Back

20   Ibid., p 117 Back

21   Ev 122. See also M Wolf, Why globalisation works, pp 116-117 Back

22   Ev 122 Back

23   Goldman Sachs, Portfolio Strategy, The Globology Revolution, Globalization, technology and BRICs - structural changes and investment opportunities, May 2006, pp 13-14 Back

24   Ev 165-166 Back

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