The concept of globalisation
4. Globalisation is a highly-contested concept.
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.
Globalisation attracts a wide range of concerns and opposition,
often on cultural as well as economic grounds.
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.
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.
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 marketsinvolving
an increase in the growth of trade in goods and services, and
increases in the mobility of capital and labour flows across national
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
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.
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.
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.
The reduction in trade barriers since the General Agreement on
Tariffs and Trade (GATT) in 1947 led to dramatic increases in
global trade. Imports
and exports have risen from 45% of the United Kingdom's Gross
Domestic Product in 1950 to 57% in 2005.
- 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.
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
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
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
- 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.
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".
8 Ev 165 Back
Ev 97, 131, 140, 149, 156 Back
J Stiglitz, Making Globalisation Work, 2006, p 7 Back
Qq 3, 10, 322-323 Back
Q 318 Back
Ev 131 Back
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
Q 54 Back
Long-term global economic challenges, para 2.13, p 12 Back
Ibid., para 2.8, p 11 Back
Office for National Statistics, data series YBHA, IKBH, IKBI Back
M Wolf, Why globalisation works, 2004, p 116 Back
Ibid., p 117 Back
Ev 122. See also M Wolf, Why globalisation works, pp 116-117 Back
Ev 122 Back
Goldman Sachs, Portfolio Strategy, The Globology Revolution, Globalization,
technology and BRICs - structural changes and investment opportunities,
May 2006, pp 13-14 Back
Ev 165-166 Back