Ezra Nyambane (08175686) International Production and

Governance

Essay One – Globalisation

Nayyar indicates that the 19th century was a period of laissez faire. The
movement of goods was unhindered and government intervention was minimal.
He also states that these attributes were much more discernable in the third
world. During the first half of the nineteenth century, free trade was practised
only by Britain. The US practised protection throughout the period 1870–1913 as
average tariff levels remained in the range of 40–50%. Free trade however
imposed on the rest of the world through gunboat diplomacy. The stronger
economic powers would force poorer economies into agree favourable terms for
themselves using the threat of their superior military power. Nayyar states that
The reality of trade policy, it would seem, did not mirror the myth of free trade.
The West practised protection wherever necessary, but imposed free trade on
the Third World.

New forms of production played a key role within globalisation in the two
centuries. In the ninetieth century the development of mass production became
one of the driving forces behind globalisation. The production assembly line
which was pioneered by Ford and management practices that were realised by
Taylor introduced ways in which businesses should organise themselves. In the
twentieth century however the development of flexible production systems
forces companies to choose between trade and investment in the ever
expanding global market. The growing sense of outsourcing non key
departments within a company was also a driving force for globalisation in the
twentieth century. IT provided the basis for a country such as India to become a
more economically developed country because of the level of foreign direct
investment outsourcing brings to the country.

Investment in the nineteeth was dominated by European nations. Nayyar states

that in 1914, Britain, Germany and france accounted for $33bm of a total of
$44bn. The distribution of this capital was split halfway between the western
nations and asia, latin America and Africa. Between 1870 and 1914, the share of
British foreign investment going to Europe and the US dropped from 52% to 26%
of the total, whereas the share of Latin America and the British colonies rose
from 33% to 55% of the total. In the twentieth century however the inflows of
investment were more towards the developed countries. Nayyar states that in
2000, industrialised countries absorbed 82% of the inflows of foreign direct
investment in the world economy, whereas developing countries received only
16%.This suggest that the developing counries are far less central to the process
of globalisation. The level of unevenness within the distribution of investments
also suggests that the sectors that are receiving the inflows in the twentieth are
different from the ones that received it in the 19th century. Nayyar indicates that
In 1913, the primary sector accounted for 55% of long-term foreign investment
in the world, while transport, trade and distribution accounted for another 30%;
the manufacturing sector accounted for only 10% and much of this was
concentrated in North America or Europe (Dunning,1983). In 2000, the primary
sector accounted for less than 10% of the stock of foreign direct investment in
the world, while the manufacturing sector accounted for about 35% and the
services sector for the remaining 55%.
Ezra Nyambane (08175686) International Production and
Governance

Nayyar indicates that the late nineteenth centry and early twentieth century
witnesses a significant intergration of international financial markets which
provided a way for investment flows. The cross-national ownership of securities,
including government bonds, reached very high levels during this period. In
1913, for example, foreign securities constituted 59% of all securities traded in
London. International bank lending was also another significant method of
investment with governments and private lenders floating bonds directly on the
stock markers. Investment banks acted as intermidiaries for lending to private
individuals and financial institutions in the developed countries within Europe.

One of the main differences between the two centuries in the level of labour
flows . In the late 19th centry there were no restrictions on the migration of
individuals across national bounderies. Individuals did not really need to have
passports because they would be granted citizenship to another country with
ease. In 1914, the there was a large proportion if international labour migration.
Nayyar states that around 50 million people left Europe, of whom two-thirds went
to the US while the remaining one-third went to Canada, Australia, New Zealand,
South Africa, Argentina and Brazil. The migration of individuals from Europe was
so large that it accounted for 1/8th of the total population within Europe. For
some countries such as Britain, Italy, Spain and Portugal, such migration
constituted 20–40%of their population (Stalker, 1994). But that was not all.
Beginning somewhat earlier, following the abolition of slavery in the British
Empire, about 50 million people left India and China to work as indentured labour
on mines, plantations and construction in Latin America, the Caribbean, Southern
Africa, Southeast Asia and other distant lands (Tinker, 1974; Lewis, 1978). The
destinations were mostly British, Dutch, French and German colonies.

In the second half of the twentieth century, there was a limited amount of
international labour migration from the developing countries to the industrialised
world during the period 1950–70. This was largely attributable to the post-war
labour shortages in Europe and the post-colonial ties embedded in a common
language (Nayyar, 1994). Since then, however, international migration has been
significantly reduced because of draconian immigration laws and restrictive
consular practiced. The only significant evidence of labour mobility during the
last quarter of the twentieth century is the temporary migration of workers to
Europe, the Middle East and East Asia. But the advent of globalisation is
conducive to new forms of labour mobility (Nayyar, 2002).

For the past few decades globalisation has been seen as the best way to bring
properity to the countries of the world. The ideas is that barrier and limitation
towards trade are reduced making it easier for countries to trade with one another. This
idea has brought about a large level of international investment but with the 2008
financial crisis the term deglobalisation has started to be uttered. De-globalisation can
be defined as the process of diminishing interdependence and integration
between international bodies. The failure of the economy prompted governments
across the world to become more involved with matters of the ecomoy. For
instance in the UK the labour government pumped capital into the financial
system and it also went as far as nationalising selected high street banks.
Ezra Nyambane (08175686) International Production and
Governance

Deglobalistion is now starting to be caused because of a countries desire to

depend on itself rather than trade and investment from other countries that are
also affected by the recession.

International investment fell as a result of the 2008 crash. Companies were less
willing to take risks that were involved with making international investments
because of the level of risk involved. In one way this can be seen as de-
globalisation because if companies are less willing to engage in Foreign Direct
Investment (FDI) strategies then it is reduces Ccompany directors and managers
have become more risk averse over the past three years. They are more
interested in reducing risk than in growth.

Protectionist barriers are rising and governments are turning inwards. For instance, in
Malaysia, we have the Buy Malaysian campaign. The Philippines has its own Buy
Filipino campaign, while the US has a Buy American clause in President Barack
Obama’s recently approved economic stimulus package.

China for instance has a very large amount of reserve capital which it is using to
invest around the world. The crisis has given the opportunity to emerging
economies such as China to invest internationally at a time when the US and
Europe is struggling to recover. This gives China a circumstantial advantage
because its foreign exchange reserves are approaching $2 Trillion, which makes
it the strongest country in terms of liquidity (Altman 2009).

In conclusion the extent to which the effects of globalisation outweigh the

benefits are very small. For globalisation to occur there needs to be losers as
well as winners. The way to make the benefits of globalisation outweigh the
disadvantages is by making sure the benefits are shared within all the interested
parties. At the moment the winners of globalisation are western companies and
western economies because they exploit the poorer nations. But as China is
becoming a more dominant in the global economy it will begin to force a change
in the beneficiaries of globalisation. The 2008 economic crisis can be seen as a
way for China, which is stable with large capital reserves to become an even
more dominant player in the world. The reason for this is because a form of de-
globalisation is occurring in the western economies.