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Last Updated: Sunday, 21 January 2007, 23:33 GMT
Globalisation shakes the world
By Steve Schifferes
Economics reporter, BBC News, Bangalore

Palm Meadows Villas Complex
New housing complexes are springing up around Bangalore
Globalisation is a word that is on everyone's lips these days, from politicians to businessmen. BBC News is launching a major examination of the subject.

Few places in the world have seen the dramatic effects of globalisation more than Bangalore, the Silicon Valley of India, which is experiencing an unprecedented IT boom that is transforming the prospects of the Indian economy.

For Santosh, a tour guide in Bangalore, life is good. As a result of the IT boom, he has launched his own web-based travel firm, getoffurass.com, and is doing a booming business selling weekend getaway holidays to stressed-out IT workers.

China car market

For Dean Braid, a skilled car engineer in Flint, Michigan, life is not so good. He - and 28,000 other workers - were laid off from Buick City when GM closed the complex in 1999, and hasn't worked since.

Globalisation is blamed for many of the ills of the modern world, but it is also praised for bringing unprecedented prosperity.

But what is globalisation, and what are the forces that are shaping it?

Globalisation - good or bad?

The accelerating pace of globalisation is having a profound effect on life in rich and poor countries alike, transforming regions such as Detroit or Bangalore from boom to bust - or vice versa - in a generation.

workers falling share

Many economists believe globalisation may be the explanation for key trends in the world economy such as:

  • Lower wages for workers, and higher profits, in Western economies
  • The flood of migrants to cities in poor countries
  • Low inflation and low interest rates despite strong growth

And globalisation has played a key role in the unprecedented increase in prosperity in the last 50 years, which is now spreading from the United States and Europe to include many formerly poor countries in Asia, including China and India.

Defining globalisation

In economic terms, globalisation refers to the growing economic integration of the world, as trade, investment and money increasingly cross international borders (which may or may not have political or cultural implications).

global economic growth - rich v. poor

Globalisation is not new, but is a product of the industrial revolution. Britain grew rich in the 19th century as the first global economic superpower, because of its superior manufacturing technology and improved global communications such as steamships and railroads.

But the pace, scope and scale of globalisation have accelerated dramatically since World War II, and especially in the last 25 years.

The rapid spread of information technology (IT) and the internet is changing the way companies organise production, and increasingly allowing services as well as manufacturing to be globalised.

Globalisation is also being driven by the decision by India and China to open their economies to the world, thus doubling the global labour force overnight.

The role of trade

Trade has been the engine of globalisation, with world trade in manufactured goods increasing more than 100 times (from $95bn to $12 trillion) in the 50 years since 1955, much faster than the overall growth of the world economy.

Since 1960, increased trade has been made easier by international agreements to lower tariff and non-tariff barriers on the export of manufactured goods, especially to rich countries.

iPhone
Apple's new iPhone will be outsourced to Asian manufacturers

Those countries which have managed to increase their role in the world trading system by targeting exports to rich countries - such as Japan, Korea and now China - have seen dramatic increases in their standard of living.

In the post-war years more and more of the global production has been carried out by big multinational companies who operate across borders.

Multinationals have become increasingly global, locating manufacturing plants overseas in order to capitalise on cheaper labour costs or to be closer to their markets.

And globalisation is even harder to track now that one-third of all trade is within companies, for example Toyota shipping car parts from Japan to the US for final assembly.

More recently, some multinationals like Apple have become "virtual firms" outsourcing most of their production to other companies, mainly in Asia.

Service sector globalisation

It is not only the Western manufacturing industry that is under threat from globalisation.

The services sector, which includes everything from hairdressers to education to accounting and software development, is also increasingly affected by globalisation.

Call Centre, India
India dominates the global IT services sector

Many service sector jobs are now under threat from outsourcing and offshoring, as global companies try to save money by shifting many functions that were once done internally.

What China has become to manufacturing, India has become to the new world of business process outsourcing (BPO) - which includes everything from payroll to billing to IT support.

size of India's IT industry by GDP

India is the world's leading exporter of IT services, with its volume of offshore business doubling every three years.

Every major international company in the IT industry now has a huge presence in India, and plans to expand its investments.

The Bangalore Tigers

Several dynamic new Indian companies are now challenging the multinationals for global leadership in this area, including TCS, Infosys and WIPRO.

Infosys office
1.4 million people applied to work at Infosys in Bangalore last year

The IT services boom has helped to transform the Indian economy, which is now growing at more than 9% per year, the same rate as China.

The new-found affluence of the young workers in the IT sector has in turn changed attitudes to wealth and consumption in India - with educated young people for the first time being able to afford such luxuries as motor cars and home ownership.

Western anxiety

The dizzying pace of change in the new world of globalisation is unprecedented, and can be frightening.

US Senator Sherrod Brown being sworn in
In Ohio, the Democrats won an upset victory on globalisation fears

A recent poll by Deloitte in November 2006 showed a sharp increase in worries about outsourcing of white collar jobs in the UK.

Just 13% said it was a good thing, compared to 29% in January, while 82% of the public believed enough jobs have been sent abroad already, and 32% wanted to force companies to bring jobs back to Britain.

Meanwhile in the US, the Democratic victory in the November Congressional elections had a lot to do with worries about the effect of globalisation on wages and jobs.

The speed and scale of economic change has made it increasingly difficult for governments to keep their economic destiny in their own hands.

And what is most disturbing for many people is that no-one seems to be in charge, or be able to agree fair rules for the new global economic order.

Crisis of legitimacy

The international institutions meant to deal with the globalising world are all in trouble.

global economic imbalances
For example, the World Trade Organization (WTO) is now under fire for failing to take into account labour standards or the environmental impact of trade.

And its efforts to break down global trade barriers are faltering.

Meanwhile the International Monetary Fund (IMF) and the World Bank, set up in 1944 as part of the UN system to run the international monetary system and to co-ordinate aid flows to poor countries, have come under criticism for not giving a bigger role to emerging market countries like India and China.

And the IMF has found it increasingly difficult to influence the world's capital markets, whose huge financial flows dwarf its resources - or to correct the huge global imbalances that arise from trade.

Who should run the world?

There is even less international regulation of other aspects of globalisation.

Bangalore  anti-globalisation riots 2005
Even in Bangalore there have been anti-globalisation riots

Attempts by the OECD to set rules governing foreign investment by multinational companies collapsed in the 1980s, while the rules for international banking, stock markets and accounting are increasingly being negotiated by international quangos behind closed doors.

And while the rights of workers to organise unions is enshrined in resolutions passed at the International Labour Organization (ILO), it lacks any enforcement powers.

The key question is whether the growing globalisation of the world economy will lead to a parallel increase in global regulation - and whether that would be good or bad for world economic growth and equality.

Top countries for global IT outsourcing




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