13/Apr
Anjie Babalola
Published in post

Whatever way you look at it, globalisation has been a net positive

At the IEA’s sixth form economics conferences the IEA research team explores globalisation, its history and its impact on a number of countries.

Globalisation is the process of increasing integration and interaction among people, companies and governments of different nations in a world economy. It is a process driven by international trade and investment through the movement of commodities, labour and knowledge, and aided by the development of information technology. Today’s world is very much a globalised one, but it is important to note that globalisation is not a new phenomenon. For thousands of years, people and, later, corporations, have been buying from and selling to each other in lands at great distances such as through the famous Silk Road across Central Asia that connected China and Europe during the Middle Ages. However, in recent decades the process of globalisation has accelerated. This is due to a variety of factors including improved trade, increased labour and capital mobility and improved technology. It is a system which has linked various nations; the advantages of which have been grabbed with both hands by countries like China.

China has benefitted hugely from globalisation, evident in its high GDP growth, as its GDP share of the world total advanced from 5.2% in 1980 to 17.5% in 2008 (UN 2015). Chinese companies are getting bigger and stronger and China is rapidly industrialising itself into an economic superpower as a result. Globalisation is so critical for the Chinese economy; the results of which allowed China to overtake USA as the world’s largest economy when taking Purchasing Power Parity into consideration.

In its ideal form, globalisation was initially based on the economic principle of comparative advantage and free market of goods across borders. Comparative advantage assumes that as countries concentrate on producing the kinds of goods and services in which they have a relative edge, the total effect will be an increased volume of trade from which all trading partners will benefit. The search for new and growing markets has become important for countries around the world to increase their market share and trade volumes. Globalisation stimulates an export-driven high GDP by exploiting China’s comparative advantage in cheap labour and large share of the global manufacturing of steel.

Globalisation has many economic and trade advantages in developing countries, shown through countries like China and India which, over the past two decades, have grown faster than the already rich, western nations. We must, however, also note the fact that globalisation does not seem to be benefitting some other developing countries. Africa, particularly Sub-Saharan Africa, still has one of the highest poverty rates in the world. In terms of trade, Sub-Saharan Africa is one of the least integrated regions of the world. Globalisation does not solve a lot of Africa’s poverty and inequality issues and this seems to be the result of the continents uneven incorporation into the world economy.

Despite opening its economies and the explosion of trade with China, Sub-Saharan Africa is the only region in the word to have actually seen the number of people living in extreme poverty rise since 1990 (World Bank 2015). Africa is sinking further into poverty despite years of free trade. Growth in Sub-Saharan Africa fell in 2016 with a growth rate of 1.4% down from 3.4% in 2015, its lowest in a quarter century (IMF 2016). If much of this continues, the regional economy will grow more slowly than the population, at risk of deepening poverty in a region already home to more than half of the 766 million people on Earth who live on less than £1.52 a day.

So if globalisation in Africa does not bear fruit in the same way it did for China, is protectionism therefore the answer to the problem? Protectionism is government actions that restrict international trade in order to protect local businesses and jobs from foreign competition through import tariffs and quotas. Some Asian countries, such as Singapore, South Korea and Taiwan, built their own economic expansions on strong exports and severe restrictions on imports to protect their domestic market. Dr Moghalu, Deputy Governor of the Central Bank of Nigeria, urges Africa to adopt an inward-looking economic policy to become a “self-sufficient player”. He advocated a more muscular state hand on the levers of capitalism so that Africa can “short-circuit” globalisation and “liberate itself from the oppressive dominance of globalisation” (Fasan 2014).

These anti-globalisation and self-sufficiency worldviews, however, pose enormous challenges. It is misleading to suggest that, in a world of complex interdependence and linkage, a nation-state can ignore global economic realities. Many disadvantages may also follow as a result of the effects of protectionism, such as subsides imposing costs on taxpayers and the process as a whole failing to address the cause of the decline in the first place.

Africa is still capable of fully integrating itself into the world economy. To achieve this, each African country must determine what its comparative advantage is and then develop a clear and effective strategy to strengthen that advantage on a global scale. As integration of trade strengthens, there is need to set up joint research institutions to advance studies and innovations that will aid Africa in overcoming its greatest challenges; namely agricultural productivity, health and technological innovation. Of course, there are still distortions in international trade that disadvantage Africa, but the continent’s response to this market failure should not be to develop export pessimism or turn inwards. Rather, it should help develop the productive and export capacities of its businesses, and, at the same time, engage actively at the WTO in a way that benefits African exports.

The continent should welcome the competition and openness to trade that globalisation brings. Globalisation is a reality, and Africa must embrace both the challenges and the opportunities it presents.

 

Anjie Babalola is an IEA intern and starts studying Economics and International Relations at Lancaster University in October 2017.

As with all IEA publications, the views expressed are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

Anjie Babalola

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