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Globalisation has indeed introduced free trade, and along with that arises the benefits of international trade for the UK economy. British consumers gain from a large variety of foreign goods and will be able to exert consumer sovereignty because countries specialise in what they have absolute or comparative advantages in and export these goods for the world to consume. For example, without globalisation and free trade, the UK would not have the surfeit of foods and delicacies that it enjoys.

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Another consequence of globalisation is that there has been increased competition domestically and internationally. Increased competition forces domestic UK firms to be efficient if they want to retain profitability and as part of competitive practices prices are lowered to consumers and quality is improved. Because of this consumption may well rise, leading to a boost in aggregate demand and economic growth, as shown below. Another factor contributing to higher AD would be exports as well.

Exports and imports JUST FROM $13/PAGE

Globalisation and technology has also given UK firms the power to exploit economies of scale and to gain x-efficiency through computers, the Internet, etc. With reference to the airline industry, the low budget airlines enjoy massive efficiency and economies of scale as they have minimal administration costs due to flights being arranged via the Internet, and communication costs have fallen dramatically in real terms.

Again, due to successful firms within the UK, more money is generated and through the multiplier factor (which states that an increase in autonomous expenditure will lead to an even greater increase in national income), this will feed in to increase consumption and hence aggregate demand and economic growth. Another advantageous implication of globalisation for the UK economy is that foreign investment into the UK will increase due to freer movement of money capital. Aggregate Supply and aggregate demand will increase, leading to an uncertain outcome with inflation and an unambiguous increase in economic growth as shown on the next page.

UK trans-national companies will seek to establish a global trading platform in markets where they have a significant position, which is what MNCs do, and through this they generate not only profit for their home country, but create many jobs and opportunities for the foreign country they are operating in, reducing poverty and arguably narrowing the income distribution gap between rich and poor.

Finally, the last major advantage of globalisation is that it, and the advancing factors that propel it, will act as a long run supply side policy. This means that aggregate supply will shift to the right over the forthcoming years as the economy expands and increases in productive and allocative efficiency. In the long run, inflation will fall and economic growth will increase to the benefit of both parties of consumers and firms.

However, a disadvantage of globalisation is that the UK is dependant on imports, especially as it is a net importer. For example, it is more than a nuisance if OPEC restricts supply or push up prices. Also, globalisation could mean the loss of domestic jobs and higher unemployment, which is why President Bush earlier this year imposed a tariff on steel. He did this to protect the interests of the US steel industry, although it was met with retaliation. Hence it can be said that globalisation is beneficial only when everyone is willing to participate in it and cope with it. Protectionism can often get in the way, but then again protectionism is to ‘protect’ the country.

Seeing as the UK is more dependent on imports that exports, globalisation can add to its balance of payments deficit, which hit 33 billion pounds in 2001. Of course, it depends however on the elasticity of demand for both exports and imports.

Finally, globalisation is generally seen as a positive thing as advantages exceed disadvantages, but it is occurring at such a rapid rate these days that it is hard to have perfect information and deal with the consequences. Along with globalisation comes responsibility.

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Kylie Garcia

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