Global Interdependence

Economic Effects of Globalisation

Contributors
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Christian Bien

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Example of the Cost of Globalisation: Toyota Melbourne Factory Closes (7 News)

7 News report on the last Camry to be rolled out of the production line of the Melbourne Toyota Factory.

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Benefits of Globalisation
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Benefit #1: More Employment Opportunities 

Increased employment and higher paying employment opportunities are derived from increased globalisation. 


Benefit #2: Increased Taxation Revenue 

Higher rates of investment, stimulate economic growth and employment, increasing income and expenditure tax revenues. 


Benefit #3: Lower Inflation 

Direct competition with low-cost imports helps maintain low prices for goods and services. Import-competing businesses will be hesitant to increase prices due to the fear of losing business to imports. 


Benefit #4: Access to Foreign Skilled Labour 

Australia has a very small population with a limited supply of skilled, specialised labour. Employers can sponsor foreign skilled workers on a temporary visa who will contribute to a higher rate of economic growth. The Department of Immigration statistics reveals that 415,103 people are in Australia on temporary work visas. 


Benefit #5: More Efficient Resources 

Greater competition with imports increases the efficiency of domestic producers who have an incentive to invest in new methods or technology or change production to a more efficient industry. Unemployed labour from inefficient industries will retrain and join a more efficient industry, expanding economic growth and incomes in the long term. 


Benefit #6: Access to Foreign Investment 

Australia is often described as a resource-rich country but lacking the savings to finance the investment needs to develop capital projects. Accessing foreign investment supplements Australia's savings and investment gap, allowing Australia to achieve a higher rate of investment, and hence, a higher rate of economic growth. 


Benefit #7: Better Variety of Goods and Services 

Trade enables access to goods and services that would be too costly to produce in Australia or cannot be produced in Australia. Think about all the products you consume on a daily basis, how many were made here versus the products made overseas?

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Costs of Globalisation
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Cost #1: Uneven Gains from Globalisation 

The gains from globalisation are not evenly distributed. Those in expanding industries and holding appreciating assets are benefited by globalisation while those in declining import-competing industries suffer. This is evident where globalisation has generally fuelled commodity sector growth while simultaneously shrinking the Australian automotive manufacturing due to an inability to compete with low-cost imports. 


Cost #2: Environmental Damage 

Globalisation has seen companies involved in unsustainable resource depletion and the emission of high levels of visual, air, land and water pollution. This is evident in China, where globalisation has fuelled large-scale manufacturing factories that emit high levels of air pollution causing limited visibility fog. Back at home, globalisation can be responsible for the high waste of technological waste due to planned obsolescence as a result of wanting the latest and greatest. 


Cost #3: Bad Behaviour of MultiNational Corporations (MNCs) 

Multinational corporations have been known for acting in unethically and illegal practices such as:

  •  Tax avoidance and tax minimisation schemes - Multinational corporations sending profits offshore to tax havens, such as Apple who has a subsidiary in low-tax havens such as Ireland, which has a company tax rate of only 12.5% compared to Australia's company tax rate of 30%; 

  • Diverting profits overseas rather than reinvesting it in the community; 

  • Employing foreign workers rather than local workers;

  • Employing workers in third-world countries who are paid low wages;

  • Sourcing resources from third world countries who have fewer or ineffective environmental regulations; and

  • MNCs huge economies of scale are known to drive out local businesses. 

Cost #4: Exploitation and Market Failure 

Globalisation increases exposure of an economy to uncompetitive practices such as forming cartels or price fixing. I.e. Global businesses with higher production can afford to price at a lower cost to drive out local businesses. 


Cost #5: Globalisation also increases exposure to exploitation

Exploitation can include: 

  • Labour exploitation with the employment of people in third world countries with low wages and unsafe working conditions

  • Environmental exploitation, sourcing materials from countries with inefficient environmental laws, reducing environmental sustainability 


Cost #6: Reduced Self-Sufficiency 

Increased economic integration could also be a bad thing, with economic events in one country, likely to have a profound impact on the world economy. For example, the GFC started with the housing market crash in the United States but ended up deeply impacting almost all economies, with many major economies experiencing recessions. As a result of the GFC, Australia experienced a fall in economic growth from a peak of 4.3% in Sep 2007 to a low of 0.3% in Dec 2008, close to a recession. There are also risks of self-sufficiency from a national security perspective. 


When BP closed WA's Kwinana Oil Refinery, there were concerns that Australia is becoming more dependent on overseas oil imports, and thus, higher risks if political tensions reduce the ability to access oil imports. 


Cost #7: Structural Unemployment 

Globalisation is a facilitator of structural change, with imports changing the landscape of Australia's economy. Lower cost imports are said to be a driver in the decline of the following industries: 

  • Textiles, Clothing and Footwear (TCF) 

  • Automotive manufacturing

  • Whitegoods manufacturing

  • Steel manufacturing 

Workers involved in these industries are likely to miss out from the benefits of globalisation and need to retrain to work in more growing industries.

Topic Menu
Linkages Between Economies
Trends in Global Trade
International Competitiveness
Concept and Factors of Globalisation
Economic Effects of Globalisation

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