Of all the drivers of change, the one which arguably receives the least attention is the impact of global dynamics. It is also perhaps the driver that is least easy to predict. International developments nonetheless have a profound effect on the world of work.
The last 30 years has been a period of rapid globalisation, with international trade as a proportion of global GDP increasing by 50% from just over a third to nearly 60% over this period. Globalisation has seen manufacturing shift from the richer countries with higher labour costs to those with lower ones. Jobs first moved to places such as China and Mexico and, since then, one of the most significant shifts has been the rise in China’s importance in world trade. In May 2021, The Times reported that Chinese investment into the UK had now reached £135 bn. The growth of China and Mexico has meant their labour costs have increased, leading many manufacturers to look elsewhere for lower-cost jurisdictions such as Vietnam. Clothing manufacture has moved to countries including India and Bangladesh. Services have followed a similar course, with the outsourcing of call centres and the like to countries such as India and the Philippines.
It has not just been the search of cost-savings that has driven globalisation. Businesses have sought to sell their goods and services to developing markets and to establish operations closer to those customers. Global businesses have looked to rationalise supply chains and attract the best people wherever they might be based. Reversing this trend may seem unlikely, although there are good reasons for uncertainty.
Domestic and global politics are much more uncertain and fragile today than they have been for some time. Nativist populism and protectionist trade policies have been gaining support, with Brexit and Donald Trump’s presidency providing two examples. On the other hand, the impact of Joe Biden’s more internationalist outlook to trade should not be underestimated. Crystal-ball gazing is not easy as we shift from a unipolar world, with an omni-powerful US, to a bipolar one with China and the US competing for pre-eminence.
Meanwhile, the costs and delays of shipping goods from continent to continent (subscription required) have greatly increased, significantly undermining the savings to be made by manufacturing in low-cost countries.
Geopolitical conflict could flare up in several places, significantly impacting many workplaces if inter-dependent markets and supply chains are threatened. The Covid-19 pandemic brought much of global trade to a shuddering halt with immediate and large-scale consequences for supply chains. Consumers are increasingly aware of the environmental impact of goods shipped from far and wide and human rights issues they may be regarded as endorsing by buying from more oppressive regimes. Building societal momentum and focus on sustainability and responsible and ethical business practices could play a part in reversing globalisation.
Technology may play a role in driving changes in globalisation. In manufacturing, for example, the reduced need for human labour will mean that advantages of locating in low labour-cost jurisdictions will diminish, possibly leading to more in-shoring. The success of homeworking throughout the pandemic will mean greater international outsourcing of services for which work can literally be performed anywhere. Businesses will increasingly compete globally for the best people, which may lead to a reversal of globalisation in manufacturing but its expansion in services.
With this, there will be increased focus on minimum international standards and regulatory co-ordination to protect the higher costs of the more regulated wealthier economies, including throughout supply chains. At least among the richer democracies, there has been a gradual move to greater regulatory convergence, one example being the recent agreement on minimum 15% corporation tax. At present, the minimum standards are relatively benign but they will become more relevant in the years ahead on account of the global co-operation needed for a level playing field on international trade.
This increased focus on international minimum standards will mean that multinationals looking for consistency and simplicity throughout their businesses will apply the highest standards set by a major economy. The EU’s General Data Protection Regulation is an early example of this. More generally, multinationals will continue to set consistent internal standards across jurisdictions.
For the UK and to a lesser extent the EU, Brexit has had largely negative impacts on many businesses. Well-publicised ones include: supply chain disruption; challenges in continuing to do business with the EU in sectors such as fisheries; skill shortages in hospitality and with HGV drivers (caused by other factors as well as Brexit); and the contentious issues concerning trade between Great Britain and Northern Ireland.
Free trade agreements (FTAs) outside the EU with countries such as Australia and New Zealand promise new threats to the British agricultural sector as it faces tariff-free competition from countries with in-built competitive advantages. It remains to be seen whether over time new FTAs will adequately compensate for diminished access to the EU (and to the countries with which the EU has FTAs). The UK has ambitions to join the CPTPP, a trans-pacific FTA covering many countries (including Vietnam, Mexico and Malaysia). It also wishes to enter into an FTA with the US, although obstacles include UK consumer resistance to US food standards and US concerns about the integrity of the Good Friday Agreement. The outcome of the UK prime minister’s latest visit to the US suggests that a bilateral US/UK FTA will probably have to await a new US president.
Finally, it remains uncertain whether regulatory divergence will benefit the UK or merely mean two sets of rules with which many businesses have to comply. With UK/EU tensions continuing, the story of Brexit probably has many years yet to run. (see migration - EU migration)
Globalisation is uncertain but will have a significant impact on the how, how much, what, when, where and who of work.