Eight drivers of change

Eight drivers of change: Globalisation

GLOBALISATION GLOBALISATION

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.

Brexit

Brexit and employment laws

Brexit and employment laws

The UK/EU trade agreement limits the UK’s new found freedom to set its own laws in the employment arena. Rights must not be reduced in a manner affecting trade or investment and the government has so far shied away from changes.

Trade barriers

Barriers impeding trade between the UK and the EU have been reported widely and have impacted on sectors such as fishing. Data, however, shows a decline in exports after the end of the transition period but trade picking up in Q2 of 2021 compared with non-EU exports which remained stable.

Why people voted leave

A poll by the Centre for Social Investigation found that the most common first ranked reason for voting Leave amongst Leave voters was to regain control over UK immigration, with stopping the EU having a role over UK law-making a close second. 

Attitudes to Brexit

Since 2015, attitudes to the economic impact of Brexit have become gloomier (amongst Leavers  and Remainers). However, people are less negative about the UK’s global influence post-Brexit (with Eurosceptics more positive and Europhiles more negative). Polls suggest that significantly more people consider Brexit to be going badly than well though few people would vote differently in another referendum.

Geo-politics

Conflict

Conflict

A future conflict may arise almost anywhere. If tensions overflow in, say, the Ukraine, Palestine, Taiwan or Iran there is the potential for the consequent global turmoil to impact greatly on trade and jobs everywhere. 

Protectionism

Protectionism

“America First” resonated with Trump voters. However, policies promoting domestic industries and placing barriers on imports can invite retaliatory measures hindering exports. They will also increase costs of imports raising domestic prices.

USA

USA

Joe Biden’s announcements on climate change; global tax reform; gender equality; race; global organisations; migration; and minimum wage promise to influence employment policies around the World.

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China

For major Western democracies, reconciling China’s place as an economic competitor; its importance as a trading partner; the perceived threats from its political system; and increased Chinese ownership in key industries will be high on the political agenda for some time. 

International rules

International bodies

International bodies

Globally, ILO Conventions include rights relating to freedom of association; prohibition of forced and child labour; and elimination of discrimination. In Europe, the European Convention on Human Rights includes similar commitments.

Free Trade agreements

Free Trade agreements

Since the turn of the 21st century, a series of bi-lateral and multi-national FTAs have been entered into around the World. Most include labour provisions aimed at ensuring fair competition. These are, so far, generally benign and limited to the ILO fundamental principles.

Multinationals

Multinationals

Global employment standards are often being driven by business. Investors and consumers evaluate business and supply chain practices globally. Multinationals seek consistency and look to their corporate values whatever the local rules.

Global tax co-ordination

With 136 countries committing to setting minimum corporation tax rates (initially 15% from 2023) and international agreement on some reallocation of profits to the countries in which they were earned, we see an important step forward in the development of global rules.

International trade

Global trade

Globalisation has been a feature of the last 40 years both globally and in the UK, increasing consistently over the last 30 years (pre-Covid). In 2020 international trade declined significantly, both nationally and globally, as a result of Covid-19 before increasing again in 2021. 

Outsourcing

Outsourcing

Companies have looked to save costs by manufacturing in places with low labour costs, taking account of other factors such as economic and political stability. Costs in China, however, traditionally a country of choice, have been increasing more quickly than elsewhere causing a shift to other locations.

Balance of trade deficit

Prior to the disruption caused by the pandemic, the UK saw a significant balance of trade deficit for the last twenty years having seen a smaller deficit in most years over the preceding 30 years. A surplus in services is more than offset by the deficit in goods.

China's importance

China is the World’s most populous country; its biggest exporter; its second biggest importer (after the US); and a nation looking to invest globally. Exploiting China’s significance for trade but ensuring a level playing field will dominate the political agenda in the years ahead. 

GLOBALISATION - INTERCONNECTING DRIVERS

Technology

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Technology

Role of the State

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Role of the State

Sustainability

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Sustainability

Migration

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Migration

Globalisation

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Globalisation

Covid-19

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Covid-19

Demographics

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Demographics

Part 1 

DRIVERS OF CHANGE

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Part 2 

EMERGING THEMES

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Part 3 

PREDICTIONS

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