Social and political opposition to global integration
In many developed economies global economic integration has contributed to a widening gap between high and low-income earners.
- Figure 16: Gap between high and low income earners in developed economies
While globalisation generally can be associated with rising average wages, not all workers have benefited equally as illustrated by Figure16 above. A major cause of this differential in wages between high and low-income earners has been the relative demand for skilled labour. As countries become progressively open there is a resulting expansion of trade opportunities in some areas while in other areas that were previously protected, contraction or change will result. While economically desirable from an efficiency perspective, these changes can result in social and political opposition to global integration.
The extent of social and political opposition to global integration that may emerge is unknown. There are indications of rising tensions in some areas, such as debate in the United States about the loss of domestic industries to other countries as a result of shifts in comparative advantage over time. Other current significant unknowns include whether the Doha Development Agenda WTO Round will ever reach a meaningful conclusion, or whether the future trade strategy of major economic economies such as the United States, China or Japan will be to liberalise trade barriers.
Another unknown in terms of risks to global economic integration and world economic growth is the risk of global conflict and political instability. There are at present a number of conflict areas in the world and instabilities arising from terrorism. In addition to the disruptions that war or instability can bring to a country or trade with a country there is also the possibility of increased prices of raw materials such as oil. Substantial political instability in a country or region can also result in migration flows of refugees.
Beyond these areas there is also the potential for new conflicts or conflicts that are currently non-military in nature to evolve into serious regional conflicts.
In this part of the report, we have outlined predictions for global economic growth from the IMF and the World Bank and have looked at the implications for regional economic growth, as well as growth in individual sectors. We have also considered some the challenges and opportunities that are likely to arise from globalisation as a result of these developments.
We have found that
- Prospects for global economic growth, as forecast by the World Bank and IMF are for a continuation of the positive growth that has occurred over the past decade.
- The strongest growth will continue to be seen in Asia.
- Global economic integration is likely to intensify further as international trade and investment continue to expand.
- There is likely to be more dispersion of global production processes with more specialisation.
- The highest rates of growth in manufacturing exports will be for technologically advanced goods.
- Rates of adoption of new technologies and innovation are likely to accelerate further. Growth in technologically advanced exports will provide more incentive for research and development.
- The adoption of new technologies will require more advanced skills in the workforces of world economies.
- Pressures on resource prices are likely to continue as high rates of growth in countries such as China drive up the prices of raw materials. Population growth will also add to demands for raw materials as well as various agricultural products.
- High rates of economic growth and population growth will also result in added pressures on the environment, including through climate change. Governments will come under greater pressure to respond to these challenges.
- There are a number of risks to the global economy, including global imbalances, the direct and indirect effects of climate change and geopolitical instabilities.
- There is a challenge of trying to ensure that the benefits of globalisation are spread across the population. The process of globalisation will result in some sectors, or those that perform tasks in a production process that can be easily contracted out across borders, facing added competition, either as a result of trade liberalisation or more likely from lower-cost production from abroad. Such changes could result in more opposition to globalisation emerging over time unless economies adapt and respond to opportunities presented by globalisation.
We have, essentially, projected a positive world economic situation in terms of future economic growth. There are however notable risks, many of which are manageable, and others that are unknown. There are a number of emerging patterns associated with this projection, such as increasing returns to high-technology manufacturing and a resulting incentive for more research and development expenditure; and the continuing dispersion of production of firms globally. These trends are likely to have a number of implications for all countries and not just for firms and employees but also for priorities in government expenditure.
In the next part of this report we will look at how New Zealand has responded to the risks and opportunities that globalisation has offered in the past and how well placed New Zealand is to respond to these challenges in the future. We will also look at how individual countries are responding to these challenges and opportunities to determine whether there are any lessons emerging for New Zealand or any areas for future investigation and consideration.