Globalisation has increased the competitiveness of UK markets. Competing in highly contestable markets, British firms face competition from abroad. A few large firms, between whom collusion very well may have occurred, as explained by game theory, had typically dominated domestic markets. As more firms entered the market, they erode larger firms market share with which they may have exercised monopoly power.
Domestic firms are thus forced to become more productively efficient, producing at lower cost to compete with, for example, goods manufactured using cheap labour in South East Asia. Competition would also promote innovation so that in an economy with high labour costs, British industry could gain a comparative advantage over foreign firms. The effect of globalisation has thus been an influx of new goods and services combined with lower prices on existing goods, now of a better quality. Globalisation has therefore lead to a net gain in welfare for UK consumers.
However, the realities of the situation are very different. Realistically, UK firms cannot compete in the manufacturing industry where economies with cheap labour have been deemed to provide 'unfair competition'. The UK is a high labour cost country and thus at a comparative disadvantage which is effectively impossible to overcome, as demonstrated with the loss of the motor industry in the UK during the 1970s. 'Footloose capitalism' has no preferred location, and as such will shift production to wherever costs are lowest. Globalisation has spurred the process of de-industrialisation, whereby employment in the manufacturing sector has fallen from 7.1 million in 1971 to 3.1 million in 2005, where the size of the UK labour force has in fact grown with rising participation rates.
Many of these workers are either unskilled or have been trained to a specific task, making it difficult for them to find alternative employment, compounding the problem. The effects have not just been felt in manufacturing, but increasingly in the service section as IT booms in India and many firms opt for business process outsourcing. Surveys by Deloitte have shown that much of the UK population are deeply concerned about the outsourcing of white-collar jobs. Globalisation has lead to job losses in the UK, causing social distress and negatively affecting unemployment rates, an important economic performance indicator.
The picture is not as bleak as it may seem, however. Unemployment rates in the UK remain low, and that generated can be viewed as frictional unemployment as other vacancies do exist. Government training schemes, such as free IT lessons under the auspices of Learn Direct also go a long way to combating structural unemployment as manufacturing workers can retrain for jobs in the quaternary sector.
Whilst the UK has lost the majority of its manufacturing industries, a new international division of labour has emerged as the theory of comparative advantage shows that global production is increased if economies specialise in what they are relatively best at producing. The UK's specialisation in the service industry has lead to job creation and significantly increases in national output. Measured through real GDP growth, this rise in national output as a result of specialisation shows that globalisation has been in part responsible for economic growth. Augmented by the multiplier effect, this brings benefits to the whole economy.
However, the direct economic benefits derived from globalisation have in fact widened spatial inequalities rather than benefited all, as impacts have differed between the regions. Under the international division of labour, there has been a greater emphasis on knowledge-based industry with the rise of the service sector, with 73.1% of national output in 2004 being in the service sector, compared to manufacturing's 15%.
Where benefits from these dramatic figured? Quaternary and knowledge-based services are concentrated around the M4 corridor – the sunrise strip, and silicon fen, with R+D focused on science parks located around southern universities such as Oxford and Cambridge. These effects of de-industrialisation have created a north/south divide, as the north is traditionally home to the manufacturing industry.
Northeast England never fully recovered from loss of traditional heavy manufacturing industries such ad shipbuilding. The consequential migration of workers to the south of England has placed pressure on resources and housing, whilst some northern areas such as Liverpool have seen a fall in population. This is allocatively inefficient – resources are wasted whilst the necessary investment needed to deal with the new distribution of population has spurred further investment in the south, widening the north/south divide.
In conclusion, the costs to the UK economy from the march of globalisation are highly significant, although their impact can be disputed when the importance of globalisation to UK economic development is considered. However, globalisation is not a process that can be reversed, halted or even slowed.
The world is interdependent and will continue to be so, and the UK must be a part of it. International trade, the driving force of globalisation, is enormously important to the UK has been responsible for its position as a major economic power since the days of the British Empire. We have neither the resources nor the inclination to pursue a policy of economic isolationism, as the potential benefits from globalisation are huge. The best option, therefore, would be a cautious approach, devising strategies to tackle problems as they arise with a fundamental focus on sustainability.