Thursday, July 17, 2008

The Economic Situation (1) - Globilisation

All over the world, people are uneasy about the economic situation. Their unease is made worse by the diverse prognostications of economists and politicians. Some are saying that things will get worse. Others are saying that the worst is over. This confusion is making people fearful. In this series of posts, I will explain some of the events that will affect the future.

Improved communications and transport over the last few decades have allowed a tremendous globalisation of the world economy. The increased division of labour has resulted in a tremendous increase in production all round the world. Production has moved to the places where it can be done most efficiently. Manufacturing has moved to China, India and South East Asia where wages are lower than in the west. Highly technical tasks have stayed in the devloped countries.

Western producers have an immense supply of cheap capital goods and consumerables to support their activities. People in the West have had the benefit of an endless supply of good quality consumer goods. This has improved their standard of living. The people of rural China have found work opportunties that did not exist before their economy opened up. The only ones to suffer have been blue collar workers in the industries that have moved offshore.

Globalisation of economic production is likely to continue into the foreseeable future.

The increase in the supply of oil will push up transport cost, but the impact on globalisation will only be marginal.

The only thing that could end the benefits of globalisation would be a major war that closed down the major shipping lanes around the world. The world experienced a similar deepening of world trade in the nineteenth century. This was brought to an end by World War 1. In many ways the current globalisation is a continuation of what was cut short by two world wars and the cold war. It would take a major war to bring it to the end, but that does not seem likely soon.

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