4: Consequences of globalization
According to photionary, a striking feature of globalization is that countries trade more with each other than before, and the increased trade includes all income classes. Figure 1 shows international trade (exports plus imports) as a share of the countries’ total income (gross national product) between 1970 and 2004. High-income countries do not have as strong an increase in foreign trade as other countries. One reason for this may be that high income increases the demand for services. Services (hairdressers, restaurant visits, culture and entertainment, etc.) are produced to a greater extent domestically than goods (clothes and shoes, mp3 players, etc.). In the period from 1970 to 2004, Norway became a very rich country. For Norway, foreign trade as a share of GDP has declined slightly.
As with trade, investment across national borders has also increased sharply. It has become more common for foreigners to own shares or entire production companies in other countries.
Increased trade and increased investment between countries make countries more dependent on each other . They become more dependent on having their products sold in foreign markets. It is both positive and negative. We get access to more technology, more goods and larger markets. At the same time, changes in other countries’ markets can quickly mean changes for us. When problems arose in the US housing market throughout 2007, this also had consequences in US financial markets. In the next round, Norwegian municipalities also lost in the autumn of 2007 on large investments they had made in American financial markets through the company Terra.
5: Where should it be produced?
The vast majority of clothes bought in Norway are produced in Asia and to a large extent in China. This has not always been the case. For a period, Norway itself had a large textile industry. Over time, imports of clothing increased, first from other European countries and then from Asia. Some EU countries still have an extensive textile industry. This applies to Portugal and Spain, but also to new member states such as Romania and Bulgaria. EU countries have had higher tariffs and more protection for their textile industry than Norway.
Developments for the textile industry are illustrative of globalization: The textile industry is labor-intensive. Relatively much labor is used to produce clothing compared to other goods. Therefore, it becomes profitable to move the production of clothing to countries where the wage level is low. But this means that the textile industry and many other labor-intensive industries are investing in countries where labor is more expensive. Rising wage income in a country (see Figure 2) is therefore a reason why production is discontinued there and replaced by imports. Adjustments in working life and the closure of industrial companies can mean that people lose jobs and income. While textile workers are losing out on this, people will otherwise benefit from clothing prices falling.
The wage level in Norway has risen throughout the period covered by Figure 2. The development in prices is given by indices (composite measures). The figure is made so that the figures are set equal to 100 in 1998. The prices for all goods (the total index) had increased to 117 in 2006. The wage level has risen more than the prices. This means that real wages have increased. This is one reason why some types of production are no longer profitable to operate in Norway.
The total index applies to all goods and services and therefore shows an average of the price development for many goods. Some goods rose more in price. Prices for clothing, on the other hand, fell sharply. As mentioned, most of the clothes and textiles bought in Norway are imported from Asia, and especially China. In 2006, the clothing index was 68.2. This means that clothes cost (100-68.2 =) 31.8 percent less than in 1998!
Globalization opens up many opportunities. It will be easier and cheaper to buy goods from all corners of the world. The product range is getting bigger. It will also be possible to use technology that has been developed in other countries, perhaps by the world’s best minds. Most people who read this article have a cell phone. It may have been produced in China or in Sweden. You can send an SMS to Africa or to India.
At the same time as globalization is taking place, most countries in the world have become richer. The increase in wealth is partly a consequence of globalization. Most economists agree that trade with other countries can contribute to economic growth. The development in income and production in the world is described in Figure 3. In the calculations behind Figure 3 , it has been taken into account that prices and costs are different in different countries.
The figures are also such that they can be compared over time. This means that prices have been taken into account over time. Figure 3 shows that the world’s total production and income have increased – that the gross domestic product per capita has increased. Income has increased for all four groups of countries, but mostly for the richest countries. Norway’s revenues have increased sharply. Income has also increased for the poorest countries, but nowhere near as much as for the rich countries. Nevertheless, the percentage growth is quite similar. Therefore, the ratio between the incomes of the group of low-income countries and high-income countries has been relatively stable. In 1975, the average income in low-income countries was about 7 per cent of the income per capita in the high-income countries. In 2005, it was 7.5 percent.