Introduction locational advantage to stimulate growth from trans-national

Introduction

 

The term globalisation refers to the growing
connectivity globally through the exchange of cultural, social, technological,
political and physical resources. The process of globalisation is not a new
phenomenon and has been growing in strength and popularity since the 1980s it
is increasingly being experiences in new ways through its effects and changing
processes. The transfer of manufacturing outwards to developing countries like
India and China in the 1980s, the knowledge transfer to information centres
like Silicon Valley, and the steadily growing transfer of capital between
global cities all constitute prime examples of the impacts of globalisation. It
is a direct result of the capitalist economy prevalent in the Western
hemisphere, promoting free markets, global trade and changing business management
within the global sphere, while not new concepts have been exemplified by
globalisation. Not without its faults, one economic impact of globalisation has
been regional and national spread of economic activity and capital, decentralising
control and limiting the positive feedback (Sassen, 2001).

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London has been profoundly impacted by
globalisation, primarily in the financial sector but also through the exchange
of skilled labour. This paper aims to discuss the economic impacts of globalisation
on London through exploring the role of financial deregulation, strategic
location, employment structures and demographics and the past and future
development of the city.

 

 

Financial Deregulation and the beginning
of globalisation?

 

Financial deregulation and liberalization are
simultaneously causal and reactionary processes in relation to London’s status
as a global city. During the 1980s, growth in the South East of England was proving
to be a prime example of how a country could utilise a locational advantage to
stimulate growth from trans-national capital (Paddison & Hutton, 2015). The neoliberal
policies of deregulation, later referred to as the ‘Big Bang’, implemented by
Margret Thatcher in 1986 as part of a wider governmental transition known as ‘Thatcherism’
succeeded beyond expectations and placed London and the South East region at
the centre of the growing global financial market. This social and political climate
of laissez-faire government, lowered taxes, industrial privatisation and
financial deregulation created the perfect climate for attracting transnational
investors.

 

The digitalisation of global economies at the
time, and opening of developing markets to foreign trade was the start of
digital globalisation and the conditions of the South East and London
geographically as a gateway to Europe from America combined with their similar
financial systems allowed it to thrive as a global economic centre. The
increased competitiveness and self-regulation proved to be a double-edged sword
for the economy. The deregulation of financial markets directly led to the
redevelopment of the Isle of Dogs, Now Canary Warf, due to the popularity among
foreign investment banks with London as a financial centre. In 2016 the
financial sector contributed £124.2 billion in Gross Value Added (GVA), 7.2% of
the UKs total GVA (Tyler, 2017). Conversely a common
analysis is that the decline of UK manufacturing from the 1970 onwards was as a
direct result of uncompetitive conditions, inappropriate global supply chains
and unfavourable exchange rates (Crafts, 1996). But it was the rise of globalism and manufacturing
that allowed for the decline of the industrial and manufacturing sector
ultimately. The decline of industrial sectors linked to the
prioritisation of the South East in governmental policy led to a roll back of
regional aid and further decline in manufacturing industries in the North West,
East and the Midlands (Paddison & Hutton, 2015).

 

Globalisation is not a new phenomenon (Dicken, 2007); the British empire ran
from the 15th century until the end of the 20th where
goods were traded globally and knowledge transfer from occupied lands was
common. Today globalisation is focused on nation-state political systems,
industrial technology, communication and transportation systems that firmly
build on colonial and premodern systems of exchange such as migration, religion
and trade. Ultimately as argued by Osterhammel and Petersson (2005)
globalisation was coined as a term in the modern period but was heavily influences
and created by historic processes. Ultimately it could be argued that since some
of the processes of globalisation have been ongoing since the turn of the 20th
century that London, and the UK as a whole, that our economic system and
society are a direct result of globalisation (Martell, 2008).

 

 

Impacts of Globalisation on
London’s Economy

 

Globalisation plays perhaps the greatest
impact on global city economies, influencing the global distribution of wealth,
facilitating the creation of trans-national companies and effectively ‘shrinking’
the world. Sassen (1991) identified London
among other global cities as ‘command and control’ centres where there was a
concentration of high-profile, advanced service networks that acted as nodes
for global business. London is undoubtedly a globalised city, with the Financial
Times calling it the “unofficial capital of globalisation” (Ganesh, 2014), vying with New York in popularity as
the centre of international finance (The Economist, 2007), playing host to the
headquarters of more FTSE500 companies than New York, Paris or Hong Kong (Oxford Economic Forcasting, 2006) and offices for 75%
of Fortune 500 companies (London Stock Exchange, 2016) and headquarters of
HSBC and Barclays, two of the world’s largest banks. London’s role in the
global finance sector cemented its places as a major player in the network of
world cities (Taylor, et al., 2011).

 

The transformation of London’s economy from
industrial to financial and services based sectors has had a range of impacts
on the employment structure and demographic within the South East. London has
an ever increasingly skilled workforce, with 43% of jobs requiring level four qualifications,
a figure expected to rise to 50% by 2020, 8% higher than the current average
across the UK (London Skills & Employment Board, 2007). PricewaterhouseCoopers
(2009) projects
that by 2025 London will have risen to the 4th largest economy by
GDP, expanding more rapidly than rivals such as New York, Tokyo and Chicago. Between
1841 and 2011 the percentage of service sector workers in the UK rose from 33%
to 80%, a figure higher in London at 91% in 2014 (Office for National Statistics, 2015).

 

At a local scale, unemployment levels as a
direct result of manufacturing loss due to outsourcing  showed that between 1983 to 2002,
unemployment rose in Lambeth, Tower Hamlets and Lewisham but decreased by
around 3% in Kensington and Chelsea, Wandsworth and Westminster, traditionally
more affluent areas (Simmie, 2002).

Despite the decline of the manufacturing
sector nationally, through globalisation the overall number of jobs created in
the last decade is greater than those lost to global outsourcing, with
employment rates in OECD countries, London included, rising by 1.1% annually
between 1995 and 2005 (Huwart & Verdier, 2013) indicating that
globalisation although a driver for the reduction and almost eventual loss of
the UKs manufacturing industry has not had an overall detrimental effect on job
creation figures. In fact, the creation of high value-added sectors has risen
resulting in larger productivity and national income gains. These high
value-added job are most common in London in research and development, and the finance
sector, contributing to London’s economy at a proportionally larger percentage
than other sectors. Through globalisation economic migration has increased
however despite globalisation and its impact on net migration, especially
within the European Union, only 11% (3.4 million) of the UK labour market, and
12% of the financial services sector was made up by ‘Non-UK nationals’. So,
while globalisation has impacted the population demographic and cultural
composition of London especially, its role in the employment sector has been
relatively low-impact.

 

Sassen (1991) argued that the restructuring
of employment associated with financial services in global cities created
social divisions through the polarisation of high and low-level service based
occupations among a population. Similar sentiments were echoed by Maskin who
suggested that despite average global income rising due to increased trade and global
production, inequality within countries has risen simultaneously (The World Bank, 2014). Hamnett and Cross (1998) demonstrated that
the income inequality in London has increased significantly since the 1970s,
with higher-earners income increasing at a faster pace than lower paid workers.

However, Cox and Watt (2002) found that income
polarization is common in global urban cities where service-based employment
structures, like London’s current one, produce more low-paid jobs in combination
with higher paying tertiary sector jobs therefore reinforcing income
inequalities. Overall, as income inequality is a global problem, not just
limited to globalised cities like London it is unclear whether there is a
direct causation, however it is fair to say that London’s employment structure
has undoubtedly been impacted by the growth of globalisation but the positive
or negative nature of this is unclear at present.

 

Globalisation as a
concept is heavily embedded in British culture as the UK is a key exporter and
importer of globalising structures and processes both experiencing and
influencing globalisation (Martell, 2008). The British empire,
free trade economy, acceptance of global cultures and political involvement
worldwide places the UK and London especially at the heart of various types of
transfer. In 2013 London’s total exports were estimated at £139.9 billion, an
increase of approximately 40% from 2003, with 77% of that being service
exports, goods exports accounted for less than a third of that at £32.6
billion. London’s service exports, based primarily in monetary finance
accounted for half of the UK’s service exports (GLA Economics, 2015). The Corporation of
London estimated that London accounts for 54% of ‘city-type’ activity (international
lending, corporate finance etc.) within Europe in 2003 (CEBR, 2004). The openness of the
UK economy is highlighted by the high levels of FDI both inward and outward
directions and is therefore exposed and reliant upon the international finance
system (Hirst & Thompson, 2000, p. 341).This level of
foreign investment leaves domestic economies open to external shocks from
foreign market crashes, with Huwart and Verdier (2013)
relating the impacts of the 2007 global recession to the vulnerability of
London’s banking and investment sectors and their international dependency. SO
while the 2007 financial crisis was experienced globally, it’s impact in London
and the UK can be seen to have been exacerbated by the open market policy
employed by thatcher 30 years ago and the financial sector we now see in
London.

 

Conclusion

 

Since the 15th century
globalisation has played a part in the formation and development of London’s
economy. There have been a range of both positive and negative impacts as a
result of London’s globalisation. Through this paper the importance of
financial deregulation has been discussed emphasising its role in the
development of London’s thriving financial and business sector that makes up
London’s and the UK’s largest global export and cemented London as a powerhouse
of global trading. The decline of manufacturing industry related to outsourcing
and reduced material cost have been discussed at length and seem to have both
positive effects through the transition of employment structures away from
manufacturing to the high employment levels we now see in the service sector,
at 91% in London. However, the income inequality associated with globalisation
cannot be ignored and plays an important role in how we view London and how many
people experience it daily.

London is playing an increasing role in the
global economy and will only continue to grow. The globalisation of economies,
processes and place are vital for maintaining competitive markets, and more
equal cities. Therefore it is clear that the economic development of London,
whether for good or ill is firmly cemented in the concept and practices of
globalisation and will both be affected by and shape it in the future.

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