3.4A - Benefits and Costs of Global Shift

The movement of the global economic centre of gravity to Asia via the global shift in manufacturing (China) and outsourcing of services (India) can lead to changes in the built environment that can bring benefits (infrastructure, investment, waged work, poverty reduction, education and training) but also costs (loss of productive land, unplanned settlements, environmental and resource pressure)

Global shift is the relocating of the global economic centre of gravity to Asia from Europe and North America, over the last 30 years. 
This has particularly involved:
  1. The shift of manufacturing jobs from Europe, Japan and North America to China.
  2. The shift of service and administration jobs to India, especially Bangalore. 

Global shift was driven by improvements in transport and communications, plus the lowering of trade barriers and economic liberalisation, opening up to FDI. 
Labour-intensive manufacturing was attracted to Asia by the large pool of workers willing to work for low wage rates. 

The History
  • The shift began in the 1950s with cheap mass-produced goods, e.g. toys and textiles, relocating to Japan. 
  • Asian Tiger Economies (South Korea, Taiwan, Hong Kong, Singapore) quickly followed in the 1960s and 70s.
  • In the 1980s and 90s most other Asian countries opened up to globalisation, as well as South America and the communist bloc.
  • However, there is a time lag of 10-15 years between the removal of trade barriers and large FDI flows. 

Benefits of Global Shift​ 
  • Waged work
    • Factory work provides a reliable, regular wage, since subsistence farming income is vulnerable to weather and disease.
    • Low wages of $2-3 per day are still double or triple rural income.
    • The long 12 hour working day, six days a week may be 'sweatshop' conditions, but subsistence farming required even more.
    • Over time, as education levels rise and the supply of rural labour decreases, wages rise and there is a shift to more capital intensive production of higher-technology products, e.g. cars and computers. Wage rates of $10 per day.
  • Poverty reduction
    • The world bank defines extreme poverty as an income less than $1.25 per day (2005)
    • Since 1990, 1 billion people have been lifted out of extreme poverty, primarily due to global shift
    • Incomes rise either due to waged work in factories, or a rise in incomes for commodity producers supplying Asian factories.
    • Some 600 million Chinese were lifted out of poverty between 1992 and 2015.
  • Education and training
    • TNCs invest in training and skills development to improve workforce productivity, and some skills are transferable. 
    • Economic growth generated by global shift in manufacturing used to finance investment in education and training
    • Households use higher income to pay for more of children's schooling.Increase income tax and corporation tax used by government to fund state education. 
    • The top 5 countries in the OECD's 2015 PISA tests for maths and reading: 1) China (Shanghai), 2) Singapore 3) South Korea 4) Japan 5) Taiwan
  • Investment in infrastructure (roads, ports, airports and power infrastructure)
    • Attracting manufacturing FDI requires initial investment in basic infrastructure, e.g. ports, power, water supply, sewers.
    • Initially investment in a few coastal locations (SEZs) but this later expands to link up SEZs to cities inland.   
    • China built 11,000 km of new motorways in 2015 alone. 

Disadvantages of Global Shift
  • Loss of productive land
    • construction of factories, infrastructure and housing for workers  occupies land previously used to generate agricultural output.
    • Land lost often flat coastal or flood plain land with highest fertility and productive potential.
    • Air and water pollution from industrial activity can render more agricultural land unusable.
  • Unplanned settlements
    • New manufacturing job opportunities prompts rural-urban migration
    • Rapid urban population growth outpaces formal housing construction leading to unplanned settlements. 
    • Slums or shanty settlements form on the city edge or on spare land within the city. 
    • Households add an extra storey to their homes to rent out or add dwellings to garden.
  • Environmental or resource pressure
    • Industrial activity can produce serious air and water pollution. 
    • Pressure on natural resources, especially water supply, as new factories and offices demand resources. 
    • Rapid industrial expansion can outpace environmental regulation creation and enforcement (or corruption may circumvent)
    • Manufacturing activity creates demand for addition commodities as raw material inputs. 
    • Construction of supporting built environment (infrastructure, housing) also needs large resource input.
    • Created new domestic and global flows of commodities, driving up commodity prices and leading to mineral depletion. 
    • Commodity extraction creates environmental pressure elsewhere, e.g. deforestation for timer (Togo lost 60% of forested area since 1990) or mining expansion. 
  • Other
    • Workers may be required to live in dormitories with restrictions on their free time. They would be separated from their families, with their children staying with grandparents in the village.
    • Rapid loss of tradition such as local food and dress as the pace of urban and industrial change is so rapid.
    • New developments tend to be unplanned and sometimes poorly built, lacking key public services. 

Manufacturing in China
  • China opened up to globalisation in 1978 with Deng Xiaoping's Open Door Policy. Joined WTO in 2001. 
  • Special Economic Zones set up including Shenzen in Pearl River Delta, Guadong Province, and in Shanghai. 
  • Low wages attract initial FDI in the 1990s for cheap toys and textiles. Since 2000s also higher tech like computers and cars. 
  • Waged work lifted 680 million Chinese people out of extreme poverty since 1980.
  • Extreme poverty rate in China has fallen from 84% in 1980 to 10% in 2016 (though 20% still earn less than $2 per day, which the World Bank classes as poverty.)
  • Wage rates rising - workers in Honda car factory (Japanese TNC) earn $10 per day. Low wage manufacturing shifting to Vietnam and Bangladesh. 
  • Workers face long hours at repetitive tasks. Foxconn (Taiwanese TNC) produces iPhones outsourced by Apple, and operated 70 hour weeks in a Shenzen factory. 14 suicides in 2010. 
  • Initially health and saftey standards are low. In the 1990s 2500 lost a limb or finger each year in Yongkang metal factories.
  • Education free and compulsory for 5-15 year olds. Literacy rate risen from 20% in the 1950s to 84% in 2015. 
  • 7 million university graduates in 2014, 15x higher than in 2000.
  • Car ownership increased from 1% in households in 2000 to 20% in 2015.
  • Infrastructure expansion, e.g. Three Gorges HEP dam, high-speed rail (HSR) link Shenzhen-Shanghai-Beijing. 
  • Technology transfer as local companies adopt TNC techniques. New Chinese TNCs, like Huawei smart phones. 

Services in India
  • ​ India opened up to globalisation in 1991 with Prime Minister Manmohan Singh's economic liberalisation.
  • Much of initial globalisation through outsourcing rather than manufacturing.
  • India had a comparative advantage as it is English speaking, a legacy of the British Empire. 
  • Early investment in Indian Institutes of Technology produced a large pool of IT literate workers. 
  • Large TNC FDI in 2000s in call centres and back office functions, e.g. data entry, by firms including Microsoft, British Airways, HSBC and American Express.
  • Computer software design outsourced by TNCs such as Texas Instruments. 
  • Broadband access exceptionally high in Bangalore and other tech-city hubs. 
  • Technology workers earn $10 per day.
  • Inequality increased. India has more billionaires per capita than the UK, and more people in extreme poverty than the whole of Africa.
  • New Indian technology TNCs, e.g. Infosys founded in 1981 and had revenues of $9 billion in 2015. 
  • In 2015 Prime Minister Narendra Modi launched a 'Make in India' regime to encourage manufacturing FDI. 
  • However, in 2015 the World Bank ranked India 142nd in 'ease of doing business' due to a lack of proper bankruptcy laws, average 4 years to resolve contract disputes and legal restrictions on foreign ownership in some sectors.   


​Extra! Extra! Read all about it!

  1. Many economists argue that the 21st century will be 'Asia's century'