The Impact of Globalisation on the Australian Econ Essay Example For Students

The Impact of Globalisation on the Australian Econ Essay omyThe Impact of Globalisation on the Australian EconomyGlobalisation is not new. Australia has been involved in trade, investment, financial flows, technology transfers and the migration of labour since its foundation as a colony. What has changed is the size, direction and influence of these transfers, especially since 1980. There are a number of factors that have aided this transformation. They include:The expansion of new markets foreign exchange and capital markets are linked globally. They operate 24 hours a day with dealings any where in the world possible in real time. Financial deregulation and the floating of the Australian dollar since 1983 intensified the impact of globalisation on the Australian economy. New technology and the tools of globalisation the internet, email, mobile phones, media and communication networks have all sped up the process of globalisation. They have increased the spread and speed of knowledge transfer and communication. Australian consumers can buy products from any nation in the world, transfer funds between accounts or purchase shares in any major market. Australian businesses can market their products at a fraction of the cost and be exposed to a global market place of competition. This potentially is the closest we will ever come to the perfect market. New institutional players The World Trade Organisation (WTO) has growing authority over national governments, as does the IMF with its restrictions and controls it can impose on nations requiring assistance. Multinational corporations have more economic power than many nations. Hedge funds and financial dealers are able to manipulate financial flows and subsequently exchange rates, leaving nations helpless in their wake. This in turn renders traditional economic policy tools virtually useless. New rules and restrictions Multilateral agreements on trade, services and intellectual property rights, backed by strong enforcement mechanisms, reduce the scope for national governments to develop their own economic policies. What is Globalisation?Globalisation is the growing economic interdependence among nations as reflected in increasing actual movement across nations of:TradeInvestmentTechnologyFinance andLabourand the capacity to move and the potential movement across nations of those 5 elements. The Impact of Globalisation on Australias TradeAustralias trade policies, since the middle of the 1980s, have been geared to opening domestic industries to the global market (Graph 1). A prime focus of structural reform has been to subject the private sector in Australia to more competition from both domestic and international sources (Treasury, 1999). Australia has traditionally had high levels of protection, since the 1950s in areas like textiles, clothing and footwear and motor vehicles. In the early eighties the effective rate of protection in the TCF industries was in excess of 200% and 57.5% for passenger motor vehicles. While some people would argue that cutting protection will reduce employment. Most industries that were heavily protected during the 1970s and 1980s still suffered losses of employment and were not efficient enough to compete in export markets. Graph 1: Effective Rates of Protection in AustraliaYearsSource: Productivity CommissionCuts in protection have increased imports but the increased efficiency has led to a comparable rise in exports. The value of exports plus imports of goods and services has risen from 32% of GDP in 1975 to 48% of GDP in 2000 (ABS), reflecting the growing influence of globalisation on the Australian economy. Table 1 shows the effect of cutting protection in manufacturing industry in Australia from 15% in 1989/90 to 6% in 1996/97. It led to an effective reduction of the net subsidy equivalent, ie. the amount of subsidy that would have to be paid to have the same effect, as the current level of protection. This fell from $10.2 billion to $4 billion. Production rose in real terms by 8.9% and the manufacturing trade balance, while still negative, has also improved. Table 1: The Effects of Cutting Protection in Manufacturing in AustraliaSource: Productivity CommissionThe impact of globalisation has also c hanged the structure of Australias trade. There has been considerable growth in manufacturing and service industries with limited growth in the rural sector (Table 2). This reflects a combination of changes in world demand and domestic structural reforms. Table 2: Annual Growth in Exports, by Sector, 1985-86 to 1995-96. Source: Australian Bureau of Statistics, 5368.0Globalisation and Financial MarketsThe spread of globalisation especially since 1990 has introduced many new elements into the financial markets and what determines the value of a nations exchange rate. This does not just apply to Australia, but as we saw in the later half of the 1990s, to many other nations in the world. Firstly, trade in goods and services makes up a much smaller proportion of the demand and supply for currency. In the world economy, payments for international trade only account for about 1% of foreign exchange transactions. The total foreign exchange requirements for exporting and importing of goods and services in Australia is less than 3% of the total use of the foreign exchange turnover in Australian dollars (Reserve Bank Bulletin, Table F7 and Australian National Accounts, 5206.0). The main purpose for foreign exchange trading is international financial transfers of funds. Financial flows take many forms. The fast est growing area has involved interest rate, currency, equity and commodity derivatives. Interest rate and currency derivatives make up approximately 98% of the total value of derivatives traded. The Rate of the Reaction of Catechol to Benzoquino EssayThe second component of globalisation involves the potential impact of changes in the global market on economies. This means businesses consider the potential entry of international competitors into their markets. Businesses plan pricing strategies and employment policies based on what could happen if cheap foreign producers or TNCs entered the market. It also means businesses consider, or threaten to set up, their operations in countries where profits are expected to be greatest, eg low wage countries, where unions are suppressed and there are low corporate tax rates. Governments and employers use these fears to push for labour market and workplace reforms. This has occurred in Australia with the move to individual contracts and the growing casualisation of the workforce. While some highly skilled workers may benefit from this, the lowly skilled and marginalised workers tend to lose out through poorer working conditions and l ess job security. The Implications of Globalisation for Economic Policy Makers in AustraliaThe Australian Governments in recent decades have been moving Australia more into the international market place. There has been in Australia ongoing structural reform over the past two decades: including sustained tariff reform; financial market reform; reform of the operation of government business enterprises; enhancing national competition policy; changes in foreign investment rules; tax reform; labour market reform; reform of corporate governance arrangements and others. The Treasury (1999) points out the prime focus of reform has been to subject the private sector in Australia to more competition from both domestic and international sources and to improve the performance of public utilities. The desired benefits of these reforms are lower prices and increased productivity, which in turn reduce input costs for other industries and increase aggregate employment opportunities. The other desired benefit is to integrate Australia more fully into the global economy. While the implications of these policies in themselves have many consequences, the increasing integration of Australia into the global economy has consequences in itself. Some economists argue that globalisation has limited the ability of governments to use fiscal and monetary policy to manage the macroeconomy and achieve full employment (Latham 1998). The Treasury believes that globalised financial markets can impose severe costs on governments that pursue what the markets view as inappropriate policies, and it is probably true that bad policies are more readily penalised by investors than previously. It is worth noting that the importance of overseas investors views of Australian policy does not arise from globalisation per se. What has changed is that technology has increased both investors access to information and their ability to act quickly based on that information. In Australias case, financial markets are essentially concerned with Australias ability to achieve strong susta inable growth, without rising inflation or unsustainable current account deficits. They can certainly react quickly and adversely to policies that they believe would adversely affect these indicators. The problem is, as already noted, that financial markets do not always follow economic fundamentals. As Ian Macfarlane (2000), Governor of the Reserve Bank of Australia, stated in November 2000.The exchange rate has behaved during 2000 in a way that no-one predicted. The effectiveness of Reserve Bank intervention in the foreign exchange market is becoming less and less as financial markets expand. While the Reserve Bank can probably be quite effective at pushing the Australian dollar down by selling the currency, it is very limited in pushing it up. The RBA only has its limited foreign reserves to buy the Australian dollar. The value of Australias foreign reserves fell from $22billion US in December 1999 to $16billion US in September 2000. The amount of Australian dollars traded in one day in Australias foreign exchange market exceeds its total foreign reserves. As was seen in the Asian crisis in 1997 in Thailand, running down foreign reserves will not always halt a currency decline. The US Federal Reserve is probably the only central bank that can strongly influence the decisions of fund managers. The financial traders and dealers seek a low inflation, low interest rate, low current account deficit, high growth, budget surpluses and small public sector. If the Government does not achieve these policies, the markets will punish it. If they do achieve them, the markets may still punish them. Any way you look at it, Australia is integrated into the globalised world economy and is dependent on the activities and policies of globalisation. Australias future will move with the ebb and flow of globalisation.