GLOBALISATION

A buzz word that refers to the trend for people, firms and governments around the world to become increasingly dependent on and integrated with each other. This can be a source of tremendous opportunity, as new markets, workers, business partners, goods and services and jobs become available, but also of competitive threat, which may undermine economic activities that were viable before globalisation.

The term first surfaced during the 1980s to characterise huge changes that were taking place in the international economy, notably the growth in international trade and in flows of capital around the world. Globalisation has also been used to describe growing income inequality between the world's rich and poor; the growing power of multinational companies relative to national government; and the spread of capitalism into former communist countries. Usually, the term is synonymous with international integration, the spread of free markets and policies of liberalisation and free trade. The process is not the result simply of economic forces. The decisions of policymakers have also played an important part, although not all governments have embraced the change warmly.

The driving force of globalisation has been multinational companies, which since the 1970s have constantly, and often successfully, lobbied governments to make it easier for them to put their skills and capital to work in previously protected national markets. Firms enjoying some national protection, and their workers, have been some of the main opponents of globalisation, along with advocates of fair trade.

Despite all the talk of globalisation during the 1990s, in some respects the world economy was more integrated in the late 19th century. The labour market was certainly more global. For example, the flow of people out of Europe, 300,000 people a year in the mid-19th century, reached 1million a year after 1900. Now governments are much fussier about immigration, and people are no longer free to migrate as they wish. As for capital markets, only in the 1990s did international capital flows, relative to the size of the world economy, recover to the levels of the few decades before the first world war.

This early globalised economy did not last for long, however. Between the two world wars, the flows of trade, capital and people collapsed to a trickle. Even before the First World War, governments started to put up the shutters against migrants and imports. Could such a backlash against globalisation happen again?

LABOUR

Labour. One of the factors of production , with land, capital and enterprise. Among the things that determine the supply of labour are the number of able people in the population, their willingness to work, labour laws and regulations, and the health of the economy and firms. Demand for labour is also affected by the health of the economy and firms, labour laws and regulations, as well as the price and supply of other factors of production.

In a perfect market, wages (the price of labour) would be determined by supply and demand. But the labour market is often far from perfect. Wages can be less flexible than other prices; in particular, they rarely fall even when demand for labour declines or supply increases. This wage rigidity can be a cause of unemployment.

A flexible labour market is one in which it is easy and inexpensive for firms to vary the amount of labour they use, including by changing the hours worked by each employee and by changing the number of employees. This often means minimal regulation of the terms of employment and weak trade unions. Such flexibility is characterised by its opponents as giving firms all the power, allowing them to fire employees at a moment’s notice and leaving workers feeling insecure.

Opponents of labour market flexibility claim that labour laws that make workers feel more secure encourage employees to invest in acquiring skills that enable them to do their current job better but that could not be taken with them to another firm if they were let go. Supporters claim that it improves economic efficiency by leaving it to market forces to decide the terms of employment.

Labour theory of value is the notion that the value of any good or service depends on how much labour it uses up. First suggested by Adam Smith, it took a central place in the philosophy of Karl Marx. Some neo-classical economists disagreed with this theory, arguing that the price of something was independent of how much labour went into producing it and was instead determined solely by supply and demand.