Globalisation,Managing migration as a source of workers, a response to ageing, and a benefit to development;

23 February Print

Globalisation,Managing migration as a source of workers, a response to ageing, and a benefit to development;

The combination of technological progress, lower transport costs and policy liberalisation in the European Union and elsewhere has led to increasing trade and foreign investment flows between countries. This has important consequences for the functioning of the EU economy. While globalisation brings huge benefits and opportunities, it also means that Europe has to face fierce competition both from low-cost economies like China and India and from innovation-driven economies like the US.

Rising international economic integration, or globalisation as it is commonly known, offers many opportunities. EU firms are given easier access to new and expanding markets and sources of finance and technology. EU consumers are given access to a larger variety of goods at lower prices. This opens the prospect of potential significant gains for the Union in terms of higher levels of productivity and real wages. The European Commission estimates that about one-fifth of the increase in EU-15 living standards over the past 50 years is attributable to globalisation. That is why the Union has been firmly in favour of greater economic openness. Its trade policy has been an important instrument for steering world trade liberalisation.

However, the public often associates globalisation with job losses and downward pressures on wages and working conditions. These anxieties are based on fears that increased competition from low-wage countries puts too much pressure on local producers and workers and may result in the closure, or partial closure, of factories at home and their relocation abroad. While these concerns are not new, they seem to have been heightened by the emergence of China and India on the world trading scene. In particular, the widespread use of information technologies increasingly erodes the boundaries between what can and cannot be traded.

Finding an adequate response to globalisation may be seen as part of the broader policy challenge for dynamic economies – i.e. to successfully cope with structural economic change. To reap the gains from globalisation it is necessary to undergo a process of adjustment as factors of production – such as investment capital – move from activities and firms that cannot withstand the increased competition pressure to those that thrive on it. However, while there is evidence that globalisation has not been associated with overall net employment losses, the adjustment of economic structures does have costs resulting from resources being moved between firms and activities. The more rigid labour, capital and products are, the more costly this structural adjustment is, and it may be strongly felt, at least in the short term, in particular sectors and in the regions where these sectors are concentrated.

The policy challenge is to turn the potential benefits of globalisation into real gains while minimising the social costs. Measures to improve the functioning of EU markets and to boost innovation performance will help shorten the adjustment process, while targeted policy actions such as the European Globalisation Adjustment Fund will assist any affected workers. As well as these internal issues, there are also significant external challenges facing the EU which require policy responses, including:

  • Encouraging global trade and maintaining Europe’s position as the leading global trading bloc;
  • Managing migration as a source of workers, a response to ageing, and a benefit to development;
  • Maintaining the EU’s position as a source and destination for foreign direct investment (FDI);
  • Managing imbalances in the global economy in partnership with others.

The Commission plays an important role in the design of a coherent policy strategy to face the challenges of globalisation. It closely analyses the evolution of main trends in world trade and FDI flows and the performance of the EU in this regard. It also regularly analyses the impact of globalisation on the EU’s economic performance and provides policy advice on the basis of its analysis.

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