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8 Drivers of Change – Globalisation

United Kingdom
Written by
Lewis Silkin, widely recognised as the UK’s leading specialist employment law practice.
Of all the drivers of change, globalisation (or, more accurately a mix of globalisation and deglobalisation) has driven change most significantly over the past 12 months, not least due to Russia’s invasion of Ukraine.

The war in Ukraine has accelerated threats to globalisation and caused global turmoil, impacting trade and jobs. Sustainability and technology drivers have also played a significant role in driving this mix of globalisation and deglobalisation in the following ways: the cost benefits of manufacturing overseas diminished as lower labour costs are offset by increased automation; transport costs increased significantly with the increased cost of fuel (though shipping costs have declined dramatically in recent months now up only around 80% from pre-pandemic days after having risen by 500% at its peak in September 2021; geopolitics raised the risk of supply chain interruption; and the climate emergency brought into sharp focus the environmental consequences of globalisation.

In all likelihood, the globalised world economy will survive these current threats but emerge much changed.

Geopolitics – Russia, Ukraine and China

As with Covid two years earlier, disruption to the globalised economy as a result of war came out of the blue for many. However, like a global pandemic, geopolitical tensions overflowing into a war were existing threats to a system with little slack, which has been ill-prepared for interruptions for some time.

War in Ukraine has highlighted the dependency so many economies have developed for Russian oil and gas; Russian and Ukrainian cereals (the world’s second and third largest exporters before the war); as well as other products such as sunflower oil of which Ukraine was responsible for 46% of world production, and fertiliser of which Russia was the world’s leading exporter. This turmoil has fuelled the inflationary pressures many economies were already experiencing, with demand already outstripping supply as the world emerged from Covid restrictions. This inflation has contributed to a cost of living crisis which, in turn, is driving change throughout the world of work.

Fears remain that the Ukrainian war could escalate, for example if Russia uses nuclear weapons, bringing NATO countries into direct conflict with Russia. Any such escalation would be potentially catastrophic for humanity and today’s turmoil would pale into insignificance. Joe Biden has described the current situation as the highest risk of nuclear war since 1962 (the Cuban Missile Crisis).

Conflict elsewhere is likely to have less of an impact on global trade, though turmoil in Iran or elsewhere in that region would impact oil and gas supplies from the Middle East, with adverse consequences for the global economy.

The US and the West continue to grapple with a more influential and powerful China. The significance of China’s power was illustrated as its self-imposed Covid shutdowns, particularly in Shanghai, rippled through the global economy. China will remain of key importance to the global economy but the mutual mistrust between the two powerhouses shows no signs of healing anytime soon, and tensions over Taiwan continue to grow. Nonetheless, with Western and Chinese economies mutually inter-dependent, there is much to be gained by all from working towards a more positive and competitive co-existence. Rishi Sunak recently commented: “I also think that China is an indisputable fact of the global economy and we’re not going to be able to resolve shared global challenges like climate change, or public health, or indeed actually dealing with Russia and Ukraine, without having a dialogue with them”. In the years ahead, China will continue to dominate the production and refining of rare earth elements integral to the manufacturing of car batteries, smart phones and wind turbines amongst other products.

The UK and Brexit

Jonathan Haskel, a member of the Bank of England’s nine-member monetary policy committee, said that Brexit was “disconnecting the UK from its main trading partners” in a clear example of deglobalisation. For the UK, the political and economic consequences of Brexit become more apparent by the day. The UK’s Office for Budget Responsibility continues to predict that the UK economy will have contracted by 4% as a result of Brexit. The Financial Times reports that such a decline amounts to £100bn in lost output. In its September 2022 interim report, the OECD predicted that the UK’s economy will stagnate next year and at 0% will record the lowest growth of any G7 nation in 2023 save for Germany. The Bank of England is more pessimistic, recently predicting that the UK is now entering a two-year recession of negative growth.

Despite the Conservative government seeming still determined on a relatively uncompromising “Hard Brexit” outside the Single Market and Customs Union and the opposition Labour party committed to “making Brexit work”, popular support over the last 12 months for Brexit has ebbed away – 52% now consider the decision a mistake compared to 34% who think the decision as right (as at 12 October 2022).

Despite the UK’s new-found freedom post-Brexit to set its own employment laws, the UK government shied away from making changes under Boris Johnson’s leadership. While Liz Truss’ government promised to ensure all EU law is “off the statute books by the end of 2023” announcing a so-called Brexit Freedoms Bill soon after coming to power, the approach Rishi Sunak’s government will take is currently unclear.

Brexit has predictably resulted in increased costs for British consumers and is contributing to inflationary pressures. This incentive for UK residents to buy goods in the EU rather than at home is even greater with VAT refunds available on some purchases in the EU post-Brexit.

International trade

As the world began to emerge from Covid in 2021, international trade as a percentage of global GDP bounced back to 2018 levels (but some way below the highwater mark of 2011 to 2014). EU nations remain amongst the most significant trading partners for the UK.

The UK’s balance of trade deficit increased in 2021 from a surplus of £6.4 billion to a deficit of £29.1 billion. 2020’s numbers were exceptional on account of the pandemic but 2021 reflected similar numbers in the five years previously. The current account surpluses of the 1990s represent a long distant memory.

Trade agreements

The what of work is influenced by a country’s trade agreements. Post-Brexit, the UK government has focussed on a Global Britain policy seeking to substitute trade with the EU with trade elsewhere in the world. The only post-Brexit free trade agreements that the UK has entered into which are not largely replicating ones from which it benefitted under as part of the EU, are with Australia and New Zealand. The UK continues to pursue its ambitions to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and to strike trade deals with other countries including India and Middle Eastern states.

Knowledge jobs

The success of homeworking throughout the pandemic has led to greater international outsourcing of knowledge jobs (so-called “laptop jobs”) for which work can literally be performed anywhere with a high-speed internet connection. The past year has seen the geographical fragmentation of some workforces and the rapid growth of employers of record, as employers grapple with recruitment challenges and requests from existing workers to work temporarily or permanently in other countries.

For more information about employment law

James Davies
Partner - United Kingdom
Lewis Silkin

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