3.1.1 Growing economies

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    Why has the global labour force grown?

    INDUSTRIALISATION

    • Process moves from a primarily agricultural industry to manufacturing of goods. Mainly seen in developing and emerging economies
    • An example of this developing would be the movement of workers from rural to urban areas in China.

    GLOBALISATION

    • Workers can take advantage of job opportunities across the world rather than just in their home country – wider availability of jobs and labour.

    INCREASING LEVEL OF ASPIRATION/EDUCATION

    • Education system improves giving the children higher aspirations and opportunities due to their higher ability.

     

    GROWING POWER OF ASIA (CHINA AND INDIA)

    Both countries have a number of similarities:

    • Very large populations
    • Emerging quickly from poverty
    • High growth rates and increasingly powerful in economic terms
    • Privatising their state-owned enterprise
    • Trying to reduce big variations in average incomes
    • As their economies grow, Chinese and Indian exports of goods services have risen rapidly

    India and China developed in different ways as in 1990, the Chinese Government liberalised the economy which encouraged Western businesses to outsource production which boosted the manufacturing sector which raised incomes and higher GDP growth meant lead to the multiplier effect. In comparison, the Indian government were less keen on foreign investment. There was growth in the service sector  due to the large supply of IT graduates which brought in export revenues and they dominate the market for off-shoring IT services.

     

    Both countries have been investing in infrastructure as their low level of physical infrastructure means that they are disadvantaged. For example, the poor irrigation in India makes it difficult to sustain food grain farming if there is low rainfall. Higher supply costs delay businesses and it reduces the mobility of labour.

     

    The Asian Infrastructure Investment Bank (AIIB) is led by China and it funds Asian energy, transport and infrastructure. The founding members include the UK, Germany, Australia and South Korea. Infrastructure development is a top priority for the Chinese government. From the late 1990s to 2005, 100 million Chinese people benefited from improved power and telecommunications.

     

    GROWING POWER OF AFRICA

    Historically, African countries have had a number of weakness such as the following factors:

    • Low standards of living
    • High birth rates
    • Undeveloped level of manufacturing and uncompetitive
    • Dependent on commodities for export earnings and therefore vulnerable to changing prices
    • Poor communication due to difficult terrain as telephones do not penetrate the rural areas that many people live in.

     

    Africa gains aid from China and by the end of 2009, they received 45.7% of China’s cumulative foreign aid. It is important to China as a foreign policy instrument as they may have access to the natural resources in Africa. Africa’s economy grew by 5% in comparison to 1% in Europe. The savings rate of Africa is 17%, which is half of the average in middle income countries which makes it more expensive for the public and private sectors to get funds as they have higher borrowing costs. Rapid population growth has complicated efforts to reduce poverty and eliminate hunger in Africa. The current population of 1.1 billion is expected to double by 2050, which is not sustainable.

     

    South Africa has grown steadily since 2009 with the manufacturing sector developing (now 30% of GDP) but this growth slowed after 2011. In Nigeria, incomes have risen steadily since the 1980s, but they are threatened by the low oil prices from the Middle East.

     

    They are also affected by their volatile commodity prices, especially in terms of oil. Between 1987 and 2001 prices fluctuated around $25 but up to $100 until 2013 due to raising demand from China and other emerging economies. From this time onwards, prices fell which meant oil-producing countries had to cut back on infrastructure spending which was exacerbated by slowing international trade and increased supply from countries such as Iran, Libya and USA.

    Implications of economic growth for individuals and firms

    INDIVIDUALS:

    • Average consumer income increases as more people are in jobs and wages increase
    • More confidence in the economy, increasing consumption and higher living standards
    • Economic growth does not benefit everyone equally as those on low or fixed incomes will not benefit as much and inequality may increase
    • Likely to be demand-pull inflation due to higher levels of consumer spending

     

    FIRMS:

    • Firms have higher demand and may therefore have higher profits, increasing their level of investment in the economy
    • As firms grow, they can take advantage of economies of scale and may be used to improve productivity and therefore lower average costs
    • Firms supplying inferior goods will see a fall in sales.
    • Higher levels of technological investment from the profits gained from the increase in AD.

     

    There are increased trade opportunities for firms as economic growth means that economies become more attractive to firms as there are more opportunities and higher sales revenues can be invested into machinery and reduce need for workers (rationalisation). There is also a change in employment patterns as economic growth means that firms will employ more workers due to increased demand for output.

     

    Rising Incomes

    • Pay has risen for most citizens and goods are cheaper therefore consumers have more spending power. Consumption rises causing AD to increase as a result and even cause demand-pull inflation.
    • People with scarce skills see their wages rise more rapidly than others as higher paid workers will be in high demand and firms pay higher wages to entice workers. This causes wage poverty and inequality to increase (disparity of wealth) as money is not evenly distributed.
    • In developing countries, rising incomes can lift people out of poverty as it is estimated in China that half a billion people were lifted out of poverty due to the average 10% growth rate.

     

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