For much of the second half of the 20th Century, and even into the new millennium, ‘Globalization’ was the dominant theme used to describe the drift of the world economy. It was widely considered both natural and inevitable that the world economy would continue to integrate and that national boundaries would become less constraining to commerce and culture. And with the exception of the eternal ‘anti-globalization’ protesters, who robotically appeared at large gatherings of world leaders, the benefits of globalization were widely lauded by politicians, corporate leaders and rank and file citizens alike. But a casual glance at the world headlines of 2016 suggests that the belief in globalization has crested, and is now in retreat. What are the consequences of this change?
International trade has existed for millennia. But few modern historians would characterize the trade caravans that crossed the Himalayas and the Sahara as sources of international conflict. Rather, they are widely seen as a useful means to bring goods that were plentiful from one region to other regions where they were scarce. Along the way, routes like the Silk Road in Asia created a great number of positive secondary benefits in culture and politics. But relatively modern developments such as ocean-going sailing ships, modern navigation, and steam and diesel power, have greatly increased the size and scope of trade. Globalism was also boosted rapidly by technological advances in communications, including intercontinental jet travel, fax machines, satellite telephones, the Internet, real time money transfers and massive investment flows to international and emerging markets.
Since the end of WWII, the establishment of international reserve currencies and the rise of supranational organizations, such as the United Nations, The World Bank, and International Monetary Fund, has saddled trade with more political baggage. The rise of bi-lateral and multi-lateral trade negotiations, which are often shadowy and bureaucratic affairs conducted behind closed doors, have further eroded support for trade. Oftentimes these efforts have resulted in deals that clearly favor politically connected players and have given rise to justified accusations of cronyism. By opening larger markets and reducing costs, certain corporations have amassed shocking wealth. The benefits to workers are far more diffuse and difficult to quantify.
The Harvard Business Review of May 13, 2016 published an article by Branko Milanovic about the unequal distribution of wealth generated by globalism. Milanovic comments that, since the mid-1980s, globalism has resulted in the ‘greatest reshuffle of personal incomes since the Industrial Revolution. It’s also the first time that global inequality has declined in the past two hundred years.’ Milanovic points to two main conclusions. First, he highlights the massive percentage gain in wages in Asia, particularly among the middle classes. In some cases, percentage wage gains in the Asian middle class have eclipsed the percentage gains experienced by the top one percent in the richer Western economies.
In stark contrast, the U. S. and Western lower and middle classes have enjoyed almost no percentage wage increases, while their top one percent was the only group to experience significant income gains, based on available household surveys from 1988 to 2008. A recent unpublished paper by John E. Roemer, a political scientist at Yale, suggests that the diminishing of global inequality made possible by trade is far less potent politically than the relative increases in national inequality. In other words, the benefits of globalism are obscured while the costs are highly visible.
This post was published at Euro Pac on October 26, 2016.