Globalization is the Scapegoat Not the Sin
By Joe Losavio
If the elections of 2016 taught us anything it is that there is widespread agreement on the cause of society’s ills: Globalization.
Assailed from the right for shipping jobs off to undeserving foreign workers, the left for lining the pockets of corporate bosses; in the developed world its main beneficiaries are often seen to be foreigners willing to undercut labor costs, while in the developing world it is frequently portrayed as a tool of corporate colonialism. Globalization is even used to fan cultural anxieties, from understandable fears of being overwhelmed by mass media, to the dangerous delusions found in some countries that homosexuality or gender equality are unwanted foreign imports. However, lost in the ongoing conversations about the impact of globalization are its benefits and a truthful discussion of its negative effects – as well as those wrongly associated with it – which keep real solutions from being proposed. Until the conversation around globalization is responsibly reframed, its shortcomings will remain unaddressed and its promises unfulfilled.
Victims of Technology, not Trade
A major driver of the animus toward globalization, particularly in developed economies, has been the tendency to see the small, but very concentrated, downsides and not the widely dispersed, or far removed, benefits. For instance, it’s easy to connect the shuttered factory outside of town with free trade, but difficult to connect the cheaper consumer goods in the shopping cart. In the United States alone, the increase in product variety caused by the influx of cheaper consumer goods from 1972 to 2001 has increased value to U.S. consumers by 2.6 percent of GDP, nearly half a trillion dollars in 2016. The biggest beneficiaries of these gains are largely those in the lowest income levels. The decrease in price and increase in variety is most pronounced at the lower end of the value scale in products like agriculture, textiles and other basic consumer goods, which are most likely to be imported, and take up a greater share of a poor family’s budget. This means that restricting trade has a disproportionally negative impact of the standard of living for low-income families.
Though politicians often deliver panacean promises that jobs will return once we simply increase restrictions on globalized trade, the rise of automation will make it far more likely to do the opposite. In fact, automation and mechanization have had a far larger effect on the loss of manufacturing jobs in developed countries than international trade. Despite the common “we don’t make things anymore” refrain, which has popularized the notion that developed economies eagerly outsource manufacturing to countries with cheaper labor, many developed economies have never manufactured more. In the United States, nearly 7 million manufacturing jobs have been lost since 1979, yet manufacturing output has doubled. One recent study found that 88 percent of job losses stemmed not from lowered global trade barriers, but increased efficiency due to factors like automation and mechanization. The increased ability to shuttle unfinished goods across borders because of more liberalized trade can, in fact, save manufacturing jobs. Cheaper intermediate inputs for manufactured products lower the cost of producing more valuable goods in the U.S., preserving jobs that would have otherwise gone to a machine. The globalized supply chain allows for the costs of final products to be lowered with products often crossing the same border many times before completion.
In the worldwide context, the benefits of globalization are even more profound. Since 1990, as former Soviet states gradually opened to the global economy and cooperation on international trade policy increased, the number of people living in extreme poverty around the world has fallen by one billion. Globalized commerce has become among the most successful anti-poverty programs in history. Export led growth has propelled hundreds of millions into the middle class exemplified by countries like China and South Korea, once desperately poor and now approaching middle and even upper income status. This decrease in poverty has also led to an increase in passivity, with this more integrated world experiencing the most peaceful period in human history, despite the histrionics on cable news chyrons. Look no further than the European Union, at its core a giant free trade area, to see how economic integration led by eliminating trade barriers has provided the member states with the longest period of peace since Pax Romana.
Creating a more interconnected, but responsive, world
Contrary to the overly simplistic campaign slogans presented by many politicians – both in the U.S. and around the world – scaling back globalization is not the answer. From the U.S. perspective, throwing up trade barriers could bring jobs back from China, but those jobs are vastly more likely to go to a robot than a human, while making everyday goods more expensive and decreasing the standard of living for low-income households. Additionally, in the developed world, continuing to demonize globalization as the cause for the economic woes felt by the working class is doubly harmful in that it leaves the true driver of low-skilled job loss – automation and mechanization – unaddressed, and glosses over the important impact globalization has had on raising millions out of poverty. The conversation needs to be refocused around what can be done better. Clearly, the management of globalization has not been perfect, the benefits have been unevenly spread and costs have been more painful than initially envisaged. Further, more work must be done to ensure civil society is included in the conversation during trade negotiations and investment treaty discussions. Too often the conversation is strictly between governments, with a heavy helping of corporate lobbying. Non-governmental groups who represent a more diverse array of stakeholders should be more directly consulted. This should also include more support for helping small and medium sized enterprises, who employ far more people than mega corporations, plug in to the globalized economy.
Additionally, the role of overarching international organizations needs to be increased, not diminished. The best way to make sure all parties play fairly is to ensure that the authority of third party institutions is respected. This will require countries to live up to their obligations to, and abide by the decisions of, the international organizations meant to govern the mechanism of globalization like the World Trade Organization and the International Centre for Settlement of Investment Disputes, the organ of the World Bank that adjudicates many international investment disputes. Many of the distortions caused by international economic liberalization are the result of nations trying to beat the system – i.e. currency manipulation, non-tariff barriers, etc. – and solidifying the legitimacy of unbiased international organizations allows rule-breakers to be brought to account more easily. This will be aided by countries, both big and small, respecting binding economic verdicts with equal commitment. Keeping lines of communication open is also important; providing transparent platforms for dialogue between those structuring a more globalized world and those who feel left behind by it will be crucial in ensuring that both national and multilateral policy is more responsive to the concerns of average citizens, national governments, and the business community. Globalization is imperfect, but it has been and will continue to be a force for improving the lives of people around the world. However, in order for it to fulfill its promises a more, not less, globally focused conversation is needed, and the ties that bind us must be strengthened. A more connected globe is a richer and safer one, we must ensure that the way we get there leaves no one behind.
Joe Losavio works on international long-term investing, infrastructure, and development initiatives in New York. He has a M.A. in International Relations and International Economics, with a concentration in International Law and Organizations, from the Johns Hopkins School of Advanced International Studies, and a double B.A. in International Relations and East Asian Languages and Cultures from the University of Southern California.