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Is globalisation grinding to a halt?

BY BRUCE GOLDING

Sunday, October 21, 2018

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President Ronald Reagan and Prime Minister Margaret Thatcher, who came to office less than two years apart almost 40 years ago, had a profound effect on the world's political and economic arrangements. They were committed to defeating communism and establishing democracy, capitalism, free markets and free trade as the pillars of a new world order that they saw as being best able to secure peace and prosperity across the globe.

The collapse of the Soviet Union and its hegemonic influence, at around the end of their tenure, created the space for the Reagan/Thatcher vision of this new world order to forge ahead. Globalisation, as we know it today, was airborne. Institutions like the World Bank, IMF and GATT (now the WTO) were repurposed to build out and support this new architecture.

Globalisation held out the promise of increased prosperity for all, especially underdeveloped countries, through greater access to external markets, capital flows and the transfer of technology. To what extent has this promise been realised?

Globalisation's disappointing outcomes

Over the last 20 years, the world economy has grown at an annual average rate of 2.9 per cent. This is only marginally better than the average of 2.7 per cent during the preceding 20 years.

What is different is the fact that the distribution or share of that growth has shifted. Twenty years ago, the G7 countries (United States, Japan, Germany, United Kingdom, France, Italy, and Canada) accounted for 58 per cent of the world's GDP. That has now fallen to 46 per cent.

Emerging market countries were the main beneficiaries, their portion of global output moving from 18 per cent to 29 per cent. Their collective average annual rate of growth was 5.5 per cent compared to the global average of 2.9 per cent. This, however, was due mainly to China which saw its share of global GDP move from 3.9 per cent to 12.7 per cent while registering average annual growth of over nine per cent. The other emerging market countries recorded a modest increase in GDP share from 13.9 per cent to 16.6 per cent and average growth of 3.3 per cent.

The accompanying table illustrates how various groupings of countries have performed during this new era of globalisation.

The regions occupied by poor and developing countries have not fared well. Africa, with 54 countries and a population of more than one billion, rose from 1.6 per cent to only 2.2 per cent. Latin America's share of global output declined from 8.1 per cent to 7.5 per cent. Caribbean countries saw their share reduced from 0.095 per cent to 0.081 per cent. Jamaica's decline was even steeper — from 0.027 per cent to 0.017 per cent.

That, however, is only part of the globalisation story. The much anticipated robust growth in world trade has simply not materialised. World Bank data indicate that the average annual growth in the trade of goods and services over the last 20 years, adjusted for inflation, is 4.7 per cent compared with 5.0 per cent for the preceding 20 years.

The anti-globalisation movement

Globalisation has never been without its critics that have included economists, politicians, trade unions, environmentalists, and civil society groups. The WTO negotiations to refine multilateral trading rules were contentious and a crucial WTO conference in Seattle in 1999 was disrupted by mass protests. Many of the fears expressed by the protestors seem to have come to pass.

As many as 14 million people were employed by US companies operating offshore in the name of globalisation even while unemployment in the US rose to almost 16 million in October 2009. Cheaper labour and lower taxes were the main attractions. These, as well as cheap imports from China, have been blamed for not just the loss of American jobs but also the stagnation in wages. Real wages in terms of purchasing power are just 10 per cent above what they were in 1973 — a rate of growth of only 0.2 per cent per year.

The orthodox rule that wage increases should be in line with productivity improvements, so as not to be inflationary, no longer holds since productivity increases over this period have been measured at 77 per cent. The declining presence and influence of trade unions and changes in labour practices have weakened a layer of protection that workers' jobs and wages previously enjoyed. These phenomena are not peculiar to the US; they have been occurring right across the world. Nor were they brought about solely by the new globalisation which is of more recent vintage.

There are other oddities. Economists in the US are scratching their heads to solve the mystery of the lowest unemployment rate in 50 years co-existing with wage levels that remain defiantly stagnant. The law of supply and demand no longer seems to work.

In some respects, globalisation has been made a scapegoat. Technology and, in particular, robotics and artificial intelligence, are displacing workers and reducing the leverage they have either at the bargaining table or in the job interview. Many workers appropriately trained in a different era find themselves with skills that are no longer marketable and they are forced to accept lower paying jobs. Job retraining has lagged far behind workplace changes.

Globalisation inequalities

Shared prosperity was one of the selling points for globalisation. That has not panned out. Inequality among countries has hardly budged. In 1997, the top 20 countries controlled 82 per cent of the world's wealth. In 2017, that figure stands at 81 per cent.

Inequality within countries has worsened. Income disparity has been on the rise in most countries, developed and developing, since the 1980s, reversing a trend that had obtained for the previous half century. According to the IMF, more than half of the countries of the world have seen increased income inequality, with it being most acute in Latin America. Country data on income and wealth distribution is sketchy and imprecise, but what data is available suggest that 30 per cent of the world's population control 97 per cent of its aggregate wealth. This didn't begin with globalisation, but it appears to have exacerbated the pattern.

In the US, for example, the share of the national income that goes to workers has fallen from 65 per cent to 57 per cent. Shareholders' dividends and top-level salaries have increased at a much faster rate than the average worker's pay envelope. This pattern has been replicated in other parts of the world.

The global financial crisis of a decade ago, in which millions of working people lost their jobs, homes and life savings provided the perfect storm for villainising globalisation as the cause of this misery. The refugee crisis that had nothing to do with globalisation but was due to wars and conflicts and resulted in millions of people seeking safe haven wherever they could find it was blamed on globalisation.

President Trump skilfully pounced on this discontent and, as he promised during the campaign, has proceeded to repudiate international agreements, undermine multilateral institutions, unleash trade wars and restrict immigration, telling the UN General Assembly last month “We reject the ideology of globalism and accept the doctrine of patriotism.”

RISE OF NATIONALIST POPULISM

Trump is not a lonely gladiator. Populism, long associated with leftist political thinking, has now become the stock in trade of right wing movements in various parts of Europe, some of which now share power in coalition governments. The three leading economies in Latin America — Brazil, Argentina and Chile — seem headed in the same direction. Leftist leaders like Evo Morales and Daniel Ortega have never been supporters of globalisation.

What is perplexing is that the nationalist umbrella now shelters political parties and personalities from both the right and left, united in one common purpose — to roll back globalisation and whatever else, with or without justification, they identify with it. For example, the views of Bernie Sanders, an avowed democratic socialist, on the issue of globalisation are more in sync with Trump's than they are with those of Barack Obama or George W Bush, for that matter.

The flight of globalisation's defenders

Some of those who were the most ardent proponents of globalisation are now in retreat or retrospection. One such is Larry Summers, former World Bank chief economist, US Treasury Secretary and Harvard University president who headed Obama's National Economic Council. In a recent article he cited globalisation's successes as the fact that the major powers have not engaged in war, the improvements in global living standards, literacy and life expectancy, the reduction in hunger and poverty, the empowerment of women, and the proliferation of smartphones.

Commendable though these are, Summers provided no statistical linkages to show that globalisation had anything to do with these accomplishments. He strikes a sombre note when he acknowledges in the same article “the growing suspicion on the part of the electorates that globalisation is an elite project that primarily benefits elites”.

Fixing globalisation

Getting globalisation to work must begin with an acknowledgement that while it is not inherently a bad thing, it is not working the way it was promised to work. Some of the vaunted tenets of globalisation will have to be revisited. The notion that untrammelled competition is the best way to achieve efficiency and productivity has pitted the poor against the poor in a desperate struggle to control the lowest economic rung. The notion that cutting taxes is an essential pathway to investment and growth has boosted corporate profits, but it has forced national budgets to slash expenditure in critical areas like education, health, law enforcement, and justice and critical social services that determine a country's capacity to be productive and competitive.

Much of the effort in those areas has been dependent on multilateral loans and foreign aid, not revenues. Technology is marginalising the value of human capital when the objective of economic activity must be about people, not machines. The sustainability of the environment that had attached itself as one of the priorities of globalisation is now threatened as international agreements are abandoned and regulations discarded.

Globalisation's biggest dilemma, as Larry Summers suggests, is “the growing suspicion on the part of the electorates that globalisation is an elite project that primarily benefits elites”. It is more than a perception. The data suggest that it is real and history reminds us that tyranny and injustice, whether political or economic, are eventually overthrown. Globalisation is in danger of being so identified

A call for leadership

The lack of measurable positive results from globalisation and the growing economic disparities that exist require strong, perceptive leadership to identify what is wrong and fix it — not dismantle it and return to a jungle where interdependence is discarded, we each man our own ramparts, it becomes every country for itself and the strong survive at the expense of the weak. Trump, clearly, is not of that mindset.

Regrettably, we cannot expect much from other western leaders who might have been able to bring a more reasoned and deliberative approach. Angela Merkel's hold on power is becoming increasingly tenuous. Emmanuel Macron is facing his own political headwinds in a country with vibrant nationalist movements and his approval rating plummeting to 29 per cent. Theresa May is embroiled in Brexit negotiations and must constantly watch her back. That leaves only Justin Trudeau, poor soul. It is a vacuum over which, amazingly, Xi Jinping's shadow is beginning to loom.

Most world leaders, at both the political and institutional levels, who understand that globalisation needs to be fixed — not scrapped — are desperately seeking to avoid a confrontation with President Trump. They seem to hope that he, too, will pass. He might, but they would have miscalculated. Trump didn't start the anti-globalisation crusade, he merely grabbed hold of it and provided effective political leadership.

The Tea Party movement, which joined the brigade and facilitated his emergence, has changed the character of the Republican Party and its heirs and successors are determined to change that of American politics as well. Globalisation will need to be fixed long after Trump has gone, if it is not fixed before.

Jamaica's interests

Jamaica may not be front and centre in the globalisation arrangement. Unlike emerging market economies, we have not been able to take advantage of its opportunities. We have trade agreements that we have failed to exploit. But we are an open economy, over 75 per cent of which is related to inbound and outbound trade.

We have been working steadfastly to put in place the kind of macroeconomic framework that would allow us to be a bigger player in a global economy whose configuration and rules of play have now been thrown into uncertainty. We are more than bystanders. What happens to globalisation matters to us.

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