The reality of globalization

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

The issue on whether globalization is ultimately beneficial or harmful to the average citizen of the world is clearly still a much publicly debated issue. The historical champions of open markets – United States and United Kingdom – are now increasingly hotbeds for proponents of protectionism. On the other hand, China which used to be a highly protected economy is now championing globalization.

The rise in extreme global income inequality has been attributed to globalization. Trump’s presidential victory and the Brexit win in the UK have also been traced to popular disenchantment with globalization; and a perception that it has benefited only the very wealthy few. The DHL Global Connectedness Index – which tracks international trade, capital, information and people flow – shows that globalization slowed down in 2015 but did not go into reverse. Updated data for 2016 for trade and investment suggests a continued slowdown but still no reversal.

However, the media perception of globalization has become increasingly more negative. According to the Harvard Business Review: “An analysis of media mentions for the term ‘globalization’ across several major newspapers – Wall Street Journal, New York Times, Washington Post in the US and the London Times, Guardian, Financial Times in the UK – reveals a marked souring of sentiments with scores plummeting in 2016.”

A recent issue of the Economist magazine has apparently accepted the fact that globalization may have benefited certain sectors and regions, but has left behind large segments of society, in an article entitled “ Left Behind: How to Help the Places Left Behind by Globalization.”

The article provides some useful insights on the reasons for regional inequalities caused by globalization. Firms – particularly manufacturing – often do better when they are close together. A maker of industrial machinery saves on costs when it is near the firms that provide it with raw materials or components as well as  its customers. Manufacturing plants must therefore, come in clusters. A cluster of manufacturers attract workers. 

The same concept of ‘clusters’ apply to other industries. Financial firms do well in New York because they are close to banks that finance and clients that hire them. Start ups in Silicon Valley have access to financing, customers, and new ideas that they will not easily find elsewhere.

According to the Economist, “A larger, more integrated market enables production at more efficient scale and increased global output. Consumers gain access in cheaper and better goods and services including new foreign varieties.

They do imply, however, that production will become more geographically concentrated. Cities with long standing industrial tradition that could get by in a smaller economy find themselves bleeding talent and jobs.”

These concept of “clusters’ means that countries cannot afford to have a policy of attracting only single firms to invest; but, must look for ways to attract clusters of factories or financial firms or service firms. Even within a country, globalization will make regional inequalities worse.

As the rich became richer, their wealth was supposed to start “trickling down” to the poor so that ultimately everyone would benefit from the rich accumulating more wealth. This theory has never worked. Income inequality has reached a level unprecedented in human history. 

There was a time when the same “trickle down” theory was believed to be applicable to nations. As certain nations became richer, they were expected to share their wealth with the poorer countries of the world. This was the dream of many organizations like the United Nations. Instead, the rich Western nations continued to further enrich themselves by economic exploitation of the poor countries. The Third World countries were developed solely as sources of raw materials and markets for the goods and services of the Western imperial powers. Japan joined the Axis powers during the Second World War primarily because Imperial Japan needed to secure reliable sources of raw materials and markets for its industrialization.

Today, China – the new economic giant – is following the same imperial pattern of the past powers. Its Belt and Road initiatives are primarily aimed at securing reliable sources of raw materials and markets for its economy. The primary objective is to continue the economic growth of China.

China and Japan were once heavily protected economies until they were able to build an industrial and financial base that could compete with the rest of the world. Now they are suddenly champions of open markets and globalization.

The United States and the United Kingdom were once champions of globalization and open markets. But now that they are losing their competitive edge, these two countries have elected governments that are advocating protectionism.

Perceptions about globalization will remain mixed because its effects will continue to be mixed. Globalization and technological change will enhance the economies of scale that will result in more geographic concentration of wealth and talent. The Alibabas and Amazons will increase their dominance in the service industries which will further decimate locally based businesses. 

There are those who will insist that the exponential growth of technological change makes globalization inevitable. Perhaps that is true, but the process of change will be a costly and chaotic period. This is what history teaches us. The Industrial Revolution gave birth to the class wars and Marxist revolutions of the 20th century. The economic and social changes resulted in the rise of populist leaders and dictators that led to two World Wars and a Cold War. 

I once read two contrasting  articles on the same  topic. The title of one was “ Globalization at Warp  Speed”; and the other one was “ The End of Globalization.” The future reality will probably be somewhere in the middle of these two titles. Hopefully, the period of change will not be as violent as  similar periods in history.

Creative writing classes for kids/teens and adults

Young Writers’ Hangout for Kids & Teens on November 18, December 2 and December 9 (1:30-3pm/independent sessions). Turning Ideas Into Books  for Adults with Karina Bolasco on November 11, 2017 (1:30pm-4:30pm).  All sessions are at Fully Booked Bonifacio High Street.  For registration and fee details text 0917-6240196 or email [email protected].

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