Changing the nature of globalization

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

Just a few years ago, globalization was considered beneficial to the world. It is said to be the reason that the poverty rate all over the world has gone down. Today, however, we have a reversal of opinion.

Let me first define globalization. It is the process of integrating people, companies and governments worldwide.  The present wave of globalization was brought about by technological changes in transportation, communications and industrialization. These accelerated technological changes started in the 19th century. However, some historians believe that these technological advances began even in the 18th century.

The invention of the telegraph and the telephone began the revolution in communications technology and was further accelerated by the invention of the internet and now, digital technology. In the areas of transportation, the invention of the railway, steam engine, airplane, automotive engines, initially began the process of making the world smaller.

Thomas Friedman is considered one of the great prophets of globalization, especially when he wrote his book “The Lexus and the Olive Tree.” He expounded on the concept that globalization actually comes in waves in history, but always brought about by technical change. His other book is “The World is Flat.” In the 2022 Davos meeting, he said that despite war, uncertainty and unrest, there are still many reasons why globalization is stronger than ever. His most interesting words were when he said, “You know there is a library of books telling me the world is not flat, it’s spiky, it’s lumpy, it’s curvy, it’s jumpy. Get over it. Okay. If World War One didn’t stop globalization, if World War Two didn’t stop globalization, what makes you think the war between Ukraine and Russia is going to stop globalization when in fact it’s actually the first world war, not World War One, not World War Two. This is the first world war. Two-thirds of the world’s following it on a smartphone. So I just find the whole notion preposterous.”

I used to consider Friedman as my management guru for several decades. But now I find that he is worshipping at the altar of globalization without acknowledging that it is also the source of many political and social ills which have plagued the world the last couple of decades.

One of the greatest ills that it has caused is the dramatic rise of income inequality leading to such tragic conclusions like that only less than 70 people own 50 percent of the wealth of the world. To put it graphically, less than 70 people own more than three and a half billion people in the world. This tragedy of wealth and income inequality has led to the rise of populism and authoritarianism as the ordinary citizens see the rise of the wealth of a handful compared to their increasingly stagnant income. This over-concentration of wealth was brought about by the fact that globalization has allowed companies to relocate their investments and manufacturing plants to countries with the lowest wages.

For example, in the Philippines, there used to be a thriving industry in the area of footwear and textiles and garments. Those have all moved to countries with lower wages like Bangladesh.

However, there have been recent events that have disrupted the supply chain of companies that have led to price increases and supply shortages. This was brought about by basic business concepts resulting from globalization and now have become causes of disruptions in the supply chain. For example, more than two or three decades ago, the term supply chain was not well known even in the business community. The term often used was “purchasing.” It became so when business realized that they could outsource their inventory requirements from anywhere in the world at any time they need it. So the concept “Just in time” became very popular, that business did not have to keep inventories, but could purchase their needed  materials only at the time they actually need it. This resulted in huge savings and much lower costs.

However, in the last few years, the onset of climate change has brought about floods and other natural disturbances, causing disruptions in the supply chain. At the same time, this recent war between Russia and Ukraine has also caused the awareness that over-dependence on any one country, for example, energy supplies could be disrupted at any time.  Companies now are turning away from the “Just in time” concept, a supposed benefit of globalization.

Another example is that government and the people in more advanced countries have realized that the reason certain countries can offer lower labor costs is that they are able to effectively control the wages of the laborers in their country, preventing any major increases. This has led therefore to low wages in countries like the Philippines who are unable to provide living wages that will allow lives of dignity.

Unfortunately, however, the governments that have the power to maintain low wages are those that are autocratic or authoritarian.  Therefore, it can be concluded that globalization has been tremendously beneficial for companies that are looking for the countries with the lowest wages which has forced employees in their own native land to keep salaries of their workers low.

All these disruptions caused by climate change, wars and populism have now become evidence that the present nature of globalization has led to a global society that is increasingly unequal. This has led to the rise of populism caused by increasing wealth inequality. While globalization cannot be made to disappear, it is clear that the nature and the essence of the present globalization must change.

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