Sunday, March 6, 2016

Premature Globalization

Globalization has come too early in humanity's history and gone too far. It is unsustainable with burdens and benefits distributed too unevenly to provide a basis for global stability. Globalization of the market has concentrated wealth in some places at the cost elsewhere of erratic consumer- and export-driven growth that distorts economic development and entrenches poverty. Free trade has meant cross-border transfers of jobs that have left many struggling to make ends meet in the “new economy” while helping others in low wage markets to enter the cycle. The resultant distortions have thus both concentrated and generalized inequality. Globalized media greatly magnifies the perception of inequality by delivering clear images of what is available elsewhere thus potentiating large-scale population movements. Globalization in the 21st Century benefits only some at the cost of the many who have been encouraged to believe that they too benefit from the increased availability of cheaper goods that they can't fix but must constantly buy anew. The majority of humanity still must struggle to attain or maintain a decent living for themselves and their families and a future offering hope for their children.

Within countries, those who directly benefit from the various facets of globalization face a rising tide of political opposition. In what may turn out to be a seminal offering, Peggy Noonan in a recent WSJ piece outlines an important distinction between what she calls the "protected" and the "unprotected." Taking this concept perhaps a little further than she would, the protected are those who make public policy or have purchased the people who do. Through their decisions and predominant political power, the protected impose mechanisms, processes and conditions that provide them direct benefit. The unprotected are those who must survive in the world that the protected make for them. The protected live the good life secure in their own communities. Because they are mostly insulated from any negative effects of their policies, they feel they can inflict anything on the rest. The unprotected live with none of these advantages and all of the fallout. Populist political movements from the left and the right have arisen in may places as the unprotected have lost their patience with traditional politics and politicians. In the US that includes Trump and Bernie Sanders, in Europe populist parties from France to Poland threatening or wresting political power from the “centrists.”

The root problem could be termed premature globalization. It might seem that the tying together of the world's economies might have been the result of some inevitable natural force. But the lowering of trade barriers and opening of borders has been the result of a myriad of political decisions by the protected. They have been able to move jobs to places with lower labor costs and to “import” – through legal and “illegal” migration – cheap labor to where they need it. Free trade always means that jobs move from one place to another. All those Chinese “lifted” out of poverty through years of high growth have come directly from jobs moved from America and elsewhere. The benefit to the unprotected – including the many in the developing world not able to compete with China or the West – has been slim and often fleeting. But as a friend has noted, free trade is only Pareto-optimal if the gains are broadly shared. The gains have not been broadly shared but the costs have.

Who benefits from free trade: the owners of capital and their public servants. They reap the profits and gain extra from buying favored treatment (openly or through corruption). Also, the local political elites of developing countries who monopolize power and skim off what comparatively little wealth trickles in from the global trade channels. Some from supplying raw materials (often mined or grown in ways wasteful and injurious to the environment and local populations), some from importing those planned-obsolescence consumer goods. (I freely admit to “benefitting” from the endless series of iPhones.) In America, they use their advantage to win favorable tax rates (or move operations elsewhere) while pushing to reduce “wasteful” government expenditure on things like infrastructure, healthcare or social welfare.

The primary role of government should be to ensure that all citizens can earn a basic living while helping them provide a suitable and nurturing environment for their children. This means the economy needs to provide a range of jobs from the highly skilled to the basic to mirror the natural mix of abilities and interests. Taking just the United States, over the last decades the Democrats and Republicans both have failed to meet this test. They have pushed the “benefits” of free trade at the cost of millions of jobs lost. Their mantra has been the benefits of those cheaper consumer goods and the possibility of newer jobs in the advanced economy. Even before the 2008 financial tsunami, those newer jobs were hard to find and most were lower pay.

When I was a lad in the 1950s and 60s, my parents raised five children on the salary of a truck driver plus the occasional factory employment of my mother. Try raising five children today on a working stiff's salary, even if both parents work. (How many political hacks rail against abortion but don't care a whit about how to pay for raising those children once they are born?) The protected also benefit from cheap imported labor, often forced to work off the books or as “contractors” without benefits. They do the jobs “Americans won't do.” Translation, they do the jobs Americans won't do at wages too low to allow a decent living.

Globalization would work well in a world of less pronounced inequality. But we have been pushed into it prematurely. The world of the 21st Century perhaps just does not produce enough wealth to share sufficiently for most people to have a decent life where they were born. Thus the wave of refugees – who come from the ranks of the unprotected whether because of conflict or poverty – overwhelming the gates of Europe or trying to somehow get through Mexico to the US. Maybe the only recourse is for societies that can afford to go it alone to raise the walls, close the doors and pull those jobs back to the homeland by ending free trade. Leave China to deal with its population without the benefit of those jobs imported from America. This is the appeal of the Trumps. It's hard to argue against and certainly the same old refrains from the protected – Democrats and Republicans – have lost their popular appeal. No matter who wins the American presidency or how hard Europe tries to prevent migrants from trying to cross, the unprotected are not likely to be denied forever.

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