By Bernard Hickey
A question is beginning to nag at the academics, the politicians and ultimately the voters who decide our leaders and laws. Does globalisation actually work to make most people better off most of the time?
Until recently it was mostly the more left-wing fringes of academia and political life that asked this question and didn't like the answer. The events of the last four years has shoved this debate firmly into the mainstream and now even the most conservative of economists and academics are questioning the drive to globalise everything as completely and as quickly as possible.
These doubts are relatively new.
The globalisation of companies, of factories and of money markets appeared for almost all of the last 30 years to be the ultimate proof that unfettered capitalism was the best way to run our economies and lives. Francis Fukuyama even declared the 'End of History' as communism's walls came down and China began opening up its economy.
It not only seemed the most efficient way to do things, but also seemed the fairest way to do things. People in poverty in third world countries could get jobs in factories and get richer. People in rich countries could buy amazing gadgets and other knick knacks at ever cheaper prices, while not having to do the dirty, labour intensive and boring work needed to produce these things.
Hundreds of millions of Chinese and Indians migrated from grinding poverty in rural areas to often highly skilled and much higher wage jobs in the factories that churned out the flat screen televisions, iPads, phones, plastic toys, car parts and myriad bits and pieces the West loved to consume at an ever greater rate. 'They' got jobs and higher incomes and 'we' got cheap stuff and new easier jobs. There was even the potential that an emerging and enormous middle class in the BRICs (Brazil, Russia, India and India) would get so rich they started buying the highest quality goods and services from an even richer West.
It seemed the perfect solution. Until it wasn't.
Four years on from the Global Financial Crisis and we're now in a second round of a global debt crisis with economies in the West slipping into Zombie-like states of perma-recession with high unemployment, falling real wages and intense social pressures. High paid manufacturing jobs that underpinned healthy middle classes have been gutted in the drive for globalisation and replaced by often insecure and lowly-paid jobs in fast-food joints, hospitals, shops and hotels.
The 'creative destruction' of jobs was supposed to lead to higher wage jobs in high tech, services and tourism. Instead, the wages are lower, the non-wage benefits are fewer and the extra value created in the shift of manufacturing jobs to Asia has been captured in the form of lower prices, higher profits, higher bonuses for managers and higher dividends for shareholders.
Now a debate is growing after the publication of a research paper by mainstream economists in the United States with the dry title:"The China Syndrome: Local Labor Market Effects of Import Competition in the United States." It shows a quarter of America's manufacturing job losses are due to the effects of cheap labour in China and that the shift in jobs has signficantly increased government spending on unemployment benefits, healthcare costs and retraining costs.
And the debate is starting in Australia too with reports of 7,000 jobs likely to be lost in banking this year. The issue was crystallised in Brisbane last month when Westpac employees protested after they were sacked and then asked to retrain their Indian replacements.
This next wave of oursourcing of high paid services jobs in IT, healthcare and banking to India and China will intensify the debate.
Globalisation makes things cheap and helps lift millions out of poverty, but the costs are borne largely by the developed world's middle classes. It is easy to shift capital and goods and money across borders.
It is much harder to shift people, to expect them to uproot their families and history for the sake of an economic model that delivers many of the benefits to the very rich and the poor somewhere else.
19 Comments
Well, have believed and said it all along, unfettered capitalism and globalisation are both nothing more than crocks of sh..t
Look what's happening now, jobs further and futher up the food chain, are now being outsourced, and the only real benefit is to the corporations and already fat cats.
Unintended consequences? Surely the gutting of the west's middle class is a small price to pay, for lifting millions out of poverty? Oh yeah thats right, those millions are still in poverty, only difference is that they now live in slave camps, and would rather kill themselves then make another fricken ipad.
Like many of the problems the world is facing today, there were good intentions, but they were not backed up with good actions. Humanity is full of sociopaths, and when they ascend to place of power cause damage to everything they interact with.
Like, socialisim, libertarianism, keynsianism, and other failed political, and economic philosophies, Globalism could work if everyone was decent, moral and ethical. As it is, people are greedy, uncaring, unethical and only care about making more then anyone else. Any political/economic system which fails to account for this will suffer the same perversion. So it's no suprise Globalism is doing more harm then good.
Capital doesn't distinguish between human labour inputs and technology (labour) inputs. Technology is increasing exponentially. The world's population is rising steadily. The argument that globalisation lifts millions from poverty ignores the reality that very soon those jobs will cease to exist for human beings. Those people lifted from poverty continue to have families with the understandable expectation that their childrens' lives will be better than their own.
Meanwhile the world's politicians continue to swallow the line that productivity is the key to growth and growth is our salvation. Under capitalism growth means fewer mundane jobs when technology replaces them, the benefits of this increased productivity acruing to the few. How long before technology replaces less mundane jobs? What then, readers?
I agree, technology would have put far more people out of a job without globalisation. I've heard many stories from people in South America, and how they weigh up the costs of a new piece of machinery, vs labour, and they stay with labour because it is cheaper. I guess the people that have a minimum wage job would be gutted if they were replaced by a machine. Technology is available today, that could put the vasst bulk of the population out of work. The reason they still (myself included) have a job is because of the economics. It's cheaper to train 30 people then it is to spend 2million on a new piece of equiptment.
Its not just south america, same in the US ( I read such this month, if the machine is cheaper than 2 years wages the machine gets bought) ...and I think NZ...ie our labour is cheap and importing automation releatively expensive compared to many other countries....hence why our productivity appears to be low......we employ ppl as its the cheapest option...so per $ of GDP we look bad.....so for me "productivity" is badly measured....
I dont agree on tech being able to put the vast amount of ppl out of work....machines are ideal in a production environment, where you do the same thing day in day out. But when job is variable/changable and random decisions are needed and thats a lot of todays work....
Also in terms of energy / food use are you aware of the cheapest machine in existance? its man....even more efficient than oxen.
So moving forward as energy gets more and more expensive I wonder if tech will get used less and less...so the scenario I see is more local and more human powered....consumerism is dead.....the luxury will be the handcrafted chair....not the ipod....
regards
It comes down to tracking graphs, projecting them, and then working out what the limits are.
If you borrow from the folk who sell you cheap shyte, so as to buy the cheap shyte, that graph stops somewhere. If the folk who sell the cheap shyte, use an exponentially-increasing amount of energy to produce the cheap shyte, and that energy is a finite resource, that too will slow, then cease, at some point.
In a Romanesque (Tainter et al) attempt to continue the regime, the decision-makers will attempt more of what they know. Given that what they know got them into the trouble in the first place, that won't work.
Productivity is one such push - it results in two things - a trend towards slave-labour, which I ignore as merely a symptom. and a trend towards specialisation. That results directly in a reduction of societal resilience - the ability to cope with change.
So really, we need to educate for wider, less specialised young folk, and teach logic and lateral thinking as core subjects. Critical Literacy;
http://lists.otago.ac.nz/listinfo/criticalliteracy
or 'reading between the lines' would be a good thing to give them too.....
Those who cling to the chimera that you can lift unlimited numbers of people out of 'poverty' by 'making them richer', are guilty of continuing to think that the (man-made, very recent historically) construct called 'money', is somehow superior to what happens in the real world. Clearly, while 'richness' was directly linked to resources (and the Nats seem to acknowledge that, there's no PlanB) it had to peak. Only the ignorant/arrogant could think otherwise.
Voters in Developed countries has been given the political BS by their leaders about Globalisation for the past three decades...they were only told half the story.
Simple economics and maths will show that their "jetson" style economy will never come true. Western Political elites B...S..ted that as the developing world develops with globalisation, Developed world population will enjoy even greater standard of living as they "climb" up the technology ladder. It was never going this way.
With three quarters of the world "Underdeveloped" and "Developing" commonsense will see that developed world economies will never escape price/wages deflation....as the developing economies income rises, developed economies income has to either stagnate or decline until both matched their relative productivity....this has now dawned {finally) to the developed economies elite?
Developed economies economic decline the past decades has been masked by "welfare" and "benefit" payments and other wealth transfer methods ( labout mobility restrictions etc)
But the Euro crisis has shown that there is a limit to such transfers and restrictions.
Western economies elites are now questioning the merits of Globalisation ? A case of hypocrisy or just self preservation ??
Interesting comment on as ppl get richer they actually want to consume more leasure...so reducing tax wont improve GDP what thet does is give ppl more $ in their pocket to have more time off work....at least for ppl who are not on the poverty line or below it...
"Raise my wage rate, and the payoff to working more increases; but I also get richer; and one of the things people consume more of when they get richer, other things equal, is leisure"
I certainly have witnessed this....
http://krugman.blogs.nytimes.com/2012/02/10/different-slopes-for-differ…
regards
We are only going to be able to afford our lifestyle as a country if we own our own stuff. ( Don't sell Crafar to anybody unless they live here, and preferably on the farm itself) And if everybody is well employed. (Both youth and redundant managers - future busdrivers - are able to get a job they can live on, in half a day or less)
"'They' got jobs and higher incomes and 'we' got cheap stuff and new easier jobs"
Thats obviously not true......
The low skilled and especially low/semi skilled production workers now have no where to go.....so they are on WINZ.....so sure our TV costs way less but our tax is higher as we support the un-employable we created by buying a chinese made TV.
Since the factory employing labour is no longer in NZ that means there is no need for as maky skilled trades, managers etc...it all flows through....
The winners short term are the 3rd world and the rich....the former get jobs and the latter pay little tax anyway....
the longer term problem is the infinite growth on a finite planet problem...as ppl get more money they have more energy so have more children, and more children survive to breding age and use more energy....we create(d) a self-supporting growth system.....
regards
Nice try, BH, but the thread has already polarised into the cynics, the utopians and the ABC's (anything but Capitalism).
But one fatuousity must be nailed early on. Higher national income per capita and lower ultimate replacement rates are well established statistical correlations.
High replacement rates are needed in poor societies as basic social insurance: the Irish are a classic case: used to be eldest son=priest, youngest daughter=looks after Mum and Dad, them in between (generally 2 or 3 at least) go out into the world of work. Not any more.
Read Mark Steyn and the other demographics bores on this subject, folks....
Waymad - the problem comes when you can't maintain the higher income. You need to read something about demographics. :)
Take Apple, for example;
http://americawhatwentwrong.org/story/as-apple-grew-american-workers-left-behind/
No matter were you live in the West, America, Australia, Europe, New Zealand, they all have one thing in common - Political parties - what's worse, these parties have always had and allways will have, the attitude
"I don't care who lives in this country so long as i can govern them'
"I dont care who owns all the land so long as i am the government"
"I don't care who owns our assets and our private companies so long as i am the government"
"I don't care if i sack the residents of this country so long as i can get it made cheaper else where (railways in China)"
We have to get rid of political parties and get people to represent US. and we have to educate the people to stop voting for the pricks.
Bernard, two things as an aside that i think you should look at.
1) the global superan, i believe will be the next big collapse, a few years down the track. more info later.
2) If Greece adopt their own currency what is to stop the people refusing to use it and continue using Euro's. Clearly avoiding banks as much as possible as they will overstamp their Euro's. Then Euro's in Greece will become very valuable. There is allready talk of blocking borders to stop people moving currency across the borders.
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