This is the Foreword to Chapter VI of the BIS Annual Report.
By Jaime Caruana*
In this year’s Annual Report, we recommend taking advantage of the current tailwinds to growth to build economic resilience as a basis for sustained growth. Preserving the benefits of globalisation is a key element of this strategy.
Today we are releasing a special Annual Report chapter devoted to the economics of globalisation, documenting how deeper trade and financial links have developed hand in hand. The focus we are putting on this issue reflects the importance of maintaining and developing these links and the changing nature of the debate about the global economy.
Critics often blame globalisation for the rising inequality in some industrialised countries. Empirical studies show that other factors, mainly technology, have played a bigger role. It is true that the burden of adjustment often weighs heavily on specific sectors or regions. But sound domestic policies can help those who are negatively affected overcome these obstacles.
Another criticism is that financial openness makes economies more vulnerable to ebbs and flows in global finance, and allows spillovers from one country to another. We should recognise that the global financial system is subject to procyclicality and excesses, just as domestic financial systems are. But the right answer is not to roll back financial openness. Rather, it is to put in place the necessary safeguards, just as the policy community has done in response to domestic financial liberalisation. This will allow us to reap the benefits while addressing the challenges involved. The role of global currencies such as the US dollar, and of globally active banks, calls for close international cooperation in this regard.
Indeed, as we show in the chapter, real globalisation entails financial globalisation – the two are inseparable, in that it is not possible to reap the benefits of trade and investment without international finance. One can think of globalisation as consisting of three layers. That real and financial globalisation go hand in hand is obvious in the first layer, where cross-border payments and credit are needed to facilitate trade of commodities and finished goods. But it is also true for the second, which involves more complex international trade. Financial openness allows the financing of crossborder investments and whole global value chains that distribute production across countries. It also allows hedging of the corresponding financial risks. It is only in the third layer that financial links are established solely for financial purposes.
The analysis in the special chapter we release today should serve as a reminder of how globalisation has boosted economic welfare. Instead of retreating from the ties of global trade and finance, we should reinforce them. Instead of loosening them, we should make them more resilient. We must work together to create well designed policies, both domestically and internationally. Only then can we make sure that globalisation will continue to lift economic growth and living standards around the world for generations to come.
Jaime Caruana is the General Manager at the Bank for International Settlements. The 'special chapter' is here.
30 Comments
Indeed, as we show in the chapter, real globalisation entails financial globalisation – the two are inseparable, in that it is not possible to reap the benefits of trade and investment without international finance.
Financialisation of all aspects of our daily lives has deprived the world's citizens of their due share of GDP spoils. Do NZer's willingly pay away an annual ~$4.0 billion tribute to the Australian 4 pillar banking cartel? No. But it is the price of financing globalisation. There are many other under exposed tributes paid to foreign owned global enterprises that demand increasing domestic debt to clear such non-consensual obligations..
Id also add that globalization has resulted in many and varied forms of "arbitrage".. ( I use the word arbitrage as a metaphor , that kinda conveys the intent/motivation )..
Labour laws and environmental laws, being two that come to mind.
Because of the nature of competition, If one multi-national does this , then others are compelled to follow in order to compete and survive..
Yes. Clueless. Trade is good. But he shys away from the nasty idea that comes with globalisation. It's open season on locals owning, controlling and reaping the benefit. That must be stopped. Meanwhile big corporates are free to do what they do best - ignore efficiency and productivity and gain their benefit from commercial control.
Allowed no control / free to control. Go figure.
I'll bite - Its simple economics.
Economics and the free market are about natural equilibrium. So...
Where would the good be made? - where ever it is cheapest.
Where would the goods be sold? - where ever they make the most money.
So all production would shift to low wage, low environmental rights, low human rights nations - i.e. what we have today.
All sales shift to rich nations - i.e. what we have today.
Money flows from the rich countries to the poor countries.
Eventually the natural equilibrium will be found, that probably sits below NZs current living standards - but above those in say Ghana.
Bad for us, good for Ghana.
We are seeing it now, average standards of living in NZ are stagnating/dropping, poverty is on the increase, high costs of living, low incomes, literacy, mathematical aptitude etc, are dropping. etc...
Ghana is getting better, consumer goods, disposable incomes, freedom of movement, more education, healthcare, etc...
So as you see, not rocket science, just economics at its most fundamental level.
Of course you then bring in game theory where the poor countries compete for work, thus lower wages, conditions, etc... and eventually we have some sort of dystopian movie plot where the poor are slaves and the rich never work.
Sorry, I should have been more accurate.
You stated
"Perfect Globalisatoin would lead to a global equilibrium. Produced by the poor, sold to the rich."
Which is illogical and not simple economics
Any first year economics student learns why this is not the case.
I am yet to see anyone prove deadweight loss is increased in an open economic zone.
In fact, you can pick any country you like and rebut this assertion.
The reason, as you state, NZ is stagnating is due to crappy domestic policy, not globalisation.
The factors you mention would in fact greatly benefit from globalisation - think cost of living, education, etc.
The reason, as you state, NZ is stagnating is due to crappy domestic policy, not globalisation.
The factors you mention would in fact greatly benefit from globalisation - think cost of living, education, etc.
As I said, Globalisation would bring an equilibrium. We are already in the top 50 if not higher (Globally) for most things. Healthcare, education, corruption levels, standards of living, etc...
The fact we are in the top, means to reach equilibrium we must drop. There are not enough resources on the planet for everyone else to rise to our level.
True Globalization must include unrestricted movement of people. But the problem with that is that we are all human, we want the biggest advantages for the lowest risks. With a planet where most (>90%) people live in poverty, what do you think happens when you open borders. The disadvantaged, the at risk, and the criminal will move to where they see the greatest benefit.
We have seen this in the OZ/NZ relationship. When OZ/NZ had complete equality, thousands of NZ beneficiaries headed over to OZ and they could get more money. The "Brain drain" was never reversed due to NZ policies, rather it was OZ that cut access to everything, meaning people were no better, and in most cases worse off moving.
We see it in the EU right now, first it was Greeks, then Czechs, then Poles, then Romanians. All the lower quality people moved first, and they all moved to the richer nations. There was almost zero movement the other way.
We see it again in the EU with the Syrian migration, they aren't happy to stay in Greece, or Italy, or Spain. They want to get to the Rich countries.
As for our poor policies - A lot of them stem from what goes on overseas.
- Trying to restrict movement of capital and people.
- Trade Agreements
- Global Treaties
- Corporate greed (looking at dairy as a prime example - policies are written to allow them to maintain a global competitive edge)
- even apparent simple little things like private/corporate policies change. In 2001 my Uni no longer required British spelling to be used. As long as the word could be understood you wouldn't be marked down. It was to try and provide equality to students where British English was not the first language. But the reality is it diluted the quality of the written language in NZ.
Quite simply, no one, anywhere, at anytime. Has definitely proven that Globalisation benefits people. They have only shown it benefits corporations.
There are some positives, no one is arguing that. But for most people the bad outweighs the good.
"Quite simply, no one, anywhere, at anytime. Has definitely proven that Globalisation benefits people. They have only shown it benefits corporations."
"There are some positives, no one is arguing that. But for most people the bad outweighs the good."
What rubbish.
If you are going to make up profound statements, at least try to make it somewhat believable.
As for all your other points.
Rich and poor is a relative term, and you make it derogatory in this context. The goal of globalisation is to maximise utility. People can still be relatively poor by rich people standards, but still have substantially increased utility.
You outline the issue perfectly (and explain a few other things), with this:
- even apparent simple little things like private/corporate policies change. In 2001 my Uni no longer required British spelling to be used. As long as the word could be understood you wouldn't be marked down. It was to try and provide equality to students where British English was not the first language. But the reality is it diluted the quality of the written language in NZ.
That isn't the effect of globalisation, that is the effect of poor policy.
The one key flaw in your argument is that corporations don't want people to be poor; they want everyone to be rich. In order for them to stay rich, they need to have relatively rich markets.
Try to find one capitalist that says he wants the people of the 3rd world to be poorer.
"What rubbish.
If you are going to make up profound statements, at least try to make it somewhat believable."
Show me the proof?
"Rich and poor is a relative term, and you make it derogatory in this context. The goal of globalisation is to maximise utility. People can still be relatively poor by rich people standards, but still have substantially increased utility."
Of course it is relative, and of course it is derogatory. I have x amount of resources available to me and my family - why would I want to share them with those that aren't going to contribute to my well being?
To think anything otherwise is in foolish denial of what a Human being is.
That is why globalisation of people fails. People want the most return for the least contribution. When the borders in Europe opened up, the well educated, valuable members of society didn't flood out - they either didn't want to leave, or they already had and were accepted into other nations on a wide range of pre-existing visas/programs.
As for increased utility? that would very much be on a case by case basis. On the whole though I would imagine it not too be true. Fell free to prove otherwise.
That isn't the effect of globalisation, that is the effect of poor policy.
Poor policy that is rushed through to counter the impact of globalisation.
"The one key flaw in your argument is that corporations don't want people to be poor; they want everyone to be rich. In order for them to stay rich, they need to have relatively rich markets.
Try to find one capitalist that says he wants the people of the 3rd world to be poorer."
That should hold true, and is a wonderful theory were it to do so. But there are so many holes in it I don't have time to fill them all.
""Perfect Globalisatoin would lead to a global equilibrium. Produced by the poor, sold to the rich."
Which is illogical and not simple economics"
Illogical? I think you are confusing produced by and owned by.
"Any first year economics student learns why this is not the case."
That would be how you differentiate an economist from all the other students that had ECON101 as compulsory for their degree. They saw through the farcical theory and went on to study something useful (even if it was just to become a lawyer).
we risk forgetting the lessons of the past and taking for granted the gains in living standards, productivity and prosperity achieved over the last half-century.
..........
he is talking about rising living standards in China which Canadians and other have paid for in extremely high house prices and loss of national identity plus traffic as you never saw before and an erosion of living standards associated with a larger population.
Then there is the Susan Devoy factor as legacy citizens need to have their nativistic tendencies suppressed. "In New Zealand, we celebrate Diversity" Or else! {Chinese gardens everywhere}.
"Embrace" "celebrate" "Inclusive"........
I do wonder if Susan Devoy ever thinks to the full consequences of her stances. If there are no special rights to be considered for 'natives' of a country, does she therefore suggest that we should abandon any policies or efforts to redress historical actions that are extended to Maori, for example. In her logic, "Natives? So what!"
To those against global trade I would like to hear an alternative. No system is perfect but the post-WWII order has lifted hundreds of millions out of poverty. The only countries that didn't benefit were the communist ones but even China and Vietnam have jettison their disastrous policies and the Soviet Union thankfully collapsed.
The concerns over globalisation are not (necessarily) anti trade as you suggest: unprecedented power to multinational companies, a race to the bottom over environmental protection and worker rights, tax avoidance and the power to blackmail governments and suppliers so that your domestic company can't compete with the multinational, a loss of sovereignty, a powerful lobby to open borders to immigration with resulting bad consequences to the unfortunate host (especially the lower skilled) including a tendency to lower real wages. All of the above are happening to us right now.
I think your concerns are not necessarily about globalization. Humans exploiting other humans always takes place - whether it is mercantile or even feudal. Those with power have always done it and will always do it.
But my question remains - what is the alternative? It seems everyone wants global trade so its not really globalisation that is the concern. Rather, it is the powerful dominating the weak.
AK79 - i would agree re lack of plausible alternatives - i think the only realistic alternative is a financial collapse. Globalisation is about maximising efficiency of consumption (which is basically what the financial system mandates ...) so any possible alternatives come up against existing debt promises ...
Most of the nasty side effects listed above re globalisation listed by David above are really a reflection of the diminishing returns we are now seeing with further globalisation ... its no longer producing a great deal of extra value to consumers or producers ... so the rules are being bent to try and get blood from a stone.
But the big weakness in globalisation now (apart from resource issues), is that too many consumers are too indebted / wages too low ... so that the globalisation ponzi is struggling for new debt players...
I think global trade is viable, but not a total global market based on purposeful production.
What I mean, is don't produce solely to export. Produce for the domestic market, and if there is a natural excess, then export that.
Otherwise as others have mentioned, it becomes a race to the bottom.
Globalization, considered by many to be the inevitable wave of the future, is frequently confused with internationalization, but is in fact something totally different. Internationalization refers to the increasing importance of international trade, international relations, treaties, alliances, etc. Inter-national, of course, means between or among nations. The basic unit remains the nation, even as relations among nations become increasingly necessary and important. Globalization refers to global economic integration of many formerly national economies into one global economy, mainly by free trade and free capital mobility, but also by easy or uncontrolled migration. It is the effective erasure of national boundaries for economic purposes. International trade (governed by comparative advantage) becomes interregional trade (governed by absolute advantage). What was many becomes one.
https://www.globalpolicy.org/component/content/article/162/27995.html
Harcourts Shanghai and all that.
Are you confusing global trade and globalization, global trade means we stay as we are, we buy goods from a country, another buys goods from us. Globalization is another thing, and as in the TPP requires laws be put in place that reduce a country's ability to express their own sovereignty. Globalization is, by its nature, going to eventually require something of a one world government, global trade does not. Are you sure that is what you seek?
The city of Oslo -- 'The Tiger City: a city which leaves a mark' -- is celebrating
its 1000th anniversary in 2000. The Department of Sociology and Human
Geography's workshop, "The Global-Local Interplay - Continuity and Change",
is part of a series of events marking Oslo's millennium. The official programme
for the 1000th anniversary states that "The theme during the autumn is Oslo as a
city in which everyone can be influential and influenced, a city where important
decisions are made" (Oslo 1000 ar, 2000). A critical issue that is being
explored by urban researchers at the University of Oslo is how the various
ethnic groups within an increasingly divided city can be influential as Oslo
enters a millennium when ALL populations in the major cities of the
industrialised world must become more ethnically diverse and cosmopolitan.
The 'era of the whites', as Anthony Browne (2000) put it in his provocative
examination of "The Colour of the Future", is passing even for cities such as
Oslo. Browne (2000) goes on to observe:
In its World Population Profile 1998, the US Census Bureau
predicts that by the second decade of this century all the net gain in
the world population will be in developing countries. … The
global center of gravity is changing. In 1900 Europe had a quarter
of the world's population and three times that of Africa. By 2050,
Europe is predicted to have just 7 percent of the world population,
and a third that of Africa. The ageing and declining populations of
predominantly white nations have prompted forecasts of -- and
calls for -- more immigration from the young and growing
populations of developing nations to make up the shortfall. …
One demographer, who does not want to be named for fear of
being called racist, says: 'It's a matter of pure arithmetic that, if
nothing else happens, non-Europeans will become a majority and
whites a minority in the UK. That would probably be the first time
an indigenous population has voluntarily become a minority in its
historic homeland'. ….
In California, in a land built by immigrants, [and where the Anglo-
Saxon whites are already a minority], lieutenant governor
Bustmente puts a positive spin on the end of the white majority: 'If
there are no majorities, there are no minorities'.
In Europe, with its 40,000 year old indigenous white population,
the rise of a non-European majority may not be greeted with such
equanimity.
Perspectives on International Migration,
Urban Social Transformation and the
Research/Policy Interface
Richard Bedford
2000
.......
Professor Spoonley is trumpeting migration as a solution to population aging as a fact (He says as much on Nigel Latta's The Hard Stuff -TVNZ)
Professor Natalie Jackson knocks it over here
http://www.waikato.ac.nz/__data/assets/pdf_file/0009/189459/Natalie-Jac…
Bill & Andy might be O.K with that though (actually being pro-immigration marks one's status in society,... don't you know)?
Internationalisation : Japan
https://en.wikipedia.org/wiki/Sogo_shosha
Globalisation New Zealand
Significantly, the corollary of the free movement of capital, goods and services across international borders – the free movement of peoples – remained largely unexamined. Most New Zealanders simply did not realise that if their country was determined to trade freely with the whole world, then, more and more, its population would come to resemble the people with whom it was trading. If most of those people hailed from Asia, then New Zealand would, indeed, become "an Asian country".
http://www.stuff.co.nz/the-press/opinion/70168276/Opinion-China-has-exp…
"What concerned her most was how little New Zealanders were being told and, therefore, how little they knew, about the changes that were radically reshaping what it means to be a New Zealander.
"If people had any idea about the scale of these changes," she confided to me early in her first term as MP for Pencarrow," they'd be horrified. It's been decided that New Zealand's future lies in Asia. That's got massive implications – but most people haven't a clue. No one asked them and certainly no one's telling them."
Thanks - here's what I consider to be the standard must read to understand what political ideology the BIS is trying to sell/promote;
http://socialsciences.people.hawaii.edu/publications_lib/JPI%20Ideologi…
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