Globalization Is Not Working -- Don't Get Rid of It; Reform It!
Economics Without The B.S.**:
[** Double entendre intended.]
Globalization is not working. The full force of globalization went into effect in the 1990s after the collapse of communism in Europe. The WTO (World Trade Organization) went into effect in 1995 as an organization to enforce international trade after the Bretton Woods Agreement of WWII was viewed as being outdated. And this coincides with the rise of private capital for investment and the move to allow the free flow of capital internationally. I believe this failure of globalization is the root cause for many of the political and societal problems we and other countries have faced over the past several decades – democratic countries as well as authoritarian and tradition-bound societies.
There are other economic factors I will not get into here:
(1) Nixon delinking the dollar from gold.
(2) The Black Monday Stock Market collapse worldwide which was a currency war between the $-DM-Yen.
(3) The rise of neo-liberalism from the Washington Consensus of the late 1980s with the prominence of monetary policy over fiscal policy to emphasize economic stability vis-à-vis higher rates of economic growth.
(4) A number of financial crises:
(a) the Nordic countries in the early 1990s,
(b) and Mexico in the early 1990s, with a remedy that avoided negative consequences for the U.S. investors in Mexican activities,
(c) the Russian default on domestic debt and devaluation of the ruble,
(d) the Russian problems also triggered the collapse of LTCM (Long Term Capital Management) hedge fund in the United States with the bail out of fourteen major banks to stop the spread of a potential disaster. The financial “geniuses” at LTCM had taken equity of about $5 billion and leveraged that to over $1 trillion before the collapse. The banks who were among the investors in the hedge fund were restricted to opaque relationships with the financial “masterminds”, never having full transparency until they had to come up with $3.6 billion to unwind the dark convoluted machinations of the LTCM “financial sorcerers”.
(e) the Asian Financial Crisis of 1987 which will eventually negatively affect manufacturing in the U.S.
(f) And China getting WTO recognition in 2001, which will also affect manufacturing and trade imbalances between “surplus countries” and “deficit countries” with the U.S. being the largest deficit country and becoming the receptive market for the rest of the world.
(g) The supremacy of the Dollar System as the reserve currency for the rest of the world, where American-style commerce, and not American military interventions, are the real drivers for maintaining or disrupting political and societal stability.
But it is the Financial Crisis of 2008, an international event, that highlights the inadequacies of globalization. It was the greatest economic contraction since the Great Depression of the 1930s, which was also international in scope. Everybody is doing better with globalization, but the Upper 1% is benefiting more because they are in a better position to capitalize on the expansion of economic activity that results from implementing globalization policies. The manner in which democratic countries address the recovery from the Crisis highlights the inequalities of how people are treated. In America the feeling is, "Wall Street gets bailed out, Main Street is left out", because of the weak recovery that most people experienced while Wall Street still managed to eke out bonuses while avoiding recriminations from their misdeeds. Worldwide you have a populist backlash, from the political Left and Right. The Tea Party movement in the U.S. coupled with the Occupy Wall Street movement. Similar things happen in Britain, France, Germany, and Italy, as well as others like Poland, Hungary, etc.
Concurrently you have democratic countries as well as authoritarian countries dealing with social and political unrest that affects immigration, refugees, and asylum seekers. Europe and the U.S. will be the main outlets for this flow; but, you still have smaller countries like Jordan, Turkey, Columbia that are also dealing with huge flows of people. This unrest becomes a playground for demagogues to take advantage of the situation -- and I would put Trump in that category. In the U.S. you have a mixture of issues -- primarily race, class, gender, education, maybe generation (age); mix that in with religion, nationalism -- and you have the use of cultural issues to drive a wedge between groups for identity for political advantage. It is the use of cultural touchstones that get coupled to the material well-being (economics) of folks, that forments the political unrest.
Our country works best when there is compromise among competing political interests. The problem with cultural issues is that they are strong enough so that people identify their individual values to the cultural issues, and that can result in a distrust of people you do not share your values with. When the issues are economic -- your material well-being -- the personal value system is less of a factor, and so compromise has a more likely outcome of success.
When the architecture of globalization was put in place, after the fall of communism in Europe, the interests of the major players were addressed right on down to the rights of individual proprietary intellectual property while excluding the interests of labor, workplace safety, and the environment. Over several decades those imbalances have persisted and have resulted in a growing inequality in power relationships that propel societies toward progress. The rescue to stabilize the economic and social order during the 2008 financial crisis and the pandemic of 2020 have highlighted the disparities in the power relationships. The populist backlash has been the result, questioning the sustainability of democratic governance.
For democratic governance to prosper, whether it is representative or more direct, it must be inclusive with broadly endowed benefits. All interests in society need self-representation to avoid the governance of elites. As well educated and “advanced” as we have become, we have not overcome the self-serving interests of the few with regard to the many. Don't get rid of globalization. Increasing economic activity internationally should be a huge benefit, by expanding markets – look what happened to the United States as it experienced its westward expansion in the 19th Century, one huge continental nation with just one market system to deploy capital expansion and create wealth and improve the lives of ordinary people. So, don’t get rid of globalization; reform it to make it work, work for all and not just the few.
