The Problems with Globalization

The Problems with globalization

Global trade is a wonderful thing. We can get Chilean peaches and grape in the winter; we can get Argentinean wheat, Canadian beef, and Brazilian soybeans. If we happen to live in Northern Europe or even Japan this can certainly enhance the quality of life. Not only can we get summer crops all year round, we can actually support a larger population overall than we could without global trade. Of course trade is a two way street and Europeans and Japanese export wonderful manufactured goods, such as electronic devices (TV’s, Stereos, and computers), automobiles, and wonderful appliances. Even countries that at first glance look like they have nothing to trade suddenly become important in the overall economy. If Saudi Arabia had to provide for its own needs, its standard of living would be very poor indeed. It certainly could not support its current population. Saudi Arabia has massive quantities of petroleum, a major energy source, so the rest of the world is bending over backwards to trade food and appliances in exchange for petroleum. Surely nothing better has ever been invented than trade. After all, global trade is merely an extension of commerce. I work for an employer who pays me a certain salary for helping him produce a product or service. In turn I take my wages and buy whatever products or services I need. It’s called specialization of labour and it is miles ahead of our subsistence farming model, the previous method of organized life.

So what are the problems with global trade? Well, when we trade as in the examples above, generally speaking there is not a major problem. The problems arise when we look at states’ strategies for taking advantage of what globalization provides. The USA may be able to make a pretty good car, yet many of its citizens buy Japanese cars. Canadians, grow vast quantities of wheat, grow large herds of cattle, and produce significant amounts of lumber; yet they will buy Italian pasta, Italian leather sofas, and US or Indonesian flooring. China could be a self contained economy, and for many thousands of years has been. Now however, they have become an economic juggernaut. They can produce agricultural and industrial products at prices that no one else can compete with. This type of trade is more problematic. There may very well be a skill that Italians have in producing Pasta and Leather that Canadians do not. The US automotive capabilities are significant, yet Japanese quality and craftsmanship is superior, and people are willing to buy Japanese. As for the Chinese, they will produce anything and everything. People are willing to buy Chinese products because they are less expensive.

We now reach a point of discussion, which deals with relative value. How do we measure relative value, when there are different systems of organization, different currencies, and different government policies? One can argue the academic theory of supply and demand, and that if state A is prepared to subsidize the production of a given product, than fine, no problem; you are getting it at a bargain price. In the short term there is nothing wrong, in the long term it may remove a whole industry from one country and shift it to another, simply on the basis of pricing strategy. Once production has shifted, than a rise in the price can be obtained, and desired advantage achieved. We come to Mercantilist strategies. Mercantilism held that the more you were an exporter of goods, and the more gold you accumulated as a result of this trade, the greater advantage and power to your state. Mercantilist states therefore focused on increasing exports while minimizing imports. This is why the WTO (World trade Organization) was established to ensure that we have fair trade. The WTO can deal with subsidies, but it cannot deal with internal economic organization, nor can it deal with monetary exchange rate strategies. What is the comparative value of currency A over currency B? Well, whatever the market says it is. The market however, over and above comparative value analysis, looks at things such as monetary flows, but monetary flows can be manipulated by governments, who control such levers as the money supply and interest rates.

There are other problems; the value of labour is local, not global. That is a plumber in Beijing may be paid a lot less that a plumber in New York. Economic theory would dictate that this situation would not last for long as a number of plumbers from Beijing realizing that the rate of pay in New York is higher, would migrate to New York. This process would continue until the discrepancy between the two cities would be such that it would not be worth their while to move. This type of migration happens everyday, within the United States, and within China. However, to move form Beijing to New York is a different kettle of fish. There are significant restrictions to the migration of labour. Strange enough, there are practically no restrictions to the migration of capital and goods.
How can we move towards globalization when one of three principle components, into the capitalist production system, is not allowed to freely move about?

This creates major problems; Shortages of labour in one area, overabundance in another. More so, a nation whose trade is in decline will suffer major economic adjustments. Even the Nation that is rising in trade will eventually have problems. The Capitalist class will play one group against another to obtain the lowest possible cost for producing their product. Moreover, there will be severe dislocations between where the product is produced and where the product is consumed. It will cause wage migrations towards the mean, but in a somewhat skewed fashion. It will lower the wages in the Nation which is in trade decline, but it will not necessarily raise the wages in the Nation that is experiencing growth. By playing one government against another, the capitalist obtains his objective of removing any bargaining capability on the part of the worker and the government; by threatening to move the plant to a more hospitable and lower cost country.

Other issues, safety, pollution, transfer of patrimony, inefficiencies of transportation, energy efficiency, etc. these are all issues to deal with. What we have is a free market system for capital and raw material; but a managed system for labour, working standards, educational and health support, and value for life, as portrayed by quality of life issues such as pollution, safety, labour laws, and minimum acceptable working conditions. If we now leave it to corporations to migrate to the least cost production environment, we will all eventually lower our standards to that level. This is neither good for labour, nor capital in the long run. In a global economy, we need global labour standards, and free movement of labour from one part of the globe to another. Only in this way will we have true free trade, and the application of comparative advantage, which should ensure a more productive and prosperous global economy. As things stand, the temptation on the part of governments and corporations to intervene in the free flow of capitalism will be too strong, and the rise of Mercantilism will be too strong a force to suppress. This will lead to a greater degree of protectionism as labour wakes up to what is happening, and ultimate disputes and wars between competing states.

Surely the day of the Nation State as a monolithic competing entity on the world stage has past, and should be buried.