Friday, 24 February 2017

WORLD: Understanding ''Globalization''

Movements of people, goods, and capital may be substitutes for each other. The first backlash to emerge clearly in the earlier wave of globalization was directed against population mobility, with the major recipients of nineteenth century migration flows adopting increasingly restrictive policies. 

But the major legislation controlling migration in the United States came only in and after the First World War, as did analogous measures in Canada and Australia. With population flows restricted, the countries of outward migration suffered from increased labor market pressure, pushing wages down. 

For them, one alternative strategy to adjustment through migration flows would have been higher rates of economic growth as a result of increased trade, with the trade link acting as a substitute for movements of people. Mediterranean and eastern Europe, for instance, might have exported more products to the richer industrial countries, and thus have employed the workers who were no longer allowed to migrate. 

Such development required both trade openness on the part of the recipient countries, and capital flows to make up for savings deficits in the emerging markets of the time. But with increased popular and political sensitivity to trade in the richer countries, and a rush to trade protection, this avenue to growth closed down. The capital markets responded to the new dynamic. 

As the repayment of the credits that had flowed into the emerging markets in the mid-1920s became problematical, capital markets froze. In the last stage of reaction against globalization, a wave of contagious financial crisis swept the world in the early 1930s. In the aftermath of these financial catastrophes, a fully developed doctrine of anti-globalization swept the world. There was a backlash against every form of international mobility.
The threat of a radical deglobalization appears much greater now than it did thirteen years ago. After 2008, a new consensus emerged – analogous to that which developed in response to the 1930s Great Depression – that there was too much capital moving in the world with consequences that were too destabilizing. 

Finance capital was now not a stabilizer but a metastasizing cancer at the core of capitalism. Two alternative tracks for dealing with the problem: one lies in limiting the global risks built up in the financial sector. But that is a complex issue, and pressure to increase the safety of the banking system by increasing capital ratios in the short run risks contracting bank lending and forcing the world into deflationary adjustment. 

In addition, pressure on big financial institutions to reduce risk and increase capitalization is also often linked with pressure on banks to provide more facilities to their home economies. As a result, the Great Recession after 2008 has produced a resurgence of the debate about the future of finance capital and initiatives tending toward the renationalization of banking.
But the broader worries about globalization were already well developed before the outbreak of the financial crisis. Economists revised their initially rosy assessments of the impact of globalization on labor markets in industrial countries. 

In the 1990s, most studies painted a relatively benign picture, but over the past five years much higher estimates of the job losses from trade have emerged. Many of the former advocates of globalization in the business and political world of the advanced industrial countries were deeply worried well before 2007, because in their countries globalization seemed to be responsible both for job losses and pay reductions, as well as for apparently illegitimate rewards for the owners of scarce resources, in particular superstars with a reputation, such as sports or entertainment stars, and CEOs who market themselves like superstars.
Until recently, the most dramatic effects of globalization were seen in the market for unskilled labor, and consequently most policy thinkers simply saw better training as an answer. But now, it has also become clear that skilled service jobs (most conspicuously in computer software but also in medical and legal analysis) can also be “outsourced”. 

Consequently, the gigantic western middle class – the great winner of the twentieth century – is now extremely alarmed by the prospect that it might be overtaken by an even larger (and harder working) middle class in emerging market countries. The result is not only a political backlash, but also an intense populist concern in the rich industrial countries with corporate governance, corporate abuses, and the excesses of executive pay: in short with a new inequality that seems to follow from globalization.

The causes of the relatively recent rise in inequalities in almost every industrial society despite tax systems that aim at redistribution are complex: but they include inadequate innovation (which as Thomas Piketty points out tends to privilege inherited wealth positions) as well as policies which accidentally or inadvertently increase inequality (as both monetary and fiscal policies followed after the Great Recession have done: cheap money in particular has led to asset and property booms which favor the very rich). 

An important driver of the new inequality is also the disintegration of traditional families and the erosion of marriage in poorer households, giving rise to a cycle of underachievement and deprivation. That social disintegration is harder to deal with through conventional policy mechanisms. Inequality, surprisingly, has not been well addressed by attempts to counteract it through fiscal policy.
Globalization is now on the run. The new backlash naturally terrifies business leaders, who want to devise some appropriate response that will not hurt them too much. Events such as the World Economic Forum, formerly parodied as the fiesta of pro-globalization fanatics, are now packed with presentations by globalization critics and choruses about corporate social responsibility. Even before the most severe phase of the financial crisis, at the opening of the 2008 WEF, its founder and guru Klaus Schwab, began by saying that it was now time “to pay for our sins.” 

It is hard to find defenders of classical rule-bound liberalism at events such as Davos: the readiness with which global captains of business embrace their opponents reminds me rather of the way in which the Florentine ruling and banking house of Medici sponsored the most vociferous and radical critic of commercial culture, the Dominican friar Girolamo Savonarola. 

Offering simplistic generalizations to any socio-economic phenomenon is, to put it mildly, problematic, but none are more questionable than those that relate to globalization. Globalization is not a single process. There is globalization for virtually everything, including the economy, politics, culture, religion, science, health and medicine, education, and sports. Further, there are profound differences within and between them in how, and the degree to which, they globalize.
In spite of globalization’s wide range, most academic and popular attention is focused on the economic component. However, even this defies generalization since it, in itself, is highly diverse. One example of a simplistic, even erroneous, generalization is Thomas Friedman’s contention that the world is both growing flatter and rising economically. Clearly, great barriers continue to make the world “hilly”, if not “mountainous”, and billions are falling further behind economically.
How do we account for the near-universal tendency to equate economic globalization with globalization as a whole or, less extremely, to privilege the economy in discussions of globalization? Obviously, the economy is of enormous importance both macroscopically (e.g., for countries) and microscopically (e.g., to individuals virtually everywhere). 

In addition, it is implicated, at least to some degree, in all other aspects of globalization. But it is far from being alone in having great significance and in having wide-ranging implications. Among the many other aspects of globalization that have these characteristics are borderless diseases (think of the next viral pandemic), climate change, immigration, the brain drain, the internet (especially social networking), as well as the spread of political and religious ideologies, illegal goods (especially drugs) and terrorism.
However, those who analyze the economy, especially the economists, are hegemonic in the social sciences. They are also deeply involved in the political world, especially in the U.S., as, for example, Chair of the Federal Reserve. Their thoughts and ideas are also of great interest to the media and economists are often featured in newspaper articles and as “talking heads” on television.  

Ultimately, it is the capitalist economy, and its impact on all aspects of globalization and of the social world, that gives the economists their great visibility and influence. Given this reality, it is not surprising that most discussions of, and thoughts about, globalization focus on its economic aspects.
However, it is wrong-headed to reduce globalization to economics, to focus so much attention on economic globalization and, of course, to over-generalize it. No generalization about globalization is more troublesome than the idea that it, especially economic globalization, is somehow ending (a similar argument was made, erroneously, in the wake of the autarchy associated with WW 1). 

One often hears this today in discussions, especially in the U.S. and Europe, of the efforts to better control, even resurrect, national borders in order to stem the flow of various unwanted products and immigrants. Muslim extremists are currently seeking to create a new caliphate that would presumably put in place barriers to the entry of all sorts of heretical ideas, to say nothing of the heretics who bear them (but not to the oil they- largely Sunnis- want and need to export including, at the moment, even to the hated Alawites [Shiites] in Syria). 

However, even if these barriers are put in place, we will continue to see the global flow of extremist ideas, of extremists themselves, and of oil (and the huge profits associated with it) into and out of the new caliphate. Also likely to flow freely are arms and other material support for the opponents of this development. All of this points to the continuing reality and importance of globalization even in the face of efforts to create new obstacles to it.
However, that is not to say, as Thomas Friedman has argued (again erroneously), that globalization is inexorable. There are developments such as a nuclear winter or a pandemic worse than the Spanish flu that could slow or alter the nature of globalization, although it is worth noting that both of those developments would, themselves, be global in scope.
Contemporary globalization is defined by the great liquidity of its many elements (money, social networks, people) as well as the barriers (tariffs; national borders; China’s “Great Firewall”; visas; terrorist watch-lists) that are often erected to stem the flows that at least some see as undesirable. The idea of barriers would seem to suggest that globalization could be ended if only there were enough of them and that they were made impermeable. 

However, there are never enough barriers and those that exist have proven to be porous (e.g., firewalls on computers housing government secrets or valuable corporate information). Therefore, it is best to think of globalization as involving a continuing dialectic between global flows and the barriers erected to impede them. 

Flows of, for example, capital, immigrants, ideas, and pollution will tend to continue, even accelerate, until they reach a point where they engender strong enough opposition to begin to erect barriers to them. These efforts might be successful for a time, but it is likely that whatever barriers are created will eventually be swamped by global flows and/or dismantled by those with vested interests opposed to the barriers.
Because of the dialectic between global flows and barriers, globalization varies in terms of a number of dimensions. Globalization can vary in its extensiveness; its elements need not cover the entire globe (indeed nothing does) to be considered an aspect of globalization. McDonald’s is a global phenomenon even though its restaurants are now found in “only” about half the world. Some areas of the world will escape the ravages of climate change and perhaps even benefit from it. 

Intensiveness of globalization can vary everywhere from the currently “hot” spread of radical Islam to the “cool” movement of a global fashion change. In terms of velocity, some global changes occur seemingly overnight (the flow of radical new ideas and social movements) while others (the movement toward greater global economic equality) are glacial. 

Finally, there is the variation in the impact of global processes from high (the 9/11 attacks) to low (the latest fad in emoticons on the internet).
Nothing is inevitable in the socio-economic world, and that is true for both globalization and the barriers erected to stem its many different flows. Both globalization and those barriers are social constructions, and they are constantly open to change, reconstruction, or deconstruction. 

It is safe to say that the future will bring with it a continuation of this dialectic, although the way it plays out will vary greatly from one locale to another and over time. That’s not much of a generalization, but it’s the best we can do in the case of globalization.

By Jennifer Birich
Political Commentator


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