The most pressing question: Is the global system there to serve people, or are people there to serve the global system? They also never address a central contradiction of globalisation: that capital is free to move, but for the most part people are not, unless they belong to the elite ranks. The inevitable backlash has begun.
The election of Donald Trump has been celebrated by many of his supporters as the end of globalisation. It is not clear what exactly is meant by that, but still no-one should be surprised it is happening. Much of the impact of globalisation on the middle class of developed countries was predicted over 20 years ago.
Globalisation is not the same as trade, and the two are often confused. Trade is companies in one country transacting with customers in another. Globalisation, at least in the commercial sphere, involves large corporations putting different parts of their operations in different parts of the world: pursuing, as the cliche goes, the ‘smartest minds and the cheapest hands’.
Much of what is recorded as trade is actually shipments inside the same company (half of China’s ‘exports’ to the US are of this type — Apple products, for instance, being sent back up the company’s internal supply chain). Indeed, a substantial portion of America’s, Europe’s and Japan’s industry base is in China, which hopefully will be a disincentive to start a war.
By being able to pick and choose their work forces, company managers or owners acquired immense power over labour, allowing them to suppress pay rates. Hard won worker power has progressively been eroded as corporations have taken advantage of cheaper and more lax workplaces overseas.
In many industries, organised labour is a distant memory; many workers in America have not had a real pay rise in decades. Meanwhile, senior managers’ salaries have ballooned. The resentment that this has caused was critical to the election of Trump, and the anti-immigration undercurrent in the Brexit vote. The losers in the middle class, it turns out, are also voters.
Evidence of the destruction of the lower middle class incomes in developing countries is easy enough to find, but one especially startling statistic is that in 2015 the bonuses paid to Wall Street, about $US28 billion, was double the total earnings of all Americans who work full time at the federal minimum wage of $US7.25 and hour.
Globalisation also has a financial dimension, which has allowed an international banking and finance elite to emerge. The results of ‘freeing’ up capital were extraordinary. Massive volumes of capital now slosh around the world: over US$4 trillion a day, according to the Bank for International Settlements. This is, in effect, like overlaying a giant casino over the world economy. It is reminiscent of Jorge Louis’ Borges’ famous story The Lottery in Babylon, except that it is real.
Creating this finance lottery has led to many perverse consequences, including almost destroying the world’s monetary system in 2008. For instance, it has not resulted in greater investment into the developing world; investment flowed the other way, from developing countries to the developed world.
“In some ways, this represents a return to the early 19th century, when only a fifth of global inequality was owed to the difference between countries.”
Not everyone has been a loser from globalisation, however. Indeed, a greater number were winners: people in developing economies, especially China. Hundreds of millions of people have emerged from poverty, largely because of the technology and knowledge transfer that came with globalisation (not so much foreign investment or wages).
It has led to a massive shift in economic power. In the 1990s, Europe, North America and Japan accounted for about 90 per cent of the world economy. Now, those developed economies account for less than half of world GDP.
In some ways, this represents a return to the early 19th century, when only a fifth of global inequality was owed to the difference between countries. It was only since the Second World War, when the developed world started to dominate, that nationality came to determine ‘as much as two-thirds of our lifetime income’.
It created a heady mix of nationalism and economic advantage. If you belonged to a ‘great’ country, you also had a great standard of living. This is the very ‘greatness’ that Trump is trying to recapture in his resolve to ‘Make America great again’.
Inequality now tends to be determined by whether or not you belong to the elites within a country, or a well rewarded job type, or have capital to invest. For those in the developed world who are not in the 1 per cent who enjoy such privileges, it means being trapped in an economic cul de sac. We are returning to a familiar problem of class inequality.
Many defenders of globalisation express frustration at the rise of Trump and what they see as an ignorant and self-defeating backlash against its virtues. But they have no answer to the most pressing question: Is the global system there to serve people, or are people there to serve the global system? They also never address a central contradiction of globalisation: that capital is free to move, but for the most part people are not, unless they belong to the elite ranks. The inevitable backlash has begun.
David James is the managing editor of businessadvantagepng.com This article first appeared in Eureka Street on 6 February 2017.