Sunday 29 July 2018

Capitalism, Globalisation, Nationalism. Part 2 Globalisation

Part 2 - Globalisation

The intention of globalisation is for a tendency to encourage free movement of goods, people and services around the world and to harmonise price and quality of commodities.  At the same time to open borders and promote investments, cultural diversity and spread information technology for global linkages of people.  It was for the developing world to catch up and to raise their people’s standard of living, There is no doubt it has made China the economic powerhouse it is today, also enriching other developing countries mainly African countries and India made huge gains.  Unfortunately, it has not worked out that way for the people of Europe and North America.  Many in the west increasingly see Globalisation as an instrument more for the rich to get richer and the poor if not poorer to remain at a standstill.  I shall argue here that globalisation has become a dominant force in encouraging inequality and low wages where the rich have pulled away leaving others with stagnating income.  Also, but with lesser emphasis on the influx of refugees and immigrants distinct cultural differences that changed both local ethnic and physical landscape and given rise to concerns about the loss of native identity, culture, and civilisation.

Widening income disparities springs danger and may not only raise welfare concerns but expressions in increase social anger; crime and radicalisation are often the manifestations. A rising inequality may also hurt the social structure and raises ideological worries as we will see in the coming third and final instalment; Economic Nationalism.  Also judging by the recent spate of terrorism the mix has aroused fears from within, and people have called for restrictions of immigrants from certain parts of the world an eventual and direct backlash.

A look at inequality and its relationship to globalisation.  Part one of these series pointed out that inequality is an inherent feature of Capitalism it progresses, in theory at least, in a U shaped curve in a boom and bust cycle.  As society moves from Agriculture based to Industry based communities, inequality increases.  As it develops into a more advanced State, the standard of living rises and the distribution of income becomes more equal provided it stays under state control.  Globalisation has put a stop to that theory; disparities in the twenty-first century abound in many areas and across the world with evidence that the gap is widening more rapidly.  Part of the blame for these changes is because the markets have changed.  World markets have become global in the field of transportation, trade liberalisation, financialisation, and structure and fusion of information technology, the flow of commodities, investments and labour.  Governments have put globalisation on auto-pilot or at best power to regulate capitalism has shifted away from government control making it difficult if not impossible to govern under free tariffs agreements. Hence wealth and income become incompatible with democracy so long as taxation remains at their current low levels with loopholes abounds.  In this regard, many countries see severe strains placed on their democracies. 

Subsumed into a shifting pattern of inequality are Technology and financial globalisation both working through processes that raises the demand for skilled workers.  According to the IMF (International Monetary Fund) analysis, increasing trade and economic globalisation has had separately identifiable and opposite effects on income distribution. Whereas trade liberalisation and export growth are found to be associated with lower income inequality, increased financial openness associated with higher inequality. Technological change which itself stems from integration has had even higher income inequality.  Even then, access to higher education revolves in a pattern.  This trend, a drive towards both expert systems and robotic technology while replacing people, and seeing that market forces are at the door, lends to a situation that leaves a handful of individuals as an extremely well-paid minority. A sliver of society made up of financiers, entrepreneurs and Ceos at the very top to direct the economy. 

There is a profound sense that Economic and political power now placed in the hands of Oligarchy; economies are influenced and rigged by the elites for the elites, and those in position to gain call this transitioning market modernity.  When Wall Street is bullish, it creates sufficient ripples around the globe, sending the London Stock Exchange and the city of London, as well as NYSE and other financial districts a wave of a frenzy of profit making.  Sure enough, there are significant economic gains but most of it going primarily to the very top of income distribution pyramid while the providers’; the producers of commodities, real income stagnates.  The NYSE at a capitalisation of over Twenty-two Trillion Dollars would have a say in the running of the country.. Besides manipulating the financial system to their advantage a stage is reached where wealth dominates since wealth is growing faster than economic output. The belief that wealth would filter to the bottom remains a myth.  Indeed the wealthy are using and abusing such privilege to increase their wealth and political power.  Short of cronyism, lobbying budgets are on the increase so are the paybacks.  Such incestuous rotation of economic activities ensures a concentration of wealth to remain within a restricted circle.  So, sure enough, the government responds: compelling it not to adopt policies that reflect common economic interests of their constituents.  Inequality has become a political issue for the average family, and young graduates alike would feel economically alienated.  Such a system of inner circles are dividing society and pulling away from what has hitherto been common issues between citizens but are now sectioning along loyalties favouring interest groups.  Jimmy Kimmel, an American Television host, put it in colourful language: he charged that Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan and other lawmakers "won’t do anything about this (Gun Control) because the NRA has their balls in a money clip."

Digging deeper into the specifics, the chart below explains the divides well.  It is important, however, to get the terms right: “Income is defined as household disposable income in a particular year. It consists of earnings, self-employment and capital income and public cash transfers; income taxes and social security contributions paid by households are deducted. The income of the household is attributed to each of its members, [ …] Income inequality among individuals is measured here by five indicators. The Gini coefficient is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive, and it ranges between 0 in the case of perfect equality and 1 in the case of perfect inequality.”  

During the last decade, the real income of professionals and non-professionals alike has stagnated, but the income of those at the top has multiplied.  FTSE CEOs earn 386 times more than workers on national living wage and rising.  Clearly, despite the British government promise or in America’s case to “clearing the Swamp” is not working for everyone.  In Britain, the Brexit effect of pushing the Pound down and increase in costs of imports plus the current squeeze on income and pressures of austerity have not fared well on the inequality stakes.  “As UC Berkeley economics professor Gabriel Zucman argued[…] the top one per cent — and the top 0.1 per cent and the top 0.001 per cent — have truly pulled away from the upper-middle class even while most college graduates’ fortunes remain broadly similar to those of the median American."

A well-known team of inequality researchers – Thomas Piketty, Emmanuel Saez and Gabriel Zucman – has been getting some attention recently for a chart they produced, (above).  It shows the change in income between 1980 and 2014 for every point on the distribution, and it neatly summarizes the recent soaring of inequality.

Mixed with this toxic combination of rising inequality, real wage declines, and a sense of unfairness that the financial elite has created most people in Europe and the United States are angry and turning to populist demagogues who they hope will deliver back their jobs and raise their standard of living to perhaps more of an equal playing field.  Factory jobs, Office jobs, and those long ago considered safe positions are today vulnerable with no guaranteed pay for a decent standard of living. A stable career path is a thing of the past instead we are seeing the growth of internships and short-term contracts as well as exporting of jobs.  Outsourcing by way of call centres set up in India and elsewhere by Banks and British Telecom are primary examples.  For others, it means they must now compete in an international job market, and here the Internet plays a significant role.  The rate of unemployment in the US and UK are down but so is job quality and job security while pay is stagnating and that downward spiral increases the more companies globalise. 

At this rate, the cheap Jeans is not so cheap after all, and the one dollar T-shirt is by far more expensive it would seem nor the global business opportunities not so golden. The oscillating if not convulsive nature of capitalism with the adverse effect of globalisation added, has stimulated second thoughts and doubts on its advantages by those advocating it in the first place.   At its start, it rose with invigorating fanfare, but now its demise is on the horizon as seen by an effective backlash any time soon in the shape of Nationalism. The caretakers at Davos " while cradling champagne and canapes this January the sparkling wine returned, but by all reports, the mood was one of anxiety, defensiveness and self-reproach."    

Globalisation for the developing countries has had two main features.  One is the US, and Europe exported Capital in the shape of knowledge and hardware while by importing clothing and shoes -  Cheap Labour, they have implicitly exported wealth. It also causes wage competition by putting downward pressure on wages in Europe and the US.  The orthodoxy of economics for trade to comparatively benefit the participating nations' average income has not worked.  Even for those Middle-class professions not in competition, insulated from foreign trade, see rising competition from within that would also put pressure on salary rates.  Neither has the fusion of technology led to higher investments enough to benefit those in the West. Such adverse and stagnating situation for most people has caused enough concern for individual studies regarding links between trade, wages and inequality and found the cumulative adverse effect that this had, even for those sticklers who have until now believed globalisation was beneficial, to come round to eschew mainstream politics in favour of Populists outsiders and identity politics.  

According to Dani Rodrik, Turkish Economist, Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. In his 'The Globalization Paradox', "... we cannot simultaneously pursue democracy, national determination, and economic globalisation. If we want to push globalisation further, we have to give up either the nation-state or democratic politics. If we want to maintain and deepen democracy, we have to choose between the nation-state and international economic integration. And if we want to keep the nation-state and self-determination, we have to choose between deepening democracy and deepening globalisation. Our troubles have their roots in our reluctance to face up to these ineluctable choices." Starting with the United States, an increasing number of countries are opting out for National Determination influenced by Populists leaders riding on a wave of grievance as will be seen in the third and final part in these series.  

Compiling these series I had access to many sources my sincere hope I have done justice to their contributions.  I, therefore, like to thank the following;

'Foreign Affairs'
'The Economist'
Professor Ronal Inglehart of the University of Michigan
Professor Mark Blyth of Brown University
Professor Michael Cox of London School of Economics
Professor Julia Black  of London School of Economics
Professor David Harvey of London School of Economics
Professor Simon Deakin of Cambridge University

Last but not least Nomi Prins, former Wall Street insider. 

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