How Globalisation Makes Countries Richer and Individuals Poorer
I am currently writing to you from my Microsoft Surface Pro 4 while sitting comfortably in my hair salon chair.
Surprisingly, this super comfy chair was made here.
My German shoes are resting on a steel pole from a local metal worker. My overpriced designer t-shirt was made by a Bangladeshi worker. And my faded jeans came straight out of Vietnam.
The dye being applied to my head was produced in Italy. The scissors my hairdresser will use shortly were made in Japan.
I can explain all this to you, on a laptop that was designed in the US. And powered by a processor created in Israel.
This electronic marvel that allows me to work anywhere, anytime, uses rare earths from China.
This and the other parts are then shipped over to Taiwan, where a company called Pegatron will assemble the electronic components into their final form…
Globalisation is the zeitgeist of the 21st century.
Is globalisation the zeitgeist or the devil?
Depending on which circle you run in, globalisation is either the eighth wonder of the modern world…or the destruction of wealth.
The past 50 years have seen an unprecedented level of economic expansion and wealth creation.
Lifting restrictions on international trade has allowed money to flow to other countries, where even more money can be made.
This ‘free movement of capital’ means money follows the path of least resistance. In other words, it moves from place to place, with the aim of making the most amount of profit for the least amount of risk.
This process has meant governments can separate consumption and production. They can grow the consumption side of the economy (people buying things) without investing in the production business (people making things).
Furthermore, as the prosperity grows on the consumption side of the economy, people are less likely to want to manufacture things.
Businesses capitalise on cheaper labour by moving manufacturing to the country with the lowest cost labour force.
In theory, this benefits both parties.
Jobs are created in one economy. Consumers win with cheaper stuff and the business still makes a buck.
Then this is repeated millions of times, in every pocket of the world.
The goal of open borders is to create wealth by either outsourcing the labour or providing it.
Everyone is meant to benefit from continuous economic expansion.
Developed economies score cheaper goods. Emerging markets see their people lifted out of poverty.
As long as trade borders remain open, trade flows and prosperity follows…
People went broke
For this to work, everyone must continue to profit from globalisation.
And up until the financial crisis, free international trade seemed like the ticket to prosperity for everyone.
It was only when the financial markets seized in 2008 that the cycle of globalisation raised questions.
The aftermath of the financial crisis was an entire working class in the US left jobless.
In order for free trade to continue, individuals end up missing out.
And this is the point in the globalisation cycle that we find ourselves now.
In the wake of the financial crisis, governments forced themselves to step in to ‘restore’ the balance.
In other words, they had a vested interest in keeping the global trade going.
This only resulted in individuals being financially repressed.
Inefficient businesses were propped up with government support.
Regulations were introduced under the pretence of strengthening the financial system.
Central banks and governments took steps to weaken their currency against another country’s currency.
They sought to reduce the value of their currency in an attempt to make what few goods that country produced more attractive to foreign buyers.
Interest rates dropped to zero in some parts of the world.
Yet the weaker currency hurt people on an individual level.
A currency losing its value against another currency means that you, as an individual, lose your purchasing power.
Weakening local currencies mean you need more of them to buy the things you bought yesterday. Not only that, but a currency that’s falling in value is basically a slow erosion of your wealth.
Globalisation isn’t about encouraging individual prosperity.
Rather, it’s about ensuring its success at the expense of the people in the economy.
Anti-trade? Or pro-local economy?
This is the pickle we find ourselves in today.
We can buy cheap goods because of mass manufacturing by Third-World labour. Fill our homes with stuff that we really don’t need.
However, in trying to engineer continuous global growth, governments have pissed off the people in the economy.
What was the greatest factor of economic prosperity at the beginning of this century has seen many people robbed of their own personal wealth gains.
We can see this in the rise of nationalist policies.
President Donald Trump is lobbing tariffs on China. Part of the increase in tariffs is an attempt to increase local US manufacturing.
The US may be the strongest driver of ending free trade.
But the biggest battle over open trade is happening in Europe.
The Brexit vote isn’t just an immigration campaign. It’s a battle line drawn up between what is good for the UK economy and what is good for the EU.
Freedom of movement for capital has created many distortions in the EU.
There is still no plan in place for the UK to leave the EU.
Over the next couple of days there will be various parliamentary votes to try and establish a formal agreement…
…but if that doesn’t happen, then what?
Perhaps the UK does just leave the EU come 31 October.
The mainstream is making a whole lot noise about what a disorderly exit would do to the British economy.
The reality is it may be a bumpy month or two.
But perhaps the individuals in the UK will be better off once they’re out.
Until next time,