Reality Check: Rolling Back Globalization Is A Really Stupid Idea

One of the great tragedies of populism anno 2017 is the extent to which the politicians pushing it on the masses have sought to scapegoat globalization for all of society’s ills.

The idea that globalization is responsible for the demise of the middle class in developed economies fits nicely with the nationalistic message that spews ceaselessly from the would-be populist “saviors” who have tried, with varying degrees of success, to upend Western democracies over the past two years.

The Marine Le Pens, Geert Wilders, and Steve Bannons of the world took something that was easy to understand (the growing threat of terrorism) and used it as a kind of Trojan horse to make anti-globalists out of voters who heretofore couldn’t tell you the first thing about globalization.

In that way, Europe’s refugee crisis and the seemingly ever-present threat of Sunni extremism in Western capitals were trotted out as “Exhibits A and B” in the effort to illustrate the supposed ills of a progressive, globalist world view.

Of course there’s a whole lot of false equivalence going on there, but the fact that uneducated voters were (and still are) an important source of support for the latest iteration of populism means nuance isn’t something folks like Steve Bannon have to worry about.

In other words, people don’t want to think too hard about this. You’re telling me people are getting killed in the name of Islam and there’s an influx of refugees from majority Muslim countries? Best to ban Muslims and close the borders (never mind the fact the reason all of those people are leaving the Mideast in the first place is to escape the poisonous ideology which is unfairly being ascribed to them).

There’s a similar dynamic going on with the “demise of the middle class” meme. You’re telling me manufacturing jobs are leaving, wages are stagnant, and the wealth divide is growing? Must be China’s fault on one end and Jeff Bezos’ fault on the other. And have you ever called a customer service line? They’re all Indians. Time to stop globalization in its tracks.

At a basic level, that kind of message is bad because it creates xenophobia, makes bigots out of people who weren’t bigoted before, and stokes a dangerous sense of nationalism characterized by an “us versus them” mentality.

But the critical point to understand about the whole thing (at least to my mind), is that from a utilitarian perspective it’s absolutely absurd. Here’s an excerpt from a post we ran earlier this year:

More generally, this idea of rolling back globalization is a disaster from a utilitarian perspective. It is unquestionably desirable (again, from a utilitarian perspective) to create an open, global economy and to foster a shared human destiny. Racism, tribalism, nationalism, xenophobia, all of that bullsh*t has no place in modernity.

Yes, there will be losers. That’s why I stressed “from a utilitarian perspective.”

But that’s the way it goes. If your skill set, education, disposition, biases, or whatever else makes you vulnerable in a globalized, multicultural world, then you’ll be left behind. In some cases, it’s not your fault (factory workers in America’s rust belt are a good example). In other cases, it is your fault (those whose racial and social biases make them ill equipped to cope with globalization are a good example).

This is a good time to show you the following chart again:

Here’s what we said previously about that:

See that giant spike in the middle? Yeah, so that’s (and I’m oversimplifying here) people living in emerging markets experiencing a 50%+ increase in real income between 1988 and 2008. See that dramatic dip? Yeah, that’s middle class folks in Western democracies seeing their incomes stagnate over the same period. Here’s Barclays:

• Economists Branko Milanovic and Christopher Lakner, among others, point to the stagnation of middle-class incomes in advanced economies during the 20 years of intense globalisation from 1988 to 2008. Figure 6 reproduces their “elephant” chart of 20-year income gains by global income percentile.

And yes, the spike at the end of the chart shows a dramatic rise in real income growth for the “global elites”. Is that evidence of a nefarious attempt on the part of those “global elites” to keep the downtrodden masses underfoot? Well if it is, don’t tell all of those people in the middle of the chart who in some cases saw their incomes grow faster than the elites and who were able to “move from rural to urban areas” (read: escape abject fucking squalor for life in rapidly industrializing urban centers) thanks to those global elites’ control of the supply chain.

See this is the same argument: people in emerging economies were able to, for all intents and purposes, become part of the modern world as their real incomes sky rocketed thanks to rapid globalization. Meanwhile, the “poor” old middle class in advanced economies has had to “squeak by” (that’s sarcasm) on their stagnant yearly income which, by the way, is still [fill in exponent]-times larger than what people make in emerging economies even after taking into account that period of 50%+ growth.

That’s not an assessment that’s popular with a lot of middle class folks in developed economies, but that’s too damn bad. Because the longer we persist in a fantasy world where we’re American or French or Russian or XYZ first and humans second, the slower will be our progression as a species. If the pace of that progress slows down enough, we’ll all die. That’s just all there is to it.

And if you want to see that in action, look no further than Trump’s “America first”-inspired decision to pull out of the Paris Accord. That kind of mentality will eventually make this planet uninhabitable. There won’t be an “America” to put “first.” It will be under water just like every other country.

Here’s an extension of the same utilitarian argument that’s even more controversial. Let’s say one in every 50,000 refugees fleeing the war-torn Mideast is a terrorist (I have no idea what the actual numbers are on that – this is a thought experiment). Further, let’s say every terrorist who disguises him/herself as a refugee ends up committing an atrocity in a major European capital and the average death toll from those heinous acts is 5. Well guess what? From a utilitarian perspective, that equation is a huge net win for humanity as a whole when you consider what percentage of those 50,000 refugees would have died or suffered horribly had they not left the Mideast for Western Europe. [Note: even if the ratio of would-be terrorists to refugees were far larger, it’s still difficult to imagine that the number of people killed in terrorist attacks would ever come remotely close to the number of lives saved by keeping borders open to people fleeing violence].

And before you send your hate mail, just remember the classic example of this utilitarian though experiment. You and six of your friends visit a remote jungle and are kidnapped by natives. The chief lines all six of your friends up and gives you a choice: kill one of them, or the tribe will kill them all, and then they’ll kill you. What are you going to do?

So, with that as the highly controversial backdrop, here’s the BIS to tell you why rolling back globalization is about the stupidest fucking idea imaginable…

Via BIS

Harder to assess, but potentially more devastating, would be a retreat of globalisation owing to a rise in protectionism. This is why we devote a whole chapter to globalisation in the Report.

Let me just say here that, post-crisis, protectionist arguments have been gaining ground – and this despite the fact that globalisation has been a major force lifting large parts of the world out of poverty and raising living standards. To be sure, the gains from globalisation have not been evenly distributed, not least because countries have not always been able to adjust to it. And financial openness can pose challenges for financial stability that need to be addressed. But rolling back globalisation would be as foolhardy as rolling back technological change.

A broader risk for the current expansion is protectionism. The reduction in overall trade tariffs has slowed over the past decade (Graph III.10, left-hand panel). Moreover, trade-restrictive measures, such as regulations and targeted tariff hikes, have risen substantially since end-2010 (centre panel). And a greater emphasis on measures that would hinder free trade in national policy agendas suggests that the risk of protectionism may be growing further.

A rise in protectionism would add to the cyclical and structural factors that have held back global trade post-crisis (Graph III.10, right-hand panel and Chapter VI). These have included: aggregate demand weakness, especially in trade-intensive business investment; income-driven demand shifts, notably from manufacturing goods to less traded services; and the maturing of the Chinese economy, which has boosted domestically produced intermediate inputs at the expense of imported ones.

Globalisation has greatly contributed to higher living standards worldwide and boosted income growth. Over the past three decades, it has been an important factor driving the large decline of the share of the world population living in significant poverty, and of income inequality across countries (Graph VI.5, left-hand panel). For example, poverty has fallen markedly in China, where the development of export industries has been a key force behind the rapid growth of GDP and incomes.

Over the same period, the income gains have not been evenly spread. The biggest gains have accrued to the middle classes of fast-growing EMEs and the richest citizens of advanced economies. In contrast, the global upper middle class has experienced little income growth. This has seen within-country income inequality increase in advanced economies and even many EMEs. The share of income accruing to the top 1% of income earners has increased substantially since the mid-1980s (Graph VI.5, centre panel). This contrasts with the fall in the interwar period, attributed to capital destruction and regulatory and fiscal policies, and for several decades thereafter. Some degree of income inequality resulting from returns to effort can enhance growth by creating incentives for innovation. But high inequality appears to be harmful to growth and has undermined public support for globalisation.

There is strong empirical evidence that globalisation is not the main cause of increased within-country income inequality; technology is. Still, the critics of globalisation have often confounded the challenges that it poses with the main drivers of many economic and social ills.