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:

globalizationchart

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.

protectionist

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.

Inequality

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.

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4 thoughts on “Reality Check: Rolling Back Globalization Is A Really Stupid Idea

  1. I take issue with a couple of points. One is that Muslims leaving oppressive countries are fine to let come into our countries. There is no way to screen them to tell who has extremist views and who doesn’t. Extremists can easily pose as moderates. Even moderates carry crazy notions that don’t fit with the West like anyone trying to leave Islam or even talk someone out of being Muslim should be put to death. Polls of Muslims in the UK regarding the Mohammed cartoonists show 78% of them favor prosecution and a high % think the offense is punishable by death. Each extremist being assumed to only kill 5 people? Bah Ha Ha. How incredibly naive. 2nd: Americans who have had their jobs outsourced by greedy corporations and now have to work at McDonalds with a college degree or new graduates who can’t find a job should be content because we’re contributing to the overall wealth of the world and bringing Indians out of poverty? The middle class has been decimated by globalization and the never-ending push for double digit EPS growth is to blame. A corporation can never be satisfied by massive profits that have plateaued ie. Apple or Gilead. All the wealth created by Central Bank QE trickle down economics has made the 1% so rich they now run the country and write the laws. And subsequently corporations will only go further and further until they squeeze the consumers to the point that capitalism literally implodes due to all the wealth being at the top and not having enough consumers to buy what they produce in low cost countries. Then we’ll have a real life global revolution against plutocratic oligarchies and “The Purge” will not be such a far-fetched concept.

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      • “Americans who have had their jobs outsourced by greedy corporations and now have to work at McDonalds with a college degree or new graduates who can’t find a job should be content because we’re contributing to the overall wealth of the world and bringing Indians out of poverty”

        and the answer to that, from a purely utilitarian perspective, is “yes, absolutely.”

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  2. In April, 1945, Jews were liberated from Buchenwald and Bergen Belsen concentration camps, among many others camps. Many Jews then waited there turn and proceeded with the slow process on the long road to immigrate as refugees to America. Now imagine it’s March, 1951, and Trump is running for President with Bannon sewed to hip and lip. The Rosenbergs are on trial for committing espionage for the Soviet Union. Trump jumps aboard the hate of the day: attacking the ‘commies,’ via the leaders of the pack: the House Un-American Activities Committee, Walt Disney, Ronald Regan, et al. At Trump’s rallies his crowds applaud his opinion that there are too many Jews known to be commies in the US, that America can’t tell which Jews that have come in are commies, that many of them are already working in the US and Hollywood, taking away jobs from others, and lots more are immigrating every day from Europe. Trump promises that when he gets elected he’ll put a stop to all Jewish immigration from certain European countries until he and his administration can figure things out what’s what. It’s not that he has anything against Jews he says, “my daughter married a Jew and my lawyer and accountant are Jewish,” but it’s just that we must protect the homeland.” November 1951, Trump is elected. …

    Timing is everything, sometimes. How lucky are the Jews.

    When it comes to racism, tribalism, nationalism, xenophobia, and the like, people tell themselves all kinds of stories to make themselves feel better or rationalize why their frame of reference makes so much sense or why polices designed to foster racism, tribalism, nationalism, xenophobia, and the like are designed for benevolent reasons.

    Such stories can be or are very powerful. Quite persuasive.

    For example, while African men and women remained slaves on American soil on July 4, 1776, the day Americans declared freedom for white men and strict-quasi freedom for white women, white folks told themselves all kinds of stories to make the incongruence seem moral, just and right. And in the years that followed, when slaves bore the children of their white owners, and the owners beat those slaves or sold those children at auction, more stories were told to make it seem moral, just and right. And generations passed and the owners and their kin could see their likeness in the faces of their slaves and the children of those slaves, and thus perhaps one can infer where a cause for the white man’s hate arises.

    Often, self-told stories are very powerful and quite persuasive.

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