The reality of globalization0

BREAKTHROUGH - Elfren S. Cruz (The Philippine Star) -

November 4, 2017 - 4:00pm

The issue on whether globalization is ultimately beneficial

or harmful to the average citizen of the world is clearly still
a much publicly debated issue. The historical champions
of open markets – United States and United Kingdom –
are now increasingly hotbeds for proponents of
protectionism. On the other hand, China which used to be
a highly protected economy is now championing
globalization.

The rise in extreme global income inequality has been attributed to globalization. Trump’s
presidential victory and the Brexit win in the UK have also been traced to popular
disenchantment with globalization; and a perception that it has benefited only the very
wealthy few. The DHL Global Connectedness Index – which tracks international trade,
capital, information and people flow – shows that globalization slowed down in 2015 but did
not go into reverse. Updated data for 2016 for trade and investment suggests a continued
slowdown but still no reversal.

However, the media perception of globalization has become increasingly more negative.
According to the Harvard Business Review: “An analysis of media mentions for the term
‘globalization’ across several major newspapers – Wall Street Journal, New York Times,
Washington Post in the US and the London Times, Guardian, Financial Times in the UK –
reveals a marked souring of sentiments with scores plummeting in 2016.”

A recent issue of the Economist magazine has apparently accepted the fact that

globalization may have benefited certain sectors and regions, but has left behind large
segments of society, in an article entitled “ Left Behind: How to Help the Places Left Behind
by Globalization.”

The article provides some useful insights on the reasons for regional inequalities caused by
globalization. Firms – particularly manufacturing – often do better when they are close
together. A maker of industrial machinery saves on costs when it is near the firms that
provide it with raw materials or components as well as  its customers. Manufacturing plants
must therefore, come in clusters. A cluster of manufacturers attract workers. 

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The same concept of ‘clusters’ apply to other industries. Financial firms do well in New
York because they are close to banks that finance and clients that hire them. Start ups in
Silicon Valley have access to financing, customers, and new ideas that they will not easily
find elsewhere.

According to the Economist, “A larger, more integrated market enables production at more

efficient scale and increased global output. Consumers gain access in cheaper and better
goods and services including new foreign varieties.

They do imply, however, that production will become more geographically concentrated.
Cities with long standing industrial tradition that could get by in a smaller economy find
themselves bleeding talent and jobs.”

These concept of “clusters’ means that countries cannot afford to have a policy of
attracting only single firms to invest; but, must look for ways to attract clusters of factories
or financial firms or service firms. Even within a country, globalization will make regional
inequalities worse.

As the rich became richer, their wealth was supposed to start “trickling down” to the poor
so that ultimately everyone would benefit from the rich accumulating more wealth. This
theory has never worked. Income inequality has reached a level unprecedented in human
history. 

There was a time when the same “trickle down” theory was believed to be applicable to
nations. As certain nations became richer, they were expected to share their wealth with
the poorer countries of the world. This was the dream of many organizations like the
United Nations. Instead, the rich Western nations continued to further enrich themselves
by economic exploitation of the poor countries. The Third World countries were developed
solely as sources of raw materials and markets for the goods and services of the Western
imperial powers. Japan joined the Axis powers during the Second World War primarily
because Imperial Japan needed to secure reliable sources of raw materials and markets
for its industrialization.

Today, China – the new economic giant – is following the same imperial pattern of the past
powers. Its Belt and Road initiatives are primarily aimed at securing reliable sources of raw
materials and markets for its economy. The primary objective is to continue the economic
growth of China.

China and Japan were once heavily protected economies until they were able to build an
industrial and financial base that could compete with the rest of the world. Now they are
suddenly champions of open markets and globalization.

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The United States and the United Kingdom were once champions of globalization and
open markets. But now that they are losing their competitive edge, these two countries
have elected governments that are advocating protectionism.

Perceptions about globalization will remain mixed because its effects will continue to be
mixed. Globalization and technological change will enhance the economies of scale that
will result in more geographic concentration of wealth and talent. The Alibabas and
Amazons will increase their dominance in the service industries which will further decimate
locally based businesses. 

There are those who will insist that the exponential growth of technological change makes
globalization inevitable. Perhaps that is true, but the process of change will be a costly and
chaotic period. This is what history teaches us. The Industrial Revolution gave birth to the
class wars and Marxist revolutions of the 20th century. The economic and social changes
resulted in the rise of populist leaders and dictators that led to two World Wars and a Cold
War. 

I once read two contrasting  articles on the same  topic. The title of one was “ Globalization
at Warp  Speed”; and the other one was “ The End of Globalization.” The future reality will
probably be somewhere in the middle of these two titles. Hopefully, the period of change
will not be as violent as  similar periods in history.

MONTON, VIANNE M. BSCE – 1C 10-25-19