Yes to globalization – but with fairness!

Unfinished border fortification in the Federal State of Arizona on the USA/Mexico border.
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Donald Trump's election as US President is the culmination of a trend whereby ever more people in industrialized countries regard globalization has misguided. Does this signal victory for the progressive "anti-globalization movement"? An analysis.

Since the 2008 world financial and economic crisis, public opinion of globalization has grown steadily worse in the industrialized countries. More precisely, this refers to the neoliberal globalization model that has been followed for about 30 years now. Opposition first peaked in 1999 in Seattle with the protests against the Ministerial Conference of the World Trade Organization (WTO). The critics' motto at the time was: "Another world is possible." It would seem in the meantime that criticism from alternative circles has now become mainstream. And since the new US President has come out in favour of commercial isolationism, many observers have been asking non-governmental organizations like Alliance Sud, which have always been critical of globalization, whether they have now won.

The answer must be an ambivalent yes and no. Yes, because there is something very salutary about the current questioning of globalization policy as practiced so far. No, because the new industrialized country protectionism with which some western politicians are attempting to replace the free-trade dogma is ill-suited for bringing about a more just world.

Alliance Sud has never been and is not against globalization per se, but against the manner in which globalization has been effected to date. Since the founding of the WTO in 1995, the industrialized countries have pushed through the free flow of capital and goods, technology and of the most important services; and they did so wherever they had the comparative advantage. At the same time, they have refused to open their borders to agricultural products and to less skilled workers, which could have been of benefit to developing countries in particular. As pertains to the liberalization of industrial products, they have been wrong-footed, in that they had not anticipated such rapid progress by China and other emerging countries.

Globalization that benefits multinationals

This highly selective market opening has benefitted mainly globally active multinational enterprises. Many other enterprises, in both developing and industrialized countries, have fallen by the wayside. The upshot has been inequality – the eight richest persons today own as much as the world's poorest 50%. Multinationals organize their production along the lines of global value chains, they conduct business in places where their production costs (wages, taxes, etc.), and commodity prices are lowest and where the marketing of their products is most attractive. The most powerful multinationals originate in industrialized countries, but more recently also in some emerging countries. For their part, the poorest countries find themselves at the end of this production chain.

International trade is beyond doubt a pivotal component of economic development. But the rules enshrined in trade and investment agreements are playing workers off against one another across the world and fomenting a race to the bottom, which is destroying jobs and long-established structures. US firms have indeed created new jobs in Mexico, but they are generally low-wage and insecure. Communities have been relocated to make way for massive industrial projects. Traditional farmlands have had to give way to export-oriented agro-industry, and small farmers have been squeezed out of the market by highly subsidized US maize (corn) imports.

But job losses have also affected United States workers. People who lost their jobs in the auto industry, for example, were not simply able to take up one of the new, high-skill jobs being created in the Silicon Valley. This global competition between economies and their workers, who belong to entirely different labour and wage systems, has given rise to tensions and dislocations, which politicians have ignored for too long. Today they are the breeding ground for a populism that is spreading like wildfire.

Yet a return to protectionism as advocated by Donald Trump – whereby imports are taxed and incentives provided for exports and the repatriation of production that has left the USA – would be disastrous both for the US economy and for developing countries, which would lose a key market. Unless a country like Mexico, for example, were to quickly introduce an economic policy that curbs export dependency and relies more on domestic consumption, by boosting domestic investment and purchasing power. This is precisely what China is now doing. Anyone who raises minimum wages is penalized by investors, who simply go elsewhere. This is the philosophy behind the free movement of capital as envisaged under trade agreements.

Insufficient redistribution by the State

Already in 2005 – three years before the onset of the financial crisis – Nobel Prize laureate Joseph Stiglitz had stated: "Trade liberalization did not deliver on its promises." He did nonetheless add that the philosophy underlying trade – namely having the potential to improve the living standards of most if not all people – did remain intact. But for this to be the case, it must first be recognized that free trade does not automatically induce growth – as its apologists maintain – and that above all, not everyone automatically benefits from its advantages, as the overworked trickle-down theory would have us believe.

Stiglitz further states that costs and benefits should be distributed more fairly in industrialized countries by taxing earnings progressively. More effective social cushioning is needed for people who lose their jobs in sectors that are no longer competitive, to enable them to find new jobs. What is needed is a policy that provides for higher wages, more specifically a minimum wage – which in the USA for example, has not been increased for many years now. Globalization will never work if it means that workers must agree to sacrifice wages in order to keep their jobs. Wages could rise only if productivity also rises. But this would call for investment in education and research. Unfortunately, says Stiglitz, the exact opposite is occurring in many industrialized countries, though mainly in the United States, where taxes have become more regressive, the social network has become weaker and spending on science and technology is declining as a ratio of national income. Stiglitz concludes that the outcome of this policy is that even in the United States and in many industrialized countries, which after all are among the potential winners of globalization, ever more people are finding themselves worse off than before, as a result of globalization.

Fair trade instead of free-trade

Like other NGOs that are striving for a radical paradigm shift, Alliance Sud is calling for a trading system that prioritizes human rights and environmental protection. Protection must be given to economic, social and cultural rights, which are under threat from an aggressive liberal trade regime. Intellectual property protection as stipulated in trade agreements for instance, threatens the right to food by restricting small farmers' access to seed; it threatens the right to health by limiting the production of generic drugs. The liberalization of services could lead to the privatization of government-run health and education services and jeopardize the human rights of those who can no longer afford services that have become costlier as a result.

More specifically, developing country governments need more policy space, in other words the scope to set their own domestic economic policies. This is the polar opposite of what is being pursued in the WTO, mainly under free trade agreements, and in the TISA, TTIP, TPP and CETA megadeals. Their aim is to further lower tariffs on agricultural and industrial goods. This exposes domestic production to international competition with no protection whatsoever, and would chiefly impact vulnerable sectors or still infant manufacturing industries. Foreign investors have more rights than domestic ones, and this in virtue of the oft-criticized investor-state dispute settlement mechanisms. These megadeals envisage the liberalization of services through the "simplification" of regulations, which are regarded as trade barriers. This jeopardizes public services such as education and health facilities as well as consumer protection. They allow foreign interests to compete directly with State-run enterprises. This also affects enterprises needed by governments to steer their own development as they see fit, or enterprises they regard as strategically important.

It is no surprise therefore that the public can no longer distinguish between trade that is beneficial to both sides, and unfair trade agreements, and that both are simultaneously reviled. Yet all parties could benefit from fair trade and from globalization, were it organized in an equitable manner.

Globalization Research Findings

Mark Herkenrath The consequences of globalized world trade are being studied, inter alia, in economic and development sociology. Hereunder is a summary of the most important findings.

Various countries – especially in Asia, mainly China, as well as Malaysia or Vietnam – have benefited considerably over the past two decades from export-driven economic growth. However, since the year 2000 emerging and developing countries have not scored any bigger economic successes than in the 1960s and 1970s, in other words before the onset of the latest wave of globalization in trade and investment flows. Highly export-oriented countries for their part have suffered severely from the consequences of the world financial and economic crisis since 2008. They are therefore extremely vulnerable to externally generated problems. Broadly speaking, they too failed to exhibit more growth in the period before the crisis than countries less dependent on exports. The neoliberal variety of globalization that has so far been dominant has failed to generate any major growth advantages for poor countries.

Since the heyday of neoliberalism at the beginning of the noughties, income inequality has been exacerbated in these countries, though with major regional deviations from the trend. In many developing countries, only the elites have benefited from globalization, in others they have benefited more than the rest of the population.

It should be noted that there is hardly a study in the academic literature which finds that international trade has reduced income inequality in developing countries. At best, different studies find no connection at all between trade and inequality, others make trade responsible for fostering inequalities. There is one highly interesting study, however, that distinguishes between South-South trade and South-North trade. It draws the remarkable conclusion that trade between developing countries reduces inequality, while trade with industrialized countries exacerbates inequalities in developing countries. It is therefore recommended that poorer countries step up regional trade with other developing countries.