Tag Archives: Globalization

Updates from Chicago Booth

Globalization is close to its ‘holy cow’ moment. Why we must rethink our outdated ideas about international trade.
By Richard Baldwin – Globalization has changed.

The globalization we knew and understood for most of the 20th century resembled more the globalization that emerged from the Industrial Revolution than it did the globalization we experience today.

That globalization was based on the movement of goods across borders—measurable, limited by physical infrastructure, and parried by policies such as tariffs. But globalization today is about more than trading goods; it’s about trading ideas and, increasingly, services.

Our 20th-century paradigms of globalization are ill-equipped to understand what cross-border trade means for the present and near future. Globalization has changed, but the way we think about it hasn’t.

The one thing that hasn’t changed about globalization is that it is a phenomenon with the power to change the world. If you trace the share of world income going to two groups of countries—India and China in one group and the G7 countries in the other group—back to the year 1000, you’ll see that back then, India and China had about half the world’s GDP, and the G7 had less than 10 percent of it.

Starting around the 1820s—the decade economists Kevin H. O’Rourke of Oxford and Jeffrey G. Williamson of Harvard have pegged as the start of modern globalization—the G7 share starts to swell. Over the course of about 170 years, it goes from about one-fifth up to about two-thirds of world income. That’s how powerful globalization—the movement of goods across borders—was.

Globalization is arbitrage. What is arbitrage? It’s taking advantage of a variation in price between two markets. When the relative prices of some goods are cheap in Mexico, that’s what they sell to us, and when other goods are relatively cheap in the US, that’s what we sell to them. A two-way, buy-low/sell-high deal—that’s arbitrage, and trade theory is all about what the direction of arbitrage, and especially arbitrage in goods, is. more>

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The Failures of Globalism

BOOK REVIEW

Us Vs. Them: The Failure of Globalism, Author: Ian Bremmer.

By Gabrielle Levy – If the six and a half decades that followed the end of World War II were a triumph of globalism, an era of prosperity and peace as the world grew increasingly interconnected, the second decade of the 21st century has seen the rise of a new populism that has pushed back.

Convulsions of anger – at corrupt government elites, at the floods of refugees fleeing sectarian conflict, at the loss of jobs as workers are increasingly replaced by automation and artificial intelligence – culminated in the pair of 2016 events, Brexit and the election of Donald Trump as U.S. president, that turned conventional wisdom on its head.

The biggest piece, I think, has already happened. When globalism started, after World War II was over, the United States recognized that we never want to have a flight like that again, so we’ve got to do something about it. We’re going to rebuild our former enemies – the Germans, the Japanese – and we’re going to build the United Nations.

More broadly, as it continues, it’s going to be a lot of opposition to the United States sending troops fighting in other people’s battles, like we’ve seen in Afghanistan and Iraq and Syria. It’s going to be a lot less support for immigration into the U.S., unless you’ve got a skill set or a lot of money, and we’re already seeing that start to happen.

And it’s possibly going to lead to more trade disputes, certainly in terms of big technology, where, instead of having one global free market, we end up having much more fragmentation of a marketplace with more strategic sectors.

And some of that is because the United States is not willing to promote free multilateral trade organizations, but some of it is because the Chinese are building an alternative system that has no global free trade at all.

It’s all just going to be linked to Beijing. So when you put that all together, you start to see what the future of this world will look like.

Globalization can turn a virtuous cycle into a vicious one – where globalization improves people’s lives, only to raise their expectations. That, in turn, raises frustrations when those expectations are met.

In China, the growing middle class and the rising wages risk threatening the very economic engine – cheap labor – that made that progress possible. Can developing countries avoid this trap? more>

Trump has failed on trade (that’s good), but the economic damage is already done

By Joseph Stiglitz – Trump exploited understandable grievances among a large swath of American society, whose standard of living has stagnated for almost half a century. Defenders of globalization say that Trump has unfairly blamed globalization, when the real culprit is technology. Of course, Trump like so many demagogues prefers to blame others.

Though even without globalization, technological advances would have meant workers without a college education would be hard pressed, the reality is that globalization has played a central role: even without changes in technology, especially unskilled workers would have seen wages depressed. Globalization was oversold: the increase in output was less than hoped, and there were costs—especially the lowering of wages as the bargaining power of workers weakened.

The problem though is not so much with globalization itself, but with the way it’s been managed. It’s been managed to benefit those at the top.

For three quarters of a century, the US led the way in creating an international economic system in which borders were becoming increasingly unimportant. Now, Trump has reminded everyone that borders do matter.

The world won’t be the same: the efficient supply chains that were created ignoring borders will have to be reconstructed for this new world. more>

Moral Life in the Global City

By Ian Klaus – Commerce depends on trust, civility, people doing favors. The bodega on the corner is not just a retail outlet. It’s a place where people in the neighborhood slowly get to know each other.

The ordinary virtues are things like trust, forgiveness, resilience, the basic honesty of ordinary life, a certain basic decency and civility that you see in ordinary life. These are the not-heroic virtues. Courage would be a heroic virtue. Self-sacrifice would be a heroic virtue. In a decent society we shouldn’t ask people to be heroes.

Globalization impacts every second of our daily lives. But the people we justify ourselves to, the people we care about when we exercise these virtues, are very local: Mom, Dad, family, kin, our neighbors, our workmates. When you display the virtues of decency, you’re not displaying an abstract commitment to treat all human beings decently. All you’re doing is treating the human beings you interact with every day decently. The ordinary virtues don’t generalize, they particularize. They don’t universalize. They are all very local. more>

How Technology Is Driving Us Toward Peak Globalization

By Banning Garrett – New technologies are moving us toward “production-at-the-point-of-consumption” of energy, food, and products with reduced reliance on a global supply chain.

The trade of physical stuff has been central to globalization as we’ve known it. So, this declining movement of stuff may signal we are approaching “peak globalization.”

To be clear, even as the movement of stuff may slow, if not decline, the movement of people, information, data, and ideas around the world is growing exponentially and is likely to continue doing so for the foreseeable future.

Peak globalization may provide a pathway to preserving the best of globalization and global interconnectedness, enhancing economic and environmental sustainability, and empowering individuals and communities to strengthen democracy. more>

Why nation-states are good

BOOK REVIEW

Straight Talk on Trade: Ideas for a Sane World Economy, Author: ani Rodrik.

By Dani Rodrik – A principled defense of the nation-state would start from the proposition that markets require rules.

Markets are not self-creating, self-regulating, self-stabilizing or self-legitimatizing, so they depend on non-market institutions.

Anything beyond a simple exchange between neighbors requires investments in transportation, communications and logistics; enforcement of contracts, provision of information, and prevention of cheating; a stable and reliable medium of exchange; arrangements to bring distributional outcomes into conformity with social norms; and so on.

Behind every functioning, sustainable market stands a wide range of institutions providing critical functions of regulation, redistribution, monetary and fiscal stability, and conflict management. These institutional functions have so far been provided largely by the nation-state. more> https://goo.gl/yjmnyK

How The OECD Wants To Make Globalization Work For All

By Ronald Janssen – In its key issues paper for the Ministerial Council, the OECD recognizes that the frictional costs of opening to world trade have been much higher than so far assumed.

Workers losing their job because of competition with low wage economies were supposed to find new jobs elsewhere and do so quickly because the same process of globalization would be pushing up overall national income.

The OECD now openly admits that this assumption was wrong.

A second critical stance is taken on what the OECD calls a ‘plausible’ link between globalization and rising inequalities. Here, it explicitly admits that globalization has weakened the bargaining power of labor in advanced economies, invoking the threat of cheap import competition from low wage countries as well as that of moving investment and production there.

Trade and investment deals are often rushed through parliaments when all details have been negotiated, thus providing big business the opportunity to weigh on decision-making by massive lobbying of governments in the preceding trade negotiations themselves. The OECD specifically adds that ‘the cost-benefit balance of provisions such as ISDS look increasingly questionable, especially when both sides are advanced economies with low risk of discriminatory treatment of foreign investors and reliable judicial systems.” more> https://goo.gl/TM76h7

Extremism is surging. To beat it, we need young hearts and minds

By Scott Atran – The values of liberal and open democracy increasingly appear to be losing ground around the world to those of narrow, xenophobic ethno-nationalisms and radical Islam.

This is not a “clash of civilizations”, but a collapse of communities, for ethno-nationalist violent extremism and transnational jihadi terrorism represent not the resurgence of traditional cultures, but their unraveling.

This is the dark side of glottalization. The western nation-state and relatively open markets that dominate the global political and economic order have largely supplanted age-old forms of governance and social life. People across the planet have been transformed into competitive players seeking fulfillment through material accumulation and its symbols. But the forced participation and gamble in the rush of market-driven change often fails, especially among communities that have had little time to adapt. When it does, redemptive violence is prone to erupt.

We need a strategy to redirect radicalised youth by engaging with their passions, rather than ignoring or fearing them, or satisfying ourselves by calling on others to moderate or simply denounce them. more> https://goo.gl/zf4oos

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The New Normal: Radical Inequality, Suffocating Debt, and Growing Job Uncertainty

By Servaas Storm – The U.S. economy is suffering from two interrelated diseases: the secular stagnation of its potential growth, and the polarization of jobs and incomes. The two disorders have a common root in the demand shortfall, originating from the ‘unbalanced’ growth between technologically ‘dynamic’ and ‘stagnant’ sectors, which—crucially—is bringing down potential growth.

The key mechanism is just this: rising real wages, as during the period 1948-1972, provide an incentive for firms to invest in labor-saving machinery and productivity growth will surge as a result; but when labor is cheap, as during most of the period 1972-2015, businesses have little incentive to invest in the modernization of their capital stock and productivity growth falters as a consequence.

Financial globalization, in addition, enabled the rich to have their cake (profits) and eat it (by channeling them to offshore tax havens or into derivative financial instruments). In this way, trade and financial globalization have been essential building blocks of the dual economy. more> https://goo.gl/5EFndw

How the Obama phenomenon and Trump earthquake happened

By Reid Wilson – The Hill spent months digging deep into decades of data that illustrate the nation’s changing demographics, economics, culture and politics.

Those glimpses of a changing America are evidence of a series of countervailing demographic, political and economic forces that have long exerted themselves on the nation — and now define the quadrennial struggle between two sides of the political aisle that are deeply polarized along race, class, economic and educational lines.

At the center of the divide are two sets of divergent trends.

The first set contrasts the changing face of America, which is being hastened by the rising influence of the most diverse generation in American history, with a radical political shift among the nation’s still-dominant cohort of older whites, who now act as a more homogenous voting bloc than ever before.

The second set reflects the changing nature of how Americans live, work and build economic power. A generations-long trend toward wage stagnation, automation and globalization is in the final stages of exterminating the blue-collar manufacturing jobs that once sustained America’s middle class in the heartland. more> https://goo.gl/YgDUA0

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