Chronicle EditorJohn Rennie Short: Correspondent
Globalisation is under attack. The electoral victory of Donald Trump, the Brexit vote and the rise of an aggressive nationalism in mainland Europe and around the world are all part of a backlash to globalisation.In each instance, citizens have upset the political order by voting to roll back economic, political and cultural globalisation. Support for Brexit came in large part from those worried about their jobs and the entry of immigrants. Similarly, the Midwest of the US – the industrial heartland hurt by global competition – was the lynchpin of Donald Trump’s victory in last month’s US elections.
But what exactly are these globalisations and why the discontent? A deeper examination of global integration sheds some light on how we got here and where we should go next.
The rise of the globalization agenda
The roots of today’s global economic order were established just as World War II was coming to end. In 1944 delegates from the Allied countries met in Bretton Woods, New Hampshire, to establish a new system around open markets and free trade.
New institutions such as the International Monetary Fund, the World Bank and a precursor to the World Trade Organisation were established to tie national economies into an international system. There was a belief that greater global integration was more conducive to peace and prosperity than economic nationalism.
The foundations of global economic integration, such as the creation of the International Monetary Fund in 1945, were laid after World War II as an alternative to economic nationalism and as a means to promote peace and prosperity.
Initially, it was more a promise than reality. Communism still controlled large swathes of territory. And there were fiscal tensions as the new trade system relied on fixed exchange rates, with currencies pegged to the US dollar, which was tied to gold at the time. It was only with the collapse of fixed exchange rates and the unmooring of the dollar from the gold standard in the late 1960s that capital could be moved easily around the world.
And it worked: Dollars generated in Europe by US multinationals could be invested through London in suburban housing projects in Asia, mines in Australia and factories in the Philippines. With China’s entry onto the world trading system in 1978 and the collapse of the Soviet Union in 1989, the world of global capital mobility widened further.
Global transfer of wealth
While capital could now survey the world to ensure the best returns, labour was fixed in place. This meant there was a profound change in the relative bargaining power between the two – away from organised labour and towards a footloose capital. When a company such as General Motors moved a factory from Michigan to Mexico or China, it made economic sense for the corporation and its shareholders, but it did not help workers in the US.
Freeing up trade restrictions also led to a global shift in manufacturing. The industrial base shifted from the high-wage areas of North America and Western Europe to the cheaper-wage areas of East Asia: first Japan, then South Korea, and more recently China and Vietnam.
The US and Western Europe saw a rapid deindustrialisation as China and other countries ramped up manufacturing, offering lower production and labour costs to multinational corporations.
As a result, there was a global redistribution of wealth. In the West as factories shuttered, mechanised or moved overseas, the living standards of the working class declined. Meanwhile, in China prosperity grew, with the poverty rate falling from 84 percent in 1981 to only 12 percent by 2010. – Conversation Africa.
Online Reporter