What Should We Do About Globalisation? 2 Years Later

This week the discussion in the MSci 442 course is on technology and globalisation. This discussion is taking place in a very interesting week. Theresa May, the British Prime Minister, yesterday made an important speech on UK policy on Brexit, the World Economic Forum is taking place in Davos and has included a keynote speech from the Chinese leader Xi Jinping, defending globalisation, while in the US, Donald Trump, elected with an anti globalisation mandate, will be inaugurated in a couple of days.

Globalisation is widely thought to be having a major political impact in most parts of the world today. The earlier posts on this blog on this topic reflected concerns that globalisation’s impact may be negative for some people but did not anticipate the strength or breadth of the concerns that are appearing today.

Information technology has made a significant contribution to the advance of globalisation and this has been extensively discussed in previous posts in this blog on this topic.  Improved communications have been especially important, enabling businesses to collaborate internally and externally more effectively across the globe.

Theresa May’s speech yesterday, addressed the difficult question of how Brexit would be implemented, following the unexpected UK referendum based decision to leave the European Union. This decision was based on a number of factors which were widely attributed to the effects of globalisation. Many voters were concerned for their economic welfare, believing that membership of the European community was causing jobs to be lost to immigrants from other countries or to move to other lower wage countries and that this also was causing pay levels to decline in Britain.

Similar concerns also were apparent in the election of Donald Trump in the US. His promises to force American companies to stop moving jobs to other countries, to deport immigrants and introduce strict immigration controls and to tear up or modify the US’s trade agreements with other countries responded to a sense among large numbers of people, that globalisation was having a negative impact on their lives. Both main presidential candidates opposed the Trans Pacific Partnership – a new trade agreement that was designed to strengthen the US’s position in Asia.

The movement against globalisation has been greeted with some degree of alarm by “the establishment”. Most existing developed country governmental leaders and most corporate leaders have made strong arguments in favour of globalisation. These arguments are based on economic evidence that shows that globalisation has resulted in higher average living standards in most developed countries. They have also argued that impeding globalisation will lead to economic decline.

This argument is based on Ricardo’s theory of comparative advantage which, although written in the 18th century, has been the foundation of trade policy in most developed countries. It argues that when countries concentrate on what they are best at and then trade with each other, overall, production is higher. Even where there is absolute advantage, there is argued to be a benefit in free trade, and economic evidence appears to strongly support this approach.

Yesterday’s speech by Xi Jinping supports this argument. He defends free trade and argues that world welfare will be improved if globalisation is allowed to continue. His speech is made in the context of Donald Trump’s election and the movement in many countries towards similar policies. In Germany, the Netherlands, France and Italy there is a possibility of the election of candidates with policies that are similar to Trump’s within the short term future.

The difficulties that globalisation is facing at the moment are often argued to be due to the nature of the economic impact of globalisation today. While countries are getting richer, sections of the populations of most developed countries feel that they are being left behind. Statistics show that middle class incomes have stagnated, that the rich are often getting richer (as a report from Oxfam this week showed).

Those with lower levels of education and skill are more disadvantaged than they were before. Although national economies have benefitted from globalisation, large sections of their populations have not. Another report this week highlighted the increasing realisation that this is a significant problem:

Until recently, studies have not been undertaken in this area. Economic theory suggested that there may need to be time for some adjustment to economic and technological change as people moved to new locations, developed new skills etc. Overall, the theory usually assumed that after this period of adjustment, most people would experience improvement in their lives as globalisation advanced.

Joseph Stiglitz, an American economist, provides arguments that seek to explain why this is not now happening. He considers the reasons for large sections of populations being negatively impacted by globalisation and argues for policies to address this. He argues that the market will not address these problems by itself – there will not be an improvement after a period of adjustment unless government acts to assist this process.

Stiglitz argues that the disruption that is being caused by globalisation and technological change and automation (which are discussed elsewhere in the blog and will be the subject of a post in a few weeks) requires government intervention to support and encourage entrepreneurs, to support incomes and the welfare of those affected by this disruption and, very importantly, education and training to develop new skills and allow people to move into the jobs of the future.

Brexit and the election of Donald Trump are argued to have resulted from the impact of globalisation, of which information technology has been an enabling factor. This post has pointed out that economically nations are usually better off as a result of globalisation but that there has been a failure to understand the differential distribution of these benefits and also the losses that have occurred, resulting in opposition to the practices of globalisation, such as international mobility of jobs and people (immigration and free trade). It is suggested that the impact of anti globalisation policies is likely to be economic decline but that there is also a need to address the difficulties that globalisation has caused for many and to support activities to enable their inclusion in the globalised world.


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