Globalization Considered Harmful

So, it appears that the world is having a debate about globalization. This may seem like a new phenomenon, and in some ways it is, but it's worth remembering that globalization was the topic du jour about 17 years ago. Remember the WTO meeting in Seattle? For those who don't, it was a 1999 meeting of the high and mighty, to discuss further steps in how to break down all barriers to trade between nations. A much larger than expected number of protesters showed up to protest, mostly taken from the young and left-of-center demographic. The police responded with pepper spray, tear gas, and stun grenades, providing some not-so-uplifting images of what the WTO and globalization were all about. For a little while there, it seemed like Bill Clinton's pro-globalization faction of the Democratic party might lose their hold on the conversation.

The controversial 2000 election, and even more the Sept. 11th terrorist attacks, knocked globalization off the agenda. By the time of the 2008 Financial Crisis, globalization was taken as a fait accompli, like the weather, about which nothing can be done. But it's worth stepping back to look at the theoretical justifications for it.

One justification was that trade makes war unlikely. I think the history of the runup to World War I already disproved that, but in case more proof was needed, the fact that Ukraine's approach to EU membership resulted in Russia invading and annexing part of it, should have disproved that idea. The general level of acrimony inside the EU since 2008 also tends to suggest that trade doesn't necessarily make good neighbors. But what about the purely economic reasons given for globalization?

In just about any introductory economics course, sooner or later you will discuss "guns and butter", as a sort of simplified model of the economy. Because "guns" could sidetrack us into issues of gun control and violence, let's substitute that with "buns". So, the nation has the option of putting all their resources into making buns, or into making butter, or they can make some mix of the two.

But, not every country is the same. Here, we have two countries, with different ratios between the quantity of resources it takes to make buns or butter.

The crucial point here is that, while both face a tradeoff of buns vs. butter, their tradeoffs are not precisely the same. Country A can make 1 pound of buns with the same amount of resources (labor, land, etc.) that it takes to make 2 pounds of butter. Country B is better at both, able to make 2 pounds of buns or 3 pounds of butter with an equal amount of resources. But their ratio is different: for Country A it is 1:2, for Country B it is 2:3. This, we are told by economics, offers us a potential win-win scenario. Assuming you can trade 1 pound of buns for 2 pounds of butter in Country A, but only for 1.5 pounds of butter in Country B, you can do better by trading your buns for butter in Country A. In fact, Country A should end up (according to economic theory) making all or nearly all butter, and Country B should end up making all or nearly all buns. From the point of view of Country A, you can get more buns by making butter, and then trading it to Country B, than by making buns yourself. The opposite logic holds for Country B. Thus, both countries end up specializing in what their relative advantage is, and they both end up better off.

Note that it's only the relative advantage that matters. Even though Country B is more efficient at making both buns and butter, economic theory says that they're still better off spending their resources in making what their greatest relative advantage is in, and trading for the rest. The butter makers in Country B are more efficient than the butter makers in Country A, but because their relative advantage is less, they should still switch to bun making, since their country's relative advantage in this is better.

It's worth pointing out again that this isn't from some critique of globalization; this is how it is SUPPOSED to work. Each country is supposed to specialize in what its relative advantage is in. The bun makers in Country A are SUPPOSED to go out of business, and their resources get redirected into making butter. The butter makers in Country B are SUPPOSED to go out of business, and their resources get redirected into making buns. From the standpoint of economic theory, this is apparently a good thing.

Of course, most economists recognize that there will be some "dislocations" associated with the transition. Their response to that is mostly either:

1) Country A should offer retraining (in butter production) for the bun makers

2) Country A should offer compensation of some sort to their bun makers, using the wealth that comes from trade

In practice, neither (1) nor (2) tends to happen. Part of this is simple politics, but more fundamentally, neither (1) nor (2) will work well on a national scale.

Option (1), retraining, should certainly be offered wherever the person has interest. I am all in favor of offering training and retraining to anyone who is willing to put in the effort. However, a lot of people aren't willing to put in the effort, and there's a good reason: they are able to tell, either beforehand or after a few months, that they are not going to be able to become good at the new trade, and will never get any payback from all that effort. Because, unlike the assumption of classical economics, people are not all the same, and different jobs do not just require "labor plus training" of some quantity, they require a certain mix of talents.

When manufacturing declined in the UK, for example, but finance blossomed, option (1) would say to give all those unemployed shipyard workers and coal miners training for work in the finance industry. Now I am all in favor of giving any unemployed shipyard worker or coal miner who wants to work in finance, training to help them do it. But, if most of the former shipyard workers and coal miners don't believe themselves to be cut out for that sort of work, it may be that they know more about the world and themselves, than economists do. It doesn't mean they're not as good as those in finance in the larger sense, it just means they're not as good at that particular kind of work. Those in finance would mostly not do so well in a steel mill, either.

Option (2), then, would be to simply tax the financial sector, which is making all that money from being the financial sector of the world economy, and use that money to compensate the former shipyard workers and coal miners. This is not a bad idea, as far as it goes, but it doesn't go very far. You can prevent a person from starving or being homeless, and that's certainly worth doing. But we have an extensive body of research, as well as a long tradition of folk wisdom, that says that most people need productive work to have a healthy psychology. If they don't have a real job, it's true that worries about money are a big source of stress. It's not true that giving them some money makes it all ok. This is true even if a financial-centered economy were to result in a political system which is in favor of giving everyone a guaranteed basic income (which, for the record, it isn't).

Both options (1) and (2), then, are both unlikely to be done, and not going to solve the problems created by globalization even if they were done.

The fundamental problem with economic theory, is that people are not all the same. I, currently, make my living as a computer programmer. There are probably a number of other jobs that I could get retrained for, if all of the computer programming jobs were to go somewhere else. But if it turned out that the United States' relative advantage was in, say, the extraordinary productivity of our models, I would not be able to retrain for that. True, I could dress better than I do, I could exercise more, I could get a better haircut and use a bit of discrete makeup and maybe some plastic surgery. This would all transform me from wholly unable to to be a model, into someone just slightly less unsatisfactory for that profession. It would also be kind of pathetic, and I would probably not try. That's not because I don't have high enough self-esteem (I have a very high self-esteem, as it turns out), or someone has told me I can't do it. It's because I know what I am good at and what I'm not, and me trying to be a model because that's what my nation's economy has specialized in, is more or less a case of me betraying my own self to try to be what other people want me to be. It won't work, and I know it, and I would feel worse about myself for trying to be something I'm not.

If, in response to my troubles, the politically well-connected were to say "you can be anything you want to be, just believe in yourself", I might get kind of cynical about the political elite.

If, in response to my statements that we ought not to participate in globalization, the economic system that put me in the position of having to pretend to train for modeling, I were told I was a xenophobe and a racist, I might be more than a bit cynical. I might be ready to vote for whoever the least appropriate candidate was that I could find, just to blow up the system I had lost faith in.

The worst thing about the decision by most of the political elite (around the world) to decry anti-globalization as xenophobic or racist, isn't that it is polarizing (though it is) and unfair (though it is).

The worst thing, is that if you tell someone they have to either vote against their own economic interests, or else be a xenophobic racist, they might believe you. Especially if nearly everyone in the public eye tells them that. But even if they believe it, they still won't vote against their own economic interests. They'll just start to think of themselves as being xenophobes and racists. People often live down to the stereotypes they are labeled with. The more people in the public eye say that anti-globalization voters and candidates are xenophobic and racist, the less they will think of xenophobia and racism as bad things, and the more they will think of that as "my kind of people".

Globalization did not come about from forces no one could control, like an earthquake or a tsunami. Globalization came about from a deliberate change in government policy. It is working exactly as intended, in that it is causing some countries to specialize in manufacturing, others to specialize in finance, and so on. The problem is, people aren't programmable computers, all the same except for the software/training. Each person has their own talents and deficits, and not all of them are changeable. Nonetheless, nearly everyone can find productive work to do, if we have each nation produce most of what it consumes (for large nations like the U.S. or the U.K., it could be nearly everything).

This isn't pie-in-the-sky utopianism, it's the way the world worked until recently. In fact, within living memory. You may have noticed that the people who remember how the economy worked, prior to the "globalization is inevitable" system of the last few decades, are by and large the most likely to vote against pro-globalization parties and candidates. It's not because they're all xenophobes and racists.

There is a word for people who are opposed to the globalized economy, and it isn't "xenophobe" or "racist". It's "protectionist". For some time now, it's been thrown around as an insult, as if there were something wrong with protecting people. There was a similar trick played in the U.S. with the word "liberal", where conservatives used it as an insult long enough that candidates on the left started to avoid describing themselves as liberal.

But there is nothing wrong with protecting people, and there is everything wrong with globalization. Globalization isn't about respecting other people's culture, or treating everyone fairly regardless of their race. Globalization is about each country specializing in just one part of a normal, healthy, diverse economy, and then treating anyone whose talents aren't suited to that part of the economy, as if they were defective and in need a handout rather than a job. I think it is time for people who don't like what globalization has done, to start using the word "protectionist" to describe themselves. I am a protectionist; I think there is nothing wrong with protecting people.

The backlash against globalization isn't the problem. Globalization is the problem.