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January 30, 2006
Globalization Surprise

The chief economist of Morgan Stanley, Stephen Roach, is criticizing globalization. From the World Economic Forum in Davos:

The win-win endorsement of globalization — that the development of poor countries is a huge plus for rich, developed countries — was first coined in Davos.  There have been anti-globalization protests associated with this event for years.  But this year is different.  The debate has moved from the outside to the inside.  Serious challenges to globalization are now being openly aired in the rooms and corridors of Davos’s fabled Congress Centre.

The reasons behind this shift are not hard to fathom.   One of the “wins” in the win-win of globalization has failed to materialize.  Job creation and real wages in the mature, industrialized economies have seriously lagged historical norms.  It is now commonplace for recoveries in the developed world to be either jobless, or wageless — or both.  That this shortfall has occurred in the midst of accelerating globalization and surging global trade is all the more disconcerting.

As its critics have feared, globalization has advantages for the capital side of the economy, but the labor side is losing. The race to the bottom is clearly visible in the job markets.

The economic model for globalization has serious flaws. Ricardo’s theory of comparative advantage does promise advantages for all the trading partners.  But it is a theory with idealized assumptions and based on a static model.

The dynamics and time lags which occur in real economic exchanges have serious side-effects and the process to reach the promised advantages can be decades long.

The boondoggle of "more jobs through open trade" looks real – in theory. But when people lose their job and have to wait 20 years for a better job to be created, that advantage are hard to explain to them.

Good to hear that this surprise has finally reached the theorists and policy makers who are in charge here.

Now, the people have to keep up the pressure for a better regulated and controlled trade process.

Trade is good and has benefits. But to let it run wild without at least retaining the social wins of the last centuries is pure corporatism. This has to stop.

Posted by b on January 30, 2006 at 19:04 UTC | Permalink
Comments

Brasil and Argentina have paid off the IMF debts before time to great cheers from the populace. The IMF now doesn’t even have enough clients and is struggling to justify its existence with some new deals…
Davos – I am right next door – has this year turned into twaddle and people show. Angelina Jolie and Brad Pitt are the stars, Bono is doing his thing, and the most positive thing to come out of it is that people will no longer have to pay a fine for wearing a tie, contribution to some devp. fund was optional. ( 😉 ). Previous, the fines were stiff and mandatory. (!)
Many people said, yes it was OK, because we could still have those private conversations about business (that has always been the main function of the WEF in Davos). Until now, though, some public face was maintained, some issue was tackled, etc.
The Bono – Billy C – Bill Gates (and others) spiel about donating and networking and etc. for AIDS, malaria, etc. is tired and old hat. The Indians and the Chinese (a few of them were there) just smiled. And they wore ties. Paid nothing to the optional fund! (not sure that is true..)
So the gossip here goes.
Billy C spoke about global warming. Any thinking person knows about that, the clapping was lukewarm.
Yes, globalisation came in for criticisim.

Posted by: Noisette | Jan 30 2006 19:49 utc | 1

Globalisation in it’s current form is dead as far as power brokers in the west are concerned. This is for pretty much the reasons that Bernhard has pointed out.
That is Western ‘leaders’ both public and private enterprise focus on the ‘next few quarters’ or the short term. This meant they never seriously looked beyond the next windfall into the long term. They still haven’t but the ‘next few quarters’ do not bode well for the west.
Despite the bluster and murder, they are losing the resource war. Yep Mobil Exxon announced record profits last quarter. It takes their profit to nearly US$40 billion for the year But that is only paper wealth, there has been no real increase in productivity or net wealth. It would be fair to say that the west esp the US spent much, much, more than $40 billion last year on fighting to maintain it’s energy access, and they failed.
The rest of the economy is hurting bad and will continue to do so as long as the flow Eastwards continues.
There is no doubt that a major propaganda campaign against China is well under way.
We must try and resist this and look at the ‘truth’, if we can find it.
It will not be possible to ‘turn the clock back’ but we shouldn’t regard the loss of a large sector of the west’s industrial base as a total catastrophe, because there is a silver lining if we choose to see it.
Plainly the planet cannot sustain the current rate of exploitation. If the greedheads and mainchancers do allow themselves to ‘see’ they will understand that they can still make a buck, but it will have to be from being smarter, not from being bigger.

Posted by: Debs is dead | Jan 30 2006 22:20 utc | 2

Well, I guess I should put in my two cents. This situation was warned ten years ago by Ralph Nader and good ol Ross Perot. Free trade became the neo liberal religion and the elites felt it would work. The whole thing is really foriegn policy, not any economic model that will work. The foriegn policy elites have always pushed inter-dependence among nations as the answer to global war and problems. (As the article on Countepunch last week stated). And, the elite said while we’re it we can make some money and everyone will benefit. But, this whole sceme was not well thought out. Especially when your David Rockefeller (he is the main culprit in the new economy, read Trilateralism by Holly Sklar) and you’ll do well either way.
But, I believe the elites are waking to the fact that working poeple are falling behind as b’s article states. Elites are finally looking around and saying what the hell?; the sheeple are wanting to break and bash the establishment. Attacks on the DLC and other entrenched party establishment organizations are wake up calls. Bush not being able to break the hold of New Deal programs on US society is a example for the right. Kos “Crashing the Gates” is a great example of breaking through elite group think and saying hey, your f—ing things up, not helping, though it is taylored to the Dems.
Also, I believe the initiatives on the state levels in desperation from the Ford announcement (I live in Michigan), from the GM jobs announcement last year and others are starting to wake elites up. When you lose the middle class, you lose political stability. You end up with populations that become more and more desperate and radicalized. This is happening at the grass roots with the internet revolution at the same time the internet is revolutionizing the way we work and the ability to outsource. So while the internet makes work more global, the internet makes communication more viable between diverse opinion makers, allowing the desimination of massive amounts of incriminating information on the failures of the global economy and easy access to who’s at fault with just a Google search.
People must wake to the fact that 401k plans are putting them out of work. That money is invested by mutual funds in Wall Street firms that outsource work. So, your 401k could be putting you out of work for your own greed for higher returns. GE sure isn’t building new plant in the US. Why own a mutual fund that owns GE?
We are in a dynamic time, we have gone to far in the globalization of the economy, yet, it will take the internet radicals, the crashers of the gates, to bring about an FDR type equalizing of the flaws in the free market. Issues of economic equality resonate even with the social conservatives. They don’t like seeing their standard of living drop anymore than a liberal. Class warfare is a winning issue and it’s time the more volleys are fired.
Theres my rant and two cents.

Posted by: jdp | Jan 30 2006 23:06 utc | 3

If globalization ‘in the end’ means that Indian farmers will no longer have to trade in their kidneys or that Chinese ex-peasants do no longer have to die at 35 because they had to work incredibly hard to secure their mere existence and that I will have to live in a smaller apartment, work longer hours and have a bit less at the end of the month, then I am all for it.
Over the last months, the tooth-fairy and I have almost become friends, but she still insists that I am not real.

Posted by: teuton | Jan 30 2006 23:09 utc | 4

There is a great story at the “Next Hurrah” about the growing income inequality in the US.
teuton, I believe your presenting a false dichotomy. Its not about losing standard of living, it’s about bringing other up and changing the way we live by using smarter technologies and sustainable practises. I would never call smart sustainable technology a lowering of living standards, but, a paradigm shift away from the hydrocarbon economic model.
The problem I see, is if my living standards come down, then GE’s CEOs should go down also. The rich should not be able to sustain the current system if the rest can’t. That, is why income distribution matters.

Posted by: jdp | Jan 30 2006 23:39 utc | 5

Globalization could be a zero sum game. Who would have thunk it. I am shocked, I say, shocked!

Posted by: Groucho | Jan 31 2006 1:28 utc | 6

The crunch, in this world, is not globalization. It is growth.
Globalization is a ten dollar word for rape, by the developed world upon the developing world. The rapist gets a hundred bucks, and the rapee gets seventy cents. Everybody wins.
The crunch, in this world, is constant growth. Endless growth. Geometric growth. Compound interest, growth in capital, growth in production, growth in population, growth in sales, growth in profits this quarter and every quarter from now on . . . perpetual growth.
This planet is not capable of hosting perpetual growth of and for the human species. As long as our program is endless growth, we must have more planets to consume, or we will hit a wall.
Consider: the means to perpetually growing — everything, all the time — would not exist on an interstellar spaceship on a thousand year journey to Sirius. Would it? Such a concept would be ludicrous. And deadly.
Why is it not ludicrous on this round space ship we live on?
I assure you; the tooth fairy is absolutely real.
What is not real is this idea that we can just keep growing like there’s no tomorrow.
Tomorrow is here.

Posted by: Antifa | Jan 31 2006 3:00 utc | 7

As a strategy for job creation and lifting all boats or rafts or whatever in the 1st, 3rd or any other possible world, globalization – the Washington consensus – is not just nonsense, but nonsense on stilts! It HAS been extremely effective since the early 1980’s at doing what it is designed to do – transfer wealth from the many to the few both individually and nationally.
The real effects of this form of religion/warfare (cruise missles and check books are both part of the arsenal) have been well documented – for example by the UN report on the effects globalization.
The people who believe that this system of plunder was implemented to benefit us all are the same ones who believe that the election of Hamas destroyed the “peace process”.

Posted by: tgs | Jan 31 2006 4:06 utc | 8

from the 2002 report, Alternatives to Economic Globalization: A Better World Is Possible:

    Economic globalization – sometimes also referred to as corporate globalism or neoliberalism – has several key features:

  • Promotion of hypergrowth and unrestricted expolitation of environmental resources to fuel that growth
  • Privatization and commodificaiton of public services and of remaining aspects of the global and community commons
  • Global culture and economic homogenization and the intense promotion of consumerism
  • Integration and conversion of national economies, including some that were largely self-reliant, to environmentally and socially harmful export-oriented production
  • Corporate deregulation and unrestricted movement of capital across borders
  • Dramatically increased corporate concentration
  • Dismantling of public health, social, and environmental programs already in place
  • Replacement of traditional powers of democratic nation-states and local communities by global corporate bureaucracies

lt doesn’t take a scholar to look at this list and understand that lifting up the poor was never one of the objectives of their economic models. it’s always been an experiment designed to see how much the ruling classes can get away with while following the traditional pattern for wealth accumulation – plunder, pilferage, racketeering, loan sharking, looting, bribery, kickbacks & payoffs, embezzlement, land grabs, outright theft – essentially it’s an attempt to legitimize organized upperworld crime. it’s a racket. you prey on the weak, meek & ignorant to make…er, take…your fortune. SAP doesn’t just mean structural adjustment program. it’s an ancient practice – you twist the meaning of words to call debt “credit”, throw out some rhetoric about aid & assisting the average joe & then get him into the red so he has to sell off his land or possessions or enter into servitude to pay back what he owes. or you twist the meaning of words to turn protection into obstruction, ala the WTO. meanwhile, the experiment of centralizing control moves forward while the gap between rich & power multiplies exponentially. and when the material resources start running out, bring in the intellectual property rights. steal their thoughts & accumulated wisdom and try to make a profit off it. see if the morons will allow you to charge them for the air they breath.
i can’t see how the reality of their policies could be a surprise to those really in control. more likely, they see the need to make their own structural adjustments. saps.

Posted by: b real | Jan 31 2006 4:24 utc | 9

Wolfowitz honeymoon at World Bank appears over

But members of staff say that discontent has begun to simmer, in particular at the appointment by Wolfowitz of former US administration insiders to senior positions as he promotes an aggressive campaign against corruption [sic].
Some appointments were uncontroversial, such as his choice of Swedish national Lars Thunel as head of the International Financial Corporation, the Bank’s lending arm, and of Italian Vincenzo La Via as chief financial officer.
But other job placements have caused a stink, notably the naming this month of Suzanne Rich Folsom as director of the World Bank’s Department of Institutional Integrity, its anti-corruption unit.
The Republican lawyer, who is close to the White House, now keeps tabs on all of the Bank’s 10,000 personnel in Washington and around the world to ensure they are administering funds cleanly.
Rich Folsom, whose husband leads the International Republican Institute, had already been serving as an adviser in Wolfowitz’s private office since June.
Wolfowitz has brought in his Pentagon aide Kevin Kellems, who was also spokesman to Vice President Dick Cheney, as his special adviser and director of strategy for external affairs.
Robin Cleveland, Wolfowitz’s new counsellor, was formerly associate director of the Office of Management and Budget in the White House.
The World Bank’s staff association, its de-facto trade union, says Wolfowitz’s appointments risk opening the organisation to charges of hypocrisy when it demands transparency of the poor countries that receive its aid.

Posted by: b real | Jan 31 2006 4:34 utc | 10

Okay, if the guys at the CENTER of Globalization are starting to complain about it, it means that the costs of the scam have started to reach up into their level.
A farmer kills his cow. At first it is great: He fires the milkmaid, eliminating his labor costs. He is getting a good price for the meat! But, just about the time the meat is all gone, he starts to notice he is no longer selling milk.
Too funny or what?
Seriously, watch the number-crunchers. The predicted crash is on schedule. This was the inevitable result that no one thought about when they were designing the plan. There is no back-up plan.
And THAT is the meaning of today’s story.
Think about the people of New Orleans. An economic Katrina will be visiting near you.

Posted by: Gaianne | Jan 31 2006 5:21 utc | 11

Noisette, King George just passed an edict
making global grant contributions for AIDS,
tuberculosis and malaria tax-exempt for Mssrs
Gates and Bono, allowing them to lock in $MM
tax credits, offset by our own tax payments.
No wonder the school districts need more $’s!
Race to the bottom, nes pas? I went
from being terminated, to working the same
job on an on-call, wages only basis, sans
benefits. Oh, the personal freedom, you say!
My new assignment is the same as my old one,
only this time, I’m creating templates that
lower echelon employees can fill-in the blanks,
so that in some near future, I’ll be obsolete,
and they’ll be cookbooking expertise de jour.
Well, tears for fears, you say!? Those lower
echelon employees are expat Indo-Pakistani’s,
working for $14 an hour … and decreasing.
Soon the US office will just be Corporate,
with a 40Gps fiber-optic link to Jalalabadh.
And then, oh, the “productivity” increase!
The skyrocketing stock values on options!!
If they can replace $42 line employees with
$14 expat telewagers, you’ve increased your
productivity, after benefits and taxes, by
a whopping ~400% per employee RIF’d down!
Ken Lay would kill your mother for just 40%.
Next time you talk with customer service,
ask them who N.O. Saints played last week.
As likely as not, they’ll transfer you to
another expat professional tele-masseuse,
with no clue what you’re talking about.
This isn’t a race to the bottom. It’s a mud
track, the fix is in, and it’s Nags R US.
They shoot horses, don’t they?

Posted by: Clu Gallagher | Jan 31 2006 5:39 utc | 12

If the earth/globe was a metaphorical game of ‘GO’ what would the board look like?
I think it would be nearly ‘game over’.

Posted by: Uncle $cam | Jan 31 2006 6:18 utc | 13

The ONLY thing the ruling class cares about is its own survival. Yes , there is radicalization under way, but Bolivia/Venezuela bothers them more than us over-educated bloggers and the mostly center-left Kos etc. sites. What I see from many bloggers are people who want to be included in the dialogue, with a desire to reform ruling class icons like the NYT, the Post. What I see from street action in Latin America is a desire to re-invent the dialogue, and the physical involvement of many more people. Busting up water privatization (in Bolivia) with mass protest cuts much closer to the chase than worrying letters to the Senate.

Posted by: folkers | Jan 31 2006 6:32 utc | 14

Even here in America, it will come to strikes, street protests, rioting, marching, and tearing down barriers.
Our own Declaration of Independence says we have that right, and that duty.

Posted by: Antifa | Jan 31 2006 6:58 utc | 15

Refute the Policies of Bush and Clinton —

When will Americans recognize that theirs is a polarized, politically segregated society, not unlike those they helped create in Iraq and Palestine? When will they come to the realization that their political process is nothing more than a collusive duopoly and, as such, borderline totalitarian? There is no opposition political party of substance, of courage and, of course, there’s no real choice between two political parties. When will Americans refuse to participate in sham federal elections? When will they recognize that all the accumulated data from study after study clearly shows that America is in real crisis across the entire socioeconomic, political and foreign policy spectrum? The list seems endless: changing demographics and ignorance of inclusion issues, leadership deficits, trade imbalances, sky rocketing health care costs, increasing unemployment, enormous consumer debt, impending foreign currency competition with the US dollar, trumped up wars on terror, embracing torture, assassination and spying, sweeping Katrina/New Orleans under the carpet, and on, and on, and on. …

Sad thing is, mr. Stanton asks, “When will Americans recognize that theirs is a polarized, politically segregated society…”, they are not going to. I believe it’s going to take food lines and 1930’s depression style issues before anyone will do anything.
At first, I feared there was not going to be a tipping point, yet, I was wrong there has been one. Only not the one we were looking for. Gil Scott-Heron was wrong, the revolution has been televised.
Only not the one we were hoping for. The new “revolutionaries” have won.

Posted by: Uncle $cam | Jan 31 2006 11:10 utc | 16

I had the opportunity to discuss this topic with a professor from my economic school.
The assumptions of Ricardo’s model are no longer true. Capital and labour are mobile. Companies base their investment decisions on absolute, not relative advantages (wage differences).
He criticized that Ricardo’s model is taught as part of International Economic Relations, while it should have been put in The History of Economic Thought.

Posted by: MarcinGomulka | Jan 31 2006 11:34 utc | 17

@Marcin:
Same with Adam Smith and the rest of them of that period.

Posted by: Groucho | Jan 31 2006 13:05 utc | 18

Just a bit OT: U.S. IN TECHNICAL DEFAULT

In a shocking development, the Treasury Department website is openly stating that as of January 24, 2006 our national debt stood at $8,185.3 billion and on January 26th at $8,190.5 billion.
http://www.publicdebt.treas.gov/opd/opdpenny.htm
Yet the US national debt ‘ceiling’, the maximum amount of debt the US government may hold at any one time, stands at $8,184 billion – a full $5.5 billion less. Although called upon by John Snow, Congress has not yet passed an expansion of the debt ceiling and so the US government is now operating in technical default.

When the President does it, it is not a crime…

Posted by: b | Jan 31 2006 14:52 utc | 19

The short term winner (in the long term we are all dead) is Capital (Kapital). As the mobile (and in the short term inelastic) input, capital has gotten the lion’s share of the gains from globalization. There are any number of economic models with low elasticity of substitution between labour and capital that can generate this result. There is a superficial similarity to Marx’s analysis in all this. The basic point is that capital is internationally mobile, and can move to places where workers are cheap. That leaves immobiile workers in the places where capital leaves up the creek. In the places where it goes, the suppies are elastic enough to limit wage increases.
The long run is different. But as Keynes observed, by that time it won’t matter to most of us.

Posted by: Knut Wicksell | Feb 1 2006 4:00 utc | 20

The author of “The Dollar Crisis” noted Ricardo’s 2nd law, wages will be depressed to a level that is just great enough to keep the workmen from starving to death. He called it the “iron law of wages” or something, it sounds more torture chamber like than the glory of free enterprise. The call of “The Dollar Crisis” still hasn’t come to pass, and one of the author’s predictions of the end of Greenspan style monetarism hasn’t come to pass. yet.

Posted by: christo | Feb 3 2006 7:19 utc | 21

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