Stephan Roach with some thoughts on a changing economy frame:
From Globalization to Localization
[I]n 2006, cross-border trade as a share of world GDP pierced the 30% threshold for the first time ever — almost three times the portion prevailing during the last global boom over 30 years ago. What a great testament to the stunning successes of globalization!
On another level, however, there are increasingly disquieting signs. That’s because of a striking asymmetry in the benefits of globalization. While living standards have improved in many segments of the developing world, a new set of pressures is bearing down on the rich countries of the developed world. Most notably, an extraordinary squeeze on labor incomes has occurred in the industrial world — an outcome that challenges the fundamental premises of the “win-win” models of globalization.
It is a great theory — but it’s not working as advertised.
The first win — that going to the developing world — is hard to dispute.
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The problem lies with the second win — the supposed benefits accruing to the rich countries of the developed world. And that’s where the going has gotten especially tough. In recent years, the benefits of the second win have accrued primarily to the owners of capital at the expense of the providers of labor.
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This asymmetry in the second win is not without very important consequences. In days of yore — when labor and its organized unions actually had bargaining power — the current squeeze on labor income in the developed world would have undoubtedly resulted in some form of a “worker backlash.” In today’s increasingly globalized world, however, workers have no such power. But their elected political representatives most certainly do. And there can be no mistaking the important shift that has recently occurred in the political alignment of the industrial world — with the majority shifting from the pro-capital right to the pro-labor left. Not only is that the case in the United States, but such a tendency is also evident in Germany, France, Italy, Spain, Japan, and possibly even Australia.
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I am not heralding the demise of globalization. What I suspect is that a partial backtracking is probably now at hand, as a leftward tilt of the body politic in the industrial world voices a strong protest over the extraordinary disparity that has opened up between the returns to capital and the rewards of labor. [..]
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As the self-interests of nation-states become increasingly prominent, the pendulum of political power should swing from globalization to “localization.” That would imply very different characteristics to the macro climate. The most obvious — wages could go up and corporate profits could come under pressure. But it also seems reasonable to expect pro-labor politicians to direct regulatory scrutiny at excess returns on capital — focusing, in particular, on the perceptions of excess returns in financial markets (..) as well as on the inequities of rewards at the upper end of the income distribution (..). Moreover, localization taken to its extreme could also spell heightened risks of protectionism — especially if the global economy slows and unemployment starts to rise in 2007, as we anticipate. Under those circumstances, inflation could accelerate, leading to higher interest rates, greater volatility in financial markets, and a potentially vicious unwinding of an over-extended credit cycle. [..]
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An era of localization will undoubtedly have more frictions than the unfettered strain of capitalism and globalization that has been so dominant over the past decade. The big question, in my view, pertains mainly to degree — how far the pendulum swings from globalization to localization. The answer rests with the body politic. The repercussions lie in economics and financial markets.
The most important repercussions lies in the standard of living of workers. And that is exactly where the focus should be and should always have been. Globalization has turned out to be less a developing and developed world win-win and more a capital vs. labor win-lose model.
And that is even without considering the consequences and costs of globalization through higher energy consumption and environment damages – consequences and costs that will inevitably be socialised.