What Is Wrong With Globalization? | Economics for People with Ha-Joon Chang

The most shocking recent political event for many

people

was the election of Mr. Trump to the most powerful political office in the world despite having no experience in politics, which happened in November 2016, but at the beginning of that year the British electorate decided to remove the country from the European Union in several countries in which the world is very similar. Right-wing anti-foreign parties have risen to prominence in the Netherlands, in Finland and in Denmark, in Sweden, in Austria, you know countries that have traditionally been associated with centre-left liberal values ​​and this has made other

people

wonder Why is this happening.

Supporters of these anti-foreign and anti-immigrant parties are often described as angry people, people who are angry that they have been left behind in the evolution of the global economy in recent decades. Now the term

globalization

was invented by an American Business School professor whose name no one remembers now we invent concepts and terms all the time to describe new things and it was one of those that suddenly in the nineties took off and at least since the mid-1990s The nineties has been the defining concept over time, the basic concept. The definition of

globalization

is the increase in flows of goods, services, capital, people, although many people who talk about globalization try not to talk about immigration, this is a politically sensitive topic and you know people who are convinced that you know a greater openness towards goods. and capital, don't they have a very positive idea about opening borders for people, so it's an interesting kind of inconsistency, but now there's a broader definition that says it's not just about increasing flows but also

chang

e the global rules that you now know

what

they are? internal rules sometimes force countries to also

chang

e their internal rules sometimes it is simply a matter of not having tariffs, you know, not putting special conditions for foreign investors, that is the simplest thing, but now I mean that this The idea of ​​universal rules has become so widespread that countries are now expected to change their corporate accounting practices to adapt to Western practices and were expected to change their rules on government procurement patterns.

Many things that we had thought about,

what

you don't know, as a topic for international negotiation, are now included in this set of common rules. the rules, so in practice they are much larger than what you know, border control, if you know again, now, according to the dominant discourse, globalization happens because of technology, communications technologies, the transportation, have developed much more with the development of digital technology, now even information can move so you know when you do it. I don't know. MRI scan of a patient in Boston. You can send it to India so someone can read it there at a much lower salary and send it back.

These are technological changes. created in the popular expression the death of distance distance no longer matters and this has allowed us to deploy resources where they have the highest productivity, we are no longer close to national borders and until the 2008 financial crisis made them

wrong

, many of our politicians Leaders and leading economies in our names come to mind, like Jagdish Bhagwati and Jeffrey Sachs, who sang the praises of globalization. Robert Rubin was the US Secretary of the Treasury or what would be called finance minister in other countries because of globalization, the open market, and market expansion. based system the world is a much better place Kofi Annan was even more enthusiastic about this saying that it is not just about prosperity in rich countries but the only realistic way to lift billions of people out of poverty, this was like trying to fight the law. seriously or Robert McCulloch, the president of the International Chamber of Commerce, that in 2003 at the World Economic Forum in Davos the people who were trying to stop this were against progress and mr.

McCormick pointedly compared the anti-globalization protesters shouting outside these venues to Davos. Look, these are like the Luddites. Sir, I said, they are English textile craftsmen who lost their jobs or textile machines in the early 19th century and at least some of them thought they could do it. get their jobs back if they destroy the machines so they become the world of cake or people fighting the inevitable trying to turn back the clock and mr. McCormick was saying that they are against our globalization, they are basically against progress, so there was a lot of confidence that this process will bring prosperity, it will lift people out of poverty, this is a unique opportunity for humanity to jump to the next level and they recommended, therefore, countries need to open their borders.

I mean, the most immediate one was trade liberalization, so it reduced it. Harry, the ideal would be to abolish it, but you know you could use some revenue, so reduce it to a very low level. remove quantitative restrictions such as hotels in In addition to commercial investment, also previously liberalized, there are many restrictions on how much foreigners can invest in the financial market and what kind of access they could acquire. I mean, a lot of these regulations have been abolished, so now you know there were huge financial flows. Poorer countries are cautious about liberalizing financial capital, but many of them embraced foreign direct investment, so foreign direct investment is, I mean, actually. that is not an agreed analytical definition because it basically means that someone acquires a stake and voice in the management of a company that carries out production activities within its national voter and that someone happens to be a foreigner now, sometimes it is what people call investment new, so it turns out that The Person in Blue comes to Costa Rica and builds a microchip factory, but it could also be what people call brownfield investing.

Do you know what it is. I don't know a car company in trouble in Türkiye and people come and buy it now. The investment that has been particularly praised is its stability and also its ability to provide technology and financial capital until the 80s and 90s, many countries had restrictions on what foreign investments could do on investors, so know that there will be rules on in which sectors they can invest there will be success sectors that are completely closed to foreigners it could be necessary for the majority owner to be local countries could say well, we must obtain that more than 50% of the inputs are from local producers, the proportion goes up to a 85 percent in ten years these types of conditions are very common, but now many countries have abolished it in an attempt to attract foreign capital, especially in the form of foreign direct investment, and many of them have also changed their domestic policy to create the which is euphemistically called a pro-business environment, so reduce the corporate tax rate reduce the increase in workers so that companies can exploit them more easily deregulate business and this has changed our political regimes in many countries after having done these recommendations, the proponents of this path admitted. "Yes, in the short term there could be some losers in the process, so I don't know if the United States opens up, say, the auto market and signs that free trade agreement with Mexico.

This could cause some local auto workers to lose their jobs. jobs because there will be more imposed, say, Korea and some of the American companies could move some of their factories to Mexico and these things have happened, but the argument was that yes, in the short term this will happen, but in the long term these People will actually be better off because in the long term they will have jobs with good salaries or much better because with this liberalization and free trade agreement the United States will export more, say, investment banking services or software to countries like Korea, Mexico and, for example, So, these people eventually located jobs that are better and better paying than the ones they used to have, but that's the theory, in reality how many former auto workers in the United States have become IT engineers, let alone bankers. investment.

I mean, one very striking piece of evidence is that in the United States, the median average median wage has been basically stagnant since the night of the mid-1970s, even though the country's real per capita income, is That is, inflation-adjusted out-of-pocket income has more than doubled during that period. Now why do people stay behind? behind in this process, well, the short answer is because it is expensive to retrain. Yes, in theory, you could become an investment banker, but that might mean going back to the school you know, getting a master's degree, and doing a lot of jobs beforehand. may be hired by an investment banking firm.

I mean, very few people have the resources, time and perseverance to do it, so only a small number of people who became unemployed through these changes have been employed in better paying jobs and what they were doing before the Most of them are languishing in long-term unemployment or have ended up in low-skilled jobs like security guards stacking shelves in supermarkets or stripping as in the British film The Full Monty. This is a film about six unemployed steelworkers from Sheffield. or rather excess of steel workers, so in technical terms it is known in this standard engine of international trade known as heckscher-ohlin.

Sammy's model is named after two Swedish economies of the early 20th century and later after Paul Samuelson, the economist who sold the most textbooks in history. of

economics

between the 1950s, Samuelsson formalized what is the Heckscher-Ohlin theory at the beginning of the 20th century and this is the standard theory used to defend free trade, like all theories, it makes many assumptions and one of the critical assumptions that exist. De facto full mobility, this means that capital or labor can easily be transferred to other sectors if demand from their original sectors falls, so if demand for auto workers falls and people will move to investment banking If the American steel industry goes down, you can somehow remodel a steel factory into a factory that produces microchips.

Said this way, it sounds ridiculous, but the theoretical assumption behind this model and, basically, when that assumption does not is fulfilled, this phenomenon of people being left behind occurs. Proponents of our globalization have argued that Basically, there is an acceleration of growth from this process, which will create more wealth that will eventually trickle down to the bottom, so it is a meter, but the adjustment will occur in the end, as You know, despite the bad press, I often assume that trickle-down is not necessarily a stupid theory, you know what it says is that now you have to look at the second or even third round effects of something, so the simple fact that and trade liberalization has caused some American workers to lose their jobs, it does not.

This doesn't necessarily mean that in the end they're going to be worse off because that process could have created, I'm not saying it necessarily has, but it could have created more wealth, which will then create more demand for other things, which will then create more jobs and more income and so on now, of course, that that trickle down hasn't really happened, many governments have done many things to basically reduce the number of losers from the globalization process and compensate the losers through public means and one thing What has been happening permanently is the protection of agriculture in some of the rich countries, in countries like Japan, Norway, Switzerland.

I have this agricultural sector which, by international standards, is very unproductive, but they deliberately keep these people in the agricultural sector, partly to maintain their tradition partly to prevent the population from rural areas, but also in recognition of the fact that if exposed to market forces, these people will simply disappear and will not be able to become the investment banking or IT engineering that the US has provided. huge amount of protection and subsidies to the steel industry while pretending that the diet practices free trade because the steel industries are still too big and too politically important to let them go bankrupt, of course all these measures are costly for India and many things have calmed down, but you know many countries are doing things recognizing that there will be many people who will be thrown into the dustbin of history if you just let global market forces reign, governments can do something more proactive to help.

People looking for new jobs and these Scandinavian countries have been particularly good atThey call this active labor market policy, which means that instead of just saying yes, I mean you've lost your job, you should find another job, they provide subsidized training, they try. To help people look for work, very often the problem is that when you work in, say, the pound that used to make boats and somehow retrain and try to move to another city to work as a software engineer, to You often have to sell your house. buy another one and then the financing becomes very complicated, so the Swedish government has even given temporary loans to these people so that they can buy a new house and pay them back when they sell the original house, so that you can do it at a price affordable. of things to improve our labor mobility, so that when the winners come from some economic process where there is trade liberalization or technological progress, the government can tax them more because they now have higher incomes and use them to compensate the losers by providing them with support to income unemployment benefits subsidized training access to basic services and this has helped many people you know may still be left behind, but not as dramatically as their counterparts in countries with a smaller welfare state if you talk about the approximate size of the welfare state thus in the WestEurope usually represents around twenty-five percent of GDP, in many countries up to thirty percent France Finland Belgium in the USA it is about 20 percent in South Korea it is ten percent , you know, in countries like Korea and the US, income support unemployment benefits are minuscule, many people have had a very difficult life once they lost their jobs because that factor is mobility, especially labor mobility. quite low, the market mechanism cannot fully compensate the losers and the government has had to intervene a lot through various means.

First you know the labor market well, you know trade protection to know how to minimize the negative consequences of this given this problem or efficient compensation, you would ask him if, as a neoclassical economist who believed in the Pareto criterion, he should support this whole process. Many neoclassical economists have defended globalization fully knowing that it will create many losers with the argument that the aggregate gains of the winners will be greater than the aggregate losses of the losers, therefore, in theory, you can compensate all the losers and the winners. They will still have left something behind.

This is known as the compensation principle and neoclassical welfare

economics

, but if you believe in that, I would have to make sure this composition is done, if it is not done, neoclassical economists are doing the same thing as the people they used to condemn, like the utilitarian philosophers or the Marxist economists who demanded the sacrifice of a minority for the common good. What they are saying is liberalize trade, some people are left behind, it is still okay because our aggregate wealth is greater, that is not the donkey and that goes completely against our Pareto principle. I mean, what's the difference between that and Stalin, you know who said right? we can kill a few million people to form the great Petrov nation, so there is a serious philosophical and ethical question, you know, in the absence of a powerful trickle in the absence of full compensation, the result of our globalization has been largely The increase in inequality has not occurred in the countries of the world, but in another 2/3 of the countries inequality has increased since the 1980s and in some countries, in a very dramatic way, globalization has been going on for at least two centuries, some people say five. centuries, but I am talking about the last 3,040 years, the problem is that the current phase of globalization is that it has not managed to produce accelerated growth because when these pro-market and pro-liberalization policies commonly known as liberal policies came into force in the decade 1980s, was based largely on Gross's argument that the faltering entrepreneur is being suffocated by government regulation, we need to revive the economy by opening up deregulation, increasing competition that will drive people to be more productive, but when we We look at the evidence that this is not what has happened now, before we look at the evidence, let me make one point, you know, very often we hear that thanks to globalization we are richer than ever, it doesn't really mean anything because We will be richer than ever when it comes to our The economy is growing faster than the population, so the relevant question is whether we are doing better than before and the evidence says that is not the case, generally speaking, for some Decades after World War II, world economies are growing a lot. healthy 2.6 percent over the next 35 years growth has slowed noticeably, basically it has been difficult to get down to 1.4 percent, so we could be richer than ever, but these figures tell us that we could have been even richer if we maintained the previous growth rate.

To be even richer, most countries in this earlier period actually used quite interventionist policies and had many more restrictions on the internationalization of the economy. Globalization was a very controlled affair in those days, although there was gradual liberalization, even rich countries are capital controlled. I know they had tariffs, all kinds of weird trade restrictions, restrictions on foreign direct investment, which makes you think, I mean, how did you have this period where most countries were using bad policies and the economy world grew much faster than they have? the last three and a half decades in which many things have been liberalized etc., now when you say this some people say oh yeah, but you know you have to put this in context and at least the last three four decades of globalization have brought out a large number of people out of poverty, especially in developing countries like China and India, in global terms, that the working class that has been greatly affected by the globalization process in rich countries probably belongs to the top ten. 20% of the world's income distribution, so some people have accused these people or, yes, it will be ruined.

You know, I mean, you're in the top ten percent of the world and you want to introduce all these restrictions on international trade and investment, which will make it harder for people you know who are at lower levels, like the poor Chinese, etc., get out of poverty so that you can maintain some kind of relative position that you know in your own economy. Now there is some truth in that argument, but I think I must argue as a number of serious problems, firstly, it is not just the working class in rich countries that have been left behind, many people in developing countries as well has been left behind, so if you look especially at regions like Latin America America and sub-Saharan Africa are the ones that most diligently apply neoliberal policies under pressure from the International Monetary Fund and the World Bank, which basically impose many conditions on their loans , his growth in the brave new world has collapsed.

Let's go to Latin America. Many people complain about the old days of impulsive decisions: per capita income in the region used to grow around 3% per year in that period and in the following 30 years the growth rate is not even 1% per year. Saharan Africa was even worse, you know, even in the 60s and 70s it was growing at 1.6 percent per capita per year, yes, not a super rate, but it is not something to discover because this is essentially the rate at the one that today's rich countries grew during the industrial revolution. It looks bad just because you compare it to Korea or Taiwan's rate of that five six percent per year, but you know that over the next thirty years the average annual growth rate was 0.2 percent, which means that after 30 years sub-Saharan Africa's per capita income China grows so much in six months now, given that rich countries during this period grew between 1.5 and 2% annually, this means that Latin America and sub-Saharan Africa has been left behind , the gap between them and the rich countries has only widened enormously and, unbeknownst to the outside world, China is experiencing literally hundreds of thousands of industrial strikes, local cables, demonstrations, you know you could go to these are Chinese and say ah, you.

I know you should still be happy because now you have become richer and you know that Brazil has a much worse income distribution than yours. It doesn't work because you know that inequality only matters because you believe you belong to a certain group. If I told you that there are 55 planets in the universe that have those types of intelligent beings and all of them are as vast as Richard and the Earth, would you care about Aldon? I mean, I can't even go there, probably some of the delicacies these beings eat are toxic to me. but this is not to devalue the kind of material progress that China has achieved in recent decades.

It's been really impressive, but don't think it's a mixed bag. All the Chinese are happy. There are a lot of angry people there now. That said, I think we need to be positive and realize that it is possible to minimize the number of losers from this process and in fact compensate them more generously and in fact many countries have been doing this for days so if we look In the income inequality statistics, you will notice that, despite having a much more open economy than the United States, the Netherlands and Canada have not seen any negative changes in income inequality in recent decades, for communicative reasons, a little in Germany, Japan and Italy, but only marginally, and in Switzerland.

There is even evidence that at least in the 1990s income inequality decreased. Now these are interesting facts because we haven't said that you know these are forces of globalization that cannot be stopped. Everyone has to accept them. We have been told that these forces should not. It can't be stopped because it's driven by technological progress and therefore they are trying to mess with them, but trying to turn back time no, that's not true, many countries have done things to contain the effects and, despite having one of the least. open economies in the rich world The United States has seen a huge increase in inequality from what was already one of the highest levels among the rich world exactly because it used different policies there is a smaller welfare state is that the corporate governance system it's much more proko prett There's a lot of talk about labor laws being more anti-labor, so the typical reaction of angry people in the US was all because of the Chinese, you know, it's all because the factory was is moving to Mexico, but the real reason for the increase in inequality and mass.

The production of angry people in the US is actually found elsewhere because other countries have shown that, despite being much more open to internal economic forces, they could contain inequality. Now there is another interesting historical fact that corroborates this at this point from approximately the end of the 19th century and beginning of the 20th century. Between 1870 and 1914 there was another high point of globalization, broadly speaking during this period the world economy was basically as globalized as it is today in some ways it was more globalized in some ways minus what technologies they used to achieve it. that degree of globalization basically steamships and wired telegraphs, not even wireless.

In contrast, in the years 1956 and 70 we had basically all the communication and energy transportation technologies that we have today, except the Internet. In those days there were already airplanes, there were fax machines. you know that even though that period was much less globalized than the period before it in the late 19th century and early 20th century, which basically shows that technology is not a defining factor, the world economy was much less globalized in the unique post-World War II period compared to late. 19th and early 20th centuries exactly because countries deliberately controlled the degree of globalization, partly through national policies and partly through international agreements, so even today you know that we should not accept the results of this globalization as a force of nature that we can prevent many countries from having.

You have done many things to change the outcome. Once you start thinking that this is an irresistible force of nature, you basically lose control of your destiny.