Downsides of globalisation
While often treated as an inevitable phenomenon, globalisation in the modern-day nevertheless has significant drawbacks that merit thorough exploration in the current context
The brief period of 50 years, between the Great Depression and the oil shocks of the 1970s, marked the height of consensus regarding the value of social democracy. The period was noted for progressive social reform of capitalism. Several countries endeavoured to create basic social safety nets by introducing such measures as anti-discrimination laws, minimum wages and collective bargaining, unemployment insurance, pension plans, state sector provision of utilities, education, public health and environmental regulations.
This attempt to guarantee a measure of social justice within the boundaries of state was built around Keynesian macroeconomics. However, the policy measures did not ensure inclusive development and growth with social justice. There was a return to free-market economics all over the world because social democracy did not work. This historical context explains the origin of globalisation.
Globalisation gained wide currency following the collapse of the Soviet Union in 1991. The term denoted a measure of triumph because capitalism did no longer face any large-scale barriers to its expansion. The potential of any viable alternative being erected at the level of the nation-states was completely missing. Globalisation also carried the connotation of advances in transport and telecommunications, mobility of people and expansion of markets on an unprecedented scale. Consumer choice had widened and this implied an expanded level of generalised prosperity.
Globalisation has created increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods and services, technology and capital. It has resulted in increasing economic integration among countries leading to the emergence of a global marketplace.
If the collapse of the Soviet Union is taken as the cut-off date, globalisation as an economic model has a history of only thirty years. It has evolved as an alternative economic system as social democracy could not deliver the desired results. The question is whether globalisation has actually transformed the world for the better. Many economists and critics concede that globalisation is in trouble and distress. It has produced lopsided benefits. Countries across Europe are shutting their borders to immigrants. Globalisation seemed to be based on sound economics. Openness to trade would lead economies to allocate their resources to where they would be the most productive. Capital would flow from the countries where it was plentiful to the countries where it was needed. More trade and freer finance would unleash private investment and fuel global economic growth. But these new arrangements came with risks that the advocates did not foresee.
Increased trade with China and other low-wage countries accelerated the decline in manufacturing employment in the developed world leaving many distressed people far behind. More and more of what happened to ordinary people seemed the result of anonymous market forces or caused by distant decision-makers in foreign countries. Policymakers downplayed these problems denying that the new terms of global economy entailed sacrificing sovereignty. They were steadfast on their point that economies needed to be refashioned in the name of global competitiveness. The economic rationale of globalisation was seen as a triumphant march of capitalism without any hindrance. It was thought to be beyond debate, dispute and dissent.
Economists and policymakers came to view every conceivable feature of domestic economies through the lens of global markets. Domestic economies were put in the service of the world economy instead of the other way round. The confidence of financial markets became the paramount measure of the success or failure of monetary or fiscal policy.
Many manufacturing dependent labour force in the United States and other western countries saw their jobs shipped off to China, Mexico, Honduras and other countries and suffered serious economic and social consequences emanating from loss of jobs. In the words of Dani Rodrik, Ford Foundation Professor of International Political Economy, Harvard University," the push into hyper globalisation since the 1990s has, no doubt, led to much greater levels of international economic integration. At the same time, it has produced domestic disintegration. As professional, corporate and financial elites have connected with their peers all over the globe, they have grown more distant from their compatriots at home. Today's populist backlash is a symptom of that fragmentation".
The situation is more complex in the developing world where economies are undergoing rapid changes. The working conditions of people at some points in the supply chain are deplorable. The garment industry in Bangladesh employs about four million people. The average worker there earns less in a month than a US worker in a day. The pressure of globalisation encourages an environment that exploits workers in countries that do not offer sufficient protection. Under such conditions, employment opportunities for children in poor countries increase the negative impact of child labour and lure the children of poor families away from school. Globalisation is viewed by many critics as a threat to the world's cultural diversity. It has homogenised the world's culture. Specific cultural characteristics from some countries are disappearing, from languages to traditions or even specific industries.
Globalisation, therefore, can have an impact on the human condition. It is opposed to the concept of an egalitarian society. Multinational corporations with immense financial resources can dictate terms to nation-states, thereby subverting legislation and formulation of policy. Foreign direct investment in a labour surplus but capital scarce economy is ethically wrong, though economically justified. It is a serious issue and more so in developing countries with high populations. As long as the profit motive remains the sole principle of the production process and capital accumulation, the world will face rising unemployment and poverty. The violence sparked by unfilled needs will persist. Globalisation has resulted in unequal and unfair social redistribution. Some actors, countries, companies, individuals benefit more from globalisation. A recent report from Oxfam says that 82 per cent of the world's generated wealth goes to 1 per cent of the population. Countries should rise above narrow self-interest for designing fairer societies. Globalisation should be made more just, compassionate and equitable.
Enduring asymmetries of power, resources, institutional capacity and access to technologies mean that the critical issues of inequality and justice require attention. Total return to free-market economics, which is called neoliberalism, is not possible on a global scale. Governments of sovereign states, depending upon their resource mobilisation and ability, will have to continue with their safety nets and social welfare schemes to protect a large section of the society. Social democracy has not lost its relevance. All economic stakeholders ought to be given sufficient rights of co-determination and co-existence. The downsides and the wrong turns need to be addressed on priority.
For globalisation to bring proper economic benefits that are broadly distributed throughout society, national democracies need to be strengthened and international rules need to be in a place that protects all players, whilst still allowing for manoeuvrability and enterprise. That is the lesson of 30 years of working on globalisation as a model of economic development.
The writer is a former central civil service officer who retired from the Ministry of Defence. Views expressed are personal