Tuesday, 28 June 2016

Is globalisation coming to an end?

Posted 20 Jun 2016, 7:20am

Underemployment and an ever widening wealth chasm has created a deep sense of mistrust in trade and globalisation - particularly notable in the Brexit debate. We are entering dangerous times, writes Ian Verrender.
They assembled by the thousand in New York's Zuccotti Park, a spontaneous grass roots movement born of anger and disillusion. The date was September 17, 2011.
Within weeks, the Occupy Movement, which began as an outpouring of outrage over the behaviour of Wall Street's elite and the growing disparity of wealth, had gone global with protests in more than 80 countries.
Five years on, the left wing movement against capitalism and globalisation has manifested itself in mainstream politics, with many of the very same arguments employed by far right wing groups whose main objection is to immigration with more than a nod towards racism.
This Thursday, Britain will vote on whether it should leave the European Union. Until a few weeks ago, there appeared little chance the country would vote yes. Despite warnings from the UK Treasury about the dire economic consequences of an exit, there is now a serious chance that Britons may begin a retreat to their shores.
Across the Atlantic, the Republican presidential hopeful, Donald Trump, talks of building a wall along the Mexican border and rails against the free trade ideals that have led to a mass restructuring of the American economy.
On the Democrat side, Bernie Sanders, who refuses to concede defeat, tapped into a similar vein of discontent among Americans about the growing wealth disparity that now is approaching levels not seen in almost a century.
The US, too, has begun to look inwards.
For the first time since 2009 when the financial crisis wreaked havoc, global trade in value terms declined in 2015, as commodity prices slumped and exchange rates shifted.
In a related development, for the first time since it began to open its economy four decades ago, Chinese exports declined 25 per cent over the year to February, a trend that shows no sign of abating with further heavy falls in April.
More than a few commentators have posed the question: Is this the beginning of the end for globalisation? A definitive answer remains elusive. What is clear is that disenchantment within the developed world is spreading, much of it based around inequity and inequality but with trade as the flashpoint.
A quick glance at the US Federal Reserve of St Louis statistics show that on almost every measure, wealth inequality is growing. Student loans are up. So too are food stamps and health insurance costs. In the meantime, labour force participation, home ownership and median family incomes have plummeted.
From the end of World War II until the late 1970s, US household income grew sharply; a trend that was replicated through the developed world. It was also reasonably well distributed across income bands.
Not only has income growth moderated, the vast bulk of the gains have been concentrated at the top bands as the wealthy take a greater share of the pie. Wealth concentration is back towards levels not seen since the 1920s.
Trade is fundamental to human nature. As individuals, we specialise. We trade our expertise in a given area for food, clothing and shelter. Nations have learnt that it is beneficial to do the same.
The post war era saw a dramatic increase in global trade. The gradual dismantling of trade barriers helped turbocharge global economic growth, resulting in a huge lift in living standards and the rapid ascent from poverty for millions of people in the developing world.
But the pace of change has come at a huge cost to many in the developed world. During the past three decades, manufacturing and heavy industry has shifted to lower cost nations while new technology has replaced those engaged in repetitive and unskilled jobs.
The result has been vast armies of unemployed and barely employed workers.
It has been a boon for consumers world-wide as the cost of goods has fallen dramatically in real terms. Try consoling an unemployed casualty of the automotive industry shutdown with that cheery news and see how far you get.
Some claim it to be a coincidence, but the dramatic rise in wealth concentration has neatly sat alongside the rise in the theory of trickle-down economics.
Tax cuts for the wealthy and for large corporations were supposed to incentivise individuals and large businesses, resulting in ever larger profits and greater employment prospects. The profit side worked. Not so for employment.
It also has coincided with the ascendancy of monetarism, where central bankers control the global economy through the magic of manipulating interest rates.
Since the 1980s, central banks have attempted to smooth out the booms and busts, a strategy that appeared to work until around 2000 when the dotcom boom unravelled and the US began its disastrous foray into ultra low interest rates, a move that helped spawn the real estate boom and the ensuing financial crisis.
Interest rates now are zero or even negative in most of the developed world. That's pumped up asset prices such as stocks and property - further concentrating wealth - but done little to generate investment, real economic growth or jobs.
And in the midst of all this, we've seen a proliferation of so-called free trade agreements, many of which have little to do with trade, and certainly nothing to do with free trade.
The US has been pushing the Trans Pacific Partnership throughout the Asian region and the Trans-Atlantic Trade and Investment Partnership with Europe.
Both deals have been problematic, primarily because they contain clauses that would allow corporations to sue sovereign nations and are seen as a US attempt to assert political, diplomatic and corporate influence.
These agreements now are viewed with suspicion across the developed world. Even Americans hate them, blaming the North American Free Trade Agreement for the exodus of American manufacturing to cheaper destinations.
The Turnbull, Abbott, Gillard, Rudd and Howard governments have all played the free trade agreement card when it has suited them. Then, on cue, they will restrict foreign investment or dole out a subsidy to an ailing industry if it means scoring political points.
As our very own Productivity Commission has pointed out, the benefits of free trade go to those who lower their own internal trade barriers, not to those who sign preferential and potentially dangerous bilateral agreements.
Having politicised trade, is it any wonder voters now blame politicians and free trade for their predicament?
The tragedy of the unfolding drama in the UK and the US is that by restricting trade, the world will be poorer for it. Unemployment will be made significantly worse.
If the UK cuts ties with Europe and even partially closes its borders, it will be a less attractive place to invest. It could also fuel the ambitions of far right nationalists across Europe itching to split the union, with potentially dire social consequences.
The sad reality is that no amount of withdrawal and disengagement will alter the march of technology. Trade, particularly in services, takes place more easily across borders than ever before.
We are entering dangerous times. Underemployment and an ever widening wealth chasm has created a deep sense of mistrust and alienation. That's not good for growth or jobs.
Ian Verrender is the ABC's business editor and writes a weekly column for The Drum

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