You Can’t Turn The Wheel Back On Globalization

Michael Pearl reflects on the ugly side of globalisation and the Trump-Sanders effect.

The United States is experiencing one of its most turbulent election cycles, and definitely the most bizarre and entertaining one. One of the main issues that stands in the center of the agenda is the migration of jobs caused by outsourcing of production and

Michael Pearl Head Of Business Intelligence
Michael Pearl
Head Of Business Intelligence

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services outside of the US. This outsourcing trend, that had been going on for several years, caused the closure of various factories, mines and service centers on US soil and their rebuilding in developing countries. But it is a byproduct of a greater trend that has been sweeping through the world for the last few decades – globalization.

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Globalization and its consequences are also the main core reasons for the popularity of Donald Trump and Bernie Sanders. Both of them are criticizing the international trade deals signed by the prior presidents – such as NAFTA, and promise to “bring jobs back home”.

High Mortality Rate

This week I stumbled upon an article called “Rethinking Robin Hood” by Prof. Angus Deaton in the great op-ed source Project Syndicate. In this piece, the Nobel laureate in economics for 2015 shows the ugly sides of the globalization process.

He explains how the globalization caused mass unemployment in some places in the US. When the factories migrated to China, Vietnam and Bangladesh, the jobs followed. He also explained how even those who were lucky enough to keep their jobs witnessed a sharp decline in their salaries to such extent that millions of American households live with an income of less than $2 a day.

Deaton also links these phenomena with his recent critically acclaimed study that was published in the Proceedings of the National Academy of Studies and showed a rising morbidity and mortality among white non-Hispanic males, due to high alcohol and drugs abuse and suicides. A recent analysis, conducted by the Washington Post, showed similar troubling numbers also with respect to white females.

Deaton’s study, that was featured in a trending Atlantic article, showed that the most heavily affected areas were the states usually placed at the top of the list by unemployment rates and at the bottom of the salary rankings.

$250 Billion And 1.4 Million Jobs Cost

Deaton is right in his diagnosis, but in my opinion, is wrong when it comes to the treatment. Even though he doesn’t provide specific action items, his statements on “angry and disillusioned citizens” and “broken mutual insurance contracts” bear a stunning resemblance to the rhetoric of both Sanders and Trump.

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The fact of the matter is that you can’t turn the wheel back on the globalization process. Those jobs that migrated across the sea will not come back, regardless of bills and executive orders. A country like the US cannot compete with developing countries with respect to the labor market.  

Moreover, every initiative to bring jobs back home and to raise the salaries includes, by-default, an increase in government involvement in business and curbing of free trade.

Such actions, like blocking trade from some countries and imposing high tariffs on imported goods from the others, will only hurt the same people that Deaton suggests to protect, by ‘taxing’ them through hiking prices on products and risking their jobs and quality of life due to projected decline of growth.

A study conducted last month by the conservative American Action Forum found that protectionist trade policies could cost the Americans as much as $250 billion each year in rising prices. Another analysis, conducted by firm Oxford Economics in April, suggested that this policy could cause the American job market to shrink by 1.4 million positions.

Fighting Poverty By Growth

Another important reason to give up the fight against globalization was stated by Deaton himself in the article. He rightfully stressed that globalization has stimulated an enormous growth in the developing countries.

China and India, for instance, have shown impressing growth starting from the early nineties – in times, peaking to a double digit rate. Deaton stresses that this growth had a tremendous effect on the quality of life in those countries.

This globalization-caused growth has been the main reason for the drop in the number of poor people globally from some 2 billion 40 years ago to just under one billion nowadays. This number is even more impressive, given the fact that the world population has almost doubled since.

The solution, therefore, doesn’t lie in a trade-war and useless attempts to stick a finger in the dam, but in adaptation to the changing reality. On every job that migrated abroad, there are several positions that were created in other places and other industries.

If the US is a more fertile ground for producing iPhones and laptop computers, one must strive to make himself suitable to work in one of those industries, rather than reminiscing about the golden ages of the textile and steel industries and hoping that one day they will come back home.

 

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