The Fall of Globalisation

Globalisation originated in the 1st century BC with the Silk Road which established global trade links. Silk was traded between Europe and Asia, from China to Rome. The first wave of modern globalisation however occurred from the end of the 19th century to approximately 1914, with the fully industrialised British Empire able to manufacture and then sell products in demand around the world such as textiles, iron and other manufactured goods.[1] The second wave of globalisation was marked with the end of World War 2 led by the new hegemony, the United States, and aided by the second industrial revolution which allowed global trade to rise again. Global organisations such as the UN, NATO, WHO and WTO aided this great expansion of globalisation. This was occurring at different rates in different places as the two most powerful nations, the United States and the Soviet Union divided the world, but once the Iron Curtain fell in 1989, the third wave of globalisation began, making it a true global phenomenon.

The results of globalisation on a scale never seen before are profound. Free trade has reduced barriers such as tariffs, value added taxes and other barriers between nations ultimately helping them grow, shown by the fact that in the 2018 GED Globalisation report, all 42 countries surveyed have reaped dividends from their growing integration into the world economy since 1990. Globalisation is unpinned by the idea that free trade leads to economic growth, creating jobs, increasing competitiveness between companies and therefore reducing prices for consumers, based on trickle-down economics and the multiplier effect. This posits the view that wealth created at the top trickles down to the bottom echelons of society. This is the theory that has been used to justify neoliberal policies and globalisation and is the driving force for all entrepreneurial activities. Finally, globalisation has allowed poorer countries with the chance to develop economically due to investments of foreign capital and technology, allowing democracy and a respect for human rights to flourish. In fact, global poverty has reduced, with the number of people living in extreme poverty falling from nearly 1.9 billion in 1990 to about 650 million in 2018.[2] Currently the fourth wave of globalisation is upon us in a world dominated by two superpowers, the US and China.

However, globalisation hasn’t created just winners, there are those in society who have lost out on the fruits of this phenomena. However, within countries (the majority Western and developed) inequality has grown with the rich getting richer and the poor getting poorer. In the United States, the share of national income claimed by the top 1% of the population climbed from 11% in 1980 to 20% in 2014, compared to just 13% for the entire bottom half of the population.[3] Furthermore, social mobility (the change in social status relative to a person's current social location within a given society) has not improved throughout the globalisation era. In the UK, social mobility has remained virtually stagnant since 2014. Those from working class backgrounds earn 24 per cent less a year than those from professional backgrounds, predominantly due to the jobs they end up in.[4] Many middle-class workers in Western developed countries are frustrated with a political and economic system that has caused huge economic inequality and social instability. In my article I will investigate how globalisation has increased national inequality.

Multinational Companies

Multinational companies such as Apple and Amazon, are reaping the benefits of globalisation by taking advantage of tax benefits and cheap labour abroad offered by globalisation, whilst not contributing to society. These opportunities have increased profits for the organisations, leading to huge pay-outs for senior executives and increased dividends for shareholders. The OECD (2018) estimates that MNCs account for half of global exports and nearly a third of world GDP (28%), demonstrating that MNCs are vital to the global economy.[5] However the way in which they operate is morally unjust, as they use legal tax avoidance, for example transfer pricing which moves their profits through a subsidiary company located in a low tax location like the Cayman Islands, to increase their profits to those with equity stakes and satisfying shareholders with short-term profits. This huge tax avoidance means that national governments are not generating enough capital to pay for public services and welfare systems, which both contribute to reducing inequality. The UK government has estimated that, in 2017, multinational businesses managed to avoid paying nearly £6 billion in tax revenues.[6] Ireland’s tax arrangements with Apple between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that only existed on paper and could not have generated such profits. The result was that Apple avoided tax on almost all the profit generated from its multi-billion-euro sales of iPhones and other products across the EU’s single market. In 2018 despite Apple’s £1.2bn UK sales, the company’s tax bill from all its British shops fell by more than 60% to just £3.5m.[7]

Offshoring

Whilst outsourcing has led to an increased demand for work in high skilled areas within transnational companies (TNCs) in the origin developed countries, wages have decreased in lower skilled and knowledge sectors. This is due to lower production costs in countries such as Vietnam, Bangladesh and China, because minimum wage is much lower (or non-existent) for the same quality of work; in such countries, the increased competitiveness for work and surplus labour has forced wages down. Since the 1990s, more than 4.5 million manufacturing jobs have disappeared in the USA.[8] Whilst Foreign Direct Investment (FDI) creates jobs in the foreign country, the same low-skilled jobs are wiped out and not replaced in the origin country, meaning that people are at risk of unemployment and relative poverty. Furthermore, TNCs are not likely to stop offshoring anytime soon, as this would give other companies a competitive advantage by offering customers a better value due to their lower prices. These unemployed people in developed countries, who have lost their jobs, may then be forced into the gig economy where they have to take on freelance work or short-term contracts such as delivery drivers, implying that they are vulnerable as they don’t have a stable income or access to any benefits. This means that these people are on the fringes of society, which may cause polarisation and civil unrest (as we saw in 2011 with the Tottenham riots) depending on the state of the economy. They may therefore turn to more extreme nationalist leaders when voting who blame migrants and globalisation for unemployment for example the Golden Dawn in Greece. In addition, TNCs are trying to reduce costs is by cutting the need for labour through technological advancements, which reduce the demand for low skilled workforce. It is globalisation after all which brings innovation and allows for further technological advancements, as information is able to flow freely and countries are able to use foreign technology.[9] The forgotten people of globalisation are fighting back, explaining the rise of current nationalism and protectionism.

The future of globalisation

Brexit and the 2016 US elections are both rejections of globalisation. Solely looking at Brexit, people feel as though the European Union (a manifestation of globalisation) has failed them. The EU was supposed to protect its citizens against the worst of the market, with nation states previously being able to guarantee employment and welfare. They were able to control free movement of capital and ensure that trade unions could bargain for higher pay without the threat of offshoring or cheaper labour being brought into the country. Jobs, living standards and welfare states were all better protected in the 50s and 60s before the age of globalisation, with unemployment across the Eurozone being more than 10%.[10] Furthermore, Italy’s economy is barely bigger now than when the Eurozone was created, Greece’s economy has shrunk by more than a third, austerity has eroded welfare provision and labour market protections have been stripped away. The grand dream of an ‘United States of Europe’ is now over.

In theory, globalisation and free trade are in the interest of consumers and countries as a whole because they reduce prices of goods which means higher standards of living; as inflation equals the rate at which the cost of living rises, there is less of that too. However, people living in countries where offshoring benefits them, don’t have a vote in UK referendums or American elections, whilst those who have lost out from globalisation do. An increasing number of people have turned to populist right wing parties as voters believe that there is not much on offer from the current system and that globalisation has benefited a small privileged elite. These voters are perfectly happy to support the idea of curbs on capital movements such as financial transaction tax and have no problems with imposing tariffs to prevent the dumping of Chinese steel. They are also roused by these extreme parties to blame migrants and to block the free movement of people to return to the security that nation states provided. When the Resolution Foundation think-tank analysed the voting patterns for Brexit, they found that the parts of Britain with the strongest support for it were also the poorest; they said that the result of the referendum was affected by ‘deeply entrenched national geographical inequality’. Whilst globalisation has decreased disparities between countries, within countries inequality has risen with the rich getting richer and the poor getting poorer. Whilst all of this cannot be solely attributed to globalisation, people in Western developed countries feel as though the rewards of globalisation have passed them by. Due to the outcry from these ‘losers’ in the game, the tide is turning towards nationalism. The assumption that globalisation is set in stone and unable to be changed is wrong. The current global market economy was created by a set of political decisions in the past and can therefore be altered by political decisions in the future. Is this the correct path to take going forward, or are we heading for the disastrous consequences seen in the past following the rise of European fascism in the 1920s and 30s?

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