The Benefits of De-globalisation?

The impact of globalisation has been as fundamental as the changes to the abolition of the British Corn Laws in the nineteenth century. There was no going back from the Corn Laws, but recently it have been suggestions that globalisation may be going into reverse.

The argument that won the case for the abolition of the Corn Laws was that they would improve prosperity in Britain. The Corn Laws protected the landed classes by restricting gain imports thus supporting the price of corn. Their abolition was a shot in the arm for manufacturers: lower bread prices gave workers more disposable income as food, and bread in particular, made up a large proportion of ordinary people’s spending.

That is essentially the argument for globalisation, that it would allow workers in developing countries to make things cheaper than those in developed countries. Developing countries would benefit from investment and jobs while the developed nations would benefit from greater competition and lower prices resulting in more disposable income.

Globalisation a “good thing”

It is without question that globalisation has been successful in these primary aims: emerging economies like India, China, Indonesia and Thailand have thrived with massive foreign direct investment, the creation of millions of jobs and increased prosperity.

On the other side of the world, economically speaking, consumers in developing countries have reaped the benefits of the growing economies of scale leading to lower consumer goods prices that have put more money in their pockets.

So globalisation is unquestionably a good thing. Well, not if you are a highly paid worker in a developing country whose job disappeared or was “outsourced” to China. Some argue that developed countries businesses have not just maximised the economies of scale in a global market place, but have created jobs in the developing world to exploit all the opportunities to pay “slave wages” in a race to the bottom.

Into reverse?

But now voices are being raised that globalisation has run its course and that for a variety of reasons it is going into reverse.

The sluggishness of the world economy and the dampener that has been put on world trade is attributed, in some quarters, to the low interest rates and over investment in production capacity in the developing world prior to the 2007 financial crash.

But there are additional, but less obvious factors at play: one is the by Western consumers, alarmed by the poor working conditions in factories making goods for the clothing giant Primark and others, to insist that workers in developing countries enjoy better working conditions. On the other side of the coin workers in emerging economies, such as those who work at the technology giant Foxconn, are also starting to realise they have labour power.

Fuelling the reversal

Even though transport costs are currently low when added to the time lag of transport to market they are reducing the margins arising from globalisation. Even within China manufacturing is relocating closer to the coast to counter these factors.

But even the comparative advantage of lower labour costs (working conditions) is wearing thin: computerisation, digitisation and robotics are making production cheaper, giving superior quality control and removing the need for long distance transport.

Super-communications notwithstanding, quality and management control half a world away is not half as good as doing it on your doorstep. As the developed world manufacturing focuses on customised or high quality goods this is becoming a factor driving businesses home.

Secular stagnation vs infrastructure creation

Performance of emerging economies is currently “fair to middling” while developed countries teeter on what Harvard academic Alvin Hansen called, “secular stagnation” from which he accurately warned the US economy would suffer following the Crash of 1929.

The question for developing economies is, given the opportunities that opened to them as globalisation took hold, whether they will be able to maximise the momentum.

This will depend on whether globalisation was merely the building of factories for exports or provided the foundations of infrastructure – both physical, in improving education, power supplies, road and rail distribution - and financial. Have they generated and harvested the savings that need banks to recirculate capital within these economies and provide investment? Are we seeing the emergence of a services sector to cement the advances they have made?

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