This is an attempt to capture some of my thoughts on globalisation. Partly, it's just to make a record. Also, I hope they will provide my notes for a Sydney Shove presentation.
I'm not a professional economist, and the scholarship standards of this work are low.
In the world as it is, as it has been, and for the forseeable future as it will be, there is a correlation between nationality and exchange. In other words, I am more likely to have exchanged something with a random person from my country than with a random person from another country.
For the moment I won't claim that this is necessarily a good thing or a bad thing. I just want to claim that this is how things are. I'll be using this concept later, and I'm too ignorant to know the economics term, so I'll coin the term intranationalism for it.
But true and false isn't all there is to this statement. Intranationalism is a sliding scale: it can be a weak effect or a strong one. At present we are passing through a phase in world history when the intranationalist effect is growing weaker, in particular where exchanges across global distances are becoming more important. This is the definition I'll be using for globalisation, in its widest sense.
Humans can participate in many different kinds of exchange: economic; political; demographic; cultural; etc.. To keep this topic under control I'll tend to focus on economic exchanges, since this is the form of globalisation that gets the most attention.
So why is the world globalising?
One reason is that it's just easier to ship stuff around these days. Container ships are an astonishingly efficient method of transport. The internet provides a very convenient way to organise. Natural barriers to globalisation have been reduced, and its growth can therefore be seen as natural.
The last few decades have seen a western governments withdraw from some of their previous domains of activity. The removal of many tarriffs and other trade barriers are an expression of one such withdrawal. With artificial barriers removed, it's hardly surprising trade has increased.
At least amongst policy elites, globalisation is perceived to work. East Asia in particular has done very well from finding niches in the world economy: Japan, South Korea, China, Taiwan and Singapore are notable success stories; India, Vietnam, Thailand, Malaysia and Indonesia are undoubtedly better off than they would have been without it. Governments wishing to benefit from the effects of globalisation have felt obliged to implement pro-globalisation policies.
A barrier to international exchange is a nationalist fear of dependence. Many countries want to be self-sufficient in indutries they perceive as essential to their survival in a crisis, such as a war, and accordingly provide those industries protection. But much of this fear stems from the catastrophes of the first half of the twentieth century, in particular the first and second world wars. The longer the world goes on without a major interruption to international trade, the less pressing these fears have become.
The benefits of globalisation are esentially the benefits of trade.
It would make little sense, for instance, for Scotland to try to grow all the tropical fruit it consumes: it's better off producing something else and trading with a tropical country for the fruit.
Economists call this comparative advantage. The word comparative is important: if country A can produce twice as much wheat per hectare than country B, and country A can produce three times as much barely per hectare as country B, then country A has a comparative advantage in barley and country B has a comparative advantage in wheat. That country A is in some sense better at producing either may be depressing for country B, and will no doubt affect its standard of living, but both countries will still benefit from trade.
Comparative advantage can be a consequence of differing development levels, historical accident, geography or whatever. Some people feel these different kinds of comparative advantage should be treated differently, either because one kind is more deserved than the others, or because some kinds could be developed elsewhere with effort. I'm not sure this is important.
Globalisation welds multiple small markets into larger markets. This provides scope for economy of scale. People can specialise, fixed costs like research and development can be amortised over longer production runs, etc..
It also increases the opportunity for competition between buyers and sellers within the market. That's generally a good thing on the whole, though obviously not for the less efficient firms. There's a sense, though, in which this represents a plundering of diversity. The markets coalesce, and briefly we have a large number of small players. Then competition eliminates the less efficient players and we end up with a small number of players again, but now we can't try the same trick again. On the other hand we might expect to end up with more players than any particular market had, which would be something.
Products and processes used in one country will tend to get copied and adapted for use in others. Again, this could be an example of plundering diversity.
Trade barriers are often seen as idealistically wrong, particularly by libertarians. A trade barrier means that the government has arrogated to itself the right to penalise me from trading with someone, just because they happen to live in another country. From an idealistic point of view that's unpleasant.
When a trade barrier is imposed the country that would have exported suffers. There's often a temptation for the offended country to impose its own trade barrier on some good the other country exports, in retaliation. There's a strong human instinct at work here: nobody likes to suffer damage without striking back in return. Similarly, the Australian federal government was recently attacked for giving up too much to the US, in return for limited concessions in the free trade agreement.
What this kind of analysis misses is that countries benefit from the opportunity to import as well as from the opportunity to export. A trade barrier hurts the people inside it as well as the people outside it. The outsiders who suffer are those who would otherwise have exported the product; the insiders who suffer are those who would otherwise have bought the imported product. So retaliation is almost always a bad idea, and we shouldn't be worried about giving up too much in trade negotiations, at least not for this reason.
So why do we see protected industries lobbying for increases to protection, but no lobbying by customers for reductions in protection? The answer is that the effect of protection is spread out over so many customers that none of them can be bothered to agitate. This is the opposite of the "tyranny of the majority" effect, and allied to nimbyism.
Globalisation and neoliberalism have tended to go hand in hand in the last few decades. To some extent that's probably a causal relationship, and to some extent just a coincidence. So those who are angered with the consequences of laissez faire economics generally might wish to blame them on globalisation.
One way we can see it is that globalisation has benefited from a swing toward laissez faire economics. Supporters of economics freedom generally would normally be expected to see the freedom to buy from overseas to be an example. But if this is the mechanism then we probably can't blame globalisation for any other aspect of neoliberalism or laissez faire or economic rationalism or whatever it's called this week. It would make sense, though, to blame globalisation consequences on laissez faire generally.
Still, when the IMF imposes neoliberal and globalist policies on a third world loan recipient, it can be hard to separate the issues.
It's often hard to draw a line between a trade barrier, intended to favour local industry at the expense of competition, and other government policies, such as safety regulations or social policy. France is famous for using notionally non-trade policies as de facto trade barriers; the United States Navy is required by law to purchase all its ships from US shipyards; Australia gives near-monopsonistic power in pharmaceuticals purchasing to the Pharmaceutical Benefits Scheme.
In the process of satisfying trading partners as to their lack of trade barriers, governments often find themselves, or feel themselves, obliged to dismantle policies erected for other reasons. The PBS was modified, though not completely dismantled (anyone heard of what's happening here lately?) for the sake of the recent free trade agreement with the USA.
Should this bother us? One reason it perhaps should is that government policies are, in a western country at least, under democratic and bureaucratic control. If government control is replaced by market control then we'll have less democracy and bureaucracy, and more plutocracy and individual freedom. It's not clear to me that we've won or lost here in general: it's probably something we'd want to monitor and judge on the merits of individual cases.
Of course, what the government taketh away the government can put back. There's nothing to stop an elected government adopting whatever odd economic policies it thinks wise, the Bolivarist coalition of Venezuela, Bolivia and Cuba being an example. But a government might find reversing such policies awkward.
We may get rich exporting widgets. We may be able to buy all our food overseas. And then one day the international trade system collapses and we all starve to death amidst a plethora of widgets. It's more a twentieth century fear than a twenty-first. How much should we fear this? It's hard to say.
Some fear that multinational corporations, freed from the restraints of national laws, will come to dominate our society. I'm doubtful of this, partly because even a government that's withdrawn from some of its responsibilities is a terrifying thing, measured by the standards of a corporation. The Australian commonwealth, for instance, has a turnover of a couple of tenths of a percent of GDP: there are a few companies that can match that but not many. It has its own armed services, the right to make laws in its own territory, citizens who are personally loyal to it (sometimes unto death), etc..
I might make an exception here for media companies like Fox and PBL, who really do have a hold over governments. But their power is fundamentally intranational: it's more like the fascist model than anything to do with globalisation.
Some have suggested that corporations will be able to control governments by bribing their relatively ill-paid politicians and senior public servants. But politicians in particular are more likely to be motivated by power or fame than money: if they wanted money they wouldn't have chosen a badly-paid job like politician. And if voters find it a problem then they can always vote their representatives and public servants pay packets comparable with their private sector equivalents.
Plus, the various different companies are likely to be pulling against each other as often as for each other. Companies don't actually want the government to let the private sector get away with things. Each company wants to be allowed to get away with everything, but for their competitors to be carefully, nay paralytically, scrutinised. Countries where the government can't do this, like Somalia, are not havens of capitalism. By keeping everyone honest, government regulators reduce the cognitive costs of companies, and by and large they approve as long as they aren't the subject of it. So companies as a class have an interest in good government, which will mitigate any tendency to pervert it.
When an industry moves overseas it leaves Australian jurisdiction and enters a jurisdiction that may have very different labour laws. In some sense, Australians may end up the beneficiaries of, e.g., slave labour.
One issue here is that in some respects many countries have the labour laws they can afford. Lower safety standards may be one way in which poorer countries keep their labour costs down, and while the calculation, put that way, is cold-blooded, the reality is that governments make this sort of decision every time they decide what the health budget should be. This isn't a complete defence: there are very likely some low-hanging fruit in these countries' labour laws: things that could cheaply be fixed.
However, the labour standards of export factories in third world countries, while low by Australian standards, are probably pretty good by the standards of third world agriculture, which might be what the workers would be doing in the absence of an export industry.
Also, we have to consider the indirect effects on the respective economies. If Australia buys its shoes from China rather than from Australian manufacturers then the Australian dollar will weaken, and the Chinese yuan strengthen. This will make Australia more competitive. So some industries that, say, would otherwise have relocated to China tend to stay in Australia. Workers in these industries are now protected by Australian laws. It isn't clear whether we've come out ahead or behind here, and we'd have to look on a case by case basis. But it's misleading to neglect this effect.
We may lose diversity between national societies, because ideas and products are being traded back and forth so rapidly. It seems a shame that societies become more like each other, it feels that something precious is lost. On the other hand we get cross-fertilisation of ideas: this could be an example of plundering diversity. But do we really want to stop people adopting foreign folkways?
Perhaps the national diversities will be replaced by delocalised subcultural diversities. It's going to be easier in the future to, e.g., only hang around with people who have the same attitudes as you do. Which carries its own problems, but at least promotes diversity.
We may lose diversity within societies, as economies specialise. This might be a concern, particularly if international migration remains difficult, though we'd expect international communication to continue to improve.
There are issues with globalisation. But on balance I think it's a force to be nurtured rather than opposed. And if my great-grandchildren see it as a catastrophe then my deepest apologies.
Please send feedback to the author, David Bofinger.