Globalization – The Bottom Line

“Globalization” has been the major economic trend of the last thirty years. In that time we have gone from economies that were primarily national to a global system where goods and capital move around the world with ever fewer restrictions and barriers.

This process has occurred on two levels: manufacturing and trade; and finance.

In the first area, globalization leads to the production of goods in the locale offering the lowest cost – in terms of wages, environmental regulation, work conditions and so on – coupled with the highest incentives, such as tax breaks, state subsidies, etc. This situation has been brought about through a series of “free trade” agreements that have allowed corporations to move their production facilities to locales where such conditions are most favorable.

These moves are defended on the ground that lower production costs translate into lower prices. While this has been the case, there are strong negatives as well. The “offshoring” of production facilities – for example from the U.S. to China – also results in the loss of personal income and the depreciation of tangible assets. A U.S. production plant not only is a valuable asset in itself (machinery, buildings, etc…) but also raises the value of other assets (housing, stores, supplier plants) in its area. It supports a “wealth ecosystem” which collapses when the core production activity moves out.

These assets are not re-created in the country the substitute plant is built. Many parts of the plant itself – environmental protection, work safety devices, amenities for workers – will be absent. Lower wages will mean a smaller commercial infrastructure around the new plant. In the transfer of production wealth has been destroyed.

The same applies to income. Wages paid out to plant workers have been reduced by a similar factor. The income of anyone working at, or associated with, the production facility has been cut by half or two thirds by the move. Again wealth has been reduced or destroyed.

To this must be added the environmental cost. In the U.S. much has been done to correct the excesses of the Industrial Revolution. This benefit is lost when a plant is transferred to China, where pollution is reaching cataclysmic levels – and then is partly “exported” to California on the prevailing winds.

In the end getting “cheaper” goods does not matter, since American purchasing power has dropped with the loss of high-wage jobs. In the early 1990’s, with U.S. middle-class incomes still solid, lower prices did look like progress. But these incomes gradually fell as jobs continued to be exported. This process culminated in the 2008 recession, when corporations cut to the bone whatever labor costs still could be reduced.

So the country, as a whole, has gotten significantly poorer. As a people we no longer can afford to purchase the consumer goods that are two-thirds of our GDP. This explains why the post-2008 “recovery” has consistently under-performed, and why the current official 5.5% unemployment rate is a fiction produced by statistical manipulation. The real unemployment rate, shown by such measures as the percentage of people employed out of the total population, is much higher; by some measures it is well over 20%.

If so, why are we not in a full recession? There are two main reasons: the shift to part-time employment, and welfare.

As well-paid, full-time, with-benefits jobs were sent abroad, they were to a great extent replaced with more numerous part-time positions. This spread the remaining amount of wages more widely: most people who worked made less, but more had at least some income.

The other factor has been a vast expansion of welfare, both in terms of total payments and of ease of access. Notable among these were food stamps, inclusion in disability rolls and a massive increase in student loans. The administration could “afford” these payments because much of the needed money was created out of nothing by the Federal Reserve.

While the above policies have avoided – more likely postponed – a true Depression, there is reason to believe they cannot last indefinitely. Only a return to a sound economy – one where we actually produce what we consume – will achieve that.

Born in Poland, Jacek Popiel was educated in Africa, Canada, and the United States. He speaks five languages. His career spans military and international business development in the Soviet Union, Eastern and Western Europe, North America, and Japan. He is currently a freelance writer and political consultant. His book “Viable Energy Now,” grew out of his military and international business experience and his professional involvement with energy issues.

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