The Slogan ‘Globalization equals growth’ is Wrong
Via Naked Capitalism comes Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Originally published at VoxEU. Here is the introductory summary:
Trade and international financial transactions have grown massively in recent decades. This phenomenon, also called globalization, is often described as a ‘mega-trend’. Business and political leaders never tire of repeating that ‘globalization’ is the future, that it delivers more jobs and higher incomes. However, more recently globalization seems to be in retreat—in 2015 trade actually fell, both in absolute terms and relative to GDP. Does this mean globalization has gone into reverse (OECD 2016, IMF 2015, 2016)?
In this column, I argue that the slogan ‘globalization equals growth’ is wrong. There is no general economic theorem that links more trade to growth and other economic benefits. Economic theory implies only that, under most circumstances, lower trade barriers will lead to more trade and more jobs. The simplification, that more trade is thus always beneficial, is not warranted. If trade increases for reasons other than the lowering of trade barriers, it is far from clear that this will benefit everybody.
The distinction between globalization driven by lower trade barriers and increases in trade driven by other factors is not just an academic point. It is the key to understanding why globalization has become so unpopular in most advanced countries, and why the recent slowdown in trade is not something to worry about.
Thanks for the link.
I read the entire post at http://www.nakedcapitalism.com/2017/06/slogan-globalization-equals-growth-wrong.html It uses some sleight of hand.
“Figure 1 shows that transport costs have fallen again very recently, but that this coincided with a slowdown of trade – the opposite of what one would expect.”
But this is exactly what one would expect as the transport companies competed for loads to carry. And that does not confirm his theory.
In his illustrative example, we are not told why the cost of raw materials have doubled over that period. How much was due to China going on a buying spree for raw materials? How much of that buying spree was financed by the rush to move production out of the developed countries?
How much of the increased cost of commodities was due to low interest borrowing used to speculate in commodities from 2000 to the present?
I would also have liked to have seen a better explanation than this:
“Moreover, the recent fall in commodity prices can fully explain the fall in trade since 2014 with trade in ‘net manufacturing’ showing no ‘de-globalization’.”
I prefer to believe that when demand for commodities fall, then prices for those commodities will also fall.
And this conclusion leaves me dumbfounded:
“The widespread popular disenchantment with globalization can thus be easily explained—workers in Europe and the US were told that more trade would make everybody better off. But in reality there was no ‘surplus’ to be distributed, and workers just noticed a decline in their living standards.”
Does he want us to believe that workers would have tolerated globalization better if they had been told that corporations would be able to generate higher profits and pay American workers less?
It seems to me that this author only wants to add to the previous misrepresentations about the benefits of Global Free Trade.
No, debt equals growth and lower trade barriers mean more business transactions=more debt.
workers noticed a decline in living standards? The problem with that is, what would their living standards be without increased trade? Probably far less than now. That is the point you miss. They reject industrial policy in favor of “free markets” kills their credibility. Their living standards was absolute shit in 1930. Good in 1970 after 40 years of increased IP and pro-labor policy then down again in 2010 after less IP and anti-labor policy. workers get what they pay for. Whining about “trade” kills their cred.
Two national economies, A and B, in the last 75 years.
A is generally open to foreign trade and investment, capital flows and travel.
B is generally closed.
Cite any example where B is better off than A. Caloric intake is a nice, neutral measure, but I’ll accept female literacy, infant mortality or other non-monetary measures, too.
“Economic theory implies only that, under most circumstances, lower trade barriers will lead to more trade and more jobs. ”
Where does “more jobs” come from. Most economic analysis ASSUMES full employment, so the number of jobs is constrained by the labor supply. Economic theory rarely says ANYTHING about the number of jobs.
I think the more accurate title here could be:
The slogan “more growth equals more jobs” is wrong.