Regardless, globalization has already failed the majority on this planet and it’s failing more and more people with each and every passing day. Granted, the ever-dwindling number of apologists for this catastrophe happen to be the loudest gas bags in society, so they are still able to drown out the simmering rage of the silent majority. However, like all viruses, the relentless globalization virus can’t be controlled, so it must burn itself out. Which means that the host will have to die first...
A Poverty Generation Machine
Whereas the advent of globalization was hailed as the key to reducing global poverty, it has had the exact opposite effect. Instead of raising the standard of living for those in the developing nations, it has substantially collapsed the standard of living for those in the developed world. The latent effects of that collapse have only been forestalled by ongoing debt accumulation. Far from becoming a global panacea for world poverty, globalization mutated into a self-cannibalizing virus that started in the poorest nations and now has heavily infected even the wealthiest of nations.
The simplest answer for why globalization mutated into a self-cannibalizing virus, is of course greed. It would be too easy to stop there however, because greed and avarice are endemic to the human species, so a more constructive answer is required in order to inform future economic models that can guard against future mutation.
The following factors are the primary drivers by which globalization was used to concentrate wealth and spread poverty as opposed to spreading wealth and reducing poverty as promised:
1) Industrial Arbitrage - History's Most Profitable Fly-by-Night Business
Commonly referred to as ‘outsourcing’, however industrial arbitrage goes beyond mere job shifting from one locale to the next, it’s actually far more insidious. By definition, it means buying something in one market and selling it in another market at a “risk-free” profit. As long as there is a differential in cost/price between the two markets, then the arbitrage makes money. In the context of global trade, the transaction requires buying labour only in the lowest price locales, and selling the finished product to the developed economies, capturing the spread between the standard of living between these two worlds.
Of course, however, all arbitrage strategies are self-destructing, because the act of systematically buying in one market and selling in the another market converges prices such that the arbitrage is no longer profitable.
So then the real question on the table, is why haven’t standards of living between the developing world and the developed world converged? Is it because developed world labourers, now making cappuccinos, are creating a higher “value added” product than the worker in the developed world making computer memory chips? Is it because the cappuccino assembly worker is more “productive” than the chip assembly worker? Obviously not, so the answer lies elsewhere…
2) Export Mercantilism
Mercantilism also known as “beggar thy neighbor” policy was the dominant economic strategy for most of the past several hundreds of years. It’s premised on the very basic concept of competitive advantage, meaning a nation that is economically more competitive than other nations will accrue more industries and more industrial power. Of course, globalization itself was not premised on competitive advantage, it was premised on the theory of "comparative advantage”, which to paraphrase - is the belief that the world economy is open-ended, however resources are constrained, therefore there are plenty of economic opportunities available if every country specializes on what it does relatively best. Note the key term “relative”. However, a funny thing happened on the way to the campus bookstore. This theory of comparative advantage turned out to be total bullshit and many developed countries proved they were more than capable of doing everything the developed nations can do, with spare capacity left over. Add in the fact that ideas and technology can be transmitted at the speed of light and the fact that most developed nations have no labour or environmental standards and suddenly the theory of comparative advantage and its adherents are looking downright stupid. Therefore, export mercantilism is alive and well even at this late date, working hand in hand with industrial arbitrage to suppress wages across the entire wage scale.
3) Reverse Subsidization - Take from the Poor, Give to the Rich
So far, the discussion has centered around the movement of goods and services, however, the other side of every product transaction of course involves the money. And therefore, when goods and services go in one direction, the money goes in the other direction. As economists would say, ceteris paribus (all else being equal), that would be a good thing because the flow of capital back to the developing nations would boost their currencies and thereby over time close the standard of living gap by increasing the purchasing power of workers in the developing world while making exports from the developed nations more affordable and more competitive. A win-win. But then another funny thing happened at the campus book store – the elites in the developing nations decided they didn’t want their currencies to rise, because that would mitigate their competitive advantage, so they lent the money back to the developed nations, which were all just stupid enough to take it. So instead of a slow and steady equalization in standards of living, instead, we have this debt-inflated Ponzi model requiring ongoing transfers of wealth from poor nations to over-indebted “wealthy” nations. Arguably the developing nations had no choice but to suppress their wages and currencies because there is an excess supply of cheap labour globally and multinationals can shift their factories to cheaper locales with minimal disruption. Suffice to say that until global trade agreements stipulate labour and environmental standards, the downward spiral of wages and environmental degradation will continue.
4) Commoditization of Labour
The other highly negative “unintended” consequence of globalization is of course the over-commoditization of labour. I wrote an entire diastribe on this subject recently, so I will spare the details. However, suffice to say the entire globalization model put vastly more power into the hands of the largest multinational companies which have become the robber barons of the modern age. These companies exert overwhelming market pricing influence and therefore can dictate pricing terms to their entire supply chain. Which is another way of saying they can squeeze the living shit out of suppliers such that the multinationals garner all of the excess profit while subsistence suppliers and workers are commoditized into oblivion. Meanwhile, by allowing these multinationals direct access to plunder local markets, policy-makers stood by while millions of local businesses were destroyed and profits that used to flow into local communities, were extracted back to the mother company to the benefit of an ever-dwindling number of excessively wealthy shareholders.
5) The Low Wage Poverty Trap
Survival 101 - not available at the campus bookstore - posits that the lower the wage, the more labour is offered. This is why many low income workers have to work multiple jobs to make ends meet. Of course, this behaviour is the opposite of what conventional economics would suggest. Generally the supply curve indicates that the higher the price (wage) the more quantity/hours are offered and at lower prices/wages less is offered. This low wage poverty trap is of course on display across the developing world and is now well entrenched in the developed world as well. Taken together with point #4 - the commoditization of labour - and it's a lethal combination. We live in a world awash in a virtually unlimited supply of low wage undifferentiated labour that only increases in supply as wages fall. It's a robber baron's wet dream, and it fully explains why there have been no Third World countries able to bootstrap their way out of poverty in the past 20+ Davos Summits (aka. years). Unfortunately, on the other side of this fiasco, a lot of economists will have to lose their tenure and otherwise fight for an ever-dwindling supply of faculty positions at ever-dwindling salaries, before they finally "get it" and the text books are rewritten to account for this supply "anomaly".
Wage Deflation is The Third World's Primary Export
Clearly Globalization morphed into a Ponzi scheme when the poorest people started subsidizing the wealthiest people via suppressed wages and profits and resource and environmental degradation. This transfer of wealth however represents a loan which will never be repaid but yet is an ongoing transfer of funds that can end at any point in time rendering the developed nations bankrupt. More importantly, within the developed nations, the solvency of the average taxpayer and citizen is being constantly eroded as wage deflation takes its inexorable toll. When one company outsources its jobs, it increases its profits, when every company outsources at the same time, they destroy the economy. So debts are now accumulating against an ever dwindling wage base. And yet the entire scheme is solely dependent upon a developed world consumer continuing to borrow to spend - whether directly or via sovereign borrowing. Had the developing nations allowed their wages and currencies to rise, there would have been offsetting demand to pick up the slack from the developed world. However, that never happened. The bottom line is that globalization has made attempts by Central Banks and governments to prop up their economies, totally futile. They are fighting against the corporate sector which is importing deflation from foreign countries.
My goal is not to write a book. My goal is to point out in layman’s terms how the world economy currently operates, in order to inform future models. Also to make it clear to our stooge policy-makers that they may have fooled themselves and the vast majority, but they didn't fool everybody. The excesses leading up to the 2008 collapse have only been propagated and amplified, therefore, by not addressing globalization's inherent unsustainability, they only put far more people at risk this time around. At this point, the model is now supported merely by massive amounts of debt, printed money, and hyperbolic bullshit spewing from the mouths of the most godless greedbots who ever walked this planet. Unfortunately, as I said above, the virus is out of control and will only stop when it kills its host. A process that is in its advanced stages.
The Collapsing Empire of Greed
Lastly, the attendant signs of decay are overwhelming at this juncture. The U.S. defense budget at ~$700 billion equates to the combined spending of the next largest 13 countries on the planet. And yet the recurring federal budget deficit equates to 142% of the defense budget. So history's most powerful country now borrows its entire defense budget (and then some) on a recurring basis - much of which is borrowed from trading competitors that don't share America's World view. This is a terminally fatal situation, yet overlooked by the brain dead Faux News Neocons running the country (yes, I include Drone Master Obama in that category). So they will be highly surprised when this dystopian "Pax Americana" fantasy all comes crashing down seemingly "out of nowhere". They will learn the hard way that a strong nation is one that pays its bills and looks after its own, not one that galivants around the world playing supercop to multinational corporate interests, then foisting the debt burden on future generations. The bottom line is that this is a society too stupid to realize how stupid it is, led merely by the most vacuous sociopathic buffoons in modern history.
