A Farewell to Globalism
From the coalition government in Italy and the Brexit referendum in Europe, to the elections of Donald Trump and Jair Bolsonaro in the Americas, what can only be described as a political earthquake has shaken the liberal consensus in recent years. Having started on the fringes of the political spectrum, rejection of globalism has found its way into the political mainstream, and still seems to be gaining momentum. Threatening the existence of the foundation of our prospering world, this movement puts many of the liberal institutions we have built since the end of World War 2 at risk. But given its popularity, there must be something which justifies such massive discontent.
The argument for free trade is a simple, yet powerful one. By allowing nations to specialize in what they have a comparative advantage in and thus harnessing the power of economies of scale, more goods can be produced at a cheaper price. To satisfy domestic consumptions demands, one can import from all over the world. This access to cheap, globally sourced goods and resources increases prosperity, production and efficiency of everyone participating, and in the wake of globalism, all countries benefit.
This unrestricted access to the global marketplace has certainly improved our standard of living. Much of what we now own and consume was not produced in our home country, and much of what we produce here is not consumed domestically. Indeed, thanks to globalism, our purchasing power has increased dramatically, and our economy has grown significantly. Even more, hundreds of millions of people have been lifted out of poverty thanks to globalization. But while the average person has benefitted, it does not mean that everybody has.
Who comes to mind when you think about the typical Marine Le Pen voter? Who voted for Brexit? Who did Trump appeal to most? All of these share a common thread: The typical voter of anti-globalist movements is an industrial or manufacturing worker, often white, living in a rural area, and certainly unpleased with what has happened to his country. And while too often they are denounced as racist, nationalist, blinded idiots, their discontent is quite justified.
Competition from abroad has seen entire swaths of land, once the industrial heart of a nation, deteriorate into a shadow of their former selves. From the north of France to the Rust Belt in the US, those regions where heavy industry once thrived are now the epicenters of nationalist movements. Workers employed in these once booming industries have seen their wages depressed by foreign competition, or even seen production move abroad entirely, where wage demands are a fraction of theirs, resources are cheaper and environmental standards are non-existent. Trade unions, which provided the last bastion against the hounds of globalization, were crushed to make the country more competitive for business. Unskilled workers saw their employment situation deteriorate every day, all the while the nation celebrated a booming economy. No wonder they are fed up.
Unskilled workers in the developed world have seen their real wages fall nearly 20% since 1980. Threatened with businesses packing up and leaving, levels of anxiety and insecurity rose, with many experiencing spells of unemployment, or even becoming long term unemployed. And while unskilled workers were hit hardest, real wages for the middle class have been decreasing ever so slightly as well, all the while the highest earners have reaped the majority of the benefits of economic growth.
Politics have largely been ignorant of these problems. When asked for solutions, many economists and politicians proposed retraining programs, or just outright declared that they suck it up and accept their new reality. And while in part, they were right, often times these retraining programs were difficult to implement in practice, apart from being but a tiny solution to the massive problem of a growing income disparity between cities and rural communities, and between the haves and have-nots.
The tide has turned in favor of nationalism, and swept millions of people into the welcoming arms of the far-right, who preach against anything that is not from home. This anti-globalist sentiments echoes well with those that have seen foreign competition undercut their wages, and caused their standard of living to decline. Coupled with anti-establishment and anti-immigration paroles, these new parties on the far right perfectly capture the discontents of the left-behind. Unfortunately, their recent rise was only the beginning.
What is to come
In many cases, what is happening in the world now is similar in development to what happened after the 1929 stock market crash, but much weaker in effect. After the crash, as economic activity was weak, and significant parts of the population were unemployed, many dissatisfied workers in Europe sought parties on the fringes of the political spectrum to solve their situation. Support for both the far right, such as the NSDAP, or the far left, embodied by the Communist Party, peaked in the 1930s. Furthermore, solely focused on protecting the country’s national economic interest, tariffs on foreign goods were widely popular to protect domestic industries, their effects, however, further devastating the global economy. Today’s increase in populist and nationalist sentiment closely mirrors what happened then, although today’s parties are far less extreme.
In the case of another economic downturn, which many experts believe will happen around 2019 or 2020, the political situation might turn from bad to worse. Given how well we are doing right now economically, and especially looking at unemployment, the extent of discontent seems surprising. Come an economic downturn, however, with many losing employment or simply experiencing the effects of a stalling economy, distrust of the liberal establishment, while already widespread, would further gain appeal. Due to recent growth in wealth disparity, distrust and turmoil are already brewing behind closed doors, and all it would take now is a spark to fully bring it to the forefront of politics.
While the fight over inequality is at the heart of many populist movements, a discussion about their nature would not be complete without looking at immigration. Indeed, at their most visible, these movements have been when opposing illegal migration. Through their virulent criticism of Europe’s welcoming policies, parties such as Germany’s AfD or France’s National Rally have garnered significant support, and have shaped political conversation more than any other party since the onset of the migrant crisis in 2015. Unfortunately for the established parties, the fuel for their rise is hardly running out.
In many terms, the peak of the migrant crisis in Europe was 2015. Caravans of people seeking asylum arrived from Africa and the Middle East, often by foot, and overwhelmed capacities in their destination countries. Illegal migration has decreased since then, partly due to the closing of migrant routes, among other reasons. When the momentum will swing back the other direction, however, should not be a question of if, but when.
The potential for both economic and political strife in Africa and the Middle East has reached alarming heights recently. Turkey has seen its economy entering a slump, with their political situation under Erdogan deteriorating into dictatorship more and more. Tensions in the Middle East have flared up again. The biggest cause for concern, however, appears to come from some African countries, who are only now waking up from a spending binge that has seen them move dangerously close to a debt crisis. Again, all it takes is a spark to ignite turmoil, one that could very well come in the form of another economic downturn. Europe, still believed to be a safe haven for illegal economic migrants, would be the perfect target destination again. And with anti-immigration parties and their followers prepared to defend the proclaimed ‘Fortress of Europe’ from the perceived invasion, the nationalists could find more fuel for their rise to power.
In the long run
Eventually, the tide will pass. Economies start growing again, the unemployment rate shrinks, and economic success returns. The concerns of low-skilled workers about job outsourcing, and immigrants taking their jobs have ebbed off. The appeal of populist and nationalist parties diminishes, and everything seems to be pointing towards a return to normalcy. But the levels of international trade and globalism previously seen will never return.
We are currently experiencing another industrial revolution. Much like when some 200 years ago, new machines allowed for productivity to skyrocket and the face of politics and economics to transform massively, so will the AI revolution of today and tomorrow. With it, it will bring a plethora of challenges on all fronts. The full extent of this is well beyond the scope of this article, but the impact on the labor market is nevertheless crucial to understanding why globalism has already peaked.
When companies outsourced their production to developing countries, their motive was clear: save on labor costs. The work could easily be done by anyone, anywhere, and shipped wherever it was needed. As automation progresses, however, many low skilled jobs will be done entirely by machines. Low-skilled workers will disappear from factories, with ever more complex and intelligent robots taking over entire production lines. Today, robots can already sew much faster and more accurately than any human. Smartphone assembly robots are cheaper and more diligent than any worker could be. To see a glimpse of how manufacturing will look in the future, one need not look further than car plants today.
With labor costs decreasing significantly, manufacturing will move back to the consumer country. International trade will decrease as far less goods need to be imported, and almost anything can be produced domestically. With it, the massive extent of globalization retreats, making way for more domestically focused economies. National self-reliance will be key, and with nationalist governments in charge, policy will push in that direction.
The golden age of globalism is over. What we have built since the end of World War Two is crumbling, day by day, election by election. International cooperation will make way for a world in which national interest reigns supreme. Whether we are looking forward to that kind of future is irrelevant, but through accepting it as a probable reality today, we can brace for what is to come tomorrow.
