GLOBAL ECONOMY: ITS EVOLUTION, ITS CONTRADICTIONS

Our globalized society lives in a world where information travels at the speed of light, where the internet puts people across the globe in touch, and where causes and effects immediately interact no matter where they are taking place. Communication networks have taken over maritime and land routes. A truly globalized system, in every compartment. There are no more geographic or morphologic limitations. What was once a national crisis or issue is automatically an international problem. Every secret is revealed in the public domain. And all of this thanks to scientific progress.

Economic and financial systems interact and have also become global. Financial globalization implies that the world is the market and that global economy is interdependent and connected with national economies. This has produced: the strengthening of financial and commercial flows; a global manufacturing model that has organized its production beyond national borders. Technological progress is playing a key role, as it reduces both production times and distances for all the goods and services that are produced. And since this is globalized capitalism, production sites will concentrate where the workforce is cheaper and the access to raw materials is easier.

The origins of the phenomenon

Globalization is nothing new under the sun. It’s wider meaning takes us back to the dawn of mankind, as people, products, ideas and innovations started spreading across the globe. And while more recently the concept was part of the struggle between communism and liberalism, it’s initial focus has always been trade. Throughout history there are numerous examples:

- the roads built by the Roman Empire, a network meant to connect even the remotest angles of the empire;

- the Silk Route linking China to Europe that allowed the spread of knowledge and key products like gunpowder, compasses, pasta and spices;

- Marco Polo’s travels East in the 13th century in Asia;

- Venice’s commercial empire that developed between the 11th and 16th century and the Hanseatic league in the North Sea between the 13th and 17th century that fully exploited both maritime and land routes to deliver the best product and bring new technologies home. This process was favored by the downfall of the Mongolian Empire (1368) that, until then, had secured the Silk Route. The insecurity on the land pushed the Europeans to go by sea in search for new routes. And this eventually led to the circumnavigation of Africa and the discovery of the Americas.

This period, known as the “First Wave”, ended in the second half of the 18th century when the Industrial Revolution came about and Europeans started migrating to the new lands in the Americas and Australia.

St. Io, France, 1944

The impact of the two World Wars

The two World Wars showed the negative side of globalization. At the end of World War II there was a major shift in global power when the United States took over the UK and became a superpower. The newly found leader shaped a New World Order that had its economic arm in the Bretton Woods system set up in 1944 (IMF and World Bank) and its political arm in the Society of Nations, later United Nations, that moved from Europe to the Americas, from Geneva to New York. Globalization was suddenly reigned in through a number of international institutions, including the International Trade Organization that later became known as the WTO.

The roaring years of globalization

For half a century or so, everything went smoothly. Until November 30, 1999 when world leaders were put under siege while they were negotiating a new global trade deal in Seattle. 40 thousand protests that included blue collars, unions, Ngos and “black blocks” forced the Washington State Patrol’s 81st Brigade to a retreat. Seattle’s Chief of Police resigned and President Bill Clinton was forced to call in the National Guard. Several summit participants were stranded in their hotels and could not even reach the Convention Center where police was spraying teargas on the demonstration. Globalization suddenly faced it’s nemesis: a globalized protest movement that began to stage similar protests all over the world, including in Genova in 2001 where a young Italian, Carlo Giuliani, was shot by a policeman. The rich and the wealthy were forced to meet in the isolated Davos Forums on the Grigioni mountains in the Swiss Alps, their presence watched over by heavily guarded police.

The meeting in Seattle failed because delegations from Africa and Latin America did not sign a trade deal that would have hurt their weak economies, favoring global corporations and stronger economies. Suddenly questions were raised on the economic model imposed by both the IMF and the World Bank: their programs and austerity measures were killing the Third World instead of helping it progress. Globalization became a synonym of post-colonial imperialism. Multinational corporations went under the spotlight for a number of reasons, including their role in the decrease of the salaries and the impact of their activities on the environment. Yet, new trade deals were signed. The latest are the TPP (Trans-Pacific Partnership) and the TTIP (Trans-Atlantic Trade and Investment Partnership).

Joseph Stiglitz

The side effects

In fact, globalization has made the wealthy wealthier and the poor poorer. Inequality has increased, both between and within countries. One of the social side-effects is immigration. Terrorism, religious conflicts and the “rich” world’s lack of will to resolve these issues has led to a rebirth of nationalist feelings that perceive globalization’s effects as basically “evil”. Nationalism and isolationism are the cures for a sick global system.

Joseph Stiglitz claims that international trade generates profits which are not equally distributed. One of the forefathers of economics, David Ricardo, claimed profits would be equally shared by all participants in global trade. The delocalization of production, the entrance of China in the WTO alongside the rise of the BRICS (Brazil, Russia, India, China, South Africa) has instead concentrated polluting productions in certain areas of the globe. The exploitation of cheap laborers in “poor” countries has created unemployment in the “rich” ones.

Economist Branko Milanovič has highlighted in his “Global Inequality” globalization’s most blatant contradictions. On one hand, it has decreased the distance between the North and the South of the world. On the other, it has made the rich richer and the rest poorer. Angius Deaton adds a personal critique: while the suicide rate of the new poor is on the rise in the US, I, as an academic, benefit from globalization because my services can be sold across the global market.

Back in 1848, in the Manifesto of the Communist Party Karl Marx e Friederich Engels predicted what is happening now to our globalized society. They claimed the decline of capitalism was written in its DNA. Its constant search for new markets would have ultimately led to its self-destruction.

The search for rules

Is there a way to rid globalization of its negative social and economic side-effects?

According to the supporters of economic liberalism, human society is ruled by immutable natural laws. Hence, the only stimulus for man to interact in the economic sphere is personal gain. Thus, the economic system that best adapts to man’s needs postulates free trade and entrepreneurship. In other words, the State should just sit back and watch. In 2005 in the “The World is Flat”, Thomas Friedman foresaw the arrival of “hyper-globalization” and “turbo-globalization”: A conformed global society with no boundaries for international trade.

Other economists, such as Punkaj Ghemawat, are less “enthusiastic”. They claim Friedman’s vision of not taking into account the role played by single nations, their culture and political differences. The proof is in the inversely proportional flow of capitals and people. While one is on virtually unstoppable, so has become the latter, regardless of increased surveillance and obstacles to migrants and refugees. Just as with any other evolution in society, every phenomenon is faced with its opposite.

During the Great Depression in 1929 the State stepped in to guarantee economic stability and assist its people. The Welfare State was created between the two World Wars. Almost a century later, welfare measures are necessary to protect people from wild globalization. A lack of rules is taking countries back to issuing more constraints, while at the same time abandoning the “market will solve this” doctrine. This is the conflict capitalism has fought all along: against the welfare state, against the meddling of the State. The outcome of this struggle will shape the future of mankind.