Debt, Protectionism, and Policy Mayhem. Are There Solutions in a Globalized World?

Over the past fifty years Globalization has dramatically changed the global economy and shaped the way in which world markets operate. Globalization has spurred excessive amounts of economic growth and has had various positive impacts on international economies. Over past few years, there has been a major worldwide backlash against globalization and the previously unforeseen consequences of this process.

Globalization brought millions out of poverty, as seen throughout china, and improved the standard of living of people all around the globe and is why developing nations have developed so quickly. Globalization has also led to an increase in exports and foreign direct investment into many countries which has resulted in the transfer of knowledge, skills, and technology. Efficiency and productivity have risen on account of increased competition caused by globalization. The migration of workers has created diverse workforces which have particularly increased productivity in industries in which success mainly depends upon specific knowledge such as computing, healthcare, and finance. Migration has essentially established a mobile workforce which in a case such as Britain between 2001 and 2011 added US$34 billion to public finances. Unfortunately, despite these positive outcomes, globalization has had negative repercussions that have rippled across world economy and affected many nations.

Globalization over the past twenty years has operated on a much finer resolution and therefore doesn’t just introduce severe international competition amongst certain products but also within the manufacturing stage of production and jobs within these industries. This has led to many negative consequences such as the movement of manufacturing jobs in the United States to more industrializing nations such as Mexico and China. According to the economist six million manufacturing jobs were lost in the United States between 1999 and 2011. This also has dramatic impacts on the work force, despite current low unemployment rates, the past ten years has seen a major shift in the job market, particularly with low – skilled jobs which has seen a huge fall in job security, while higher wage inequality has also become a significant factor within various industries, especially to workers without a college degree.

Furthermore, globalization has allowed for the quick spread of debt capital which has devastating effects on the global economy as portray by the global financial crisis. Due to lax bank regulations in America, the housing bubble was created leading to its collapse, sending crippling shockwaves to economies all around the world. It has also resulted in the loss of culture and identity as migration, a significant factor of globalization, is seen as a threat by many natives in countries such as Britain and the United States. This has led to the rise and election of populist politicians such as Donald Trump and encouraged actions such a Brexit, which all seek to restrict free trade, endorse protectionism and turn back globalization.

There are various techniques which have been suggested to fight the downsides of globalization, including many politicians current plan to please the mind of the people and implement high tariffs, anti – dumping measures, subsidies, import quotas and administrative and physical barriers. As stated by experts at the various Washington D.C. based thinktanks, “Nationalism is a powerful feeling,” and therefore, “Protectionism is an easier sell.” Unfortunately this is not the most efficient or effective way of reducing the negative consequences.

One of the best ways to reduce the effect of globalization and the severe impact it has had on a country’s workforce would be to enact active labor market polices. These include higher creation of job centers, training schemes and employment subsidies or implementation of systems such as wage insurance, which would ease the transition between finding new types of work. Polices such as these could help the workforce evolve and meet the demand for higher – skilled jobs within developed countries such as the United States. OECD countries have committed 0.6% of the GDP per year to such strategies, but currently the United States spends approximately 0.1% of GDP in development and establishment of such policies. Currently 20^th and 21^st Century employment/training arrangements for the most part, are ill-suited to Globalization.

Alongside these strategies, it would also be in a country’s best interest to invest more the education of the population. When analyzing the risk of workers dropping out of the workforce it can be seen that the level of workforce participation by individual males aged 25 -54 with a high school level of education or less dropped, to 82.5% in 2015, down from 96% in 1965. In contrast, individual males between ages 25 - 54 with a bachelor’s degree or higher also fell between 1965 to 2015 but only by approximately 3.5%, falling from 97.5% to 94%. This is a significant contrast and shows that higher degree of attention needs to be focused on educating the United States and other developed countries’ populations, when attempting to reduce the effect of globalization.

Furthermore, due to the rise of various multinationals and large corporations that dominate certain industries the level of dynamism in the economy has fallen dramatically. Due to increase in big businesses fewer firms are being created and fewer startups are emerging. Additionally, big firms enact wat is referred to as “shoot – out” acquisitions which are aimed at buying and absorbing a startup that in future could become a competitor. By doing this companies continue to solidify their grip on the industry.  This is problematic as due to the fact that startups have a higher turnover of labor and in large established firms positions are usually set and last for much longer periods of time. This results in less job openings sand opportunities for new workers, further contributing to unemployment rand dropout rates seen in the workforce. Despite increased competition being a hard concept to convince working individuals of, as they already possess high fears and anxiety over job security, the outcomes of these strategies are highly beneficial. Thus, government reforms need to be aimed at increasing competition polices in aim of increasing the dynamism of the markets such to create more employment opportunities and subsequently labor and market productivity.

Migration has also been a important element of globalization which has led to large amounts of strain put on developed countries public systems. For example, according to an article by the New York Times in January expressed the severe pressure border towns are facing with such huge inflows of illegal immigrants. In one shelter 250 migrants share two bathrooms and one shower while another 400 are squeeze into a church alongside a soup kitchen which is sleeping hundreds in hallways, a pantry and a parking lot. One strategy is to do what Denmark has done and link local government revenues to the number of incomers, such to reduce the strains on schools, hospitals and housing. Although not all border towns would be affected, this strategy will alleviate some pressures and proven to work in a country such as Denmark which sees more than 10% of their population, compared to the United States’ 13.3%, to be immigrants, and 84% of welfare in Denmark being given to “nonwestern immigrants”.

Another widely disputed issue to the rapid flow of debt capital. A great example portraying the true fickleness of capital flows is effects which have led to the current state of the Euro and various suffering economies in Europe. When the euro was first established countries such as Portugal, Greece, Ireland and Italy all took advantage of private short term capital from other countries in the EU enjoying low borrowing costs and ample credit. When crisis hit credit began to freeze and thus had to be replaced with large bailout loans from the European Central Bank thus heavily straining ties between countries such as Greece and Germany. Thus, one possibility would be to attempt to filter capital flows. One example of this would be the Tobin tax, which is an entry tax placed on capital inflows, proportionate the size of capital inflow, and levied at the time of currency exchange. Brazil attempted this back in 2009 and when they imposed an entry tax on portfolio investments in aim of preventing the appreciation of their currency the real. It was deemed to have little effect until mid – 2011 when, along with a tax on the notional value of derivatives, it was estimated that a 10% drop in the value of the real was on account of the tax intervention. One of the criticisms of this strategy is that Tobin tax diverts capital flows to other emerging markets rather than deter them, but with higher international cooperation, which could lessen the impact of diversion, this technique could potentially be effective in monitoring capital flows.

Globalization has brought about various wonders in growth and development but has equally resulted in numerous unexpected consequences. Moving forward, governments will have to adhere to realities of globalization and implement effective strategies in order to stimulate long term recovery and growth.