Globalization is not such a panacea

We may learn from recent history that globalization has not been a smooth process. The rapid trade volume increase and initial ourput growth caused by the fast and wide globalization trend during the last 70 years went often together with major shifts in the relative size of the economies involved. According to a World Trade Organization report, the "structure and size of international capital flows has varied greatly over the last 60 years. In the aftermath of WWII, the economies of Europe and Japan suffered large trade deficits and could generate only limited savings for rebuilding their capital stock. The Marshall Plan, the European Payments Union and at a later stage United States’ foreign direct investment (FDI) provided the necessary liquidity for the expansion of international trade." Those remedies are no longer available. The facts in recent years prove that the gap in incomes between the 20% of the world's population in the richest and poorest countries has grown considerably and per capita incomes have fallen in more than 70 countries over the past 20 years. A reassessment of this trend is essential. The Economist offers its own point of view on this issue:

Globalisation’s losers – The right way to help declining places

Time for fresh thinking about the changing economics of geography   

Oct.21.– Populism's wave has yet to crest. That is the sobering lesson of recent elections in Germany and Austria, where the success of anti-immigrant, anti-globalisation parties showed that a message of hostility to elites and outsiders resonates as strongly as ever among those fed up with the status quo. It is also the lesson from America, where Donald Trump is doubling down on gestures to his angry base, most recently by adopting a negotiating position on NAFTA that is more likely to wreck than remake the trade agreement (see article). 

These remedies will not work. The demise of NAFTA will disproportionately hurt the blue-collar workers who back Mr Trump. Getting tough on immigrants will do nothing to improve economic conditions in eastern Germany, where 20% of voters backed the far-right Alternative for Germany. But the self-defeating nature of populist policies will not blunt their appeal. Mainstream parties must offer voters who feel left behind a better vision of the future, one that takes greater account of the geographical reality behind the politics of anger.

Economic theory suggests that regional inequalities should diminish as poorer (and cheaper) places attract investment and grow faster than richer ones. The 20th century bore that theory out: income gaps narrowed across American states and European regions. No longer. Affluent places are now pulling away from poorer ones. This geographical divergence has dramatic consequences. A child born in the bottom 20% in wealthy San Francisco has twice as much chance as a similar child in Detroit of ending up in the top 20% as an adult. Boys born in London’s Chelsea can expect to live nearly nine years longer than those born in Blackpool. Opportunities are limited for those stuck in the wrong place, and the wider economy suffers. If all its citizens had lived in places of high productivity over the past 50 years, America’s economy could have grown twice as fast as it did.

Divergence is the result of big forces. In the modern economy scale is increasingly important. The companies with the biggest hoards of data can train their machines most effectively; the social network that everyone else is on is most attractive to new users; the stock exchange with the deepest pool of investors is best for raising capital ...

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