Brexit, Trump election manifesto and Davos World Economic Forum all focused on the future of globalisation and the rising tide of protectionism. The debate was further fueled by Oxfam when it released statistics that eight richest men in the world have combined wealth that equal wealth of 3.9 billion people put together which is half of humanity. This rising gap between have and have-nots are considered a by-product of globalisation. Multinational corporations have benefited from their control of technology to exploit poorer countries. Commodity prices have gone down while profit margins on technologies have gone up. The margin on a textile product, which is essential for survival, is in the range of 10-15% while profit margin of Windows Operating system, which is a non-essential item, is in the range to 70-80%. Because of this wide gap in profit margins, cotton grower remains poor while a software developer earns many multiples of it. This is just one example of how distorted the world has become in valuing products. This distortion ripples through the social order and creates many other distortions one of which is highlighted by Oxfam statistics.
Developed world has the resources and means to protect its intellectual property rights and ensure commercial benefit accrue to it for a long time. But poorer nations that are rich in commodities and agricultural produce have been unable to ensure a good return on their investment. Most resource-rich African and Asian countries have to rely on mining and agricultural technology controlled by the developed world in return for sharing a substantial portion of their produce with them. And when these commodities are used in the finished product they then pay a premium to use it. In other words, countries that have the rare earth metals and other valuable commodities have less economic benefit from it then those that control the technology to extract and consume it. These economic distortions also result in widening income inequalities. In other words technological colonisation has replaced imperialism although the oppressors and oppressed remains the same.
Until early 20th century when visa and passport controls were introduced there was much freer movement of people around the world. These restrictions have created a population imbalance globally. China, Pakistan, and India have introduced population control measures but even then small percentage increases have an exponentially higher impact on their economic conditions. On the other hand, Europe has experienced declining and aging populations. Another dimension is that West is engaged in selective immigration where highly educated people from poor countries are given legal access to citizenship while poorer segments are denied. The countries bear the cost of education of these people but the benefits are reaped by developed countries. This requires the introduction of a new global immigration regime so that a sustainable balance is achieved in population distribution. In the absence of it, the incentives for illegal immigration and refugee crisis will continue which could result in higher rates of crimes as undocumented labor does not have an avenue to participate in the economic activity.
Countries that rely on cheap labor to earn export earnings have a disincentive to educate their populations as this could result in rising labor costs as well as declining labor poll thereby impacting their exports. They can’t afford declining exports because they need foreign exchange to import technologies for an efficient economy. Automation is also not a solution as it displaces labor which could result in social unrest. It is this social unrest that has enabled right-wing politicians to win elections even in developed countries. In poorer countries, this could completely break down the state and could escalate into civil wars resulting in more refugees knocking on developed countries.
The point is that globalisation is a complex issue that has many interacting dynamics. I am not in favor of protectionism but I do favor globalisation that respects its impact on local community. In other words, I would prefer promotion of glocalisation where multinational corporations instead of wiping out local industry engage them and ensure a certain component of their finished product has local input. Corporations have to understand that profit alone is not the benchmark of their success rather good social practices are also important. Instead of erecting trade barriers governments should encourage incorporation of local component. Intellectual property should be respected by developing countries in return for engagement with local industry. This could be a win-win situation for all and could help to reduce the income inequality.
China has successfully implemented this model by requiring most companies to include local component rather than export finished product to its market. Boeing recently announced setting up a finishing plant in China because it has estimated that the country will need 6000 new planes in next 20 years. China could impose this condition because of a large market but for countries that have smaller consumer markets or low buying power may find it difficult to impose such conditions.
Globalisation converted to glocalisation would ensure trade flourishes without binary emphasis on profit alone or by restricting it through tariff walls. An economically empowered world would have more buying power rather than its concentration in the hands of a small number of people. Instead of signing bilateral or regional trade agreements a more global approach is needed. We need to develop a global trade and economic charter to ensure the free flow of goods, people and technology only then a truly egalitarian community can evolve.
