Globalization – Are we trying to become too efficient for our own good?

(Disclaimer: This is the first of a series relating to Globalization, its effect on the African Continent and Possible Directions the Continent can take towards better livelihoods.)

“Globalization” is a notoriously imprecise term. It encompasses an overly broad range of items which has led to the term being coined across multiple disciplines and areas of study. According to the Merriam-Webster dictionary, it is the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labour markets. For the sake of this thought piece, the focus is on the effects of the “integration of markets and interconnectedness of national economies across the globe.” or put simply making it cheaper for trade to happen across borders globally.

The term “Globalization” gained major popularity in the early 1990s post the Cold War. Its foundation was however laid by European colonization and trade activity in the 1800s. The key drivers of globalization are technology, transportation, and international cooperation. Advancement in technology meant that production would become more efficient. Improvements in travel technology by way of propulsion ships and airplanes increased accessibility. Both people and resources could be moved to distant places in shorter time periods. Accessibility also meant that cheaper products and services could be facilitated by coordination of production across countries. It encouraged countries to specialize in what they do best using the least resources – comparative advantage.

For the most part, globalization brought about great economic benefits for the major players, the early movers and then everyone else. Businesses scaled up due to more customers and a higher demand for their products. This naturally led to higher returns on their fixed costs of doing business – economies of scale. The general consumer also benefitted from this increased accessibility with a greater variety of goods being of higher quality and cheaper than ever before. Innovation fast-tracked because of increased access to capital and information. The best ideas from market leaders spread at a faster pace and spread more easily than ever before. The internet effectively democratized information.

A global decline in the gap between the world’s rich and poor occurred. From 1990 to 2021 the total population of people living under extreme poverty has decreased from 1.9 billion people to 115 million in 2020 according to the World Bank. With the benefits of globalization easy to see many exaggerated that “Globalization was an unstoppable force.” It was inevitable! George Parker even went as far as to write that “Rejecting globalization was like rejecting the sunrise.” With all the great benefits resulting from globalization, it comes with a caveat – Globalization thrives off the backbone of capitalism.

Capitalism in its purest form is free trade without government interference. The essential feature of capitalism is the motive to make a profit. As Adam Smith, the 18th-century philosopher and father of modern economics said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” It is this rational self-interest that can lead to economic prosperity. No significant central body has shaped globalization beyond the World Economic Forum which has played an assistive rather than an authoritative role. The lack of authority and structure towards the globalization process has resulted in its pitfalls being felt worldwide. One of the most significant criticisms of globalization is the increased risk associated with the interdependence of economies. As countries are increasingly dependent on each other, a negative economic shock in one country can quickly spread to other countries i.e., coronavirus.

Globalisation inherently generates winners and losers and the rich nations have benefitted more than the poor countries. Wealth inequality is rampant despite the decrease in the population of people living in extreme poverty. Arguments have been made regarding how true a reflection the extreme poverty metric is. $1.90 per day does not carry the same purchasing power worldwide. GDP per capita figures hide extremes, do not take the cost of living into account, and do not tell us how wealth is spread. Most societies present extreme forms of the Pareto distribution instead of normal distributions of wealth. South Africa for example was recognized as the most unequal country in the world by the World Bank with the richest 20% of the population controlling almost 70% of the resources. One cannot use purely financial metrics to measure human development in a country.

The UN established the human development index (HDI) to try to quantify a country’s development factoring in education, health, and life expectancy. A natural consequence of the scaling of businesses in large multinational behemoths is another area of major concern. Large multinational companies can switch their investments between territories in search of the most favourable regulatory regimes as was the case in the Apple-Irish Tax where regulators wanted the company to pay $14.9 billion worth of taxes.

The biggest effect of globalization so far has been the dispersion of global supply chains. With companies looking for the cheapest labour possible, most of the world’s manufacturing has been outsourced to Asia. Cheap labour has been that region’s comparative advantage due to the large populations in China and India. Many low-level jobs have been created in Asia to the detriment of people in other parts of the world losing those same jobs. Asia’s population advantage will not go away anytime soon as India for example has 1.3 million births every month and without childbirth control measures in place, this number will continue to increase. The majority of the manufacturing output globally was done in China which had a share of 28.4% of the global manufacturing output in 2018.

The coronavirus crisis revealed just how fragile the modern supply chain really is. Multinational companies faced an initial supply shock, then a demand shock as more and more countries ordered people to stay at home. Governments, businesses, and individual consumers suddenly struggled to procure basic products and materials. The labour markets were not only affected on the low skills end but also the high skills side as structural unemployment occurred as a natural consequence of globalization. Western firms have benefited most from this as they often beat international competitors at supplying high skilled services – like engineering, legal, consulting, research, management, and information & technology.

The pursuit of profits and efficiency came back to bite us. The system has been abused and trade disputes continue to rage on. Anti-globalization sentiment has become more prevalent. The West preached globalization to us for a long time and are now backtracking. Britain voted to and left the EU who are the largest trading bloc in the world. America has been increasingly protectionist in their policies since President Obama left office and have been imposing heavy tariffs on its trade partners.

Globalization is now a hard sell to the public because the benefits are widely distributed and not as easily understood compared with the personal costs to specific companies and workers. Not much has been done to help those who lose out from the trade competition. Africa which is largely lacking in infrastructure and would be better off with the economies being geared more toward industry and manufacturing is suffering. Manual work has been automated thus lowering the demand for such workers. In a continent that is also behind on the numbers of educated people, it is a sad prospect. We find ourselves in limbo with wages stagnant, health care costs and education costs on the rise. In my eyes the most pivotal role globalization has played for this continent has been “Globalization being the Scourge of Africa.”

Are we trying to become too efficient for our own good? Let us know what your thoughts are in the comment section or on our social media platforms.

Yours in Thoughtful Learning,

Bradley N Magumura

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