Par Mubarak Sooltangos

What was thought 30 years ago, to be a universal panacea for the economic ills of the world, to be a vector of creation of more wealth through the dismantling of trade barriers between countries, has turned out to be a failure. This conclusion needs, however, to be nuanced. It depends from whose point of view we analyse globalisation: from that of the rich and powerful or from that of the weak. If we want to be holistic, and analyse it from the point of view of the number of people it has touched, it has enriched a few and made masses poorer in relative terms.

Globalisation is a collective, though visibly unplanned move, to monopolise the major part of the wealth produced in the world by a wealthy and powerful minority to the detriment of the majority which works for it. In matters of wealth and poverty, there is no racism, no religion and no ethnicity. There are clearly two classes, the rich and the poor working class, with, in between, a middle class which sometimes has no qualms in identifying itself with the rich, and sometimes has no shame in joining the poor to benefit from the weight of their numbers. We are back to a class struggle, the one which Karl Marx brought to light two centuries ago. We are in a situation where the world has once more been divided into two distinct groups.

The ills of globalisation are multiple, and potential ills of its sudden dismantling can be even greater, if such a thing ever happens in a disorderly manner. The reason is that globalisation has not been planned objectively from a holistic point of view, with a progressive goal for everybody in mind. It has developed by bits and pieces, as opportunities have emerged at different times, in different parts of the world. Changes in legislation have been introduced in a disparate manner, not coordinated and not carefully planned. Examples are the removal of trade barriers, the dismantling of exchange control and the loosening of restrictions to foreign investments in some sectors, like real estate, which do not necessarily go together in an economic mix in all situations. Here are some of the ills produced.

Product standardisation

As goods have started to move freely between countries, there has emerged a need for standardisation of products, because manufacturers cannot cope with producing a limited run of products for each country having its own standards. On the other hand, importing countries have had to change their own standards in order not to be starved of goods manufactured with different standards. If there is nothing abnormal in this, the disadvantage lies in over standardisation which, on the one hand, has forced on buyers a limited choice of products, and for big sellers, has placed them in a situation of quasi monopoly.

A perfect example is Microsoft Windows operating system and Microsoft office software which have been forced on computer hardware manufacturers by sheer selling power, albeit by using the competitive edges that they have. This has created a very high barrier to entry for producers of new software, which constitutes a brake to competition and innovation and a lack of product diversity. Any new producer, with even a more competitive product will have to face a universal cartel of hardware and software manufacturers which exists, and which has also forced all computer users to stick to a system which is practically impossible to dismantle.

Dismantling of existing economic structures

There have been many negative changes in existing economic structures which have satisfactorily functioned according to a set business model for ages in different countries. One of these changes is industrialization of certain countries and de-industrialization of others. To be more precise, manufacturing processes, mainly of low to average technical input needing highly labour-intensive processes, have been delocalised to countries offering cheaper labour and lesser contribution to social benefits of workers. As a corollary, there has been a closure of factories where these goods had traditionally been manufactured, especially in high-income countries.

Apart from the manufacturing cost component, industrial manufacturers have opted to be nearer to their markets, some of them, like China, India, Thailand and Indonesia, being massive in terms of population and hence, in buying potential. The result of this has been a wide scale lay-off of employees in car manufacturing in Europe and the gradual death of agricultural activity in France, as well as the demise of large parts of its designer product industry, involving high labour inputs because of the “handmade” tag of a host of its products.

Beside the economic aspect of this loss of jobs, which means more difficult living conditions, there has gradually emerged a right-wing nationalist mentality in the population, particularly in Europe. On the one hand, their nationals have lost their jobs, and on the other hand, recourse to expatriate workers from poorer countries for manual jobs and satisfied with a lower salary does not allow a fall back and a reinsertion in other jobs for European nationals.

This resentment is latent in many European countries, but it has taken a violent turn in France, with an anti-expatriate campaign fuelled by nationalist movements and political parties, leading to rioting and violence. Europe and America have opted for a development of tertiary industries and products needing a high component of grey matter, but these industries are not very much job generating. From the macroeconomic point of view, they have higher GDP production capacity but this has created the phenomenon called “jobless growth”, which does not meet the
aspirations of job seekers, particularly the less skilled.

Diversification of sources of production inputs

Globalisation has prompted manufacturers and countries to diversify their sources of supply of labour, raw materials and spare parts which means a new interdependence of groups of countries between themselves. An example is the aviation industry where inputs for one manufacturer come from as many as twenty countries. The drawback is that this chain is as strong as its weakest link. A shortage of raw materials in an established supplying country, an increase in price in another, a prolonged workers’ strike in another, unfavourable climatic conditions in another, a disease problem in agricultural produce in another, even if happening in a single country in the chain, blocks a whole manufacturing process. The most vulnerable consumer country in this context is America, because most of its consumables destined to its middle and down the line population is sourced from outside.

Globalisation has prompted manufacturers to diversify their sources of supply labour, raw materials and spare parts.

Globalisation of banking risks

Financial and banking globalisation has put the banking industry in many countries on the brink of collapse in the subprime crisis of 2008. American banks had speculated on a rise in price of residential apartments and office blocks and had coerced their borrowing customers, namely households, into buying apartments in greater numbers than they actually required, and of which the total mortgage repayment instalments was not within their means. They were told that they could sell these assets with an interesting profit in a matter of months. The rise in price never materialised and the financial burden of unsustainable loan repayments prompted households to start selling and this quickly turned into panic selling and massive defaults in repayment of loans. The problem acquired a global dimension because in the meantime banks across the world had bought huge portfolios of these loans which finally turned into toxic assets, thereby polluting the whole world of finance.

This created a widespread liquidity shortage for many banks, and central banks worldwide had to bail out a large number of banks with the injection of liquidity into the banking system to prevent its collapse which would have resulted in another problem of a greater magnitude, that of the loss of depositors’ money. The collapse of banks had been averted but not that of businesses being starved of the liquidity they needed to produce goods. What started in America as a domestic financial problem corrupted the whole world in creating a global economic and financial crisis which led to a constriction in demand and wide scale closure of businesses and loss of jobs.

Over-specialisation in production

Globalisation has resulted in a lot of instances, in the over-specialisation of certain countries in a limited range of activities, thereby increasing their vulnerability. Some have specialised in mass production of low-end products like garments, namely Bangladesh, some in mass agricultural production and by the same token provoking the destruction of forests to make way for agricultural products like in Malaysia and Indonesia, some in electronic components like microchips, and others in assembly of motor vehicles. The risk represented by the vulnerability of such economies is like a time bomb which can explode at any moment by the loss of an important buyer.

As an example, Malaysia, which is the biggest producer of palm oil has lost its export trade with India, on grounds having to do with politics rather than commercial terms. The most vulnerable are manufacturers of parts and components used in a variety of goods. If a garment manufacturer country loses a market, it can have a fall back on another market. But imagine the loss of an important customer buying spare parts for aircrafts or cars which are all custom made and not sellable to other manufacturers. All of a sudden, the outsourced supplier’s activity comes to a standstill, and its stock and specialised equipment irremediably lost. For weak countries faced with such unexpected loss of export markets, the only immediate measure they can take is forced reduction in consumption, and this can only be achieved at short notice with a return to protectionism, like import duties and strict quotas on non-essential goods, because qualitative measures like hikes in interest rates take time to bring results.

Changing lifestyles

Globalisation does not concern material things only. It has also affected the pattern of life and the culture of many countries, with the spectacular improvement in cheap communication methods, the creation of social media and the mass movement of people across continents. Poorer countries, traditionally used to a simple way of life, have adopted the ways of advanced countries. These include a new culture of increased consumption of all sorts of items, like taking overseas holidays, decreasing their savings rate because of their increased consumption, a turn towards branded goods and satellite TV. More dangerously still is their newly acquired habit of living on debt, with the availability of easy bank loans and hire-purchase facilities, which very often translates into a consumption pattern which they cannot afford. This has long term repercussions because acquired habits are not easy to get rid of.

Greed does not recognize any frontiers.

Widening income and wealth gap

Globalisation has undeniably increased the income and wealth gap between the rich and the poor, and this phenomenon cuts across the cross section of the populations of all countries, advanced, developing and poor. In a situation where companies get bigger, where they merge to get even bigger to have economies of scale and synergy, they invariably use this power to dictate terms to a number of their stakeholders, among whom customers, suppliers and especially employees. It may sound despicable to try to pay the minimum possible to employees under the pretext of providing better job security, but this is more and more the name of the game. Since multinationals source their requirements from the cheapest source possible and even then, are ruthless on their trade terms and employee remuneration, and sell their products on affluent markets, there is inevitably a shift of wealth to the more affluent and powerful hands of a few, to the detriment of masses. It must not be assumed that multinationals are more liberal in their money disbursements to allow a more decent living to stakeholders on their own soil. Greed does not recognise any frontiers.

Money culture, especially the reluctance to allow more outflows of funds than is strictly necessary, also has no frontiers. On the macroeconomic level, what is manufactured in needy countries and the money that this trade and industries generate, benefit the host countries only in job creation. Multinationals are not prepared to invest their profits in these manufacturing countries, unless they benefit from the same level of profits with the lowest possible investment. The host countries do not even benefit from the corporate tax which they are supposed to earn on the profits of multinationals. The reason is that their subsidiaries around the world are, between them, buyers and sellers of their own production.

In such a scenario, manipulation of transfer prices is common, so that their taxes are paid in countries with the lowest taxation rates, very often in tax havens where they are registered as investors. It is not difficult to understand how the rich get richer and how the poor, for the sake of their subsistence, are left with a pittance, only to make month ends meet. If globalisation was intended to make the poor more comfortable in their living standards and the rich not indecently richer, it would not even have existed.

The subversion syndrome

By far the biggest threat that globalisation represents is the almost compelling power which it gives to big foreign corporations in their capacity as investors and job providers. In low-income countries where there are unemployment and foreign exchange problems, if they happen to invest heavily, their conditions are almost outrageous. They will ask for preferential tax regimes, soft labour laws which protect them more than their employees, for example the right to easy dismissal of workers without the payment of important severance compensations, cheap access to leased state land, preferential electricity tariffs and exemption or reduction of import duties. Unfortunately, all this is possible with pressure and the threat of disinvesting at short notice, and of course under the table payments to heads of state and their cronies.

There may be worse. Some powerful corporations have a history of interfering in internal politics, influencing the enactment of laws and doing all sorts of despicable things, often with the backing of their governments or embassies. This can go up to ousting governments which do not submit to their demands, with sheer financial muscles to corrupt people and influence elections. If their own governments go to the extent of physical elimination of heads of state and even war to remove obstacles in their way, what would inspire big corporations to have more arm’s length and fair dealings with their supposed business partners?

To sum it all, on balance, globalisation has failed, at least to take people out of poverty. It has not even benefited the governments of rich or poor countries. It has been the alliance of the world’s affluent private sector, creating new monopolies and accentuating the wealth of big corporations, which rule a large part of the world behind the puppets that they place in power. Amongst other things, it has interlinked the destinies of numerous countries, not in prosperity, but in an impending doom.

Mubarak Sooltangos
Mubarak Sooltangos is a business trainer, a strategy and management consultant and author of Business
Inside Out (2018) and World Crisis – The Only Way Out (2020).