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Globalization and The Great Reversal

from Jacques Sapir

Globalization is not, and never was, “happy” whatever various ideologues said. The idea that “sweet commerce”, was to be substituted for warlike conflicts, was much propagated. But, in truth, it was only a myth. Still, the warship preceded the merchant ship. The dominant powers have constantly used their strength to open up by force markets and modify the terms of trade as they see fit. The globalization that we have witnessed for nearly 40 years has been in combination with financial globalization, which has taken place with the unraveling of the system inherited from the Bretton Woods agreements in 1973. We are seeing today the result: a generalized march to regression, both economic and social, which strikes first the so-called “rich” countries but also those designated as “emerging” countries. It has led to the overexploitation of natural resources, plunging more than one and a half billion human beings into ecological crises that are getting worse every day. It has caused the destruction of social ties in a large number of countries, and there are also countless masses in the specter of the war of all against all, to the shock of an exaggerated individualism that suggests other regressions.[1]

At the root of this reversal we see the decline in incomes of the lower middle classes and the working class. And this drop is largely due to globalization.[2] The gap between the highest 1% and the lowest 90% has greatly increased since the 1980s as shown in Thomas Piketty’s work.[3] This discontinuation was confirmed by another study dating from 2015.[4] This discrepancy is also reflected in the drop-off between the rate of increase in labor productivity and the rate of hourly wages. While the two curves appear almost parallel between 1946 and 1973, which implies that productivity gains have also benefited wage earners and capitalists alike, it is no longer the case after 1973. 

Since then, wages have increased significantly more slowly than labor productivity, implying that productivity gains have now mainly benefited business and shareholder profits. This situation worsened in the 1990s, obviously as a result of globalization and open borders.[5] This trend, already perceptible before the 2007–2010 crisis,[6] was not reversed by the implementation on anti-crisis policies, to the contrary. This had been one of the major failing of the Obama administration, one that fostered anger among the middle-class and would explain Donald Trump success in the Presidential race. The attack against NAFTA is here both symbolical and quite accurate. NAFTA was (and still is) a quite typical agreement that was thought to help regional integration. It turned out to be a mass-destruction weapon, as far workers incomes are concerned, both in the United States and in Mexico. A recent paper by the director of the CEPR, Mark Weisbrot, clearly establishes NAFTA’s cost for Mexico.[7]

In the United States, this evolution was psychologically fundamental, because it meant the “end” of the American dream for a vast majority of the population. This was marked by the very clear difference between the rates of change in average income, which continued to rise, and the median income[8]. But the United States was not the only country where this situation manifested itself. It should be noted that it is also present in Great Britain, which is not politically without consequences if we look to the BREXIT in this context.[9]

Whatever figures we are given about the sharp drop in the unemployment rate under President Obama, the awful truth is that the labor market is still very weak by many measures. The employment rate for workers aging 25–54 is still 2.0% points below the pre-recession level and 4.0% below the 2000 level.[10] This corresponds to a mass of around 2.5 to 5.0 million missing jobs. Such figures explain clearly the angriness in the lower middle-class, and angriness that was instrumental in Donald Trump’s victory.  It is therefore clear that free trade has not had the beneficial consequences predicted by mainstream economic theory on the economies and on the workers who live in these economies.

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[1] J. Généreux, La Grande Régression, Paris, Seuil, 2010.

[2] Bivens J., “Globalization, American Wages, and Inequality” Economic Policy Institute Working Paper, Washington DC, 6 Septembre, 2007.

[3] Piketty T. and E. Saez, “Income Inequality in the United States”, Quarterly Journal of Economics, February 2003 .

[4] Mishel L., Gould E and Bivens J., “Wage stagnations in 9 charts”, Economic Policy Institute, Washington DC, 6 janvier 2015.

[5] See G. Irvin, “Growing Inequality in the Neo-liberal Heartland,” Post-Autistic Economics Review, 43 (September 15, 2007), pp. 2–23, http://www.paecon.net/PAEReview/issue43/Irwin43.htm

[6] Sapir J., “Global finance in crisis”, real-world economics review, issue no. 46, 20 May 2008, pp. 82-101, http://www.paecon.net/PAEReview/issue46/Sapir46.pdf

[7] Weisbrot M., “NAFTA Has Harmed Mexico a Lot More than Any Wall Could Do” in

http://cepr.net/publications/op-eds-columns/nafta-has-harmed-mexico-a-lot-more-than-any-wall-could-do

[8] US Congress, State Median Wages and Unemployment Rates, prepared by the Joint Economic Committee, table released by the US-JEC (June 2008).

[9] Brewer M., A. Goodman, J. Shaw, and L. Sibieta, Poverty and Inequality in Britain: 2006, Institute for Fiscal Studies (London, 2005).

[10] http://cepr.net/publications/briefings/testimony/the-trump-stimulus-and-the-money-obama-left-on-the-table

  1. April 4, 2017 at 6:15 am

    The USA has always skated close to plutocracy and populism. Now, and for the last 40 years the USA has swung to the plutocracy side. Plutocracy is a form of oligarchy. It is a society ruled or controlled by the small minority of the wealthiest citizens. The wealthiest are the oligarchs. Trump is not the first member of the plutocratic oligarchy to spout populist notions. Ford, Rockefeller, Steve Jobs, Mark Zuckerberg, Warren Buffet, etc. have all used populism to sell things and maintain their political and economic control. Per Jay Gould, “I can hire one half of the working class to kill the other half.” Selling populism helps in that process. Despite what they may believe to the contrary, Americans are especially gullible to such flim-flam artists.

    Economists help-out with the flim-flam. They provide a scientific veneer and of course a mathematical justification for oligarchy. The oligarchs are now “job creators” and “entrepreneurs.” Thus, they are essential, say economists. Of course, these arguments are not just anti-science and anti-democratic, they are morally corrupt. It’s my view that the wealthy provide virtually no social benefit, and that most economists are active enemies of fair and just societies. Let’s do without both.

    • robert locke
      April 22, 2017 at 6:00 pm

      At one time, following David Potter’s idea that Americans were a people of plenty, I believed, after the New Deal, that they would never let the plutocrats turn them into a people of poverty. I see you have about given up and I am discouraged, too. But…

  2. dmf
  3. patrick newman
    April 22, 2017 at 2:38 pm

    Moguls like Richard Branson ceased being entrepreneurs years ago – they have ascended into the rentier class unfettered by national boundaries and in Branson’s case perhaps even gravity! Few if any actually contribute to the welfare and benefit of the world. But they are highly influential and have at their disposal both hard and soft power to perpetuate their privilege and wordsmiths to legitimise their dominance.

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