The rise and fall of globalization

As the sun sets on globalization, what will a new day bring? The new era will face challenges of rampant parochialism, environmental destruction, inequality and greed.

image: Timetoast.com

The dawn of globalization was unremarkable. Yanis Varoufakis, professor economics and former finance minister of Greece gives the date:

“On Aug. 15, 1971, then-president Richard Nixon announced the ejection of Europe and Japan from the dollar zone. Unnoticed by almost everyone, globalization was born on that summer day (Globe and Mail).”

Before Globalization, it was the dawning of a New Deal (1944). A clever plan, it gave America’s former enemies the resources to rebuild through arrangements such as the Marshall Plan. As an industrial power, the U.S. had shiny new things to sell; now Germany and Japan had money to buy them.

The New Deal ushered in a Golden Age of prosperity. Well-paying jobs, unionization, opportunity grew.  The middle class expanded and inequality shrank.

As a baby boomer, I remember that era. After I graduated from the Southern Alberta Institute of Technology in Electronics, I had a choice of well-paying secure, jobs. After I quit one job and traveled around the world, I easily found another.

The era of globalization in the 1970s promised to reduce global poverty. Before it began to rot at its core, it blushed with ambition.

“Mr. Nixon’s decision was founded on the refreshing lack of deficit phobia particular to American decision-makers,” says Varoufakis. “Unwilling to rein in deficits by imposing austerity . . . Washington stepped on the gas to boost them.”

World-wide prosperity also produced global industrialization. Americans went into debt to buy exports from Germany, Japan and later, China. The American administration didn’t seem to notice, or didn’t care, that cheap global labour was at the heart of industrial decay at home. Why should they care when money was pouring into the U.S. as well as cheap goods?

The flow of global money into the U.S. seems counterintuitive. If Americans were buying global goods, it would seem that the money should be flowing the other way. The magic of Wall Street made it happen.

The deregulation of banks was a catalyst for the financial wizardry of Wall Street. Global investors were attracted by higher interest rates generated by mystical, incomprehensible, investment devices such as derivatives. A lot of the investments went into loans to home-owners who had no way of repaying them.

Then, in 2008, the rabbit no longer emerged from the magician’s hat and the whole financial edifice fell apart.

All that remains of the sad tatters of globalization is massive inequality and loss of jobs in the Western world. Most money sits idle in the hands of the rich while the poor struggle without. Varoufakis characterizes it:

“Its crisis is due to too much money in the wrong hands. Humanity’s accumulated savings per capita are at the highest level in history.”

As globalization sinks below the horizon, two options emerge. One is the walled-state proposed by President Trump and the Brexiters in the U.K. The other is a Universal New Deal that redistributes global wealth, creates new jobs, and lifts the burden of consumer debt.

If such a new deal seems unlikely, it’s worth remembering that the first New Deal and globalization were as well. And if we need an issue to rally around and mobilize action, as World War II once was, we need look no further than the biggest threat to humanity: climate change.

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What barriers to provincial trade?

If you believe the federal government, barriers to interprovincial trade are a big problem. James Moore, former federal Industry Minister, told CBC Radio last year:

“We shouldn’t have barriers that discriminate and deny us economic growth and prevent us from growing, and prevent us from having labour mobility and investment mobility and goods movement within the country.”

full-of-baloney

The business lobby agrees. According to the Canadian Federation for Independent Business and the Canadian Council of Chief Executives, interprovincial trade raises countless barriers and costs our economy unknown billions of dollars a year.

If true, barriers to trade and labour mobility would be a serious problem. Not so says the Canadian Centre for Policy Alternatives (CCPA).

“There are no customs inspection stations along provincial borders, nor any kind of tariffs on interprovincial trade. Canadians use the same currency and share common legal, financial and economic institutions. Canadians are free to live and work anywhere in the country. The federal government has constitutional power over interprovincial trade and the courts have consistently struck down attempts by provincial governments to obstruct it.”

What about Quebec’s ban (since removed) on yellow colouring in margarine which the business lobby says cost up to $50 billion annually?

That’s a lot of money. However, the Canadian Press ran the figure through their Boloney Meter and found the $50 billion figure to be “full of baloney.”

The guesstimate of $50 billion is arrived at by multiplying cost of barriers between B.C. and Alberta by ten ($5 billion for each province). And where did the $5 billion come from? Why, from promoters of the B.C.-Alberta trade agreement (TILMA) of course. It turns out that the estimate used to promote Trade, Investment and Labour Mobility Agreement in 2007 was based an arithmetic error by the Conference Board of Canada. When that error is corrected, the barriers cost only one-hundredth of those claimed.

They made a mountain out of molehill. True, there are some barriers to trade such as movement of wine but that’s being worked on. For more realistic estimates, the Macdonald Commission said the economic impact was no more than 0.05 per cent of Gross Domestic Product, or about $0.9 billion in current dollars a year for all of Canada.

What’s the fuss wonders the CCPA? “So if the economic impacts aren’t as large as claimed, what is this interprovincial trade sideshow really about? In a word: deregulation.”

But regulations are not the dreadful thing that the business lobby would have us believe. They can serve an important role in protecting our health and wellbeing.

What if I am making neonics in B.C., for example, and want to sell them in Ontario? They are looking to regulate the widespread use of neonicotinoid-based pesticides because they kill bees that pollinate our food and insects that birds feed on. Ontario’s regulations would affect my sales.

What if I make oil well equipment that implements fracking? Quebec’s moratorium on fracking would reduce the sale of my drilling equipment.

There are antiquated obstacles that should be removed but not all regulations are “barriers to trade” as the business lobby and their easily-duped politicians would have us believe.